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2022 (9) TMI 470 - AT - Income TaxNature of receipt - receipt on sale of shops and flat - Income from Other Sources u/s 56(1) or Income from Business - HELD THAT - It is not in dispute that the MOUs entered into by the assessee for acquisitions of shops and flats were not registered. No stamp duty has been paid by the assessee at the time of its acquisition as the transactions had not been routed through the Stamp duty authorities. No evidence to prove that assessee had taken possession of the shops and flats acquired pursuant to MOUs. Accordingly, the compliance to Transfer of Property Act provisions were also not made by the assessee. This fact has not been controverted by the AR before us by providing contrary evidences. Hence in principle, we uphold the finding of the CIT(A) that the sale proceeds is to be taxed only under the head income from other sources. However, the cost of shops / flat would certainly be allowable as deduction even under the head income from other sources. Hence the ld. AO is directed to allow deduction of cost of 7 shops and 1 flat as expenditure under the head income from other sources. Accordingly, the Ground No. 1 raised by the assessee is partly allowed. Disallowance of depreciation being the correct amount (though wrongly disallowed by AO) on assets purchased from Iping Technologies Pvt Ltd. - HELD THAT - It is a fact on record that the assessee had actually paid consideration to Iping for purchase of assets. It is also a fact on record that the said consideration has been shown as receipt in the books of Iping, which fact is also confirmed by them in response to notice u/s 133(6) of the Act directly filed before the ld. AO. We hold that without the usage of the assets acquired from BPO division of Iping, the assessee could not have earned any revenue from BPO services during the year under consideration and offered business income thereon. Hence it could be safely concluded that the assets acquired from Iping had been duly put to use and utilized by the assessee for the purpose of its BPO services and hence depreciation would be eligible for the same to the assessee. The entire transactions have been duly confirmed by Iping directly before the ld. AO in response to notice u/s 133(6) - Even if all the alleged defects pointed out by the revenue is to be accepted, still the fact remains that the assets so acquired had been utilized by the assessee herein for the purpose of its BPO services and business income derived thereon. We hold that in this regard, the reliance has been rightly placed by the ld. AR on the decision of Mysore Minerals Ltd 1999 (9) TMI 1 - SUPREME COURT . Hence we have no hesitation in directing the ld. AO to grant depreciation to the assessee for the correct amount and make corresponding rectification for the mistakes committed by him while calculating the depreciation. Accordingly, the Ground raised by the assessee is allowed. TDS u/s 194C - Disallowance being amount reimbursed to Iping u/s 40(a)(ia) - HELD THAT - CIT(A) having accepted that it is only reimbursement of expenses, he ought not to have confirmed the disallowance u/s 40(a)(ia) of the Act for violation, if any, of provisions of section 194C of the Act. We hold that the provisions of section 194C of the Act cannot be applied for actual reimbursement of expenses without any mark up. Hence we hold that the ld. CIT(A) grossly erred in this aspect in his order. CIT(A) had observed that the second proviso to section 40(a)(ia) and 201 of the Act would be applicable only from 1.7.2012 onwards and cannot be applied for Asst Year 2012-13. In this regard, we find that the Hon ble Delhi High Court in the case of CIT vs Ansal Landmark Township (P) Ltd 2015 (9) TMI 79 - DELHI HIGH COURT had categorically held that the second proviso brought in section 40(a)(ia) and section 201 of the Act need to be applied retrospectively. Accordingly, even on this count, no disallowance u/s 40(a)(ia) of the Act could be made in the instant case. Hence the Ground No. 3 raised by the assessee is allowed. Disallowance of brokerage in relation to sale of capital assets as deduction u/s 48 of the Act - AO disallowed such claim of the assessee by observing that no details for services rendered were shown on the bill that was raised and also on the ground that the said claim was not made by filing a revised return of income - HELD THAT - It is not in dispute that the assessee had furnished the bills for brokerage before the ld. AO and the brokerage paid was exactly 2% of the consideration amount, which is the normal prevailing market rate for immovable property. We find that the assessee had indeed made the claim of brokerage as deduction in the return of income under the head income from business. During the course of assessment proceedings, the assessee had only sought to shift the head of income from income from business to income from capital gains , as the brokerage would be eligible for deduction u/s 48 of the Act as expenses on transfer while computing capital gains. The bill for brokerage submitted contained even the PAN of the broker. In view of the aforesaid observations there is no question of doubting the said expenditure on brokerage. Hence we direct the ld. AO to grant deduction for brokerage in the sum as expenditure incurred on transfer of capital assets and recompute the capital gains accordingly. The Ground raised by the assessee is allowed.
