2012 (9) TMI 117 - AT - Income Tax

Disallowance of land development expense under head PGBP - Assessee paid advance which is in excess of sale price of land prior to the transfer of ownership - Land is developed by the seller and he has incurred the expenses - Meanwhile price of land rises due to development work in that area & seller of land not wiling to refund the advance on account of certain developmental work - Advance claims as land development expense - Held that - Payment made through cheque but without any documentary evidence & bills of parties regarding the nature of development works. Assessee submit the affidavits before CIT(A) evidencing the receipt of the sum received by seller. CIT(A) did not ask the remand report from the AO and also did not confront to the AO the new evidences produced by the assessee. Tribunal on the basis of Natural justice remand this issue back to the AO to verify from the record as to whether the recipients accepted the payment made by the assessee for peaceful possession of the land and accordingly decide the issue, after providing due and reasonable opportunity of being heard to the assessee - Decision remanded back to AO.

Summary

Issues:
Deletion of disallowance of Rs. 28,86,540 by the AO.

Analysis:
The case involved an appeal by the department against the deletion of a disallowance of Rs. 28,86,540 made by the Assessing Officer (AO). The assessee declared income from various sources, including short-term capital gains. The AO disallowed the amount in question, claiming it was income from business after debiting developmental expenses. The AO raised concerns about the nature of the expenses, lack of documentation, and the timing of payments. The assessee explained that the payments were advances for land development, made to the landowners before the actual sale deed. However, the AO did not accept this explanation, leading to the disallowance.

Upon appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] considered the affidavits and letters provided by the assessee, showing the payments made to the family members of the land seller. The CIT(A) concluded that the payments were compensation for peaceful possession of the land and deleted the addition made by the AO. The department then appealed this decision.

During the proceedings, the department argued that the new evidence presented by the assessee was not produced before the AO and questioned the CIT(A)'s decision not to seek a remand report or confront the AO with the new evidence. The assessee maintained that the payments were made to prevent disputes and justified the CIT(A)'s decision.

The Appellate Tribunal found that the new evidence presented by the assessee was crucial and should have been examined by the AO. In the interest of natural justice, the Tribunal remanded the issue back to the AO to verify the acceptance of payments by the recipients for peaceful possession of the land. The appeal by the department was allowed for statistical purposes, emphasizing the need for a thorough examination of the evidence by the assessing authority.