Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, NAGPUR BENCH, NAGPUR
IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH, NAGPUR
BEFORE SH. G.D.AGRAWAL, HON’BLE PRESIDENT AND SH. MAHAVIR SINGH, JUDICIAL MEMBER
ITA No. 164/NAG/2017 (Assessment Year: 2013 -14) VS SHREE GANNAYAK BUILDERS & DEVELOPERS, ITO, Ward–1(5), Room No.502, Plot No.2, Near Global India International School, 5th Floor, MECL BLDG., Kalmana Basti, Nagpur–440008. Seminary Hills, PAN–ABRFS9402L Nagpur–440006. (Appellant) (Respondent) Appellant by Sh. R.K.Baral, Sr.DR Respondent by Sh. Manoj Moryani, Adv. Date of Hearing 07.03.2018 Date of Pronouncement 07.03.2018
O R D E R PER BENCH This appeal by Revenue is arising out of the order of Ld.CIT(A)-1, Nagpur
vide Order No.CIT(A)-1/11/2016-17 dated 07.02.2017. The assessment was
framed by Income Tax Officer, Ward-1(5), Nagpur u/s 143(3) of the Income Tax
Act, 1961 (in short “Act”) for A.Y. 2013-14 vide his order dated 29.02.2016.
The only issue in this appeal of the Revenue is against the order of
Ld.CIT(A) in deleting the addition made by the AO by holding the expenditure
debited by the assessee to the trading account on account of purchase of land
is hit by the provisions of section 40A(3) of the Act. For this, the Revenue has
raised following four grounds:-
“On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in deleting the addition of Rs. 88,17,937/- made u/s 40A(3) of the LT. Act, 1961 by the Assessing Officer.
ITA No.164/NAG/2017
The learned CIT(Appeals) has erred in not appreciating that the amount of purchase of land at Rs. 1,67,70,000/ - has been debited by the assessee to the trading account for the relevant F.Y. resulting into a decision perverse on facts. 3. On the facts and in the circumstances of the case and in law, the learned CIT(Appeals) has erred in not noticing the decision of the Hon'ble High Court of Rajasthan in the case of Kejriwal Iron Stores vs. Commissioner of Income Tax, 169 ITR 12(Rajasthan) wherein it is held that the word "expenditure" occurring in section 40A(3) cannot be given a restricted meaning so as to refer to only overhead expenses enumerated in section 30 to 43A and that the provisions of section 40A(3) were applicable in respect of purchase of goods also. 4. The decision of learned CIT(Appeals) is perverse in aw in as much as the direction to reduce the cost of work in progress by the amount of disallowance u/s 40A(3) would result into assessment of income much below the loss of Rs.34,70,395/- returned by the assessee.”
Briefly stated facts are that the assessee following Mercantile System of
Accounting. The assessee is engaged in the business of land development. The
AO noted that the assessee in connection with purchase of land at Kalmana
(Khasra No.142/3), a payment of Rs.1,54,25,000/- were made to 8 persons in
cash in excess of Rs.20,000/-. According to the AO, once the payment is made
in cash in excess of Rs.20,000/- to various persons, the expenditure claimed
by the assessee by debiting the same to the P&L account is hit by the
provisions of section 40A(3) of the Act. The AO after considering the
submission in entirety regarding cash payment out of the total payment made
to 8 persons in excess of Rs.20,000/-, a sum of Rs.88,17,937/- was disallowed.
ITA No.164/NAG/2017
The details are given in the assessment order which need not to be reproduced
again. Aggrieved the Revenue preferred appeal before Ld.CIT(A).