Issues Involved:
1. Classification of income from the sale of shops and flats. 2. Disallowance of depreciation on assets purchased from a related party. 3. Disallowance of reimbursement of expenses under section 40(a)(ia). 4. Disallowance of brokerage expenses as a deduction under section 48. Detailed Analysis: Issue 1: Classification of Income from Sale of Shops and Flats - The primary issue is whether the receipt of Rs 84,98,670 from the sale of shops and flats should be treated as "Income from Other Sources" under section 56(1) of the Income Tax Act, 1961, or as "Income from Business." - The assessee, engaged in trading, renting of immovable property, and IT services, reported the sale of shops and flats as business income in its financial statements. - The Assessing Officer (AO) treated the sale value of Rs 84,98,670 as unexplained cash credit under section 68, Rs 38,35,500 as unexplained investment under section 69, and Rs 67,77,600 as unexplained expenditure under section 69C. - The Commissioner of Income Tax (Appeals) [CIT(A)] observed that the transactions were interlinked and called for a remand report, which confirmed the actual sale and purchase of shops and flats. - The CIT(A) held that the transactions would result in capital gains for Jamshri, as the assessee did not receive the title to the property, and taxed the amount under section 56(1) as "Income from Other Sources," deleting the additions under sections 69 and 69C. - The Tribunal upheld the CIT(A)'s decision, noting that the unregistered MOUs did not constitute an organized business activity. However, it allowed the cost of shops and flats as a deduction under "Income from Other Sources." Issue 2: Disallowance of Depreciation on Assets Purchased from a Related Party - The AO disallowed depreciation of Rs 23,38,870 on assets purchased from Iping Technologies Pvt Ltd, a related party, citing lack of proper documentation and excessive consideration under section 40A(2). - The CIT(A) confirmed the disallowance, noting that no sales tax was paid and the consideration was excessive. - The Tribunal found that the assets were used by the assessee for its BPO services, and Iping had confirmed the transactions and not claimed depreciation. It directed the AO to grant depreciation of Rs 20,43,520, correcting any calculation errors. Issue 3: Disallowance of Reimbursement of Expenses under Section 40(a)(ia) - The AO disallowed Rs 4,36,940 reimbursed to Iping Technologies Pvt Ltd, citing lack of agreement and TDS deduction. - The CIT(A) accepted that the expenses were reimbursed on an actual cost basis but upheld the disallowance for non-compliance with section 194C. - The Tribunal held that the provisions of section 194C do not apply to actual reimbursement without markup and noted that the second proviso to section 40(a)(ia) and section 201 applies retrospectively, disallowing the AO's decision. Issue 4: Disallowance of Brokerage Expenses as Deduction under Section 48 - The AO disallowed brokerage of Rs 6,00,000 related to the sale of property, questioning the details and the method of claim. - The Tribunal directed the AO to allow the brokerage as a deduction under section 48, noting that the brokerage was at the prevailing market rate and properly documented. Conclusion: - The appeals for both assessment years were partly allowed, with the Tribunal providing relief on specific grounds while upholding certain findings of the CIT(A). The decisions were applied mutatis mutandis for the subsequent assessment year, with appropriate adjustments for figures.
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