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TMI Blog2014 (4) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration u/s. 40A(2)(b) of the Act - the addition is set aside - the issue relating to levy of interest u/s. 234B and initiation of penalty proceedings u/s. 271(1)(c) does not survive as we have deleted the addition itself – Decided in favour of Assessee. Assessee contended that the AO has not brought anything on record to show that any extra consideration passed between the parties - In the absence of any material to show that extra consideration passed between the parties in respect of the properties of the assessee it is not appropriate to consider the price shown in the website in respect of the properties –Relying upon K.P. Verghese vs. ITO [1981 (9) TMI 1 - SUPREME Court] - section 52(2) of the Act can be invoked only where the consideration for the transfer of a capital asset has been understated by the assessee, or, in other words, the full value of the consideration in respect of the transfer is shown at a lesser figure than that actually received by the assessee, and the burden of proving understatement or concealment is on the Revenue - the sub-section has no application in the case of a bona fide transaction where the consideration received by the assessee has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,10,300 made towards suppressed sales. Against this, the Revenue is in appeal before us. 4. The learned DR submitted that addition of Rs. 15,22,10,300 being the suppression of sales was made by the AO on the reason that there is difference in sale price for which assessee got registered the sale deed and price quoted by the assessee in website. She drew our attention to the following table in the assessment order at page No. 3: - 5. According to her there is great variation between the price for which the assessee registered and the price reflected in the website. The difference was worked out by the AO at Rs. 15,22,10,300 and made the addition. The DR argued that the addition as made by the AO be sustained. She relied on the judgements of Supreme Court in the case of Sumati Dayal vs. CIT (204 CTR 9) and Dakeshwari Cotton Mills Ltd. (26 ITR 775). 6. On the other hand, the learned AR submitted that the assessee has put the price of various properties in the website so as to attract customers and it is not the final price. There is no provision under the Income-tax Act to consider the price reflected in the website as consideration passed to the assessee. The website price cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,00,000 was paid in cash and the balance was adjusted against the allotment of shares of the assessee company. The Assessing Officer has noted that as per the clause (b) of the deed of sale-cum-GPA dated 15.01.2008 the assessee was duly authorized to represent before the Gram Panchayat / municipal authorities for obtaining layout permit and sanction plans and the land is from undivided share of land owned along with others. Since the assessee deals in real estate the argument that asset was taken as fixed asset was not accepted and the purchase of land was treated as purchase of stock-in-trade meant for a real estate project. Accordingly, the AO adopted the SRO rate and the difference between the SRO rate and the purchase consideration paid was treated as expenditure liable for disallowance u/s 4OA(2)(b). During the appeal proceedings, the assessee submitted that the following are the joint owners of the property. Name of the owner Relationship with the company Sri N. Jaiveer Reddy Managing Director Smt. K. Leela Reddy Wife of chairman, Sri K. Lakshma Reddy Smt. K. Neeraja W/o Sri K. Vijaya Bhaskar Reddy, Exe. Director Smt. N. Rajitha Reddy Wife of Sri N. Jaiveer Reddy, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essive or unreasonable, then so much of the expenditure as was considered by him as excessive-or unreasonable was not to be allowed as deduction. The thrust is on incurring expenditure which are debited in the profit and loss account. In the case of the assessee the expenditure incurred by purchasing the land whether by way of payment or allotment of shares to the relatives has not been claimed as an expenditure and therefore, AO is not correct in disallowing the expenditure under section 40A(2) of IT Act. On this account alone the addition is not sustainable iv) The terms used in the section relates to goods, services and facilities. All these expressions are used in a cognate sense. These expressions refers to all types of movable property. The term 'goods' cannot include immovable property. S N Rolling Mills v ACCE 1997 ELTJ 141 Sales Tax Officer v MPSEB AIR 1976 SC 732. Land is not a part of these expressions. v) Section 40(A)(2) was introduced to the effect that expenditure incurred in a business for which payment has been made to assessee's relatives is liable to be disallowed to the extent the expenditure is considered to be excessive or unreasonable. The reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e context of section 40A. Hence, the transaction is not covered by section 40A. ix) Without prejudice to the claim that no addition is called for as the expenditure is not booked in the profit and loss account, it is submitted that AO's working basing on the SRO's guidance value is not correct. SRO's value does not represent the value of the property that required to be valued. Therefore working out the difference basing on SRO's value is not correct. It is further submitted that it is a well known fact that the real estate values increased with maximum speed in respect of the lands