The assessee, M/s. K.B. Developers is a partnership firm which is engaged in the business of real estate. The original partnership firm consisted of 18 partners, out of which 10 partners retired. The assessee-firm filed its e-return of income for the assessment year 2013-14 declaring its taxable income of Rs.12,21,75,410/-. The case was selected for scrutiny assessment.
The Assessing Officer completed the assessment under section 143(3) of the Act on 31.03.2016 determining the total income of the assessee at Rs.22,30,85,410/-, inter alia, making addition of Rs.9,92,00,000/- on the ground that it was a bogus loss and also disallowing a commission of Rs.17,10,000/- connected to this issue of bogus loss.
The assessee had declared long-term capital gains of Rs.22,28,28,000/- under section 45(4) of the Act. The Assessing Officer brought it to tax as business income under the head “income from business” and charged income tax at the normal rates. Being aggrieved, the assessee carried the matter in appeal. The first appellate authority allowed the business loss claimed by the assessee of Rs.9,92,00,000/- and also allowed the claim of commission expenditure of Rs.17,10,000/-. On the issue as to under which ‘head of account’ is the amount of Rs.22,28,28,000/- chargeable to tax, the CIT(Appeals) held that this amount is chargeable to tax under the head of ‘long-term capital gains’ and directed the Assessing Officer to apply the tax rate applicable to long-term capital gain, to this income.
The coram of A.T. Varkey and J. Sudhakar Reddy held that the assessee is engaged in the business of real estate and that these payments were made in the course of business and that the earnest money was forfeited resulting into business loss of the assessee.
The tribunal upheld the order of the CIT (Appeals) on this issue and dismissed this disallowance of commission of Rs.17,10,000.Subscribe Taxscan AdFree to view the Judgment