ACIT Vs Sanskar Homes Pvt. Ltd. (ITAT Delhi)
Income Tax Appellate Tribunal (ITAT), Delhi, has dismissed two appeals filed by the revenue against separate orders, both dated May 23, 2016, passed by the Commissioner of Income-tax(Appeals)-39, New Delhi, for the Assessment Years 2009-10 and 2010-11. These appeals contested the deletion of additions made by the Assessing Officer (AO) under Section 40A(3) of the Income-tax Act, 1961, amounting to ₹2.16 crore and ₹66,25,500 respectively, for cash payments exceeding the prescribed limit.
The assessee, Sanskar Homes Pvt. Ltd., engaged in the business of property development and construction, had filed its return of income for AY 2009-10 declaring a taxable income of ₹3,13,59,840. During the assessment, the AO disallowed certain cash payments made to M/s Surya Realtech P. Ltd. for the purchase of the first and second floors of a property in Vasant Vihar, New Delhi, citing a violation of Section 40A(3) of the Act. The assessee argued before the Commissioner of Income-tax (Appeals) [CIT(A)] that these payments were advances towards an investment and not expenditure, thus falling outside the purview of Section 40A(3).
The CIT(A) allowed the assessee’s appeal, holding that an ‘advance’ cannot be equated with expenditure until it is adjusted towards a specific expenditure and loses its original character. The CIT(A) noted that the advance remained in the balance sheet as a claim and was not routed through the profit and loss account as a deduction at the end of the accounting period. Consequently, the CIT(A) deleted the additions made by the AO.
Before the ITAT, the revenue argued that the assessee was involved in the business of construction and collaboration agreements, suggesting the property acquisition was part of its stock-in-trade, thus attracting Section 40A(3). Reliance was placed on several High Court judgments, including Attar Singh Gurmukh Singh vs CIT (1982) 136 ITR 589 (Punjab & Haryana High Court), which established that Section 40A(3) applies to payments for acquiring stock-in-trade. Conversely, the assessee contended that the cash component of the sale consideration was an advance for investment, as reflected in their books of accounts. The assessee presented its balance sheet as of March 31, 2009, prepared before a subsequent search action, which clearly showed the property as an investment. Furthermore, the assessee highlighted that the property was later sold in AY 2011-12 and 2013-14, and the capital gains arising from these sales were accepted in the respective assessments, with the initial payment being allowed as a deduction.
The ITAT observed that the disallowance was solely based on the AO’s interpretation of the assessee’s intention regarding the property – whether it was an investment or stock-in-trade. The Tribunal noted that the assessee’s books of accounts were not rejected. The balance sheet as of March 31, 2009, prepared well before the search, explicitly classified the property as an investment. The subsequent assessment orders for AY 2011-12 and 2013-14, which taxed the capital gains from the sale of the same property, further corroborated the assessee’s claim that the property was held as an investment. Considering this evidence, the ITAT found no reason to deem the CIT(A)’s order illegal or irregular and upheld it, dismissing the revenue’s appeal for AY 2009-10.
For the Assessment Year 2010-11, the facts were deemed identical except for the payment figures. Applying the same reasoning as for AY 2009-10, the ITAT concluded that the payments made during this year were also advances towards acquiring a capital asset as an investment, and therefore, Section 40A(3) was not applicable. Consequently, the revenue’s appeal for AY 2010-11 was also dismissed. In conclusion, the ITAT dismissed both appeals filed by the revenue. The order was pronounced in open court on March 7, 2019.
FULL TEXT OF THE ORDER OF ITAT DELHI
