AI Drafter 
TaxTMI 
TaxTMI 
2014 (12) TMI 254
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....exus/relevance with the case of the appellant and, (ii) that, the CIT(A) himself holding that such material did not belong to the appellant. 3. That on the facts and circumstances of the case and in law the CIT(A erred in not accepting the appellant's contention that Additional payments having not been claimed as deduction by appellant, no disallowance could have been made in the hands of the appellant. 3.1. That without prejudice the CIT(A) erred in upholding the disallowance of Additional payments made to the recipients who were not the owners of land and to the payment made in cash. 3.2. That without prejudice the CIT(A) erred in not himself quantifying the addition to be made. 4. That on the facts and circumstances of the case and in law the CIT(A) erred in upholding the disallowance u/s 40A(3) in respect of which no deduction was claimed by the appellant. 4.1. That even on merits the disallowance was not justified. 5. That the orders passed by the Assessing Officer and Commissioner of Income Tax (Appeals)-XXXIII, New Delhi are bad in law and void ab-inito. 6. The appellant craves permission to add, amend, alter or vary all or any grounds of appeal on or....
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.... title along with the vacant possession of 18 acres of land or thereabout. AND WHEREAS the Owner is desirous to develop/construct an integrated township project at the said land, however due to financial constraints, lack of knowledge and expertise in the real estate business is not in a position to do so. AND WHEREAS the Owner has approached the Developer to carry out the development and construction works of the proposed township and the Developer has agreed to the same ..... " 3.2. Further, on perusal of the details of payments made by the assessee company for acquiring the land from farmers/villagers, it has been noticed that the assessee has made part payment of total sale consideration in cash (out of total. sale consideration of Rs. 185,032,500/-, a sum of Rs. 865,800/- has been paid in cash) and thus has contravened the provisions of section 40A(3). Accordingly, the assessee vide order sheet entry dt. 17.11.2008, has been asked to explain as to why the provisions of section 40A(3) may not be applied to the expenditure incurred by it in cash for acquiring the land from the farmers/villagers and the same may not be disallowed to the extent of 20% as provided in the s....
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....rywide Promoters Pvt. Ltd., another flagship company of BPTP group, for development and construction of proposed township in pursuance of the Collaboration Agreement. In consideration of the transfer of land to CWPPL, the assessee company has earned an additional income/fee of Rs. 35,OOO/- per acre, which was over and above the cost of the land. Thus, in other words, the assessee has transferred the land to CWPPL at a premium of Rs. 35z000/- per acre to the purchase cost of the land. During the year under consideration, the assessee company did not carry any business other than that of acquiring land from villagers through registered sale deeds and transferring the land so acquired to CWPPL. It is pertinent to mention here that whatever business income was earned by the assessee has direct nexus with the land acquired and transferred by it. Had there been no acquisition of land by the assessee company there would not have been any business income. It shows that acquiring land from villagers and transferring the same to CWPPL is the main ingredients/components of the assessee's business. The same is also established from the opening lines of the Collaboration Agreement, as mentioned....
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....not claimed the deduction of the cost of land from the amount received from CWPPL, the profit of he assessee would have been increased by the cost of the land. 3.5. In view of the supra judgement of the Hon'ble Supreme Court coupled with the fact that the assessee company has made part payment of the total sale consideration in cash clearly attracts the provisions of section 40A(3). Moreover, the said contravention of section 40A(3) is not covered by the exceptions referred to in Rule 6DD. Rule 6DD provides for an exhaustive list of cases and circumstances in which a payment in a sum exceeding Rs. 20,000/- may be made otherwise than by a crossed cheque drawn on a bank or a crossed bank draft. It is not an inclusive list but an exhaustive list and the payments made by the assessee company for the purchase of land are not covered by the exception provided in Rule 6DD. It has been held by Kerala High Court in the case of Kamath Marbles Vs ITO 260 ITR 470 that the continuing exceptions under Rule 6DD like exceptions for transaction in place where there is no banking facility or where purchase is of agricultural or forest produce is sufficient. However, in the present case, payme....
