Shri. Pillamuniswamappa, Bangalore V. ACIT, Bangalore

ITA 467/BANG/2014

• Counselvise Citation: 46721114 RSA 2014
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 31-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Assessee Lawyers: MRS KAMAKSHI
• Keywords: Cost of acquisition
• Section: 40A(3); 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI N.V VASUDEVAN, JUDICIAL MEMBER AND SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO.467/BANG/2014 (ASST. YE AR 2008-09) SHRI PILLAMUNISWAMAPPA, PANDITAPURA JALIGE POST, DEVANAHALLI TALUK, BANGALORE. . APPELLANT VS. THE ASST. COMMISSIONER OF INCOME-TAX, CIRCLE-6(1), BANGALORE. . RESPONDENT APPELLANT BY : MRS. KAMAKSHI, ADVOCATE RESPONDENT BY : DR. PK SRIHARI, ADDL. CIT DATE OF HEARING : 31-08-2015 DATE OF PRONOUNCEMENT : 04 -09-2015 O R D E R PER SHRI S RIFAUR RAHMAN, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) II AT BANGA LORE DATED 10- 01-2014 RELATING TO THE ASSESSMENT YEAR 2008-09. 2. THE ASSESSEE, A REAL ESTATE DEVELOPER, FILED HIS ORIGINAL RETURN OF INCOME FOR THE ASST. YEAR 2008-09 ON 29.9.2008 DECL ARING THE TOTAL ITA NO.467/14 2 INCOME AT RS.42,19,716/-. INITIALLY RETURN OF INCO ME WAS PROCESSED U/S 143(1) AND SUBSEQUENTLY, THE ASSESSMENT COMPLET ED U/S 143(3) BY DETERMINING THE TOTAL INCOME AT RS.84,06,090/-. TW O ADDITIONS MADE BY THE AO IN THE ORDER OF ASSESSMENT THAT IS CHALLE NGED IN THIS APPEAL IS THE DISALLOWANCE OF LAY OUT FORMATION EXPENSES O F RS.21,86,375 AND ANOTHER SUM OF RS.20,00,000 U/S.40A(3) OF THE I NCOME TAX ACT, 1961 (ACT). 3. AGGRIEVED, BY THE AFORESAID ADDITIONS THE ASSESS EE FILED AN APPEAL BEFORE CIT(A). THE LEARNED CIT(A) DISMISSED THE APPEAL OF THE ASSESSEE. HENCE THIS APPEAL BY THE ASSESSEE BE FORE THE TRIBUNAL. 4. THE MAIN ISSUE IN THIS CASE IS: A) DISALLOWNACE OF LAYOUT FORMATION EXPENSES OF RS. 21,86,375. THE AO HAD NOTICED THAT THE ASSESSEE SOLD A PROPERT Y TO KAMMAGONDANAHALLI SRI MARUTI SEVA SAMITHI FOR A CON SIDERATION OF RS.8,02,25,000/- FROM WHICH THE ASSESSEE REDUCED TH E COST OF ACQUISITION, LAYOUT FORMATION EXPENSES OF RS.1,04,8 1,985/- AND LABOUR CHARGES OF RS.10,14,600/-. ITA NO.467/14 3 5. ASSESSING OFFICER NOTED THAT THE ASSESSEE MADE 3 7 PAYMENTS AMOUNTING TO RS.21,86,375/- ON VARIOUS DATES FROM 5 /12/2007 TO 27/2/2008 AFTER THE SALE OF THE PROPERTY IN RESPECT OF LAYOUT FORMATION CHARGES. AS PER THE TERMS OF THE AGREEMENT BETWEEN THE ASSESSEE AND KAMMAGONDANAHALLI SRI MARUTI SEVA SAMITHI, THE ASSE SSEE HAS TO BEAR ALL EXPENSES OF FORMATION OF LAY-OUT. THE PRI CE AGREED BETWEEN THE PARTIES WAS INCLUSIVE OF THOSE EXPENSES. THE A SSESSEE MADE A REPRESENTATION THAT THE ABOVE EXPENDITURE HAD TO BE MADE AS PART OF CONTRACT AND FURTHER POINTED OUT THAT SINCE THE LAY -OUT WAS NOT FORMED BY LAYING ROAD AND PROVIDING OTHER AMENITIES AS PER THE CONTRACT, THE VENDOR HAD WITHHELD THE PAYMENT OF RS.1,04,25,000/- . THE SAID PAYMENT WITHHELD WAS REALIZED ONLY AFTER INCURRING THE AFORESAID EXPENSES AND COMPLETING THE LAY-OUT FORMATION AS PE R THE AGREEMENT. THE ASSESSEE REALIZED THE SALE PROCEEDS OF THE LAY- OUT ONLY ON 27/2/2008. 