ACIT, New Delhi V. M/s Wellworth Developers (P) Ltd., New Delhi

ITA 1675/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6834 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-02-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: H
• Next Hearing Date: 26-10-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 22-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Assessee Lawyers: V S RASTOGI
• Keywords: Capital asset; Business income; Question of law; Deemed dividend; Revenue expenditure
• Section: 40A(3); 143(3); 37(1); 37

Judgement Text

I.T.A. NOS. 1675/D/13 & 1761/D/13 ASSESSMENT YEARS: 2006-07 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH H, NEW DELHI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 1675/DEL/2013 AY: 20 06-07 ACIT, VS WELLWORTH DEVELOPERS (P) LTD., CENTRAL CIRCLE 23, M-11, MIDDLE CIRCLE, NEW DELHI CONNAUGHT CIRCUS, NEW DELHI-110001 (PAN: AAACW1092J) ITA NO. 1761/DEL/2013 AY: 20 06-07 WELLWORTH DEVELOPERS (P) LTD., VS ACIT, CC -23, NEW DELHI. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. JYOTI KUMARI, CIT D.R. RESPONDENT BY : SHRI V.S. RASTOGI, CA ORDER PER SUDHANSHU SRIVASTAVA, ACCOUNTANT MEMBER BOTH THE APPEALS ARISE OUT OF THE ORDER PASSED BY T HE LD. CIT (A)-XXXIII, NEW DELHI DATED 28.12.2012 FOR ASSESSME NT YEAR 2006-07. I.T.A. NO. 1675/DEL/2013 HAS BEEN PREFERR ED BY THE DEPARTMENT WHEREAS I.T.A. NO. 1761/DEL/2013 HAS BEE N FILED BY THE ASSESSEE. BOTH THE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS COMMON ORDER. I.T.A. NOS. 1675/D/13 & 1761/D/13 ASSESSMENT YEARS: 2006-07 2 2. THE FACTS OF THE CASE, AS BORNE FROM THE RECORDS , ARE THAT THE ASSESSEE IS A COMPANY INCORPORATED UNDER THE INDIAN COMPANIES ACT, 1956 AND ENGAGED IN THE BUSINESS OF REAL ESTAT E. RETURN OF INCOME DECLARING AN INCOME OF RS. 408,225/- WAS FIL ED ON 20.11.2006 AND SUBSEQUENTLY THE ASSESSEES CASE WAS SELECTED FOR SCRUTINY. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD PURCHASED LAND FROM FARMERS/VILLAGERS AND AFTER TAKING OVER POSSESSION OF THE LAND SO PURCHASED, IT WAS HANDED OVER TO M/S COUNTRY WIDE PROMOTERS PVT. LTD. FOR DEVELOPMENT AN D PROMOTION OF A PROPOSED TOWNSHIP IN PURSUANCE OF A COLLABORAT ION AGREEMENT. IT WAS THE AOS CONTENTION THAT IN CONS IDERATION OF THE TRANSFER OF LAND TO M/S COUNTRY WIDE PROMOTERS PVT. LTD., THE ASSESSEE COMPANY HAS CHARGED A FEE OF RS.35,000 PER ACRE. THE ASSESSING OFFICER HAS NOTED IN HIS ORDER THAT DURIN G THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY DID NOT C ARRY ANY OTHER BUSINESS OTHER THAN THAT OF ACQUIRING LAND FR OM THE