The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) has held thatthe forfeiture of earnest money from OMDC is an expenditure and deleted the disallowance.
Vardhaman Axles & Wheels Pvt. Ltd, the assessee of the Assessment Year 2014-2015 is directed against the order passed under section 250 of the Income Tax Act, 1961by Commissioner of Income Tax (Appeal)-1, Kolkata [CIT(A)] dated 14.01.2020 arising out of the Assessment Order framed under section 143(3) of the Income Tax Act dated 30.06.2016.
A thorough review of an income tax return that has been filed by a taxpayer is a scrutiny assessment under Section 143(3). A scrutiny assessment aims to make sure that the taxpayer hasn’t understated their income, calculated an excessive loss, or underpaid their taxes in any other way.
The assessee alleged that CIT(A) grossly erred in confirming the addition of Rs.5,00,000/- made by the A.O. on account of forfeiture of Earnest Money Deposits by Orissa Minerals & Development Co. Ltd(OMDC). The lower authorities have denied the said deduction considering it as not for business purposes.
The ITAT viewed that the assessee gave a deposit to OMDC regarding Auction No. OMDC/65Lumd10-200/02/09-10 page 11 towards the sale of iron ore. However, since the assessee failed to lift the material against the allotment of the E-auction issued by OMDC, the earnest money deposit of Rs. 5 lahks was forfeited by OMDC vide letter dated 09.06.2010.
It was contended that the assessee was trying to recover the forfeited money from OMDC and when all the efforts of the assessee to recover the said forfeited money went in vain the said sum has been claimed as an expenditure.
A two-member bench comprising Sri Sanjay Garg, (Judicial) & Dr Manish Borad, (Accountant) held that the assessee has rightly claimed the expenditure of Rs. 5 lakh towards forfeiture of earnest money deposit by OMDC and deleted the said disallowance.
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