ITO Vs Sarsan Developers (ITAT Pune Bench)
Retiring Partner Took the Exit, but Penalty Entered u/s 271(1)(c): Pune ITAT Restores ₹1.73-Crore Penalty on Capital Expenditure Claim
Summary: The Pune Bench of the ITAT has held that where payment made to a retiring partner under a registered settlement deed was claimed as development expenditure, though it represented consideration for relinquishing the partner’s interest in the firm, the assessee had furnished inaccurate particulars of income. The Tribunal accordingly reversed the order of the CIT(A) & restored penalty of ₹1,73,26,656 u/s 271(1)(c).
Facts of the Case
The assessee, a partnership firm engaged in the business of property development & construction, filed its return for AY 2014-15 declaring nil income. In the Profit & Loss Account, it debited a sum of ₹5,60,73,319 as development expenses.
During scrutiny assessment, the assessee explained that the expenditure represented the settlement amount payable to its retiring partner, Kumar Housing Corporation Ltd. (KHCL). According to the assessee, the amount was incurred in connection with the development activity & was consequently allowable as a revenue deduction.
The AO, however, examined the arrangement, including the construction area, price realisation, capital accounts & settlement terms, and found that the payment arose on the retirement of KHCL from the partnership firm. The amount comprised the retiring partner’s fixed capital, closing capital & settlement consideration.
