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TMI Blog2012 (5) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... e it was seen that he had given advance of Rs. 1 crore to one Shri Jethmal S/o Rama Kishore in lieu of purchase of 33 Bigha 15 Biswa and 5 Bigha and 12 Biswa land at Khasra No. 60, 33 Barni Third Village Chopasni Tehsil and District Jodhpur on various dates during this year 2006. However the deal could not be materialized and was cancelled on 30th April, 2006. As per assessee's submission, the said amount of Rs. 1 crore towards purchase of land was only paid as advance and since the deal could not be materialized, the entire amount of Rs. 1 crore was received back in the next financial year (i.e. asst. yr. 2007-08). The AO gave the date-wise details of the payments such as advance in lieu of purchase of land (by way of bank draft dt. 21st April, 2006). The assessee submitted detailed replies reproduced in the assessment order. The AO however, alleged that since the assessee was engaged in the business of purchase and sale of land, the payment made towards advance should be treated as payment made towards purchase of land. Moreover, the assessee never produced initial copy of agreement of purchase before her despite repeated reminders and thus, was emphasizing only a hypothetical si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ller as well as conditions to be fulfilled prior to completion of transactions cannot be ascertained. Obviously, the onus lies on the assessee to establish with evidence that the transaction ultimately did not materialize despite payment having been made, as such claim has been made by him and it is settled law that the claimant has to establish the truthfulness of its claim. In the instant case, it is apparent that while the assessee is vehement in claiming that the transaction of purchase did not materialize but has failed to produce any evidence whatsoever in support of such claim. The rule of preponderance of probability in commercial transaction establishes that the assessee having made the full payment (for it is never the claim of the assessee that full consideration had not passed on) over a prolonged period starting from 30th July, 2005 to 14th Feb., 2006, the transaction of purchase had materialized on payment of full consideration of the price of the land. This inference can only be negatived by any evidence to the contrary which the assessee has failed to produce despite requirement by the AO. Even if for argument sake, it is accepted that the payment made by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by the provisions of s. 40A(3). The appellant has also made an elaborate list of judicial decisions numbering to 54 such orders on which reliance has been placed but beyond listing the citations of such judgments, no word has been uttered to explain how these judgments go to advance the cause of the assessee. I, therefore, hold that the payment of Rs. 1 crore made by the assessee is covered by the provisions of s. 40A(3) of the IT Act 1961. In view of the above discussion, the appeal on this ground is not allowed." 3.4 Before us, the learned Authorised Representative has filed the following submissions:- "2.1 The only dispute appears to be on the facts whether the assessee paid Rs. 1 crore in consideration of the purchase of the subjected property or it was a mere advance. In other words whether it was a case of purchase/sale of immovable property or cancellation of transaction ? The authorities below however, presumed the former and therefore invoked s. 40A(3) on the said payment. It is not denied by any of the authorities below that what the appellant paid was only an advance to purchase the land from Shri Jethmal, the seller h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n agreement have not been denied nor have the legal impligations flowing therefor, been judiciously considered. As per the provisions of Transfer of Property Act, 1882, the law is established in as much as under s. 53A the buyer assessee neither performed nor was willing to perform his part of the contract therefore, it was neither a completed contract for sale nor even a case of part performance. On the contrary as per provision of s. 53A, the right of a transferee for a full consideration (here Shri Praveen) having no notice of the earlier contract/part performance, shall not be affected. 2.3.2 The reason behind the cancellation of the agreement was explained before the AO that:- ' ......since the land belongs to the scheduled caste candidate and the registration as per the law cannot be made in the name of person other than the member of scheduled castes/tribe, therefore, the agreement has not materialized because as it has come to the notice of the assessee after the agreement and obtaining the legal advice that the agreement is illegal and the money cannot be recovered back. Therefore, the agreement was cancelled and the copy of the cancellation of the agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sale, the contents of the cancellation agreement duly signed by both the earlier parties fully evidenced the fact of making payment of advance on 14th Feb., 2006 which could not materialize. 