Issue before court:
- Whether expenditure paid in cash, which is not disallowed u/s 37 (1), can be disallowed under section 40A(3).
- Whether provision of section 54F are applicable where nature of property turned into commercial purpose.
Brief facts:
- Assessee is a non-resident individual. He filed return of income declaring income of Rs. 4,61,77,622/- after claiming deduction u/s. 54F. The income mainly consists of Long Term Capital Gains on sale of land and Short Term Capital Gains on sale of building.
- AO was of the opinion that assessee indulged in adventure in nature of trade in constructing a commercial complex and selling the same and he determined the income under the head ‘Income from Business/Profession’ as against income from capital gains.AO also disallowed construction expenses claimed by assessee to an extent of Rs. 3,32,21,752/- which included an amount of Rs. 45.50 Lakhs paid to M/s. M. Gopal Stone Cutting & Earth Contractors u/s 40 A (3).
- As against the claim of assessee u/s. 54F amounting to Rs. 6,69,37,700/-, AO noticed that assessee has modified the building to commercial and accordingly, the claim of 54F cannot be allowed. With these disallowances/additions, the total income was determined at Rs. 12,07,24,837/-.
- On appeal CIT (A) directed AO to treat assessee income under the head capital gain in place of income from business & profession. He also directed AO to allow the expenses as provision of section 40A(3) are not applicable.CIT (A) dismissed ground of assessee regarding claim u/s 54 F.
Contention of the revenue:
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