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2016 (5) TMI 1488 - AT - Income Tax


Issues Involved:
1. Deletion of addition made on account of disallowance of loss on forfeiture of earnest money.
2. Justification of the assessee's capacity to arrange funds.
3. Efforts made by the assessee to recover the forfeited amount.
4. Comparison of the agreement terms with other similar transactions.

Detailed Analysis:

1. Deletion of Addition Made on Account of Disallowance of Loss on Forfeiture of Earnest Money:
The Revenue appealed against the CIT (A)'s order that deleted the addition of Rs. 50,00,000/- made by the Assessing Officer (A.O) on account of disallowance of loss due to forfeiture of earnest money. The A.O disallowed this loss, suspecting the genuineness of the transaction and citing irregularities such as the abnormal nature of the transaction series and the assessee's failure to justify its financial capacity. The CIT (A) held that the A.O's disallowance was based on suspicion without concrete evidence and declared the transaction genuine, allowing the loss as revenue expenditure. The Tribunal upheld the CIT (A)'s decision, stating there was no evidence to prove the transaction was not genuine.

2. Justification of the Assessee's Capacity to Arrange Funds:
The A.O questioned the assessee's capacity to arrange Rs. 4 Crore within a short period, given its meager capital base of Rs. 1,00,000/-. The assessee claimed it planned to use unsecured loans, but the A.O found no such loans were received within the required period. The Tribunal noted that the A.O's doubts were based on presumptions and assumptions without concrete evidence. The CIT (A) had considered the assessee's financial difficulties and efforts to arrange funds, ultimately finding the transaction genuine.

3. Efforts Made by the Assessee to Recover the Forfeited Amount:
The A.O highlighted the assessee's failure to produce evidence of efforts made to recover the forfeited amount. The Tribunal observed that the agreement clearly stated the forfeiture clause and that the assessee had agreed to it. The Tribunal found no basis to doubt the genuineness of the agreement or the forfeiture, as the terms were binding and there was no evidence suggesting the agreement was not fulfilled deliberately.

4. Comparison of the Agreement Terms with Other Similar Transactions:
The A.O noted the vendor's failure to produce examples of similar agreements. The vendor provided an application form with a forfeiture clause for residential plots, but the A.O found it insufficient. The Tribunal emphasized that the genuineness of the agreement could not be doubted merely because similar terms were not produced. The CIT (A) had already considered all relevant factors and found the transaction genuine.

Conclusion:
The Tribunal upheld the CIT (A)'s order, dismissing the Revenue's appeal. It concluded that the A.O's disallowance was based on suspicion without concrete evidence, and the transaction was genuine. The Tribunal affirmed that the CIT (A) had rightly allowed the assessee's claim of loss on forfeiture of earnest money as revenue expenditure.

 

 

 

 

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