2017 (7) TMI 32 - AT - Income Tax

Capital gains pursuant to the settlement of the contract of purchase - denial of natural justice - Held that - The order of the CIT(A) does not mention that assessee has been given an opportunity after the remand report. As seen from the copy of the account headed Aushapur land payment , assessee was stated to have received ₹ 90 Lakhs- by way of DD of ₹ 20 Lakhs and balance by way of cash- between 04-09-2006 to 04-12- 2006. One payment on 09-11-2006 was through Shri Krishna Reddy. Balance of the amount of about ₹ 72,75,000/- was also transfer entries from Shri Krishna Reddy account. The role of Shri Krishna Reddy was not brought on record and we are not sure whether any statement has been recorded from Shri Krishna Since the account copies and statements have not been confronted to assessee, considering the request made by the Ld. Counsel in the course of arguments, we are of the opinion that the matter is to be set aside to the file of the AO to give proper opportunity to assessee to explain his stand and also to offer cross-examination of the parties, if required. The role of Shri Krishna Reddy also requires examination.

Summary

Issues:
1. Addition of capital gains amounting to ?1,16,19,800 pursuant to a settlement of a land purchase contract.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-VI, Hyderabad, regarding the addition of ?1,16,19,800 as capital gains. The assessee, engaged in the purchase and sale of lands, was involved in a transaction where a Memorandum of Understanding (MoU) was signed for the purchase of lands. The MoU indicated that the assessee received ?40 Lakhs towards repayment of consideration and was to receive ?1 Crore from another party for not litigating further. The entire consideration was brought to tax as capital gains, resulting in the addition of ?1,16,19,800. The assessee contended that they did not receive the full amount and were not familiar with the English agreement. However, after examination, the Ld. CIT(A) confirmed the addition based on the MoU and impounded material.

The Ld. CIT(A) found inconsistencies in the figures of amounts received by the assessee as per the MoU and statements from representatives of involved parties. The matter was referred to the AO for reconciliation. The Ld. CIT(A) confirmed the addition after considering the facts that the MoU was signed by all parties, indicating payments made or payable. The appellant's claim of being illiterate and unaware of the MoU's contents was dismissed. The AO's decision to adopt the amounts received by the appellant and compute the profits at ?1,16,19,800 was upheld.

The assessee raised grounds of appeal against the Ld. CIT(A)'s order, disputing the amount received and the assessment of income. The Ld. Counsel argued that the AO did not provide statements or proof of payment to the assessee. While there was evidence of the amount received, the account copies and statements were not confronted to the assessee. The Tribunal set aside the orders of the AO and CIT(A) and restored the matter to the AO for proper opportunity for the assessee to explain, offer cross-examination, and examine the role of another party involved.

In conclusion, the Tribunal allowed the appeal of the assessee for statistical purposes, directing the AO to complete the assessment after providing the necessary opportunities for the assessee to present their case and examine all relevant aspects.