ACIT, Circle-1(1), Hyderabad V. M/s. Ashoka Developers & Builders Ltd., Hyderabad

ITA 1268/HYD/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 5552 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 28-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K HARITA
• Keywords: Capital asset; Business income; Business expenditure; Fair market value; Revenue expenditure
• Section: 143(3); 234B; 28; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A', HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 937/HYD/2013 ASSESSMENT YEAR 2009-10 THE DEPUTY CIT CIRCLE-1(1) HYDERABAD VS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD., HYDERABAD PAN: AAECA4442R [APPELLANT] [RESPONDENT] ITA NO. 1259/HYD/2012 ASSESSMENT YEAR 2008-09 M/S. ASHOKA DEVELOPERS & BUILDERS LTD., HYDERABAD PAN: AAECA4442R VS. THE ADDL. CIT RANGE-1 HYDERABAD [APPELLANT] [RESPONDENT] ITA NO. 1268/HYD/2012 ASSESSMENT YEAR 2008-09 THE ASST. CIT CIRCLE-1(1) HYDERABAD VS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD., HYDERABAD PAN: AAECA4442R [APPELLANT] [RESPONDENT] REVENUE BY: SMT. K. HARITA ASSESSEE BY: SRI K.C. DEVDAS DATE OF HEARING: 13.02.2014 DATE OF PRONOUNCEMENT: 28.03.2014 ORDER PER CHANDRA POOJARI, AM: ITA NO. 937/HYD/2013 BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-II, HYDERABAD DATED 13.3.2013 ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 2 FOR A.Y. 2009-10. ITA NOS. 1259/HYD/2012 (BY ASSESSE E) AND 1268/HYD/2012 (BY REVENUE) ARE CROSS APPEALS FOR A.Y. 2008- 09 DIRECTED AGAINST THE ORDER OF THE CIT(A)-II, HYD ERABAD DATED 28.6.2012. SINCE THESE APPEALS INVOLVE IDEN TICAL ISSUES AND PERTAIN TO SAME ASSESSEE, THESE APPEALS ARE CLU BBED AND HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS CO MMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NO. 1259/HYD/2012 (BY ASSESSEE) : ITA NO. 1268/HYD/2012 (BY REVENUE) : 2. THE ASSESSEE RAISED THE GROUND WITH REGARD TO ADDIT ION MADE U/S. 40A(2)(B) OF INCOME-TAX ACT, 1961 AT RS. 3,97,04,400. FURTHER, THE ASSESSEE IS AGGRIEVED WI TH REGARD TO LEVY OF INTEREST U/S. 234B OF THE ACT AND ALSO INITI ATION OF PENALTY PROCEEDINGS U/S. 271(1)(C) OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILED ITS RETURN OF INCOME ON 28.9.2008 DISCLOSING A TOTAL IN COME OF RS. 5,23,78,136. THE SAID RETURN WAS PROCESSED U/S. 143(1) OF THE INCOME-TAX ACT, 1961 ON 10.02.2010 RAISING A DE MAND OF RS. 54,82,650. AN ORDER U/S. 154 HAS BEEN PASSED ON 6.10.2010 REDUCING THE DEMAND TO RS. 24,20,030 BY G IVING CREDIT TO ADVANCE TAX. SUBSEQUENTLY, THE CASE WAS TAKEN UP FOR SCRUTINY AND ASSESSMENT U/S. 143(3) OF THE ACT W AS ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 3 COMPLETED ON 31.12.2010 AT A TOTAL INCOME OF RS. 24,43,37,350 BY MAKING THE FOLLOWING ADDITIONS: (I) ADDITION TOWARDS SUPPRESSION OF SALE RECEIPTS FROM ASHOKA ALA MANSION PROJECT RS. 15,22,10,300 (II) DISALLOWANCE U/S. 40A(2)(B) RS. 3,97,04,400 (III) PRELIMINARY EXPENSES WRITTEN OFF RS. 44,514 AGAINST THESE ADDITIONS, THE ASSESSEE WENT IN APPEA L BEFORE THE CIT(A). THE CIT(A) CONFIRMED THE ADDITION MADE U/S. 40A(2)(B) OF THE ACT. HOWEVER, HE DELETED THE OTHE R ADDITION OF RS. 15,22,10,300 MADE TOWARDS SUPPRESSED SALES. AGAINST THIS, THE REVENUE IS IN APPEAL BEFORE US. 4. THE LEARNED DR SUBMITTED THAT ADDITION OF RS. 15,22,10,300 BEING THE SUPPRESSION OF SALES WAS MAD E BY THE AO ON THE REASON THAT THERE IS DIFFERENCE IN SALE P RICE FOR WHICH ASSESSEE GOT REGISTERED THE SALE DEED AND PRI CE QUOTED BY THE ASSESSEE IN WEBSITE. SHE DREW OUR ATTENTION TO THE FOLLOWING TABLE IN THE ASSESSMENT ORDER AT PAGE NO. 3: NAME OF THE WEBSITE PRICE QUOTED (RS. IN LAKHS) SPECIFICATIONS QUOTED CONTACT DETAILS GIVEN PRICE PER SFT (RS.) INDIA DYNAMICS.COM 140 4 BR, 3600 SFT WWW.ADBL.IN , CELL PHONE [phone] YOUADLIST.COM 140 3300 SFT, 430 SQ. YARDS WWW.ASHOKABUILDERS. COM 4242 ADOBES INDIA WEBSITE 137-175 3607-4598 SFT, 304 BHK, RS. 3800/SFT, POSSESSION FEB 2007 3798- 3806 QUIKR WEBSITE 135-180 458 & 600 SQ. YARDS, 3800-4800 SFT. ANAND @ 9849654448 3552- 3750 OLX WEBSITE 140 4 BR CELL NO. 9000602555, WWW.ADBL.IN - ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 4 5. ACCORDING TO HER THERE IS GREAT VARIATION BETWEEN T HE PRICE FOR WHICH THE ASSESSEE REGISTERED AND THE PRI CE REFLECTED IN THE WEBSITE. THE DIFFERENCE WAS WORKE D OUT BY THE AO AT RS. 15,22,10,300 AND MADE THE ADDITION. THE DR ARGUED THAT THE ADDITION AS MADE BY THE AO BE SUSTA INED. SHE RELIED ON THE JUDGEMENTS OF SUPREME COURT IN THE CA SE OF SUMATI DAYAL VS. CIT (204 CTR 9) AND DAKESHWARI COT TON MILLS LTD. (26 ITR 775). 