2013 (11) TMI 1317 - AT - Income Tax

Tribunal rules in favor of assessee on income, compensation issues. Reexamination ordered for bad debt claim.

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal. The Tribunal upheld the CIT(A)'s decisions on the issues related to ... Classification of head of Income i.e. “income from house property” or “income from other sources” – Held that:- There was no letting of any machinery, plant or furniture belonging to the assessee. Once this finding of fact is not controverted, then there can be only one conclusion that letting of building which has certain amenities for which no separate charges are being recovered by the assessee would be liable to tax under the “income from house property” - A.O. in prior years has himself taxed the rental income of DLF Centre as “income from house property” and no changes in the facts and circumstances of the case are discernible in the year under review - Deduction of depreciation and annual repairs would be allowed to the assessee - CIT(Appeals) is correct in holding that the income from DLF Centre should be held under the head “Income from house property” – Decided against the Revenue. Addition on account of enhanced compensation received on acquisition of land – Held that:- Judgment of the Hon’ble High Court has been followed in assessee’s own case[1981 (12) TMI 21 - DELHI High Court] - Compensation received by the assessee on acquisition of agricultural land was exempt - It is only the enhanced compensation received this year against the acquisition of same land - Its nature cannot be different than the original compensation received by the assessee – Exemption allowed on the enhanced compensation on land – Decided against the Revenue. Recovery of Bad-Debts to be taxable u/s 41(1) of the Income Tax Act - Maintenance charges paid by the assessee on behalf of RPG Home Finance Pvt.Ltd. were debited to the account of RPG Home Finance Pvt.Ltd. in the earlier year. Since they defaulted in making the payment of even the purchase price of the property, the amount debited as maintenance charges to them was treated as bad debt in the year under consideration - Subsequently, a compromise took place and RPG Home Finance Pvt.Ltd. not only made the payment of outstanding purchase consideration but also of the outstanding maintenance charges – Held that:- Maintenance charges have been offered as income in AY 2005-06. Thus, at one hand, when the assessee has claimed the maintenance charges as bad debt, the same is disallowed and when it is recovered, it is treated as income. It would be double jeopardy because in AY 2005-06, the recovery of the maintenance charges can be taxed under Section 41(1) only if the deduction for the maintenance charges is allowed in the year under consideration – Decided against the Revenue. Disallowance on account of writing off of balance due from a wholly owned subsidiary set up for the proposed hotel project at DLF City, Gurgaon, which was subsequently abandoned by the company - Expenditure written off was claimed as allowable expense u/s 36(1)(vii) of the Act – Held that:- The expenditure was not incurred by the assessee but by M/s DLF Infrastructure, a subsidiary company of the assessee. Further, the expenditure was in respect of an entirely new project, that too, incurred in the earlier year - Amount cannot be allowed as a bad debt also because it was never reflected as income in the profit & loss account. Issues Involved:1. Deletion of addition on account of disallowance under the head income from house property.2. Deletion of addition on account of disallowance of compensation received on land.3. Disallowance of bad debts claimed under sections 36(1)(vii)/37 of the Income Tax Act.4. Disallowance of expenses written off due to abandonment of a hotel project.Detailed Analysis:1. Deletion of Addition on Account of Disallowance Under the Head Income from House Property:The Revenue's appeal contested the deletion of an addition of Rs. 3,44,68,188/- made by the Assessing Officer (AO) under the head 'income from house property.' The Tribunal found this issue to be covered in favor of the assessee by the decision in the assessee's own case for the Assessment Year (AY) 1996-97. The Tribunal had previously determined that there was no letting of machinery, plant, or furniture belonging to the assessee, and the rental income from the building should be taxed under 'income from house property.' The Tribunal upheld the CIT(A)'s order, rejecting the Revenue's appeal on this ground.2. Deletion of Addition on Account of Disallowance of Compensation Received on Land:The Revenue's second ground pertained to the deletion of an addition of Rs. 4,58,962/- made by the AO regarding enhanced compensation received on the acquisition of agricultural land. The Tribunal noted that this issue had arisen in an earlier year, where both the Tribunal and the Hon'ble High Court had held such compensation to be exempt as it was from the acquisition of agricultural land. Since the enhanced compensation was of the same nature, the Tribunal upheld the CIT(A)'s order, rejecting the Revenue's appeal on this ground as well.3. Disallowance of Bad Debts Claimed Under Sections 36(1)(vii)/37 of the Income Tax Act:The assessee's appeal contested the disallowance of Rs. 79,76,437/- claimed as bad debts. The Tribunal noted that the assessee had paid maintenance charges to a maintenance company, which were initially debited to the account of the buyer (RPG Home Finance Pvt. Ltd.) and later written off as bad debts. The Tribunal found that the matter needed reexamination by the AO to ensure a consistent view. If the bad debt claim is disallowed in the current year, the recovery in AY 2005-06 cannot be treated as income; conversely, if the claim is allowed, the recovery should be treated as income. The Tribunal set aside the order and restored the matter to the AO for a consistent decision.4. Disallowance of Expenses Written Off Due to Abandonment of a Hotel Project:The assessee also contested the disallowance of Rs. 8,38,271/- written off as expenses incurred on a proposed hotel project that was subsequently abandoned. The CIT(A) had disallowed the expense, noting that it was a capital expenditure incurred for a new venture and not related to the assessee's regular business. The Tribunal agreed with the CIT(A)'s findings, stating that the expenditure was incurred by a subsidiary company and was related to a new project. Furthermore, the amount could not be allowed as a bad debt since it was never reflected as income. The Tribunal sustained the CIT(A)'s decision and rejected the assessee's appeal on this ground.Conclusion:The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal, directing a reexamination of the bad debt claim by the AO to ensure consistency. The Tribunal upheld the CIT(A)'s decisions on the other issues, affirming the deletion of additions related to income from house property and compensation received on land while disallowing the expenses related to the abandoned hotel project. The decision was pronounced in the open Court on 8.3.2013.