2016 (12) TMI 555

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....ppeared before the AO and filed the written reply dated 30-08-2013, 29-12-2014, 12-01- 2015 & 19-02-2015 and discussed the case with the AO. The AO observed that the assessee company is engaged in the business of real estate but during the year under consideration there was no business activity carried out. The requisite details filed were examined and records produced were put to test check. The AO observed that the during the year under consideration, the assessee had shown cash purchases of Rs. 37.00 lacs from following persons. Name of Seller Address of Property Amount Shri Ramgopal Village Daulatpura, Tehsil Amer, Jaipur Rs. 34,00,000 Shri Gyanendra Runthala Plot No. 150, Central Colony, Mahapura Rs. 3,00,000   The AO noted that the above land was shown as fixed assets by the assessee alongwith other land of Rs. 1,15,75,800/-. The AO on examination of the MOA of the assessee observed that the main object of the assessee is to deal in business of immovable property such as land and building. Therefore, the AO vide letter dated 16-02-2015 asked the assessee to explain as to why the land purchased should not be treated as stock in trade. The ....

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....owance of Rs. 37.00 lacs in the case of the assessee. 2.2 Aggrieved, the assessee carried the matter before the ld. CIT(A) who had confirmed the action of the AO by observing as under:- ''(i) I have carefully perused the submissions of the appellant and the material placed on record. The facts of the case are that the appellant was incorporated on 28-02-2006 with the main object, as per its MOA, as under:- 1. To deal in immovable properties such as land and buildings and to purchase, acquire, take on lease or in exchange or in any other lawful manner in India or abroad any area, land including agriculture land, plot, buildings, structures, factories, farm house and estates, real estates or interest therein and any rights over or connected with them and to develop the same for sale on instalments or otherwise, improving, decorating, furnishing, maintaining and plazas, shopping malls, complexes, amusement park, flats, gardens, house, shops showroom and townships and to equip them or any part thereof with all or any amenities or conveniences thereon and by consolidating or connecting or subdividing properties and leasing or disposing of the same and to mange such land and bui....

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....carrying on the business of Real Estate as contained in it's MOA.(PB No.21-41) 2. The assessee has no business activity since it's incorporation except purchase of certain lands in earlier years and during the relevant previous year. 3.The assessee having no operating income and expenditure as per Audited Profit &Loss Account has filed it's return of Income declaring total income of Rs. Nil.(PB No. 7-8-) 4. The lands purchased in earlier years and during the relevant previous year have been capitalized and shown as fixed assets in the books of accounts and audited Balance Sheet of the assessee.( PB No.18). 5. The AO observed from the details filed during the course of assessment proceedings that the assessee during the relevant previous year has made cash payment of Rs. 3700000/- for purchased of land comprising one agriculture land for Rs. 3400000/- and other land of Rs. 300000/-.(Page No.2 of the assessment order.) 6. The AO for the simple reason that the assessee company has been formed with main object of Real Estate Business held the above said purchase of lands as purchase of stock in trade. 7. The AO ignoring the Audited Profit & Loss Account containing no ....

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....elevant land has been shown as Fixed Assets. 12. The mere fact that the assessee company has been formed with the main object of carrying on real Estate business, does not imply that the company cannot purchase any land as fixed/capital assets and every land purchased by the company has character of stock in trade. 13. Even when the company has it's main object of carrying on the real estate business, there is no bar in purchasing and holding a land as Capital/ Fixed Assets. 14. Even when the assessee has not filed it's Wealth tax returns, if applicable, the same do not change the nature and character of the relevant land purchased during the relevant previous year or in earlier years. 15. The relevant land has been purchased as fixed/capital assets which does not amount to any expenditure for the purpose of disallowances u/s 40A(3) of the I.T. Act, 1961 16. The AO by making his own Profit & Loss Account and showing the relevant purchase of land as stock in trade has drawn a extra ordinary inference in case of the assessee, just to invoke the provisions of section 40A(3) of the Act. 17. The AO has not doubted the genuineness of the payment and registration of the ....

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....y not immediately required to in such a manner as the company may deem fit. It also includes acquire any movable and immovable property.'' I have also perused the provision of Section 40A(3) of the Act which is mentioned as under:- Section 40A(3) -where the assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by account payee cheque drawn on a bank or account payee bank draft, exceeds twenty thousand rupees, no deduction shall be allowed in respect of such expenditure.'' This section makes it clear that no deduction shall be allowed in respect of such expenditure. The accounts of the assessee shows that the assessee has not claimed any such expenditure in its profit and loss account. Therefore, there cannot be any disallowance of such expenditure by invoking the provisions of Section 40A(3) of the Act. The ld. AR of the assessee has also relied on the decision of Coordinate Bench of ITAT Jaipur in the case of ACIT, Alwar vs. M/s. Focal Point Builders & Promoters (P) Ltd. (ITA No. 759/JP/2012 dated 31-03-2016) wherein the Coordinate Bench decided such issue as under:- ''7.1 We have perused the wr....