TaxTMI 
TaxTMI 
2012 (10) TMI 1287
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....ent in nature and the same cannot be reduced from the value of land and cannot be considered to increase the income, ignoring the fact that the AO has clearly brought out in the assessment order that the assessee has claimed the entire expenditure incurred towards land cost and hence, the compensation received by it should be also be brought to tax and the judgment of Supreme Court in the case of Civil Appeal No. 4401 of 2009 dated 16.07.2009 CIT Faridabad v Ghanshyam, HUF dated 16.07.2009. (3) On the fact and in the circumstances of the case and in law, whether the Ld. CIT (A) erred in deleting the addition made by the AO to the work in progress of Rs 6,26,720/- ignoring the fact that the assessee has purchased whole plot of land and developed only some part of the plot. (4) On the fact and in the circumstances of the case and in law, the Ld. CIT (A) erred in allowing Rs. 8,93,000/- as business expenditure ignoring the fact that the assessee has shown only expenditure not accounted the receipt in his books of account. (5) The appellant prays that the order of the CIT (A) on the above ground be et side and that of the AO be restored". 2. The ....
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....n. Both these suits, filed by the owner, and the Land Acquisition Authority, are pending before the Hon'ble Bombay High Court. The Hon'ble Court, however, directed the lady to keep a bank guarantee of Rs. 7,800,351. This was counter guaranteed by the assessee, as the assessee had not made full payment to the owner and was struck with the agreement entered into between the owner and the assessee company. The AO, while dealing with this issue, reduced this figure from the opening work in progress and added it to the income of the assessee. In the course of assessment proceedings, the AO observed that Wings A and B (Part) were not part of the agreement and since the land was in possession of the assessee, the AO computed the proportionate cost of that portion at Rs. 6,26,720 and added it to the income of the assessee. 4. During the year under consideration, the assessee spent Rs. 9,23,600 towards settlement of tenants on account various expenses on their behalf, mainly electricity and society formation charges. Out of the total two tenants, in aggregate paid Rs. 30,000, back to the assessee. The AO disallowed the balance of Rs. 8,93,600 as there was no reve....
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....ly. It was agreed that the other wings will be started only after getting a proper market for the flats to be constructed on the said plot and also on vacating the sitting tenants from the plot. * The firm was to provide land without any consideration. * The developer would construct the building at their cost only. * Out of the area / flats constructed the developer shall give 35% of the constructed area to the firm and the balance area will be retained by them. * Your appellant firm was at liberty to dispose of its 35% share as per its convenience. However, wings A and B (part) could not be developed because tenant i.e. Mr. L. B. Kathare did not vacate the plot. The AO observed in Assessment Order that during the Financial Years 2002-2003 to 2005-2006 the firm incurred an expenditure of Rs. 3,337,378/- towards the development charges in respect of Plot No. 359. The AO while making the assessment was of the view that 'these expenditure incurred by the firm is in contrast to the terms of the agreement entered into by the firm with M/s Rachna Developers vide agreement dated 14th March, 2002. He further stated t....
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....ch was in the possession of tenant and therefore it was outside the scope of Development Agreement and therefore cannot be allowed expenditure but at the same time since this expenditure was in respect of development property in the possession of firm it can be considered as Work-in-Progress. Accordingly the AO disallowed the said amount of Rs 1,348,260/- an added back in the total income of the assessee and also added the said amount in the Work-in- Progress of your appellant firm. The AO stated in the Assessment Order that the expenses of Rs. 1,348,260/- was for the period 2002 to 2005. Please note that this is a factual error by the Assessing Officer. The expenditure question was in respect of construction of RCC Structure and Framework on 'B' Wing for the purpose of settlement of tenant Mr. L. B. Kathare. During the course of construction, the said tenant created the nuisance and the firm had to stop the work in the half way as he had a malafied intention of grabbing the entire area for himself. However, by that time an amount of Rs. 1,348,260/- was already incurred as stated above. Please note that this expenditure is not realizable from the tenant. The AO c....
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....lood like situation on 26/7/2005 and was necessary for selling of flats (35% of total flats) allotted to the appellant. On this ground of appeal the appellant has also submitted that the question must be viewed in the larger context of business necessity or expediency. Reliance was placed on the decision of the Supreme Court in the case of Sri Venkata Satyanarayana Rice Mill Contractors Co. vs CIT, reported in 223 ITR 101 (SC), wherein in it is held that the expenses have to be seen from the point of a businessman. 10. The CIT(A), thus observes, I have considered the submission made by the appellant and have perused the supporting evidences enclosed in the paper book. It is not in dispute that A wing and part of B wing are kept by the appellant for housing the old tenants. It is also not in dispute that the appellant is entitled to sale 35% of the flats in other buildings. Expenses on leveling, earth filling etc. is necessary for sale of the land. Expenses on erection of the temporary office and on maintenance of the flats in saleable condition are for the purpose of the business. Payments to the Municipal Corporation are also in the course of the business. Expenses inc....
