ACIT, NEW DELHI vs. SHRI RAVI ARORA, NEW DELHI
In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.
What did the Tribunal hold?
The Tribunal upheld the deletion of the addition, agreeing with the CIT(A) that an advance cannot be equated with expenditure. Furthermore, the amount was not claimed as an expenditure or routed through the profit and loss account, making Section 40A(3) inapplicable.
What were the facts?
The Assessing Officer (AO) disallowed an Rs. 80 lacs cash payment made as an advance for property purchase, invoking Section 40A(3) on the grounds that the property was intended to be stock-in-trade. The assessee contended it was an investment and the amount was reflected in the cash book.
What were the issues?
Whether a cash payment made as an advance for property purchase, not claimed as expenditure, can be disallowed under Section 40A(3) when the property is considered an investment.
Which sections of the Income-tax Act were involved?
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI AMIT SHUKLA & SHRI PRASHANT MAHARISHI
The aforesaid appeal has been filed by the revenue against impugned order dated 24.5.2016, passed for Ld. CIT(Appeals)-39 New Delhi for the quantum of assessment u/s. 143(3)/153A.
In the grounds of appeal
the revenue has challenged the deletion of addition of Rs. 80 lacs made u/s 40A (3). The facts in brief qua the issue involved are that during the course of assessment proceedings, AO noted that amount of Rs. 80 lacs has been paid in cash on account of purchase of property No. A-32, 2nd Floor at Terrace, Gulmohar Park, New Delhi to Sh. Satish Julka as an advance as per the documents seized, while the remaining amount of Rs. 20 lacs was paid by way of pay order. In response to the show-cause notice assessee submitted that the advance taken of Rs. 80 lacs was given towards property out of cash-in-hand which is duly reflected in the cash book. Ld. AO held that assessee has violated the provision of section 40A (3), because the property which was intended to be purchased was to be held as ‘stock- in-trade’, whereas the assessee’s case is that it is purely an investment. Accordingly, he made the disallowance of Rs. 80 lacs after invoking the provision of section 40A (3).
3. Ld. CIT (A) has deleted the said addition on the ground that, firstly, advance cannot be equated with expenditure; and secondly, amount has not been claimed as expenditure or has been routed through profit and loss account so as to claim any deduction. The relevant observation and findings are as under:- “5.2 Going into the merits of the disallowance in the impugned order, it becomes clear there from that the disallowance made u/s 40A(3) was for the cash component of the advance paid for the abovementioned property. Further, the appellant's version of the nature of the property as an investment was rejected therein on the reasoning that facts and circumstances indicated the appellant's intention to hold it as a stock-in-trade instead as an investment. It is not understood as to how the evidences produced by the appellant, at the assessment stage, in support of his contention were overlooked. Even the books of account produced were not rejected. Hence, the addition appears to balance on the only fulcrum available - the appellant's intention! But even that reasoning fails as 'intentions become clear only from actions' which in this case tilts in favour of the appellant. The submissions 2 of the appellant in this regard, which are borne out from records and in sync with the extant law, at the appellate stage fully support his contention. 5.3 From a plain reading of the relevant provisions of the Act and Rules it is clear that disallowance of expenditure u/s 40A(3) can be made not only after a combined reading of Section 40A(3) and Rule 6DD (that provides for exceptions) but also only for business expenditure (both direct and indirect). Certainly, in my opinion and also as per the law of Accountancy, an 'advance' cannot be equated with an 'expenditure' till the former retains its original character thereby implying that an advance at the end of the accounting period (financial year) remains In the Balance Sheet without going through the P& L A/c. as a claim of deduction (an expenditure against the gross receipts). However, if the advance gets adjusted towards specific expenditure, it loses its original character and falls within the ambit of Section 40A(3) r w Rule 6DDsubject to fulfilment of the prescribed conditions. Further, the AR's submission on this point is backed by facts as per the above paras and is also in sync with the extant law in this regard. Taking all these together, it becomes clear that the disallowance made in the impugned order u/s 40A(3) is not appropriate. Accordingly, the disallowance on this point made in the order u/s 143(3) / 153A is hereby deleted. The AO is directed to re-compute the income accordingly.”
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