PCIT Vs Sanskar Homes Pvt. Ltd. (Delhi High Court)
Summary: In the case of PCIT Vs Sanskar Homes Pvt. Ltd., the Delhi High Court examined the applicability of Section 40A(3) of the Income Tax Act concerning cash payments made for acquiring property. The assessee, M/s. Sanskar Homes Pvt. Ltd., had entered into agreements to purchase two floors of a property, treating them as investments rather than stock-in-trade. The Assessing Officer disallowed cash payments amounting to ₹7.43 crore, arguing that they attracted disallowance under Section 40A(3). However, the assessee contended that these amounts were not claimed as expenses in the Profit & Loss Account, making Section 40A(3) irrelevant. Both the CIT(A) and the ITAT ruled in favor of the assessee, stating that the property was classified as an investment in balance sheets filed before search proceedings. Subsequent capital gains recorded during the sale of the property further corroborated this classification. The High Court upheld these findings, emphasizing that Section 40A(3) applies exclusively to revenue expenditures claimed as deductions and not to capital investments. With no evidence from the Revenue showing the amounts were debited as expenses or treated as stock-in-trade, the appeal was dismissed. This case underscores the principle that Section 40A(3) disallowances are limited to expenses reflected in the Profit & Loss Account.
