2015 (10) TMI 1586 - AT - Income Tax

Receipt of advances - allowability of the expenses towards cost of land and development charges - CIT(A) held that as per accounting principles the true and correct income which could be taxed in the hands of the assessee company would be after deduction of relevant expenses as shown by the assessee only during first appellate proceedings - Held that - We note that the assessee raised the issue of allowability of the expenses towards cost of land and development charges in A.Y. 2005-06 during first appellate proceedings. We also note that the CIT(A) did not afford another opportunity to the AO to submit his remand report and to comment upon the merits of the claim, explanation and submission of the assessee which were not submitted during assessment proceedings. The AO was not allowed to comment upon said claim, explanation and submissions of the assessee on merits and the CIT(A) considered and accepted the same in contravention of Rule 46A(3) of the I.T. Rules, 1962. Thus this issue requires proper examination and verification at the end as to whether the land and development charges were included in the amount of liabilities which was assessed as income of the assessee for the year under consideration on the basis of statement of Shri Sunil Sharma the Director of the company recorded u/s 131. The AO shall also verify and examine that whether the amount of ₹ 1,07,87,357/- was not reconciled while computing the trading results of the assessee for A.Y. 2005-06. Therefore, the only issue raised by the Revenue in this appeal is restored to the file of AO for denovo adjudication - Decided in favour of assessee for statistical purposes.

Summary

Issues involved:
1. Appeal against CIT(A) order for A.Y. 2005-06.
2. Deletion of addition of Rs. 1,07,87,357 out of total addition of Rs. 1,67,64,815 by AO.
3. Consideration of expenses towards cost of land and development charges.
4. Compliance with Rule 46A(3)(i) of I.T. Rules, 1962.

Analysis:

Issue 1: Appeal against CIT(A) order for A.Y. 2005-06
The Revenue appealed against the CIT(A) order for the assessment year 2005-06, challenging the correctness of the order on legal grounds. The appeal raised concerns about the validity and compliance of the CIT(A) order with the provisions of the law.

Issue 2: Deletion of addition of Rs. 1,07,87,357 out of total addition of Rs. 1,67,64,815 by AO
The Revenue contended that the CIT(A) erred in deleting the addition of Rs. 1,07,87,357 out of the total addition made by the Assessing Officer (AO) without proper basis or consideration of relevant facts. The AO's assessment was based on the statement of the company's Director, indicating the cessation of a liability which was voluntarily offered as income. The Revenue argued that the CIT(A) did not adequately assess the submissions made by the assessee during the assessment proceedings, leading to an incorrect deletion of the addition.

Issue 3: Consideration of expenses towards cost of land and development charges
The assessee raised the issue of the allowability of expenses related to the cost of land and development charges during the first appellate proceedings. The CIT(A) accepted these submissions without affording the AO an opportunity to provide a remand report or comment on the merits of the claim. This contravened Rule 46A(3) of the I.T. Rules, 1962. The Tribunal noted the necessity for a proper examination and verification of whether the land and development charges were included in the assessed income and if the expenses were correctly accounted for in the trading results for the relevant assessment year.

Issue 4: Compliance with Rule 46A(3)(i) of I.T. Rules, 1962
The Tribunal highlighted the importance of compliance with Rule 46A(3) of the I.T. Rules, 1962, which requires due consideration of submissions and explanations made by the assessee during assessment proceedings. The failure to afford the AO an opportunity to address new claims during the appellate proceedings was noted as a violation of this rule.

In conclusion, the Tribunal allowed the appeal for statistical purposes, directing the restoration of the issue to the AO for a fresh adjudication after providing the assessee with a due opportunity to be heard. The decision emphasized the need for proper verification and examination of the relevant facts concerning the expenses and income assessment for the year under consideration.