Madras HC Upholds ITAT Order Favoring Assessee | No Substantial Question of Law in Disputed Land Development and Brokerage Claims
Safiya Malik
The High Court of Judicature at Madras Division Bench of Chief Justice K.R. Shriram and Justice Sunder Mohan has dismissed two tax case appeals filed by the Income Tax Department. The court upheld the factual findings of the Income Tax Appellate Tribunal (ITAT), which had allowed various expenditures claimed by the assessee under heads such as land development, road construction, and brokerage. The Division Bench concluded that the department failed to raise any substantial question of law that warranted interference under Section 260A of the Income Tax Act, 1961. Consequently, the court affirmed the ITAT's decision in its entirety and directed dismissal of both appeals.
The dispute arose from a return of income filed by the respondent on 31.07.2007, declaring a taxable income of Rs.8,96,80,430/-, which included a short-term capital gain of Rs.8,92,83,958/- and income from other sources of Rs.3,86,472/-. The Assessing Officer, under Section 143 of the Income Tax Act, processed the return and passed an assessment order dated 29.12.2009, determining a revised taxable income of Rs.17,17,89,870/-, with tax payable amounting to Rs.3,94,05,743/-.
The additions made by the Assessing Officer primarily related to disallowance of development expenses and brokerage:
(i) Expenses towards development of the land: Rs.6,97,78,544/-
(ii) Commission paid to brokers: Rs.80,55,898/-
(iii) Interest on capital account: Rs.1,01,75,000/-
The development expenditure of Rs.6,97,78,544/- was further detailed as follows:
(i) Levelling and filling of land: Rs.2,96,67,138/-
(ii) Road development: Rs.1,92,56,890/-
(iii) Repairing of compound wall: Rs.40,17,590/-
(iv) Repairing of old damaged well and overhead tank: Rs.90,18,834/-
(v) Salaries, wages, travel, rent, and electricity: Rs.78,17,673/-
The respondent appealed to the Commissioner of Income Tax (Appeals)-IX, Chennai, which allowed the deduction claimed under interest on capital account fully, and partially allowed claims under development expenditure and brokerage.
Both the Revenue and the assessee challenged the order before the ITAT, Chennai. The ITAT allowed the assessee’s appeal in full and dismissed the department’s appeal, holding that the expenditures claimed were substantiated by documentary evidence, TDS payments, cheque transactions, and physical verification.
Aggrieved, the Income Tax Department filed Tax Case Appeals Nos. 368 and 369 of 2011 before the Madras High Court. While admitting the appeals on 10.10.2011, the Court framed five substantial questions of law cantered around the validity of the ITAT’s acceptance of various expenditures without documentary evidence.
The High Court examined each head of the claimed expenditure individually.
Regarding the land levelling and filling cost of Rs.2,96,67,138/-, the court found that the land was levelled and cleaned up, and therefore, development of the property cannot be disputed. It further noted that the physical verification of the land also substantiated the claim of assessee/respondent. Additionally, it recorded that TDS was deducted from the payments made to the contractors, which was not disputed by appellant. The court acknowledged that payments were made by cheques and that the contractors had filed their returns on time. On this basis, it found no infirmity in the said findings.
On the road development expenditure of Rs.1,92,56,890/-, the court recorded that the existence of the road is not disputed by appellant. It stated that the physical verification confirmed the said fact. The High Court accepted that the payments were made to the contractors by cheques and all the contractors had filed their return of income on time. It concluded that Appellant has not made out any ground to interfere in the factual finding of CIT (A) and ITAT.
In respect of the repair of the compound wall, the Court stated that ITAT once again found that the physical verification confirmed that the compound wall which was originally damaged was repaired.
On the issue of repair expenses for an old damaged well and overhead tank totalling Rs.90,18,834/-, the court recorded that the expenses incurred towards such repair have not been disputed and therefore, allowed the entire claim of the said amount to be treated as expenses.
The Court further remarked that ITAT had rightly allowed the expenses under the above-referred heads, as admittedly development work had taken place and all the contractors who were engaged in the development work admitted the receipt of money and the work done by them. It also observed that CIT (A) was not justified in allowing only a portion of the expenses claimed by respondent.
With respect to the brokerage payment of Rs.80,55,898/-, the court agreed with the ITAT’s finding that the broker, viz., one Maruthanayagam, had confirmed in his letter dated 26.12.2009 of having received the brokerage. It also noted that this has been confirmed by the purchaser also in his sworn statement dated 09.12.2009. Thus, the factual findings rendered by both the authorities that respondent incurred expenses towards brokerage cannot be faulted.
The Court concluded that the appellant had not raised any substantial question of law to interfere in the factual findings, which it held do not suffer from any infirmity. Accordingly, the substantial questions of law Nos.1 to 5 are answered in the affirmative.
The Madras High Court concluded its judgment by stating that since we have answered all the substantial questions of law raised in the affirmative, the Tax Case Appeals are liable to be dismissed. It expressly held that both the Tax Case Appeals are dismissed. It also directed that there shall be no order as to costs.
Advocates Representing the Parties:
For the Petitioners: Mr. J. Narayanaswamy, Standing Counsel for the Income Tax Department
For the Respondents: Mr. A. S. Sriraman, Counsel for the Assessee
Case Title: The Commissioner of Income Tax (Appeals)-VIII, Chennai v. M/s Bharat Promoters
Neutral Citation: 2025: MHC:1308
Case Number: T.C.A. Nos. 368 & 369 of 2011
Bench: Chief Justice K.R. Shriram and Justice Sunder Mohan
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