TaxTMI 
TaxTMI 
2014 (7) TMI 501
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....n appreciating the fact that the litigation has no impact on the accrual of income to the assessee)company as it follows mercantile system of accounting. 3. The assessee raised the following grounds of appeal: (i) The AO has erred in disallowing the expenditure u/s. 40(a)(ia) mentioning that the expenses attract TDS but in actual these expenses are not expenses for a contract and do not attract TDS. (ii) The AO has again erred in disallowing the travelling expenses which are directly related to the assessee's business. 4. Brief facts of the case are that during the course of assessment proceedings, the Assessing Officer (AO) found that the assessee company had entered into a development agreement with M/s. ECE Industries Ltd. for development of 67,824 square yards (sqy) of land in Sy. No. 74/P and 75/P situated at Borabanda, Hyderabad. For this, the assessee company was required to pay Rs. 30,50,36,525 as consideration for obtaining GPA rights. Out of this, Rs. 13.50 crores was towards reimbursement of cost, charges and taxes incurred on land and Rs. 16,72,00,000 towards site development, construction of boundary wall and other services provided by ECE Industries. The cost ....
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....d after construction of the flats. The AO, however, did not accept the argument put forth by the assessee)company. The AO held that the purchase and sale transactions were completed and the income accrued thereon is taxable on due basis since the assessee was following mercantile system of accounting. The AO referred to Accounting Standard)9 on revenue recognition. Since the assessee has transferred its rights to Janapriya vide agreement dated 25)1)2008, the AO was of the view that the revenue shall be recognised at the time of transfer of right. The AO referred to Clause No. 11 of the agreement and stated that the risk and rewards associated with the right to develop the property were transferred on 25.1.2008. The AO also observed that it may be reasonably expected that there is no uncertainty in ultimate collection in view of the fact that municipal approval for construction of the property had been obtained vide letter dated 6)1)2007 from Municipal authorities and also the construction had commenced and was going on in full swing. The AO, therefore, concluded that the income from business was to be taxed on the above transactions. 5. The AO also observed that the assessee compa....
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....x net as business income of the assessee. The AO in this regard observed that the amount is taxable since the assessee company is following mercantile system of accounting and since the purchase and sale with Janapriya Engineers is already complete. The AO also noted that the municipal approval for construction had been obtained from Municipal Corporation of Hyderabad and the construction had commenced on the said plot of land. The AO was also of the view that there is reasonable certainty of receipt of the income in future. The assessee, on the other hand, submitted that since it could not honour the commitment of making payment to the land owner, the land owner filed a civil suit before the court. The assessee also submitted that the Hon'ble High Court of Andhra Pradesh had given an injunction on construction on the aforesaid plot and hence there was no certainty about the income arising out of construction in future. The assessee submitted that since there was no certainty about the income arising from this sale of the development rights or sale of flats, the income could not be recognised as on 31)3) 2008 in view of the injunction of the Hon'ble A.P. High Court. Apparen....
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....bove, the second respondent was GHMC and the 4th respondent was ECE Industries. The 5th respondent was Janapriya Engineers Syndicate. From the order of the Hon'ble High Court as above, it is clear that the Hon'ble court has passed injunction directing GHMC to ensure that no construction was to be carried on either by ECE Industries or by Janapriya Engineers though building permission had been granted by GHMC earlier. It is a matter of fact that the assessee was to receive consideration in the form of constructed area and car parking. Since the High Court had passed the order dated 18)3)2008 as above which was in force as on 31.03.2008, it is clear that as on 31)3)2008, Janapriya Engineers was restrained from construction or any other civil works. It is also a matter of fact that the inflow of income to the assessee from Janapriya Engineers depends on the construction of the built up area and subsequent transfer thereof. The AO while passing the order, has relied on the building permission granted by the GHMC in order to assess the future inflow of income from Janapriya to the assessee. Since the Hon'ble High Court had passed restraint order for any further construction,....
