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2015 (9) TMI 1229 - ITAT MUMBAI

2015 (9) TMI 1229 - ITAT MUMBAI - TMI - Disallowance made under section 40A(3) - Held that:- The observations made by the Ld CIT(A) with regard to the date of entering into MOU are not material to the issue under consideration, since the sale of plots so purchased by the assessee has been accepted and the assessee is showing the same as his business income. Further, the question of disallowance u/s 40A(3) would arise only, if the purchases are accepted, i.e., with regard to the expenses with are .....

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e on purchase of land from M/s Laxman Mhatre and others - Held that:- We notice that the AO has accepted the cheque payment of ₹ 6.65 lakhs, which means that the assessing officer believes a portion of purchases and hence, in our view, he is not justified in disbelieving the remaining part. We may state here that the AO could have examined the said claim of purchases, by ascertaining the market value and accordingly proved that the payment of ₹ 22.00 lakhs made by way of cash is in e .....

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xamining the documents. We also notice that the Ld CIT(A) has also committed error in confirming this disallowance. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the assessing officer to delete this addition.- Decided in favour of assessee.

Disallowance made under section 14A of the Act - Held that:- The dividend received from mutual funds has not been claimed to be exempt, but offered to tax. The AO has worked out the disallowance by considering the invest .....

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wance made out of expenses - Held that:- With regard to car and telephone expenses, we also agree with the view of the AO that the involvement of personal element cannot be ruled out. However, with regard to the Business promotion expenses, we are of the view that the AO should have analysed the nature of expenses before coming to such a conclusion. We notice that the Ld CIT(A) also did not examine this aspect. Accordingly, we set aside the order of Ld CIT(A) and direct the AO to make disallowan .....

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wance made under section 40A(3) of the Act; b) Disallowance on purchase of land from M/s Laxman Mhatre and others; c) Disallowance made under section 14A of the Act; and d) Adhoc Disallowance made out of expenses. 3. The facts relating to the case are that the assessee is engaged in the business of purchase and sale of Gaothan Plots in Navi Mumbai area. The assessing officer completed the assessment by making the additions listed above. With regard to the disallowance of ₹ 22.00 lakhs made .....

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khs was paid by way of cash. The AO took the view that the assessee has violated the provisions of section 40A(3) of the Act by making payments by way of cash and accordingly asked the assessee to clarify the same. It is pertinent to note that the provisions of sec. 40A(3) provide for disallowance of expenditure, if payment is made in a sum exceeding ₹ 20,000/- otherwise than by account payee cheque or account payee bank draft. In reply, the assessee submitted that the cash payment made to .....

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specify the manner of payment of the consideration and further the MOU was entered into by the assessee much prior to the date of allotment of plots under 12.5% scheme drawn by the CIDCO. Accordingly, the ld. CIT(A) took the view that the claim of payment of cash was not confirmed by the assessee. When questioned, the assessee filed details of payment paid to the sellers and also filed an affidavit given by the Manager of the assessee who deposed that he did not pay any sum exceeding ₹ 20, .....

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action of the AO in making disallowance u/s 40A(3). 6. We heard the parties on this issue and perused the record. We notice that the assessee has furnished ledger account copies of the sellers of plot and a perusal of the same would show that the payment made to each of the seller was less than ₹ 20,000/- in a day and hence the said payments did not exceed the limit prescribed under the provisions of section 40A(3) of the Act. There is no dispute with regard to the legal position of law th .....

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cipients of the cash have also furnished confirmation letters, wherein they have confirmed that they did not receive cash exceeding ₹ 20,000/-. Thus, we notice that the employee of the assessee who made disbursements have confirmed about the factual aspects and the same is also corroborated with the entries made in the books of account. Further, the recipients of the cash have also confirmed the said position. Thus, it is seen that all the parties to the transactions have confirmed the fac .....

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inging any other contrary materials on record. The said action of the assessing officer would show that he has made the disallowance u/s 40A(3) of the Act on surmises and conjectures. It is well settled proposition of law that the suspicion, how so ever be strong, cannot replace the evidences available on record. The Ld CIT(A) has observed that the confirmation letters filed by the sellers of the plot did not give the details of payments received by them and hence he rejected the same. However, .....

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only, if the purchases are accepted, i.e., with regard to the expenses with are otherwise allowable under the Act. Further, we notice that the assessing officer did not examine the recipients of the cash in order to disprove the claim of the assessee as well as the confirmation letters given by them. Hence, we are of the view that the disallowance made u/s 40A(3) of the Act is not justified. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the assessing officer to delet .....

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akhs, referred above. However, since the very same amount was disallowed by him u/s 40A(3) of the Act, the AO gave telescoping benefit to the same and accordingly did not make separate addition. The ld. CIT(A) also confirmed the disallowance so made by the AO. 8. We have heard the parties on this issue and perused the record. We notice that the AO has taken the view that there is no MOU between the assessee and Laxman Mhatre and others. Accordingly, he has proceeded to disallow the cash payment .....

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e notice that the AO himself has disallowed the very same amount of ₹ 22 lakhs u/s 40A(3) of the Act, meaning thereby, the AO himself has accepted the genuineness of purchases as well as the payments, since the question of disallowance u/s 40A(3) would arise only in respect of genuine expenditure only. We further notice that the assessee has entered into a MOU with M/s Laxman Mhatre and others for purchasing the land for a sum of ₹ 28.65 lakhs, out of which a sum of ₹ 22 lakhs .....

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in excess of the prevailing market value, in which case, there could have been some justification. We notice that the AO did not make any such enquiries. In fact, as stated earlier, the AO has proceeded with the misconceived notion that there is no MOU, which was factually incorrect. It is well settled that the AO cannot be given a chance for mistake committed by him. Accordingly, we are of the view that the AO has made the disallowance of ₹ 22 lakhs on misconceived notions, without proper .....

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the same to the total income of the assessee. The ld. CIT(A) also confirmed the same. 10. We heard the parties on this issue. The Ld A.R submitted that the disallowance worked out by the AO is exceeding the amount of dividend and accordingly pleaded that the disallowance made by the AO may be restricted to the amount of dividend. He further submitted that the dividend of ₹ 11,239/- received from the mutual funds were not claimed as exempt and accordingly it has been offered to tax. However .....

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