2016 (7) TMI 761 - HC - Income Tax

Claim of expenditure of the amount forfeited by the Seller for non-fulfillment of the purchase agreement - ITAT deleted the addition - Held that - The sale agreement between the respondent-assessee and his vendor M/s. Emtech Solution (P) Ltd. is collusive. We find that the CIT (A) as well as the Tribunal have rendered concurrent findings of fact that the parties had entered into agreement which was genuine. In fact, the vendor M/s. Emtech Solutions (P) Ltd. had itself confirmed the transaction and also of having received the sum of ₹ 2.40 crores from the respondent. The transaction could not be completed as a ready buyer one Mr. Gandhi had withdrawn his offer to purchase the subject property. The further cheques issued by the respondent had been dishonoured, which led the respondent to permit forfeiting the advance/part payment. In respect of the manner in which the vendor has shown the receipt, we asked Mr. Pinto whether it has shown its receipt on capital account to avoid paying taxes. Mr. Pinto responded by stating he is not aware. In any case it is a settled position that nature of receipt in the hands of the payee will not determine the nature of payment i.e. capital or revenue in the hands of the payer. The respondent assessee is dealer in immovable property and it is for a businessman to decide the manner in which he should conduct his business and take steps which are in the best interest of his business. A mere loss in a venture does not mean that the transaction is not genuine. Therefore, the revenue has not been able to show that the findings of fact rendered by the CIT (A) and the Tribunal are perverse and/or arbitrary. - Decided against revenue

Summary

Issues:
Challenge to order of Income Tax Appellate Tribunal regarding addition of expenditure claimed as compensation charges.

Analysis:
1. The respondent, a dealer in immovable property, filed a return declaring income and claimed expenditure of ?2.40 crores under compensation charges for the subject assessment year. The respondent had entered into an agreement to purchase property but failed to make subsequent payments, resulting in forfeiture of ?2.40 crores. The Assessing Officer disallowed the compensation, leading to its addition to the respondent's income.

2. The Commissioner of Income Tax (Appeals) [CIT (A)] found the transaction genuine based on verification of property title, published advertisement, and confirmation of receipt by the vendor. The CIT (A) allowed the claimed expenditure, leading to the respondent's appeal being allowed.

3. The revenue appealed to the Tribunal, which upheld the CIT (A) order. The Tribunal noted that the vendor had served notice regarding dishonored cheques before forfeiture, and the respondent agreed to forfeiture to avoid litigation. The Tribunal confirmed the transaction's genuineness based on vendor confirmation.

4. The revenue contended that the agreement was collusive to enable the respondent to claim expenditure while the vendor showed receipt on capital account. However, the High Court found no evidence of collusion. Both the CIT (A) and the Tribunal concluded the agreement was genuine, with the vendor confirming the transaction and receipt of ?2.40 crores. The High Court emphasized that the nature of receipt does not determine the nature of payment for the payer.

5. The High Court dismissed the appeal, stating that the revenue failed to show perversity or arbitrariness in the findings of the lower authorities. It was noted that a businessman can decide the conduct of business in their best interest, and a loss in a venture does not render a transaction non-genuine. The court found no substantial question of law arising from the case.

Conclusion:
The High Court upheld the lower authorities' findings, dismissing the revenue's appeal and emphasizing the genuineness of the transaction despite the revenue's contentions of collusion. The court highlighted the importance of business decisions and the lack of evidence to challenge the lower authorities' conclusions.