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....ht over the said construction. It is because the Supreme Court have observed that in case of the suit is decided in favour of ECE Industries the constructed structures may even have to be pulled down in order to hand over the vacant possessions of the land to its rightful owners. Thus, the CIT(A) was of the view that even if the construction work is going on by the developers, there is no certainty that the assessee would finally be rightful owner of the constructed/built up area which it is entitled to as per the agreement with the Janapriya Engineers Syndicate. 9. The CIT(A) observed that the assessee had also submitted that the AO had computed income on the entire amount of future sales by treating the same as present income accrued to the assessee at time of entering into the agreement ignoring the fact that the subject property is not in existence and will come up only in future. Thus, the AO has taxed hypothetical income to result at a future date ignoring the concept of real income. The CIT(A) found force in the contention of the assessee especially in view of the ongoing litigation on the right over the land as well as the future construction. The assessee had relied on th....
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....rities. As stated earlier as on the last day of the accounting year relevant to the assessment year under consideration, the Hon'ble A.P. High Court had directed the Municipal Corporation who had granted the approval for construction to ensure that no construction activity is carried on either by ECE Industries or by Janapriya Engineers Syndicate. To that extent it cannot be said that realisation of collection arising out of the constructed area had reached finality or certainty as at the end of the accounting period. It is also relevant to refer to the agreement between the assessee and Janapriya Engineers Syndicate especially to Clause No. 9 of the agreement. As per the said clause, in case the project work i.e., construction activity stops due to any dispute or litigation arising because of any court order or government order or by involvement of private party payment of equated monthly instalments will be stopped for that particular period. After settlement of disputes or litigations payment of equated monthly instalments will resume. The responsibility of settlement of dispute or litigation regarding the land and its boundaries entity lied with the first party (the assesse....
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....s observed that concept of accrual of income does not create income but only recognises it when there is one. In that case it was held that when there is no chance of recovery of principal amount and the assessee chose not to charge any interest on the same, the AO was not justified in bringing into tax such interest on accrual basis. The assessee has also referred to the decision of Hon'ble Supreme Court in the case of P. Mariappa Gounder vs. CIT (232 ITR 2), wherein the decision of Hon'ble A.P. High Court in the case of Khan Bahadur Ahmed Alladdin and Sons vs. CIT was quoted. The observation of the Hon'ble Supreme Court was that disputed amount cannot be treated as income. 12. The CIT(A) after taking into consideration the decisions relied upon by the assessee and also considering the fact that there was a dispute with regard to the right over that land and construction as on 31)3)2008, observed that it cannot be said that there was any real income accrued to the assessee as on 31)3)2008 relevant to the assessment year under consideration. Therefore, he was of the view that the AO was not justified in considering the amount of Rs. 76,55,59,475 as profit arising to th....
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....uthorities and if necessary to approach civil and criminal courts. f) To pay the taxes and revenue payable on the scheduled property to the state government, central government and local authority. g) To make use of scheduled property to its maximum advantage. h) To deal with state, central and quasi government organizations in respect to the scheduled property. i) To file any suit or proceeding in any court or authority to protect their right and title to the scheduled property and for the same to sign the plaint vakalat and all necessary applications and documents on their behalf and also to give evidence and engage any advocate of their choice in the said suit or proceeding. j) To defend if any suit or proceeding is initiated by any person challenging their right and title to the scheduled property and to do all the acts necessary to protect their property. k) To mortgage the scheduled property to any bank or financial institution to get any loan for the development of the scheduled property and execute all the necessary documents for the said purpose. l) Generally to do all the acts deeds and things whatsoever in respect of the scheduled property which the vendors will d....
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....vide this office letter dated 9)11.2009 why the above additional area received of 27,920 sft should not be taxed. The assessee company submitted that the project is under construction and, therefore, it will be offered for tax in the year in which these are constructed and sold. However, the assessee's explanation is not acceptable for the reasons discussed in the above paras and it need to be taxed for the assessment year 2008)09 as development agreement is entered and possession of land is already handed to the developer. AR submissions: 16. On the other hand, the learned AR submitted that the assessee is a company engaged in the business of Real Estate Development and construction of residential apartments and houses. On 17/09/2007, the assessee company has acquired development rights over an extent of 67,824 sqy of land in Survey Nos. 74 & 75 at Borabanda, Fathenagar Village, Balanagar, Hyderabad from M/s. ECE Industries Limited, New Delhi and paid Rs. 13.50 crores towards reimbursement of costs and other charges of the land as advance. As per the terms of the said development agreement, the assessee has committed to pay an amount of Rs. 16.72 crores for which post dated ....
