2021 (1) TMI 355 - AT - Income Tax

Addition u/s 40A - Payment in cash for purchase of land from farmers and villagers in excess of the limit provided u/s 40A(3) - HELD THAT - Inter alia that when the assessee has not debited the amount of cost of land in its profit loss account, available and when no expenses relatable to the addition in question have been claimed, provisions contained u/s 40A(3) of the Act are not attracted. Assessee company has proved on record that the payment in question was mere reimbursement made by CWPPL. Purchase of land in the instant case was not treated as stock-in-trade. Moreover, para 3(b) of the Collaboration Agreement, available categorically provides that CWPPL shall reimburse all costs and expenses incurred by the assessee with respect to the acquisition of the said land and accordingly in the books of account which have otherwise been accepted by the Revenue, the said amount received from CWPPL was shown as reimbursement. Thus when the assessee has not debited the amount of cost of land in the profit loss account nor claimed any deduction in respect of cost of land by way of computation, provisions contained u/s 40A(3) are not attracted, so AO/CIT(A) have erred in making / confirming the disallowance - Decided in favour of assessee.

Issues:
1. Rejection of assessment order under incorrect section.
2. Reliance on seized material without nexus.
3. Disallowance of interest payment without proper evidence.
4. Disallowance of additional payments.
5. Disallowance under section 40A(3) without claim.
6. Legality of orders passed by lower authorities.

Issue 1: Rejection of assessment order under incorrect section:
The appellant contested the assessment order made under section 143(3) instead of section 153C of the Income Tax Act. The contention was based on the belief that the assessment should have been made under a different section. The CIT(A) erred in rejecting this argument. The appeal sought to set aside the order dated 18.12.2012 passed by the Commissioner of Income-tax.

Issue 2: Reliance on seized material without nexus:
The CIT(A) upheld the action of the Assessing Officer in relying on seized material from a search on M/s BPTP group, despite it having no relevance to the appellant. The CIT(A) concluded that interest was paid on PDC based on seized documents not belonging to the appellant. The appellant argued that the finding was based on surmises without proper evidence or corroboration.

Issue 3: Disallowance of interest payment without proper evidence:
The CIT(A) upheld the addition of interest without quantifying it or providing clear directions. The appellant argued that no deduction could be made in the absence of claimed Additional Payments. The CIT(A) also failed to quantify the disallowance and did not confront relevant recipients with documents.

Issue 4: Disallowance of additional payments:
The CIT(A) confirmed the disallowance of payments made to recipients who were not landowners and payments made in cash. The appellant contended that no quantification was provided by the CIT(A) and challenged the disallowance.

Issue 5: Disallowance under section 40A(3) without claim:
The AO disallowed a cash payment exceeding the limit under section 40A(3). The CIT(A) upheld this disallowance. However, the Tribunal found that the expenses were reimbursed by another party, not claimed in the profit and loss account, and thus, the provisions of section 40A(3) were not attracted.

Issue 6: Legality of orders passed by lower authorities:
The Tribunal reviewed the orders of the lower authorities in light of the facts and circumstances of the case. It was established that the disallowance under section 40A(3) was not justified as the expenses were reimbursed and not claimed in the accounts. The appeal was allowed, and the disallowance was ordered to be deleted.

This detailed analysis covers the various issues raised in the judgment, outlining the arguments presented by the parties and the Tribunal's findings on each issue.

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