While dismissing the appeal by Cuttack Development Authority, Cuttack bench of Income Tax Appellate Tribunal (ITAT) recently held that receipts on account of transfer fees and stamp duty would constitute capital receipts.
Assessee in the instant case is a local body authority and filed its return of income for the relevant assessment year and declared total income as nil.
Thereafter the assessment was completed under section 143(3) of the Income Tax Act 1961 in the status of artificial judicial person determining the total income as Nil after setting off of brought forward losses.
On verification of records the Commissioner of Income tax (CIT) has noticed that the Assessee had debited Rs. 3,50,00,000 in the profit and loss account towards premium. Further he noticed that there was neither any sale proceed of land was credited nor the premium value of the land was disclosed as the closing stock in the profit & loss account of the Assessee. He was of the opinion that the land was disclosed as the closing stock.
The CIT was of the opinion that the land premium paid and debited to profit and loss account is not revenue expenditure but a capital expenditure and hence the same is not admissible for deduction under section 37(1) of the Act and the AO was failed to examine the same deeply. Accordingly considered the assessment under section 143(3) of the Act is erroneous and he issued show cause notice under section 263 of the Act to the Assessee for detailed explanations regarding the land premium.
In response the Assessee submitted that the land premium of Rs.3,50,00,000 was paid to the Government of Odisha towards enhanced cost of land for the lands already acquired in earlier years and the lands were already sold to different persons. Therefore, no lands were left to be shown as closing stock.
However the CIT held that premium paid for land is termed as capital expenditure hence, he in exercise of his power conferred under section 263 of the Act, set aside the assessment order and restored the same to the file of the Assessing Officer with a direction to redo the assessment after affording reasonable opportunity of hearing to the assessee.
Aggrieved by the order of the Officer the Assessee approached the Tribunal on appeal.
After analyzing the above narrated facts and circumstances of the issue the Tribunal bench comprising of Judicial Member Pavan Kumar Gadale and Accountant Member N.S Saini observed that “In the present case, the CIT has directed the Assessing Officer to make necessary examination regarding the extent of land acquired by the assessee with reference to which land premium of Rs.3,50,00,000/- was demanded and rate at which said land was acquired and to whom the lands were sold and land premium was received and such receipts on account of transfer fees and stamp duty would constitute capital receipts”.
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