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....08 entered by the assessee company with the developer, M/s. Janapriya Engineer Syndicate and stated the following reasons: (a) The assessee is a company and is following Mercantile System of Accounting. (b) The acquisition of the development rights by the assessee company as per the agreement dated 17/09/2007 and subsequently granting right to sell apartments and parking area that has to come)up on the subject land as per agreement dated 25/01/2008 entered with M/s. Janapriya Engineer Syndicate, the Developer is akin to the purchase and sale and therefore, he treated that the income has accrued from the transaction of granting rights to sell the apartments and brought the same to income tax completely ignoring the fact that the construction has not completed and apartments were not available to deal with. (c) By entering into agreement with the Developer on 25/01/2008, all significant risks and rewards of ownership have been transferred to the Developer and quoted the provisions of Accounting Standard (AS)9) as follows: "11. In a transaction involving sale of goods, performance should be regarded as being achieved when the following conditions has been fulfilled. (i) The Selle....
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....ed on the basis of the terms and conditions of the agreement for sale. (f) That the agreement dated 25/01/2008 is mainly meant for giving rights to deal with the property of the assessee company that will come)up at some time in the future and, therefore, the question of transfer of significant risks and reward in the ownership of the property cannot arise in the case of the property which is not in existence at the time of the agreement. Further, the agreement is conditional and the payments against the agreement are subjected to several conditions stated therein and without fulfilment of all the conditions, it cannot be termed as transfer of risks and rewards in the ownership of the property to the buyer. (g) That the subject land situated in Survey Nos. 74 & 75 in Borabanda Village and the proposed project thereon has become the centre of serious disputes and number of suits were filed by various parties claiming distribution and allotment of land and flats. (h) That, several Writ Petitions were filed before the Hon'ble AP High Court and the Hon'ble High Court has issued orders restraining the parties from proceeding with construction and from alienating the property.....
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.... under it about the subject land has travelled up to the Hon'ble Supreme Court of India which has approved the orders of the lower court and ordered that the assessee company shall not claim equities over the construction made in the land and they are bound by the decision in the suit. The assessee company shall furnish the particulars of the prospective buyers of the residential units in advance to the Competent Authority Urban Land Ceiling and it must be made clear to the prospective buyers that their purchases are subjected to the result of the suit by making specific recital in the agreement of the sale or sale deed as the case may be. (n) The disputes as mentioned above are continuing and pending as such in the courts and the construction could not be proceeded with and equities over the land and constructions cannot be claimed by the assessee company. (o) That, in these circumstances the construction cannot be proceeded with and the assessee company cannot claim equities over the land and on the construction and it cannot transfer or alienate the property to the buyers of the flats. It was submitted that the claim of the AO that significant risks and rewards of ownershi....
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....tion of the Hon'ble High Court. (e) That the CIT(A) has also considered the cases filed by the land owner, M/s. ECE Industries against the assessee company for taking back the possession of the subject land and for grant of compensation, which has travelled from City Civil Court, Hyderabad to the Hon'ble Apex Court of India. He also considered the orders of the Civil Court and other superior courts, even though these orders are subsequent to the date of closure of the previous year i.e., 31/03/2008 but the same were taken palace before the filing of the income tax return. (f) That the CIT(A) has stated that ) "even if the construction work is continuing on by the developers, there is no certainty that the assessee (assessee Company) would finally be rightful owner of the constructed/built)up area which it is entitled to as per the agreement with M/s. Janapriya Engineer Syndicate". (g) That the CIT(A) stated as "I find force in the contention of the assessee especially in view of the ongoing litigation on the right over the land as well as the future construction". The CIT(A) at Para No. 5.3 has stated that ) "in other words, the so called sale transaction between the as....
