2021 (1) TMI 120 - AT - Income Tax

Claim of expenditure u/s 37(1) - Cancellation of sale agreement - assessee has claimed an expenditure as advance made for purchase of property forfeited - AO treated the same as capital asset transaction u/s 2(14) - Advance paid for the purchase of property was forfeited and claimed as deduction in the profit and loss account - assessee never intended to hold the property but due to adverse market conditions and financial difficulties has to cancel the agreement - HELD THAT - From facts which are narrated before the Tribunal and sequence of events as referred by the assessee do not find a place in the assessment order and there is no clarity with respect to details. CIT (Appeals) has also observed that no evidence was filed before the lower authorities in respect of serious efforts made by the assessee. We on perusal of the legal notices and facts narrated by the assessee are of the opinion that these facts are not discussed by the Assessing Officer or the CIT (Appeals) and the assessee firm could substantiate serious efforts made for recovery of advance amount. We considering the principle of natural justice, shall provide one more opportunity to the assessee to substantiate with the evidence before the Assessing Officer. Assessee's appeal is allowed for statistical purposes.

Summary

Issues Involved:
Appeal against order of Commissioner of Income Tax, disallowance of expenditure, nature of transaction as capital asset, interpretation of provisions of Income Tax Act, treatment of transaction as business in nature, interest levy under section 234B, proceedings under section 271(1)(c).

Detailed Analysis:
1. The appellant, a partnership firm, appealed against the order of Commissioner of Income Tax (Appeals) under sections 143(3) and 250 of the Income Tax Act, 1961. The grounds of appeal included contentions regarding errors in passing the order, upholding disallowance of expenditure, misinterpretation of revenue nature, treating property acquisition as capital, misinterpretation of provisions of section 2(14), and more.

2. The case involved the appellant's business activities in real estate development, land purchase, and sale. The Assessing Officer disallowed an expenditure of ?95 lakhs claimed as an advance for property purchase, considering it a capital asset. The appellant's submissions highlighted the intent to resell the property for profit, not as a fixed asset. The Assessing Officer's decision was based on the property transaction being capital in nature, not falling under business provisions of the Act.

3. The CIT (Appeals) upheld the Assessing Officer's decision, stating the appellant did not make serious efforts to recover the forfeited amount. The appellant argued that the transaction aimed at profit-making, not asset retention. The Tribunal found discrepancies in the assessment order, lack of clarity on details, and insufficient consideration of the appellant's submissions. To uphold natural justice, the Tribunal remitted the issue to the Assessing Officer for further examination based on evidence provided by the appellant.

4. The Tribunal allowed the appellant's appeal for statistical purposes, emphasizing the need for a fair opportunity for the appellant to substantiate their claims. The decision aimed to ensure proper examination of the evidence and compliance with legal provisions in determining the nature of the transaction and related deductions.

5. In conclusion, the Tribunal's judgment focused on procedural fairness, the nature of the transaction, and the proper interpretation of legal provisions under the Income Tax Act. The decision highlighted the importance of providing adequate opportunities for parties to present evidence and arguments in tax disputes to ensure a just and thorough examination of the issues involved.