2018 (6) TMI 63 - AT - Income Tax

Claim of expenditure towards Interest on PDCs paid in Cash - Direction to compute the interest on post dated cheques from the date after the six months of issue of such post dated cheques i.e. from the date of execution of sale-deed - Held that - Assessee was used to pay part payments of the sale consideration in respect of the land purchased at the time of execution of the sale-deed and the payments of balance sale consideration were invariably made through post dated cheques (PDCs) and for the intervening period )i.e. period between the date of sale deed and the date of encashment of PDCs), interest was paid in cash to the vendors of the land by the vendee company on monthly basis @ 1.25% p.m. on the amount of PDCs and this cash payment of interest by the vendee company, was not accounted for by it, in its books of account. The addition on the ground has been made in the several group companies of the BPTP group during the course of earlier assessment proceedings u/s 143(3)/148/153A in consequence to search carried out on 15/11/2007. - Decided against revenue Additional payment made to the owners of the land as allowable u/s 37 - Held that - Payment for acquiring land cannot be said disbursement of expense or not claimed as expense. In case of owner i.e. assessee effectively the owner of the land is purchasing the same and selling all the rights in said land at a cost of land plus ₹ 35,000 per acre. Therefore, the cost of land plus ₹ 35,000 per acre is the sale cost which effectively claimed but due to accounting entries, such transaction gets squared up to the extent of cost of land, as such owner including the assessee is directly crediting ₹ 35,000 per acre in its P&L account. - Revenue appeal dismissed.

Summary

Issues Involved:
1. Computation of interest on post-dated cheques (PDCs).
2. Allowability of additional payments made to landowners as expenses under Section 37 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Computation of Interest on Post-Dated Cheques (PDCs):
The first issue pertains to whether the CIT(A) erred in directing the Assessing Officer (A.O.) to compute the interest on post-dated cheques from the date after six months of their issue, i.e., from the date of execution of the sale deed. The Tribunal referenced the case of Sunglow Overseas Pvt. Ltd. Vs. ACIT, where it was established that the assessee paid part of the sale consideration at the time of the sale deed execution and the balance through PDCs. Interest was paid in cash on the PDCs for the intervening period at a rate of 1.25% per month, which was not accounted for in the books. This practice was consistent in several group companies of the BPTP group during earlier assessment proceedings. The Tribunal upheld the CIT(A)'s direction to recompute the interest, finding no merit in the Revenue's appeal. Thus, Ground No. 1 of the Revenue’s appeal was dismissed.

2. Allowability of Additional Payments as Expenses Under Section 37:
The second issue involves whether the CIT(A) erred in holding that additional payments made to landowners were allowable as expenses under Section 37 of the Income Tax Act. The Tribunal referred to the Hon'ble High Court’s decision in Principal CIT Vs. Vasundara Promoters Pvt. Ltd., which clarified that the broad interpretation of the Explanation to Section 37(1) by the Revenue was not well-founded. The High Court emphasized that only violations resulting in penal consequences determined by law fall within the mischief of Section 37(1). The Tribunal further cited the case of ACIT vs. Vasundra Promoters (P) Ltd., where it was held that since the assessee did not claim such expenses in the profit and loss account, no disallowance could be made. The Tribunal found that the CIT(A) correctly concluded that the payments for acquiring land were not disbursements of expenses claimed by the assessee. Thus, Ground No. 2 of the Revenue’s appeal was dismissed.

Conclusion:
The appeal of the Revenue was dismissed in its entirety, with the Tribunal upholding the CIT(A)'s decisions on both issues. The Tribunal found that the CIT(A) correctly directed the recomputation of interest on PDCs and rightly allowed the additional payments to landowners as expenses under Section 37 of the Income Tax Act. The order was pronounced in the Open Court on 30th May 2018.