Compensation to land-owners cannot be allowed merely based on Bank Statement

Home Developers Vs DCIT (ITAT Pune)

On perusal of the agreement, it was observed that the assessee paid Rs.36,09,000/- being compensation paid to land-owners, for allotting less than agreed constructed area, as per development agreement. The AO asked the assessee to submit the supporting documentary evidences viz., confirmation from the parties, books of accounts of their parties etc., in order to substantiate the genuineness of payment. The assessee furnished certain details and claimed that the payments made through banking channel. Not satisfied with the details so furnished and observing that the assessee furnished self-made vouchers and also tampered some of the documents. In the hue of aforementioned reasons, the AO invoked section 37 of the Act and made the addition of Rs.36,09,000/-.

On going through the finding of the ld.CIT(A), we find that the ld.CIT(A) has rightly appreciated that the Development Agreement, dated 22.02.2011 do not indicate any consideration. The assessee could not justify the payments made by filing confirmations of the parties. Mere statement that the transactions routed through banking channel does not absolve the assessee to claim deduction. In view of the aforesaid circumstances, we do not find any reason to deviate from the order of the ld.CIT(A).

FULL TEXT OF THE ORDER OF ITAT PUNE

This is an appeal filed by the Assessee is directed against the order of ld. Commissioner of Income Tax(Appeals)-1, Pune dated 07.08.2019 for the A.Y.2013-14. The Assessee has raised the following grounds of appeal:

“1. The learned CIT(A)-1, Pune erred in law and on facts in upholding the disallowance made by the learned DCIT, Circle -3 Pune (hereinafter referred to as the learned AO) amounting to Rs. 36,09,000/-, being compensation paid to following land-owners, for allotting less than agreed constructed area, as per development agreement.

2. Learned I-T authorities ought to have appreciated that, if constructed area, as so promised in Development Agreement is not extended, compensation in some other form ought to be extended, and as such, funds-based compensation of Rs. 36,09,000/-; paid to landlords, needs to be allowed as a deduction.

3. The learned CIT(A)-1, ought to have appreciated that appellant had submitted confirmation of owners evidencing payments of Rs. 36,09,000 in this regard.

4. The learned CIT(A)-1, ought to have appreciated that appellant had made payment to land owners through banking channel.

5. Appellant craves leave to add / amend / modify / delete all / any of the grounds of appeal.”

2. Brief facts of the case are that the assessee is partnership firm engaged in the business of builder, promoter and developer. The assessee filed the return declaring total income at Rs.37,55,870/-. The Assessing Officer(AO) during the course of assessment proceedings, observed that the assessee has showed sales in respect of its project “Parijat” at Survey No.1249, Shukrawar Peth and claimed cost of Rs.36,09,000/- against the sale proceeds of the said project. The assessee entered into the Development Agreement dated 22.02.2011. On perusal of the agreement, it was observed that the assessee paid Rs.36,09,000/- to Seven(07) parties mentioned in para no. 4.3 of the assessment order. The AO asked the assessee to submit the supporting documentary evidences viz., confirmation from the parties, books of accounts of their parties etc., in order to substantiate the genuineness of payment. The assessee furnished certain details and claimed that the payments made through banking channel. Not satisfied with the details so furnished and observing that the assessee furnished self-made vouchers and also tampered some of the documents. In the hue of aforementioned reasons, the AO invoked section 37 of the Act and made the addition of Rs.36,09,000/-. He also made addition of Rs.11.00 lakh on account of cessation of liability.

3. Aggrieved with the order of AO, the assessee assailed the above two additions made by the AO. However, the ld.CIT(A) affirmed the additions made by the AO, which made the assessee to approach the Tribunal.

3.1 At the time of hearing before this Bench, None appeared on behalf of the assessee.

4. We have heard the ld.DR for the Revenue and perused the material available on record. Before the Tribunal, the assessee contested only the addition of Rs.36,09,000/- made by the AO and sustained by the ld.CIT(A), hence, we confine ourselves to the sole issue assailed before us. On going through the finding of the ld.CIT(A), we find that the ld.CIT(A) has rightly appreciated that the Development Agreement, dated 22.02.2011 do not indicate any consideration. The assessee could not justify the payments made by filing confirmations of the parties. Mere statement that the transactions routed through banking channel does not absolve the assessee to claim deduction. In view of the aforesaid circumstances, we do not find any reason to deviate from the order of the ld.CIT(A). Accordingly, we uphold the order of the ld.CIT(A). Therefore, the grounds of appeal raised by the Assessee are rejected.

5. In the result, appeal of the Assessee is Dismissed.

Order pronounced in the open Court on 30^th June, 2022.