M/S COPCO ENGINEERING P LTD,CHENNAI vs. ACIT CORPORATE CIRCLE 1 (2), CHENNAI

The only common issue in both the appeals of assessee is as regards to the order of CIT(A) confirming the action of AO in making addition of Rs.21.82 lakhs in assessment year 2014-15 and Rs.8,99,900/- in assessment year 2015-16 in regard to property purchase transaction between assessee and son, who is the managing director of the assessee company by invoking the provisions of section 40A(2)(a) of the Act, without assigning proper reasons or justification and not ascertaining independently fair market value of the land. For this, assessee has raised various grounds in both the years which are argumentative and exhaustive and hence, need not be reproduced. Since the issue and facts in both the years is identical, we will take the facts from assessment year 2014-15.

Brief facts are that the AO during the course of assessment proceedings noted that the assessee has purchased land from son of the Managing Director of the assessee company for a sum of Rs.1.40 crores. The AO noted that as per sale deed, the value of land disclosed is Rs.1.40 crores whereas the amount paid by 3 & 2399/Chny/2018 assessee for the value of land is excess to the extent of Rs.21.82 lakhs. Accordingly, the AO brought the excess amount over the fair market value of the land to tax by invoking the provisions of section 40A(2)(a) of the Act. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) also confirmed the action of the AO and not considered the explanation submitted by assessee properly. Aggrieved, assessee came in appeal before the Tribunal.

Now before us, the ld.counsel for the assessee stated that the assessee before AO and CIT(A) placed copy of sale agreement which discloses the value of land at Rs.4.50 crores. The original sale agreement for transfer of land was to the extent of 13,130 sq.ft., @ Rs.2437.26 per sq.ft. It was contended before the lower authorities by the assessee that 4139 sq.ft., out of the total area was transferred for a sum of Rs.1,41,85,300/- which works out at Rs.3427.26 per sq.ft. It was contended that they have paid the same price as per the agreement for the acquisition of land of 4139 sq.ft., transferred during the year. According to AO and CIT(A), the amount paid by assessee for the purchase of land is excessive to the extent of Rs.21.82 lakhs and once the payment made to specified person is found to be excessive, disallowance u/s.40A(2)(a) of the Act is to be made. But, the ld.counsel for the 4 & 2399/Chny/2018 assessee argued that neither the AO nor the CIT(A) has held the payment on account of land is excessive or unreasonable and according to him, the consideration paid for purchase of land was as per the fair market value of the goods i.e., the land and not as per the circle rate fixed for stamp duty purposes. The ld.counsel stated that the circle rates are for the purpose of computing long term capital gain and that also applies only in case, the consideration is less and not more. According to ld.counsel, here the concept is fair market value and according to him, the payment made for purchase of land is as per the prevalent market rate, which is fair market value of the property. The ld.counsel for the assessee relied on the decision of Hon’ble High Court of Madras in the case of CIT vs. Dr. V. Srinivasan, (2002) 254 ITR 419, wherein it is held that “The assessee, a practicing doctor in medicine, took on lease a premises constructed by a trust on a land, owned by the assessee, with his permission and the beneficiaries of the trust consisted of assessee’s minor children. The assessee paid a sum of Rs.1,80,000 to the trust as rent for a year and claimed deduction in respect thereof. It has been held that such rent was an admissible deduction in computing the income of the assessee without attracting the provisions of section 40A(2).”

The ld.Senior DR relied on the assessment order and the order of the CIT(A).

After hearing rival contentions and going through the details, it is noted that the payment made for purchase of land is fair market

Consequently, the issue being exactly identical in assessment year 2015-16 in the addition made by the AO cannot be sustained and this appeal of the assessee is also allowed.

In the result, both the appeals filed by the assessee are allowed.