ITAT Pune allows appeal, setting aside Rs. 78,75,000 disallowance for legitimate TDR transaction

The ITAT, Pune allowed the appeal filed by the assessee, setting aside the disallowance of Rs. 78,75,000/- imposed by the CIT(A)-III, Pune. The ITAT concluded that the transaction involving the purchase and sale of Transfer of Development Rights (TDR) was legitimate, supported by proper documentation and tax payments. Emphasizing that the sister concern had paid tax on the profit earned, the ITAT found no grounds for disallowing the inflated sales in the hands of the assessee. The judgment favored the assessee, rejecting the Assessing Officer's allegation of tax evasion through inflated purchase costs of TDR.

---

---

Issues:
Confirmation of disallowance of Rs. 78,75,000/- by CIT(A)-III, Pune on account of inflated rise of TDR relating to Assessment year 2007-08.

Analysis:
The appeal filed by the assessee challenged the confirmation of disallowance of Rs. 78,75,000/- by CIT(A)-III, Pune regarding the inflated rise of Transfer of Development Rights (TDR) for the Assessment year 2007-08. The Assessing Officer observed discrepancies in the purchase and sale of TDR by the assessee, a partnership firm engaged in construction and housing projects. The assessee claimed to have purchased TDR for Rs. 1,75,00,000/- from Kasturi Housing Pvt. Ltd., but the Assessing Officer found that the actual consideration paid was only Rs. 96,25,000/-. The Assessing Officer concluded that the transaction was a colorable device to evade tax, as the assessee inflated the purchase cost of TDR. Consequently, the disallowed amount of Rs. 78,75,000/- was added to the assessee's income as suppressed profit on the sale of TDR.

The first appellate authority upheld the Assessing Officer's decision, leading to the appeal before the ITAT, Pune. The core issue revolved around whether the transaction between the assessee and Kasturi Housing Pvt. Ltd. was a genuine business deal or a tax evasion scheme. The assessee argued that the purchase and sale of TDR were legitimate transactions, supported by proper documentation and tax payments. The assessee contended that since Kasturi Housing Pvt. Ltd. had paid tax on the profit earned from the transaction, there was no loss to the revenue. The assessee relied on a Bombay High Court judgment stating that no disallowance should be made where there is no attempt to evade tax in transactions with sister concerns.

Upon thorough examination of the facts and submissions, the ITAT, Pune found that the assessee had indeed purchased TDR from Kasturi Housing Pvt. Ltd. and sold it at a profit, which was duly offered for tax. It was noted that Kasturi Housing Pvt. Ltd. had paid tax on the profit earned from the transaction, as claimed. Referring to the Bombay High Court judgment, the ITAT concluded that since the sister concern had paid tax, there was no justification for disallowing the inflated sales in the hands of the assessee. Therefore, the ITAT allowed the appeal filed by the assessee, setting aside the disallowance of Rs. 78,75,000/-.

In conclusion, the ITAT, Pune's judgment favored the assessee, emphasizing the legitimacy of the transaction and the tax payments made by the sister concern, thereby rejecting the Assessing Officer's contention of tax evasion through inflated purchase costs of TDR.

---