2015 (10) TMI 937 - AT - Income Tax

Income assessable under the head profits /gains from business / profession - liquidated damages - sum of ₹ 2,50,00,000/- received by it from M/s. Prestige Estate Projects P. Ltd Held that - There is no communication from M/s. PEP on any of the aspects mentioned in the letter. Fundamental for a valid contract is either a written or an oral agreement. Above letter is not an agreement. At the best it is only a conditional offer. Not only is there any acceptance from M/s. PEP, there is a communication dt.07.11.2012 from M/s. PEP to the AO reproduced by us in para 2 above which points to an opposite position. Thus claim of the assessee what was received by it from M/s. PEP, in excess of what was paid by it, was only a compensation in the capital field falls flat. Letter dt.31.05.2006 written by assessee to M/s. PEP also clearly show that its intent was nothing but to do the business of construction and selling land after development and construction. Thus the amount of ₹ 4.95 crores paid was nothing but an advance for acquiring the stock for its real estate development venture. Instead of getting the developed areas as desired, what assessee received was a sum of ₹ 7.45 crores from M/s. PEP. Surplus in our opinion had all the features of business profit, since assessee s adventure or foray into real estate development was only a trading or business venture. The back ground of the transaction, where partners of assessee firm had already done similar business with M/s. PEP, corroborates this further. - Decided against assessee.

Summary

Issues:
1. Whether a sum received by the assessee from a company should be treated as income assessable under the head 'profits/gains from business/profession' or as a capital receipt.

Analysis:
The appeal filed by the assessee contested the direction of the CIT (A) to treat a sum received from a company as income assessable under the head 'profits/gains from business/profession'. The assessee argued that the amount received was a capital receipt due to the nature of the deal. The AO noted discrepancies in the assessee's filings and treated the amount as cessation of liability, adding it to the income. The CIT (A) held the surplus as a business receipt based on the business relationship between the parties. The CIT (A) concluded that the surplus was taxable under the head 'Profits and Gains from Business/Profession'.

The main contention before the ITAT was whether the surplus amount received by the assessee was taxable under any provisions of the Act. The AR argued that the payment made to the company was only an investment and the excess amount received was compensation, not taxable under any provision. The AR cited various cases to support this argument. However, the DR supported the CIT (A) order.

The ITAT analyzed the documents and communications between the parties. It noted that there was no formal agreement between the assessee and the company. The ITAT found that the amount paid by the assessee was for real estate development, indicating a business venture. The surplus amount received was considered as business profit due to the nature of the transaction. The ITAT disregarded the cases cited by the AR as they did not align with the specifics of the current case. The ITAT upheld the CIT (A) order, dismissing the appeal of the assessee.

In conclusion, the ITAT ruled that the surplus amount received by the assessee was taxable as business profit under the head 'Profits and Gains from Business/Profession'. The decision was based on the business nature of the transaction and the lack of a formal agreement between the parties. The ITAT found the surplus to be revenue in nature, supporting the CIT (A) order.