2015 (5) TMI 384 - AT - Income Tax

Disallowance under Section 40A(3)- additional payment in violation of Stamp Duty Act - whether Additional Payments having not been claimed as deduction by appellant, no disallowance could have been made in the hands of the appellant - Held that - As per the collaboration agreement, the assessee was to purchase the land for and on behalf of CWPPL and whatever was the purchase price including the additional payment was debited to CWPPL and the assessee only received fixed remuneration i.e. ₹ 35,000/- per acre. Thus, we agree with the contention of the learned counsel that the assessee has not claimed any deduction in respect of cost of the purchase of the land, whether original or additional payment. When the cost of the land as well as additional payment is not claimed by the assessee as deduction, the question of any disallowance under Section 40A(3) or otherwise in the case of the assessee does not arise. We, therefore, delete the entire disallowance made by the Assessing Officer under Section 40A(3) as well as additional payment. - Decided in favour of assessee.

Summary

Issues involved:
Validity of notice under Section 153C of the Income-tax Act, 1961; Disallowance of additional payments not claimed as deduction by the appellant; Disallowance under Section 40A(3) in respect of payments not claimed as deduction; Addition of payment in violation of Stamp Duty Act, 1899.

Analysis:

Validity of notice under Section 153C:
The appellant and the Revenue had appeals against the order of the CIT(A). The appellant's grounds regarding the validity of the notice under Section 153C were not pressed during the hearing and were rejected.

Disallowance of additional payments not claimed as deduction:
The appellant's appeal raised concerns about disallowance of additional payments not claimed as deduction. The appellant argued that since the additional payments were not claimed as expenses, no disallowance could be made. The CIT(A) partly allowed the appeal, permitting additional payments made to the owner of the land or related individuals by cheque as an expense under Section 37, while disallowing payments without legal right over the land or made in cash. The Tribunal agreed with the appellant, stating that as no deduction was claimed for the purchase of land or additional payments, disallowance under Section 40A(3) was unwarranted. Therefore, the disallowance was deleted.

Disallowance under Section 40A(3) in respect of payments not claimed as deduction:
The Revenue's appeal focused on the deletion of an addition made by the Assessing Officer due to additional payments in violation of the Stamp Duty Act. The Tribunal found that the appellant had not claimed any deduction for the purchase of land or additional payments, as per the collaboration agreement. Therefore, the disallowance under Section 40A(3) was unwarranted, and the entire disallowance was deleted.

Addition of payment in violation of Stamp Duty Act, 1899:
The Revenue's appeal also challenged the deletion of an addition made by the Assessing Officer concerning payments in violation of the Stamp Duty Act. However, the Tribunal found that since no deduction was claimed for the purchase of land or additional payments, the disallowance was not justified. Thus, the appeal of the assessee was allowed, and the Revenue's appeal was dismissed.

This judgment highlights the importance of claiming deductions for expenses to avoid disallowances, even if payments are made in the course of business transactions. The Tribunal emphasized the necessity of proper documentation and accounting practices to support expenses and deductions claimed under tax laws.