Development right can't be held as investment merely on the basis of accounting treatment given at time of purchase

-
 
Development right can't be held as investment merely on the basis of accounting treatment given at time of purchase
The assessee was engaged in undertaking contract work relating to development of real estate project. He purchased development rights of a project which were sold to a sub-contractor through a MOU. Receipts arising from sale of development rights were treated as business income and credited to the profit and loss (P&L) account. Expenses against such income were also debited to the P&L account.
Assessing Officer (AO) observed that the purchase of development rights was shown as investment in the balance sheet. Said transaction was not routed through P&L account as stock-in-trade. Thus, he observed that said income was a capital receipt assessable under the head ‘capital gain’. The CIT(A) confirmed the additions made by the AO.
On further appeal, the ITAT held that what the assessee had acquired from the owner of land was development rights not the ownership of land, which, in turn, were transferred to the sub-developer. Merely because the assessee had not routed the purchase of such rights through P&L account, it couldn’t be the sole factor in determining whether it would be treated as investment or stock-in-trade.
It is well settled that accounting treatment in the books of account is not sacrosanct. Therefore, assessee’s claim had to be considered after taking into account other relevant facts and materials including the nature of business carried on by him. Since the AO and CIT(A) had neither appreciated the assessee’s submissions nor examined all the facts and materials and had merely harped upon the accounting treatment given by the assessee, the issue was to be restored to AO for fresh adjudication after giving due opportunity of being heard to the assessee.

Comments

Post a Comment

Popular posts from this blog

Regarding availment of benefits under Vera Samadhan Yojana - 2019 (Tax Settlement Scheme) for pending dues

-
In order to recover pending dues and reduce litigations, the Govt.of Gujarat has announced Vera Samadhan Yojana - 2019 dated 06th December, 2019. The Scheme has been revised to make it more inclusive and liberal. The salient features of the scheme are as under - 1.              Inclusion of Sales Tax Act, Value Added Tax Act, Central Sales Tax Act, Motor Spirit Taxation Act,                           Entry Tax Act and Sugarcane Purchase Tax Act. 2.              Coverage of all transactions prior to 30/06/2017 regarding recovery of dues and litigations(appeals). 3.              Total set off of the amount paid before announcement of the scheme. 4.              Total remission of interest and penalty on payment of tax. 5.              Up to 5...
Read more

Benami Transactions (Prohibition) Amendment Act, 2016 cannot have retrospective effect: Calcutta HC

-
Ganpati Dealcom (P.) Ltd. v. Union of India -  [2019] 112 taxmann.com 367 (Calcutta) In 2011, appellant-writ petitioner purchased the property and sellers were diverse individuals. In 2017 after the Benami Transactions (Prohibition) Act, 1988 was amended by the Benami Transaction (Prohibition) Amendment Act, 2016 with effect from 25-10-2016, authority invoked section 24(1) and issued a notice to the appellant alleging that the said property was benami under section 2(8) of the said Act of 1988, as amended. It also alleged violation of section 2(9)(D) thereof and the consideration for this transaction was provided by "non-traceable fictitious/shell entities having no real business", rendering the transaction benami. The Calcutta High Court held that Benami Transactions (Prohibition) Amendment Act, 2016 was new legislation and in order to have retrospectivity, it should have been specifically provided therein that it was intended to cover contraventions at an earlier p...
Read more

Recording of satisfaction is mandatory before cancellation of trust's registration: HC

-
  Recording of satisfaction is mandatory before cancellation of trust's registration: HC St. Michaels Educational Association St. Michaels High School v. CIT  - [2019] 111 taxmann.com 242 (Patna) The assessee was an educational institution registered under section 12AA and was running a school. Ninety-five per cent of students admitted in school were non-Christians. After the lapse of more than 26 years, the commissioner (CIT) served a show cause notice on the assessee for cancelling its registration on the ground that the assessee was, in fact, espousing the cause of religion, in particular, i.e., Christians. It was not open for the benefit of the other communities. The CIT rejected the assessee’s registration. ITAT confirmed the order passed by the CIT. The Patna HC held that a plain reading of the impugned order confirmed that the Commissioner had got mixed up in between the stipulations warranting exercise under section 12AA(3) and section 13(1) (b) in so far as i...
Read more