VILLAGES THROUGH REGISTERED SALE DEEDS AND TRANSFERRING THE LAND SO ACQUIRED TO M/S COUNTRY WIDE PROMOTERS (PVT.) LTD. THE ASSESSING OFFICER NOTED THAT A SUM OF RS.67,18,002/ - WAS PAID IN CASH TOWARDS THE PURCHASE OF LAND TO DIFFERENT PART IES, AND AS, ACCORDING TO HIM, THE LAND PURCHASED CONSTITUTED ST OCK-IN-TRADE I.T.A. NOS. 1675/D/13 & 1761/D/13 ASSESSMENT YEARS: 2006-07 3 OF THE ASSESSEE, HE DISALLOWED A SUM EQUAL TO 20% O F THE AMOUNT PAID IN CASH (BEING RS.13,43,600/-) U/S 40A(3) OF THE ACT. THE ASSESSING OFFICER ALSO ADDED A SUM OF RS.796,743/- U/S 2(22)(E) OF THE ACT AS DEEMED DIVIDEND ON ACCOUNT OF LOANS A ND ADVANCES RECEIVED FROM ASSOCIATED CONCERNS. THE ASSESSING O FFICER FURTHER DISALLOWED ADDITIONAL PAYMENT OF STAMP DUTY OF RS. 8,75,000/- HOLDING IT TO BE NON-DEDUCTIBLE UNDER SECTION 37 AS IT WAS, ACCORDING TO HIM, IN VIOLATION AND CONTRAVENTION OF THE GOVERNMENT RULES AND REGULATIONS. THE ASSESSMENT U /S 143(3) WAS COMPLETED AT RS. 34,23,568/-. 3. AGGRIEVED, THE ASSESSEE WENT INTO APPEAL BEFORE THE LD. CIT (A) WHEREIN THE LD. CIT (A) UPHELD THE DISALLOWANCE MADE U/S 40A (3) BUT DELETED THE ADDITION PERTAINING TO DEEM ED DIVIDEND. AS FAR AS THE ISSUE OF DISALLOWANCE OF ADDITIONAL P AYMENT WAS CONCERNED, THE LD. CIT (A) HELD THAT ADDITIONAL PAY MENT WAS NOT ILLEGAL UNDER ANY PROVISIONS OF THE STAMP ACT AND W AS NOT HIT BY EXPLANATION TO SECTION 37(1) OF THE INCOME TAX ACT, 1961. HE, HOWEVER, UPHELD THE DISALLOWANCE TO THE EXTENT THE ADDITIONAL PAYMENTS WERE MADE TO PERSONS WHO DID NOT HAVE ANY LEGAL CLAIM OVER THE LAND FOR WHICH THE ADDITIONAL PAYMENT WAS MADE. I.T.A. NOS. 1675/D/13 & 1761/D/13 ASSESSMENT YEARS: 2006-07 4 4. NOW, BOTH THE REVENUE AS WELL AS THE ASSESSEE AR E IN APPEAL BEFORE US. THE DEPARTMENT HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 8,75,000/-, MADE BY THE ASSESSING OFFICER IN VIEW O F THE PROVISIONS OF SECTION 37(1) OF THE INCOME TAX A CT, 1961 ON ACCOUNT OF ADDITIONAL PAYMENT IN VIOLATION OF STAMP DUTY ACT, 1899. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS . 7,96,743/-, MADE BY THE ASSESSING OFFICER IN VIEW O F THE PROVISIONS OF SECTION 2(22)(E) OF THE INCOME TA X ACT, 1961 ON ACCOUNT OF DEEMED DIVIDEND. 