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.... to accrued income of the sale of future property. 21. The AR submitted that entering into development agreement by the land owner is different and distinguishable from entering to the development agreement by others. In the farmer case, such development agreement will give rise to "transfer" under the provisions of Sec. 2(47) of the Income Tax Act and may give rise to capital gains. But in the second situation, wherein development rights acquired by the assessee company for its business and were shared with another developer for development of the subject land is a business transaction and the subject land was to be treated as business asset. Therefore, the transaction entered into by the assessee company with M/s. Janapriya Engineer Syndicate Limited (Developer) is a business transaction which will give rise to business income. Income from business of development and construction of residential apartment will arise on the completion of the construction and delivery of the possession and transfer of title. The assessee is following the project completion method for Revenue Recognition. The Act will tax "income" and it cannot tax "Hypothetical Income". The Act is meant to tax the ....
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....plication authored by Dolphy D'Souza published by Snow White Publication Pvt. Ltd., Mumbai (copy enclosed). The author's view is that "if a sale agreement is for the sale of goods, revenue shall be recognized if the entity has transferred to the buyer the significant risks and rewards of owner ship of, and effective control over, the goods sold. These conditions shall be applied to the underlying real estate in its current state, not to the buyer's right to acquire the fully constructed real estate at the later date. This effectively means that Revenue on real estate sales is recognized when the real estate is constructed and delivered to the buyer". 25. Further, the AR submitted that the author also opined that ) "if the real estate developer is constructing a multi)storied building and a purchaser is buying a flat in the building, with little controller over the technical specification of the flat and no control over the construction, the sale of the flat would be accounted for as a product sale. In other words the sale would be recognized by a real estate developer when the purchaser is given the possession of the flat". In all the situations and also even under the....
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....herefore, the AO has brought to tax hypothetical income which has not been earned by the assessee Company. He relied on the decision of the Hon'ble AP High Court in the case of Khan Bahadur Ahemed Aladdin & Sons vs CIT (1969) 74 ITR 651 wherein the court has held that ) "the scheme of the Act would show that only those sums are taxable which accrue as income i.e., they must actually accrue or arise. No amount can be said to accrue unless it is actually due. Claim to an amount is not tantamount to the amount being due or, in other words, that the amount". 27. The AR relied on the judgement of Supreme Court in the case of Godhra Electricity Company Ltd vs CIT (225 ITR 746) (SC): wherein the Apex Court held that it is real income which is taxable and not any hypothetical or notional income. To arrive at this finding one has to look into the surrounding circumstances and if one applies those ratios to the factual position of the present case, the assessee has not received any amounts which can be taxed as business income. 28. The AR submitted that the ITAT Delhi Bench in the case of Athul R. Aggrawal vs. ACIT (2001) 781 ITD 343 (Delhi) wherein the Tribunal has considered a case w....
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....e assessee has to be taxed and not the hypothetical income. He also relied on the decision of the Tribunal Mumbai Bench)A in the case of Lok Housing and constructions Ltd vs. ACIT reported in 27 Taxmann.com 15 (Mumbai)Trib). The Tribunal in this case has considered an identical issue of cancellation of immovable property agreements by the sister concerns subsequent to the close of the assessment year but before the due date for filing the revised return. The Tribunal has held that the subsequent cancellation of the agreements though made after end of the relevant previous year has to be taken into consideration in the computation of real income, because such cancellation has definite bearing on the accrual of income. The Tribunal has opined that, it is not justified to bring to tax hypothetical income stated in the original return of income ignoring the revised return filed by the assessee after taking into consideration the cancellation of agreements made subsequently after the end of the relevant previous year. Cancellation of the agreements both by the land owner and also by the Developer in the present case have resulted in no business income accrued to the assessee company and....
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.... recovery of possession of the subject land situated in Survey Nos. 74 & 75 of Borabanda Village and damages in the City Civil Court at Hyderabad on 30/05/2008. The Hon'ble City Civil Court in IA No. 262/08 has granted interim orders restraining the assessee company its agents, its servants or any person claiming through it from making any construction over the Suit Scheduled Property situated in Survey Nos. 74/P & 75/P in Borabanda Village and also from changing the nature of the said disputed property. Subsequently the Hon'ble City Civil Court by its order dated 21/08/2008 has ordered as follows: (1) That the respondents shall deposit the balance value of the property which comes to around Rs. 28,00,000/) into court within one month and (2) That the respondents shall furnish bank guarantee for the value of the unreleased post dated cheques and pay/deposit the value of four cheques which were dishonoured within one month from today and (3) That the respondents shall not claim equities over the construction made in the land and they are bound by the decision in the suit. The respondents shall furnish the particulars of the prospective buyers of the residential units in a....
