2020 (10) TMI 1046 - AT - Income Tax

Genuineness of Commission paid to relative against sale of land - HELD THAT - In this case absolutely no material on record has been brought by the assessee to suggest as to how the commission agent i.e. the said relative has worked in order to facilitate the sale of the plot of the land. Merely payment through banking channels is not sufficient to establish the genuineness of the particular transaction. There has to be some specific material on record 3rd party confirmation and most important that the facts should convey the basic need for why the commission was paid. In the present case of the assessee these aspects are not at all proved. Disallowance on account of various expenses regarding the leveling of land expenses towards compound wall land development expenses and evacuation payment - HELD THAT - Assessee could not produce the tenants namely Maruti Narayan Patil to whom an amount of Rs. 13 lakh was paid and Shri Sudhakar Patil to whom Rs. 1 lakh was paid totaling to Rs. 14 lakhs for removing the encroachment. The assessee failed to substantiate the basis of such payments. The assessee also failed to prove through the return of income reflecting the above payments. Therefore the disallowance of Rs. 14 lakhs i.e. payment to tenants is hereby upheld. Un-substantiated expenses AR prayed that this amount as the WIP - Since the CIT (Appeals) mentions that this amount assessee might have incurred the same for running his project. However nothing was placed on record by the learned Authorised Representative before us as regards any running project of the assessee during the relevant year. Considering the prayer of the assessee and the fact that CIT (Appeals) in his order mentions of WIP this issue is restored to the file of AO for factual verification whether the said amount could qualify as WIP. AO shall decide this issue of balance expenditure whether WIP or not while complying with the principles of natural justice. Therefore these grounds partly allowed for statistical purposes.

Issues Involved:
1. Violation of principles of natural justice.
2. Disallowance of commission paid to Mrs. Farzana Khan.
3. Disallowance of expenses paid to Mr. Netaji Surya for land leveling.
4. Disallowance of expenses related to compound wall, land development, and evacuation payments.
5. Credibility of expenses incurred wholly and exclusively for business purposes.
6. Lack of reasoning and consideration of credible documents by the CIT-A.

Issue-Wise Detailed Analysis:

Violation of Principles of Natural Justice:
The assessee's first ground of appeal was dismissed as not pressed. The learned Authorised Representative submitted that he was not pressing this ground.

Disallowance of Commission Paid to Mrs. Farzana Khan:
During the assessment proceedings, the Assessing Officer (AO) questioned the commission payment of Rs. 6,30,000 to Mrs. Farzana Khan, a relative of a partner in the assessee firm. The AO requested credible documents to justify the payment, but the assessee failed to provide sufficient evidence. The AO disallowed the claim, and the Commissioner of Income Tax (Appeals) [CIT(A)] upheld this disallowance, noting the assessee's inability to produce Mrs. Farzana Khan or supporting documents. The Tribunal upheld the findings of the CIT(A), emphasizing that merely making payments through banking channels is insufficient to establish the genuineness of transactions without specific material evidence.

Disallowance of Expenses Paid to Mr. Netaji Surya for Land Leveling:
The CIT(A) confirmed the disallowance of Rs. 1,00,000 paid to Mr. Netaji Surya for land leveling. The assessee failed to produce Mr. Surya or credible documents to substantiate the payment. The CIT(A) noted that the expenditure was not passed through the Profit and Loss account and was incurred just before the sale of the land, raising doubts about its genuineness. The Tribunal upheld this disallowance due to the lack of credible evidence.

Disallowance of Expenses Related to Compound Wall, Land Development, and Evacuation Payments:
The CIT(A) disallowed Rs. 42,42,182 related to various expenses, including payments to tenants for removing encroachments. The CIT(A) noted that the assessee failed to produce the tenants or credible documents to substantiate the payments. The Tribunal upheld the disallowance of Rs. 14,00,000 paid to tenants due to the lack of evidence. However, the Tribunal partially allowed the appeal by deleting the disallowance of Rs. 15,40,533, which was already offered as profit for tax. The remaining disallowance of Rs. 13,01,649 was remanded to the AO for verification as Work in Progress (WIP).

Credibility of Expenses Incurred Wholly and Exclusively for Business Purposes:
The Tribunal found that the assessee failed to substantiate the expenses incurred for business purposes. The disallowances were upheld due to the lack of credible evidence and proper documentation.

Lack of Reasoning and Consideration of Credible Documents by the CIT-A:
The Tribunal noted that the CIT(A) had considered the available evidence and provided detailed reasoning for the disallowances. The assessee's failure to produce credible documents and substantiate the claims led to the upholding of the disallowances.

Conclusion:
The appeal of the assessee was partly allowed for statistical purposes. The Tribunal upheld the disallowances made by the CIT(A) due to the lack of credible evidence and proper documentation. The issue of the disallowance of Rs. 13,01,649 was remanded to the AO for verification as WIP. The Tribunal emphasized the need for credible evidence to substantiate claims and the importance of adhering to principles of natural justice.

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