5. ON THE ISSUE OF ADDITIONAL PAYMENTS MADE FOR THE PURCHASE OF LAND, THE LD. DR SUBMITTED THAT THE ASSESSEE IS NOT ENTITLED TO CLAIM THE DEDUCTION OF THIS ADDITIONAL PAYMENT BECA USE THERE IS NO CONSIDERATION RECEIVED IN LIEU OF THESE PAYMENTS OTHER THAN THE LAND WHICH HAD ALREADY BEEN RECEIVED BY THE ASSESSE E COMPANY AT THE FIRST INSTANCE ITSELF I.E. AT THE TIME OF SALE- DEEDS. THE POSSESSION OF THESE LANDS WAS TAKEN IN EACH AND EVE RY CASE BY THE ASSESSEE COMPANY AT THE TIME OF EXECUTION OF SA LE-DEEDS AS IS EXPRESSLY MENTIONED IN THE REGISTERED SALE DEEDS. T HE ADDITIONAL PAYMENTS WERE MADE MUCH AFTER THE EXECUTION OF THE REGISTERED SALE-DEEDS AS PER WHICH THE POSSESSION OF THE LAND AND ALL ITS I.T.A. NOS. 1675/D/13 & 1761/D/13 ASSESSMENT YEARS: 2006-07 5 RIGHTS WERE ALREADY WITH THE ASSESSEE COMPANY. HE F URTHER SUBMITTED THAT THE AMOUNT OF ADDITIONAL PAYMENTS HA VE BEEN ADDED TO THE COST OF THE LAND AND NO STAMP DUTY HAS BEEN PAID ON THE SAID ADDITIONAL PAYMENT WHICH MEANS THAT THE AS SESSEE COMPANY HAS CLAIMED IN ITS BOOKS ALL THE PAYMENTS W HICH HAVE BEEN MADE OVER AND ABOVE THE SALE CONSIDERATION AS DESCRIBED IN THE SALE DEED AND ON WHICH NO STAMP DUTY HAS BEEN P AID TO THE GOVERNMENT. AS PER INDIAN STAMPS ACT, PROSECUTION P ROCEEDINGS CAN BE INITIATED FOR THIS VIOLATION. HENCE, THESE A DDITIONAL PAYMENTS CANNOT BE ALLOWED AS EXPENDITURE TO THE AS SESSEE COMPANY. HENCE THIS EXPENSE OF ADDITIONAL PAYMENT I S NOT ALLOWABLE AS DEDUCTION. 6. REGARDING THE ISSUE OF DEEMED DIVIDEND U/S 2(22) (E), LD. DR SUBMITTED THAT THE ASSESSEE HAD RECEIVED RS.9,00,00 0/- FROM SUPER BELTS (P) LTD. AND RS.10,78,000/- FROM GREEN VALLEY HOUSING & LAND DEVELOPMENT (P) LTD. IN THE COURSE O F BUSINESS TRANSACTIONS BUT AT THE TIME OF ASSESSMENT PROCEEDI NGS ITSELF, IN ORDER TO BUY PEACE OF MIND AND TO AVOID ANY LITIGAT ION WITH THE DEPARTMENT, IT HAD OFFERED THE SAME TO BE TAXED AS DEEMED DIVIDEND AND THUS, THE LD. CIT(A) HAS WRONGLY DELET ED THE ADDITION. HE SUBMITTED THAT THE ORDER OF THE ASSES SING OFFICER I.T.A. NOS. 1675/D/13 & 1761/D/13 ASSESSMENT YEARS: 2006-07 6 SHOULD BE RESTORED ON BOTH THE COUNTS. 7. THE ASSESSEE HAS RAISED AS MANY AS SIX GROUNDS O F APPEAL. HOWEVER, THE MAIN GROUND PERTAINING TO THE ISSUE OF DISALLOWANCE U/S 40A (3) OF THE INCOME TAX ACT, 1961 IS GROUND N O. 4, WHICH READS AS UNDER:- 4. THAT ON 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. 8. LD. AR SUBMITTED THAT THE ASSESSEE HAD NOT CLAIM ED ANY DEDUCTION FOR THE PURCHASE OF LAND AND, THEREFORE, THE DISALLOWANCE OF RS.13,46,000/- U/S 40A(3) OF THE AC T ON THIS ACCOUNT WAS NOT SUSTAINABLE. HE SUBMITTED THAT THE ASSESSEE IS NOT DERIVING INCOME FROM PURCHASE AND SALE OF LAND AND THE ASSESSING OFFICER HAS MADE AN INCORRECT OBSERVATION THAT THE ASSESSEE HAD TRANSFERRED THE LAND TO M/S COUNTRY WI DE PROMOTERS PVT. LTD. HE SUBMITTED THAT THE ASSESSIN G OFFICER HAS DRAWN A WRONG INFERENCE THAT THE LAND WAS ACQUIRED AS A STOCK IN TRADE. HE