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....ion cannot be termed as accrued to the assessee as there are lot of uncertainties involved in the project and its completion. The AR submitted that: (1) It is engaged in the business of construction of residential flats and houses. Revenue from the construction is recognized on the completion of the project and delivery of the possession of the residential units to the buyers. (2) The project could not be completed due to the fact that the land situated in Survey Nos. 74 & 75 Borabanda Village in Balanagar Mandal has become a centre of very serious disputes and several suits were filed in the courts. (3) The Hon'ble AP High Court has issued interim injunction orders restraining to proceed construction or other civil work on the disputed land over which the assessee acquired development rights. The interim orders restraining the work on the land were in force as at the last date of the previous year relevant year 2008)09 and such restraint order has continued subsequent to the close of the relevant previous year. Due to the court orders there is lot of uncertainty prevailed over the progress of the project and on the earning of the income from the project. (4) The land owner....
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....n receipt basis and not on accrual basis. The claim was not accepted by the Assessing Officer, but Commissioner (Appeals) and the ITAT held that income has to be brought to tax on receipt basis in view of the nature of the transactions and this was upheld by the Hon'ble High Court. (c) K. Radhika, K. Srinivasa Rao, K. Venkayamma and K. Hemalatha vs. DCIT (2011) 47 SOT 180 (Hyd)Trib).: In this case the assessee who received a meagre amount out of total consideration the transferee is avoiding, adhering to the agreement and there is no evidence brought on record by the revenue authorities to show that there was actual construction has taken place at the impugned property in the assessment year under consideration and also there is no evidence to show that the right to receive the sale consideration was actually accrued by the assessee. Without accrual of the consideration of the assessee, the assessee is not expected to pay capital gain on the entire sale consideration. (d) M/s. Lanco Kondapalli Power Pvt. Ltd. vs. DCIT in ITA No. 1615/Hyd/2010. The Tribunal in this case has considered the decision of the Hon'ble Supreme Court in the case of Godhra Electricity Company Ltd v....
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.... of the total extent of 67824.5 sqy and another Development Agreement Cum General Power of Attorney was executed by the owner of the land in favour of the assessee company for an extent of land admeasuring 24525.8 sqy. Both these agreements were executed on 21/09/2007. Subsequent to the execution of the said Development Agreement Cum General Power of Attorney dated 21/09/2007, the assessee company has entered into an Development Agreement on 23/09/2007 with M/s. Janapriya Engineer Syndicate (the Developer) for the development and construction of residential apartments on the subject land situated in Survey Nos. 74 & 75 at Borabanda, Fathenagar, Balanagar Mandal, Hyderabad and agreed to accept 36% of the built up area to be developed as per the approved plan. Subsequent to the agreement dated 23/09/2007, the assessee company has entered into an agreement on 21/05/2008 according to which it agreed to handover its share of flats and parking area to the Developer to sell as per the terms and conditions agreed upon. The Assessing Officer has considered the development agreement entered by the assessee company with the land Owner, M/s. ECE Industries Limited whereby it acquired developme....
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....chasers of flats, either the whole of scheduled property or portion of it or undivided share in the scheduled property and acknowledge them by issuing receipts. b) To enter into a development agreement with any developer/builder to develop the scheduled property by constructing individual buildings or residential apartments or commercial apartments. c) To enter into contract agreement with any contractor. d) To sign all the applications to be submitted to the AP Transco for supply of electricity, to the concerned authorities for providing drainage and water supply etc., and process the said applications. e) To look after and protect the scheduled property from encroachers, land grabbers and unsocial elements and to take necessary and appropriate action against them by making applications to the concerned authorities and if necessary to approach civil and criminal courts. f) To pay the taxes and revenue payable on the scheduled property to the state government, central government and local authority. g) To make use of scheduled property to its maximum advantage. h) To deal with state, central and quasi government organizations in respect to the scheduled property. i) To file....
