2013 (9) TMI 639 - AT - Income Tax

Revenue's Appeal Dismissed, Expenditure Disallowances Partially Upheld, Protective Assessment Issue Remitted

The appeal by the Revenue regarding the deletion of capital gains was dismissed. Various disallowances of expenditures were partly allowed and partly ... Capital Gains - Transfer u/s 2(47) - whether receipt of advance against agreement of sale (duty registered) would constitute transfer or relinquishment of the asset and extinguishment of any right - Held that:- Smt. Raj Rani Devi Ramna v. CIT [1992 (5) TMI 11 - PATNA High Court] - sale deed, though registered, stipulating a condition precedent that the property shall pass only on receipt of sale consideration, transaction did not take place on the date of registration of sale deed - the assessee having executed the agreement, which only contemplated the sale property to the purchaser on a future date on certain terms without transferring any right of ownership, and no possession of property is given or right to use the property or right to receive income arising in the property was also not given to the purchaser - in such circumstances, it was not a transfer in terms of section 2(47) of the Income-tax Act Following CIT v. Rasiklal Maneklal (HUF) [1989 (3) TMI 3 - SUPREME Court] - there was neither an 'exchange' nor a 'relinquishment' and no capital gains arose from the transaction - An 'exchange' involves the transfer of property by one person to another and reciprocally the transfer of property by that other to the first person -There must be a mutual transfer of ownership of one thing for the ownership of another - A 'relinquishment' takes place when the owner withdraws himself from the property and abandons his rights thereto - It presumes that the property continues to exist after the relinquishment - Where, upon amalgamation, the company in which the assessee holds shares stands dissolved, there was non 'relinquishment' by the assessee - In view of the above discussion, there was no relinquishment of right over the property. – decided against Revenue. Confirmation of Addition Towards Payment Made - addition was sustained in the hands of the assessee on the reason that it was deleted in the hands of the recipients - Held that:- The deletion of the addition by the Commissioner of Income-tax (Appeals) in the hands of recipients may be on various reasons, but that itself cannot be a reason to sustain the same in the hands of the assessee who has incurred this expenditure wholly and exclusively for the purpose of business. Considering the facts and circumstances of the case, we are inclined to delete the addition - When the payment of this amount arose out of the same transaction, in our opinion, this payment alone cannot be disallowed - More so, all these persons had claimed the right over the property which the assessee dealt with by selling the same to DLF group of companies - At that time, they initiated civil litigation and this expenditure, in our opinion, it was incurred by the assessee on account of business and commercial exigencies for the purpose of business. Disallowance of Site-Levelling Expenditure – Held that:- As the situation warrants the assessee must have incurred the expenditure - The reason for disallowance was that incurring of the expenditure was not stipulated in the memorandum of understanding - The Department not doubted incurring of the expenditure - When the assessee had incurred the expenditure wholly and exclusively for the purpose of business it cannot be disallowed on the reason that it was not stipulated in the memorandum of understanding - Relying upon CIT v. Malayalam Plantations Ltd. [1964 (4) TMI 9 - SUPREME Court ] - The Assessing Officer also stated that the valuation report does not mention incurring of the expenditure - If the assessee incurred the expenditure in the year under consideration before executing the sale deed in the month of August 2007 the same had to be allowed. Disallowance of Payment to Sub-Agents – Held that:- The Department had not got anything on record to show that the payment was excessive or it was made to relatives of director of the assessee-company - the claim of the assessee had to be allowed - relying upon Commissioner Of Income-Tax, Kerala Versus Malayalam Plantations Limited[ 1964 (4) TMI 9 - SUPREME Court] During the course of search action, the Department found material in the form of receipts for payments made through account payee cheques to sub-agents to the tune of ₹ 1.70 crores and the same was seized - This payment was subjected to TDS - The subagents have filed their returns of income after payment of advance tax as applicable - Even during the course of investigation, the assessee placed necessary evidence before the investigating authority explaining the payment - Thereafter the assessee also filed acknowledgement for receipt of commission. Disallowance of Architect Fee - Held that:- The expenditure had to be allowed as business expenditure and the same was allowed - the assessee filed all the requisite details in the form of bill and receipt from the architect - Payment was made by cheque and also subjected to TDS - The expenditure was incurred towards