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2016 (2) TMI 1351 - AT - Income TaxSecurity Deposit of expenditure on development - expenditure the assessee incurred towards Neighbourhood Apartments - HELD THAT - Commissioner had not referred to any material brought on record in support of the contention that refund of security deposit of Rs.13 crores by M/s. Fortune Constructions has nothing to do with the expenditure incurred on the project which is abandoned in favour of M/s. Fortune Constructions Ltd. CIT(A) had not discussed the circumstances under which the project was abandoned in favour of the said company. CIT(A) also failed to examine whether the refund of deposit of Rs.13 crores had anything to do with the expenditure incurred. Without discussing any material he simply accepted the written submissions filed by the respondent-assessee before him which amounts to total non-application of mind and therefore fails to fulfil the requirements of a reasoned/speaking order. We are of the considered opinion that interests of justice would be met if the matter is restored to the file of the CIT(A) for de novo disposal of the appeal in accordance with law.
Issues involved:
1. Appeal against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2010-11. 2. Recognition of income and expenditure in real estate development business. 3. Capital vs. revenue expenditure on an abandoned project. 4. Adequacy of reasoning in the CIT(A)'s order. 5. Restoration of the matter for de novo disposal by the CIT(A). Analysis: Issue 1: Appeal against the CIT(A)'s order The appeal was filed by the Revenue against the order of the Commissioner of Income-tax (Appeals) for the assessment year 2010-11. The Revenue raised various grounds challenging the CIT(A)'s decision, primarily related to the treatment of security deposit and expenditure on a development project. Issue 2: Recognition of income and expenditure The Respondent-assessee, a real estate development company, filed its return of income for the assessment year 2010-11, declaring 'nil' income after setting off brought forward losses. The Assessing Officer made additions to the total income, including changes in the method of income recognition and disallowance of expenditure written off for a project called "Neighbourhood Apartments." Issue 3: Capital vs. revenue expenditure The CIT(A) allowed the appeal of the assessee, holding that the expenditure on the abandoned project was revenue expenditure, not capital expenditure. The Revenue challenged this decision, emphasizing the need for a detailed examination of the circumstances under which the project was abandoned and the refund of the security deposit. Issue 4: Adequacy of reasoning in the CIT(A)'s order The ITAT found that the CIT(A) had not provided sufficient reasoning for deleting the addition of expenditure. The CIT(A) did not discuss the relationship between the refund of the security deposit and the incurred expenditure. This lack of detailed analysis was deemed as a failure to meet the requirements of a reasoned order. Issue 5: Restoration of the matter for de novo disposal Considering the deficiencies in the CIT(A)'s order, the ITAT decided to restore the matter to the CIT(A) for fresh disposal in accordance with the law. The CIT(A) was directed to re-examine the case, provide a reasonable opportunity for hearing, and issue a speaking order to ensure a thorough and justified decision-making process. In conclusion, the appeal of the Revenue was allowed for statistical purposes, and the matter was remanded back to the CIT(A) for a more detailed and reasoned consideration of the issues raised during the assessment.
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