TaxTMI 
TaxTMI 
2016 (8) TMI 642
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....ement in the letter which does not affect the profit in books of accounts. 5. The Hon'ble Commissioner has erred in proposing penalty under Section 271(1)(c). 6. The appellant craves to add/delete or alter any grounds during the course of proceedings. For these and such other grounds which may be raised during the Income Tax Tribunal hearing proceedings, it is prayed that the Hon'ble Income Tax (Tribunal) may kindly delete the addition of Rs. 1,34,00,000 and drop the penalty proposed under Section 271(1)(c). OR allow any other relief as the Income Tax (Tribunal) may deem fit." 3. Ground number one is general in nature and does not require any specific adjudication. 4. Ground number 2 is regarding disallowance made under section 40A(3) of the act. The brief facts leading to the controversy, are that a search under section 132 of the Act was conducted in the case of M/s Adarsh Developers on 13/12/2006. During the course of search certain documents pertaining to Sri S. L. Natraj, one of the associate of Sri Jayaram, partner of Sri Jayaram Developers & Contractors who procure land for M/s. Adarsh Developers at the Huttanahalli Village, Jala Hobli, Bangalore, were seize....
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.... confirmed the disallowance made by the AO under section 40A(3) but also enhanced assessment by disallowing the remaining 80% of the said amount under section 37(1) of the act. 5.1 Before us the Learned AR of the assessee has advanced 3 fold contentions on this ground. The first argument of the Learned AR is that the payment in question is made out of books of accounts of the assessee and therefore, the same cannot be disallowed under the provisions of section 40A (3). In support of his contention he has relied upon the decision dated 8/11/2013 of Panaji benches of this Tribunal in case of Manoj Kumar Jain Vs. DCIT in ITA Nos. 179 to 184/PNJ/2013. The Learned AR has submitted that the Tribunal in the said case has held that the payment was made by the assessee outside the books of accounts, therefore, the onus is on the assessee to prove the source of these expenses. When the assessee did not claim deduction of those expenses while computing the income from business, the provisions of section 40A (3) will not be applicable. 5.2 The next contention of the Learned AR is that the recipient of the said amount offered the same to tax. Therefore, it cannot be disallowed under section 4....
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....yment is cash and therefore if the expenditure is allowable under the other provisions of the Act same would be disallowed under this section to the extent of 20%. If a claim is otherwise not allowable under the provisions of Section 28 to 37 of the Act then the question of applying this section does not arise. The provisions of Section 40A(3) of the Act are attracted when the claim of expenditure is otherwise allowable as per the other provisions of the Act but because the payment is made in violation of said provisions of Section 40A(3) of the Act 20% of the said expenditure is disallowed for such violation. There is no quarrel on the point that the provisions of Section 40A(3) of the Act are not absolute but certain exceptions are provided under Rule 6 DD of the IT Rules. The demand of the seller of the land for payment in cash does not fall any of the exceptions provided under Rule 6 DD of the IT Rules. It is pertinent to note that merely because the recipient of the amount has included the same in the return of income for taxation, it would absolve the assessee who has made the payment on the contravention of Section 40A(3) of the Act. The decisions relied upon by the assessee....
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....t of books of accounts and therefore cannot be disallowed under the provisions of Section 40A(3) of the Act is contradictory. In view of the above facts, we find that the assessee has violated the provisions of Section 40A(3) of the Act and therefore the Assessing Officer was justified in invoking the provisions of section in disallowing the claim to the extent of 20%. 6. The assessee has also raised additional ground regarding the enhancement of disallowance made by the CIT (Appeals) on account of the additional compensation of Rs. 68.80 lakhs on account of the additional compensation paid by the assessee in cash. On appeal, the CIT (Appeals) proposed to enhance the disallowance by issuing the show cause notice that the entire amount is not allowable under Section 37(1) of the Act. The CIT (Appeals) was of the view that the payment was not made wholly and exclusively for the business of the assessee. 6.1 Before us, the learned Authorised Representative of the assessee has submitted that the assessee proved that the payment was made to the seller as part of the cost of acquisition and therefore the same is allowable expenditure against the income from sale of the land. He has fur....
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....by the assessee then the claim of 'on money' payments by the assessee also required to be examined by considering the fact whether the recipient has accepted this amount and offered the same as income for tax. Accordingly, in the facts and circumstances of the case when the Assessing Officer prima facie accepted the payment while making the disallowance under Section 40A(3) of the Act then for making a disallowance of the said amount under Section 37(1) of the Act a detailed and proper enquiry is required to be conducted. Accordingly, we are of the view that this issue requires a proper enquiry and consequently set aside to the record of the Assessing Officer for proper enquiry and verification and then decide the same. We make it clear that so far as the disallowance made under Section 40A(3) of the Act the same is found to be proper and therefore issue of enhancement for the balance amount made by the CIT (Appeals) is set aside to the record of the Assessing Officer. Ground No.3 is regarding addition of Rs. 28 lakhs. 7. At the time of hearing, the learned Authorised Representative of the assessee has submitted that the assessee does not press this ground and the same may be di....
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....action of Sri Pillappa for the year ending 31.3.2006 was shown at Rs. 7,60,07,500. The closing stock as on 31.3.2006 was taken as opening stock as on 1.4.2006 and therefore no addition can be made on account of this payment of Rs. 16 lakhs already accounted in the books of accounts. He has referred the profit and loss account as well as the details of the payment made to Sri Pillappa and submitted that the expenditure claimed during the year does not include this amount of Rs. 16 lakhs. 10. On the other hand, the learned Departmental Representative has relied upon the impugned order of the CIT (Appeals) and submitted that the CIT (Appeals) has found from the reply of the assessee that the assessee has computed the profits on the transaction with Sri Byregowda after considering this payment of Rs. 16 lakhs which is not paid to Sri Byregowda but was paid to Sri Pillappa in respect of a different land transaction. Thus the learned Departmental Representative has submitted that the CIT (Appeals) was justified in enhancing the income by Rs. 16 lakhs as the assessee has concealed the income by wrongly claiming the same as an expenditure in respect of the transaction of Sri Byregowda. 1....