6. THE AO REJECTED THE CONTENTION OF THE ASSESSEE, AS THE EXPENDITURE INCURRED HAD BEEN INCURRED ON A PROPERTY ON WHICH T HE ASSESSEE HAD TRANSFERRED ALL HIS RIGHT AND INTEREST TO THE PURCH ASER THROUGH THE DEED OF INDENTURE AND THUS, THE ASSESSEE WAS NOT ENTITLE D TO THE DEDUCTION OF EXPENDITURE. THE CIT(A) CONFIRMED THE ORDER OF THE AO. ITA NO.467/14 4 B) DISALLOWANCE U/S 40A(3): RS.20,00,000/- 7. THE AO NOTED THAT A PAYMENT WAS MADE TO SHRI CH ANDRE GOWDA FOR PURCHASE OF MATERIALS TOWARDS LAYOUT FORMATION, THROUGH A BEARER OPEN CHEQUE OF RS.20,00,000/-. THE ASSESSING OFFIC ER DISALLOWED THE EXPENSES AS THIS CONTRAVENES THE PROVISIONS OF SEC. 40A(3) OF THE ACT AND ACCORDINGLY BROUGHT TO TAX. THE SAME WAS CONFI RMED BY THE CIT(A). 8. AGGRIEVED, BY THE ORDER OF THE CIT(A) THE ASSESS EE HAS FILED THE PRESENT APPEAL. 9. DURING THE COURSE OF HEARING, LEARNED AR SUBMITT ED THAT THE ASSESSEE HAD ENTERED INTO AGREEMENT TO SELL ON 15.2 .2007 WITH THE VENDOR. AS PER CLAUSE 4 OF THE AGREEMENT TO SELL W HICH READS AS UNDER, THE ASSESSEE HAD TO INCUR EXPENDITURE FOR FO RMATION OF LAY-OUT: 4. THE VENDOR AND THE VENDEE HEREBY MUTUALLY AGREE THAT I. THE VENDOR HAS TO COMPLETE THE WORK OF LAYOUT FORMATION I.E EARTH FILLING OF THE LAYOUT TO MAKE I T UNIFORM SURFACE, CONSTRUCTION OF 15 FEET COMPOUND WALLS INCLUDING FOUNDATION WITH SIZE STONES ON THE SOUTHERN PART OF THE PROPERTY AS THE ADJACENT PROPERTY IS A RAIN WATER FED BIG LAKE AND 10 FEET WALL ON OTHER SIDES, DIGGING OF 2 BOREWELLS AND CONSTRUCTION OF 2 BOREWELLS SHEDS, LAYING OF WATER ITA NO.467/14 5 PIPELINE AND CONSTRUCTION OF CULVERTS, CONSTRUCTION OF ENTRY GATE WITH IRON GRILLS MEASURING 15 FEET X 7 FEET. II. THE SALE DEED HAS TO BE REGISTERED BEFORE 30 TH NOV, 2007. III. THE VENDEE HAS THE RIGHT TO HOLD PAYMENT OF TH E SALE CONSIDERATION OR PART OF THE SALE CONSIDERATIO N TILL THE VENDOR COMPLETES THE WORK OF LAYOUT FORMATION AS STIPULATED IN SUB-CALSUE I. OF CLAUSE 4 HEREIN ABOVE. FURTHER, THE VENDEE AT ANY POINT OF TIME CAN STOP PAYMENTS OF CHEQUE BEING ISSUED BY HIM TO THE VENDOR IN CONSIDERATION OF THIS AGREEMENT IF THE LAYOUT WORK IS DELAYED. 