6. ON THE OTHER HAND, THE LEARNED AR SUBMITTED THAT TH E ASSESSEE HAS PUT THE PRICE OF VARIOUS PROPERTIES IN THE WEBSITE SO AS TO ATTRACT CUSTOMERS AND IT IS NOT TH E FINAL PRICE. THERE IS NO PROVISION UNDER THE INCOME-TAX ACT TO C ONSIDER THE PRICE REFLECTED IN THE WEBSITE AS CONSIDERATION PASSED TO THE ASSESSEE. THE WEBSITE PRICE CANNOT BE CONSIDER ED AS FINAL CONSIDERATION PASSED BETWEEN THE PARTIES SO AS TO A SCERTAIN THE SUPPRESSED SALES. HE RELIED ON THE ORDER OF TH E CIT(A). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED MATERIAL ON RECORD. THE AO ESTIMATED SUPPRESSED SALES ON THE B ASIS OF PRICE DEPICTED IN WEBSITE AND HE HAS NOT VERIFIED T HAT THE PURCHASER OF THE PROPERTY PAID ANY ON-MONEY OR EXCE SS CONSIDERATION IS PAID TO THE ASSESSEE. AS RIGHTLY ARGUED BY THE ASSESSEE, THE ASSESSEE CONSIDERED THE SRO RATE FOR THE ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 5 PURPOSE OF SHOWING THE SALES. THE AO HAS NOT BROUG HT ANYTHING ON RECORD TO SHOW THAT ANY EXTRA CONSIDERA TION PASSED BETWEEN THE PARTIES. IN THE ABSENCE OF ANY MATERIAL TO SHOW THAT EXTRA CONSIDERATION PASSED BETWEEN THE PA RTIES IN RESPECT OF THE PROPERTIES OF THE ASSESSEE IT IS NOT APPROPRIATE TO CONSIDER THE PRICE SHOWN IN THE WEBSITE IN RESPE CT OF THE PROPERTIES. ACCORDINGLY, BY PLACING RELIANCE ON TH E JUDGEMENT OF SUPREME COURT IN THE CASE OF K.P. VERG HESE VS. ITO (131 ITR 597) (SC), WHEREIN THE APEX COURT HELD THAT SECTION 52(2) OF THE INCOME-TAX ACT, 1961, CAN BE I NVOKED ONLY WHERE THE CONSIDERATION FOR THE TRANSFER OF A CAPIT AL ASSET HAS BEEN UNDERSTATED BY THE ASSESSEE, OR, IN OTHER WORD S, THE FULL VALUE OF THE CONSIDERATION IN RESPECT OF THE TRANSF ER IS SHOWN AT A LESSER FIGURE THAN THAT ACTUALLY RECEIVED BY T HE ASSESSEE, AND THE BURDEN OF PROVING UNDERSTATEMENT OR CONCEAL MENT IS ON THE REVENUE; AND THE SUB-SECTION HAS NO APPLICAT ION IN THE CASE OF A BONA FIDE TRANSACTION WHERE THE CONSIDERA TION RECEIVED BY THE ASSESSEE HAS BEEN CORRECTLY DECLARE D , WE ARE INCLINED TO CONFIRM THE ORDER OF THE CIT(A). THE G ROUND OF THE REVENUE IS DISMISSED. 8. NOW COMING TO THE ASSESSEE'S APPEAL. FACTS OF THE ISSUE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE-COMPANY HAS PURCHASED SOME AGRICU LTURAL ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 6 LANDS AT SURVEY NO. 94, 95/2 AT MALKARAM VILLAGE, SH AMSHABAD MANDAL, RANGA REDDY DISTRICT FROM RELATED PARTIES A T A CONSIDERATION OF RS. 4,23,67,500 AT AN AVERAGE RATE PER ACRE AT RS. 21,00,000 AS AGAINST SRO VALUE OF RS. 1,32,000 PER ACRE. WHEN QUESTIONED ABOUT THE APPLICABILITY OF THE PROV ISIONS OF SECTION 40A(2)(B) THE ASSESSEE HAS SUBMITTED THAT T HE LAND WAS NOT STOCK-IN-TRADE.AND THE EXPENSES WERE NOT BO OKED TO PROFIT AND LOSS ACCOUNT AND ALSO THE TRANSFER WAS N OT REGISTERED AND HENCE, THE SRO VALUE DOES NOT APPLY. IT WAS ALSO SUBMITTED THAT ONLY RS. 1,00,000 WAS PAID IN C ASH AND THE BALANCE WAS ADJUSTED AGAINST THE ALLOTMENT OF S HARES OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER HAS NOT ED THAT AS PER THE CLAUSE (B) OF THE DEED OF SALE-CUM-GPA D ATED 15.01.2008 THE ASSESSEE WAS DULY AUTHORIZED TO REPR ESENT BEFORE THE GRAM PANCHAYAT / MUNICIPAL AUTHORITIES F OR OBTAINING LAYOUT PERMIT AND SANCTION PLANS AND THE LAND IS FROM UNDIVIDED SHARE OF LAND OWNED ALONG WITH OTHER S. SINCE THE ASSESSEE DEALS IN REAL ESTATE THE ARGUMENT THAT ASSET WAS TAKEN AS FIXED ASSET WAS NOT ACCEPTED AND THE PURCH ASE OF LAND WAS TREATED AS PURCHASE OF STOCK-IN-TRADE MEAN T FOR A REAL ESTATE PROJECT. ACCORDINGLY, THE AO ADOPTED T HE SRO RATE AND THE DIFFERENCE BETWEEN THE SRO RATE AND THE PUR CHASE CONSIDERATION PAID WAS TREATED AS EXPENDITURE LIABL E FOR DISALLOWANCE U/S 4OA(2)(B). DURING THE APPEAL PROCE EDINGS, ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 7 THE ASSESSEE SUBMITTED THAT THE FOLLOWING ARE THE J OINT OWNERS OF THE PROPERTY. NAME OF THE OWNER RELATIONSHIP WITH THE COMPANY SRI N. JAIVEER REDDY MANAGING DIRECTOR SMT. K. LEELA REDDY WIFE OF CHAIRMAN, SRI K. LAKSH MA REDDY SMT. K. NEERAJA W/O SRI K. VIJAYA BHASKAR REDDY, E XE. DIRECTOR SMT. N. RAJITHA REDDY WIFE OF SRI