DEPUTY COMMISSIONER OF INCOME TAX - CENTRAL CIRCLE-1(2), CHENNAI, CHENNAI vs. JACARANDA PROPERTIES PRIVATE LIMITED, CHENNAI

1. 1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous on facts of the case and in law.

During assessment proceedings, it transpired that the assessee reflected work-in-progress (WIP) for Rs.50.53 Crores which represented various properties under development. The same include payment of Rs.179.82 Lacs to M/s Gayathri Infrastructure and Developers and another payment of Rs.138.50 Lacs to M/s Venkateshwara Developers. These two entities acted as Power of Attorney (POA) agents of sellers who sold their respective lands to the assessee. However, both the entities had not filed their return of income and Ld. AO held that these two entities were not existing. Accordingly, the WIP was reduced to the extent of aggregate payment of Rs.318.32 Lacs as paid to these entities.

During first appeal, the assessee, inter-alia, contended that the payments were made to these entities in the course of purchase of land as they were power of attorney holders of the land owners. Further, the payments were through banking channel and proper KYC documents were obtained before making these payments. Therefore, no such reduction could have been made by Ld. AO.

The Ld. CIT(A), after perusal of sale deeds, rendered factual findings that the payments to the two entities was made as Power of Attorney holders of the sellers. These payments were appearing in the respective sale deeds as tabulated in para 6.3.1 of the impugned order. The impugned payments to the sellers as well as to both these entities was duly documented in the sale deeds which clearly outline the sale consideration. The split in consideration between the landlords and the POA holders was transparent and legally recorded providing clear evidence of the transaction. There was no evidence that POA holders were paid more than what was specified in the sale deeds nor was there any evidence suggesting that the payments were made for purposes other than the land purchase. The absence of such evidences weakens the justification for any downward adjustment to the WIP account based on these payments. The Ld. AO made adjustment solely on the ground that the POA holders could not be traced and they had not filed their income tax returns. However, this reasoning would not invalidate the payments made for the land which were properly documented in the sale deeds. The fact that the POA holders were not traceable or non-filer would not change the legal validity of the transaction. Accordingly, aforesaid reduction was reversed against which the revenue is in further appeal before us.

From the facts, it clearly emerges that both the payee entities have acted as POA holders for landlords who have sold their land to the assessee. The transactions are well documented with various sale deeds and the impugned payments are in line with these sale deeds. The sale consideration has duly been split in the respective sale deeds between POA holders and the landlords and the payments have accordingly been made by the assessee through banking channels. There is no evidence that POA holders were paid more than what was specified in the sale deeds nor was there any evidence suggesting that the payments were made for purposes other than the land purchase. The Ld. AO has made adjustment solely on the ground that the POA holders could not be traced and they had not filed their income tax returns. However, both these reasons do not invalidate the payments made for the land which were properly documented in the sale deeds. This fact would not change the legal validity of the transaction and assessee could not be denied its legitimate claim. Therefore, the impugned reduction of WIP has rightly been reversed by Ld. CIT(A). We order so.

The appeal stands dismissed. Order pronounced on 05th May, 2025.