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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ NEW DELHI
Before: SHRI SUNIL KUMAR YADAV & SHRI L.P. SAHU
Per L.P. Sahu, Accountant Member:
This is an appeal filed by the assessee against the order of ld.CIT(A)- XXXIII, New Delhi for the assessment year 2009-10 dated 22.01.2013 on the following grounds :
“1. That on the facts and circumstances of the case and in law the CIT(A) erred in not accepting the appellant's objection against the action of the Assessing Officer in utilizing the material seized in the course of search u/s 132 of the IT Act made on 15.11.2007 on M/s BPTP Ltd and its group companies (excluding the appellant company), which action of the AO was challenged on the ground that- i. No incriminating document belonging to the appellant was seized, and, ii. In any case, no material related to the year under consideration.
2. That on the facts and circumstances of the case and in law the CIT(A) erred in holding to quote, 'that seized documents definitely proves that interest is paid on PDC in view of the fact-
i. that there is no specific reference of any seized material belonging to the assessee on the basis of which above finding was given, and ii. that no enquiries were made from any of the alleged recipients of the interest and none was confronted with relevant document(s).
2.1 That the finding of the CIT(A) is based on mere surmises and conjectures without proof and corroboration by independent evidence.
2.2. That without prejudice the CIT(A) erred in upholding the addition of interest for the period for which PDC's were extended.
2.3That without prejudice the C1T(A) erred in not quantifying the addition and instead giving ambiguous directions to compute the interest after six months from the date of sale.
3. 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.
3.1That without prejudice the CIT(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.
3.2That without prejudice the CIT(A) erred in not himself quantifying the addition to be made.
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.
5. The appellant craves permission to add, amend, alter or vary all or any grounds of appeal on or before the date of hearing of the appeal.”
All the above grounds of appeal relate to only one issue regarding expenditure outside the books of account incurred by the assessee which was discovered on search made on BPTP group companies on 15.11.2007. The brief facts of the case are that the assessee filed its return of income on 22.09.2009 declaring loss of Rs.2770/-. The case was processed u/s. 143(1) and later on, it was selected for scrutiny and statutory notices were issued and served upon the assessee. As stated on behalf of the assessee, the assessee company acquired various lands from farmers/villagers for and on behalf of M/s. Countrywide Promoters (P) Ltd. (CWPPL). As per the collaboration agreement dated 15.09.2004 (PB 67 to 77), the CWPPL was to develop the land and sell it to the buyers. The assessee was only entitled to consolidated fee of Rs.35,000/- per acre. During the search proceedings on BPTP group companies and post search enquiry, it was established that the group companies were following a business model as a part of which only part payment of sale consideration in respect of the land purchased were paid at the time of execution of the sale deed and the payments of balance sale consideration were invariably made through post dated cheques (PDCs) and for the intervening period, interest was paid in cash to the vendors of the land by the vendee company on monthly basis @1.25% p.m. on the amount of PDC and this cash payment of interest by the vendee company was not accounted for by it in its books of accounts. The appellant company had also purchase a large chunk of land during the financial year 2008-09 and following the same modus operandi had paid interest in cash to the vendors of the land on monthly basis @ 1.25% p.m. on the amount of PDCs and this cash payment of interest had not been accounted for by it in its books of accounts. On the basis of searched papers, the Assessing Officer calculated the amount of interest paid through cash on PDCs as under :
S. Sale deed Name of Date of sale Amount of Date of No. of Amount of No. No. the vendor deed PDC (In Rs.) encashment month PDC (A) of PDCS (B) interest (in Rs.) (AxBx1.25 %) 1 2035 Jile Ram 23-Apr-2008 1,24,61,875 30.05.2008 1 1,55,173 2 4578 Raghbeer 23-May-2008 1,21,72,500 27.09.2008 4 6,08,625 3 4578 Baburam 23-May-2008 1,21,72,500 23.09.2008 4 6,08,625 4 6300 Babita 12-Jun-2008 1,54,161 30.06.2008 1 1,927 5 9515 Bedram 30-Jul02008 20,00,000 18.10.2008 4 1,00,000 6 9515 Bedram 30-Jul-2008 69,14,375 17.03.2011 9 7,77,867 7 12271 Phoolwati 21-Aug-2008 24,75,000 21.10.2008 2 61,875 8 12272 Satish 21-Aug-2008 95,62,500 20.11.2008 3 3,58,594 9 12327 Satish 22-Aug-2008 38,01,125 09.09.2008 1 47,514 Kumar GRAND TOTAL 27,20,800 Accordingly, the AO disallowed the amount of Rs.27,20,800/- on the ground that it was not recorded in the books of appellant as it was paid in cash.
On assessment proceedings u/s. 153A/153C in the case of BPTP and its group companies, the Assessing Officer further noted that the appellant company has paid Rs.1,20,000/- in cash/cheque over and above Rs.45.02 crores to the vendors (basically farmers). In this regard, the Assessing Officer asked the appellant to explain as to under what circumstances, extra payment was made over and above the consideration mentioned in the sale deeds. In reply, the assessee submitted as under :
'The assessee had a collaboration agreement with M/s Countrywide Promoters Pvt. Ltd. under which the assessee was to acquire lends. It was agreed that M/s Countrywide Promoters Pvt. Ltd. shall reimburse to the assessee all costs and expenses incurred by the assessee with respect to its acquisition of the concerned land...... For purchase of land an agreement is entered into between the assessee and the seller where the sale consideration to be paid is agreed upon. Thereafter a sale deed is executed and registered where the sale consideration is recorded. On the registration of the sale deed, the assessee becomes owner and is entitled to take possession of the land. However, in actual practice it often happens that disputes arise in the matter of taking possession. Such disputes arise due to diverse reasons, some of which are stated hereunder: " Nature of land holding in India: Land is passed from generation to generation. Though agreement is entered with any one person but others members of the family raise disputes.
