TMI Blog2013 (6) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed as a business expenditure. The nomenclature of the payment being not determinative of the nature thereof, it matters little that it was termed as 'compensation' which, otherwise too, it indeed is, as discussed. The payment, however, has never been shown to be sale consideration for re-purchasing the plots, as tried to be made out by the Assessing Officer. Once the plots never left the ownership and possession of the assessee, there is no question of their being re-purchased by the assessee company. CIT (A) also found the amount paid by the assessee to have been allowed to the assessee as revenue expenditure pertaining to the issue of consistency. In favour of assessee. - ITA No.2832/Del/2012 - - - Dated:- 21-6-2013 - Shri A. D. Jain And Shri Shamim Yahya,JJ. For the Petitioner : Shri C. S. Aggarwal, Sr. Advocate For the Respondent : Shri Tarun Seem, Sr. DR ORDER Per A. D. Jain, Judicial Member This is an appeal filed by the department for Assessment Year 2001-02 against the order dated 28.03.2012 passed by the CIT (A)- XXXI, New Delhi, contending that the Ld. CIT (A) has erred in deleting the addition of Rs. 21,02,000/- made on account of compensation ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any compensation to the allottees by the assessee company; that the intention of the assessee company was to pursue the allottees to surrender their rights in the plots, so as to earn more profit in future; and that being not allowable as a revenue expenditure, the amount could not be debited in the Profits Loss Account. It was in this manner that the Assessing Officer increased the assessee's capital work in progress by the amount of Rs 21,02,000/- and the compensation paid was disallowed and added back to the income of the assessee company. 4. Vide order dated 06.01.2005, the Ld. CIT (A) held that there was no re-purchase of the plots, as the plots had never been sold to the buyers; that the advances had been received against the agreement which would have been fulfilled only at the time of full payment and transfer of rights. The Ld. CIT (A) also followed the orders for the earlier years in allowing the claim of compensation as a business expenditure. 5. The department carried the matter in appeal before the Tribunal and the Tribunal, vide its order dated 5.10.2007, in ITA No.1505/Del/2005, remitted the matter to the file of the Ld. CIT (A), observing as follows:- "No d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been contended that the Ld. CIT (A) has failed to consider that the payment was made by the assessee for surrender of plots by the allottees; that the amount thus represented purchase consideration for the plots re- purchased from the allottees by the assessee; that it was this, which was misleadingly termed and claimed as 'compensation', whereas, since there was no default attributable to the assessee, there was no question of any compensation having to be paid by the assessee to the allottees; that this methodology was a clever device adopted by the assessee to give the colour of genuine business expenditure to the transaction, whereas it is well settled that payment of acquiring right, title and interest in lease in respect of the business premises is a capital expenditure, being the sale consideration paid for re-possession of the property vesting in the original allottees. 8. The ld. counsel for the assessee, on the other hand, has strongly supported the impugned order. It has been contended that no sale of the plots was made by the assessee; that the allottees of the plots had voluntarily surrendered the plots; that the amount in question represented advances deposited by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... returned by the assessee along with interest thereon in the year under consideration. Since the full payment in any of these four cases had never been made, the sale never got to be complete and the plots remained in the ownership and possession of the assessee company without being transferred to the names of the four prospective buyers. It has not been shown otherwise. Thus, the conclusion of the Assessing Officer that the amount in question represented sale consideration for re-purchase of the plots by the assessee remains a conclusion unsubstantiated by anything on record. Other than observing that any amount paid for surrender of plots would enhance the stock in trade of the assessee by an equivalent amount, the Assessing Officer did not refer to any other document or circumstance showing that the assessee had, in fact, re-purchased the plots from the allottees and had claimed the purchase consideration as compensation. 12. A perusal of the operative portion of the Tribunal Order dated 5.10.2007 shows that indeed, the expenditure has been held by the Tribunal to be revenue expenses. This is clear from the very first sentence of para 6 of the order, which says "no doubt the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company, the Ld. CIT (A) found that the assessee company enters into an agreement to sell when the occasion arises, i.e., when an intending buyer intends to purchase farm land in the project being developed by the assessee company. The consideration is received in installments as part payment. The sale, however, is recognized only when the sale consideration along with the registration and other expenses is received and possession is delivered to the intending purchaser. If the sale falls through, the booking is cancelled and the amount of deposit with some compensation/interest is paid, as a business exigency, by the assessee company to the party, with mutual consent. 15. So far as regards the method of valuation of closing stock, it was found by the Ld. CIT (A) that the assessee company was regularly valuing its stock of land at cost. The cost of land with incidental expenses was being considered as stock of land. Whenever a plot was registered in the name of a purchaser and possession was handed over, proportionate cost of such land was reduced and the resultant amount was shown under the Schedule of Inventories, whereas the direct expenses incurred on the development of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, has never been shown to be sale consideration for re-purchasing the plots, as tried to be made out by the Assessing Officer. Once the plots never left the ownership and possession of the assessee, there is no question of their being re-purchased by the assessee company. Moreover, in earlier years, such payments by the assessee to other customers have also been allowed consistently to the assessee as business expenditure, as taken note of by the Ld. CIT (A), as observed in para 16 above. 19. The Ld. CIT (A) has passed an elaborate speaking order and we extract hereunder the relevant portion thereof:- "B)........... I have satisfied myself from the records of the case that method of accounting policy followed by the appellant is to claim the expenses in the year when the compensation was paid on the revocation of the agreement entered with the customers. The assessments have been framed u/s 143 (3) of the Income Tax Act, 1961 from the assessment year 1995-1996 to 1998- 1999 when such a claim of expenses has not been disallowed by the Assessing Officer and thus the claim stood allowed. In so far assessment years 1999-2000 to 2000-2001 are concerned assessment were not ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stock in trade for non-performance of a contract, the compensation paid is always considered as revenue expenditure. (vi) In a decision of Delhi High Court in the matter of CIT vs. Bhagvandas Rameshwar Dayal 149 ITR 387 it was held that "if a contract is broken for any reason and one party is unable to give delivery or other party is unable to take delivery, it is a case of breach of contract and the damage paid on account of such breach of contract was a normal loss incidental to business." In a similar case of M/s Gopal Dass Estate and Housing Ltd. ITA No.3096/Del/2000 for A.Y. 1997-98 the compensation was allowed as revenue expenditure. The Hon'ble Tribunal Delhi has held that there is no repurchase of the plot (against the compensation) as the plots were not sold to the said buyers." 20. Before us, the categorical findings recorded by the Ld. CIT (A) have remained unshaken and for the reasons discussed hereinabove, the order under appeal is hereby confirmed, rejecting the grievance sought to be raised by the department. 21. In the result, the appeal filed by the department is dismissed. The order pronounced in the open court on 21.06.2013. - - TaxTMI - TMITax - In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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