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.... the matter of taking possession. Such dispute arises due to diverse reasons some of which are stated here-undera.) One of major reasons for dispute is nature of land holding in India. Land is transferred from generation to generation and thru informal/unwritten agreements ownership is divided among various claimants. However, no partition of land is generally recorded. We had to enter into agreements with each individual separately whereby we purchase land from him. However, other family members at time raises disputes on account of non partition of land. Even as on today number of such disputes related to BPTP associates companies are pending in various Courts. At times instead of going for long drawn Court disputes, we had to agree for some payments to these members so that we can get timely/peaceful possession of the property. b) Quite often the agreed price is paid by issuing post dated cheques. When the time comes for encashment of the cheque in many cases there is considerable escalation in the price of land in the meanwhile. The seller, therefore, raises a claim for compensation for the delay in payment. The difference between ruling price and the price shown in the s....
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....n who did not sign the sale deed has put his signatures on the receipt. In view of the above defects in the receipt alleged to have been issued by the payees of additional payment, the genuineness and truthfulness of the transaction was not proved and accordingly, the claim of said additional payment is disallowed. 4.3. At this point, it is not out of place to mention that a Search Operation was carried upon the BPTP Ltd. and its group companies on 15-11-2007. The assessee company also happens to be one of the group company of BPTP Ltd. but in its case no search warrant was conducted. During the course of search operation on BPTP Ltd. and other group companies various documents pertaining to the companies of BPTP Ltd. group including the assessee company were found and seized. On critical analysis of the seized material, it has been noticed that there are large number of documents which are undated blank receipts duly signed or having the thumb impression of the sellers. The blank receipts are an acknowledgment for receiving an (indefinite) blank amount of sum and some of such receipt have been used by the group companies as proof for additional payments. During the post sear....
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....ith the assessee company. ii) The amount of additional payments have been added to the cost of the land and no stamp duty has been paid on the said additional payment which means the assessee company has claimed in its books all the payments which have been made over and above the sale consideration as described in the sale deed and on which no stamp duty has been paid to the Government. As per section 24 of the Indian Stamps Act, 1899 stamp duty should have been paid on the additional payment made for the land and as per section 35 of that Act, any instrument on which proper stamp duty has not been paid is an inadmissible evidence. As per' Indian Stamps Act, prosecution proceedings can be initiated for this violation. Hence, these additional payments cannot be allowed as an expenditure to the assessee company as per the explanation to section 37 which clearly states as under:- "For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect....
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....and. It was pointed out the AO records that as per the terms of the collaboration agreement, the assessee company is entitled for an additional consolidated fee of Rs. 35,000/- per Acre over and above the cost of land acquired and handed over to CWPPL. Noting of the facts in the assessment order to this extent it was submitted are correct. However the attempt of the AO to rope in section 40A(3) on facts it was submitted is not justified. While questioning the said stand it was submitted that the AO again takes the facts correctly to the extent it is held by him that the assessee continues to be the owner of the land and the fact that the land has not been purchased by the assessee as "stock-in-trade". However after duly referring to the agreement entered into by the assessee with M/s Countrywide promoters Pvt. Ltd., it was submitted he proceeds to disallow the expenditure relying on section 40A(3) ignoring the material fact that no expenditure for the cost of land has been claimed by the assessee which fact relying upon decisions was consistently argued before him. It was submitted that in order to justify its stand the AO makes an elaborate discussion that since the land acquired ....
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....hold the addition made without addressing the applicability of the judgements relied upon. Ld. AR took us through the findings of the CIT(A) and the agreement taken into consideration by the authorities below and the accepted facts on record on the basis of which it was his submission that no income was to be received by the assessee after the land had been transferred for development. The assessee, it was submitted continues to remain the owner of the said land and since the assessee lacked the necessary knowledge and financial capability for undertaking developmental works its active role ended at that stage. It was his submission that this is the manner in which almost all the development in and around NCR has taken place as the nature of expertise require to interact with the farmers and small land holders in order to purchase land for development requires negotiation skills, assistance of people who can interact with these small land holders and inspire faith in them and the land can only be purchased after the land is identified and bargained for and the price settled with the land holders who at times consist of lands transferred to them through generations wherein at times ....
