TaxTMI 
TaxTMI 
2022 (11) TMI 572
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....r is bad in law and in facts. 3. The appellant reserves the right to add, alter, amend and omit all or any of the grounds of appeal." 2. Succinctly stated, the assessee firm which is engaged in the business of real estate builder and developer had e-filed its return of income for the assessment year 2015-16 on 30.09.2015, declaring an income of Rs.1,13,000/-. Subsequently, the case of the assessee was selected for scrutiny assessment u/s.143(2) of the Act. 3. During the course of the assessment proceedings, it was observed by the A.O that the assesee had during the year under consideration vide registered deeds purchased certain land for a consideration of Rs. 3,70,90,190/- [Rs.3,46,00,000/- (purchase consideration) + registration expenses], as under: S.No. Name of seller Date of registry Total amount Amount paid in cheque/DD Amount paid in cash 1. Mahadeo & Others, Sirsa Khrud 29.03.2015 4,75,000 - - 4,75,000 2. Girija Bai, Choubey Coliny, Raipur 26.03.2015 57,75,000 57,75,000 - 3. Smt. Taramunni Kutela Bhata 30.12.2014 2,83,50,000 2,63,50,000 20,00,000 Total 3,46,00,00....
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....e final product of houses and the income from the activity is offered as business income, not the capital gains. Thus, the land bought by the assessee has to be treated as stock in trade. Once the AO considers the land as stock in trade, the purchase transaction will be routed through the profit and loss account as purchases and in that case it the expenses made in cash will be duly disallowable u/s. 40A(3) of the Act. Therefore, the addition is hereby deleted." 5. The assessee being aggrieved with the order of the CIT(Appeals) has carried the matter before us. 6. We have heard the ld. authorized representatives of both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the ld. AR in order to drive home his contentions. 7. As is discernible from the orders of the lower authorities, we find that it is a matter of fact borne from the record that the assessee had purchased the aforesaid land in question for a consideration of Rs.3,70,78,202/- (including registration charges) as a 'fixed asset' and had reflected the same as such in its balance sh....
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....ed by the Tribunal that when no payment was claimed by the assessee as an expense, then there could not be any question of disallowing the same by triggering the provisions of Sec. 40A(3) of the Act. For the sake of clarity the relevant observation of the Tribunal is culled out as under: "8. Now coming to the disallowance u/s 40(A)(3), similar pleas taken by the assessee to the effect that when no payments were claimed as expense the question of deduction does not arise and in the case of a group company namely Westland Developers P. Ltd. vs. ACIT, I.T.A .No. 1752/Del/2013 (Assessment Year-2006-07) a coordinate bench of this Tribunal held as follows: "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 a....
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....ng the underlying reason for making available Sec. 40A(3) on the statute it was stated by him as under : "45. Tax liability is sometimes artificially reduced by diverting profits to relatives and associate concerns in the form of excessive payments for goods and services. Claims are also made for deduction of expenses in large amounts shown to have been paid in cash, often with a view to frustrating investigation as to the identity of the recipients and the genuineness of the claim. To plug these loopholes I propose to provide that payments made in business and professions to relatives or associate concerns will have to pass the test of reasonableness in order to qualify for deduction. Further, I propose to provide that payments made in amounts exceeding Rs. 2,500 after a date to be notified later, will be allowed as a deduction only if these are made by crossed cheques or by crossed bank drafts." 10. Backed by our aforesaid observations that Sec.40A(3) of the Act would not take within its sweep a capital expenditure, we shall now deal with the sustainability of the disallowance of Rs.24.75 lac made by the A.O. As observed by us hereinabove, it is a matter of fact borne....