consulting services provided by the architect with regard to site plan, SEZ specific building plan - More so, the Department had not brought anything to show that the assessee had not incurred this expenditure for the purpose of the business and it was presumed that it was incurred for the purpose of business and the same had to be allowed. Disallowance of Technical Expenditure – Held that:- The assessee claimed the above expenditure but had not filed explanation regarding this expenditure and had also not filed proof for having spent this expenditure - This expenditure was relating to the earlier year and the same was disallowed - Before us also no evidence was produced by the assessee as a proof for incurring this expenditure wholly and exclusively for the purpose of business - Being so this ground is dismissed. Disallowance of Expenditure Towards Video Surveillance Charges - Held that:- if the expenditure has been incurred for the purpose of business in the assessment year under consideration it had to be allowed as business expenditure while determining the income from the business - Accordingly, if this expenditure by the assessee was for the purpose of the business it had to be allowed though the entire property was not sold by the assessee in the year under consideration - Only incurring expenditure wholly and exclusively for the purpose of the business was important - Relying upon Commissioner Of Income-Tax, Kerala Versus Malayalam Plantations Limited [1964 (4) TMI 9 - SUPREME Court] - we allow the claim of the assessee as incurring of expenditure by the assessee was for the purpose of business was not doubted. Issues Involved:1. Deletion of capital gains.2. Confirmation of various disallowances of expenditures.3. Cancellation of protective assessment.Issue-wise Detailed Analysis:1. Deletion of Capital Gains:The Revenue contended that the Commissioner of Income-tax (Appeals) erred in deleting the capital gains of Rs. 1,90,14,870 based on an agreement of sale between the assessee and Sri B. Mohan Reddy. The Assessing Officer considered the transaction as a 'transfer' under section 2(47) of the Income-tax Act due to the relinquishment of rights over the property. However, the Commissioner of Income-tax (Appeals) observed that only a meager advance of Rs. 8 lakhs was received against the total consideration of Rs. 2.24 crores, and there was no actual transfer of possession or ownership. The Tribunal upheld the Commissioner's view, emphasizing that the mere agreement of sale without transfer of possession or rights does not constitute a 'transfer' under section 2(47). The appeal by the Revenue was dismissed.2. Confirmation of Various Disallowances of Expenditures:- Payment to Syed Naser and Dilip Kumar (Rs. 5 lakhs): The Commissioner of Income-tax (Appeals) disallowed this payment despite it being made by account payee cheques. The Tribunal found no reason to sustain the disallowance since the payment was made for business purposes and directed deletion of the addition.- Expenditure of Rs. 19,81,519: The expenditure was disallowed as it pertained to earlier years and not the year under consideration. The Tribunal upheld the disallowance, noting that the expenditure related to the period before the commencement of the DLF project.- Site-levelling Expenditure (Rs. 13.90 lakhs): The Assessing Officer disallowed this expenditure, citing lack of evidence and non-mention in the memorandum of understanding. The Tribunal allowed the expenditure, stating that not all business expenditures can be foreseen and stipulated in agreements.- Payment to Sub-agents (Rs. 87 lakhs, Rs. 71 lakhs, and Rs. 40.10 lakhs): The Tribunal allowed the payments, noting that they were made by cheques, subjected to TDS, and were necessary for business purposes. The Tribunal found the payments to be genuine and necessary for the business.- Architect Fee (Rs. 19 lakhs): The Tribunal allowed this expenditure, noting that it was incurred for consulting services related to the business, and the payment was made by cheque and subjected to TDS.- Technical Expenditure (Rs. 4,96,562): The Tribunal upheld the disallowance due to lack of evidence and explanation from the assessee.- Video Surveillance Charges (Rs. 28,99,100): The Tribunal allowed the expenditure, noting that it was incurred for business purposes and the expenditure was not doubted by the Department.3. Cancellation of Protective Assessment:The Revenue appealed against the cancellation of protective assessment in the hands of the assessee, as the substantive assessment was made in the hands of M/s. Demi Realtors. The Tribunal noted that the issue was pending before the Commissioner of Income-tax (Appeals) and remitted the issue back to the Commissioner to decide in whose hands the impugned addition should be made. The appeal of the Revenue was partly allowed for statistical purposes.Conclusion:- The appeal by the Revenue regarding the deletion of capital gains was dismissed.- Various disallowances of expenditures were partly allowed and partly dismissed based on the merits of each case.- The issue of protective assessment was remitted back to the Commissioner of Income-tax (Appeals) for a final decision.