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2021 (9) TMI 106 - HC - Income TaxAddition u/s 40A(2)(b) - purchase of the lands from the Directors at excessive rate - expenditure incurred by the assessee company for payment of the sale price to the Directors - assessee company had purchased larger extent of land from its two Directors/shareholders which was later sold by the assessee at the rate which is far less than the Guideline Value which is far far less than the selling price paid to the Directors - Tribunal holding that the price for the land purchased and paid to the Director was not excessive while comparing with the fair market value of the land - HELD THAT - As the assessee company owns the land behind the lands owned by the Directors and if the lands owned by the Directors are purchased, then it would give better access to the land owned by the company and it will be a good decision of the company to improve its financial well being. These decisions are all commercial decisions, which have to be taken by the assessee, and it is not for the Assessing Officer to sit in the arm-chair of the assessee and suggest the ways and means to run their business as long as there is no unlawful activity, which has been alleged to have been done by the assessee. Thus, we are of the considered view that the Tribunal was right in affirming the order passed by the CIT(A) holding that the decision to purchase the lands from the Directors at excessive rate was a prudent commercial decision taken by the assessee company. No ground to interfere with the order passed by the Tribunal holding that the price for the land purchased and paid to the Director was not excessive while comparing with the fair market value of the land. - Decided against revenue.
Issues involved:
1. Interpretation of Section 260-A of the Income Tax Act, 1961 2. Assessment of excessive land purchase price compared to fair market value 3. Applicability of long term capital gain on land sale 4. Validity of expenditure on land purchase under Section 40A(2)(b) of the Act Analysis: Issue 1: Interpretation of Section 260-A of the Income Tax Act, 1961 The Tax Case Appeal was filed by the Revenue under Section 260-A of the Income Tax Act against the order of the Income Tax Appellate Tribunal for the Assessment Year 2007-08. The appeal was admitted based on substantial questions of law related to land purchase and sale transactions. Issue 2: Assessment of excessive land purchase price compared to fair market value The assessee, a Real Estate Development company, purchased land from its Directors at a higher rate and sold it to third parties at a lower rate, leading to scrutiny by the Assessing Officer. The AO invoked Section 40A(2)(b) of the Act, considering the difference in purchase and sale prices. The CIT(A) granted relief to the assessee, recognizing the business decision and substantial gains made. Issue 3: Applicability of long term capital gain on land sale The Tribunal dismissed the Revenue's appeal and allowed the assessee's appeal, emphasizing the commercial nature of the land transactions and the subsequent profits earned by the assessee. The CIT(A) directed the Assessing Officer to allow the expenditure on land purchase at a specified rate. Issue 4: Validity of expenditure on land purchase under Section 40A(2)(b) of the Act The Revenue challenged the Tribunal's decision, arguing that the land purchase decision was a prudent business move resulting in substantial profits. The Tribunal upheld the CIT(A)'s order, emphasizing that commercial decisions of the assessee should not be questioned unless unlawful activities are alleged. In conclusion, the Court dismissed the Tax Case Appeal filed by the Revenue, affirming the Tribunal's decision. The judgment highlighted the importance of considering commercial decisions in business transactions and upheld the relief granted to the assessee by the CIT(A).
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