2023 (3) TMI 92 - AT - Income Tax

Allowable expenses u/s 37/28 - Compensation for cancellation of booking of residential complex - Disallowance of expense incurred towards compensation u/s 37/28 - HELD THAT - Customers approached the assessee for cancellation of booking and from Annexure-A, B C it can be seen that the assessee by paying the limited compensation has made profit after entering into new transactions. Thus, the assessee made profit after paying minimum compensation to these three parties. The assessee has already given all the documentary evidences with respect to original buyers in respect of bank statement, Aadhar Card, PAN and confirmation from these buyers. The assessee has also given details of the new buyers of the said flat, bank statement, Sale Deed as well as the amount upon which the new transaction has taken into consideration. In fact, the flat was booked for Rs.35,50,000/- and the new transaction shows that the flat was sold for Rs.37,50,000/- by paying only Rs.18,00,000/- to the original buyer as the booking amount paid by the original buyer was Rs.16,00,000/- only. Thus, the assessee has made profit and it was business strategy for earning the profit. Assessing Officer as well as the CIT(A) never disputed the new transactions which has earned profit to the assessee. Therefore, the Assessing Officer as well as the CIT(A) was not justified in making the addition. Disallowing employee s contribution towards PF u/s.36(1)(va) r.w.s. 2(24)(x) - HELD THAT - AR submitted that the same is covered against the assessee vide decision of Hon ble Apex Court in the case of CHECKMATE Services Pvt. Ltd. 2022 (10) TMI 617 - SUPREME COURT Hence, ground no.2 is dismissed.

Summary

Issues:
1. Disallowance of expense incurred towards compensation under Section 37/28 of the Income Tax Act.
2. Disallowance of employee's contribution towards PF under Section 36(1)(va) r.w.s. 2(24)(x) of the Act.
3. Levying of interest u/s.234A/B/C of the Act.

Issue 1: Disallowance of Compensation Expense:
The Assessee filed an appeal against the order confirming the disallowance of an expense incurred towards compensation of Rs.10,15,000 under Section 37/28 of the Income Tax Act for the Assessment Year 2013-14. The Assessing Officer made the addition as the compensation was paid for booking cancellations made by customers themselves, without any inducement from the Assessee. However, the Assessee argued that the compensation was a legitimate business expenditure incurred in the process of buying back flats from customers at prevailing market rates and reselling them for profit. The Assessee provided detailed evidence of the transactions, including banking records, PAN, Aadhar Card, and sale agreements, to support the business nature of the compensation. The Tribunal found that the Assessee had made a profit after paying minimal compensation, and the compensation was part of a legitimate business strategy. Consequently, the Tribunal concluded that the Assessing Officer and CIT(A) were unjustified in making the disallowance, and the appeal was partly allowed.

Issue 2: Disallowance of Employee's PF Contribution:
The Assessee also appealed against the disallowance of employee's contribution towards PF amounting to Rs.45,470 under Section 36(1)(va) r.w.s. 2(24)(x) of the Act. However, the appeal was dismissed based on a precedent set by the Hon'ble Apex Court in a similar case. The specific details of this issue were not elaborated upon in the judgment.

Issue 3: Levying of Interest:
The Assessing Officer had levied interest u/s.234A/B/C of the Act, which was confirmed by the CIT(A). However, no specific details regarding the reasons for levying interest or any arguments presented by the Assessee on this issue were provided in the judgment.

In summary, the judgment addressed the Assessee's appeal against various disallowances and levies made by the Assessing Officer for the Assessment Year 2013-14. The Tribunal partly allowed the appeal concerning the disallowance of compensation expenses, emphasizing the legitimate business nature of the transactions. The dismissal of the appeal related to employee's PF contribution was based on a legal precedent. However, details regarding the levying of interest under u/s.234A/B/C of the Act were not extensively discussed in the judgment.