M/S ONE WORLD VENTURES ,BANGALORE vs. ASSISTANT COMMISSIONER OF INCOME TAX CIRCLE-4(3)(1), BANGALORE

O R D E R

PER SHRI PAVAN KUMAR GADALE, JM :

3. The Brief facts of the case are that, the assessee is a partnership firm engaged in the business of development of real estate, purchase and sale of land and other related activities. The assessee has filed the return of income electronically on 26.09.2013 with total income of Rs.30,45,190/-.Subsequently, the case was selected for scrutiny and Notices under Section 143(2) and 142(1) of the Act were issued. In compliance, the ld. AR of the assessee appeared from time to time and furnished the details and the case was discussed. The Assessing Officer on perusal of the Profit and Loss Account found, that the assessee has claimed an expenditure of Rs.95lakhs as advance made for purchase of property forfeited. The Assessing Officer called for the Agreement of Sale and found that the assessee has agreed to purchase a property at Rajajinagar, Bangalore along with commercial building for a consideration of Rs.3,95,00,000/-. Out of the said amount Rs.95 lakhs was paid as advance. The Assessing Officer has issued summons to seller of the property Mr. Mukesh Kumar to furnish the return of income for the Assessment Year 2013- 14. Whereas, the Assessing Officer found that the seller of the property has not disclosed this advance receipt for income tax. Further, Show cause notice was 12.02.2016 referred at Para 4.2 of the assessment order. The observations of the assessing officer are that the transaction has to be treated as Capital Asset and forfeiture loss cannot be allowed as deduction. Whereas the submissions made before the Assessing Officer are that the assessee firm intents to resale the property in the course of business for higher rate and not to hold as fixed asset but due to the financial constrains and fall in the real estate business, the assessee was not in a position to purchase the property and accepted the fact that the advance paid could not be recovered. The Assessing Officer has emphasized that the transaction of purchase of property is a capital asset and will not fall within the provisions of Sections 30 to 37 of the Act and further observed that the main business of the assessee is in construction of flats and residential houses and not buying commercial complexes and the transaction is not in the normal course of business and hence has to be capitalized and made disallowed claim of expenditure of Rs.95 lakhs and assessed the total income of the assessee at Rs.1,25,45,190/- and passed the order under Section 143(3) of the Act dt.12.03.2016.

Aggrieved by the order, the assessee has filed an appeal with the CIT (Appeals). The CIT (Appeals) considered the grounds of appeal, statement of facts and assessee submissions dt.13.03.2018 referred at para 5.2 of the order and observed in page 10 at para 5.3 that the assessee has not made serious efforts to recover the forfeited amount paid to the seller and the expenditure was claimed in profit and loss account as advance forfeited for purchase of property. Further, the decisions relied on by the assessee are not applicable to the case and confirmed the action of the Assessing Officer and dismissed the assessee appeal. Aggrieved by the order of CIT (Appeals), the assessee has filed an appeal with the Tribunal.

4. At the time of hearing, the learned Authorized Representative submitted that the CIT (Appeals) has erred in confirming the addition overlooking the facts which goes to the roots of the case. The learned Authorized Representative has substantiated his arguments with Paper Book and judicial decisions and emphasized that the transaction entered by the assessee firm was intend to make profit out of the sale and not to keep as a fixed asset and demonstrated with copy of partnership deed, where the objects of the assessee business are referred. The contention of the ld.AR that the assessee has submitted the details before the CIT (Appeals), whereas the CIT (Appeals) has not appreciated the facts on the nature of business of the assessee nor on the transaction lead to forfeiture of the advance amount and prayed for allowing the appeal. Contra, the ld. DR relied on the orders of lower authorities.

5. We heard the rival submissions and perused the material on record. The sole matrix of the disputed issue that the ld. CIT (Appeals) has upheld the addition

Assessing Officer, where the advance paid for the purchase of property was forfeited and claimed as deduction in the profit and loss account. The learned Authorized Representative referred to page 27 of paper book were copy of the partnership deed dt.2.3.2009 was filed and at clause 3 the nature of business carried by the firm, was also in purchase and sale of land or any other real estate. Whereas in the present case, the assessee has intended to purchase property for a consideration of Rs.3,95,00,000/- out of the said amount of Rs.95 lakhs was paid by the assessee which is not disputed by the Assessing Officer and the balance of Rs.3 Crores has to be paid as per the Agreement of Sale referred at page 32 of the Paper Book on or before 20.02.2013. The learned Authorized Representative referred to the page 33 of the Paper Book, where the profit and loss account discloses the advance for purchase of property forfeited and also referred to the sequence of events, from the date of advance amount till the cancellation of sale agreement. Further The Ld. AR referred to the legal opinion and the Notice sent by the seller of the property for payment of balance consideration. The assessee firm has sought legal opinion on Agreement of Sale and also reply was submitted by the assessee to the seller referred at pages 45 to 51 of the Paper Book, further the assessee never intended to hold the property but due to adverse market conditions and financial difficulties has to cancel the agreement referred to pages 52 to 55 of the Paper Book. The learned Authorised Representative relied on the Prin. CIT Vs. Khyati Realtors (P) Ltd reported in 108 taxmann.com 449 (Bom). The learned Authorised Representative contentions that the Hon'ble Court has considered the efforts made by the assessee and could not get the refund and observed that it is a nature of business loss and and confirmed the Tribunal decision in allowing as business loss. Similarly, the ld. AR also relied on judicial decisions which were dealt by CIT(A). The learned Authorised Representative has been emphasizing that the transactions entered by the assessee is not for retaining the asset but for the sale at higher profit. We on perusal of the facts and observations of the CIT (Appeals) and Assessing Officer found that the facts which are narrated before the Tribunal and sequence of events as referred by the assessee at pages 5 to 7 of the Paper Book, do not find a place in the assessment order and there is no clarity with respect to details. The 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. Accordingly, we remit the disputed issues for limited purpose to the file of assessing officer to verify and examine the evidences and consider the claim of the assessee as per law. Further the assessee should be provided adequate opportunity of hearing and shall co-operate in submitting the information and we allow the grounds of appeal of the assessee for statistical purposes.