N. JAIVEER REDDY, MD 9. THE ABOVE PERSONS WERE JOINT OWNERS OF THE PROPERTY HAVING 40% TO 50% INTEREST IN THE ENTIRE PROPERTY A ND THEY WERE OWNERS IN COMMON. AFTER DETAILED NEGOTIATIONS , THE ASSESSEE COMPANY TOOK A DECISION FOR PURCHASE OF AGRICULTURAL LAND OF 20.175 ACRES FOR A CONSIDERATI ON OF RS. 4,23,67,500 AND TOWARDS CONSIDERATION RS. 1,00,000 WAS PAID AS ADVANCE IN CASH AND THE REMAINING SALE CONSIDERA TION WAS PAID IN KIND I.E., BY ALLOTMENT OF SHARES OF 42,26, 750 AT RS. 10 PER SHARE OF THE ASSESSEE COMPANY TO THE RESPECTIVE LAND OWNERS MENTIONED ABOVE. THE ENTIRE CONSIDERATION W AS CREDITED TO FIXED ASSET ACCOUNT AND THERE WAS NO CL AIM OF EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. IT WAS CONTENDED BY THE ASSESSEE AS UNDER: I) SECTION 40A APPEARS IN CHAPTER- VI-COMPUTATION OF BUSINESS INCOME OF AN ASSESSEE. II) SECTION 28 REFERS TO PROFITS AND GAINS OF BUSINESS. SECTION 29 STIPULATES THAT THE PROFITS AND GAINS SH ALL ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 8 BE COMPUTED IN ACCORDANCE WITH PROVISIONS OF SECTIONS 30 TO 43D. THESE SECTIONS STIPULATE THE ALLOWANCES AND DISALLOWANCES OF EXPENDITURE WHILE COMPUTING THE INCOME FROM BUSINESS. SECTION 40A PROVIDES EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES WHILE COMPUTING THE INCOME FROM BUSINESS. III) THE ATTRIBUTES OF THIS SECTION ARE: (A) THE PAYMENT SHOULD BE IN NATURE OF ANY EXPENDITURE (B) THE PAYMENT IS MADE TO A SPECIFIED PERSON (RELATIVES). (C) IF IN SUCH CIRCUMSTANCES, THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHIC H PAYMENT IS MADE OR LEGITIMATE NEEDS OF ASSESSEE'S BUSINESS, EXCESS EXPENDITURE CAN BE DISALLOWED UNDER SECTION 40(2)(B}. (D) IN THE PROCESS, THE ASSESSEE SHOULD DERIVE A BENEFIT BY WAY OF REDUCTION OF PROFIT. ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 9 FROM THE ABOVE, IT WOULD APPEAR THAT THE BASIC REQUIREMENT IS THAT THE PAYMENT SHOULD BE IN THE NATURE OF A DEDUCTIBLE EXPENDITURE WHICH HAS THE EFFECT OF REDUCING THE TAXABLE PROFIT. THE REDUCTIO N OF PROFIT IS THE BENEFIT DERIVED BY THE ASSESSEE. I N THE CASE OF CIT VS. A K SUBBARAYA CHETTY & SONS 123 ITR 592, IT WAS HELD THAT SECTION 40A(2)(B} CONTEMPLATES AN ASSESSEE INCURRING ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CL.(B} OF S. 40A( 2}. IF THERE WERE ANY SUCH EXPENDITURE, AND IF THE ITO WAS OF OPINION THAT SUCH EXPENDITURE WAS EXCESSIVE OR UNREASONABLE, THEN SO MUCH OF THE EXPENDITURE AS WAS CONSIDERED BY HIM AS EXCESSIVE-OR UNREASONABLE WAS NOT TO BE ALLOWED AS DEDUCTION. THE THRUST IS O N INCURRING EXPENDITURE WHICH ARE DEBITED IN THE PROF IT AND LOSS ACCOUNT. IN THE CASE OF THE ASSESSEE THE EXPENDITURE INCURRED BY PURCHASING THE LAND WHETHER BY WAY OF PAYMENT OR ALLOTMENT OF SHARES TO THE RELATIVES HAS NOT BEEN CLAIMED AS AN EXPENDITUR E AND THEREFORE, AO IS NOT CORRECT IN DISALLOWING THE EXPENDITURE UNDER SECTION 40A(2) OF IT ACT. ON THI S ACCOUNT ALONE THE ADDITION IS NOT SUSTAINABLE ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 10 IV) THE TERMS USED IN THE SECTION RELATES TO GOODS, SERVICES AND FACILITIES. ALL THESE EXPRESSIONS ARE USED IN A COGNATE SENSE. THESE EXPRESSIONS REFERS TO ALL TYPES OF MOVABLE PROPERTY. THE TERM 'GOODS' CANNOT INCLUDE IMMOVABLE PROPERTY. S N ROLLING MILLS V ACCE 1997 ELTJ 141 SALES TAX OFFICER V MPSEB AIR 1976 SC 732. LAND IS NOT A PART OF THESE EXPRESSION S. V) SECTION 40(A)(2) WAS INTRODUCED TO THE EFFECT THAT EXPENDITURE INCURRED IN A BUSINESS FOR WHICH PAYMENT HAS BEEN MADE TO ASSESSEE'S RELATIVES IS LIABLE TO BE DISALLOWED TO THE EXTENT THE EXPENDITU RE IS CONSIDERED TO BE EXCESSIVE OR UNREASONABLE. THE REASONABLENESS OF THE EXPENDITURE IS REQUIRED TO BE JUDGED WITH REFERENCE TO THE BENEFIT DERIVED BY THE ASSESSEE BY PAYING EXCESS AMOUNT AND CLAIMING THE SAME AS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. IN THE BACKGROUND OF THE INTENTION OF THE LEGISLATU RE, IT IS REQUIRED TO BE JUDGED WHETHER THE ASSESSEE HA S DERIVED ANY BENEFIT BY CLAIMING EXCESS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. SINCE NO CLAIM HAS BEEN MADE IN THE PROFIT AND LOSS ACCOUNT, THERE WAS NEVER ANY ATTEMPT TO REDUCE TAX. HENCE THE PROVISIONS OF SECTION 40(A)(2) ARE NOT APPLICABLE. ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 11 VI) IN THE LIGHT OF THE ABOVE STIPULATIONS OF THE SECTI ON THAT THE DISALLOWANCE SHOULD BE LIMITED TO EXPENDITURE CLAIMED, IT IS IMMATERIAL WHETHER THE AMOUNT OF PAYMENT IS AN INVESTMENT OR STOCK-IN- TRADE AS THE ASSESSEE HAS NOT CLAIMED THE INVESTMEN T AS A REVENUE EXPENDITURE. LAW IS WELL SETTLED AS A PRINCIPLE THAT IF WORDS OF STATUTE FAILS, SO ALSO T HE TAX. NO ONE CAN PROVIDE FOR A CASUS OMMISUS . WHEN WORDS OF A STATUTE ARE CLEAR, THE SAME HAS TO BE ACCEPTED. A COURT, MUCH LESS A QUASI JUDICIAL AUTHORITY, CAN INNOVATE AND STEP INTO THE SHOES OF THE LEGISLATURE AND PROVIDE FOR ANY ASSUMED OMISSION. IT IS FURTHER SUBMITTED THE SECTION INTRODUCES A DEEMING PROVISION. A FICTION SHOULD BE LIMITED TO ITS LEGITIMATE FIELD. THE AO'S LOGIC THA T THE AMOUNT REPRESENTS A STOCK IN TRADE AND A DEDUCTIBLE EXPENDITURE INTRODUCES ANOTHER FICTION AND AMOUNTS TO REWRITING THE BOOKS IN THE ABSENCE OF ANY SPECIF IC PROVISION. VII) IN THE LIGHT OF THE ABOVE BASIC PROVISIONS, IT IS IMMATERIAL WHETHER THE LAND IS STOCK IN TRADE OR INVESTMENT SINCE THE EXPENDITURE IS NOT DEBITED IN THE PROFIT AND LOSS ACCOUNT. AO'S CONTENTION THAT T HE ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 12 ASSESSEE IS A BUILDER IS OF LITTLE CONSEQUENCE. AO HAS CITED CERTAIN PROJECTS WHERE THE ASSESSEE HAD CLAIMED THE EXPENSES IN VARIOUS PROJECTS AND INCLUDED THESE AS STOCK IN TRADE. THESE PROJECTS WE RE TAKEN ON DEVELOPMENT BASIS AND THE ASSESSEE WAS REQUIRED TO CONSTRUCT THE HOUSES ON THESE PLOTS BELONGING TO LAND OWNERS AS A BUSINESS ACTIVITY. TH E ASSESSEE NEVER HAD ANY INTEREST IN THESE LANDS. THE SE CASES ARE NOT COMPARABLE WITH PURCHASE OF LAND BY THE COMPANY FROM OTHERS. VIII) IT IS SUBMITTED THAT THE LAND BELONGED TO JOINT OWNERS AND PAYMENTS WERE MADE TO THEM. STRICTLY SPEAKING, JOINT OWNERS DO NOT COME WITHIN THE PURVIEW OF SECTION 40A(2)(B) AS RELATIVE, FOR AN BO I CANNOT BE A RELATIVE IN THE CONTEXT OF SECTION 40A. HENCE, THE TRANSACTION IS NOT COVERED BY SECTION 40 A. IX) WITHOUT PREJUDICE TO THE CLAIM THAT NO ADDITION IS CALLED FOR AS THE EXPENDITURE IS NOT BOOKED IN THE PROFIT AND LOSS ACCOUNT, IT IS SUBMITTED THAT AO'S WORKING BASING ON THE SRO'S GUIDANCE VALUE IS NOT CORRECT. SRO'S VALUE DOES NOT REPRESENT THE VALUE O F THE PROPERTY THAT REQUIRED TO BE VALUED. THEREFORE WORKING OUT THE DIFFERENCE BASING ON SRO'S VALUE IS ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 13 NOT CORRECT. IT IS FURTHER SUBMITTED THAT IT IS A W ELL KNOWN FACT THAT THE REAL ESTATE VALUES INCREASED WI TH MAXIMUM SPEED IN RESPECT OF THE LANDS SITUATED AROUND TWIN CITIES DURING THE PERIOD 2006 TO 2008. MANY OF THE TRANSACTIONS TOOK PLACE AT A HIGH PREMIUM THAN THE LAND VALUE FIXED BY THE REGISTRATION AUTHORITIES FOR STAMP DUTY PURPOSE. IT MAY NOT BE OUT OF PLACE TO MENTION THAT TAKING THE BOOM IN LAND VALUES THE GOVERNMENT OF ANDHRA PRADESH INCREASED THE BASIC VALUES OF THE LANDS FRO M TIME TO TIME FOR STAMP DUTY PURPOSE IN THE LAST FOU R YEARS. THUS, AS THE ASSESSEE GOT THE LAND TRANSFERR ED THROUGH SALE-CUM GPA AND IN VIEW OF THE PREVAILING MARKET VALUE AT THAT POINT OF TIME, THE ASSESSEE AN D THE OWNERS OF THE LAND AFTER NEGOTIATIONS ARRIVED A T THE RATE AS MENTIONED IN THE DOCUMENT. X) IN VIEW OF THE ABOVE FACTS, IT IS SUBMITTED THAT: (A) THE ASSESSEE ACQUIRED 40% OF (UNIDENTIFIED) AGRICULTURE LAND SITUATED AT MALKARAM VILLAGE SHAMSHABAD MANDAL, R.R. DIST FROM THE OWNERS OF THE LAND. (B) THE ASSESSEE ACQUIRED THE SAME FOR HOLDING AS A LONG TERM ASSET AND THEREFORE REFLECTED THE SAME ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 14 IN THE BALANCE SHEET. THE SAME CONTINUED TO BE ASSET EVEN IN THE BALANCE SHEET AS ON 31'.03.2011. (C) THE ASSESSEE NEVER TREATED IT AS A COMMERCIAL ASSET AND THE SAME IS BEING CONTINUED AS A FIXED ASSET EVEN AS ON TODAY. (D) THE VALUE ADOPTED FOR ACQUISITION OF THE LAND WAS BASING ON THE PREVAILING MARKET RATES. (E) THE ASSESSEE DID NOT MAKE ANY PAYMENTS TO THE VENDEES EXCEPT RS. 1 LAKH. REMAINING CONSIDERATION WAS CONSIDERED AS SHARE CAPITAL CONTRIBUTED BY THE RESPECTIVE OWNERS. (F) THE ASSESSEE DID NOT CLAIM THE PAYMENTS AS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. 