2018 (1) TMI 1503 - AT - Income Tax

Tribunal ruling: Revenue appeal partially allowed, non-compete fee upheld, ad-hoc disallowance dismissed, leveling expenses reversed.

The Tribunal partially allowed the revenue's appeal, restoring the issue of loss on the sale of land for verification, upholding the non-compete fee as an ... Allowability of claim of loss on sale of lands - HELD THAT:- The assessee, by just paying a token amount of ₹ 7 Lakhs/- to certain mediators, who are said to be a group of people who acquire land from agricultural land owners for selling the same to big customers and entering into an agreement of sale with just one of the group members, cannot be said to have acquired all the rights in the said land of 6.41 Acres for ₹ 7,05,37,500/-, at Tauru, District Gurgaon, Haryana. At best the assessee could have acquired certain rights against the intermediaries/brokers/land pooling agents. There is no purchase of land. Such agreements cannot form part of 'stock-in-trade' of the assessee. These arguments at best give rise to certain claims for recovering of money. When the agreement was said to have been entered into on 24/03/2009, its time period was only up to 31/03/2009. Only ₹ 1 Lakh was taken as advance from M/s. A One Agerco Pvt. Ltd., New Delhi. When the Bench expressed its surprise, as to how the CIT(A), allowed the claim of the assessee on these facts and circumstances, assessee submitted that the entire amount has been paid to the vendors of the land by the assessee. This submission of the ld. A/R, is contrary to the recording of fact by the Assessing Officer at page 4 of his order, where he states that 'the assessee has not made the said payments as specified in the said agreement of sale.' Similarly, there is no proof of M/s. A One Agerco Pvt. Ltd. fulfilling its obligation under the agreements. All these documents in our view are self-serving documents. This is neither a purchase nor a sale of land. The finding of AO has force. A plain examination of the documents take us to a conclusion that this is a false and bogus claim. CIT(A) has in a slipshod manner allowed such huge claim of the assessee. In any event, as there is contradiction in the facts of the case, as has been presented by assessee and that recorded by the AO, we set aside this issue to the file of the CIT(A), with a direction to verify whether the assessee company had made payments to the tune of ₹ 7,05,37,500/-, to the group of brokers for acquisition of land. CIT(A), is also directed to verify whether M/s. A One Agerco Pvt. Ltd. had paid the entire money to the assessee and acquired the land in question. As the ld. CIT(A) failed to examine the applicability of Section 40A(3) of the Act. we direct him to do so. Allowability of payment of non-compete fees - HELD THAT:- The amount was not received by M/s. Mittal Corporation Ltd., under the head legal and professional service and hence the statement of the ld. A/R, to that effect, has no bearing on the claim of the assessee. As the assessee has paid the amount to M/s. Mittal Corporation Ltd. and as the amount received was offered to tax by M/s. Mittal Corporation Ltd., the revenue should have no grievance in this regard. In the result, this ground of the revenue is dismissed. Disallowance of expenses claimed at 10 per cent in the place of 1/3rd, disallowed by the AO - HELD THAT:- These are ad-hoc disallowances. As the D/R, did not controvert the finding of the CIT(A) we find no reason to interfere in this issue of percentage of ad-hoc disallowance of administrative expenditure. In the result, this ground of the revenue is dismissed. Allowability of expenditure claimed towards leveling and fencing - AO disallowed the claim as the assessee did not furnish supporting documents for the expenditure claimed - HELD THAT:- CIT(A) has not controverted the finding of the AO that the assessee has not produced the supporting documents of having incurred expenditure towards leveling and fencing. Mere production of a ledger account and payments by way of cheques does not suffice in this case. As the assessee has not produced necessary evidence, we uphold the order of the AO and reverse the finding of the CIT(A). In the result, this ground of the revenue is allowed. Issues Involved:1. Allowability of claim of loss on sale of land.2. Allowability of non-compete fee as an expense.3. Restriction of disallowance of expenses on a presumptive basis.4. Allowability of leveling and fencing expenses.Issue-wise Detailed Analysis:1. Allowability of Claim of Loss on Sale of Land:The assessee entered into an agreement to purchase land on 31/10/2008 for Rs. 7,05,38,500/-. The agreement was executed with five persons on non-judicial stamp paper worth Rs. 100/-. A token advance of Rs. 7 Lakhs was paid. Subsequently, the assessee entered into an agreement to sell the land to M/s. A One Agerco Pvt. Ltd. for Rs. 3,50,00,000/-, claiming a loss of Rs. 3,55,37,500/-. The Assessing Officer (AO) noted several discrepancies, including the lack of signatures from all parties, nominal advance payments, and the land not being registered in the assessee's name. The AO concluded that the loss claim was fabricated to offset profits from other transactions. The CIT(A) allowed the claim, but the Tribunal found the documents self-serving and restored the issue to the CIT(A) for verification of payments and applicability of Section 40A(3) of the Act.2. Allowability of Non-Compete Fee as an Expense:The assessee claimed to have paid Rs. 1,51,00,000/- to M/s. Mittal Corporation Ltd. as a non-compete fee to prevent interference in a land sale transaction. The AO verified the transaction through a commission and confirmed that the amount was received by M/s. Mittal Corporation Ltd. and offered to tax. The CIT(A) allowed the claim, and the Tribunal upheld this decision, noting no infirmity as the payment was genuine and taxed at the recipient's end.3. Restriction of Disallowance of Expenses on a Presumptive Basis:The AO made an ad-hoc disallowance of 1/3rd of the expenses, while the CIT(A) restricted it to 10%. The Tribunal found no reason to interfere with the CIT(A)'s decision, as the Departmental Representative did not controvert the findings.4. Allowability of Leveling and Fencing Expenses:The AO disallowed Rs. 57,27,558/- out of Rs. 82,66,742/- claimed for leveling and fencing expenses due to lack of supporting documents. The CIT(A) allowed the expenses except for Rs. 2,10,474/- paid in cash or by credit card. The Tribunal reversed the CIT(A)'s decision, upholding the AO's disallowance due to insufficient evidence.Conclusion:The Tribunal allowed the revenue's appeal in part, restoring the issue of loss on sale of land to the CIT(A) for verification, upholding the non-compete fee as an allowable expense, dismissing the revenue's appeal on the percentage of ad-hoc disallowance, and reversing the CIT(A)'s decision on leveling and fencing expenses.