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.... Promoters (P.) Ltd. which illustrates this point. Paper Book pages 62 to 65 it was submitted shows how the ledger entries have been passed accordingly it was his submission that no money has been spent on acquisition of land by the assessee. It was contended that the agreement entered into by the assessee with CWPPL has not been held to be either wrong i.e. against the law and nor has it been doubted or challenged or disputed as contrary to law. Receiving fees it was submitted is not profit. The issue it was submitted is well settled by the latest judgement of the Delhi High Court in CIT vs Industrial Engineering Projects (P.) Ltd. (cited supra) wherein it has been held that reimbursement is not a trading receipt. Copy of the said judgement relied upon before the CIT(A) quoted by him in his order and still not dealt with by him, it was submitted is available at pages 60 to 61 of the Paper Book which would show that the Hon'ble Delhi High Court followed the principle laid down by the Apex Court in the case of CIT vs Tejaji Farasram Kharawalla Ltd. (cited supra). Referring to the impugned order it was his submission that the judgement of the Apex Count in the case of Tuticorin Alkal....
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....000/- per acre which is credited to the P&L Account Assessee received reimbursement of the expenditure towards cost incurred by it in respect of acquisition of subject land. 2. CIT(A) held thus in para 4.7 (reproduced below): (i) "...The appellant company can be safely termed as engaged in the business of development of real estate. What he receives i.e. cost of land and Rs. 35,000/- per acre in (is) receipt in its hand for the transfer of development right and the payment for purchase of land is its expenditure. On these facts, in my opinion the payment made to land owner is expense in appellants hand and entire receipts including cost of land plus Rs. 35000/- per acre is revenue receipt in its hand. As cost of land is an expenditure in appellant's hand, section 40A(3) is applicable, as the expenditure has been incurred. (ii) Reliance is placed on the judgment of Supreme Court in case of Tuticorin Alkali Chemicals & Fertilizers vs. CIT, 277 ITR 172 (SC). 7.7. The following submissions challenging the action of the CIT(A) have been placed on record by way of the written synopsis:- SUBMISSIONS 3. "The findings given by CIT(A) are challenged, both on facts ....
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....rs to be a contract of indemnity. Surrounding circumstances are relevant for construction of a document only if any ambiguity exists therein and not otherwise. The said document, in our opinion, constitutes a document of indemnity and not a document of guarantee as is clear from the fact that by reason thereof the appellant was to indemnity the cooperative society against all losses, claims, damages, actions and costs which may be suffered by it. The document does not contain the usual words found in a bank guarantee furnished by a bank as, for example, "unequivocal condition" "the cooperative society would be entitled to claim the damages without any delay demur" or the guarantee was "unconditional and absolute" as was held by the Hon'ble High Court. The High Court thus, misread and misinterpreted the document as on scrutiny thereof, it had opined that it was a contract of guarantee and not a contract of indemnity." v) It is judicially settled principle that if a transaction is embodied in a document, the liability to tax depends upon the meaning and content of the language used i.e. the Court has to look to the terms of the contract between the parties as to what is the tru....
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.... wrong in stating that assessee is carrying on or engaged the business of development of real estate. It is plain that assessee, not being entitled to any income from the development of real estate, cannot in anyway be said to be carrying on or engaged in the business of development of real estate. (b) The CIT(A) is wrong in stating that the receipts towards cost of land from CWPP are revenue receipts in the hand of the assessee. The CIT(A) has ignored the fact that receipts from CWPP towards the cost of land were not trading receipts of the assessee but were reimbursement of cost incurred by the assessee with respect to the acquisition of the said land as per para 3(b) of the agreement. To say that it is the trading receipt again amounts to rewriting the agreement between the assessee and CWPP. As stated, the courts, including the apex court, have frowned upon the attempt of taxing authorities to rewrite the agreement in the garb of interpreting the same. (c) The CIT(A) has also erred in ignoring the settled legal position that under no circumstances can be regarded as revenue receipt as held in CIT vs. Tejaji Farsram Kharawala 67 ITR 95 (SC) and followed by the jurisdiction....