10. THE CIT(A) OBSERVED THAT UNLIKE THE EARLIER ISSUE T HIS ISSUE WAS CLEARLY CONFRONTED TO THE ASSESSEE BY THE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS. AS POINTED O UT BY THE ASSESSING OFFICER THE ASSESSEE IS NOT ENGAGED IN AG RICULTURAL ACTIVITY, RATHER IT IS FULLY INTO THE REAL ESTATE D EVELOPMENT ACTIVITY, THE SALE DEED MAKES A CLEAR MENTION ABOUT OBTAINING PERMISSION FOR LAYOUT AND THE ASSESSEE HAS NOT MENT IONED ANYTHING ABOUT THE ULTIMATE PURPOSE OF THE LAND WHI CH HAS ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 15 BEEN TAKEN INTO ITS FIXED ASSETS SCHEDULE. IT IS NO T THE CASE THAT THE ASSESSEE HAS PURCHASED THE PROPERTY AT A V ERY LOW PRICE TO KEEP IT AS AN INVESTMENT, IN FACT IT HAS P AID MORE THAN THE MARKET RATE AND SRO RATE FOR KEEPING IT AS AN AGRICULTURAL ASSET WHICH DOES NOT APPEAR LOGICAL OR REASONABLE. THE ASSESSEE'S CONTENTION THAT THE SECT ION 40A(2)(B) APPLIES ONLY IN RESPECT OF EXCESSIVE OR U NREASONABLE PAYMENT FOR GOODS, SERVICES OR FACILITIES AND NOT F OR IMMOVABLE PROPERTY HAS NO MERIT BECAUSE THE ISSUE H ERE IS THAT THE PROPERTY IN QUESTION BEING CONSIDERED BY T HE AO AS STOCK- IN-TRADE AND NOT AS AN IMMOVABLE PROPERTY AN D THIS TREATMENT AS BUSINESS EXPENDITURE IS EVIDENT FROM T HE AUDIT REPORT ITSELF AND ONCE THE ASSET IN QUESTION IS TRE ATED AS STOCK-IN-TRADE IT BECOMES GOODS IN THE HANDS OF THE ASSESSEE AND THEREFORE, THE PROVISIONS OF SECTION 40A(2)(B) ARE RIGHTLY APPLIED BY THE ASSESSING OFFICER. 11. THE CIT(A) OBSERVED THAT THE BALANCE SHEET DOES NOT SHOW ANY OTHER IMMOVABLE PROPERTY AS INVESTMENT / FI XED ASSET. IT MAY BE NOTED THAT IN RESPECT OF THE EARLI ER GROUND THE ASSESSEE CONTENDED THAT THE REGISTERED DOCUMENT IS THE REALISTIC VALUE AND THERE IS A PRESUMPTION OF THE C ORRECTNESS AND NOW WHEN IT COMES TO THIS GROUND, IT HAS BEEN S AYING THAT THE MARKET RATE IS MUCH HIGHER THAN THE REGISTERED VALUE, ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 16 THEREFORE, THE SAME HAS TO BE ADOPTED. SINCE THE CI T(A) ACCEPTED THAT CONTENTION IN THAT GROUND. HE APPLIED THE SAME LOGIC IN THIS GROUND AS WELL. HE AGREED WITH THE A O IN ADOPTING THE SRO VALUE, IN ARRIVING AT THE PURCHASE CONSIDERATION OF THE SAID PROPERTY. IT IS NOT THE A CCOUNTING ENTRY WHICH DETERMINES THE NATURE OF THE ASSET BUT THE CHARACTER AND PURPOSE OF THE ASSET IN THE HANDS OF THE HOLDER, INTENTION BEHIND PURCHASE OF THE ASSET WHICH DETERM INES THE NATURE OF THE ASSET. THE ASSESSEE IS A REAL ESTATE DEVELOPER AND HAS PURCHASED THE LAND THROUGH A DOCUMENT WHICH ALLOWS OR AUTHORIZES THE PURCHASER TO OBTAIN LAYOUT PERMIT S AND SANCTION PLANS, THIS ITSELF SHOWS THAT THE ASSET IN QUESTION IS MEANT TO BE STOCK-IN-TRADE AND NOT A CAPITAL ASSET / INVESTMENT. THE FACT THAT IT WAS A BALANCE SHEET EN TRY AND NOT TAKEN INTO THE PROFIT AND LOSS ACCOUNT DOES NOT AFF ECT THE CHARACTER AND THE PURPOSE OF THE ASSET IN THE HANDS OF THE ASSESSEE. 12. HE OBSERVED THAT THE ASSESSEE'S CONTENTION THAT SIN CE THE EXPENDITURE WAS NOT CLAIMED IN THE PROFIT AND L OSS ACCOUNT, NO DISALLOWANCE U/S. 40A(2)(B) CAN BE MADE HAS ALSO BEEN VERIFIED WITH REFERENCE TO THE ASSESSMENT RECO RD AND IT IS FOUND FROM THE FORM NO. 3CD / STATEMENT OF PARTIC ULARS REQUIRED TO BE FURNISHED U/S. 44AB OF THE INCOME- TA X ACT, ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 17 1961 THAT AT COLUMN 18 WHERE PARTICULARS OF PAYMENT S MADE TO PERSONS SPECIFIED U/S. 40A(2)(B) WERE GIVEN AT A NNEXURE-3 ; AND AS PER ANNEXURE - 3 THE AUDITORS THEMSELVES HAV E STATED THAT THERE WERE PAYMENTS MADE U/S. 40A(2)(B) RELEVAN T DETAILS OF PAYMENTS ARE GIVEN AS BELOW: SL. NO. NAME OF THE PERSON AMOUNT (RS.) REMARKS 1. K. LAXMA REDDY 12,00,000 SALARY & REMUNERATION 2. N. JAIVEER REDDY 12,00,000 -DO- 3. K. VIJAY BHASKAR REDDY 12,00,000 -DO- 4. N. JAIVEER REDDY 93,72,300 CONSIDERATION PAID FOR AGRICULTURAL LANDS. 5. K. LEELA REDDY 1,35,57,600 -DO- 6. K. NEERAJA 1,35,57,600 -DO- 7. N. RAJITHA REDDY 58,80,000 -DO- 13. AGAINST THIS, THE ASSESSEE SUBMITTED THAT THE EXPENDITURE IS NOT DEBITED TO THE PROFIT AND LOSS A /C. THE EXPENDITURE HAS BEEN SHOWN AS AGRICULTURAL LAND IN THE SCHEDULE OF FIXED ASSETS. IT IS NOT CLAIMED AS AN EXPENDITURE IN THE PROFIT AND LOSS A/C. FURTHER, THE PAYMENT IS NOT MADE TO ANY SPECIFIC PERSONS/RELATIVES. ACCORDING TO THE AR IT CANNOT BE HELD AS AN EXPENDITURE AND IT CANNOT BE S AID THAT IT IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO FAIR MARKET VALUE OF THE GOODS, SERVICE OR FACILITIES FOR WHICH PAYMENT IS MADE OR LEGITIMATE NEEDS OF ASSESSEE'S BUSINESS SO AS TO DISALLOW THE EXPENDITURE IN TERMS OF SECTION 40A(2) (B). FURTHER