2012 (9) TMI 696 - AT - Income Tax

Capital introduced by the partners added u/s.68 - CIT(A) deleted it - Held that - CIT (A) has given a finding that the capital was brought by cheques, both the partners were assessed to tax and the assessee has discharged the primary onus in respect of such amount shown in the capital account. The Revenue has not been in a position to controvert the findings of CIT (A) nor could it bring any material to the contrary on record. In view of these facts no interference is called to the order of CIT (A). Since the ground of addition of capital of Rs.9.5 lacs is deleted - in favour of assessee. Addition made on account of booking deposit u/s. 68 - CIT(A) deleted it - Held that - As during the course of appellate proceedings before CIT (A) the copies of registered sale deeds were filed and the same were admitted as additional evidence. CIT (A) has given a finding that the A.O. has not brought any material on record to show that the assessee has siphoned off the booking deposits. A. O. had made addition for the sole reason that no confirmatory letters were filed and some booking deposits were received in cash. Before CIT (A) the copy of registered sale deed showing names, addresses, attested photographs, signatures etc., of the members were filed which proves the identity and genuineness of the depositors - in favour of assessee. Disallowance of non-agricultural use conversion Charges - payment maid after the year end and was paid by the Seller Trust - CIT(A) allowed it - Held that - CIT (A) has given a finding that assessee maintains its books on mercantile basis which obliges it to make provision for all known liabilities, the expenses have been incurred wholly for the purpose of business and the full sale price has been offered to tax and as per the development agreement the assessee is entitled to deduction. These facts have not been controverted by the Revenue nor it has brought on record any material to the contrary - in favour of assessee. Disallowance of interest paid to partners - Held that - Since the ground of addition of capital of Rs.9.5 lacs is deleted, the disallowance with respect to interest on the capital also does not survive - in favour of assessee. Disallowance on account of Puran expenses (land filling) - Held that - These expenses were estimated @ Rs.150/- per sq. yd. CIT (A) has given a finding that the provision for puran expenses is ascertained liability estimated by assessee and has to be allowed as deduction prorata in respect of plots sold as the gross sale price has been credited and offered to tax. Considering all the facts, CIT (A) has upheld the addition of 15% i.e. of Rs.1,63,832/-. The Revenue could not bring any material to controvert the findings of CIT (A) - in favour of assessee.

Summary

Issues Involved:
1. Capital introduced by the partners added u/s 68.
2. Deletion of addition u/s 68.
3. Disallowance of non-agricultural use conversion charges.
4. Disallowance of interest paid to partners.
5. Restricting the disallowance on account of Puran expenses.

Issue-wise Detailed Analysis:

1. Capital Introduced by the Partners Added u/s 68 and Disallowance of Interest Paid to Partners:

During the assessment, the A.O. observed that two partners introduced capital of Rs. 5 lacs and Rs. 4.5 lacs respectively. The assessee provided the Income Tax return acknowledgment as proof. However, the A.O. found discrepancies in the balance sheets and capital accounts, concluding that the identity was proven but the capacity and genuineness of the transactions were not. Consequently, an addition of Rs. 9.5 lacs was made u/s 68, and interest on capital of Rs. 36,750/- paid to the partners was disallowed.

The CIT (A) deleted the addition, stating that the firm had discharged its primary onus and that any unexplained capital should be taxed in the hands of the partners, not the firm. The CIT (A) also deleted the interest disallowance as it was consequential.

The Tribunal upheld the CIT (A)'s decision, noting that the capital was brought by cheques, the partners were assessed to tax, and the primary onus was discharged. The Tribunal rejected the Revenue's appeal on these grounds.

2. Deletion of Addition u/s 68 (Booking Deposits):

The A.O. added Rs. 17,71,900/- as unexplained cash credit u/s 68, stating that the assessee failed to provide confirmatory statements and that the deposits were received in cash. The CIT (A) deleted the addition, citing that the booking deposits were evidenced by registered sale deeds and that the A.O. did not provide material proof of siphoning off the deposits.

The Tribunal upheld the CIT (A)'s decision, noting that the identity and genuineness of the depositors were proven through registered sale deeds and that the Revenue could not provide contrary evidence.

3. Disallowance of Non-Agricultural Use Conversion Charges:

The A.O. disallowed Rs. 1,80,925/- claimed as N.A. expenses, as the only challan provided was paid by a Trust after the relevant year. The CIT (A) allowed the expenses, stating that the assessee maintained books on a mercantile basis and the expenses were incurred for business purposes.

The Tribunal upheld the CIT (A)'s decision, agreeing that the expenses were for business purposes and that the assessee was entitled to the deduction as per the development agreement.

4. Restricting the Disallowance on Account of Puran Expenses:

The A.O. disallowed Rs. 10,85,550/- claimed as Puran expenses due to lack of evidence and non-compliance with TDS provisions. The CIT (A) partly allowed the appeal, estimating and upholding an addition of Rs. 1,63,832/- (15% of the claimed expenses) while allowing the balance.

The Tribunal upheld the CIT (A)'s decision, agreeing that the provision for Puran expenses was an ascertained liability and should be allowed pro-rata for the plots sold. The Revenue could not provide material to counter this finding.

Conclusion:

The Tribunal dismissed the Revenue's appeal and the assessee's cross-objection, affirming the CIT (A)'s decisions on all grounds. The judgments maintained that the firm had adequately discharged its onus regarding the capital introduced by partners, booking deposits, N.A. expenses, and Puran expenses, and that any unexplained elements should be taxed in the hands of the respective partners or depositors, not the firm.