2014 (12) TMI 254 - AT - Income Tax

Disallowance u/s 40A(3) toward cash expenditure No deduction was claimed by assessee - Held that - Section 40A(4) starts with the non-obstante clause setting out that the provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provisions of the Act relating to the computation of income under the head profits and gains of business or profession if a transaction is embodied in a document, the liability to tax depends upon the meaning and content of the language used i.e. the Court has to look to the terms of the contract between the parties as to what is the true nature and effect of the terms embodied in an agreement between the parties - the assessee claimed relying upon the agreement entered into with M/s Countrywide promoters Pvt. Ltd. that the assessee had acquired various lands through farmers/villagers and after acquiring the same handed over to the developer for development of an integrated township project and in terms of the collaboration agreement the assessee received a consolidated fee of ₹ 35,000 - relying upon Commissioner Of Income-Tax Versus Industrial Engineering Projects Pvt. Limited 1992 (7) TMI 38 - DELHI High Court section 40A(3) of the Act has been wrongly invoked as admittedly no expenses relatable to the addition has been claimed and the assessee has successfully demonstrated that the payment were reimbursement made by CWPPL Decided in favour of assessee. Additional payments made to recipients who were not the owners of land Payment made in cash Held that - The expenditure was not claimed as an expense by the assessee and consequently has not been routed through its P&L A/c - the occasion to make an addition of the same by way of a disallowance in these peculiar facts and circumstances of the case does not arise - the entire amount is added u/s 37 as opposed to part of the expenditure disallowed u/s 40A(3) is not so material as the finding is arrived at taking cognizance of the material fact that also no such claim of expenditure has been made - The fact that the additional payments were warranted in order to avoid potential disputes amongst the claimants of the land holding which have been passed through to the land holders from generation to generation wherein there may be informal arrangements of ownership and or the payments were for commercial expediency to facilitate peaceful possession and registration of the land holding; where by the time Registry was made the landholders felt a higher payment was necessitated due to increase in value are issues which are not required to be addressed in the present proceedings. Material seized from search Held that - During BPTP group of companies which were searched does not have any bearing - The material not having been confronted to the assessee in the face of the argument that even otherwise has no nexus has not been rebutted by the Revenue by any evidence or argument as the thrust of the parties attention remained focused on addressing the additions made - the CIT(A) makes a reference to facts not borne out from the record namely recording of statement of some patwari and Chotu Ram the support drawn by the CIT(A) in sustaining the addition is found to be misplaced Decided partly in favour of assessee.

Issues Involved:
1. Validity of assessment order under section 143(3) versus section 153C.
2. Relevance and nexus of seized material from BPTP group to the appellant.
3. Disallowance of additional payments not claimed as deductions.
4. Disallowance under section 40A(3) for payments made in cash.
5. Legality of orders passed by the Assessing Officer (AO) and Commissioner of Income Tax (Appeals) [CIT(A)].

Detailed Analysis:

1. Validity of assessment order under section 143(3) versus section 153C:
The appellant initially contested that the assessment order should have been made under section 153C instead of section 143(3). However, this ground was not pressed during the hearing and was dismissed as not pressed.

2. Relevance and nexus of seized material from BPTP group to the appellant:
The appellant argued that the CIT(A) erred in upholding the AO's reliance on material seized during a search on the BPTP group, which allegedly had no nexus or relevance to the appellant's case. The AO noted that no search warrant was conducted on the appellant, and the CIT(A) acknowledged that the seized material did not belong to the appellant. The appellant contended that using such material in their assessment was legally incorrect. The CIT(A)'s reliance on the Supreme Court judgment in Pooran Mal vs. CIT was challenged as it was misinterpreted to extend the use of seized material to a person from whose custody it was not seized.

3. Disallowance of additional payments not claimed as deductions:
The AO disallowed additional payments made to land vendors, which were not claimed as deductions by the appellant. The appellant argued that these payments were reimbursed by M/s Countrywide Promoters Pvt. Ltd. (CWPPL) and should not be considered as revenue receipts. The CIT(A) upheld the AO's decision, treating the cost of land as the appellant's expenditure. The appellant relied on various judgments, including CIT vs. Motilal Khatri and CIT vs. Alpha Toyo Ltd., which held that no disallowance could be made under section 40A(3) if no expenditure was claimed. The Tribunal concluded that since the expenditure was not claimed in the Profit & Loss account, the disallowance was unjustified.

4. Disallowance under section 40A(3) for payments made in cash:
The AO made an addition under section 40A(3) for payments made in cash exceeding Rs. 20,000, disallowing 20% of the amount paid in cash. The appellant argued that the land was not purchased as stock-in-trade and no expenditure was claimed for the cost of land. The CIT(A) upheld the AO's decision, but the Tribunal found that section 40A(3) was wrongly invoked as the expenditure was not claimed by the appellant. The Tribunal relied on judgments such as CIT vs. Banwari Lal Bansidhar, which held that no disallowance could be made when no deduction was claimed.

5. Legality of orders passed by the AO and CIT(A):
The appellant contended that the orders passed by the AO and CIT(A) were bad in law and void ab initio. The Tribunal found that the AO and CIT(A) had erred in their reasoning and conclusions, particularly regarding the disallowance of expenditures not claimed by the appellant. The Tribunal allowed the appeal partly, concluding that the disallowances under sections 40A(3) and 37(1) were not justified as the expenditures were not claimed by the appellant.

Conclusion:
The Tribunal allowed the appeal partly, holding that the disallowances made under sections 40A(3) and 37(1) were unjustified as the expenditures were not claimed by the appellant. The Tribunal emphasized that reimbursement of expenses cannot be treated as revenue receipts and that no disallowance can be made if no expenditure is claimed. The Tribunal also noted that the CIT(A) had made factual errors by relying on material not relevant to the appellant's case.

← Previous Next →