DEBASHIS KAR,HOWRAH vs. ACIT, CIRCLE - 47, KOLKATA, KOLKATA

Grounds of appeal

The Assessee is an individual. During the previous year the assessee sold a property which was a vacant land. It is not in dispute that the income from sale of the property was considered as income from business as the assessee was in the business of purchase and sale of land. The dispute in the present case is with regard to the claim of Shri Debasish Kar A.Yr.2013-14 the assessee for deduction of a sum of Rs.31,85,000/- on account of expenditure incurred for earth filling of the land which was sold during the relevant previous year.

The AO disallowed the claim of the assessee for deduction of earth filling expenses for the reason that the expenses claimed by the assessee to have been incurred were incurred by making payment in cash to various parties. The AO also found that out of the expenditure of Rs.31,85,000/- the assessee had paid a sum of Rs.8,02,000/- during the relevant previous year and the remaining sum of Rs.23,85,000/- was outstanding in the books of accounts as on 31.03.2013. The AO was of the view that the assessee did not produce the name and PAN of the person i.e. the contractor who carried out the earth filling work. The AO also took note of the report of the inspector who was sent to conduct a field enquiry and whose statement was stated in his report: “At the above address I found that the said land is situated near railway line on which some earth filing work is going on . The land has been purchased from Sri Debasis Kar. I asked about the above said land from the local person, they said that the land was purchased by the builder and he started land filing work since last two years (after purchase of this land) and he will start construction on the said land soon. As per spot enquiry, it is found that earth filing work is under progress. The work is being done by builder. All earth filing and land development work is done after land was purchased from Shri Debasis kar. Whatever work has been done is been done by builder only. "

On appeal by the assessee the CIT(A) confirmed the order of AO. The CIT(A) apart from the reasons given by the AO also cited another reason namely absence of equivalent withdrawal of cash from the assessee’s bank account. Another circumstance cited by CIT(A) was that the cash withdrawals were after the sale of the land. The CIT(A) accepted the contention of the assessee that the liability to fill the land as per the agreement between the parties was that of the assessee and the fact that such activity 2

We have heard the rival submissions. We have also perused the material available on record. The statement of bills and payments for land filling expenses is placed at pages 2 to 7 of the assessee’s paper book. It is clear from a perusal of the same that the total bill amount raised by the various contractors is a sum of Rs.31,85,000/-. As on 31.03.2013 the assessee had made payment of Rs.8,02,000/-. The remaining sum was paid by the assessee in the subsequent assessment year to the tune of Rs.10,10,000/- leaving the balance of Rs.13,73,000/- which was discharged in the subsequent assessment years. The payment vouchers for earth filling charges are placed at pages 8 to 61 of the assessee’s paper book. The inspectors report which we have extracted in the early part of our order is not of any assistance to the case of the revenue. Whatever has been stated in the inspectors report is purely hearsay. There is no material on record brought out by the inspector or by the revenue authorities to show that it was only the builder who carried out the land filling activity and incurred expenses. The evidence on record clearly demonstrates the plea of the assessee that a sum of Rs.31,85,000/- was liability of the assessee for which the assessee is entitled to claim deduction in A.Y.2013-14. The Bills of the contractors raised for carrying out the work were raised during the previous year relevant to A.Y.2013-14. . The assessee follows mercantile system of accounting an therefore the payment of the expenditure in the subsequent assessment years is not of any consequence. There is nothing on record to show that it was only the builder who incurred expenses for carrying out the land filling activity. On the contrary the evidence on record suggests that the land filling activity was carried out over the property which was sold the assessee. Other circumstances clearly suggest that it was only the assessee who incurred those expenses. In the given circumstances we are 3

In the result the appeal by the assessee is allowed.