HE SUBMITTED THAT EXPENDITURE INCURRED FOR THE ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 18 PURPOSE OF PURCHASE OF AGRICULTURAL LAND WHICH IS S HOWN AS CAPITAL ASSET IN THE BALANCE SHEET CANNOT BE SAID I NCURRING OF EXPENDITURE IN CONNECTION WITH THE SERVICES OR FACI LITIES. FURTHER HE SUBMITTED THAT THERE IS NO EVIDENCE THAT THE ASSESSEE DERIVED ANY BENEFIT BY WAY OF DEDUCTION OF PROFIT. THE ACT OF THE ASSESSEE HAS NOT RESULTED IN ANY RED UCTION OF PROPERTY. HE RELIED ON THE FOLLOWING JUDGEMENTS: (A) CIT V. NEPC INDIA LTD. (303 ITR 271) (B) CIT VS. JAIN CABLES PVT. LTD. (252 ITR 785) 14. FURTHER HE SUBMITTED THE FOLLOWING FACTS: I) SECTION 40A APPEARS IN CHAPTER-LV-COMPUTATION OF BUSINESS INCOME OF AN ASSESSEE. II) SECTION 28 REFERS TO PROFITS AND GAINS OF BUSINESS. SECTION 29 STIPULATES THAT THE PROFIT AND GAINS SHALL BE COMPUTED IN ACCORDANCE WITH PROVISIONS OF SECTION 30 TO 43D. THESE SECTIONS STIPULATE THE ALLOWANCES AND DISALLOWANCES OF EXPENDITURE WHILE COMPUTING THE INCOME FROM BUSINESS. SECTION 40A PROVIDES EXPENSES OR PAYMENTS NOT DEDUCTIBLE IN CERTAIN CIRCUMSTANCES WHILE COMPUTING THE INCOME FROM BUSINESS. III) THE ATTRIBUTES OF THIS SECTION ARE: (A) THE PAYMENT SHOULD BE IN NATURE OF ANY EXPENDITURE. (B) THE PAYMENT IS MADE TO A SPECIFIED PERSONS (RELATIVES). ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 19 (C) LF IN SUCH CIRCUMSTANCES ,THE ASSESSING OFFICER IS OF THE OPINION THAT SUCH EXPENDITURE IS EXCESSIVE OR UNREASONABLE HAVING REGARD TO FAIR MARKET VALUE OF THE GOODS, SERVICES OR FACILITIES FOR WHICH PAYMENT IS MADE OR LEGITIMATE NEEDS OF ASSESSEE'S BUSINESS, EXCESS EXPENDITURE CAN BE DISALLOWED UNDER SECTION 40(2)(B). (D) IN THE PROCESS, THE ASSESSEE SHOULD DERIVE A BENEFIT BY WAY OF REDUCTION OF PROFIT. FROM THE ABOVE, IT WOULD APPEAR THAT THE BASIC REQUIREMENT IS THAT THE PAYMENT SHOULD BE IN THE NATURE OF A DEDUCTIBLE EXPENDITURE WHICH HAS THE EFFECT OF REDUCING THE TAXABLE PROFIT. THE REDUCTION OF PROFIT IS THE BENEFIT DERIVED BY THE ASSESSEE. IN THE CASE OF CIT VS. A K SUBBARAYA CHETTY & SONS 123 ITR 592, IT WAS HELD THAT SECTION 40A(2)(B) CONTEMPLATES AN ASSESSEE INCURRING ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN OR IS TO BE MADE TO ANY PERSON REFERRED TO IN CL. (B) OF S. 40A(2). IF THERE WERE ANY SUCH EXPENDITURE, AND IF THE ITO WAS OF OPINION THAT SUCH EXPENDITURE WAS EXCESSIVE OR UNREASONABLE, THEN SO MUCH OF THE EXPENDITURE AS WAS CONSIDERED BY HIM AS EXCESSIVE OR UNREASONABLE WAS NOT TO BE ALLOWED AS DEDUCTION. THE THRUST IS ON INCURRING EXPENDITURE WHICH ARE DEBITED IN THE PROFIT AND LOSS ACCOUNT. ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 20 IN THE CASE OF THE APPELLANT THE EXPENDITURE INCURRED BY PURCHASING THE LAND, WHETHER BY WAY OF PAYMENT OR ALLOTMENT OF SHARES TO THE RELATIVES HAS NOT BEEN CLAIMED AS AN EXPENDITURE AND, THEREFORE, AO IS NOT CORRECT IN DISALLOWING THE EXPENDITURE UNDER SECTION 40A(2) OF THE IT ACT. ON THIS ACCOUNT ALONE THE ADDITION IS NOT SUSTAINABLE. IV) THE TERMS USED IN THE SECTION RELATES TO GOODS, SERVICES AND FACILITIES. ALL THESE EXPRESSIONS ARE USED IN A COGNATE SENSE. THESE EXPRESSIONS REFERS TO ALL TYPES OF MOVABLE PROPERTY. THE TERM 'GOODS' CANNOT INCLUDE IMMOVABLE PROPERTY, S N ROLLING MILLS V ACCE 1997 ELTJ 141 SALES TAX OFFICER V MPSEB AIR 1976 SC 732. LAND IS NOT A PART OF THESE EXPRESSIONS. V) SECTION 40(A)(2) WAS INTRODUCED TO THE EFFECT THAT EXPENDITURE INCURRED IN A BUSINESS FOR WHICH PAYMENT HAS BEEN MADE TO ASSESSEE'S RELATIVES IS LIABLE TO BE DISALLOWED TO-THE EXTENT THE EXPENDITURE IS CONSIDERED TO BE EXCESSIVE OR UNREASONABLE. THE REASONABLENESS OF THE EXPENDITURE IS REQUIRED TO BE JUDGED WITH REFERENCE TO THE BENEFIT DERIVED BY THE ASSESSEE BY PAYING EXCESS AMOUNT AND CLAIMING THE SAME AS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. IN THE BACKGROUND OF THE INTENTION OF THE LEGISLATURE, IT IS REQUIRED TO BE JUDGED WHETHER THE ASSESSEE HAS DERIVED ANY BENEFIT BY CLAIMING EXCESS ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 21 EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. SINCE NO CLAIM HAS BEEN MADE IN THE PROFIT AND LOSS ACCOUNT, THERE WAS NEVER ANY ATTEMPT TO REDUCE TAX. HENCE THE PROVISIONS OF SECTION 40(A)(2) ARE NOT APPLICABLE. VI) IN THE LIGHT OF THE ABOVE STIPULATIONS OF THE SECTION THAT THE DISALLOWANCE