2015 (6) TMI 941 - AT - Income Tax

Disallowance u/s 40A(3) - Held that - So far as disallowance on account of purchase of steel from Panvel office imprest account, telephone charges of direction and gardening and plantation, the same cannot be disallowed u/s 40A(3) as per the reasons given by the learned counsel. Accordingly, the assessee gets relief of ₹ 16,092/- and balance amount of ₹ 13,873/- is confirmed. - Decided partly in favour of assessee. Disallowance of donations - Held that - The assessee has not claimed any such claim of donation in the computation of income, rather it appears in the ledger account of Managing Director. It is the payment made by the individual and not by the assessee, therefore, no disallowance should be made in the hands of the assessee. Accordingly, we direct the AO to delete the said disallowance after verifying the contention of the assessee that the amount of donation has not been claimed by the assessee. - Decided in favour of assessee. Estimate of net profit rate of 8% from the sale of development rights - Held that - There is no allegation that the payment made by the assessee in the earlier years have been claimed by the assessee. These costs are always taken to work-in-progress. The assessee had spent money to made the payments to the members of co-operative housing to the CIDCO to acquire the rights to develop, then such a payment has to be allowed as cost. No proper basis has been given either by the AO or by the Ld. CIT(A), to estimate the profit on sale of rights. If the cost has been incurred in the earlier year for the acquisition of development rights and if the same has been sold in this year, then, the same has to be allowed. It is not the case of the department that the assessee has claimed the cost/expenditure in the earlier years, therefore, the profit has to be taken at ₹ 2,00,000 as shown by the assessee and addition confirmed by the Ld. CIT(A) on estimate of net profit of 8% is deleted. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance under section 40A(3) for cash payments exceeding Rs. 20,000.
2. Disallowance of donations not claimed by the assessee.
3. Estimate of net profit rate at 8% from the sale of development rights.

Issue 1: Disallowance under section 40A(3) for cash payments exceeding Rs. 20,000:
The Assessing Officer disallowed Rs. 29,965 under section 40A(3) due to cash payments exceeding Rs. 20,000 for various expenses. The Ld. CIT(A) confirmed this disallowance after examining the nature of payments. However, the appellant argued that certain payments, such as those to the Kerala Forest Department for seedlings, were not subject to disallowance under Rule 6DD. Ultimately, the tribunal allowed partial relief, disallowing only specific expenses like vehicle expenses and purchases of steel, while accepting the appellant's contentions for other expenses.

Issue 2: Disallowance of donations not claimed by the assessee:
The appellant contested the disallowance of Rs. 30,500 for donations not claimed in the income computation, asserting that these were personal payments by the Managing Director and not by the assessee. The tribunal directed the AO to delete this disallowance upon verifying that the donations were not part of the assessee's claimed expenses.

Issue 3: Estimate of net profit rate at 8% from the sale of development rights:
The AO estimated the net profit at 8% of the sale proceeds of Rs. 70 lakhs from the development rights sold by the assessee, citing lack of evidence for the Rs. 68 lakhs in expenses incurred. The Ld. CIT(A) upheld this estimate based on a remand report highlighting discrepancies in the expenses claimed. However, the tribunal disagreed, noting that the expenses were incurred in acquiring the development rights and should be allowed as costs against the sale proceeds. Since there was no evidence of prior claims by the assessee for these expenses, the tribunal deleted the addition based on the 8% profit estimate, allowing the appeal partially.

In conclusion, the tribunal partially allowed the appeal, granting relief on certain disallowances under section 40A(3) and donations not claimed, while rejecting the estimate of net profit rate at 8% from the sale of development rights.