SUBMITTED THAT THE ASSESSEE HAD NOT CLAI MED ANY DEDUCTION IN RESPECT OF COST OF LAND IN THE COMPUTA TION OF TOTAL INCOME UNDER THE HEAD BUSINESS INCOME AND THEREF ORE SECTION 40A(3) WAS NOT APPLICABLE. SINCE NO DEDUCTION HAS BEEN CLAIMED, I.T.A. NOS. 1675/D/13 & 1761/D/13 ASSESSMENT YEARS: 2006-07 7 NO DISALLOWANCE CAN BE MADE. HE ALSO PLACED RELIAN CE ON THE DECISION OF THE COORDINATE BENCH H OF THIS TRIBUN AL IN I.T.A. NO. 1752/DEL/2013 ON THE ISSUE. 9. RESPONDING TO THE DEPARTMENTS ARGUMENTS ON DEEM ED DIVIDEND, THE LD. AR SUBMITTED THAT THE ASSESSEE WA S NOT A REGISTERED SHAREHOLDER OF THE PAYER COMPANY AND, TH EREFORE, IN VIEW OF THE FOLLOWING CASE LAWS, THE SAID AMOUNT CO ULD NOT BE TAXED IN ITS HANDS: (I) CIT VS UNIVERSAL MEDICARE PVT. LTD. 324 ITR 263 (BO M) (II) INTERNATIONAL TECHNOLOGIES PVT. LD. IN ITA NO. 6182/MUM/2008 (III) CIT VS ANKITECH PVT. LTD. 11 TAXMANN.COM 100 (DEL) (IV) CIT VS NAVYUG PROMOTERS PVT. LTD. 16 TXMANN.COM 292 (DEL) (V) CIT VS MARKETING P. LTD. 16 TAXMANN.COM 411 (DEL) 10. ON THE ISSUE OF ADDITIONAL PAYMENT TOWARDS PURC HASE OF LAND, THE LD. AR SUBMITTED THAT THE ADDITIONAL PAYM ENT RECORDED HAS NOT BEEN CLAIMED AS AN EXPENSE, THEREFORE, NO D ISALLOWANCE WAS CALLED FOR IN ASSESSEES CASE AND IN ANY CASE T HE COST HAS BEEN REIMBURSED BY M/S COUNTRY WIDE PROMOTERS (P) L TD TO THE I.T.A. NOS. 1675/D/13 & 1761/D/13 ASSESSMENT YEARS: 2006-07 8 ASSESSEE COMPANY. 11. IN RESPONSE TO THE LD. ARS ARGUMENTS ON THE IS SUE OF DISALLOWANCE U/S 40A (3), THE LD. DR RELIED ON THE ORDER OF THE LD. CIT (A). 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE RELEVANT MATERIAL PLACED ON RECORD. AS FAR AS T HE ISSUE OF DEEMED DIVIDEND IN THE DEPARTMENTS APPEAL IS CONCE RNED, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE COMPANY IS NOT A REGISTERED SHAREHOLDER OF THE PAYER COMPANIES WHO HAVE ADVANCE D LOANS TO THE ASSESSEE COMPANY. THE HON'BLE JURISDICTIONAL H IGH COURT HAS HELD IN THE CASE OF CIT VS ANKITECH (P) LTD. (S UPRA) AS UNDER:- FURTHER, IT IS AN ADMITTED CASE THAT UNDER NORMAL CIRCUMSTANCES, SUCH A LOAN OR ADVANCE GIVEN TO THE SHAREHOLDERS OR TO A CONCERN, WOULD NOT QUALIFY AS DIVIDEND. IT HAS BEEN MADE SO BY LEGAL FICTION CREA TED UNDER SECTION 2(22) (E) OF THE ACT. WE HAVE TO KEEP IN MIND THAT THIS LEGAL PROVISION RELATES TO DIVIDEND . THUS BY A DEEMING PROVISION, IT IS THE DEFINITION O F DIVIDEND WHICH IS ENLARGED. LEGAL FICTION DOES NOT EXTEND TO SHAREHOLDER. WHEN WE KEEP IN MIND THIS ASPECT, THE CONCLUSION WOULD BE OBVIOUS, VIZ, LOAN OR ADVANCE GIVEN UNDER THE CONDITIONS SPECIFIED UNDER SECTION 