INCOME TAX ACT, 1961

Section 40A(3)

Business disallowance under section 40A(3) - Cash payments exceeding prescribed limits - Payment not claimed in Profit and Loss account -

Assessee-company purchased a land and made part payment for the same in cash. AO noticed that said cash payment was in excess of the limit provided under section 40A(3) and accordingly, he made disallowance under section 40A(3). It was submitted on behalf of the assessee that in view of a Collaboration Agreement entered into between the assessee and a company 'C', the assessee received reimbursement of all amounts paid relating to transactions of purchase of land, stamp duty, registration charges, etc., and such payment had not been claimed by the assessee in its Profit and Loss account. Held: It was undisputed that assessee purchased a land and made part of the payment in cash and vide Collaboration Agreement, development rights and land in question were assigned in favour of 'C'. It was also undisputed that books of account of the assessee had been accepted by Revenue. Further, the purchase of land was not treated as stock-in-trade and as per Collaboration Agreement, only development rights of the property had been transferred and ownership of the same remained intact with the assessee. Further, the assessee proved that the payment in question was mere reimbursement made by 'C'. Furthermore, the assessee neither debited the amount of cost of land in its Profit and Loss account nor claimed any deduction in respect of such cost of land by way of computation. Therefore, the provisions contained under section 40A(3) were not attracted in instant case and hence, the disallowance made by AO under section 40A(3) was deleted.

Followed:Westland Developers Pvt. Ltd. v. Asstt. CIT [ITA No.1752/Del/2013 Order, dated 22-8-2014] : 2014 TaxPub(DT) 4668 (Del-Trib)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2007-08

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