2022 (12) TMI 177 - AT - Income Tax

Disallowance u/s.40A(2)(a) - property purchase transaction between assessee and son, who is the managing director of the assessee company - fair market value of the property - HELD THAT - As noted that the payment made for purchase of land is fair market value of land and none of the authorities below have considered this issue whether payment made is excessive or unreasonable in term of section 40A(2)(a) - Once the payment made is found to be reasonable in term of the perspective of businessman, unless a contrary finding given by the authorities below, the addition cannot be sustained. Accordingly, we allow this issue of assessee s appeal.

Summary

Issues: Appeal against addition of amount in property purchase transaction invoking section 40A(2)(a) of the Income Tax Act for assessment years 2014-15 and 2015-16.

Analysis:
1. Background: The appeals arose from orders of the Commissioner of Income Tax (Appeals) regarding assessments framed by the ACIT, Corporate Circle 1(2) / ACIT(OSD), Corporate Range 1, Chennai for the assessment years 2014-15 & 2015-16 under section 143(3) of the Income Tax Act, 1961.

2. Common Issue: The primary issue in both appeals was the addition of Rs.21.82 lakhs in assessment year 2014-15 and Rs.8,99,900/- in assessment year 2015-16 concerning a property purchase transaction between the assessee and the son, who is the managing director of the assessee company, invoking section 40A(2)(a) of the Act without proper justification or independent assessment of fair market value.

3. Assessment Proceedings: The Assessing Officer (AO) noted a land purchase by the assessee from the son of the Managing Director of the assessee company for Rs.1.40 crores, with an excess payment of Rs.21.82 lakhs over the disclosed value. Consequently, the AO invoked section 40A(2)(a) to tax the excess amount. The Commissioner of Income Tax (Appeals) upheld the AO's action, leading the assessee to appeal before the Tribunal.

4. Arguments: The assessee contended that the payment for land purchase was as per the fair market value, citing a sale agreement disclosing the land value at Rs.4.50 crores. The AO and CIT(A) considered the payment excessive, leading to the disallowance under section 40A(2)(a). The assessee argued that the payment was reasonable and as per the fair market value, not the circle rate for stamp duty purposes.

5. Tribunal Decision: The Tribunal found that the authorities did not assess whether the payment for land purchase was excessive or unreasonable under section 40A(2)(a). As the payment was in line with the fair market value and no contrary finding was provided by the lower authorities, the addition could not be sustained. Consequently, the Tribunal allowed the assessee's appeal for both assessment years.

6. Conclusion: The Tribunal ruled in favor of the assessee, holding that the payment for land purchase was in line with the fair market value, thus disallowing the addition made by the AO under section 40A(2)(a) for both assessment years.