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2016 (12) TMI 555 - ITAT JAIPUR

2016 (12) TMI 555 - ITAT JAIPUR - TMI - Disallowance made u/s 40A(3) - CIT(A) confirming the disallowance towards making cash payment for purchase of land as capital assets, holding the same as purchase of stock in trade - Held that:- As perusuing the materials available on record it is noted from fixed assets chart of the company from audited accounts that as on 31st March 2012 assessee company has credited the tangible assets by an amount of ₹ 36,30,983/- which is shown as investment in .....

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ofit and loss account. Therefore, there cannot be any disallowance of such expenditure by invoking the provisions of Section 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 the .....

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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 with the AO. The AO observed that the assessee company is engaged in the business of real estate but during the year under consideration there was no business activity carried out. The requisite details filed were exam .....

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5,75,800/-. The AO on examination of the MOA of the assessee observed that the main object of the assessee is to deal in business of immovable property such as land and building. Therefore, the AO vide letter dated 16-02-2015 asked the assessee to explain as to why the land purchased should not be treated as stock in trade. The assessee vide its letter dated 19-02-2015 filed the reply before the AO as under:- 3.4 ….. 1….. (a) The main object of the assessee company is real estate b .....

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es not imply that every land purchased by it was done with the intention of the business of sale and purchase of properties. (d) Even if land is purchased, there is no bar in holding it as Fixed Assets instead of stock in trade. What is to be seen is the intention of the person holding the land. (e) Therefore, in the instant case of the assessee company the above investment of land does not amount to stock in trade. In view of the above, it is crystal clear the assessee company has made investme .....

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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 wealth tax return though it was having taxable wealth. The AO thus came to the conclusion that the reply of the assessee was not found acceptable to him because of the reason .....

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orated on 28-02-2006 with the main object, as per its MOA, as under:- 1. To deal in immovable properties such as land and buildings and to purchase, acquire, take on lease or in exchange or in any other lawful manner in India or abroad any area, land including agriculture land, plot, buildings, structures, factories, farm house and estates, real estates or interest therein and any rights over or connected with them and to develop the same for sale on instalments or otherwise, improving, decorati .....

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ners, building experts, promoters, contractors, sub-contractors of government, semi government, general contractors in the filed of real estate in India or abroad. (ii) During the year under consideration, the appellant company purchase a piece of land for a sum of ₹ 37 lac and the entire payments were made in cash. The AO invoked the provisions of Section 40A(3) of the Act and made addition of ₹ 37 lacs to the income of the appellant. (iii) During the appellate proceedings, it was t .....

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im. 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 conside .....

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een taken into consideration as under:- The humble appellant in respect of solitary Ground No.1 of appeal most respectfully bag to submit: Brief Facts: 1. The assessee is a Pvt. Ltd Company incorporated on 28.02.2006 with the main object of carrying on the business of Real Estate as contained in it s MOA.(PB No.21-41) 2. The assessee has no business activity since it s incorporation except purchase of certain lands in earlier years and during the relevant previous year. 3.The assessee having no .....

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made cash payment of ₹ 3700000/- for purchased of land comprising one agriculture land for ₹ 3400000/- and other land of ₹ 300000/-.(Page No.2 of the assessment order.) 6. The AO for the simple reason that the assessee company has been formed with main object of Real Estate Business held the above said purchase of lands as purchase of stock in trade. 7. The AO ignoring the Audited Profit & Loss Account containing no income and expenditure drawn his own Trading & Profit .....

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diture during the relevant previous year.( PB NO.15) 2. The relevant purchase of land of ₹ 3700000/- has not been claimed as Expenditure either by way of purchase of stock in trade or otherwise. 3. Therefore question of any disallowance in respect of the same u/s 40A(3) or otherwise 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 .....

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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 earlier years. 10. The compa .....

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ss, does not imply that the company cannot purchase any land as fixed/capital assets and every land purchased by the company has character of stock in trade. 13. Even when the company has it s main object of carrying on the real estate business, there is no bar in purchasing and holding a land as Capital/ Fixed Assets. 14. Even when the assessee has not filed it s Wealth tax returns, if applicable, the same do not change the nature and character of the relevant land purchased during the relevant .....

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nt and registration of the sale deed and source of the cash payment which have been fully explained. 18. Therefore the AO is not justified in making the relevant disallowance of ₹ 3700000/- just on technical grounds by forcefully invoking the provisions of section 40A(3) which are not applicable in case of the assessee. 19. Even when the relevant land has been purchased with borrowed funds from directors and purchase of land as Fixed assets do not found place in main objects/other objects .....

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A, 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 simila .....

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arch 2012 assessee company has credited the tangible assets by an amount of ₹ 36,30,983/- which is shown as investment in the land. I have also gone through the Memorandum and Articles of Association wherein the main objects to be pursued by the company on its incorporation was as under:- To manage land buildings, to deal in real and personal property, to invest and deal with the money of the company not immediately required to in such a manner as the company may deem fit. It also includes .....

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n shall be allowed in respect of such expenditure. The accounts of the assessee shows that the assessee has not claimed any such expenditure in its profit and loss account. Therefore, there cannot be any disallowance of such expenditure by invoking the provisions of Section 40A(3) of the Act. The ld. AR of the assessee has also relied on the decision of Coordinate Bench of ITAT Jaipur in the case of ACIT, Alwar vs. M/s. Focal Point Builders & Promoters (P) Ltd. (ITA No. 759/JP/2012 dated 31- .....

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