TMI Blog2017 (2) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... view that order of CIT(A) on this issue does not call for any interference. - Decided against assessee Disallowance of prior period expenses - Held that:- The said maintenance expenses relate to March, 2008 for which a bill dated 04.04.2008 was received by the assessee only in the month of April, 2008 and was booked as expenses pertaining to A.Y.2009-10. It has been claimed by the assessee that all the other expenses given in the annexure are of similar nature. Keeping in view the submissions of the ld. Counsel for the assessee and also the ratio laid down by the Hon’ble Delhi High Court in the case of CIT vs Modipon Ltd. (2010 (12) TMI 836 - Delhi High Court ), we are of the view that expenses in question accrued or arose as liability to the assessee only during the previous year relevant to A.Y.2009-10. The claim of the assessee for deduction of the aforesaid sum deserves to be accepted. Accrual of income - Assessee in the present case follows mercantile system of accounting - Held that:- The parties by an agreement cannot alter the time of accrual of income under the mercantile system of accounting. Income under the mercantile system will accrue and arise when the right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ojects Ltd hold 50% each of the paid-up capital of the assessee. 4. During the previous year the authorised share capital of the assessee was increased from ₹ 5 crore to ₹ 55 crore . The assessee paid a sum of ₹ 25,00,000/-to the Registrar of companies (ROC) as fees for increase in the authorised share capital. The amount so paid was claimed as revenue expenditure and deductible while computing the income under the head income from business. 5. The AO made a reference to the decision of the Hon ble Supreme Court in the case of Punjab State Industrial Development Corporation Limited vs CIT and Brooke Bond India Limited vs CIT 225 ITR 792 (SC) and 225 ITR 798(SC). In the aforesaid decisions, the Hon ble Supreme Court held that fees paid to ROC for increase in authorised share capital is a capital expenditure. The deduction claimed was accordingly disallowed by the AO. 6. On appeal by the assessee the CIT(A) confirmed the order of AO. Before CIT(A) the assessee has raised alternative contention that under the provision of section 35D of the Income Tax Act, 1961 (Act) as amended by Finance Act 2008 w.e.f. 01.04.2009, preliminary expenses incurred for extensio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en given as Annexure to this order. The AO was of the view that the assessee follows mercantile system of accounting and therefore the expenditure relatable to the previous year relevant to A.Y.2009-10 alone can be allowed as deduction. He therefore disallowed the claim of the assessee for deduction of prior period expenses. 11. Before CIT(A) the assessee submitted that the expenses though related to prior period had crystallised as liability only during the previous year. It was the plea of the assessee that the bills and other details in respect of the aforesaid expenses were received during the previous year and therefore the liability in question had crystallised to the assessee only during the previous year. The CIT(A) however was of the view that the reasons advanced by the assessee were not convincing and therefore the prior period expenses cannot be allowed as deduction. 12. Before us the ld.counsel for the assessee reiterated the submissions made before CIT(A). He drew our attention to one of the items of the expenses given as annexure to this order namely Maintenance Expenses of ₹ 1,21,817/- which was a sum paid to M/s. Tenacity Security who had raised the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the assessee is allowed. 14. Ground nos. 3 to 7 raised by the assessee read as follows :- 3. That the learned Commissioner of Income Tax (Appeals) erred in confirming the addition of ₹ 44,42,85,000 representing consideration of unconstructed portion of 15% lease rights agreed to be transferred in five years of construction period of College Street Market Complex. 4. That the learned Commissioner of Income Tax (Appeals) erred in confirming the assessment of total amount of advance of ₹ 63, 12,00,000 received by the Appellant on account of transfer of 15% leasehold rights in College Street Market Complex agreed to be transferred on construction of the same in five years. 5. That the learned Commissioner of Income Tax (Appeals) erred in upholding the aforesaid addition of ₹ 63,12,00,000 as against the sum of ₹ 18,69,15,000 only representing transfer of leasehold right in 33,984.55 sq. ft. area of the College Street Market Complex which was constructed by 31 st March, 2009 and for which area the Appellant Company got leasehold rights from Kolkata Municipal Corporation in terms of development agreement dated 24th February 2006. 