Case Law Details
CIT Vs. Adityaram Properties (P) Ltd. (Madras High Court)
The sole reason for which the Assessing Officer invoked Section 40A(2)(b) of the Act is for the reason that the Directors of the company were paid Rs.3 Lakhs per cent for the purchase of the land, whereas, the lands have been sold by the assessee to about 41 purchasers with an average selling price at Rs.1.36 Lakhs per cent of land, and therefore, the expenditure incurred by the Directors is exorbitant and accordingly, Section 40A(2)(b) of the Act would stand attracted. The CIT(A), while considering the correctness of the said finding, has examined the entire facts in a very elaborate manner and found that the assessee had paid a sum of Rs.3 Lakhs per cent for the land purchased from its Directors, which was sold to third parties during the year under consideration at the rate of Rs.1.36 Lakhs per cent, however, in the subsequent years, it was sold @ Rs.2.72 Lakhs per cent and thereafter, at Rs.6.36 Lakhs per cent. Thus, taking into consideration the totality of the circumstances and that the decision taken by the assessee was a business decision and taking note of the latest sale price, the assessee had a substantial gain of Rs.19 Crores, the CIT(A) granted relief to the assessee. However, the CIT(A) directed the Assessing Officer to allow the expenditure @ Rs.2,75,000/- per cent and disallow @ Rs.25,000/- per cent.
So far as the case on hand is concerned, genuineness of transaction has not been questioned, but the only reason invoking Section 40A(2)(b) of the Act is of the ground that the lands which were purchased from the Directors at Rs.3 Lakhs per cent have been sold at Rs.1.36 Lakhs per cent. The assessee has given more than one explanation for such a decision. Firstly, because, the assessee company owns the land behind the lands owned by the Directors and if the lands owned by the Directors are purchased, then it would give better access to the land owned by the company and it will be a good decision of the company to improve its financial well being. These decisions are all commercial decisions, which have to be taken by the assessee, and it is not for the Assessing Officer to sit in the arm-chair of the assessee and suggest the ways and means to run their business as long as there is no unlawful activity, which has been alleged to have been done by the assessee. Thus, we are of the considered view that the Tribunal was right in affirming the order passed by the CIT(A) holding that the decision to purchase the lands @ Rs.3 Lakhs per cent from the Directors was a prudent commercial decision taken by the assessee company.
FULL TEXT OF THE JUDGMENT/ORDER of MADRAS HIGH COURT
This Tax Case Appeal filed by the Revenue under Section 260-A of the Income Tax Act, 1961 (“the Act” for brevity), is directed against the order, dated 20.01.2011, passed by the Income Tax Appellate Tribunal, Chennai “D” Bench, in I.T.A.No.744/Mds/2010, for the Assessment Year 2007-08.
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