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TMI Blog2020 (5) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of this aspect. We accordingly set aside the action of the Pr.CIT and restore the assessment order to this extent. Expenditure incurred on payments to sister concerns u/s 40A(2)(b) - consultancy charges and development charges paid to parties - HELD THAT:- We are constraint to observe that AO failed to carry out the duty assigned to him on such vital aspect. Same is the case for payment made towards so called development expenses paid to Chetan Builders. No cogent evidence was shown to have been produced before the AO in justification of such expenses. The nature of services rendered with some degrees of objectivity ought to have been examined by the AO. Inaction on the part of the AO has caused prejudice to the Revenue as contemplated u/s 263 - The plea of the assessee that the payment incurred towards services rendered by sister concern to be revenue neutral is also without any supporting evidence. It is not the tax rate but the tax amount in absolute figures which matters. It was for the assessee to demonstrate that the amount of tax saved on account of such expenses has been corresponding paid by the sister concern. In the absence of such demonstration, the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n verification of records, it was found by the Commissioner of Income tax that the assesee has reported the sale transactions at a lower figure by ₹ 78,76,580/- for taxation which resulted in under assessment causing prejudice to the interest of the Revenue. The CIT secondly observed that the assessee has claimed payment of ₹ 1.99 Crores in aggregate to the following persons who are covered under the provisions of Section 40A(2)(b) of the Act viz. (a) consulting charges paid to Mangla Properties ₹ 1.57 Crore; (b) development expenses paid to Chetan Builders ₹ 29.61 Lakhs. 4. The CIT accordingly issued show cause notice under s.263 of the Act to the assessee seeking explanation in this regard. The assessee filed written submissions in response thereto which was reproduced in the revisional order of the CIT appealed against. The CIT however did not concur with the justifications advanced by the assessee. As noted by CIT with reference to first issue, sale receipts, as per agreement/banakhat, the total sale receipts stands at ₹ 5,33,21,000/- whereas the assessee has declared sale transaction to the extent of ₹ 4,54,44,420/- only resulting in un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 5,33,21,000/- on the receipt and should have simultaneously deducted ₹ 78,86,580/- towards cost of acquisition instead of netting of the two figures. The learned AR however insisted that such erroneous presentation of accounts has no impact whatsoever on the resultant income declared by the assessee and therefore no prejudice can be said to have caused to Revenue on account of improper accounting method adopted. We find apparent merit in the aforesaid plea of the assessee towards first part of the allegation. Needless to say, the profit on sale of land can be deduced only after subtraction of corresponding purchase costs. It is not the case of the Revisional Commissioner that purchase cost has been separately claimed. We further take note of the claim made on behalf of the assessee that relevant facts towards cost associated with the acquisition aggregate to ₹ 78,86,580/- were placed before the AO in the course of assessment. Under the circumstances, it would be reasonable to infer that AO has applied his mind to such aspect. The confusion resulted from improper accounting method whereby the sale receipts have been netted of with purchase costs and net sale c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regard by the AO in the course of the assessment. Thus, the action of the AO was marred with the lack of application of mind. The essence of agreement entered into with Mangla Properties as recorded in page 5 of the revisional order may be reproduced hereunder once again for ready reference: As far as consulting charges is concerned the agreement was made between the assessee MP.P.L dated 07/06/2007 for providing various project development services, which are as follows: (i) Helping in carrying out the exercise of land measurement by the Government Authorities. (ii) Appointment of Architecture/Structural Engineer, their responsibilities, to decide Quantum of fees or mode of payment all other related conditions. (iii) According to demand of current market trend, to advice the assessee. (iv) The discussion or publicity of plan will be done by way of advertisement in newspaper, publicity agency, appointment of literature, advertisement in press, etc. (v) Appointment of agencies regarding work of land scrapping, water harvesting, storm water, drainage system, supply of electricity, construction for build, etc to decide their responsibilit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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