9. IT WAS SUBMITTED BY THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE CONDITIONS SPECIFIED IN THE AGREEMENT TO SELL A RE MANDATORY AND IS A SUBSISTING CONTRACT BETWEEN THE SELLER AND BUYER. THE SELLER IS BOUND TO COMPLY WITH THE TERMS OF THE AGREEMENT. T HE CONDITIONS SPECIFIED IN THE AGREEMENT TO SALE ARE MANDATORY AN D IS A SUBSISTING CONTRACT BETWEEN THE SELLER AND THE BUYER AND THE S ELLER IS BOUND TO COMPLY WITH THE TERMS OF THE AGREEMENT. THE SELLER COULD NOT COMPLETE THE WORK AS SPECIFIED IN CLAUSE 4 OF THE A GREEMENT TO SALE BEFORE THE SALE IS COMPLETE AS HE WAS NOT ENOUGH FU NDS TO COMPLETE THE WORK AND THE BUYER HAS NOT PAID THE CONSIDERATI ON OF SALE TO THE SELLER SINCE THE SELLER HAS NOT COMPLETED THE WORK AS SPECIFIED IN CLAUSE 4 OF THE AGREEMENT TO SELL. THE SELLER COUL D NOT RAISE SO MUCH MONEY AND HENCE COULD NOT COMPLETE THE WORK AS SPEC IFIED IN CLAUSE- 4 OF THE AGREEMENT. THE BUYER WAS INSISTING FOR IM MEDIATE ITA NO.467/14 6 REGISTRATION OF THE PROPERTY AS SPECIFIED IN CLAUSE 4 OF THE AGREEMENT TO SELL AND HAS REQUESTED THE SELLER TO COMPLETE TH E PENDING WORK AS IN CLAUSE 4 AND REGISTER THE PROPERTY. SINCE THE WORK WAS PENDING AND THE BUYER WAS PERSISTING TO REGISTER THE PROPERTY A S SPECIFIED IN CLAUSE 4 OF THE AGREEMENT TO SALE, BOTH THE BUYER AND THE SELLER HAVE MUTUALLY CAME TO AN UNDERSTANDING AND AGREED THAT THE SALE D EED BE REGISTERED TO COMPLY THE TERMS IN CLAUSE 4 OF THE AGREEMENT TO SALE SO THAT THE SELLER WILL GET THE FULL CONSIDERATION AND COULD CO MPLETE THE PENDING WORK AFTER THE SALE DEED IS EXECUTED. ACCORDINGLY T HE SALE DEED WAS EXECUTED AND THE BUYER HAS PAID THE CONSIDERATION A ND THE SELLER HAS COMPLETED THE WORK AS SPECIFIED IN CLAUSE 4 OF THE AGREEMENT AFTER THE SALE DEED IS COMPLETED AS THE SELLER GOT THE CONSID ERATION ON EXECUTION OF THE SALE DEED. IT WAS THEREFORE SUBMITTED THAT THE DISALLOWANCE MADE BY THE REVENUE AUTHORITIES SHOULD BE DELETED. 10 LEARNED DR ARGUED THAT THE STAND TAKEN BY THE AO AND CIT(A) WAS JUSTIFIED AND IN ACCORDANCE WITH LAW. 11. HEARD BOTH SIDES OF THE ARGUMENTS AND MATERIAL FACTS ON THE RECORD. THE REVENUE DOES NOT DISPUTE THAT THE EXPE NDITURE IN QUESTION WAS TO BE INCURRED BY THE ASSESSEE AS PER THE TERMS OF THE AGREEMENT ITA NO.467/14 7 FOR SALE WITH KAMMAGONDANAHALLI SRI MARUTI SEVA SAM ITHI. THOUGH THERE IS A REFERENCE TO ABSENCE OF EVIDENCE TO SUBS TANTIATE THE INCURRING OF EXPENDITURE BY THE ASSESSEE, IT IS CLE AR FROM THE ORDER OF THE AO THAT THE REQUIRED BILLS AND EVIDENCE WAS FIL ED BY THE ASSESSEE BEFORE THE AO. THE ONLY REASON GIVEN BY THE AO AND CIT(A) WAS THAT THE SALE DEED WAS REGISTERED EVEN BEFORE THE E XPENDITURE WAS INCURRED AND THE ASSESSEE AS ON THE DATE OF INCURRI NG THE EXPENDITURE WAS NOT OWNER OF THE PROPERTY. IN OUR VIEW THE APP ROACH ADOPTED BY THE REVENUE AUTHORITIES ARE UNSUSTAINABLE IN LAW. BUT FOR INCURRING OF THE AFORESAID EXPENDITURE THE ASSESSEE WOULD NOT HA VE BEEN ABLE TO REALIZE THE SALE