Ld.CIT(A) relying on the Tribunal’s order of ITAT, Delhi Bench in the case
of DCIT vs A.F. Properties Pvt. Ltd. vide order dated 29.11.2013 deleted the
disallowance by observing in para 4 & 4.1 as under:-
4.0. “Appellant's submissions along with assessment order have been considered carefully. Appellant's financial statements for the year under consideration along with earlier years and case laws, as relied on both by the AO and the appellant, have also been perused. First and foremost, the appellant's contention that no cash payment has been made during the year under consideration is not found correct. As per assessment order, records and, infact, appellant's latest submissions, cash payment of Rs.22,46,000/- has been made during the year under consideration for purchase of said immovable property. However, it is seen that the said land has been shown as stock in trade by the appellant. The earlier years balance-sheets as on 31/03/2011 and 31/03/2012 also show the advance made for purchase of this property at Rs.49,30,000/- (31/03/2011) and Rs.1,07,04,250/- (31/03/2012). For the year under consideration, the said property has been shown by the appellant in its stock in trade and the expenditure for purchase of land has been debited to work in progress. The appellant is not found to have claimed any expenditure on purchase of this land by debiting the same to its P&L a/c. On similar facts, it has been held by Hon'ble ITAT, Delhi in case of DCIT, Central Circle-1 vs. M/s A.F. Properties Pvt. Ltd. and DC IT, Central Circle- l, vs Mls Ajay Aggrawal Projects Pvt. Ltd. vide common order dt. 29/11/2013 that provisions of Sec.40A(3) are not applicable. Relevant portion of Hon'ble ITAT's order is reproduced as under:- "3. The facts in both the cases are similar. Therefore, we shall discuss herein below the facts relating to M/s. A.T. Properties Pvt. Ltd. That during the accounting year relevant to assessment year Page | 3
ITA No.164/NAG/2017
under consideration, the assessee made the payment of Rs. 72,16,397/- in cash for purchases of land. Since the assessee is a builder and a developer, the above land was shown as work in progress. The Assessing Officer disallowed 1/5th of the above payment, i.e. Rs. 14,43,280/- under Section 40A(3). On appeal, learned CIT(A) deleted the addition with the following finding:- "6.2 As regard the issue of disallowance/ addition under Section 40A (3) is concerned, it is seen from the records and evidences available that upto the Assessment year 2005-06, closing work in progress of land to the tune of Rs. 24,70,27,553/- has been shown which comprises of opening work in progress, purchases and development cost but no amount has been claimed as expenditure in the year under consideration. It is noticed that a similar issue had arisen in appellant's sister company case namely Vansidhar Projects P. Ltd. in Assessment year 2007-08 and my predecessor vide his order dated 06.02.2012 had given a finding that:- "payment made as advances for purchase of land which does not form part of profit and loss account would not qualify for disallowance within meaning of section 40A(1) read with 40A(3)." "The disallowance under section 40A (3) can be made only when the cost of land is debited as work-in progress/ stock in trade and the profit and loss account." The above view of the CIT (A) was also upheld by ITAT vide their order dated 07.12.2012, in ITA No. 1973/De1/2012. 6.3 Since in the present case the amount given for purchase of land does not form part of profit & Loss Account and the same has not been claimed as expenditure in the year under consideration,
ITA No.164/NAG/2017
therefore relying on ITAT's order delivered in appellant's sister concern namely Vansidhar Projects P Ltd., I am of the considered view that the provisions of section 40A(3) would not apply to the facts of appellant's case. Hence the addition of Rs. 14,43,280/- made by the AO in the present case cannot be added as income now at this point of time and thus it deserves to be deleted. The only thing which can be done now is that the cost of work-in-progress is to be reduced by the same amount i.e. Rs. 14,43,280/-. Subject to the above directions, the addition of Rs.14,43,280/- is deleted following the ITAT's order No. ITA 1973/De1/2012, dated 07.12.2012 in appellant's group concern namely Vanshidhar Projects P. Ltd." The Revenue, aggrieved with the order of learned CIT (A), is in appeal before us. 4. We have heard both the sides and perused the material placed before us. After considering the arguments of both the sides and the facts of the case, we do not find any infirmity in the order of learned CIT(A). The learned CIT(A) has not disputed the applicability of Section 40A(3) in respect of cash payment made by the assessee. However, any expenditure can be disallowed only when the deduction in respect of such expenditure is claimed by the assessee. In this case, admittedly, the assessee has not claimed the expenditure on purchase of land by debiting the same to the profit & loss account but the expenditure for purchase of land has been debited to work-in progress. The CIT(A) has already directed that the work-in-progress is to be the disallowance required to be made under Section (3). In our opinion, the direction of the CIT (A) is fully justified. We therefore, do not find any justification to interfere with the same. The order of learned CIT(A) is sustained.
ITA No.164/NAG/2017
In the case of Ajay Aggrawa1 projects Pvt. Ltd. also, the facts and the order of the CIT(A) are identical. For the detailed discussion in paragraph 4 above, we uphold the order of learned CIT(A) in this case. Accordingly, the Revenue's appeals are dismissed. 6. In the result, the appeals of the Revenue are dismissed." 4.1 After perusal of entire material on records, the appellant has not been able to prove its case of exceptional circumstances within the purview of Rule 6DD. However, by relying on decision of Hon'ble ITAT, Delhi, as reproduced above, impugned addition as per provisions of Section 40A(3) itself is not found sustainable in the case of the appellant subject to remarks that cost of work in progress in case of the appellant is to be reduced by the same amount. Subject to the above directions/ remarks, addition of Rs.88, 17,937/- is, accordingly, deleted.”