2(22) (E) OF THE ACT WOULD ALSO BE TREATED AS DIVIDEND. THE FICTION HAS TO STOP HERE AND IS NOT T O BE EXTENDED FURTHER FOR BROADENING THE CONCEPT OF SHAREHOLDERS BY FORM OF DIVIDEND TO ITS SHAREHOLDERS/MEMBERS AND SUCH DIVIDEND CANNOT BE GIVEN TO NONMEMBERS. THE SECOND CATEGORY SPECIFIED UNDER SECTION 2(22)(E) OF THE ACT VIZ. A CONCERN (L IKE THE ASSESSEE HEREIN), WHICH IS GIVEN THE LOAN OR ADVANC E I.T.A. NOS. 1675/D/13 & 1761/D/13 ASSESSMENT YEARS: 2006-07 9 IS ADMITTEDLY NOT A SHAREHOLDER/MEMBER OF THE PAYER COMPANY. THEREFORE, UNDER NO CIRCUMSTANCE, IT COULD BE TREATED AS SHAREHOLDER/MEMBER RECEIVING DIVIDEND. IF THE INTENTION OF THE LEGISLATURE WAS T O TAX SUCH LOAN OR ADVANCE AS DEEMED DIVIDEND AT THE HANDS OF DEEMING SHAREHOLDER THEN THE LEGISLATURE WOULD HAVE INSERTED DEEMING PROVISION IN RESPECT OF SHAREHOLDER AS WELL, THAT HAS NOT HAPPENED. MOST OF THE ARGUMENTS OF THE LEARNED COUNSELS FOR THE REVEN UE WOULD STAND ANSWERED, ONCE WE LOOK INTO THE MATTER FROM THIS PERSPECTIVE .. INSOFAR AS RELIANCE UP ON CIRCULAR NO. 495 DATED 22-09-1997 ISSUED BY CENTRAL BOARD OF DIRECT TAXES IS CONCERNED, WE ARE INCLINED TO AGREE WITH THE OBSERVATIONS OF THE MUMBAI BENCH DECISION IN BHAUMIK COLOUR (P) LTDS CASE (SUPRA) T HAT SUCH OBSERVATIONS ARE NOT BINDING ON THE COURTS. ON CE IT IS FOUND THAT SUCH LOAN OR ADVANCE CANNOT BE TREATED AS DEEMED DIVIDEND AT THE HANDS OF SUCH CONCERNS WHICH IS NOT A SHAREHOLDER, AND THAT AFFORDING TO US IS THE CORRECT LEGAL POSITION, SUCH A CIRCULAR WOULD BE OF NO AVAIL. 13. RESPECTFULLY FOLLOWING THE DECISION OF THE HON 'BLE HIGH COURT, WE HOLD THAT THE AMOUNT OF RS.796,743/- IS N OT TAXABLE AS DEEMED DIVIDEND IN THE HANDS OF THE ASSESSEE COMPAN Y U/S 2(22)(E) OF THE ACT AS THE ASSESSEE COMPANY IS NOT A SHAREHOLDER OF THE PAYER COMPANIES. HENCE, THIS GROUND OF APPE AL OF THE DEPARTMENT IS REJECTED. 14. AS FAR AS THE ISSUE OF DELETION OF DISALLOWANCE OF RS.875,000/- PAID ON ACCOUNT OF ADDITIONAL PAYMENTS IS CONCERNED, IT IS SEEN THAT NO SUCH CLAIM WAS MADE B Y THE ASSESSEE AS THESE PAYMENTS WERE NOT ROUTED THROUGH THE PROFIT/LOSS ACCOUNT OF THE ASSESSEE. THE LD. AR HA S SUBMITTED I.T.A. NOS. 1675/D/13 & 1761/D/13 ASSESSMENT YEARS: 2006-07 10 THAT HIS ARGUMENTS ON THE ISSUE REMAIN THE SAME AS RAISED ON THE ISSUE OF DISALLOWANCE U/S 40A (3). ON A CONSIDERATI ON OF THE SAME WE ARE OF THE VIEW THAT SINCE THE MATERIAL ISSUE IS THAT THE SAID PAYMENT WAS NEVER CLAIMED BY THE ASSESSEE AS BUSINE SS EXPENDITURE, THE OCCASION TO MAKE A DISALLOWANCE OF THE SAME DOES NOT ARISE. THERE IS NO DISPUTE ON THE FACT TH AT THE EXPENDITURE