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....ion of the appellant. The AO has not disputed the genuineness of the expenditure. He has not disputed or brought on record anything to suggest that there was any ulterior motive or extra commercial consideration for incurring such expenditure. As a matter of fact, it appears that the AO did not fully grasp the facts of the case and the disallowance has been made on misappreciation of facts. The expenditure of Rs. 11,76,750/- is incurred for Mr. Kathare, a tenant, on the area which has been excluded from the agreement between the Appellant and M/s Rachna Developers. The work was done by M/s Scarlet Corporation. Its bill is dated 15th December, 2005. It shows that the expenditure on RCC columns, Beams etc. is incurred for second to fourth floor in B Wing and for repairing of the compound wall. The bill is in the name of the appellant. Development agreement dated 14th March 2002 refers the name of Shri L.R. Khatare as the KUL (Agricultural tenant) as holding right as a tenant for 250 Sq. mtrs. of the plot of land, since the development of part B wing for settlement of the tenant was not done by Rachna, the appellant has spent the amount for RCC etc. As per the development agreeme....
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....rence 18 of Land Acquisition Act by Mrs. Shegullabai M. Khandalkar in Panvel Court for enhancement of the compensation granted by the Collector. 19. In response to the said appeal the Civil Judge (Sr. Dvn.) Panvel at Panvel vide L.A.R. No. 70/96 awarded the compensation which worked out to Rs. 23,800,000/-. 20. Since the plot was purchased by the firm on 'as is where is basis' along with all rights privileges and obligations the firm was entitled for a proportionate compensation amount awarded by the Civil Judge (Sr. Dvn.) Panvel at Panvel from land lady Mrs. Shegullabai M. Khandalkar amounting to Rs. 7,800,351/-. 21. Against the said judgment, the Land Acquisition Authorities filed a suit in Bombay High Court since in their opinion the compensation awarded by the Civil Judge (Sr. Dvn.) Panvel at Panvel was on a higher side. At the same time Mrs. Shegullabai M. Khandalkar also filed an appeal in Bombay High Court since in her opinion compensation awarded by the Civil Judge (Sr. Dvn.) Panvel at Panvel was on a lower side. 22. In the meantime, and pending the final decision in this matter Mrs. Shegullabai M. Khandalkar by submitting the appropriate bank gua....
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....ere is a clear distinction between cases such as the present one, where the right to receive payment is in dispute and it is not a question of merely quantifying the amount to be received, and cases where the right to receive payment is admitted and the quantification only of the amount payable is left to be determined in accordance with settled or accepted principles." It was held that income did not accrue to the assessee where, though the arbitrator awarded enhanced compensation for acquisition of assessee's land, the State Government had filed appeal there against as the very right of assessee to receive enhanced compensation was put in jeopardy. Thus, the assessee becomes entitled to the amount only when no dispute remains in regard thereto and the award had become final. The above referred supreme Court decision is followed by the jurisdictional Mumbai High Court in the case of CIT vs Abdul Mannan Shah Mohammed, reported in 248 ITR 614 (Born). In that case also lands owned by assessee were acquired under Land Acquisition Act. The State Government moved the High Court against the award made in favour of assessee which included interest on additional compensat....
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....rious dispute about the right of the assessee to receive the amount collected by the assessee. In other words, the right to receive the amount was inchoate or contingent. The extra amount did not accrue to the assessee until the finalisation of the dispute pending in the court in favour of the assessee. The assessee was accountable for the excess collection and obliged to refund the same if so directed by the court. Such amounts collected by the assessee were not assessable in the hands of the assessee in the assessment years under consideration". 31. We have heard the contentions of either side. From the facts as mentioned in the SOF and in the submissions made before us, we are convinced that the amount cannot be treated to be belonging to the assessee till the finality is arrived, as has been held by the decision by the Hon'ble Bombay High Court and till such time, the impugned amount cannot be taxable, as this would remain a contingent liability. On these observation, we agree with the decision of the CIT(A), which we sustain, and find no reason to disturb. 32. The ground is thus rejected. 33. Ground no. 3 is disallowance of Rs. 6,26,720 on account of proportionat....
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....We are not convinced with the observations made by the AO, in fact, the CIT(A), has held that the WIP, which has to be calculated at cost or net realisable value and, in a case where something is expended and no resultant benefit can be achieved out of it, that expense, cannot be added to WIP. This, according to the CIT(A), is against the accounting principles, and also, prescribed by the ICAI. 40. We are in agreement, with the observation of the CIT (A) that the assessee was under legal obligation to settle the claim Mr. L.B. Kathare, who was occupying the plot and was creating road blocks in the development activity and the amount was spent on that, and on such untoward circumstance. Therefore, adding the expense, though not in the recitals, to the closing WIP, thereby, increasing net artificial profitability was not called for. 41. We, therefore, sustain the decision of the CIT (A) and reject the ground taken by the department. 42. This ground is thus rejected. 43. Ground no. 4 pertains to allowance of Rs. 8,93,600 as business expenditure the assessee, for the purpose of settlement with existing tenants expended Rs. 9,23,600, on account of electric, water a....