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2016 (12) TMI 555

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..... n 40A(3) of the Act - Decided in favour of assessee - ITA No. 59/JP/2016 - - - Dated:- 15-11-2016 - SHRI BHAGCHAND, ACCOUNTANT MEMBER For The Assessee : Shri Anil Sharma, CA For The Revenue : Smt. Poonam Rai, DCIT-DR ORDER PER BHAGCHAND, AM The assessee has filed an appeal against the order of the ld. CIT(A)- 1, Jaipur dated 24-11-2015 for the assessment year 2012-13 raising therein following ground of appeal. Under the facts and circumstances of the case, the ld. CIT(A) is not justified in confirming the disallowance of ₹ 37,00,000/- made u/s 40A(3) of I.T. Act, 1961 towards making cash payment for purchase of land as capital assets, holding the same as purchase of stock in trade. 2.1 Brief facts of the case are that the assessee filed the return of income declaring total income at Rs. Nil on 23-03-2013 which was processed u/s 143(1) of the Act. The case of the assessee was selected for scrutiny and notice u/s 143(2) was issued on 6-08-2013 which was duly served upon the assessee. The ld. AR of the assessee appeared before the AO and filed the written reply dated 30-08-2013, 29-12-2014, 12-01- 2015 19-02-2015 and discussed the case wi .....

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..... mpany has made investment in the lands as Fixed Assets and not for the purpose of business, therefore, the above land cannot be treated as stock in trade. The AO examined the reply filed by the assessee but it was not acceptable to him. The AO further noted that the company was formed with the main object to deal in the business of real estate, hence the purchase of land cannot be termed as investment. Secondly, the assessee company was purchasing land on regular basis as the following lands were also purchased during earlier years. Land Amount 1. Land at Kherwadi (Badri) ₹ 9,00,000 2. Land at Kherwadi (Dane Ram) ₹ 19,50,000 3. Land at Kherwadi(Hanuman ₹ 1,34,000 4. Land and building at D-136B ₹ 40,28,000 5. Shop No. 51, Subhash Nagar ₹ 45,63,400 The AO thus noted that the assessee company had not filed its wealt .....

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..... rchase of the said land, therefore, no disallowance can be made u/s 40A(3) of the Act. (iv to viii) .. (xi) During the appellate proceedings, the AR filed a copy of order of Hon'ble ITAT in the case of ITO vs. Neon Properties (P) Ltd. in ITA No. 1172/Del/2011 to support its claim. The facts of the case are distinguishable from the facts of in instant case under consideration as in that case one of the ancillary object to hold land for agricultural activities and the appellant was showing agricultural income thereon whereas in the instant case under consideration, no income was shown by the appellant on account of agriculture operations. (xii) In view of the above discussion, therefore, it is held that the AO was justified in treating the purchase of land under consideration as stock in trade and not as fixed assets as claimed by the appellant. Therefore, action of the AO in disallowing a sum of ₹ 37.00 lacs u/s 40A(3) of the Act is justified and thus the addition made thereof is sustained. 2.3 The ld. AR of the assessee during the course of hearing prayed that the ld. CIT(A) is not justified in confirming the disallowance of ₹ 37.00 lacs made by the AO .....

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..... erwise does not arise. 4. The audited Balance Sheet and Profit Loss Account of the company have been drawn up and returned income of Rs. NIL has been computed and declared in accordance with mercantile system of accounting regularly employed by the assessee as provided u/s 145(1) of IT Act 1961. 5. The AO has not recorded any finding as required u/s 145(3) that: (i) either the books of accounts of the assessee are not correct or complete or (ii) method of accounting or prescribed accounting standards have not been regularly followed. 6. Therefore it is not open for the AO to ignore the Audited Profit Loss Account and to draw his own Profit Loss Account, just for making relevant disallowance by invoking the provisions of section 40A(3) of the Act. On Merits: 8. Although the company has been formed with the main object of carrying the Real Estate business, however as evident from the Audited Financial Statements of the company, it has not started activity since incorporation except purchase of certain lands. 9. The company has not undertaken any activity of conversion, development and division of the land purchased during the relevant previous year or in .....

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..... r listed in other objects incidental to attainment of main objects or not. 21. Even when the relevant purchase of land is assumed to be ultra vires of the MOA, the same cannot change the nature and character of the land purchased during the relevant previous year or in earlier years. 22. The interested free and Long Term funds borrowed from directors have been utilized for purchase of the land which do not change the nature and character of the relevant land. 23. This Hon. Bench vide latest decision dated 31.03.2016, under the identical facts in the case of ACIT v. Focal Point Builders and Promoters Pvt. Ltd. ITA No.759/JP/12, has deleted the similar Disallowance made u/s 40A(3) of the Act. 24. Therefore, your Honour is requested to delete the relevant disallowance of ₹ 370000/-and corresponding addition of ₹ 3693140/-made to returned income. 2.4 The ld. DR relied on the orders of the authorities below. 2.5 I have heard the rival contentions and perused the materials available on record. It is noted from fixed assets chart of the company from audited accounts placed at page 18 of the paper book of the assessee that as on 31st March 2012 assessee comp .....

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..... has doubted the amount. Since the AO has not doubted any of the above and further the land purchase was in the nature of investment and, therefore, following the judgment of the Hon ble Supreme Court in the case of Attar Singh Gurmukh Singh vs. ITO (supra) and also following the Hon ble Jurisdictional High court in the matter of Smt. Harshila Chordia vs. ITO, 298 ITR 349 (Raj.) which was relied upon by the Hon ble Punjab Haryana High Court in the matter of Gurdas Garg vs. CIT, 63 Taxmann.com 289 (P H) whereby it has been held that the rigour of section 40A(3) are not attracted. In the light of the above, the ground of the revenue is bound to fail and is here by dismissed. In view of the above factual and legal position and after considering the decision of Coordinate Bench of ITAT Jaipur in the case of ACIT vs. M/s. Focal Point Builders Promoters (P) Ltd. where the similar facts and circumstances were involved, the addition of ₹ 37.00 lacs confirmed by the ld. CIT(A) u/s 40A(3) of the Act could not be sustained. The appeal of the assessee is allowed. 3.0 In the result, the appeal of the assessee is allowed. Order pronounced in the open court on 15 /11/2016. - .....

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