2019 (1) TMI 262 - AT - Income Tax

Capital gain for termination of lease and vacating the premises - Subsequently, the assessee claimed before the AO that it was for sale of marbles and what was received is an advance - Held that - The claim of the assessee that what was received is for vacating the premises appears to be true. Therefore, the amount received for termination of lease and vacating the premises is a capital gain and the assessee admittedly offered the same as a capital gain and paid the taxes. In those circumstances, this Tribunal is of the considered opinion that there is no justification for the authorities below to assess the entire receipt of ₹ 45,00,000/- as income from other sources . Even if undertake the receipt as advance for sale of the marbles, this Tribunal is of the considered opinion that unless and until the sale of marbles is concluded by deliver of the marbles, the advance cannot be treated as income of the assessee during the year under consideration. Moreover, what was to be assessed as income is only the profit element embedded in it and not the entire sale consideration. Assessing the entire amount of ₹ 45,00,000/- as income from other sources is not correct. Accordingly, the order of both the authorities below are set-aside and addition of ₹ 45,00,000/- is deleted. - Decided in favour of assessee.

Summary

Issues:
1. Treatment of receipt as advance for purchase of marbles.
2. Contradictory statements by the assessee.
3. Assessment of receipt as income from "other sources."

Analysis:
1. The appeal concerned the treatment of a receipt of ?45,00,000 as an advance for the purchase of marbles. The assessee, engaged in trading marbles, initially offered the amount as Long Term Capital Gains but later claimed it was an advance. The AO considered it as an advance, leading to a dispute.

2. The assessee had made contradictory statements regarding the nature of the receipt, initially claiming it was for vacating a flat and later stating it was an advance for selling marbles. The AO assessed the entire amount as the assessee's income from "other sources" due to these contradictions. The CIT(A) upheld the AO's decision based on the conflicting statements.

3. The Tribunal, after multiple rounds of litigation, considered the circumstances and the absence of Mr. Naren Rajan for cross-examination. The Tribunal found that the initial claim made by the assessee, that the receipt was for vacating premises, appeared to be true. Therefore, the amount was treated as a capital gain, as declared by the assessee, and not as income from "other sources." The Tribunal emphasized that unless the sale of marbles was completed, the advance could not be considered income. Only the profit element, not the entire receipt, should be assessed as income. Consequently, the Tribunal set aside the orders of the lower authorities and deleted the addition of ?45,00,000.

In conclusion, the Tribunal allowed the appeal filed by the assessee, ruling in favor of the assessee and emphasizing the importance of considering the initial statement made in the interest of justice.