9911796707
TMI Blog2012 (9) TMI 553X X X X Extracts X X X X X X X X Extracts X X X X ..... as per relevant orders are that return declaring income of Rs.4,18,02,660/- filed on 31.03.2006 by the assessee, a real estate company, after being processed u/s 143(1) of the Income-tax Act,1961[hereinafter referred to as the 'Act'] was selected for scrutiny with the service of a notice u/s 143(2) of the Act. During the course of assessment proceedings, the Assessing Officer (A.O. in short) noticed that the assessee claimed deduction of Rs.36,60,500/- on account of compensation to 7 persons mentioned in para 3 of the assessment order. To a query by the AO, the assessee replied that it used to receive sale consideration in installments. Unless the entire sale consideration, registration charges and other expenses were received, the sale deed in respect of land was not executed in favour of the intended purchaser. Similarly, the assessee allowed possession of the land to the intending purchaser only after payment of full consideration and registration of sale deed. In some cases, since the intending purchaser did not want to buy the land as per mutual agreement and advance received was refunded along with some excess amount as return on investment. This excess amount was termed as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 66 ITR 99 (SC) and JCIT Vs. Mandideep Eng. & Pkg. Ind. P. Ltd., 292 ITR 1 (SC), the assessee pleaded that their claim may be allowed in the year under consideration also. In the light of these submissions, the ld. CIT(A) allowed the claim in the following terms:- "15. In view of the aforesaid facts and circumstances the Assessing Officer has erred in holding that the said amount paid by the assessee as compensation represents purchase consideration to reacquire the rights in the plots and that the said amount will increase capital work in progress of the assessee. In fact there is noting in the accounts of the assessee which could be termed as capital work in progress. The nature of expense clearly shows that the nature of expense is revenue expenditure incurred wholly and exclusively for the purposes of business and hence is allowable as regular business expenditure. Moreover, according to the consistently followed accounting practice, such expenses are being allowed to the assessee as revenue expenditure. The theory as placed by the Assessing Officer that the amount paid by the assessee as compensation represents purchase consideration is wholly misconceived since the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r contract and that opinion was tailor made to suit the assessee. 40. The Tribunal, in view of the above, rejected the claim of the and set aside the orders of the CIT(A) in assessment year 1995-96 and restored the order of the Assessing Officer. The Tribunal also considered that payment was apparently made for extraneous consideration. 41. Learned counsel for the assessee submitted that all the facts were pleaded before the Tribunal but the same have not been properly considered along with the case laws referred to before us. Learned counsel for assessee also argued that the Tribunal was not having any material before it to give finding with regard to extraneous consideration. Learned counsel for the assessee also argued that since the case of the assessee was not properly considered by the Tribunal on facts, and mistake was apparent on record, therefore, miscellaneous application was filed which is pending before the Tribunal as well as appeal is pending in the High Court. Learned counsel for assessee submitted that since the case of the assessee is not properly considered and that the matter has not reached finality, therefore, the order of the Tribunal may not be relied upon. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31-3-2005 Earth Movers & builders Pvt. Ltd. 1312000 Being the compensation given on the surrender of Plot booked in Vatika Ph.-II 31-3-2005 SK Vaghal 500000 Being the amount paid as compensation against case filed in MRP as full and final payment 6.1 The aforesaid explanation reveals that amount has been paid to shri Rajinder Kumar, Dinesh Gupta, Sadhna Gupta and Kamlesh Gupta by way of refund of advance paid by them. There is nothing in the impugned order nor the ld. AR submitted any material before us in support of their claim that the amount was paid as compensation for reacquiring the rights in the plots. How the refund of advance paid by the respective buyers could be treated as compensation, has not been explained before us. As regards amount paid to M/s Greenfield International Pvt. Ltd. and M/s Earth Movers & Builders Pvt. Ltd., it is mentioned that compensation was paid for surrender of plot. The basis for working and payment of compensation or the relevant correspondence is not referred to in the impugned order nor has been placed before us. Regarding amount paid to Shri SK Vaghal, the compensation is stated to have been paid for settlement of some case filed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) has allowed the appeal of the assessee merely relying on the submission of the assessee that the similar amounts have been allowed in the earlier years. No doubt the expenses incurred by the assessee are the revenue expenses and have been incurred for the purposes of the business, as in our opinion, commercial expediency demands that such expenses should be incurred by the assessee while making the refund to the allottees. But the question arise whether these expenses will form part of the stock in trade or not. This in our opinion will depend on the method of the accounting consistently followed by the assessee for the valuation of the closing stock. Whether the assessee is following project completion method or work certified method. These facts have not been brought on record before us from either of the side. We, therefore, in the interest of justice and fair play to both the parties set aside the order of the CIT(A) and restore this issue to the file of the CIT(A) with the direction that the CIT(A) to re-examine this issue afresh in the light of the various case law cited before us, method of accounting followed by the assessee, method of valuation of the closing stock ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... derations and minimizes arbitrariness in the decision-making process. Hon'ble jurisdictional High Court in their decision in Vodafone Essar Ltd. Vs. DRP,196 Taxman 423 (Delhi) held that when a quasi judicial authority deals with a lis, it is obligatory on its part to ascribe cogent and germane reasons as the same is the heart and soul of the matter and further, the same also facilitates appreciation when the order is called in question before the superior forum. We may point out that a 'decision' does not merely mean the 'conclusion'. It embraces within its fold the reasons forming basis for the conclusion. [Mukhtiar Singh Vs. State of Punjab, (1995)1SCC 760(SC)]. In view of the foregoing, especially when the ld. CIT(A) have not passed a speaking order nor analysed the nature of amount paid in the year under consideration while the matter in the AY 2001-02 is still pending before him, we consider it fair and appropriate to set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the aforesaid issues, afresh in accordance with law, after allowing sufficient opportunity to both the parties, keeping in view, inter alia, the observations of the ITAT in thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contending that assessee did not place any evidence before the AO that the amount was incurred on temporary construction in the basement nor any bills or vouchers were submitted. Thus, the learned CIT(A) was not justified in treating the amount as having been incurred on temporary construction, eligible for depreciation @100%,without allowing any opportunity to the AO. The ld. DR, inter alia, relied upon decision in Ramakrishna & Co. vs. CIT, 88 ITR 406 (Mad.) & CIT vs. Lucky Bharat Garage, 174 ITR 526(MP). 11. On the other hand, the ld. AR on behalf of the assessee relied upon the impugned order. To a query by the AO, the ld. AR submitted a copy of ledger account of expenses debited under the head repairs to building. 12. We have heard both the parties and gone through the facts of the case as also the aforesaid decisions relied upon by the ld. DR. Indisputably, the assessee did not produce all the bills and vouchers in relation to expenditure incurred on repairs to building. The ld. CIT(A),without ascertaining the nature of construction or verifying the bills/vouchers or any other material concluded that expenditure was incurred on temporary structures. There is nothing to sug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs' and to what extent has the Legislature limited the right of the assessee to claim deduction in respect of repairs. One or two views are possible of the expression 'current'. It may be said that 'current' is used in contradistinction to heavy and that small petty repairs are the only repairs which can fall within the ambit of section 10(2)(v). The other view is a view more in fitting with the etymological meaning of the expression 'current', and it is that they are such repairs which are attended to when the need for them arises and are not allowed to fall into arrears or to be accumulated. If a building, machinery, plant or furniture needs some repairs and those repairs are attended to as and when the need arises then the repairs are current repairs. But if the assessee, although the need has arisen, does not attend to that need and allows the repairs to get accumulated, then it could not be said that when he is expending money on these repairs he is expending them on current repairs. Again, it seems to have been the intention of the Legislature that if the assessee could carry on with his building, machinery, plant or furniture without attending to its repairs and spends an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, the words used in section 31(i) are "current repairs". The object behind section 31(i) is to preserve and maintain the asset and not to bring in a new asset. In our view, section 31(i) limits the scope of allowability of expenditure as deduction in respect of repairs made to machinery, plant or furniture by restricting it to the concept of "current repairs". All repairs are not current repairs. Section 37(1) allows claims for expenditure which are not of capital nature. However, even section 37(1) excludes those items of expenditure which expressly fall in sections 30 to 36. The effect is to delimit the scope of allowability of deductions for repairs to the extent provided for in sections 30 to 36. To decide the applicability of section 31(i) the test is not whether the expenditure is revenue or capital in nature, which test has been wrongly applied by the High Court, but whether the expenditure is "current repairs". The basic test to find out as to what would constitute current repairs is that the expenditure must have been incurred to "preserve and maintain" an already existing asset, and the object of the expenditure must not be to bring a new asset into existence or to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... construction is put-up and also if it is a case of repair, replacement, addition or improvement has to be gone into. In the instant case ,as already stated, the assessee did not produce any bills or vouchers or other material before the AO in order to ascertain the nature or purpose of construction while the ld. CIT(A) without disclosing any basis or giving opportunity to the AO, concluded that expenditure was on temporary structure. In these circumstances, we consider it fair and appropriate to vacate the findings of the ld. CIT(A) and the matter is to be remanded to the AO to go into the matter afresh in the light of the observations made above and also in the light of the materials to be furnished by the assessee before him after notice. The AO is directed to pass a speaking order ,bringing out clearly the nature of construction, purpose of construction and the use to which construction is put besides recording his specific findings as to whether expenditure is revenue or capital or on current repairs, in the light of various judicial pronouncements, including those referred to above. With these observations, ground no. 2 in the appeal is disposed of. 13. No additional ground h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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