ITAT Delhi upholds CIT(A) deletion of section 50C capital gains addition on lease premiums, remands traveling expenses for fresh consideration

ITAT Delhi dismissed revenue's appeal regarding capital gains addition under section 50C for leased property, following coordinate bench precedent that section 50C applies only to land/building transfers, not lease premiums. The tribunal upheld CIT(A)'s deletion of interest disallowance on subsidiary loans, finding business expediency established for project development. However, ITAT restored traveling expenses disallowance to AO for fresh consideration, noting CIT(A)'s contradictory reasoning in making ad hoc 25% disallowance despite accepting audited financials. The tribunal also restored related party advance disallowance to CIT(A) for rehearing and upheld deletion of excessive remuneration disallowance under section 40A(2)(a), finding AO's arbitrary 70% allowance without fair market value determination unjustified.

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Issues Involved:
1. Applicability of Section 50C on leased properties.
2. Disallowance of loans given to related parties.
3. Disallowance of travelling expenses.
4. Disallowance under Section 36(1)(iii).
5. Excessive remuneration paid to a director.

Summary:

1. Applicability of Section 50C on Leased Properties:
The primary issue was whether Section 50C of the Income Tax Act, 1961, applies to the sale of leased properties. The Assessee sold certain floors for Rs. 40,89,55,000/-, while the circle rate was Rs. 63,41,22,000/-. The Assessing Officer (AO) made an addition of the differential amount under Section 50C. The Commissioner of Income Tax (Appeals) [CIT(A)] deleted this addition, following the Tribunal's decision in the Assessee's own case for AY 2015-16. The Tribunal upheld this deletion, stating that Section 50C applies to 'land or building or both' and not to leased properties.

2. Disallowance of Loans Given to Related Parties:
The AO questioned the commercial expediency of loans given to related parties and made an addition. CIT(A) deleted this addition, accepting that the loans were for the development of projects in which the Assessee had substantial interest. The Tribunal upheld this decision, noting that investment in a subsidiary is considered a business expediency unless proven otherwise.

3. Disallowance of Travelling Expenses:
The AO disallowed a portion of the travelling expenses, concluding they were not wholly and exclusively for business purposes. CIT(A) restricted this disallowance to 25%. The Tribunal found that CIT(A) had self-contradicted by both accepting the audited financials and noting the lack of a business link for the expenses. The issue was restored to the AO to give the Assessee an opportunity to provide necessary evidence linking the expenses to the business.

4. Disallowance under Section 36(1)(iii):
CIT(A) on his own made a disallowance under Section 36(1)(iii) for an advance to a key managerial personnel, which the AO had missed. The Tribunal restored this issue to CIT(A) for reconsideration after giving the Assessee an opportunity to be heard.

5. Excessive Remuneration Paid to a Director:
The AO disallowed part of the remuneration paid to a director, deeming it excessive and unreasonable under Section 40A(2)(a). CIT(A) deleted this disallowance, noting the lack of material evidence to support the AO's claim. The Tribunal upheld CIT(A)'s decision, emphasizing that ad hoc disallowances cannot be made without a factual basis.

Conclusion:
The appeals of the Revenue were dismissed except for the issue of travelling expenses, which was restored to the AO. The Cross Objections of the Assessee were partly allowed.

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