Tribunal allows appeal, deletes disallowance under Section 40A(3) & penalty under Section 271(1)(c)

The Tribunal allowed the assessee's appeal under Section 40A(3), deleting the disallowance of Rs. 21.50 lacs. The Tribunal remanded the issue for re-adjudication by the Assessing Officer due to banking evidence showing payments made, providing the assessee with a fair hearing. The penalty under Section 271(1)(c) was deleted, with the possibility of fresh proceedings by the Assessing Officer. The quantum appeal was allowed for statistical purposes, and the penalty appeal succeeded.

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Issues Involved:
1. Disallowance of expenditure under Section 40A(3) of the Income Tax Act, 1961.
2. Unverifiable purchase claim of Rs. 20 lacs.
3. Penalty under Section 271(1)(c) of the Income Tax Act, 1961.

Detailed Analysis:

1. Disallowance of Expenditure under Section 40A(3):
The assessee's first appeal sought to delete the disallowance of Rs. 1 lac made by the CIT(A) by reversing the Assessing Officer’s action invoking Section 40A(3) of the Act concerning FDR payments of Rs. 1,50,000/-. The CIT(A) restricted the disallowance to Rs. 1 lac, agreeing partly with the assessee’s contention that the statutory provision did not apply in the case. The CIT(A) observed that the appellant was required to put Rs. 50,000 in FDR in favor of the seller as an additional amount, which was allowable, but the additional Rs. 1 lac was not a business expenditure and hence disallowed.

2. Unverifiable Purchase Claim of Rs. 20 lacs:
The second substantive ground challenged the lower appellate order confirming an unverifiable purchase claim of Rs. 20 lacs. The assessee had debited this amount for land development expenses through a journal entry dated 15-11-2008. The Assessing Officer disallowed this amount, considering it unverifiable as the payees did not respond to Section 133(6) notices, and the amount remained outstanding as of 31-03-2009. The CIT(A) confirmed this disallowance, noting that no actual expenditure was incurred, and the MoU presented by the assessee was neither registered nor notarized, making the claim unverifiable and unsubstantiated.

3. Penalty under Section 271(1)(c):
The assessee's second appeal challenged the penalty of Rs. 7,13,790/- imposed under Section 271(1)(c) corresponding to the above-stated quantum disallowance of Rs. 20 lacs. The Tribunal opined that the penalty could not stand in light of the remand directions in the quantum proceedings. The penalty was deleted with the liberty to the Assessing Officer to initiate fresh proceedings as per law after finalizing the consequential assessment.

Conclusion:
The Tribunal heard both parties and reviewed the facts. It found that the CIT(A) had appropriately deleted the disallowance of Rs. 21.50 lacs under Section 40A(3), concluding that the provision did not apply. The Tribunal noted that the assessee had made payments of Rs. 20 lacs on 14-05-2012 and 15-05-2012 through banking channels, which prima facie rebutted the case of the lower authorities. The Tribunal felt it appropriate to remand the issue to the Assessing Officer for re-adjudication in view of these developments, ensuring justice by providing adequate hearing opportunities to the assessee. Consequently, the quantum appeal was allowed for statistical purposes, and the penalty appeal succeeded.

Order:
- Assessee’s appeal ITA 2849/Ahd/2012 is allowed for statistical purposes.
- Assessee’s appeal ITA 146/Ahd/2016 is allowed.

Order pronounced in the open court on 29-06-2016.

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