2015 (7) TMI 213 - AT - Income Tax

Disallowance u/s 40A(3) - Held that - In similar set of facts and circumstances, the Tribunal in the case of assessee s group company M/s Westland Developers Pvt. Ltd. categorically held that the assessee submitted detailed reasons to demolish invocation of section 40A(3) of the Act and admittedly no expenses relatable to the addition have been claimed and the assessee has successfully demonstrated that the payments were reimbursement made by CWPPL, therefore, there was no occasion to invoke section 40A(3) of the Act. Therefore addition made by the AO and confirmed by the CIT(A) u/s 40A(3) of the Act is not found to be sustainable and we dismiss the same. - Decided in favour of assessee. Addition of of deemed dividend - CIT(A) delted addition - Held that - In the present case, the AO could not bring any allegation against the assessee that the asessee is a shareholder/member of M/s Payor Companies, therefore, provisions of section 2(22)(e) of the Act cannot be invoked and the AO was not correct in making impugned addition and the same was rightly deleted by the CIT(A) following the decision of Hon ble Jurisdictional High Court of Delhi in the case of CIT vs Ankitech (2011 (5) TMI 325 - DELHI HIGH COURT ).- Decided in favour of assessee. Addition on interest on PDCs paid out of books of account - CIT(A) deleted the addition - Held that - From the order of the Tribunal in the case of Precision Infrastructure Pvt. Ltd. (2015 (2) TMI 105 - ITAT DELHI ), we note that the similar issue was decided in favour of the assessee wherein held as after examining the loose papers seized at the time of search at the assessee s premises, it was noticed that interest is paid on the PDCs only during the period of extension of PDCs and, therefore, he directed the Assessing Officer to recompute the interest on PDCs at the time of extension of the PDCs. He has further observed that if it is not possible to work out the extension of PDCs in each case, then the Assessing Officer is directed to recompute interest on PDCs after six months from the date of issue of the PDCs. Therefore, the ground of appeal of the Revenue that the CIT(A) deleted the addition of ₹ 5,06,625/- made by the Assessing Officer on account of interest on PDCs is factually incorrect and contrary to the order of the CIT(A). The CIT(A) directed to recalculate the interest on PDCs and there was a sound logic for such direction. His direction is based on material found and seized at the time of search.- Decided in favour of assessee. Additional payment in violation of stamp duty - CIT(A) deleted the addition made by the Assessing Officer in view of the provisions of Section 37(1) - Held that - 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 - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance under Section 40A(3) of the Income Tax Act.
2. Deemed dividend under Section 2(22)(e) of the Income Tax Act.
3. Interest on Post-Dated Cheques (PDCs).
4. Additional payment in violation of the Stamp Duty Act under Section 37(1) of the Income Tax Act.

Detailed Analysis:

Issue 1: Disallowance under Section 40A(3)
The assessee challenged the disallowance of Rs. 13,45,626 under Section 40A(3) of the Income Tax Act. The Tribunal noted that in a similar case involving the assessee's group company, Westland Developers Pvt. Ltd., the Tribunal had held that Section 40A(3) was wrongly invoked as no expenses relatable to the addition were claimed, and the payments were reimbursements. Following this precedent, the Tribunal concluded that the Assessing Officer (AO) wrongly made the disallowance, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)] based on incorrect assumptions. Consequently, the disallowance was dismissed, and the assessee's grounds were allowed.

Issue 2: Deemed Dividend under Section 2(22)(e)
The revenue contested the deletion of an addition of Rs. 16,85,489 made by the AO under Section 2(22)(e) on account of deemed dividend. The Tribunal observed that the CIT(A) had relied on the Delhi High Court's decision in CIT vs. Ankitech (P) Ltd., which held that deemed dividend can only be taxed in the hands of a registered shareholder of the payer company. Since the assessee was not a shareholder of the payer companies, the addition was not justified. The Tribunal upheld the CIT(A)'s order, dismissing the revenue's appeal.

Issue 3: Interest on Post-Dated Cheques (PDCs)
The revenue appealed against the deletion of an addition of Rs. 25,69,253 on account of interest on PDCs paid out of books of account. The Tribunal referred to its earlier decision in the case of Precision Infrastructure Pvt. Ltd., where it was held that interest on PDCs was only paid during the extension period and not from the date of issuance. The CIT(A) had directed the AO to recompute the interest based on the extension period. The Tribunal found no reason to interfere with the CIT(A)'s order and dismissed the revenue's ground.

Issue 4: Additional Payment in Violation of Stamp Duty Act under Section 37(1)
The revenue also contested the deletion of an addition of Rs. 1,60,32,683 made by the AO under Section 37(1) on account of additional payment in violation of the Stamp Duty Act. The Tribunal noted that similar issues were decided in favor of the assessee in the case of ISG Estate Pvt. Ltd., where it was held that no disallowance could be made as the expenditure was not claimed as an expense by the assessee. Following this precedent, the Tribunal upheld the CIT(A)'s order, dismissing the revenue's ground.

Conclusion:
- The appeal of the assessee regarding disallowance under Section 40A(3) was allowed.
- The revenue's appeal concerning deemed dividend under Section 2(22)(e) was dismissed.
- The revenue's appeal regarding interest on PDCs was dismissed.
- The revenue's appeal concerning additional payment under Section 37(1) was dismissed.
- The assessee's appeal in ITA No. 1763/Del/2013 was dismissed as not pressed.

Order Pronouncement:
The judgment was pronounced in the open court on 30.06.2015.