situated around twin cities during the period 2006 to 2008. Many of the transactions took place at a high premium than the land value fixed by the Registration Authorities for stamp duty purpose. It may not be out of place to mention that taking the boom in land values the Government of Andhra Pradesh increased the basic values of the lands from time to time for stamp duty purpose in the last four years. Thus, as the assessee got the land transferred through Sale-cum GPA and in view of the prevailing market value at that point of time, the assessee and the owners of the land after negot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not show any other immovable property as investment / fixed asset. It may be noted that in respect of the earlier ground the assessee contended that the registered document is the realistic value and there is a presumption of the correctness and now when it comes to this ground, it has been saying that the market rate is much higher than the registered value, therefore, the same has to be adopted. Since the CIT(A) accepted that contention in that ground. he applied the same logic in this ground as well. He agreed with the AO in adopting the SRO value, in arriving at the purchase consideration of the said property. It is not the accounting entry which determines the nature of the asset but the character and purpose of the asset in the hands of the holder, intention behind purchase of the asset which determines the nature of the asset. The assessee is a real estate developer and has purchased the land through a document which allows or authorizes the purchaser to obtain layout permits and sanction plans, this itself shows that the asset in question is meant to be stock-in-trade and not a capital asset / investment. The fact that it was a balance sheet entry and not taken into th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utation of business income of an assessee. ii) Section 28 refers to profits and gains of business. Section 29 stipulates that the profit and gains shall be computed in accordance with provisions of section 30 to 43D. These sections stipulate the allowances and disallowances of expenditure while computing the income from business. Section 40A provides expenses or payments not deductible in certain circumstances while computing the income from business. iii) The attributes of this section are: (a) The payment should be in nature of any expenditure. (b) The payment is made to a specified persons (relatives). (c) lf in such circumstances ,the Assessing officer is of the opinion that such expenditure is excessive or unreasonable having regard to fair market value of the goods, services or facilities for which payment is made or legitimate needs of assessee's business, excess expenditure can be disallowed under section 40(2)(b). (d) In the process, the assessee should derive a benefit by way of reduction of profit. From the above, it would appear that the basic requirement is that the payment should be in the nature of a deductible expenditure which has the effect of reducing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade as the assessee has not claimed the investment as a revenue expenditure. Law is well settled as a principle that 'if words of statute fails, so also the tax. No one can provide for a casus ommisus. When words of a statute are clear, the same has to be accepted. A court, much less a quasi judicial authority, can innovate and step into the shoes of the legislature and provide for any assumed omission. It is further submitted that the section introduces a deeming provision. A fiction should be limited to its legitimate field. The AO's logic that the amount represents a stock in trade and a deductible expenditure introduces another fiction and amounts to rewriting the books in the absence of any specific provision. vii) In the light of the above basic provisions, it is immaterial whether the land is stock in trade or investment since the expenditure is not debited in the profit and loss account. AO's contention that the assessee is a builder is of little consequence. AO has cited certain projects where the appellant had claimed the expenses in various projects and included these as stock in trade. These projects were taken on development basis and the appellant was req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning consideration was considered as share capital contributed by the respective owners. f) The assessee did not claim the payments as expenditure in the profit and loss account. In view of the above, it is submitted that application of provisions of section 40A(2)(b) in respect of agriculture land (fixed asset) acquired by the assessee is not warranted. .Hence the addition made by the assessing officer may be deleted. 15. On the other hand, the learned DR submitted that the assessee might have shown this agricultural land as a fixed asset in the schedule. However, the assessee is in real estate business and when the assessee developed the land, the assessee will get benefit from that. Being so provisions of section 40A(2)(b) are applicable to the assessee's case. On application of SRO rate the assessee has booked excess expenditure which was brought to tax and the same has to be confirmed. 16. We have heard both the parties and perused the material on record. In this case, according to the AO the assessee has booked excess expenditure of Rs. 3,97,04,400. But the facts are that this expenditure not gone into the Profit and Loss A/c. Unless and until the assessee claimed it a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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