Tribunal Overturns Income Addition of Rs. 34,75,731 & Orders Exclusion of Rs. 80,717 from Book Profits for Tax Compliance.

The Tribunal allowed the assessee's appeal, deleting the addition of Rs. 34,75,731/- made under Section 50D of the Income Tax Act, 1961, as it found the authorities erred in applying this provision without proper inquiry. Additionally, the Tribunal directed the AO to exclude the disallowance of Rs. 80,717/- under Section 14A from the computation of book profit under Section 115JB, aligning with established judicial precedents.

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Issues Involved:

1. Addition of Rs. 34,75,731/- on account of deemed capital gains by invoking the provisions of Section 50D of the Income Tax Act, 1961.
2. Disallowance of Rs. 80,717/- under Section 14A of the Income Tax Act, 1961, and its inclusion while computing book profit under Section 115JB.

Issue-Wise Detailed Analysis:

1. Addition of Rs. 34,75,731/- on Account of Deemed Capital Gains by Invoking Section 50D:

The primary issue in Ground No. 1 revolves around the addition of Rs. 34,75,731/- made by the Assessing Officer (AO) and confirmed by the Commissioner of Income Tax (Appeals) [CIT(A)] due to deemed capital gains by invoking Section 50D of the Income Tax Act, 1961. The assessee, a company engaged in investment in securities, lending, and sale of property, had transferred the rights to purchase two flats to third parties before taking possession. The AO invoked Section 50D, arguing that the consideration for the transfer was not ascertainable from the self-made affidavits provided by the assessee, which did not mention any consideration. The AO adopted the fair market value from the "Magic Bricks" website to compute the capital gains.

The assessee contended that the consideration for the flats was ascertainable from the accounts of the transferees and had been declared in its return of income. The CIT(A) upheld the AO's decision, stating that there was no cogent material evidence to support the assessee's claim.

Upon appeal, the Tribunal noted that the assessee had produced copies of accounts of the transferees showing the agreed sale consideration for the flats. The Tribunal found that the authorities below had erred in invoking Section 50D without making any inquiry with the transferees. The Tribunal concluded that the provisions of Section 50D were not applicable in this case and deleted the addition of Rs. 34,75,731/-.

2. Disallowance of Rs. 80,717/- Under Section 14A and Its Inclusion While Computing Book Profit Under Section 115JB:

The second issue in Ground No. 2 pertains to the disallowance of Rs. 80,717/- under Section 14A of the Income Tax Act, 1961, and its inclusion while computing the book profit under Section 115JB. The assessee sought relief, arguing that the disallowance under Section 14A should not be added while computing the book profit under Section 115JB.

The Tribunal noted that this issue is covered by various judicial pronouncements, including the decision of the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investment (P) Limited. The Tribunal directed the AO to delete the addition made on account of disallowance under Section 14A while computing the book profit under Section 115JB.

Conclusion:

The appeal of the assessee was allowed, with the Tribunal deleting the addition of Rs. 34,75,731/- made under Section 50D and directing the AO to exclude the disallowance of Rs. 80,717/- under Section 14A from the computation of book profit under Section 115JB. The order was pronounced in the open Court on December 18, 2020.

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