2022 (10) TMI 681 - AT - Income Tax

Disallowance on business development expenses - Applicability of provisions of Sec.43CA - income from sales received in excess of the registered sale consideration - method followed by the assessee to account income as well as expenses - CIT-A directed AO to delete addition made towards disallowance on business development expenses - HELD THAT - The assessee explained that business development on sales expenses is nothing, but various expenses incurred by the assessee as per oral agreement with purchases like stamp duty and registration charges, incidental expenses, etc. As per contractual obligation, the assessee needs to incur these expenses and accordingly, it is in the nature of expenses incurred wholly and exclusively for the purpose of business. No doubt, the assessee must have incurred certain expenses as per contractual obligation with its customers and incurred those expenses. However, fact remains that except making an oral statement, no evidence was filed before the AO and before us to justify its case that the assessee has incurred such and such expenses on behalf of such and such party and such and such property sold during the relevant period. Unless, the assessee proves its case with necessary evidences, the claim of the assessee cannot be accepted, because, if you go through the unique entry passed by the assessee in the books of accounts, in our considered view, the assessee has adopted a tool to nullify the effect of provisions of Sec.43CA of the Act. In one side, the assessee tried to comply with provisions of Sec.43CA and on the other side nullified the effect with corresponding debit to expenses account without any details. CIT(A) without appreciating these facts deleted the additions made by the AO on different grounds, although, the case of the AO was that the assessee has not substantiated expenses debited under the head business development on sales expenses - we set aside the order of the CIT(A) and restored the issue to the file of the AO and direct the AO to re-examine the case of the assessee in light of claim of the assessee that it has incurred certain expenses as per oral understanding with purchasers. The assessee is directed to furnish necessary evidences before the AO to justify its case. Disallowance of gift on gold coins - AO has disallowed gift expenditure u/s.40(a)(ia) of the Act, for non-deduction of TDS - CIT(A) deleted the additions made by the AO on the ground that the prizes given by way of incentives to purchasers is below threshold limit of taxability at source and hence, needs to be allowed in terms of provisions of Sec.40(a)(ia) - HELD THAT - CIT(A) has set aside the issue to the file of the AO with a direction to re-examine the claim of the assessee in light of arguments of the assessee that prize money is in excess of Rs.10,000/- and above threshold of taxability at source in respect of Gadapam plots and same needs to be allowed in terms of Sec.40(a)(ia) of the Act, and if not suffered tax, the same should be then disallowed. In our considered view, there is no grievance for the Revenue to agitate the issue, because, the issue has been already set aside to the file of the AO for further verification and hence, rejected the ground taken by the Revenue.

Summary

Issues:
1. Condonation of delay in filing appeal by Revenue
2. Treatment of business development expenses
3. Disallowance of gift expenditure under Sec.40(a)(ia)

Issue 1: Condonation of delay in filing appeal by Revenue

The Revenue filed an appeal against the order of the Commissioner of Income Tax (Appeals) after the limitation period. The Revenue filed a petition for condonation of delay, which was accepted due to reasonable cause. The appeal was admitted for adjudication.

Issue 2: Treatment of business development expenses

The assessee, a real estate partnership firm, followed a unique accounting method for sales revenue from plots. The Assessing Officer disallowed business development expenses, but the Commissioner (Appeals) allowed the deduction. The Commissioner held that the method followed by the assessee was acceptable, considering the income and expenses accounted for in compliance with Sec.43CA of the Act. However, the Tribunal set aside the Commissioner's order, directing the Assessing Officer to re-examine the expenses claimed by the assessee.

Issue 3: Disallowance of gift expenditure under Sec.40(a)(ia)

The Assessing Officer disallowed gift expenditure for non-deduction of TDS under Sec.40(a)(ia). The Commissioner directed the AO to verify the claim of the assessee regarding the threshold limit of taxability at source for prizes given. The Tribunal found no need for further grievance as the issue was already set aside for verification, thus rejecting the Revenue's ground.

In conclusion, the Tribunal partly allowed the Revenue's appeal for statistical purposes, emphasizing the need for proper verification and examination of expenses and claims in compliance with the relevant tax provisions.