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TMI Blog2016 (12) TMI 555X X X X Extracts X X X X X X X X Extracts X X X X ..... re cannot be any disallowance of such expenditure by invoking the provisions of Section 40A(3) of the Act - Decided in favour of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... examined the reply filed by the assessee but it was not acceptable to him. The AO further noted that the company was formed with the main object to deal in the business of real estate, hence the purchase of land cannot be termed as investment. Secondly, the assessee company was purchasing land on regular basis as the following lands were also purchased during earlier years. Land Amount 1. Land at Kherwadi (Badri) ₹ 9,00,000 2. Land at Kherwadi (Dane Ram) ₹ 19,50,000 3. Land at Kherwadi(Hanuman ₹ 1,34,000 4. Land and building at D-136B ₹ 40,28,000 5. Shop No. 51, Subhash Nagar ₹ 45,63,400 The AO thus noted that the assessee company had not filed its wealth tax return though it was having taxable wealth. The AO thus came to the conclusion that the reply of the assessee was not found acceptable to him because of the reason that the land in question is stock in trade and the provisions of Section 40A(3) of the I.T. Act are applicable in this case. Accordingly, the AO made disallowance of ₹ 37.00 lacs in the case of the assessee. 2.2 Aggrieved, the assessee carried the matter before the ld. CIT(A) who had confirmed the action of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing agricultural income thereon whereas in the instant case under consideration, no income was shown by the appellant on account of agriculture operations. (xii) In view of the above discussion, therefore, it is held that the AO was justified in treating the purchase of land under consideration as stock in trade and not as fixed assets as claimed by the appellant. Therefore, action of the AO in disallowing a sum of ₹ 37.00 lacs u/s 40A(3) of the Act is justified and thus the addition made thereof is sustained.'' 2.3 The ld. AR of the assessee during the course of hearing prayed that the ld. CIT(A) is not justified in confirming the disallowance of ₹ 37.00 lacs made by the AO u/s 40A(3) of the I.T. Act. The ld. AR of the assessee filed the written submission which has been taken into consideration as under:- ''The humble appellant in respect of solitary Ground No.1 of appeal most respectfully bag to submit: Brief Facts: 1. The assessee is a Pvt. Ltd Company incorporated on 28.02.2006 with the main object of carrying on the business of Real Estate as contained in it's MOA.(PB No.21-41) 2. The assessee has no business activity since it's incorporation except purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gularly followed. 6. Therefore it is not open for the AO to ignore the Audited Profit & Loss Account and to draw his own Profit & Loss Account, just for making relevant disallowance by invoking the provisions of section 40A(3) of the Act. On Merits: 8. Although the company has been formed with the main object of carrying the Real Estate business, however as evident from the Audited Financial Statements of the company, it has not started activity since incorporation except purchase of certain lands. 9. The company has not undertaken any activity of conversion, development and division of the land purchased during the relevant previous year or in earlier years. 10. The company during the preoperative period has purchased certain lands in earlier years and during the relevant previous year as capital assets to take benefit of price rising over lapse of time. 11. The intention of the assessee to hold the relevant land as capital assets is self evident from the Audited Balance Sheet of the assessee wherein the relevant land has been shown as Fixed Assets. 12. The mere fact that the assessee company has been formed with the main object of carrying on real Estate business, does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ACIT v. Focal Point Builders and Promoters Pvt. Ltd. ITA No.759/JP/12, has deleted the similar Disallowance made u/s 40A(3) of the Act. 24. Therefore, your Honour is requested to delete the relevant disallowance of ₹ 370000/-and corresponding addition of ₹ 3693140/-made to returned income.'' 2.4 The ld. DR relied on the orders of the authorities below. 2.5 I have heard the rival contentions and perused the materials available on record. It is noted from fixed assets chart of the company from audited accounts placed at page 18 of the paper book of the assessee that as on 31st March 2012 assessee company has credited the tangible assets by an amount of ₹ 36,30,983/- which is shown as investment in the land. I have also gone through the Memorandum and Articles of Association wherein the main objects to be pursued by the company on its incorporation was as under:- '' To manage land buildings, to deal in real and personal property, to invest and deal with the money of the company not immediately required to in such a manner as the company may deem fit. It also includes acquire any movable and immovable property.'' I have also perused the provision of Section 40A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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