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2022 (3) TMI 74 - AT - Income TaxDisallowance of the rent paid to the owners of the property till the date of actual realization of cheques - what is actual date of actual encashment of cheques of the earnest money? - HELD THAT - As a part of Sale consideration, two cheques dated 13/5/2013 have been issued, total amounting to ₹ 5,00,00,000/- in favour of the owners. The said two cheques issued by the assessee have not been encashed within its validity. Further, on 13/09/2013 the assessee had made the actual payment of ₹ 5,00,00,000/- as part (90%) sale consideration by way of RTGS to both the vendors proportionately. The agreement to sell has been executed on 25.03.2013 but the consideration has not been passed as per the terms of the agreement by encashing the cheques mentioned thereon. The actual part sale consideration (90%) has been passed only on 13.09.2013 by way of RTGS. Thus, the finding of the CIT(A) that 'sale had occurred on 25.03.2013 and the assessee had become the owner of the property' is factually incorrect. Thus in the present case, the rent paid by the Assessee to the owners in respect of the subject property, prior to actual part payment of Sale consideration by way of RTGS is allowable. For above said reasons, we are of the opinion that both Ld. A.O and the CIT(A) have erred in disallowing said rent. - Decided in favour of assessee.
Issues:
1. Disallowance of rent and late payment of Employee Share of PF in assessment order. 2. Appeal before CIT(A) regarding disallowance of rent and late payment of Employee Share PF. 3. Grounds of appeal against CIT(A)'s order. 4. Consideration of property ownership and rent payment timeline. 5. Decision and reasoning of the ITAT Delhi. Issue 1: Disallowance of rent and late payment of Employee Share of PF in assessment order The assessee, a private limited company, filed a return of income claiming deductions under section 80IC of the Income Tax Act. The assessment order disallowed rent of ?18,00,000 and added ?3,86,887 for late payment of Employee Share of PF, resulting in a total income of ?2,09,49,530. Issue 2: Appeal before CIT(A) regarding disallowance of rent and late payment of Employee Share PF The assessee appealed before the CIT(A) challenging the disallowance of rent and late payment of Employee Share of PF. The CIT(A) allowed the appeal regarding late payment of Employee Share PF but disallowed rent payment between 13.05.2013 and 30-09-2013, citing that the assessee became the owner of the property on 13.5.2013, thus justifying the disallowance. Issue 3: Grounds of appeal against CIT(A)'s order The assessee, aggrieved by the CIT(A) order, raised grounds in the present appeal. The grounds included challenging the presumption of property ownership based on the MOU date, disputing the sale date under Section 2(47) of the Income-tax Act, and arguing that the observations made by the Assessing Officer and CIT(A) were not tenable under the law. Issue 4: Consideration of property ownership and rent payment timeline The ITAT Delhi considered the timeline of events related to property ownership and rent payment. It noted that although an agreement to sell was executed in March 2013, the actual part sale consideration was passed only in September 2013. The ITAT held that the rent paid by the assessee to the property owners before the actual part payment of the sale consideration was allowable, disagreeing with the CIT(A)'s finding that the sale occurred in March 2013. Issue 5: Decision and reasoning of the ITAT Delhi The ITAT Delhi, after hearing arguments from both sides, allowed the appeal filed by the assessee. It concluded that the rent paid by the assessee to the property owners before the actual part payment of the sale consideration was allowable. The ITAT found errors in the decisions of both the Assessing Officer and the CIT(A) regarding the disallowance of rent, ultimately ruling in favor of the assessee. This detailed analysis provides a comprehensive overview of the legal judgment, covering all the issues involved and the reasoning behind the decisions made by the ITAT Delhi.
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