2015 (11) TMI 276 - AT - Income Tax

Undisputed forfeiture of the payment by a party related to the assessee - CIT(A) deleted the addition - Held that - We are of the considered view that the learned First Appellate Authority has rightly deleted the addition of ₹ 5.85 croes made by the Assessing Officer because these expenses were incurred for the purpose of manufacturing of sugar in respective factories with a view to earn profit and, therefore, the assessee was entitled to deduction of the said expenses as Revenue Expenditure. After going through the impugned order, we find that the learned First Appellate Authority has deleted the addition in dispute by respectfully following various decisions rendered by the Hon ble High Courts which are mentioned in the impugned order. We find no infirmity in the impugned order on the deletion of addition of ₹ 5.85 crores made by the Assessing Officer. - Decided against revenue. Advances received by the assessee - CIT(A) deleted the addition - Held that - First appellate Authority has given various details of various parties mentioned in the impugned order. The learned First Appellate Authority has also supported his view by various decisions rendered by Hon ble High Courts which includes the jurisdictional High Court, which are mentioned in the impugned order. After going through the same, we are of the considered view that the learned First Appellate Authority has passed a well reasoned order on the deletion of addition of ₹ 1.25 crores on account of advances received by the assessee.- Decided against revenue. Disallowance on account of rent receivable from let out property - CIT(A) deleted the addition - Held that - The learned First Appellate Authority has examined the documentary evidence filed by the assessee in respect of its claim , i.e., copy of letter dated 10.10.2011, copy of rent agreement, copy of civil suit regarding mutation of property and receipts of rent, copy of order dated 03.02.2011 passed by Civil Judge, Bangalore and copy of pending recovery suit for unpaid rent. After considering all these documentary evidences, the learned First Appellate Authority has deleted the addition of ₹ 20.47 lakhs. We find no infirmity in the deletion of disallowance of ₹ 20.47 lakhs. We uphold the impugned order on the issue involved in ground No. 3. No other point has been argued or raised before us by both the parties. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition of Rs. 5.85 crores due to forfeiture of advance payment.
2. Deletion of addition of Rs. 1.25 crores on account of advances received.
3. Deletion of disallowance of Rs. 20.47 lakhs on account of rent receivable from let out property.

Issue-wise Detailed Analysis:

1. Deletion of Addition of Rs. 5.85 Crores Due to Forfeiture of Advance Payment:
The Revenue challenged the deletion of Rs. 5.85 crores made by the Assessing Officer (AO) on the grounds that the forfeiture of payment by a related party was not genuine. The CIT(A) found that the development agreement between the appellant and Sh. D.D. Goel was genuine and based on business interests. The agreement was executed in 2006, and forfeiture occurred in the financial year 2008-09. The AO's contention that the agreement was a sham due to the relationship between the parties was dismissed by the CIT(A), who emphasized that the agreement was part of the appellant's business activities and was corroborated by audited balance sheets. The CIT(A) also noted that the AO did not dispute the forfeiture clause in the agreement. The CIT(A) concluded that the forfeiture was a legitimate business loss, supported by legal advice and business considerations, and therefore allowed the deduction under the Income Tax Act.

2. Deletion of Addition of Rs. 1.25 Crores on Account of Advances Received:
The AO added Rs. 1.25 crores as income from undisclosed sources due to advances received from various parties, questioning the creditworthiness of these parties. The CIT(A) noted that the appellant provided confirmations, PAN details, and bank statements for all parties, establishing the identity and genuineness of the transactions. The CIT(A) referenced the Supreme Court and High Court rulings, which state that once the identity, genuineness, and creditworthiness are established, the AO cannot make additions based on the source of the source. The CIT(A) found no evidence that these advances represented undisclosed income and deleted the addition, emphasizing that the AO should forward any concerns to the respective Assessing Officers of the parties involved.

3. Deletion of Disallowance of Rs. 20.47 Lakhs on Account of Rent Receivable from Let Out Property:
The AO added Rs. 20.47 lakhs to the appellant's income, assuming the rent was adjusted against the security deposit after the tenant did not pay rent for six months. The CIT(A) found that the rent was not received due to a legal dispute, and the matter was sub judice. The CIT(A) held that the AO's action was hypothetical and not based on actual receipt or receivable rent. The CIT(A) emphasized that under Section 23 of the Income Tax Act, only actual rent received or receivable should be considered. The CIT(A) deleted the addition, stating that any arrears of rent should be assessed in the year they are received.

Conclusion:
The ITAT upheld the CIT(A)'s order, finding no infirmity in the deletion of the additions made by the AO. The appeal filed by the Revenue was dismissed, and the CIT(A)'s well-reasoned order was affirmed. The judgments were based on thorough examination of facts, legal principles, and supporting documentary evidence.