2020 (1) TMI 1069 - HC - Income Tax

Addition of demurrages for delay in execution of the project - appellant maintaining books of account under merchantile system of accounting - CIT-A allowed the claim of the appellant in respect of demurrages for delay in execution of the project - Tribunal reversed the order of CIT (Appeals) and restored the order passed by the Assessing Officer - HELD THAT - From perusal of the order passed by the Tribunal, it is evident that the order passed by the Tribunal is based on opinion given by Mr. S. Janardhan, advocate as well as the fact that the appellant has not been able to produce the original deed of arbitration. The Tribunal therefore, has doubted the genuineness of the entry made in the books of accounts by the appellant to the tune of ₹ 54,00,000/-. Ordinarily, we would have dealt with the issue in this appeal itself. Since the revenue has disputed the genuineness of the entry made in the books of accounts, therefore, we are not inclined to decide the issue whether the Tribunal was justified in confirming the addition of ₹ 54,00,000/- in respect of demurrages for delay in execution of the project. The Tribunal has failed to take into account the remand report of the Additional Commissioner of Income Tax and joint venture agreement dated 19.09.1992. We deem it appropriate to set aside the order passed by the Income Tax Appellate Tribunal. Needless to state that it would be open to the Tribunal to pass such order as it may deem fit in accordance with law. The Tribunal, after affording an opportunity of hearing to the parties, shall decide the appeal preferably within a period of three months from the date of receipt of the certified copy of the order passed today. It is also clarified that this Court has not expressed any opinion on the merits of the case and all the contentions which are available to the parties in law are kept open. Accordingly, the substantial questions of law are answered.

Summary

Issues Involved:
1. Addition of demurrages for delay in project execution.
2. Classification of income under the status of association of persons.

Analysis:

Issue 1: Addition of Demurrages for Delay in Project Execution
The appellant, a partnership firm engaged in real estate development, filed an appeal under Section 260-A of the Income Tax Act challenging the addition of ?54 lakhs for demurrages due to project delay. The Assessing Officer added this amount to the declared income, leading to an appeal before the Commissioner of Income Tax (Appeals). The Commissioner partially allowed the appeal, but the Tribunal reversed the decision and reinstated the Assessing Officer's order. The appellant argued that the joint venture agreement supported the demurrages claim, emphasizing the liability's origin and entry in the books. They maintained their accounts under the mercantile system and contended that the liability was recognized in the assessment year 1997-98. The Tribunal's failure to consider the agreement and remand report was highlighted. The High Court, noting the dispute over the genuineness of the entry, set aside the Tribunal's order, allowing for a fresh decision within three months.

Issue 2: Classification of Income under Association of Persons
The second issue revolved around whether the joint development agreement constituted an association of persons for income assessment purposes. The Commissioner of Income Tax (Appeals) had allowed the claim related to demurrages, but the Tribunal reversed this decision. The appellant argued that the liability was recognized based on the joint venture agreement terms and accounting principles. The Tribunal's reliance on an advocate's opinion and doubts about the entry's genuineness led to the High Court's decision to remand the case for further consideration. The Court emphasized that it had not expressed any opinion on the case's merits, leaving all legal contentions open for future proceedings.

In conclusion, the High Court remanded the case back to the Tribunal for a fresh decision, emphasizing the need to consider the joint venture agreement and remand report. The judgment highlighted the importance of accounting principles, liability recognition, and the genuineness of entries in determining tax liabilities.