Aggrieved, now the Revenue is in appeal before the Tribunal.
We have heard the rival contentions and going through the facts and
circumstances of the case. Before us, Ld.Sr.DR relied on the assessment order
and stated that cash payment made for expenditure i.e. for purchase of land
being stock-in-trade is clearly hit by the provision of section 40A(3) of the Act
and Ld.CIT(A) has wrongly allowed the claim of the assessee. It was also stated
by Ld.Sr.DR that the assessee could not bring out any exception to Rule 6DD
of I.T. Rules, 1962 that the assessee’s case falls under any of the exception.
Ld.Sr.DR also relied on the decision of Hon'ble Supreme Court in the case of
Atar Singh Gurmukh Singh vs Income Tax Officer [1991] 191 ITR 667, 672-73
(SC) wherein Hon'ble Supreme Court held as under:-
“Section 40A(3) must be read alongwith rule 6DD. So read, these provisions are not intended to restrict the business activities. There is no restriction on the assessee in his trading activities. These provisions are
ITA No.164/NAG/2017
intended to regulate business transactions and to prevent the use of unaccounted money or to reduce the chances to use black money for business transactions. Any restraint intended to curb the chances and opportunities to use or create black money should not be regarded as curtailing the freedom of trade or business.”
On the other hand, Ld. Counsel for the assessee filed copy of Tribunal’s
order in which one of us (Sh. G.D.Agrawal, Hon'ble President, ITAT is party) in
the case of DCIT vs A.T. Properties Pvt.Ltd. in ITA No.3303/Del/2013 vide order
dated 29.11.2013 wherein the Tribunal has taken the view vide para 4 as
under:-
“We have heard both the sides and perused the material placed before us. After considering the arguments of both the sides and the facts of the case, we do not find any infirmity in the order of earned CIT(A). The learned CIT(A) has not disputed the applicability of Section 40A(3) in respect of cash payment made by the assessee. However, any expenditure can be disallowed only when the deduction in respect of such expenditure is claimed by the assessee. In this case, admittedly, the assessee has not claimed the expenditure on purchase of land by debiting the same to the profit & loss account but the expenditure for purchase of land has been debited to work-in-progress. The CIT(A) has already directed that the work- in-progress is to be reduced b the disallowance required to be made under Section 40A(3). In our opinion, the direction of the CIT(A) is fully justified. We, 4 ITA - 3303 & 3304/D/2013 therefore, do not find any justification to interfere with the same. The order of learned CIT(A) is sustained.”
While going though the Tribunal’s order in the case of A.T. Properties
P.Ltd. (supra), we have noticed that where the assessee has not claimed the
expenditure on purchase of land by not debiting the same to the P&L A/c but
the expenditure on purchase of land has been debited to work-in-progress, the
ITA No.164/NAG/2017
Tribunal has also observed that Ld.CIT(A) has already directed the AO to
reduce the work-in-progress as required u/s 40A(3) of the Act. When this was
pointed out to the Ld. Counsel for the assessee, he conceded the position and
stated that only payment to the extent of Rs.24,24,687/- was made during the
year. We have also gone through the trading account which is filed in
assessee’s Paper Book at page 10 wherein total land purchase is depicted at
an amount of Rs.1,67,70,000/-. It means that the same is included in this as
work-in-progress. We are of the view that even to the expenditure incurred for
work-in-progress, the provision of section 40A(3) of the Act will apply but in
this year, the work-in-progress to the extent of payment made in this year
alone can be reduced from the work-in-progress and this amount can be added
in the year when project will be completed and profit will be declared on this
project by the assessee. In terms of the above directions, we restore this
matter back to the file to the AO for verification and for carrying out our above
direction. Principally, we agree with the provisions of section 40A(3) will apply
in this case. Accordingly, the matter is restored back to the file of AO.
In the result, the appeal filed by the Revenue is partly allowed for
statistical purposes.
Order pronounced in the open court on 07th March, 2018.
Sd/– Sd/– (G.D.AGRAWAL) (MAHAVIR SINGH) HON’BLE PRESIDENT JUDICIAL MEMBER
Dated:07th MARCH, 2018 *Amit Kumar*
ITA No.164/NAG/2017
Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A), Nagpur 4. The CIT, Nagpur 5. The DR, Bench, ITAT, Nagpur
By Order Assistant Registrar ITAT, Nagpur Bench, Nagpur