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.... Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of the Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under considerations by the Court, to support their proceedings." The judgment in the case of Tuticorin Alkali Chemicals & Fertilizers (supra) is of no help. The question in that case was whether interest derived from borrowed funds invested in short term deposit with bank would be chargeable to tax under the head 'Income from other sources' or would be capitalized after the commencement of commercial production. The court held that interest was chargeable as income from other sources. The finding was based on the provisions of Income Tax Act on the accrual of income. The court did not reject the accounts maintained and confined the decision to the provisions of the Act on the chargeability of income. In the present case, the CIT(A) has challenged the accounts and has in effect rewritten them himself by casting a trading and profit and loss accou....
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....e case. The appellant purchases the land from various farmers/land owners in its own name by entering into sale deed. Registration is done in the name of appellant. The payment is made by appellant. As per the collaboration Agreement, the appellant company would acquire the land and transfer 100% of its development right to M/s CWPPL. The appellant company is shown as owner of the land. In lieu of transferring the development right, the appellant company gets cost of land plus Rs. 35,000 per acre for CWPPL. This being the case, what is transferred is the development right, the ownership remains with appellant. Therefore, it is difficult to accept the Ld. AR's contention that the cost of land is reimbursed by CWPPL. IF the land would have been sold to CWPPL, view might have been that the appellant is only working as an agent of CWPPL and expenditure pertains to CWPPL and the appellant is only receiving the cost of land as reimbursement of expenditure. I agree with the finding of A.O. that ownership continues with the appellant and only developmental right is transferred to CWPPL. In that scenario, the appellant company can be safely termed as engaged in the business of development o....
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....n shall be allowed in respect of such expenditure." 10.1. A perusal of the above provision shows that it starts with the non-obstante clause setting out that the provisions of this section shall have effect notwithstanding anything to the contrary contained in any other provisions of the Act relating to the computation of income under the head 'profits and gains of business or profession'. Sub-section (3) of section 40A is an exception to the deductibility of expenditure under the computation provisions of 'profits and gains of business or profession'. Thus consequently what does not fall within the computation of income will not attract the provisions of section 40A(3). 10.2. In the facts of the present case it is necessary to first refer to how the issue has been addressed before the AO. A perusal of reply dated 17.12.2008 which has been extracted by the AO shows that the assessee claimed relying upon the agreement entered into with M/s Countrywide promoters Pvt. Ltd. that the assessee had acquired various lands through farmers/villagers and after acquiring the same handed over to the developer for development of an integrated township project and in terms of the collaborat....
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....has also contended that the land has not been purchased by it as stock-in-trade and it has not claimed the cost of land as any expenditure while determining its income under the head 'profit and gains of business or profession' and hence the provisions of section 40A(3) cannot be applied to make any disallowance." 10.5. A reading of the order shows that the AO however subsequently proceeds to hold the land as 'stock-in-trade' of the assessee and invokes section 40A(3) relying upon on Attar Singh Gurmukh Singh Vs ITO (cited supra). The CIT(A), it is seen though reproduces the judgements relied upon by the assessee in para 4.4 to para 4.6 however upholds the action of the AO without caring to address how the specific judgements relied upon by the assessee to contend that re-imbursement of expenses cannot be treated as income of the assessee were not applicable. Nor has he cared to consider the ratio decidendi of the judgements which unambiguously holds that where the expenditure has not been incurred by the assessee consequently claim not having been made the occasion to make an addition by way of a disallowance does not arise. Admittedly it is a fact on record that the expenditur....
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....e period comprising the previous year are also available on the record. The plea of the assessee that the payments were made in respect of the capital account have been rightly accepted by the Commissioner of Income tax (Appeals).The Assessing Officer without giving any finding on the issue has merely gone on the presumption that the books of account have been manipulated. The Assessing Officer has also not given a finding that the sum in question was actually revenue expenditure which were claimed as deduction in profit and loss account. 7. In view of the above finding of facts, the Tribunal has rightly concluded that the payment in question were made on account of capital account, therefore, provisions of section 40A(3) of the Act were not attracted. Thus, we do not find any merit in this appeal and no substantial question of law arises for determination of this Court. Hence this appeal is dismissed." (emphasis provided by the Bench) 10.7. It is seen that similar view has been held by the Allahabad High Court in the case of CIT vs Banwari Lal Bansidhar [1998] 229 ITR 229 (All.) which is relied upon in the present proceedings in support of the conclusion drawn. For ready-ref....