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.... the decision in the pending suit. The assessee company cannot be said to have earned business income from dealing in the project proposed on the disputed land is unjustified in view of the continuous litigation and restraining orders against the construction and it was incapacitated in dealing with the property by the orders of the Hon'ble AP High Court whereby it has ordered that the assessee company shall not claim any equities over the constructions made on the disputed scheduled land. (order dated 25/07/2010) The AR submitted that the Government of Andhra Pradesh has issued G.O.MS No. 1534 dated 20.12.2008 and declared the subjected disputed lands as excessive in terms of the provisions of Urban Land Ceiling Act and ordered to take possession of the land. In view of the said orders the future of the proposed project on the subject land became uncertain and income from such a situation cannot be termed as accrued to the assessee as there are lot of uncertainties involved in the project and its completion. It is also observed that: (1) It is engaged in the business of construction of residential flats and houses. Revenue from the construction is recognized on the completion....
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....ter the end of the previous year but before the date of filing the IT return and which have direct bearing on the income earning capacity of the assessee have to be considered and real income has to be determined only after considering such events. 43. Considering all the above facts of the case, in our opinion, it is too early to assess business profit out of the sale of constructed area to M/s. Janapriya Engineers Syndicate. The assessee neither received substantial consideration or assets to be sold are ready for handing over the possession to the concerned parties so as to transfer the title in the property. Till such time, it cannot be said that the parties involved in are ready to perform the contract. In the present case, neither possession of the property has been given to the ultimate buyer or the assessee has received any substantial consideration. When the property is to be sold is not readily available or constructed, the assessee cannot recognise income with certainty. The agreement entered into by the assessee herein is only for sale of piece of property and sale will take place only after completion of construction and after assessee's share of property is ident....
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.... ACIT, 133 TTJ (Chennai) 595 wherein the Tribunal Chennai Bench held as under: "9. We are unable to agree with the contentions of the learned Departmental Representative that the transaction of transfer is complete by applying the provisions of s. 53A of Transfer of Property Act on the date when the possession of the property was handed over to the developer as per the development agreement dt. 1st Sept., 2003. Sec. 53A of the Transfer of Property Act does not provide the conditions for transfer but it provides protection to the transferee of any immovable property by a written contract, the terms of which constitute the transfer and can be ascertained with reasonable certainty and the transferee as part performance of the contract has taken the possession of the property and has performed or willing to perform his part of contract, then even the said contract though required to be registered has not been registered and the transfer has not been completed in the manner prescribed therefore by law, the transferor is barred from enforcing against the transferee any right in respect of the property other than the right expressly provided by the terms of the contract. Under the IT Act....
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.... The assessee did not receive any consideration for handing over the possession of the property to the developer but as per the agreement the assessee got the right to get the built-up area of 25,130 sq. ft. and proportionate car park as per Schs. E and E1 of the agreement and the rest of the constructed area was to be sold out for recovery of the cost and margin of the developer. From the development agreement, the possession was handed over for carrying out the construction work by the developer and there is no other document except the development agreement which transfers the title of the property to the developer. In the absence of the transfer of the title of the property and any consideration at the time of development agreement, the handing over of the possession was merely a temporary measure for carrying out the construction work by the developer and the exclusive possession of the property in legal sense remains with the assessee which was finally handed over at the time of execution of the sale deed of the constructed flats by the assessee. One cannot presume any intention in executing the documents between the parties other than what was stated or can be inferred reaso....
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....eds for transfer of the constructed apartments in favour of the end-user/purchaser, therefore the transfer of the proportionate land took place only when the assessee transferred the construction property by way of sale deeds and offered the business income which was accepted by the Department. In any case, when the assessee has retained the portion of the land being proportionate to the constructed area to be retained by the assessee, then there is no question of transfer of the entire land to the developer. In view of the above discussion, we hold that the orders of the lower authorities, qua this issue are not sustainable on the facts as well as on law. We set aside the orders of the lower authorities, qua this issue and direct the AO to tax the capital gain arising from the conversion of the land and building into stock-in-trade proportionately into the previous years in which the constructed property was sold by the assessee or retained for self-use and corresponding business income was offered." (b) B.L. Subbaraya vs. DCIT, 9 SOT 297 (Bang) wherein the Bangalore Bench of the Tribunal held as under: "8. The fact which is undisputed is that the entire settlement is still a su....
