2022 (2) TMI 867 - AT - Income Tax

Addition on accounts of transfer of land - whether Section 50C is applicable or not in the case of compulsory acquisition? - Land of the assessee was acquired by the NHAI and the transfer is by compulsory acquisition - HELD THAT - As decided in SRI JUSTICE B. SUBHASHAN REDDY (HUF) HYDERABAD 2020 (7) TMI 623 - ITAT HYDERABAD set aside the order of the Ld. CIT(A) and direct the Ld. A.O. to delete the addition made invoking the provisions of section 50C of the Act in the case of both the assessee. Shortage of coal and shortage of imported coal - HELD THAT - In the case of imported coal, the A.O. could have, similarly examined the import bills, dates of payments, dates of shipment to find out the exact quantity of coal imported by the applicant along with the opening stock, etc. These and similar facts could have led to a correct fact finding related to the purchase, consumption and stock of coal. Deprived of any fact, it is difficult to accept the AO's action which appear to be based on his own whims. Whims cannot be a ground for making addition to the income of the appellant. The additions made by the A.O. to the tune of ₹ 7.41 crores and ₹ 16.36 lakh on account of disallowance of shortage of coal at 27,426.39 MT of coal and 170.91 MT of imported coal is directed to be deleted. Appeal filed by the Revenue is dismissed.

Summary

Issues:
1. Applicability of Section 50C of the Income Tax Act in case of compulsory land acquisition.
2. Addition made by the assessing authority on account of shortage of coal and shortage of imported coal.

Analysis:
1. Applicability of Section 50C:
The appeal was filed by the Revenue against the CIT(A)'s order deleting the addition made on the transfer of land to NHAI. The assessing authority invoked Section 50C, but the CIT(A) held that it was not justified in this case of compulsory acquisition by NHAI. The CIT(A) referred to a similar case decided by ITAT Hyderabad, where it was held that Section 50C cannot be invoked when the purchaser is a government undertaking. The Tribunal upheld the CIT(A)'s decision, stating that the provisions of Section 50C cannot be applied in this scenario, as it was a distress transaction with no cash compensation involved.

2. Addition on Shortage of Coal:
The Revenue challenged the additions made by the assessing authority regarding the shortage of coal and imported coal. The assessing authority disallowed the claims based on the financial statements, citing abnormal shortages compared to the previous year. However, the CIT(A) overturned these additions, emphasizing that the assessing officer failed to consider various factors leading to the shortages. The CIT(A) highlighted that the reasons for shortages should have been thoroughly examined, including factors like production issues, fund shortages, or mishaps affecting coal supply. The Tribunal supported the CIT(A)'s decision, stating that the assessing officer's actions lacked proper fact-finding and were based on arbitrary grounds. Consequently, the additions on account of coal shortages were directed to be deleted.

In conclusion, the Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s orders on both issues. The judgment provides a detailed analysis of the applicability of Section 50C in cases of compulsory land acquisition and the necessity for thorough examination of factors leading to shortages before making additions based on financial statements.