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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI
Before: SHRI ANIL CHATURVEDI & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER : Appellant, M/s. Druzba Overseas Pvt. Ltd. (hereinafter referred to as ‘the assessee’) by filing the present appeal sought to set aside the impugned order dated 18.12.2012 passed by the Commissioner of Income-tax (Appeals)-XXXIII, New Delhi qua the assessment year 2007-08 on the grounds inter alia that :-
“1. That on the facts and circumstances of the case and in law the CIT(A) erred in rejecting appellant's contention that assessment order made by Assessing Officer was bad in law and void ab-initio on the ground that it ought to have been made u/s 153C of the Income Tax Act, and not, as was done u/s 143(3) of the Income Tax Act.
2. That without prejudice, on the facts and circumstances of the case and in law, the CIT(A) erred in upholding the action of the Assessing Officer in relying upon the material seized in the case of search on M/s BPTP group of cases despite:- i) that such material had no nexus/relevance with the case of the appellant and, ii) that the CIT(A} himself holding that such material did not belong to the appellant.
That on the facts and circumstances of the case and in law the CIT(A) erred in holding to quote, 'that seized documents definitely prove that interest is paid on PDC despite- i. that the seized record on the basis of which above finding was given, even according to his own finding by the CIT(A), did not belong to the appellant and, ii. that no enquiries were made from any of the alleged recipients of the interest and none was confronted with relevant document(s}.
3.1 That the finding of the CIT(A} is based on mere surmises and conjectures without proof and corroboration by independent evidence. 3.2 That without prejudice the CIT(A) erred in upholding the addition of interest for the period for which PDC's were extended. 3.3 That without prejudice the CIT(A) erred in not quantifying the addition and instead giving ambiguous directions to compute the interest after six months from the date of sale.
4. That on the facts and circumstances of the case and in law the CIT(A) erred in not accepting the appellant's contention that Additional Payments having not been claimed as deduction by appellant, no disallowance could have been made in the hands of the appellant.
4.1 That without prejudice the ClT(A) erred in upholding the disallowance of Additional Payments made to the recipients who were not the owners of land and to the payment made in cash. 4.2 That without prejudice the CIT(A) erred in not himself quantifying the addition to be made.
5. That on the facts and circumstances of the case and in law the CIT(A) erred in upholding the disallowance u/s 40A(3) in respect of which no deduction was claimed by the appellant. 5.1 That even on merits the disallowance was not justified.
That the orders passed by the Assessing Officer and Commissioner of Income Tax (Appeals)-XXXIII, New Delhi are bad in law and void ab-initio.”
Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee company belongs to BPTP Group which is into the real estate business in the NCR area. A search operation was carried out on BPTP and some of its group companies on 15.11.2017 by Directorate of Investigation, Delhi, however no search was carried out on the assessee company.
However, from the documents, certain discrepancies and transactions of suppression of income in the case of assessee were noticed and assessment has been framed under section 143 (3) of the Income-tax Act, 1961 (for short ‘the Act’) after making additions to the tune of Rs.29,28,201, Rs.51,21,875/- and Rs.40,000/- on account of interest on PDC, disallowance u/s 37(1) and disallowance u/s 40A(3) of the Act respectively.
3. Assessee carried the matter before the ld. CIT (A) by way of filing the appeal who has partly allowed the appeal by giving relief of Rs.29,28,201/- & Rs.51,21,875/- on account of interest on PDC and disallowance u/s 37(1) of the Act on account of additional payment, however confirmed the disallowance of Rs.40,000/- made u/s 40A(3) of the Act by the AO. Feeling aggrieved by the order passed by the ld. CIT (A), both the Revenue as well as assessee filed the cross appeal but the appeal filed by the Revenue reported to have been dismissed on account of “low tax effect” and now the present appeal filed by the assessee pertains to only one ground of disallowance of Rs.40,000/- u/s 40A(3) of the Act.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
AO, after noticing that out of the total payment of Rs.2,62,000/- made in cash for purchase of land from farmers and villagers, a sum of Rs.2,00,000/- was paid in cash in excess of the limit provided u/s 40A(3). Declining the explanation made by the assessee, AO disallowed 20% of Rs.2,00,000/- i.e. Rs.40,000/- and made addition thereof to the total income of the assessee. Ld. CIT(A) confirmed the disallowance.
