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2015 (10) TMI 935 - AT - Income TaxDisallownace of layout formation expenses - AO noticed that the assessee sold a property to Kammagondanahalli Sri Maruti Seva Samithi from which the assessee reduced the cost of acquisition, layout formation expenses and labour charges - only reason given by the AO and CIT(A) in making disallowance was that the sale deed was registered even before the expenditure was incurred and the Assessee as on the date of incurring the expenditure was not owner of the property - Held that:- The approach adopted by the Revenue authorities are unsustainable in law. But for incurring of the aforesaid expenditure the Assessee would not have been able to realize the sale consideration. It was part and parcel of the agreement that the Assessee has to incur these expenses. We are of the view that even though the expenditure incurred after the execution of the deed by the assessee, there existed a commitment in relation to such sale by plain reading of clause ‘4’ of the agreement to sale deed. It is binding on the assessee. Moreover, the payment of ₹ 1,04,25,000/- was withheld by the purchaser for completion of the layout formation. Only on completion of the layout formation expenditure, the assessee was able to recover the above said amount on 28/2/2008. The Assessing Officer was not right in holding that the right and interest on the property had been already transferred before such expenditure. There is no dispute that such expenses were incurred by the assessee. In our view, the assessee is eligible to claim the expenditure for the obligation existed even after sealing of the agreement - Decided in favour of assessee. Disallowance u/s 40A(3) - Held that:- There is no dispute that the assessee had issued an open bearer cheque to Shri Chandre Gowda for ₹ 20,00,000/-. This was a clear violation of the provisions of Sec.40A(3) of the Act and therefore the disallowance had to be made. Even though the assessee contested that the cheque was issued under special circumstances and business exigencies, in fact, the assessee had contravened the provisions of sec. 40A(3) of the Act. - Decided against assessee.
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