Section 40A(3) disallowance and alleged interest addition failed where land payments were not claimed as expenditure and cheques were encashed within six months.

Section 40A(3) could not be invoked for land purchase payments that were not claimed as deductible expenditure or routed through the profit and loss account, so the disallowance was unsustainable. An addition for alleged interest on post-dated cheques paid outside the books was also deleted because the cheques were encashed within six months and the interest recomputation had already eliminated the addition. The assessee succeeded on both substantive issues, and the Revenue's challenge failed.

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Issues: (i) Whether disallowance under section 40A(3) could be made in respect of payments for land purchase when the amounts were not claimed as expenditure; (ii) Whether the addition on account of alleged interest on post-dated cheques paid outside the books of account was sustainable.

Issue (i): Whether disallowance under section 40A(3) could be made in respect of payments for land purchase when the amounts were not claimed as expenditure.

Analysis: The payments were not routed through the profit and loss account and were not claimed as business expenditure. The issue was also covered by the Tribunal's earlier decision in the assessee's group concerns on identical facts, where it was held that section 40A(3) could not be invoked in the absence of a claim of deductible expenditure.

Conclusion: The disallowance was unsustainable and the issue was decided in favour of the assessee.

Issue (ii): Whether the addition on account of alleged interest on post-dated cheques paid outside the books of account was sustainable.

Analysis: The cheques were encashed within six months of issue, and the Commissioner (Appeals)' direction to recompute interest after six months had already led to deletion of the addition. The issue was also covered by the Tribunal's earlier order in a group concern on identical facts.

Conclusion: The addition was rightly deleted and the issue was decided in favour of the assessee.

Final Conclusion: The assessee succeeded on the substantive issues and the Revenue's challenge failed, leaving the assessee's appeal only partly allowed overall.

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