SHOULD BE LIMITED TO EXPENDITURE CLAIMED, IT IS IMMATERIAL WHETHER THE AMOUNT OF PAYMENT IS AN INVESTMENT OR STOCK IN TRADE AS THE ASSESSEE HAS NOT CLAIMED THE INVESTMENT AS A REVENUE EXPENDITURE. LAW IS WELL SETTLED AS A PRINCIPLE THAT 'IF WORDS OF STATUTE FAILS, SO ALSO THE TAX. NO ONE CAN PROVIDE FOR A CASUS OMMISUS . WHEN WORDS OF A STATUTE ARE CLEAR, THE SAME HAS TO BE ACCEPTED. A COURT, MUCH LESS A QUASI JUDICIAL AUTHORITY, CAN INNOVATE AND STEP INTO THE SHOES OF THE LEGISLATURE AND PROVIDE FOR ANY ASSUMED OMISSION. IT IS FURTHER SUBMITTED THAT THE SECTION INTRODUCES A DEEMING PROVISION. A FICTION SHOULD BE LIMITED TO ITS LEGITIMATE FIELD . THE AO'S LOGIC THAT THE AMOUNT REPRESENTS A STOCK IN TRADE AND A DEDUCTIBLE EXPENDITURE INTRODUCES ANOTHER FICTION AND AMOUNTS TO REWRITING THE BOOKS IN THE ABSENCE OF ANY SPECIFIC PROVISION. VII) IN THE LIGHT OF THE ABOVE BASIC PROVISIONS, IT IS IMMATERIAL WHETHER THE LAND IS STOCK IN TRADE OR INVESTMENT SINCE THE EXPENDITURE IS NOT DEBITED IN THE PROFIT AND LOSS ACCOUNT. AO'S CONTENTION THAT THE ASSESSEE IS A BUILDER IS OF LITTLE CONSEQUENCE. AO HAS CITED CERTAIN PROJECTS WHERE ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 22 THE APPELLANT HAD CLAIMED THE EXPENSES IN VARIOUS PROJECTS AND INCLUDED THESE AS STOCK IN TRADE. THESE PROJECTS WERE TAKEN ON DEVELOPMENT BASIS AND THE APPELLANT WAS REQUIRED TO CONSTRUCT THE HOUSES ON THESE PLOTS BELONGING TO LAND OWNERS AS A BUSINESS ACTIVITY. THE ASSESSEE NEVER HAD ANY INTEREST IN THESE LANDS. THESE CASES ARE NOT COMPARABLE WITH PURCHASE OF LAND BY THE COMPANY FROM OTHERS. VIII) IT IS SUBMITTED THAT THE LAND BELONGED TO JOINT OWNERS AND PAYMENTS WERE MADE TO THEM. STRICTLY SPEAKING, JOINT OWNERS DO NOT COME WITHIN THE PURVIEW OF SECTION 40A(2)(B) AS RELATIVE, FOR AN BOI CANNOT BE A RELATIVE IN THE CONTEXT OF SECTION 40A. HENCE THE TRANSACTION IS NOT COVERED BY SECTION 40A. IX) WITHOUT PREJUDICE TO THE CLAIM THAT NO ADDITION IS CALLED FOR AS THE EXPENDITURE IS NOT BOOKED IN THE PROFIT AND LOSS ACCOUNT, IT IS SUBMITTED THAT AO'S WORKING BASING ON THE SRO'S GUIDANCE VALUE IS NOT CORRECT. SRO'S VALUE DOES NOT REPRESENT THE VALUE OF THE REQUIRED TO BE VALUED. THEREFORE WORKING OUT THE DIFFERENCE BASING ON SRO'S VALUE IS NOT CORRECT. IT IS FURTHER SUBMITTED THAT IT IS A WELL KNOWN FACT THAT THE REAL ESTATE VALUES INCREASED WITH MAXIMUM SPEED IN RESPECT OF THE LANDS SITUATED AROUND TWIN CITIES DURING THE PERIOD 2006 TO 2008. MANY OF THE TRANSACTIONS TOOK PLACE AT A HIGH PREMIUM THAN THE LAND VALUE FIXED BY THE REGISTRATION AUTHORITIES FOR STAMP DUTY ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 23 PURPOSE. IT MAY NOT BE OUT OF PLACE TO MENTION THAT TAKING THE BOOM IN LAND VALUES THE GOVERNMENT OF ANDHRA PRADESH INCREASED THE BASIC VALUES OF THE LANDS FROM TIME TO TIME FOR STAMP DUTY PURPOSE IN THE LAST FOUR YEARS. THUS, AS THE ASSESSEE GOT THE .LAND TRANSFERRED THROUGH SALE CUM GPA AND IN VIEW OF THE PREVAILING MARKET VALUE AT THAT POINT OF TIME, THE ASSESSEE AND THE OWNERS OF THE LAND AFTER NEGOTIATIONS ARRIVED AT THE RATE AS MENTIONED IN THE DOCUMENT. X) IN VIEW OF THE ABOVE FACTS, IT IS SUBMITTED THAT: A) THE ASSESSEE ACQUIRED 40% OF (UNIDENTIFIED) AGRICULTURE LAND SITUATED AT MALKARAM VILLAGE, SHAMSHABAD MANDAL, R R DIST FROM THE OWNERS OF THE LAND. B) THE ASSESSEE ACQUIRED THE SAME FOR HOLDING AS A LONG TERM ASSET AND THEREFORE REFLECTED THE SAME IN THE BALANCE SHEET. THE SAME CONTINUED TO BE ASSET EVEN IN THE BALANCE SHEET AS ON 31.03.2011. C) THE ASSESSEE NEVER TREATED IT AS A COMMERCIAL ASSET AND THE SAME IS BEING CONTINUED AS A FIXED ASSET EVEN AS ON TODAY. D) THE VALUE ADOPTED FOR ACQUISITION OF THE LAND WAS BASING ON THE PREVAILING MARKET RATES E) THE ASSESSEE DID NOT MAKE ANY PAYMENTS TO ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 24 THE VENDEES EXCEPT RS. L LAKH. REMAINING CONSIDERATION WAS CONSIDERED AS SHARE CAPITAL CONTRIBUTED BY THE RESPECTIVE OWNERS. F) THE ASSESSEE DID NOT CLAIM THE PAYMENTS AS EXPENDITURE IN THE PROFIT AND LOSS ACCOUNT. IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT APPLICATION OF PROVISIONS OF SECTION 40A(2)(B) IN RESPECT OF AGRICULTURE LAND (FIXED ASSET) ACQUIRED BY THE ASSESSEE IS NOT WARRANTED. .HENCE THE ADDITION MADE BY THE ASSESSING OFFICER MAY BE DELETED. 