2015 (5) TMI 905 - AT - Income Tax

ITAT Decision: Disallowed Expenses, Land Transaction Income, Section 153C Jurisdiction Challenged

The ITAT allowed both Revenue's appeal and the Assessee's Cross Objections for Assessment Year 2008-09. The disallowance of expenses under Section 40A(3) ... Difference between the income declared - Disallowance u/s 40A(3) OR Section 37(1) - assessee has also challenged the jurisdiction invoked under Section 153C - Held that:- it would be in the interest of justice and equity if the matter of assessment is restored to the file of the Assessing Officer, who shall consider the aforesaid issues afresh and pass orders in accordance with law after affording the assessee adequate opportunity of being heard and to file details and submissions required. We make it absolutely clear that the assessee is at liberty to urge all contentions before the Assessing Officer including the validity of assumption of jurisdiction under Section 153C of the Act by the Assessing Officer and similarly the Assessing Officer is also at liberty to cause such enquiry to be made as is required to arrive at the proper determination of income on the facts and circumstances of the case. The Assessing Officer shall, thereafter, pass the order of assessment afresh being uninfluenced by any of the earlier orders and shall conclude the proceedings in accordance with law. It is ordered accordingly. - Decided both in favour of assesse and revenue for statistical purposes. Issues:1. Disallowance of expenses under Section 40A(3) of the Income Tax Act2. Assessment of income from land transaction as business income3. Jurisdiction invoked under Section 153C of the ActIssue 1: Disallowance of expenses under Section 40A(3) of the Income Tax Act:The case involved an individual engaged in land development and works contract, who declared income for Assessment Year 2008-09. The Assessing Officer made additions to the income, including disallowance of expenses under Section 40A(3) amounting to Rs. 1,84,50,000. The CIT (Appeals) partially allowed the appeal, deleting the addition of Rs. 1 Crore and the protective addition towards capital gains, but disallowed Rs. 1,84,50,000 under Section 40A(3) due to cash payments to tenants. The Revenue appealed against this disallowance, arguing that the expenses were not allowable under Section 37(1) as the genuineness was not proven.Issue 2: Assessment of income from land transaction as business income:The Assessing Officer assessed the income from the sale of land as business income, rejecting the assessee's claim for capital gains treatment. The CIT (Appeals) upheld the business income treatment, deleting certain additions and disallowing expenses under Section 40A(3). The ITAT agreed that the income should be assessed as business income, considering the nature of the assessee's business as purchase and sale of land. The difference in income declared in original and revised returns was primarily due to the disputed expenses, contested by both Revenue and Assessee.Issue 3: Jurisdiction invoked under Section 153C of the Act:The assessee challenged the jurisdiction invoked under Section 153C of the Act through additional grounds of appeal, which were admitted. The ITAT decided that the matter of assessment should be restored to the Assessing Officer for fresh consideration, allowing both parties to present their contentions. The Assessing Officer was directed to pass orders in accordance with law after affording the assessee an opportunity to be heard, especially regarding the validity of jurisdiction under Section 153C.In conclusion, the ITAT allowed both Revenue's appeal and the Cross Objections of the Assessee for Assessment Year 2008-09 for statistical purposes. The ITAT also dismissed the Stay Petition as the appeal and Cross Objections had been disposed of. The assessment was ordered to be reconsidered by the Assessing Officer to address the disputed issues and ensure proper determination of income in accordance with law.