2025 (4) TMI 97 - AT - Income Tax

Disallowance of non-genuine expenses claimed in the Trading Account - HELD THAT - It is pertinent to note that the assessee in respect of the addition has categorically demonstrated that the Agreement between Shri Kunal S. Shah HUF and the assessee company was properly offered by the seller as short term capital gain and the entire transaction per se cannot be doubted merely on the conclusion that there was cancellation subsequent to the payment of compensation. This cannot be the criteria for making transaction non-genuine. Hence ground no.1 of Revenue s appeal is dismissed. Expenditure claimed in the Trading Account by way of forfeiture of advance paid to Gautamchand S Chaudhary HUF - HELD THAT - As the agreement to purchase with Gautam S Chand was on 03.01.2014 and the said land aggregation agreement as the period until 21.02.2015. Thus the assessee s plea that the estimated worth of Rs. 10, 00, 00, 000/- was not commercially viable actin for forfeiture of advance amount by Shri Gautam S Choudhary HUF. But the assessee has not given any details as to whether the reserve was worth Rs. 10, 00, 00, 000/- or not and there is no documentary proof to that effect. Therefore this issue needs verification and is remanded back to the file of the Assessing Officer for taking into account all these details. Thus ground no.2 of Revenue s appeal is partly allowed for statistical purpose. Bogus Expenses Claimed in the Trading Account - Forfeiture of Advance paid to Ramesh M. Patel - non-deduction of TDS under Section 194IA - HELD THAT - As assessee has acquired different survey numbers through Ramesh B. Patel and has also entered into Banakjhat for purchase of land but could not acquire the particular land and because the accessibility to the other respective land was depended on land which could not be acquired the assessee has cancelled the agreement. This appears to be genuine forfeiture of the agreed amount and are allowable expenses. Thus the CIT(A) has rightly deleted the disallowance. Thus ground nos.3 4 are dismissed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment revolve around the following issues:

1. Whether the CIT(A) erred in deleting the addition of Rs. 1,53,59,000/- made on account of disallowance of non-genuine expenses claimed in the Trading Account.

2. Whether the CIT(A) was correct in deleting the addition of Rs. 2,50,00,000/- made on account of expenditure claimed in the Trading Account by way of forfeiture of advance paid to Gautamchand S. Chaudhary (HUF).

3. Whether the CIT(A) was justified in deleting the addition of Rs. 66,30,000/- made on account of expenditure claimed in the Trading Account by way of forfeiture of advance paid to Ramesh M. Patel.

4. Whether the CIT(A) erred in upholding the disallowance of Rs. 66,30,000/- due to non-deduction of TDS under Section 194IA despite the advance being given as per Banakhat dated 22.06.2013.

ISSUE-WISE DETAILED ANALYSIS

1. Deletion of Addition of Rs. 1,53,59,000/-

- Relevant Legal Framework and Precedents: The issue concerns the genuineness of expenses claimed as compensation for non-delivery of possession under an Agreement to Sale.

- Court's Interpretation and Reasoning: The Court noted that the transaction was genuine, supported by the fact that the property was sold by Kunal S. Shah HUF and short-term capital gain was declared.

- Key Evidence and Findings: The assessee provided a valuation report and evidence of the property sale, demonstrating the transaction's authenticity.

- Application of Law to Facts: The Court found that the compensation payment was legitimate and should not be disallowed as non-genuine.

- Treatment of Competing Arguments: The Revenue's argument that the compensation was an afterthought was dismissed due to the evidence of genuine transaction.

- Conclusions: The deletion of the addition by CIT(A) was upheld, and the Revenue's appeal on this ground was dismissed.

2. Deletion of Addition of Rs. 2,50,00,000/-

- Relevant Legal Framework and Precedents: This issue relates to the forfeiture of an advance payment due to the non-viability of a land acquisition project.

- Court's Interpretation and Reasoning: The CIT(A) found the transaction genuine based on survey reports and the nature of the business dealings.

- Key Evidence and Findings: The agreement was canceled due to non-viability of bauxite, supported by survey reports.

- Application of Law to Facts: The Court remanded the issue for further verification of the land's reserve value and the genuineness of the forfeiture claim.

- Treatment of Competing Arguments: The Revenue's lack of evidence regarding the forfeiture was noted, leading to a remand for further investigation.

- Conclusions: The issue was remanded to the Assessing Officer for further verification, and the appeal was partly allowed for statistical purposes.

3. Deletion of Addition of Rs. 66,30,000/-

- Relevant Legal Framework and Precedents: The issue involves the forfeiture of an advance payment due to the inability to acquire land.

- Court's Interpretation and Reasoning: The CIT(A) found the forfeiture genuine due to the lack of access to the land, which was a prerequisite for the transaction.

- Key Evidence and Findings: The inability to acquire necessary land for access was documented, supporting the genuineness of the forfeiture.

- Application of Law to Facts: The forfeiture was deemed an allowable expense, and the addition was rightly deleted.

- Treatment of Competing Arguments: The Revenue's arguments were dismissed due to the clear evidence of genuine forfeiture.

- Conclusions: The deletion of the addition was upheld, and the Revenue's appeal on this ground was dismissed.

4. Disallowance Due to Non-Deduction of TDS

- Relevant Legal Framework and Precedents: The issue pertains to the requirement of TDS deduction under Section 194IA for certain transactions.

- Court's Interpretation and Reasoning: The CIT(A) found that the TDS component was addressed in the agreement, justifying the deletion of the disallowance.

- Key Evidence and Findings: The agreement explicitly mentioned TDS considerations, supporting the CIT(A)'s decision.

- Application of Law to Facts: The Court found the TDS-related disallowance unjustified, aligning with the agreement terms.

- Treatment of Competing Arguments: The Revenue's argument regarding TDS non-deduction was dismissed based on the agreement's provisions.

- Conclusions: The deletion of the disallowance was upheld, and the Revenue's appeal on this ground was dismissed.

SIGNIFICANT HOLDINGS

- The Court upheld the CIT(A)'s decision on the genuineness of compensation payments and forfeiture claims, emphasizing the importance of supporting evidence and genuine business transactions.

- The Court remanded the issue of advance forfeiture for further verification, highlighting the need for detailed evidence in assessing the genuineness of forfeiture claims.

- The Court affirmed the CIT(A)'s findings on TDS-related disallowances, underscoring the significance of agreement terms in evaluating tax obligations.

- The final determination was that the Revenue's appeal was partly allowed for statistical purposes, and the assessee's cross-objection was dismissed.