15. ON THE OTHER HAND, THE LEARNED DR SUBMITTED THAT TH E ASSESSEE MIGHT HAVE SHOWN THIS AGRICULTURAL LAND AS A FIXED ASSET IN THE SCHEDULE. HOWEVER, THE ASSESSEE IS IN REAL ESTATE BUSINESS AND WHEN THE ASSESSEE DEVELOPED THE LAND, THE ASSESSEE WILL GET BENEFIT FROM THAT. BEING SO PROV ISIONS OF SECTION 40A(2)(B) ARE APPLICABLE TO THE ASSESSEE'S CASE. ON APPLICATION OF SRO RATE THE ASSESSEE HAS BOOKED EXC ESS EXPENDITURE WHICH WAS BROUGHT TO TAX AND THE SAME H AS TO BE CONFIRMED. 16. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, ACCORDING TO THE AO THE ASSESSEE HAS BOOKED EXCESS EXPENDITURE OF RS. 3,97, 04,400. BUT THE FACTS ARE THAT THIS EXPENDITURE NOT GONE IN TO THE PROFIT ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 25 AND LOSS A/C. UNLESS AND UNTIL THE ASSESSEE CLAIMED IT AS AN EXPENDITURE IN THE ASSESSMENT YEAR UNDER CONSIDERAT ION, THE PROVISIONS OF SECTION 40A(2)(B) HAVE NO APPLICATION . THE AO WAS OF THE OPINION THAT HAD THE ASSESSEE IS IN REAL ESTATE BUSINESS AND ON MAKING PLOTS IN THE SAID LAND, THE ASSESSEE IS GOING TO DERIVE BENEFIT. BUT, IN OUR OPINION, UNLE SS AND UNTIL EXPENDITURE IS DEBITED TO THE PROFIT AND LOSS A/C. A ND CLAIMED IT AS AN EXPENDITURE WHILE COMPUTING INCOME IN THE ASSESSMENT YEAR UNDER CONSIDERATION, PROVISIONS OF THE SAID SECTION CANNOT BE APPLIED. BEING SO, OTHER ASPECTS CONTENDED BY THE LEARNED AR ARE NOT RELEVANT. ACCORDINGLY, I N OUR OPINION, THERE CANNOT BE ANY ADDITION IN THE ASSESS MENT YEAR UNDER CONSIDERATION U/S. 40A(2)(B) OF THE ACT. ACCO RDINGLY, THE ADDITION IS DELETED. FURTHER, THE ISSUE RELATI NG TO LEVY OF INTEREST U/S. 234B AND INITIATION OF PENALTY PROCEED INGS U/S. 271(1)(C) DOES NOT SURVIVE AS WE HAVE DELETED THE A DDITION ITSELF. IN THE RESULT, ASSESSEE'S APPEAL IN ITA NO . 1259/ HYD/2012 IS ALLOWED. ITA NO. 937/HYD/2013 (BY REVENUE): 17. THE REVENUE RAISED THE FOLLOWING GROUNDS: (1) THE ORDER OF THE CIT(A) IS ERRONEOUS IN LAW AND ON FACTS OF THE CASE. (2) THE LEARNED CIT(A) ERRED IN DELETION OF THE ADDITION MADE BY ESTIMATING THE NET PROFIT AT ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 26 10% OF THE SALES AS THE ASSESSEE COULD NOT PRODUCE PROPER BILLS AND VOUCHERS. (3) THE LEARNED CIT(A) OUGHT TO HAVE CONTINUED THE ADDITION AS THE AO HAS ADOPTED THE RATE OF 10% AS NET PROFIT WHICH IS COMPARABLE WITH SIMILAR ASSESSEE OF THE BUSINESS. 18. FACTS RELATING TO THE ISSUE ARE THAT THE AO ESTIMAT ED INCOME OF THE ASSESSEE AT 10% OF SALES CLEAR OF DEP RECIATION ON THE REASON THAT ON RANDOM VERIFICATION OF VOUCHE RS FOR ITEMS CLAIMED BY THE ASSESSEE, IT WAS SUPPORTED BY SELF-MADE VOUCHERS AND PAYMENT IS MADE BY CASH ONLY. FURTHER MOST OF THE VOUCHERS RELATING TO PURCHASE OF SAND, BRICKS, LABOUR, EARTHWORK, ETC., ARE SUPPORTED BY SELF-MADE VOUCHER S ONLY. THE ASSESSEE CARRIED THE MATTER IN APPEAL TO THE CI T(A) . THE CIT(A) OBSERVED THAT REJECTION OF BOOKS OF ACCOUNT IS UNWARRANTED. HE DELETED THE ADDITION MADE BY THE A O AT RS. 1,01,47,413. AGAINST THIS THE REVENUE IS IN APPEAL BEFORE US. 19. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE IT IS AN ADMITTED FACT THAT ASSESSEE'S BOOKS OF ACCOUNT ARE NOT VERIFIABLE. CE RTAIN PAYMENTS ARE MADE BY SELF-MADE VOUCHERS ONLY AND TH ERE IS EVERY CHANCE OF INFLATING THE EXPENDITURE. CONSIDE RING THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE INCLINE D TO DIRECT THE AO TO DISALLOW 5% OF CASH PAYMENTS SUPPORTED BY SELF- ITA NO. 937/HYD/2013 & ORS. M/S. ASHOKA DEVELOPERS & BUILDERS LTD. ================================ 27 MADE VOUCHERS. ACCORDINGLY, THIS GROUND IS PARTLY ALLOWED. ITA NO. 937/HYD/13 IS PARTLY ALLOWED. 20. IN THE RESULT, ITA NO. 1259/HYD/2012 IS ALLOWED, ITA NO. 1268/HYD/2013 IS DISMISSED AND ITA NO. 937/HYD/2013 IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH MARCH, 2014. SD/- (SAKTIJIT DEY) JUDICIAL MEMBER SD/- (CHANDRA POOJARI) ACCOUNTANT MEMBER HYDERABAD, DATED THE 28 TH MARCH, 2014 TPRAO COPY FORWARDED TO: 1. THE DEPUTY CIT, CIRCLE-1(1), 4 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 2. THE ADDL. CIT, RANGE-1, HYDERABAD. 3. THE ASST. CIT(A), CIRCLE-1(1), 4 TH FLOOR, AAYAKAR BHAVAN, BASHEERBAGH, HYDERABAD. 4. M/S. ASHOKA DEVELOPERS & BUILDERS LTD., C/O. M/S. B. NARSING RAO & CO., CHARTERED ACCOUNTANTS, PLOT NO. 554, ROAD NO. 92, JUBILEE HILLS, HYDERABAD 96. 5. THE CIT(A)-II, HYDERABAD. 6. THE CIT-I, HYDERABAD. 7. THE DR BENCH 'A', ITAT, HYDERABAD