6. Ld. AR for the assessee challenging the impugned disallowance contended inter alia that in view of the Collaboration Agreement entered into between the assessee and M/s. Countrywide Promoters (P) Ltd. (CWPPL), available at pages 24 to 36 of the paper book, the assessee company has received reimbursement of all amounts paid relating to transactions of purchase of land, stamp duty, registration charges etc. as per Clause 3(b) of the Agreement; that such payment has not been claimed by the assessee in the profit and loss account; that oral evidence cannot overweigh the written agreement; that identical issue has been decided in favour of the assessee in its group company case cited as M/s. Westland Developers Pvt. Ltd. in order dated 22.08.2014, available at pages 42 to 76 of the paper book.
However, on the other hand, ld. DR for the Revenue relied upon the orders passed by the AO as well as ld. CIT (A) and sought dismissal of the appeal. 8. Undisputedly, assessee has purchased the land and made part of the payment of Rs.40,000/- in cash and vide Collaboration Agreement, development rights and land in question were assigned in favour of CWPPL. It is also not in dispute that books of account of the assessee company have been accepted by the lower Revenue authorities. It is also not in dispute that purchase of land is not treated as stock-in-trade. It is also not in dispute that as per Collaboration Agreement, only development right of the property has been transferred and the ownership of the same remained intact with the assessee.
In the backdrop of the aforesaid undisputed facts and circumstances of the case, we are of the considered view inter alia that when the assessee has not debited the amount of cost of land in its profit & loss account, available at page 17 of the paper book, and when no expenses relatable to the addition in question have been claimed, provisions contained u/s 40A(3) of the Act are not attracted.
Moreover, assessee company has proved on record that the payment in question was mere reimbursement made by CWPPL.
Furthermore, purchase of land in the instant case was not treated as stock-in-trade. Moreover, para 3(b) of the Collaboration Agreement, available at page 27 of the paper book, categorically provides that CWPPL shall reimburse all costs and expenses incurred by the assessee with respect to the acquisition of the said land and accordingly in the books of account which have otherwise been accepted by the Revenue, the said amount received from CWPPL was shown as reimbursement.
Identical issue has been decided by the coordinate Bench of the Tribunal in the case cited as M/s. Westland Developers Pvt. Ltd. (supra) in favour of the assessee. Operative part thereof is extracted for ready perusal as under :-
“10.10. We have also taken ourselves through the judgement of the Jurisdictional High Court in the case of CIT vs Industrial Engineering Projects Pvt. Ltd. (cited supra) which has been relied upon before us for the proposition that reimbursement of expenses cannot be treated to be a Revenue receipt. How the judgement of the Apex Court in Tuticorin Alkali Chemicals & Fertilizers is applicable to the facts of the present case has not been set out in the order of the authorities nor has the Ld. DR been able to address the applicability of the said judgement to the issue at hand. We have taken ourselves through the said judgement and seen that it proceeds on entirety different facts and circumstances and has no applicability to the facts of the present case. Consequently, it is seen that from the ratio of the judgements relied upon before the CIT(A) and also before us which have been discussed in the earlier part of this order no arguments have been advanced by the Revenue so as to contend how they are not applicable to the case at hand, no distinguishing fact, circumstance or position of law has been relied upon so as to come to a contrary finding than the one arrived at. Accordingly on a consideration of the peculiar facts and circumstances of the case and the judgements relied upon considering the relevant provision of the Act namely Section 40A(3), we hold for the detailed reasons given hereinabove that Section 40A(3) of the Act has been wrongly invoked as admittedly no expenses relatable to the addition has been claimed and the assessee has successfully demonstrated that the payment were re- imbursement made by CWPPL. Accordingly Ground No-4 is allowed.
In view of what has been discussed above and following the order passed by the coordinate Bench of the Tribunal in assessee’s group company case (supra), we are of the considered view that when the assessee has not debited the amount of cost of land in the profit & loss account nor claimed any deduction in respect of cost of land by way of computation, provisions contained u/s 40A(3) are not attracted, so AO/CIT(A) have erred in making / confirming the disallowance of Rs.40,000/- by invoking the provisions contained u/s 40A(3) of the Act and as such ordered to be deleted. Consequently, the appeal filed by the assessee is hereby allowed. Order pronounced in open court on this 10th day of November, 2020.