2021 (6) TMI 983 - AT - Income Tax

Disallowance u/s 54 - Whether property was purchased by the Assessee and advance was paid, is a genuine transaction and not an arranged transaction and colourable device to avoid payment of capital gains tax as alleged by the AO in the assessment order and the remand report? - HELD THAT - From the said documents it is clear that the Assessee had issued a legal notice through her lawyer on dated 28-01-2019 to the Seller wherein alleged to have been paid ₹ 90 Lakhs to the seller and called upon the seller to execute and register the sale deed. The Seller vide reply dated 12-02-2019 through his lawyer did not refute the acceptance of ₹ 90 lakhs and offered no objection to perform his part of agreement subject to payment of remaining sale consideration of ₹ 60 Lakhs with interest @ 24% after the grace time i.e. after 110 days of time but noting said about refund of ₹ 27 Lakhs. It is the case of the Assessee that total sale consideration was fixed @ 1.5 Crores and out of which ₹ 90 Lakhs was paid as advance amount and remaining balance to be payable was ₹ 60 Lakhs only. From the reply of the seller to the notice sent by the Assessee, it is clear that the seller was asking remaining amount of ₹ 60 Lakhs only and has not disputed the receiving of ₹ 90 Lakhs, which goes to show that question for refund of ₹ 27 Lakhs to the Assessee by the seller as observed by the Ld. Commissioner, at all does not arise and if that would have been there that certainly the seller would have raised objection qua payment of ₹ 90 Lakhs. On the basis of aforesaid considerations and analyzations, we are inclined to allow deduction of ₹ 27 Lakhs as well u/s 54. - Appeal filed by the Assessee stands allowed.

Summary

Issues:
Claim of deduction u/sec. 54 of the Income Tax Act, 1961 for A.Y. 2014-15. Disallowance of &8377; 27 lakhs by the Assessing Officer. Appeal against the order of the ld. Commissioner of Income Tax (Appeals).

Analysis:

1. The Assessee claimed a deduction of &8377; 90 lakhs u/sec. 54 of the Act for the A.Y. 2014-15. The Assessing Officer (AO) denied the claim, alleging that the advance payment made by the Assessee to a close relative for property purchase was a colorable device to avoid capital gains tax. The AO observed delays in property registration and withdrawals of significant amounts from bank accounts, leading to disallowance of the deduction and addition to the Assessee's income.

2. On appeal, the ld. Commissioner held the transaction genuine but partly sustained the disallowance of &8377; 27 lakhs withdrawn by the Assessee from the seller's account due to lack of evidence supporting the Assessee's explanation. The Assessee appealed this disallowance before the Appellate Tribunal.

3. The Appellate Tribunal noted that the Assessee had initiated legal action for property registration by filing a civil suit, indicating the genuineness of the transaction. The Tribunal analyzed the evidence, including legal notices and replies, to determine the nature of the transaction and the refund of the &8377; 27 lakhs. It observed that the seller did not dispute receiving the initial &8377; 90 lakhs and only sought the remaining balance, indicating no refund claim by the Assessee.

4. Considering the documents and correspondence between the parties, the Tribunal concluded that the Assessee's claim of refunding the &8377; 27 lakhs was unsubstantiated and allowed the deduction of the same u/s 54 of the Act. The appeal by the Assessee was upheld, and the disallowance of &8377; 27 lakhs was reversed in favor of the Assessee.

5. The Appellate Tribunal's decision, pronounced on June 25, 2021, highlights the importance of providing concrete evidence to support claims in tax matters. The judgment emphasizes the need for transparency and documentation to substantiate transactions and deductions claimed under the Income Tax Act.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the arguments presented, and the final decision rendered by the Appellate Tribunal in the case.