Virbala Kiritkumar Patel Vs DCIT (ITAT Ahmedabad)
Brief facts: In this case, the assessee, an individual engaged in the business of building and land development, had made significant payments to two related parties. Firstly, a sum of ₹1,57,00,000/- was paid to M/s. Mangala Properties Pvt. Ltd. (MPPL) for consultancy services in relation to the sale of two parcels of land. The consultancy agreement covered services such as land measurement, appointment of architects and structural engineers, layout and plan preparation, and similar developmental inputs. The Assessing Officer (AO), however, observed that the payment amounted to 29.55% of the total sale value of ₹5.33 crores, which he considered excessive. Applying an arbitrary ceiling of 20% of sale value, the AO allowed only part of the expense and disallowed the balance amounting to ₹50,75,784/-.
Secondly, the AO scrutinized a payment of ₹29,61,000/- made by the assessee to another related entity, M/s. Chetan Builders, for development work including land cleaning, fencing, and labor accommodation. He concluded that these expenses were excessive without proper justification and disallowed 20% of this payment as well, resulting in an additional disallowance of ₹5,92,000/-. The basis for both disallowances was the AO’s opinion that the assessee had failed to justify the quantum and reasonableness of payments made to related parties. The Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the action taken by the AO and upheld both additions.