BPTP planned for developing township on over 1000 acres in 2005. So, various elements enter into spurious/ non-serious agreements with farmers. It is to settle such cases, the payments are made. Often payment is made by the post-dated cheques. At the time of encashment, there is considerable escalation in prices. Seller, therefore, raise claim for compensation for delay in payment.
The seller wants additional payment towards tubewell, standing trees and for other superstructure. Faced with such numerous post sale situations, the assessee, in view of commercial expediency has to incur additional expenditure. Such additional expenditure is incurred in order to ensure that the purchase already made does not become abortive because of long pending litigation and at times for fear of hostility by the seller. In order to buy peace, the additional payment is agreed upon. So, • payments are made for such commercial expediency and in view of judgment in CIT Vs. Dalmia Cement 254 ITR 377 (SC), department cannot put itself in the arm chair of a businessman. Further: • The entire expenditure has been reimbursed by M/s. Countrywide Promoters Pvt. Ltd. in view of agreement. In view of judgment of CIT Vs. Tejaji Forasram Kharwalla Ltd (1968) 67 ITR 95 (SC) and Delhi High Cour: in CIT Vs. Industrial Engineering Projects Pvt. Ltd. 202 ITR 104 (Delhi) reimbursement under no circumstances can be held to be revenue receipt, So, there was no sale of land and in any case there was no stock-in-trade. • All payments are genuine and there is no necessity to insist for any further acknowledgment of the factum to the persons concerned. • Narration given in the cyclostyled receipts does not make any inroad into the genuineness and factum of payment. You may call the persons u/s 131 of the I.T. Act. Extra/ Additional payment should not be considered for purchase of land. But it is extra expenditure for perfecting the title of the land.... It is submitted that the concerned transactions were not covered by Section 24 of the Indian Stamp Act and further Section 35 of the said Act was also not applicable because there is nothing to show that the instruments of sale were not duly stamped. So, there is no violation of Stamp Duty Act.”
4. The AO was not satisfied with the reply of assessee and he disallowed Rs.1,20,000/-. Aggrieved by the order of the AO, the assessee appealed before the ld. CIT(A) who partly allowed the appeal. Aggrieved by the order of ld. CIT(A), the assessee is in appeal before the Tribunal.
The ld. AR of the assessee filed a written synopsis before us and reiterated the contentions raised therein, which shall be dealt with in later part of this order. The ld. DR, on the other hand, relied on the orders of the authorities below.
We have considered the rival submissions and have gone through the entire material available on record. Grounds Nos. 1, 4 & 5 are not pressed by the assessee. The same are accordingly dismissed.
In his written synopsis, the ld. Counsel for the assessee submitted that the assessee has no grievance on grounds Nos. 2 to 2.3 also, as the addition of Rs.27,20,800/- was not sustained by AO while giving the appeal effect to the directions of the ld. CIT(A) in assessee’s appeal No. 78/11-12/763. These grounds, therefore, become redundant.
As regards ground No. 3 to 3.2 relating to disallowance of additional payment of Rs.1,20,000/- u/s. 37(1), the contention of the assessee has been that since the assessee did not claim this expenditure the same could not be disallowed. It was submitted that in respect of this disallowance, the ld. CIT(A) gave certain directions to quantify the disallowance to be made and as
per these directions, while giving appeal effect, the claim of Rs.1,00,000/- was allowed by AO and remaining claim of Rs.20,000/- was confirmed, as can be seen from the IT computation form (ITNS 150) placed at page 7 of the paper book. We find substance in the contention of the assessee made in the written synopsis that similar disallowance was made in the case of M/s. Westland Developers Pvt. Ltd. (a group company) for A.Y. 2006-07 where the Tribunal, after following various decisions of coordinate Bench of Tribunal, deleted the addition vide para 13 observing as under in the identical facts and circumstances of the case :
“13. We have heard the rival submissions and perused the material available on record. The case law relied upon by the parties has been taken into consideration. On a consideration of the same we are of the view that since in the facts of the present case the material issue is that the said expenditure was never claimed as assessee’s business expenditure the occasion to make a disallowance of the same does not arise. On this fact there is no dispute as admittedly the expenditure was not claimed as an expense by the assessee and consequently has not been routed through its P&L A/c. In the circumstances, the occasion to make an addition of the same by way of a disallowance in these peculiar facts and circumstances of the case does not arise. The reasoning and finding given while considering the arguments qua Ground No-4 would fully apply here also. The difference that here the entire amount is added u/s 37 as opposed to part of the expenditure disallowed u/s 40A(3) is not so material as the finding is arrived at taking cognizance of the material fact that herein also no such claim of expenditure has been made. The fact that the additional payments were warranted in order to avoid potential disputes amongst the claimants of the land holding which have been passed through to the land holders from generation to generation wherein there may be informal arrangements of ownership and or the payments were for commercial expediency to facilitate peaceful possession and registration of the land holding; where by the time Registry was made the landholders felt a higher payment was necessitated due to increase in value are issues which are not required to be addressed in the present proceedings. Ground No-3 on the facts available on record considering the judicial precedent referred to in detail while deciding Ground No-4 has to be decided in favour of the assessee.”
This decision, as stated by the ld. AR, has been accepted by the Department, as not challenged before the Hon’ble High Court. Therefore, respectfully following the decision of Co-ordinate Bench, the issue is decided in favour of the assessee. Accordingly, the appeal of the assessee deserves to be partly allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 16.11.2016