TaxTMI 
TaxTMI 
TaxTMI 
2019 (11) TMI 138
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....of the issue under consideration are that the assessee is a partnership firm and its main object is to trade in Real Estate. The assessee had acquired/purchased land of about 110 acres in Pune and treated the same as stock in trade. Purchases were made over the period from the year 2008 onwards, from various farmers. The assessee had agreed to sell part of the land measuring 110 acres to various parties under various agreements, with a stipulation of delivery of land with development and also with all permission within three years or period extended with mutual consent, and - had received advances from them aggregating to Rs. 28,20,00,000/-. With the consent of these persons/parties the assessee had entered into a development agreement for development of said land with M/s Vascon Engineers Ltd (VEL) and had received an amount of Rs. 7,50,00,000/- as deposit. The VEL had insisted for timely acquisition of land and obtaining necessary permissions from Government Authorities. The assessee could not acquire all land and obtained required Govt. permission and hence the VEL sent a legal notice claiming compensation and also filed a case in the Civil Court for Additional Compensation/Inte....
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.... amount of Rs. 22,15,44,625/- will form part of cost of land and will be allowable in the year in which the balance land was sold. 5. Assessing Officer further also observed as under :- "It is pertinent to mention here that this is not the addition which creates loss to the assessee forever but it is to be allowed by the revenue as and when the land is sold by the assessee. At the time of sale of land in future the cost of saleable land will be cost as shown in balance sheet plus the amount of apportioned compensation paid by the assessee to get the land free from encumbrance for future sale. Hence the assessee is going to get the benefit by the increased cost of land at the time of sale of the land in future". 6. Against the above order the assessee is in appeal before learned CIT(A). 7. Learned CIT(A) elaborately considered the contention of the assessee. Learned CIT(A) was of the opinion that the assessee has paid compensation pursuant to court order. He noted that the compensation does not bring any change in condition legal or title of the assessee of the said land. Hence he held that it cannot be added to the cost of inventory. He opined that additional compensation ....
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....n to land purchasers was not a revenue expense as it has been spent for specific asset and need to be capitalised with the cost of land. 5.6. It is undisputed fact that the appellant is engaged in real estate business and over the years had acquired the land under consideration as stock in trade. The Ld. AO has also accepted the said fact because income from sale of part of said land has been assessed as "business income" and not as "capital gain/loss" and unsold land has been treated as "closing stock". However, the Ld. AO has enhanced the value of closing stock of the land by the amount of additional compensation disallowed during the year. 5.7. In the present case, the additional compensation paid by the appellant has arisen due to not fulfilling the contractual obligation. The said contracts of selling and delivery of part of land were entered with various persons/parties during the course of appellant's business and hence the liability to pay-additional compensation had arisen during the course of business. The question to be decided is - whether the said additional compensation liability is revenue -in nature and whether the same is required to be apportioned to the....
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.... improved in any manner. Further, the land remains the same, in the same location and condition. Thus, payment of additional compensation does not bring any change in condition, location or title of the appellant in the said land and it cannot be added to the cost of inventory of the appellant under provisions of section 145A of the I.T. Act or guidelines of ICAI for valuation of closing stock. Additional compensation paid by the appellant has to be treated as business loss incurred by the appellant during the year and has to be allowed as deduction to the appellant. On similar facts, the Hon^ble ITAT, Delhi in the case of DCIT vs. Vatika Town Ships P Ltd reported in 36 taxmann.com has held that such compensation paid is revenue in nature and allowable as such and the same cannot form part of cost of land. The Hon'ble Delhi ITAT in said case has held as under :- "The appellant had received advance amounts against the booking of plots. These amounts kept lying with the assessee for over a decade. However, the deals could not finalise and the plots remained under the ownership and possession of the assessee company only. The payment was only a part payment, which was returned ....
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....esented the expenses incurred on account of commercial expediency. Thus on facts I find the submissions made by appellant and recorded in para 9 & 10 above are true and correct. I further find that the appellant itself has shown the income from sale of aforesaid land and had shown the income without including the aforesaid sum as cost of the land sold and thus it has shown the income and therefore there is also no loss of revenue." "(E) On the basis of above and for the reasons under mentioned I hold the compensation paid as revenue expenditure:- (i) The space surrendered by various proposed buyers was never sold or possession handed over to them and as such the question of repurchasing the same is totally a misconception and as against the facts on record. (ii) The showing of the amounts received by the payees from the appellant as capital or revenue account is not relevant factor for deciding the issue as the same transaction can have different effect on the various persons keeping in view the nature of their businesses. None of the recipients of the compensation was in the business of real estate whereas the appellant was in the business of real estate as such appellant....
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....com 361 has held as under:- "18. What follows from the above is that normally the ordinary rule is to be applied, namely, revenue expenditure incurred in a particular year is to be allowed in that year. Thus, if the assessee claims that expenditure in that year, the IT Department cannot deny the same. However, in those cases where the assessee himself wants to spread the expenditure over a period of ensuing years, it can be allowed only if the principle of 'Matching Concept' is satisfied, which upto now has been restricted to the cases of debentures" 5.11. In the present case, the appellant had not deferred revenue expenditure, being additional compensation paid during the year, over the years but has claimed as deduction in the year under consideration and hence in view of the above discussed law laid down by the Hon'ble Supreme Court the same need to be allowed in the present assessment year itself. 5.12. In view of the facts and law discussed above, I am of the considered opinion that the claim of additional compensation paid under consideration is revenue in nature and the same cannot either be apportioned to the cost of land or deferred over the years, but....
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....xtent of Rs. 28,20,00,000/-. With consent of these parties the assessee has further entered into development agreement with M/s. Vascon Engineering Ltd.(VEL) and has received deposit of Rs. 7,50,00,000/-. VEL insisted that timely acquisition of land and after obtaining government permission. In the absence thereof the said parties made plaints for compensation and interest. Pursuant to the courts order the assessee paid compensation to the parties from whom assessee received advances. These parties also filed legal suit claimed additional compensation. The assessee has paid compensation of Rs. 69,28,20,000/- to these persons. Since the assessee has received Rs. 28,20,00,000/- from them as advance, balance of Rs. 41,08,20,000/- were charged to the profit and loss account. During the said financial year the assessee has sold land measuring to 31.795 acres of land and receipt was accounted for as business receipt as profit and loss account. The Assessing Officer was of the opinion that compensation paid pertains to entire 62 acres of land which were under consideration for sale and accordingly he allocated it proportionately. Since only 28,656 acres of land was sold. Accordingly, he p....