CONSIDERATION. IT WAS PART AND PA RCEL OF THE AGREEMENT THAT THE ASSESSEE HAS TO INCUR THESE EXPENSES. WE ARE OF THE VIEW THAT EVEN THOUGH THE EXPENDITURE INCURRED AFTER THE EXEC UTION OF THE DEED BY THE ASSESSEE, THERE EXISTED A COMMITMENT IN RELA TION TO SUCH SALE BY PLAIN READING OF CLAUSE 4 OF THE AGREEMENT TO SAL E DEED. IT IS BINDING ON THE ASSESSEE. MOREOVER, THE PAYMENT OF RS.1,04, 25,000/- WAS WITHHELD BY THE PURCHASER FOR COMPLETION OF THE LAY OUT FORMATION. ONLY ON COMPLETION OF THE LAYOUT FORMATION EXPENDIT URE, THE ASSESSEE WAS ABLE TO RECOVER THE ABOVE SAID AMOUNT ON 28/2/2 008. THE ASSESSING OFFICER WAS NOT RIGHT IN HOLDING THAT THE RIGHT AND INTEREST ON THE PROPERTY HAD BEEN ALREADY TRANSFERRED BEFORE SUCH EXPENDITURE. ITA NO.467/14 8 THERE IS NO DISPUTE THAT SUCH EXPENSES WERE INCURRE D BY THE ASSESSEE. IN OUR VIEW, THE ASSESSEE IS ELIGIBLE TO CLAIM THE EXPENDITURE FOR THE OBLIGATION EXISTED EVEN AFTER SEALING OF THE AGREEM ENT. THE RELEVANT GROUND OF APPEAL OF THE ASSESSEE IS ACCORDINGLY ALL OWED. 12. DISALLOWANCE U/S 40A(3) : THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED ON THE AFORESAID DISALLOWANCE, T HAT THE ASSESSEE HAD ISSUED AN ACCOUNT PAYEE CHEQUE FOR A SUM OF RS. 20,00,000/- TO MR. CHANDRE GOWDA. IN VIEW OF DIFFICULTIES EXPRESS ED BY MR. CHANDRE GOWDA IN REALIZING THE ACCOUNT PAYEE CHEQUE HE REQUESTED THE ASSESSEE TO MAKE A MATERIAL ALTERATION MAKING T HE ACCOUNT PAYEE CHEQUE AS BEARER CHEQUE. IT WAS THEREFORE OWING TO SOME URGENCY IN MEETING SOME OFFICE COMMITMENTS THAT SUCH A REQUEST WAS MADE AND THE DAY ON WHICH IT WAS ENCASHED HAPPENED TO BE FRI DAY I.E., 29/2/2008. IT WAS IN SUCH CIRCUMSTANCES THAT THE A SSESSEE HAD CANCELLED THE CROSSING OF THE CHEQUE AND ALLOWED MR . CHANDRA GOWDA TO DRAW THE FUNDS FROM THE BANK. 13. LEARNED DR SUBMITTED THAT THE STAND OF THE AO & CIT(A) IS JUSTIFIED AND IN ACCORDANCE WITH LAW. ITA NO.467/14 9 14. HEARD BOTH SIDES AND MATERIAL ON RECORD, THERE IS NO DISPUTE THAT THE ASSESSEE HAD ISSUED AN OPEN BEARER CHEQUE TO SH RI CHANDRE GOWDA FOR RS.20,00,000/-. THIS WAS A CLEAR VIOLATION OF THE PROVISIONS OF SEC.40A(3) OF THE ACT AND THEREFORE THE DISALLOWANC E HAD TO BE MADE. EVEN THOUGH THE ASSESSEE CONTESTED THAT THE CHEQUE WAS ISSUED UNDER SPECIAL CIRCUMSTANCES AND BUSINESS EXIGENCIES, IN F ACT, THE ASSESSEE HAD CONTRAVENED THE PROVISIONS OF SEC. 40A(3) OF TH E ACT. HENCE, WE DISMISS THE RELEVANT GROUND OF APPEAL OF THE ASSESS EE. 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 4 TH SEPT, 2015. SD/- SD/- (N.V VASUDEVAN) (S RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEM BER VMS/AM. BANGALORE DATED : 04/09/2015 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER ASST. REGISTRAR, I TAT, BANGALORE.