2023 (2) TMI 642 - AT - Income Tax

Tribunal overturns CIT(A) decision on expense disallowance & property valuation, stresses verification & compliance.

Perfect Press Private Limited Versus Income Tax Officer Ward 19 (4) New Delhi.

The Tribunal set aside the CIT(A)'s orders in a case involving disallowance of expenses during a temporary business suspension and addition under Section ... Capital loss on sale of property - Additions u/s 50C - Business Expenditure - claim disallowed as no business activity was carried out during the year - Disallowance of expenses incurred by the assessee to keep its corporate entity -HELD THAT:- Case of the assessee for its claim of loss is that the business activity of the assessee has been temporarily suspended. The assessee incurred the expenses on account of wages and salary to staff and other financial expenses related to the business in order to keep the corporate entity intact which is a going concern. Was it a case of temporary lull in the business requires verification? On the issue of addition u/s 50C the Ld. DR agreed that due procedure prescribed for valuation of FMV has not been followed. Lot of emphasis has been laid on interpretation of the word “may” occurring in section 50C(2) of the Act ignoring that the word “may” also be interpreted as “shall” if the context so requires. We are, therefore of the considered view that a fresh look needs to be given to both the issues. We, therefore set aside the order of the Ld. CIT(A) and restore both the issues to the file of the Ld. AO to decide them afresh in accordance with law after allowing adequate opportunity of hearing to the assessee. Appeal of the assessee is treated as allowed for statistical purposes. Issues:1. Disallowance of expenses incurred to maintain corporate entity during temporary suspension of business.2. Addition of differential amount under section 50C for property sold below stamp value.3. Discretion of AO to refer property for valuation under section 50C.Issue 1: Disallowance of Expenses during Temporary Suspension:The appeal challenged the disallowance of Rs. 25,39,908/- incurred by the assessee to maintain its corporate entity during a temporary suspension of business. The AO disallowed the loss claimed by the assessee due to the absence of business activity during the year. The CIT(A) upheld the disallowance. The Tribunal noted that the expenses were related to wages, salaries, and other financial costs to keep the corporate entity intact. The Tribunal deemed it necessary to verify whether it was a temporary lull in business. The order of the CIT(A) was set aside, and the issue was remanded to the AO for fresh consideration.Issue 2: Addition under Section 50C for Property Sold Below Stamp Value:The AO added Rs. 51,44,000/- to the income of the assessee under section 50C as the property was sold below the stamp value. The assessee contended that the sale was made at a lower price for genuine reasons. The assessee requested a valuation of the property under section 144A, but the direction was not clear. The CIT(A) upheld the addition, stating that it was at the discretion of the AO to refer the property for valuation. The Tribunal observed that due procedure for valuation of Fair Market Value (FMV) was not followed. The Tribunal emphasized that the word 'may' in section 50C(2) could be interpreted as 'shall' if contextually required. The order of the CIT(A) was set aside, and the issue was remanded to the AO for fresh adjudication.Issue 3: Discretion of AO to Refer Property for Valuation under Section 50C:The Tribunal noted that the AO did not follow the prescribed procedure for valuation of FMV under section 50C. The Tribunal highlighted the interpretation of the word 'may' in section 50C(2), emphasizing that it could be read as 'shall' if necessary. The Tribunal set aside the CIT(A)'s order and directed a fresh examination of both issues by the AO to ensure justice. The appeal was treated as allowed for statistical purposes.This detailed analysis of the judgment provides insights into the legal reasoning behind the decisions made by the Tribunal regarding each issue raised by the assessee.