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2013 (11) TMI 571 - AT - Income TaxGenuineness of expenditure Allowability of expenditure - Whether expenditure claimed by the assessee is exclusively for the business purposes and is reasonable - Held that - AO has not doubted that said amount of Rs. 75,99,364/- was paid to Asipac but has denied the said payment on the ground that it was not incurred for the purpose of business of the assessee - Facts on record, prima facie establishes that said payment has been made by the assessee for the purpose of business interest of the assessee as the said amount of FDI was received by the assessee as security deposit as per Development Agreement dated 25-03-2008 entered into among the assessee, UAHPL and RIL. Reliance has been placed upon the judgment in the case of CIT v. Dhanrajgirji Raja Narasingirji 1973 (3) TMI 6 - SUPREME Court , wherein it has been held that department cannot dictate circumstances in which the expenditure is to be incurred - Payment made by the assessee to Asipac which is admittedly not a related party of the assessee, is expenditure wholly and exclusively for the purpose of business of the assessee. Disallowance on the basis of cash payments of amount of Rs. 1,84,60,000/- AO has made addition of Rs.1,84,60,000/- on the basis of entries of the cash deposits in the bank accounts of Shri Kalyan Sahai and Shri Kalicharan Yadav and their family members - Two persons in their retracted statements stated that cash deposits in their bank accounts as also in the bank accounts of their family members was consisted of agricultural income, gifts from other family members and sale of land to Shri Babu Lal and others Held that - Reliance has been placed on the judgment of Hon ble Gujarat High Court in the case of Laxmanbhai S Patel vs. CIT, 2008 (7) TMI 544 - GUJRAT HIGH COURT , wherein it has been held that legal effect of the statement behind the back of the assessee and without furnishing the copy thereof to the assessee or without giving an opportunity of cross examination and the additions if made, the same is required to be deleted on the ground of violation of principles of natural justice. In view of the facts, AO is not justified to make the said addition of Rs. 1,84,60,000/- merely on the basis of the statements of Shri Kalyan Sahai and Shri Kalicharan Yadav dated 28-01- 2009 wherein they stated that they received Rs. 20-25 lacs in cash as token money for sale of their land, without giving copies of the statements to the assessee and without giving an opportunity to confront those persons on whose statements, an addition was made. Therefore, there is a violation of principles of natural justice - Decided in favor of Assessee. Amount received as security deposit not to be considered as consideration for sale - Held that - Provision of Section 53A of the Transfer of Property Act cannot be made applicable to the land under consideration as undisputedly the said land is stock in trade of the assessee and not a capital asset - Permission has been given to the developer for the limited purpose of development of the project and not with the intention to transfer of land - The above facts are fortified in the light of clause of the development agreement which gives an option to the developer to purchase the land if they want @ Rs. 3.50 crores per acre. It is a fact that assessee received a security deposit of an amount of Rs. 39,55,95,900/- and not the proportionate amount of Rs. 41,94,75,000/- - Security deposit received by the assessee cannot be considered as sale consideration for transfer of land in the assessment year under consideration Hence, confirmed the order of the ld. CIT(A) in deleting the sum of Rs. 52.74 crores - Also delete the balance addition of Rs. 29.95 crores sustained by ld. CIT(A). Reimbursement of amount paid for the expenses of employees of Asipac company - whether TDS u/s 194J is liable to be deducted as professional charge Held that - Provision of Section 194J of the Act for deduction of TDS are not applicable on such payments. Therefore, the assessee was not required to deduct TDS Hence, disallowance made by the AO as per Section 40(a)(ia) of the Act is not justifiable.
Issues Involved:
1. Rejection of Books of Account and Application of Percentage Completion Method. 2. Addition on Account of Alleged Undisclosed Payments to Agriculturists. 3. Addition on Account of Business Income from Development Agreement. 4. Disallowance Under Section 40(a)(ia) for Non-Deduction of TDS. 5. Levy of Interest Under Sections 234B and 234D. Detailed Analysis: 1. Rejection of Books of Account and Application of Percentage Completion Method The AO rejected the books of account of the assessee under Section 145(3) of the Act, citing the non-maintenance of a detailed qualitative and quantitative stock register, unverified vouchers for direct expenses, and incriminating documents found during the search indicating 'out of books' cash receipts. The AO applied the percentage completion method instead of the project completion method followed by the assessee, resulting in an addition of Rs. 46,69,928/- for the assessment year 2008-09. The CIT(A) upheld the AO's decision to reject the books of account and apply the percentage completion method. However, the Tribunal found that the AO's reasons for rejecting the books were not factually correct and that the assessee's accounts were correct and complete, regularly employing the project completion method. The Tribunal held that the AO could not change the method of accounting regularly adopted by the assessee and set aside the decision to invoke Section 145(3). 2. Addition on Account of Alleged Undisclosed Payments to Agriculturists The AO made an addition of Rs. 1.85 crores based on cash deposits in the bank accounts of the sellers of land, alleging that these were undisclosed payments made by the assessee. The AO relied on statements made by the sellers during the search, which were later retracted. The CIT(A) partially upheld the AO's addition, sustaining Rs. 25 lakhs and deleting the balance. The Tribunal found that the AO did not provide the assessee with copies of the statements or an opportunity to cross-examine the sellers, violating principles of natural justice. The Tribunal held that no addition could be made based on such unverified statements and deleted the entire addition of Rs. 1.85 crores. 3. Addition on Account of Business Income from Development Agreement The AO treated the development agreement between the assessee, UAHPL, and RIL as an agreement to sell, considering the security deposit of Rs. 105.85 crores as sale consideration, resulting in an addition of Rs. 82.69 crores. The CIT(A) partially upheld the AO's decision, confirming the addition of Rs. 29.95 crores for the first parcel of land and deleting Rs. 52.74 crores for the second parcel, which was not developed due to acquisition proceedings. The Tribunal found that the development agreement did not amount to a sale of land and that the security deposit could not be considered as sale consideration. The Tribunal held that the security deposit was a liability and not income, deleting the entire addition of Rs. 82.69 crores. 4. Disallowance Under Section 40(a)(ia) for Non-Deduction of TDS The AO disallowed Rs. 19,28,401/- under Section 40(a)(ia) for non-deduction of TDS on payments made to Asipac. The CIT(A) deleted the disallowance, holding that the payments were reimbursements of expenses and not professional fees, thus not subject to TDS. The Tribunal upheld the CIT(A)'s decision, confirming that TDS was not required on reimbursement of expenses. 5. Levy of Interest Under Sections 234B and 234D The CIT(A) upheld the levy of interest under Sections 234B and 234D. The Tribunal noted that the charging of interest is consequential and does not require specific adjudication. Conclusion: The Tribunal allowed the assessee's appeals in part, rejecting the grounds of the Department's appeals. The Tribunal set aside the rejection of books of account and the application of the percentage completion method, deleted the additions for undisclosed payments to agriculturists and business income from the development agreement, and upheld the deletion of disallowance for non-deduction of TDS. The levy of interest under Sections 234B and 234D was upheld as consequential.
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