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2014 (1) TMI 1297 - AT - Income TaxNature of Receipts Business receipts or not Compensation received by the assessee Held that:- The assessee firm made the payment in the course of purchase of land - Prior to the same, assessee firm was brought into existence for business activities - The intention of the assessee was to develop the land which could not be materialized because the Government of Maharashtra denied to sell the land to the assessee though there was no breach of terms and conditions on the part of the assessee - The Hon'ble Supreme Court has not directed the State Government to give possession as per agreement but allowed compensation to be paid to the assessee as a measure to quantify the amount of compensation at 11% p.a. simple interest - the amount payable to the assessee will be for hardship or prejudice occasioned to the assessee thus, it makes clear that the amount received by the assessee was in the nature of compensation Thus, the CIT(A) was justified in holding that the amount received by the assessee is a business receipt Decided against Revenue. Year of accrual and taxability of the compensation received Held that:- The compensation is received for breach of terms by government of Maharashtra - The compensation is received for loss sustained by the assessee accrued in the year of receipt as decided in CIT Vs. A. Gajapathy Naidu [1964 (4) TMI 6 - SUPREME Court] - The amount of compensation has crystallized on the event of decision of the Hon'ble Supreme Court which has taken place in the F.Y. 2004- 05 relevant to the A.Y. 2005-06 thus, The amount of compensation received was liable for consideration as business receipt in A.Y. 2005-06 as claimed by the assessee after considering allowable deductions under the Income- tax Act, 1961 - the CIT(A) was justified in directing the Assessing Officer to delete the addition for A.Y. 2001-02 , 2002-03 and 2003-04 Decided against Revenue. Disallowance of pre-operative expenses u/s 37(1) of the Act - Held that:- The order of the CIT(A) upheld - The assessee has incurred expenditure during the period AY. 2000-01 to 2003-04 in relation to the proposed transaction of land purchase - The assessee has treated the said expenses as deferred expenses and has shown the same under the head pre-operative expenses on the asset side of the Balance sheet - All the expenses relating to a particular project are identified and are claimed as deduction only in the year the project is completed - The income of the project is offered to tax in the year in which the project is completed - The project got terminated in the A.Y. 2005-06 and hence the expenditure in relation to the project incurred under the head pre-operative expenses during the course of the project i.e. A.Y. 2000-01 to 2005-06 has been claimed in A.Y. 2005-06 - Relying upon Wall Street Construction Ltd. Vs. JCIT [2005 (9) TMI 228 - ITAT BOMBAY-F ] - in the case of assessee following project completion method true profits can be determined only when entire cost of the project, direct or indirect including financing cost is added to the value of work in progress - the CIT(A) deleted the pre- operative expenses claimed by the assessee in the A.Y. 2005-06 Decided against Revenue.
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