The Income Tax Appellate Tribunal (ITAT), Delhi bench, while directing the matter of the assessee for readjudication, held that prior period income from the sale of property shall be chargeable to tax in the year in which the sale was undertaken.
The assessee, Economical Credit & Construction Co. Pvt. Ltd., has credited an amount of Rs. 1,06,70,000/- and claimed expenses at Rs. 76,91,960/-, disclosing a profit at Rs. 29,48,895/-.
During the assessment proceedings, the AO noted that the assessee sold but did not account for the transaction in the FY ended on 31.03.2007, i.e., 2006-07.
During assessment proceedings, the Assessing Officer made verification by issuing a notice u/s. 133(6) of the Act to the purchaser as well as the bank and found that no sale deed was executed by the appellant during the AY 2012-13, and no amount was found received from the purchaser in the bank of the appellant.
The Assessing Officer thus concluded that since the income did not pertain to the year under consideration, it did not allow expenses against the income and treated the amount credited by the assessee in its P&L account as income from other sources and held that “Prior Period Income shall be chargeable to tax in the year under appeal.”
Aggrieved by the order, the assessee filed an appeal before the CIT(A) who confirmed the disallowance. Thus, the assessee filed a second appeal before the tribunal.
During the proceedings, Neelesh Kumar Jain, Counsel for the assessee, argued that income accrued to the assessee should be taxed in the year of accrual of income and not in the other year as per the choice of the Assessing Officer.
Vipul Kashyap, Counsel for Revenue, supported the order of the assessing officers.
The Tribunal, while considering the appeal, observed that the transaction of the sale of property was undertaken by the assessee during FY 2006-07, pertaining to AY 2007-08, but the assessee did not record the entry in the books of accounts and continuously showed the property in the balance sheet till AY 2012-13. The purchaser of the property also responded to said notice issued by AO that the company has not purchased any property from the above party (the assessee) during the financial year 2011-12.
The assessee submitted that due to the buyer’s failure to deposit the checks it received as payment—the instruments were lost—and the buyer’s failure to issue additional checks, pay orders, or drafts against the checks, it has not received payments from the buyer and has not provided the same level of income during the year of sale.
After reviewing the facts and records, the two-member bench of M. Balaganesh (Accountant member) and Chandra Mohan Garg (Judicial Member) observed that the assessee did not engage in a property or land sale transaction during AY 2012–13; however, by passing book entries only, the assessee documented book entries related to the property/land sale transaction, which was actually completed during AY 2007–08.
Therefore, the bench directed the AO to tax the income/profit accrued to the assessee from the sale of land/property in AY 2007-08.
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