SOLANKI DEVELOPERS,THANE vs. DCIT CIR. 3, THANE, THANE

Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य सद�य, राजे�� राजे�� केकेकेके अनुसार अनुसार /PER RAJENDRA, AM- लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the order dated 17.06.2016 of CIT(A)-II, Thane, the assessee has filed the present appeal.Assessee-firm,engaged in property development filed its return of income on 07.09.2010 declaring income of Rs.1.43 crores. The Assessing Officer (A.O.) completed the assessment u/s. 143(3) of the Act, on 18.08.2013 determining its income at Rs.1.63 crores. 2.Effective ground of appeal is above sustaining the addition of Rs.19.63 lacs, made by the A.O. u/s. 40A(2)(b) of the Act. During the assessment proceedings, the A.O. found the assessee had purchased a plot of land on 24.07.2008 for Rs.4 crores as against the market value of Rs.3.80 crores, that the plot was owned by Shri Uttamchand Solanki, a partner of the assessee firm. He directed it to explain as to why the excess amount of Rs.19.63 lacs (Rs.4 crores – Rs.3,80,37,000) paid over and above the market value should not be disallowed to its total income as per the provisions of section 40A(2)(b). The assessee in its reply stated that the plot of land was owned by two person that one of them was not related to the firm. The A.O. made an addition of the difference of Rs.19.63 lacs to the income of the assessee. 3.Aggrieved by the order of the A.O., the assessee preferred an appeal before the first appellate authority (FAA) and made detailed submissions.After considering the available material, he held that the assessee firm have two partners, that one of them was Shri Uttamchand Solanki, that it purchased a plot of land from Shri Uttamchand Solanki, partner of the firm and Shri Devichand Solanki (relative of the partner), that purchase were made during the A.Y. 2009-10, that it had paid Rs.4 crores to the owners of the plot of land as against the market value of Rs.3.80 crores, that Shri Uttamchand Solanki and Shri Devichand Solanki, were close relative that the assessee – Solanki Developers had proposed to develop and construct a building on the said plot in 3 years, that the cost of land was equally apportioned, that it had debited cost of land at Rs.1.59 crores for the year under appeal, that the cost of land was appearing in the P & L account, that the claim of the assessee that same had to be added in the year of transaction was not taxable, that the assessee had claimed that both the individuals had paid taxes on the said amount as profit accrued to them, that every entity was an independent entity, that the argument advanced by the assessee was not tenable, that the provisions of section 40A(2)(b) of the Act were clearly attracted. Finally, he upheld the order of the A.O. 4.During the course of hearing before us, the authorised representative (AR) contended that the transaction pertained to earlier assessment year, that the A.O. had not given any finding that payment was excessive and unreasonable, that the valuation made by the Registration authority was estimated value, that the difference was less than 5%, that one of the partner was not the relative, that the onus was on the department through the contravention of the provisions of section 40A(2)(b). he relied upon the cases of Upper India Publishing House Pvt. Ltd. (117 ITR 569)and Johnson & Johnson (150 DTR 142).The Departmental Representative (DR) argued that provisions of section 40A(2)(b) dealt with incurring of expenditure, that the assessee had debited the disputed amount in the P & L account, that the persons who sold the plot of land were related to the assessee firm. 5.We have heard the rival submissions and perused the material before us. We find that the assessee had purchased a plot of land owned by two individuals that one of them was partner of the assessee firm, that the A.O. had invoked the provisions of section 40A(2)(b), that the FAA confirmed his order. We find that the A.O./FAA has not mentioned as to how the other person namely Shri Devichand Solanki was related to the assessee or to Shri Uttamchand Solanki. For invoking the provisions of section 40A(2)(b),a finding of fact about expenditure of being unreasonable and excessive as compared to the market rate has to be established. We would like to refer to the case of Johnson & Johnson Ltd.(150DTR142) wherein the Hon’ble High Court has held that in terms of section 40A(2), the burden was upon the AO to form an opinion that the payment is excessive. We find that the A.O. has not made any enquiries about the fair market value of the plot of the land in the same locality.The circle rate adopted by the A.O. and approved by the FAA are basically estimated fair market value. Some leverage has to be given for the difference. The basic fact of Shri Devichand Solanki being related to the assessee firm or to the partners and payment being excessive and unreasonable has not been established.