2013 (6) TMI 727 - AT - Income Tax

Summary

Issues Involved:
1. Confirmation of assessment order u/s 143(3) of IT Act, 1961.
2. Treatment of receipts from sale of land and plots as business income versus long-term capital gain.
3. Determination of cost of acquisition of land.
4. Disallowance of interest u/s 36(1)(iii).
5. Disallowance of expenses incurred for payment received through credit cards u/s 40(a)(ia).
6. Addition of business receipts on transfer of business u/s 28(va).
7. Allowance of brought forward losses and depreciation.
8. Levy of interest u/s 234B.

Summary:

Issue 1: Confirmation of Assessment Order u/s 143(3)
The learned CIT(A) confirmed the assessment order passed u/s 143(3) of the IT Act, 1961, which the appellant claimed to be unjust and not binding.

Issue 2: Treatment of Receipts from Sale of Land and Plots
The main issue raised was whether receipts from the sale of land and plots should be treated as business income or long-term capital gain. The Tribunal found that the receipts should be treated as long-term capital gain, following its previous decision in the appellant's own case for earlier assessment years (2006-07 to 2008-09). The Tribunal held that the surplus arising from the sale of land is to be taxed under the head 'Capital gains' only.

Issue 3: Determination of Cost of Acquisition of Land
The AO determined the cost of acquisition of land at Rs. 8 per sq. yd., whereas the assessee claimed it to be Rs. 250 per sq. yd. The Tribunal directed the AO to adopt the actual sales consideration and accept the value determined by the approved valuer at Rs. 250 per sq. yd.

Issue 4: Disallowance of Interest u/s 36(1)(iii)
The AO disallowed net interest expenses of Rs. 3,39,47,901 u/s 36(1)(iii) on the grounds that borrowed funds were diverted to sister concerns free of interest. The Tribunal, however, found this disallowance contrary to the facts and the settled legal position, and thus ordered its deletion.

Issue 5: Disallowance of Expenses for Payment Received through Credit Cards u/s 40(a)(ia)
The AO disallowed expenses incurred for payment received through credit cards amounting to Rs. 18,42,751, treating it as 'commission' on which tax is deductible at source u/s 194H. The Tribunal held that the obligation to deduct tax at source u/s 194H is not cast upon the assessee-company, and thus the disallowance under s. 40(a)(ia) was not warranted by law.

Issue 6: Addition of Business Receipts on Transfer of Business u/s 28(va)
The AO treated the consideration received on account of slump sale of business as taxable u/s 28(va) and denied exemption u/s 47(iv). The Tribunal found that the transfer of the business undertaking was a slump sale and thus exempt under s. 47(iv). The Tribunal reversed the AO's action and allowed the exemption.

Issue 7: Allowance of Brought Forward Losses and Depreciation
The Tribunal directed the AO to allow the correct amount of brought forward losses and depreciation for the current and earlier years.

Issue 8: Levy of Interest u/s 234B
The Tribunal held that the charging of interest u/s 234B is mandatory but allows for consequential relief. Therefore, this ground could not be allowed.

Conclusion:
The appeal of the assessee was partly allowed, with significant relief granted on several grounds, including the treatment of receipts from the sale of land as long-term capital gain, deletion of disallowance of interest, and exemption for slump sale of business.