2024 (7) TMI 30 - AT - Income Tax

Addition u/s 37(1) - assessee failed to submit the details of broker on assurance of whom the assessee has entered into the deal - HELD THAT - We observed that the assessee has entered into an agreement of purchase of property for the total value of 95 Crs. and as per the schedule of payment assessee has paid 49.5 lacs at the time of execution of the agreement and further payment of 14 Crs. and balance amount of Rs. 78.50 Crs. was remained unpaid. The seller has given several opportunities to the assessee for making the payment, however, due to financial exigencies assessee could not keep up the payment schedule and defaulted the same. The seller issued legal notice for forfeiture of the payment made by the assessee of Rs. 14.5 Crs. and the matter was referred to the arbitrator, based on the award of the arbitrator dated 25/03/2014, the seller was asked to refund Rs. 2.25 Crs. to the assessee and balance was treated as forfeited amount. The same was claimed by the assessee as the Revenue loss in the profit and loss account. The loss claimed by the assessee is a business loss incurred by the assessee during execution of a contract, therefore, by considering the above facts on record, CIT(A) has allowed the claim made by the assessee as Revenue loss u/s 37 of the Act. After considering the detailed findings of the Ld. CIT(A), we do not see any reason to disturb the same. Accordingly, the grounds raised by the Revenue is dismissed. Non-referral of property valuation to the District Valuation Officer (DVO) under Section 43CA - CIT(A) deleted the additions made by the AO for not referring the matter to the DVO even though assessee has made specific objections - HELD THAT - As we observed that the assessee has sold the property for the sale consideration of Rs. 17.93 Crs. whereas the stamp valuation of the property was 19.73 Crs. In issue before us, assessee itself submitted that the assessee sold the only plot reserved for making the Hotel in township measuring 10545.46 sq. mtr. to First Choice Hotels (P) Ltd. at the then prevailing market price in the area for Rs. 17.93 Crs. The stamp valuation for this plot was enhanced by 10% for preferential location charges. Therefore, the net difference of both are at Rs. 1.8 Crs.. The issue before us is, the assessee has made specific objection before the AO for adopting the above value, however, it is fact on record that the Assessing Officer failed to refer to the DVO. At the time of hearing, the Ld. DR relied on the decision of the A.T.E Enterprises Pvt. Ltd. 2013 (2) TMI 324 - ITAT MUMBAI , which is a case outside our jurisdiction, therefore, we are not inclined to rely on the findings of the above decision. Accordingly, appeal filed by the Revenue is dismissed.

Summary

Issues Involved:
1. Deletion of addition made by the Assessing Officer (AO) under Section 37(1) of the Income Tax Act.
2. Non-referral to the District Valuation Officer (DVO) for valuation under Section 43CA of the Income Tax Act.

Issue-wise Detailed Analysis:

Issue 1: Deletion of Addition under Section 37(1)
The Revenue challenged the deletion by the CIT(A) of an addition made by the AO under Section 37(1) of the Income Tax Act. The AO had disallowed a business loss claim of Rs. 12.25 crores related to a failed real estate transaction. The assessee had entered into an agreement to purchase a hotel property for Rs. 95 crores but failed to pay the balance amount due to financial constraints and market conditions, resulting in a loss of Rs. 12.25 crores. The AO disallowed the claim on the grounds that the assessee did not provide sufficient details about the broker involved, the potential customer, and the efforts made to raise funds.

The CIT(A) allowed the claim, noting that the loss was incurred in the normal course of the assessee's real estate business. The Tribunal upheld the CIT(A)'s decision, agreeing that the loss was a business loss allowable under Section 37 of the Income Tax Act. The Tribunal found no reason to disturb the CIT(A)'s findings and dismissed the Revenue's grounds.

Issue 2: Non-referral to DVO under Section 43CA
The AO observed that the assessee sold a plot of land for Rs. 17.93 crores, while the stamp duty valuation was Rs. 19.73 crores. The AO added the difference of Rs. 1.8 crores to the assessee's income under Section 43CA. The assessee objected, arguing that the plot was the only hotel plot in the township and did not have a preferential location. The assessee requested a referral to the DVO for fair valuation, which the AO denied.

The CIT(A) deleted the addition, relying on various judicial decisions that required the AO to refer the matter to the DVO when the assessee disputes the stamp duty valuation. The Tribunal upheld the CIT(A)'s decision, noting that the AO failed to refer the matter to the DVO despite the assessee's specific objections. The Tribunal cited similar cases where non-compliance with Section 50C(2) led to the deletion of additions. The Tribunal dismissed the Revenue's appeal, emphasizing that the AO should have followed the prescribed procedure.

Conclusion:
The Tribunal dismissed the Revenue's appeal on both issues, upholding the CIT(A)'s decisions. The Tribunal found that the loss claimed by the assessee was a legitimate business loss and that the AO's failure to refer the valuation dispute to the DVO was a procedural lapse. The appeal was dismissed in its entirety.