WAS NOT CLAIMED AS AN EXPENSE BY THE AS SESSEE. IN THE CIRCUMSTANCES, THE OCCASION TO MAKE AN ADDITION OF THE SAME BY WAY OF A DISALLOWANCE DOES NOT ARISE. ACCORDING LY, WE HOLD THAT THE DISALLOWANCE OF RS.875,000/- ON ACCOUNT OF ADDITIONAL PAYMENTS WAS WRONGLY MADE BY THE ASSESSING OFFICER. MOREOVER, THE PARTIAL SUSTENANCE OF THIS ADDITION BY THE LD. CIT (A) IS ALSO INCORRECT AND IS LIABLE TO BE DELETED FOR THE REASO N AFORE SAID. HENCE, THIS GROUND OF APPEAL OF THE DEPARTMENT IS A LSO REJECTED. 15. ACCORDINGLY, THE APPEAL OF THE DEPARTMENT IS DI SMISSED. 16. AS FAR AS THE ASSESSEES APPEAL I.E. I.T.A. NO. 1761/DEL/2013 IS CONCERNED, AFTER GOING THROUGH ALL THE RELEVANT RECORDS AND AFTER GIVING A CAREFUL CONSIDERATION TO THE RIVAL S UBMISSIONS, IT IS SEEN THAT THE FACT REMAINS UNASSAILED ON RECORD THA T THE EXPENDITURE DISALLOWED BY THE AO, WHICH HAS BEEN UP HELD BY THE I.T.A. NOS. 1675/D/13 & 1761/D/13 ASSESSMENT YEARS: 2006-07 11 LD. CIT (A), WAS NEVER CLAIMED AS AN EXPENSE BY THE ASSESSEE. SECTION 40A STARTS WITH THE NON-OBSTANTE CLAUSE SET TING OUT THAT THE PROVISIONS OF THIS SECTION SHALL HAVE EFFECT N OTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PRO VISIONS 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 EXPENDI TURE UNDER THE COMPUTATION PROVISIONS OF PROFITS AND GAINS OF BUS INESS OR PROFESSION. THUS CONSEQUENTLY WHAT DOES NOT FALL WITHIN THE COMPUTATION OF INCOME WILL NOT ATTRACT THE PROVISIO NS OF SECTION 40A (3). ON THIS ISSUE THE JUDGEMENT OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF MOTILAL KHATRI (2008) 218 CTR 602 (RAJ.) IS VERY CLEAR. THEIR LORDSHIPS BEFORE ARRIVING AT THEIR DECISION CATEGORICALLY TOOK NOTE OF THE FACT THAT THE PROVIS IONS OF SECTION 40A (3) HAD BEEN LOOKED AT AND THEREAFTER THE POSIT ION IS VERY CLEAR IN AS MUCH AS WHEN THE ASSESSEE HAS NOT CLAIM ED ANY DEDUCTION OF ANY EXPENDITURE THE QUESTION OF NOT AL LOWING ANY PART OF THAT EXPENDITURE AS DEDUCTION DOES NOT ARIS E. FOR READY- REFERENCE, WE EXTRACT THE RELEVANT FINDING OF THEIR LORDSHIPS FROM THE SAID JUDGEMENT:- I.T.A. NOS. 1675/D/13 & 1761/D/13 ASSESSMENT YEARS: 2006-07 12 IN OUR VIEW, A BARE READING OF THE LANGUAGE OF THI S SUB-SECTION IS ENOUGH TO SHOW, THAT IN THE CIRCUMSTANCES OF THE CASE, PROVISIONS OF S.40A(3) A RE NOT ATTRACTED WITH RESPECT TO EITHER OF THE TRANSAC TIONS; OBVIOUSLY BECAUSE IT ONLY PROHIBITS ALLOWING OF DEDUCTION AS EXPENDITURE. EXPENDITURE OBVIOUSLY MEANS EXPENDITURE ADMISSIBLE TO BE DEDUCTED FROM OUT OF THE INCOME, WHICH MAY INCLUDE THE EXPENDITUR E ON PURCHASE AND THE LIKE, AND THE