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....es (India) (P) Ltd. vs. ITO, 1 DTR (Mum) (Trib) 366 wherein the Mumbai 'SMC' Bench held as under: "2.3 After going through the rival submissions and also after perusing the material available on record, I am not inclined to concur with the finding of the CIT(A), because the assessee had entered into the development agreement with M/s Arora Builders (Sukhmani Construction). The FSI on the said plot was revised, but the project could not be completed. Therefore, at the cost of this hardship no interest was paid by the owner to the assessee company on its deposit at the rate of 12 per cent per annum of the same amount. It is undisputed fact that the assessee had paid the amount of Rs. 99.90 lakhs as on 31st March., 2003, but no interest was paid to the assessee because the project was legally not feasible and due to legal restriction the whole amount invested might not have been realized in the said project. Accordingly, the owner did not make any payment to the assessee. Under the facts and circumstances, the assessee cannot be subjected to be taxed on notional income. There is nothing on record, to suggest that any such interest income was materialized. The assessee has poi....
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.... has acted in a manner in which no reasonable person can act. C) The guidance note on accrual of income on accounting issued by the ICAI lays down that where the ultimate collection with reasonable certainty is lacking, the revenue recognition is to be postponed to the extent of uncertainty involved. In terms of the guidance note, it is appropriate to recognize revenue in such cases only when it becomes reasonably certain that ultimate collection will be made. D) Non-recognition of income on the ground that the income had not really accrued as the realisability of the principal outstanding itself was doubtful, is legally correct under the mercantile system of accounting, when the same is in accordance with AS-I notified by the Government E) It is one of the fundamental principles of accounting that, as a measure of prudence and following the principle of conservatism, the incomes are not taken into account till the point of time that there is a reasonable degree of certainty of its realization while all anticipated losses are taken into account as soon as there is a possibility, howsoever uncertain, of such losses being incurred. F) The provisions of section 145(1) are subject ....
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....The assessee has challenged the above disallowances/ additions before the CIT(A) and could not obtain any relief. The present appeal is filed by the assessee against confirmation of the above disallowances/additions made by the AO in the assessment order. 50. With regard to ground No. 1, the learned AR submitted that the Assessing Officer has erroneously invoked the provisions of sec. 40(a)(ia) and disallowed the expenditure ignoring the fact that the provisions of section will apply to the expenses outstanding at the end of the previous year. In the present case the amount of expenditure is actually paid and it is not outstanding at the year end. This fact has also not been considered by the CIT(A). The provisions of s. 40(a)(ia) are deeming provisions and are to be strictly interpreted. They should not be pressed beyond the purpose for which they are created. The provisions of s. 40(a)(ia) are enacted with an objective of curbing bogus expenditure to be entered in the accounts without intention of making payment and to reduce tax liability. Therefore, the payments are made before the year end, such expenditure cannot be disallowed for default in the TDS. He relied on the followi....
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....re, the AR submitted that the assessee has claimed Rs. 7,11,099 towards foreign travel expenditure of the director of the company. It was explained to the Assessing Officer and also before the CIT(Appeals) that the Director of the company, Mr. Sameer Jain has visited Germany to finalize import of fabricated panels of Peri Frames from Germany. The AO was of the view that there is no necessity for the company to incur the travel expenditure, since the project has been handed over to M/s. Janapriya Engineers Syndicate P Ltd. The AO and also the CIT(A) disallowed the Foreign Travel Expenditure, ignoring the fact that the Technology will help in the construction business of the assessee and this knowledge will also be useful in all its future projects. The Assessing Officer is not justified in deciding what is necessary and what is not necessary for the business as long as the expenditure is incurred for the purpose of its business. He prayed the Bench to allow the appeal of the assessee. 55. The learned DR submitted that the assessee has not produced any evidence either before the AO or before the CIT(A). Therefore, the addition confirmed by the CIT(A) is to be sustained. 56. In this....