2015 (3) TMI 394 - AT - Income Tax

Application of deeming provision u/s 50C to the business income - Validity of Samjuti Karar - addition made in the hands of Assessee on account of 100% profit in document price of land sold deleted by CIT(A) - Assessee shown 25% only - Disallowance of the loss on sale of Land - Held that - CIT(A) after perusing the various documents and the submissions of the Assessee and by detailed order has decided the issue in favour of the Assessee and interalia has also noted that the A.O has failed to substantiate the stand that the Samjuti Karar was a part of planning for evasion of tax. He also noted that the profit out of the sale of the land was duly reflected by the co-owners in the respective return of income and the same has been accepted by the Department. He has further noted that the land records were also upgraded to include the name of the co-owners and the Samjuti Karar was in the form of ratification of an early agreement which is permissible in law. Before us, Revenue has not brought any material on record to controvert the findings of ld. CIT(A), we therefore find no reason to interfere with the order of ld. CIT(A) and thus the ground of Revenue and the ground raised by Assessee in the C.O are dismissed. - Decided in favour of assessee. Interest expenses - CIT(A)deleted the disallowance - Held that - We find that A.O while making the addition has noted that no details were furnished by the Assessee in support of his claim of interest for expenses. We find that before ld. CIT(A) Assessee had filed details on the basis of which the ld. CIT(A) has granted relief to the Assessee. Rule 46A of the I.T. Rules stipulate that CIT(A) for the reasons to be recorded, can admit the evidence produced by the Assessee in the appeal. However, the evidence produced by the Assessee under Rule 46(A)(1) cannot be considered on merits under Rule 46A(3) unless the A.O is given an opportunity to examine the evidence or document produced by the Assessee. In the present case, we find that on the additional evidence submitted by Assessee before CIT(A), the same were not confronted to the A.O nor any remand report was obtained from A.O. Therefore are of the view that in the interest of justice, the A.O should have been given an opportunity to examine the evidence that were furnished for the first time before CIT(A). We therefore set aside the issue to the file of ld. CIT(A) for him to decide the issue afresh after considering the submissions of the Assessee and in accordance with law. - Decided in favour of Revenue for statistical purposes. Disallowance on account of depreciation, interest expenses, salary expenses etc. - Held that - while disallowing the claim, A.O has noted that there appear to be no business activity undertaken by the Assessee. We find that there is no finding of the A.O that the expenses that have been claimed by the Assessee are only with respect to his share of 6.25% of the profits which have been considered by ld. CIT(A). We are therefore of the view that the matter needs re-examination at the end of A.O. We therefore set aside the issue to the file of A.O to decide the issue afresh after giving an opportunity of hearing to the Assessee.- Decided in favour of Revenue for statistical purposes.

Issues Involved:
1. Validity of "Samjuti Karar" as a transfer document.
2. Deletion of addition made on account of 100% profit in the document price of land sold.
3. Deletion of disallowance of interest expenses.
4. Disallowance of loss on sale of land claimed by the appellant.
5. Deletion of disallowance of various expenses like depreciation, interest expenses, salary expenses, etc.

Detailed Analysis:

1. Validity of "Samjuti Karar" as a Transfer Document:
The Revenue contended that the Commissioner of Income-Tax (Appeals) [CIT(A)] erred in accepting the "Samjuti Karar" as a valid transfer document. The Assessee had entered into a "Samjuti Karar" transferring 25% of the land owned to three persons at 6.25% share each. The Assessing Officer (A.O.) considered the "Samjuti Karar" invalid, viewing it as a tax evasion strategy. However, the CIT(A) found no evidence to substantiate the A.O.'s claim of tax evasion, noting that the profit from the sale was reflected in the co-owners' returns and accepted by the Department. The CIT(A) directed the A.O. to consider the "Samjuti Karar" as a ratification of an agreement, thus recognizing the Assessee's share as 6.25%. The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere.

2. Deletion of Addition Made on Account of 100% Profit in Document Price of Land Sold:
The A.O. had added the entire 25% share of the sale proceeds to the Assessee's income, considering the "Samjuti Karar" invalid. The CIT(A) rejected this, stating the A.O. confused business income with capital gains and wrongly applied fair market value instead of actual sale value. The Tribunal supported the CIT(A)'s view that the "Samjuti Karar" was a valid document and the Assessee's share should be considered as 6.25%.

3. Deletion of Disallowance of Interest Expenses:
The A.O. disallowed Rs. 6,70,519/- claimed as interest expenses, stating the Assessee failed to prove the nexus between borrowed funds and business income. The CIT(A) found that the Assessee had added back the interest expense under 'Income from business & profession' and claimed it under 'Income from other sources'. The CIT(A) accepted the Assessee's explanation and directed the deletion of the disallowance. However, the Tribunal noted that additional evidence was not confronted to the A.O. and remanded the issue back to the CIT(A) for re-examination.

4. Disallowance of Loss on Sale of Land Claimed by the Appellant:
The Assessee claimed a loss of Rs. 2,60,130/- on the sale of land, which was disallowed by the CIT(A). The Tribunal upheld the CIT(A)'s decision, finding no reason to interfere with the disallowance.

5. Deletion of Disallowance of Various Expenses:
The A.O. disallowed Rs. 14,32,167/- claimed by the Assessee for various expenses, citing no business activity. The CIT(A) found the Assessee had ongoing business activities and allowed the expenses. The Tribunal remanded this issue back to the A.O. for re-examination, noting the need for a detailed review of the Assessee's business activities and the justification of the claimed expenses.

Conclusion:
The Tribunal partly allowed the Revenue's appeals for statistical purposes and dismissed the Assessee's cross-objections. The Tribunal directed re-examination of certain issues by the CIT(A) and A.O., emphasizing the need for proper substantiation and adherence to legal procedures.

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