SUB-SECTION PROVIDES THAT IF ANY SUCH EXPENDITURE IS INCURRED A FTER SPECIFIED DATE, IN A SPECIFIED MANNER, THEN 20 PER CENT OF SUCH EXPENDITURE SHALL NOT BE ALLOWED AS A DEDUCTION. IN THE PRESENT CASE THE ASSESSEE HAS NO T CLAIMED ANY DEDUCTION OF ANY EXPENDITURE OF RS.3,88,000 OR RS.7,35,000 AND THEREFORE, THERE IS NO QUESTION OF NOT ALLOWING ANY PART OF THAT EXPENDITU RE, AS DEDUCTION. THUS, THE FINDING ARRIVED AT IN THIS REGARD, BY THE LEARNED CIT (A), AND THE LEARNED TRIBUNAL CANNOT BE SAID TO BE WRONG. QUESTION NO.2 IS ACCORDINGLY ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 17. SIMILARLY, I T IS SEEN THAT THE JUDGEMENT OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS A LPHA TOYO LTD. (2008) 174 TAXMANN 427 (P & H) ALSO FULLY SUPP ORTS THE VIEW TAKEN. FOR READY-REFERENCE, WE REPRODUCE PARAS 6 & 7 OF THE SAID JUDGEMENT:- WE HAVE HEARD LEARNED COUNSEL FOR THE REVENUE. TH E TRIBUNAL HAS FOUND AS A FACT THAT THE ANNUAL REPORT S FOR THE ASSESSMENT YEAR 1989-90 OF THE ASSESSEE CLEARLY SHOWS THE OUTSTANDING LOANS TO THE THREE PARTIES AS ON 1- I.T.A. NOS. 1675/D/13 & 1761/D/13 ASSESSMENT YEARS: 2006-07 13 4-1989. COPIES OF THE LOAN ACCOUNT OF THE THREE PA RTIES FOR THE PERIOD COMPRISING THE PREVIOUS YEAR ARE ALS O 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 COMMISSIO NER OF INCOME TAX (APPEALS).THE ASSESSING OFFICER WITHO UT 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. (EMPHASIS SUPPLIED). 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, PROV ISIONS OF SECTION 40A(3) OF THE ACT WERE NOT ATTRACTED. T HUS, WE DO NOT FIND ANY MERIT IN THIS APPEAL AND NO SUBSTAN TIAL QUESTION OF LAW ARISES FOR DETERMINATION OF THIS CO URT. HENCE THIS APPEAL IS DISMISSED. 18. ACCORDINGLY ON A CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND CONSIDERING THE RELEV ANT PROVISION OF THE ACT NAMELY SECTION 40A(3), WE HOLD FOR THE D ETAILED REASONS GIVEN HEREINABOVE THAT SECTION 40A(3) OF THE ACT HA S BEEN WRONGLY INVOKED AS ADMITTEDLY NO EXPENSES RELATABLE TO THE ADDITION HAS BEEN CLAIMED. ACCORDINGLY THIS GROUND OF THE ASSESSEES APPEAL IS ALLOWED. I.T.A. NOS. 1675/D/13 & 1761/D/13 ASSESSMENT YEARS: 2006-07 14 19. IN THE FINAL RESULT, THE APPEAL OF THE DEPARTME NT IS DISMISSED WHEREAS THE APPEAL OF THE ASSESSEE IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 10/2/2 016 SD/- SD/- (J. SUDHAKAR REDDY) (S UDHANSHU SRIVASTAVA ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 10 TH OF FEBRUARY, 2016 GS COPY OF THE ORDER FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR 6. GUARD FILE BY ORDER ASSTT. REGISTRAR