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2022 (11) TMI 572 - AT - Income TaxDisallowance u/s. 40A(3) - expenses made in cash - assessee had purchased the aforesaid land in question for a consideration (including registration charges) as a ‘fixed asset’ and had reflected the same as such in its balance sheet for the year under consideration - assumption of the A.O, that the land in question was acquired/purchased by the assessee as a part of its stock-in-trade, and not as an investment as was projected in its balance sheet - HELD THAT:- Observation of the A.O that the assessee had purchased the land in question not as an investment, but as stock-in-trade of its business as that of a builder/developer is merely backed by his assumption that as the assessee was engaged in the business as that of a real estate builder and developer, therefore, the land in question in all probability would have been purchased for the said business purpose, i.e, developing of a housing project on the same. Undeniably, the dislodging of the assessee’s claim is only backed by an unsubstantiated assumption of the AO, and is not supported by any material proving otherwise. We are afraid that the aforesaid observation of the A.O does not find favour with us, as the land in question, as claimed by the assessee was purchased as an investment and formed part of its ‘fixed asset’ in the balance sheet. Notwithstanding that the assessee had purchased the aforesaid property in question as a ‘fixed asset’, even if it is to be presumed that the same in the coming times is to be commercially exploited by it for constructing/developing a housing project, the same merely on the said basis would not trigger the applicability of sub-section (3) of Section 40A of the Act, as at the relevant point of time the assessee had made an investment towards purchase of a capital asset and not stock-in-trade. On a subsequent conversion or treatment by the assessee of the aforesaid capital asset as a stock-in-trade of its business of a real estate builder and developer, the provisions of sub-section (2) of Section 45 would though get triggered, but then such subsequent event would not lead to invocation of section 40A(3) of the Act. As the assessee in the case before us had at the relevant point of time made the investment towards purchase of a capital asset, which falls beyond the realm of sub-section (3) of Sec.40A of the Act, therefore, as claimed by the Ld. AR, and rightly so, no disallowance under the said statutory provision was called for in its hands. We, thus, in terms of our aforesaid observations not finding favour with the view taken by the lower authorities set-aside the order of the CIT(Appeals) and vacate the disallowance.
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