2022 (1) TMI 591 - AT - Income Tax

Addition u/s. 40A(3) - HELD THAT - On the basis of the aforesaid exceptional circumstance the assessee had pleaded to be exempt from the rigors of section 40A(3) of the Act relying on Rule 6DD(g) of the Income Tax Rules, 1962. The findings of the Ld. CIT(A), upholding the disallowance, are to the effect that the assessee had not substantiated its claim of exemption from the provision of Section 40A as per Rule 6DD(g) of the Act. He has pointed out that neither the name nor address of the sellers of the land was submitted nor it was shown whether the area where the land was located was served with banking facilities or not. The Ld. CIT(A) has also pointed out that the land purchased was stock-in-trade of the assessee and has further relied on a decision of ITAT Indore Bench in the case of Kunjika Construction 2013 (4) TMI 783 - ITAT INDORE which he stated was passed on identical facts. the addition was upheld. In view of the above categorical findings of the Ld. CIT(A) demonstrating ineligibility of the assessee from exemption from the rigors of section 40A(3) of the Act, we see no reason to interfere in the order of the Ld. CIT(A) - In view of the above the order of the Ld. CIT(A) confirming the addition made u/s 40A is upheld Addition on account of preliminary expenses - HELD THAT - This claim has been disallowed not on account of it being preliminary expenses but on account of the fact that it resulted in loss of equivalent amount of the assessee and since the return was filed belatedly the assessee was debarred in law from carrying forward the said loss. In substance it is the carry forward of loss of ₹ 6,44,785/- which has been denied to the assessee. Since the Ld. CIT(A) has upheld the same applying the statutory provisions of law we see no reason to disagree with the Ld. CIT(A). The order of the Ld. CIT(A) upholding the denial of carry forward of loss of ₹ 6,44,785/- is, therefore, upheld. Ground No. 3 raised by the assessee is dismissed.

Summary

Issues:
1. Appeal against the order passed by the Ld. Commissioner of Income Tax (Appeals), Gandhinagar, Ahmedabad, relating to Assessment Year 2013-14.
2. Disallowance of expenditure made in cash exceeding the limit specified in Section 40A(3) of the Income Tax Act.
3. Addition made on account of preliminary expenses and denial of carry forward of the loss.

Issue 1: Appeal against CIT(A) Order
The appeal was filed by the assessee against the order passed by the Ld. Commissioner of Income Tax (Appeals), Gandhinagar, Ahmedabad, for Assessment Year 2013-14. The assessee did not appear during the hearings, leading to the appeal being heard ex-parte. The grounds raised by the assessee included issues related to the order being passed against the principles of natural justice, addition under Section 40A(3) of the Act, and addition on account of preliminary expenses.

Issue 2: Disallowance under Section 40A(3)
The Ld. CIT(A) confirmed the addition of ?4,66,000 made under Section 40A(3) of the Act. The assessee had purchased land in cash, justifying it by stating that the sellers insisted on cash payments due to lack of banking facilities. However, the assessee failed to provide documentary evidence or details of the sellers' names and addresses. The Ld. CIT(A) upheld the disallowance, citing the lack of substantiation and reliance on a previous ITAT decision. The ITAT upheld the Ld. CIT(A)'s decision, stating that the assessee did not qualify for exemption from Section 40A(3) requirements.

Issue 3: Addition of Preliminary Expenses
The Ld. CIT(A) disallowed a claim of ?6,44,785 as preliminary expenses, not due to being preliminary expenses, but because it resulted in a loss that the assessee was not entitled to carry forward. The return of income was filed beyond the due date, leading to the denial of carrying forward the loss. The ITAT upheld the Ld. CIT(A)'s decision, emphasizing the statutory provisions of law and the consequences of filing returns after the prescribed time. The denial of carry forward of the loss was upheld, and the appeal by the assessee was dismissed.

In conclusion, the ITAT upheld the Ld. CIT(A)'s decision on both issues, confirming the addition under Section 40A(3) and the denial of carry forward of the loss due to filing the return beyond the due date. The appeal by the assessee was dismissed, and the order was pronounced on 10/01/2022.