2.4.1 It is wrong to say that the onus was upon the assessee to prove that the transaction could not materialize despite payment, in as much as s. 40A(3) essentially requires the AO to establish that the assessee really incurred an expenditure. The incurrence of expenditure in this case, could happen only when the subjected property was purchased i.e. got transferred in the name of the buyer. The assessee made no claim by debiting any such expenditure in its audited trading and P and L a/cs (paper book 59-60) hence, there was no question of making disallowance now. The AO however totally failed to bring any evidence to prove that the asset was transferred in the name of the assessee buyer. In Attar Singh Gurmukh Singh vs. ITO (1991) 97 CTR (SC) 251 : (1991) 191 ITR 667 (SC) relied upon by AO the incurrence of expenditure has been considered with reference to completed transaction only. Hence, the same do not help the assessee. Hence, the onus was upon the AO. What is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Praveen therefore, to presume that only Rs. 1 crore was the full sale consideration was against facts and without evidence. This clearly proves that this was only an advance and it was not the case of the AO also that the entire sum was paid but still transaction did not materialize. 2.5.1 At the same time however the learned CIT(A) ignored the vital facts that the Pravin S/o Shri Oma Ram, who purchased the land from Shri Jethmal for Rs. 5.33 crores on 21st May, 2007, further sold the same to M/s Vinayak Developers and Colonizers for Rs. 6.68 crores (paper book 97), with a substantial difference of Rs. 1.35 crore. Shri Praveen Meghwal is a scheduled caste and not related to the assessee remotely who is a Brahmin. The Department has initiated some enquiry in his case which is stated to be pending. However, it may be clarified that except 2-3 lacs out of Rs. 1.35 crore was nothing but the cost of development incurred by Shri Praveen. Similarly, the Department has initiated some enquiry in the case of Shri Jethmal' case which is stated to be pending. 2.5.2 The admitted fact of the refund of the advance is also a case of human probability supporting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... supported the orders of the authorities below. 3.7 We have heard both the parties. The Revenue authority has mentioned that assessee has not produced the copy of the agreement so as to enable the Revenue authority to verify the contentions of the assessee. The immovable properties were purchased by the firm and during the partnership, the partner cannot have exclusive right over the assets of the firm. The disallowance under s. 40A(3) can be made where the assessee Incurs any expenditure. In the instant case, the assessee has not claimed the expenditure in respect of purchase of land. The Revenue has not collected any material to suggest that what is apparent is not real. The assessee has filed the copy of the cancellation of the sale agreement by the assessee with Shri Jeth Mal. The AO has not examined Shri Jeth Mal to show that what is apparent is not real. The assessee has given the reasons as to why the agreement was cancelled. We therefore, feel that the learned CIT(A) was not justified in confirming the addition of Rs. 19.84 lacs. 4.1 The third ground of assessee is that the learned CIT(A) has erred in confirming the addition on account of diversion of intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (All) 451 : (2005) 274 ITR 354 (All) which supports on this aspect. Therefore, the decision in CIT vs. Abhishek Industries Ltd. (2006) 205 CTR (P and H) 304 : (2006) 286 ITR 1 (P and H) is clearly distinguishable on facts as elaborated in the w/s CIT(A) 2. Covered matter:- This issue is directly by a recent Tribunal order in Ram Kishan Verma in ITA No. 960/Jp/2010 for asst. yr. 2005-06 vide order dt. 8th July, 2011 holding that:- '10.4 We have heard both the parties. The assessee is having sufficient capital. If there are mixed funds then non-interest-bearing funds are to be considered as utilized for non-interest-bearing advances. It is the assessee who has to take a business decision. Fees is generally received at the beginning and surpluses are used for making fixed deposits as receipts are in advances while expenses are spread out throughout the year. Since interest-free advances are less than the capital and the AO has not brought on record any nexus of interest-bearing loans used the AO could not have disallowed the interest. There is no onus on the assessee to establish that interest-free advances are out of interest-bearing advances if non-interest-bearing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is having sufficient capital. If there are mixed funds then non-interest-bearing funds are to be considered as utilized for non-interest-bearing advances. It is the assessee who has to take a business decision. Fees is generally received at the beginning and surpluses are used for making fixed deposits as receipts are in advances while expenses are spread out throughout the year. Since interest-free advances are less than the capital and the AO has not brought on record any nexus of interest-bearing loans used the AO could not have disallowed the interest. There is no onus on the assessee to establish that interest-free advances are out of interest-bearing advances if non-interest-bearing funds are more. Reliance is placed on the decision of the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. (2009) 221 CTR (Bom) 435 : (2009) 18 DTR (Bom) 1 : (2009) 313 ITR 340 (Bom) and Hon'ble Delhi High Court in the case of CIT vs. Bharti Televenture Ltd. (2011) 51 DTR (Del) 98. There is no provision in the Act which may compel an assessee to earn income." 4.7 In view of the facts and circumstances of the case, this ground of appeal of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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