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....see does not claim allowance for any expenditure in the Profit and Loss Account, the question of disallowance of such expenditure cannot arise. In the matter before us, it is the claim of the assessee that it has not claimed any deduction for the impugned expenditure in its Profit & Loss Account and hence the Assessing Officer was not justified in disallowing the same." 10.9. It is also seen from a perusal of the copy of the ledger account of the collaborator that these were re-imbursement to the assessee for payments to specific land holders. Copy of this is available at pages 65-66 of the paper book. 10.10. We have also taken ourselves through the judgement of the Jurisdictional High Court in the case of CIT vs Industrial Engineering Projects Pvt. Ltd. (cited supra) which has been relied upon before us for the proposition that reimbursement of expenses cannot be treated to be a Revenue receipt. How the judgement of the Apex Court in Tuticorin Alkali Chemicals & Fertilizers is applicable to the facts of the present case has not been set out in the order of the authorities nor has the Ld. DR been able to address the applicability of the said judgement to the issue at hand. We....
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....were also like the earlier payment were made to the claimants of the land holdings and for the assessee these were re-imbursements. The issue has been considered by the CIT(A) in paras 5.3.1 to paras 5.3.8 however he has restored the matter with certain directions referring to facts which were not relatable to the assessee. Addressing these facts Ld. AR submitted the arguments herein also remain the same as these were payments for the purchase of land and have not been claimed as an expenditure by the assessee as these were reimbursed to the assessee. The argument herein also remains the same that since no claim of expenditure has been incurred by the assessee as the payment was made as they were paid on behalf of CWPPL to settle the claims of the various claimants for the lands sold where potential disputes, claims and counter claims of the land holders had to be paid for peaceful litigation free possession of the land holding. It was reiterated by the Ld. AR that the AO has recorded certain findings in paras 4 to 4.6 of the assessment order to search on BPTP It was contended and he gave no indication in the course of the hearing that he would be referring to the facts pertaining ....
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.... an addition in assessee's hands. In this background it was contended that since cost of the land as assessee's expenditure has been assailed in Ground No-4 for similar reasons additional payments for the purchase of the land re-imbursed by CWPPL cannot be disallowed u/s 37(1) in the hands of the assessee as no expenditure has been claimed by the assessee. Apart from this similarity of facts qua the arguments for Ground No-3 with Ground No.-4, it was submitted that the assessee has specifically challenged vide Ground No-2 the action of the CIT(A) who no doubt was dealing with multiple cases of search and has virtually cut and pasted in his order facts which are not even emerging from the assessment order as such keeping in mind the fact that AO never gave any hint during the hearing that he would refer to BPTP Ltd. group cases which were searched where assessee admittedly was not searched and the CIT(A) has made observation on the facts which are not on facts of the case. Since herein also the issue is addressed in the synopsis filed by the assessee, we extract para 7 from the same:- 7. Ground No.2 While the disallowance of additional payment is challenged for the reasons sta....
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....twithstanding having stated as above, the CIT(A) justifies in para 6.4, the utilization of alien material seized from a different assessee in the hands of an assessee in making assessment u/s 143(3) by relying on the judgment in Pooran Mal vs. CIT 93 ITR 505 (SC). The CIT(A) has misread this judgment. There is no quarrel on the proposition as laid down in that case, that where search and seizure were in contravention of the provisions of section 132, material seized would be liable to be used. But what has been held in this judgment is that such material would be liable to be used, subject to law, against the person from whose custody it was seized. This is what was stated by the court in this regard:- "In that view, even assuming, as was done by the High Court, that the search and seizure were in contravention of the provisions of section 132 of the Income Tax Act, still the material seized was liable to be used subject to law before the income tax authorities against the person from whose custody it was seized." (Copy of order being furnished.) The CIT(A) is plainly wrong and incorrect in extending the scope of the judgment by saying that such material can be used in an ....