6. That ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ensive market complex by the assessee, 70% of the built up area will be reserved for the assessee and 30% of the build up area will be allotted to KMC to enable KMC to locate the existing licencees and the stall holders of the college street market. 70% of the built up area to be allotted to the assessee was only a lease hold right of the built up area. The assesse however had the right to deal with the lease hold rights in any manner it deems fit. The agreement dated 24.02.2006 was followed by another supplementary agreement dated 12.06.2006 between the assessee and KMC. 16. In pursuance of the aforesaid agreement with KMC, the assessee demolished the old structure after making suitable arrangements for shifting the existing occupants to the temporary accommodation. The assessee also made a final survey and prepared the building plan which was duly sanctioned by KMC. As per the terms of the agreement, the assessee could either carry out the development work itself or could appoint a contractor to carry out the development work. There was another subsidiary company of the assessee by name Square Feet Furnishers Pvt. Ltd. (SFFPL) which was later named as M/s. Barnaparichay BookMa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her supplementary agreement dated 31.03.2009 between the assessee and SFFPL/BBMPL. This agreement refers to the earlier agreement dated 6.3.2008 and further states that subsequent to the agreement dated 6.3.2008 the Assessee had decided to relinquish 1,23,600 Sq.ft. out its 70% share of leasehold rights in the built up area in the new market to be constructed in favour of SFFPL/BBMPL for a consideration of ₹ 63,12,00,000. SFFPL/BBMPL paid a sum of ₹ 57,16,68,000 to the Assessee. This agreement contains a schedule which identifies the location of the built up area to be allotted to SFFPL/BBMPL and its value and the same is as follows :- SCHEDULE OF ALLOCATION Block Floors Built up area Rate per sqft Total (Rs.) A 2 nd 25,000 5500 137,500,000 3 rd 25,000 5500 137,500,000 4 th 25,000 5250 131,250,000 5 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the agreement dated 31.3.2008 cannot defer the accrual of income. He held that the transfer of rights cannot be linked to the stage of completion of development works carried on by BBMPL. He therefore held that the assessee was not correct in recognizing its income on transfer of lease rights transfer in proportion to the stage of completion of development works by BBMPL. The AO accordingly held that the entire sum of ₹ 63,12,00,000/- has to be assessed as business income of the assessee for the current assessment year. Since the assessee has credited the P L account by a sum of ₹ 18,69,15,000/-, the balance sum of ₹ 44,42,85,000/- was added back as business income of the assessee. 20. On appeal by the Assessee, the CIT(A) concurred with the view of the AO. The CIT(A) in upholding the order of the AO and came to the following conclusion :- 1. The arguments on behalf of the Assessee that profit/income in lieu of transfer of 15% of the leasehold rights to its subsidiary company, the BBMPL is assessable in its hands on project completion method cannot be accepted because what is transferred is not the right to share profit, but the leasehold rights vest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant is failed. iv) In view of the above reasons, I am of the considered opinion that the Assessing Officer was factually and legally justified in assessing the whole of the amount received on transfer of the leasehold rights at ₹ 63,12,00,000/- as the appellant's income during the year under consideration. The addition is accordingly confirmed and this ground of appeal of the appellant is dismissed. 22. Aggrieved by the orders of CIT(A) the assessee has raised ground nos. 3 to 7 before the Tribunal. 23. We have heard the submissions of the ld. Counsel for the assessee and the ld. DR. The ld. Counsel for the assessee submitted that the Assessee does not dispute assessment of the sum of ₹ 18,69,15,000 in the assessment year 2009-10. However, the assessee company disputes the addition of the balance sum of ₹ 44,42,85,000 (Rs,63,12,00,000 - ₹ 18,69, 15,000). It was his submission that the Assessee received a sum of ₹ 57,16,68,000 from BBMPL and after recognising a sum of ₹ 18,69,15,000/- as income of the previous year, the balance amount of ₹ 38,47,53,000 (Rs.57,16,68,000 18,69,15,000) was shown as advance against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t cannot give something which it does not have. It was argued that the maxim Nemo dat quod non habet which means - no one can transfer something which he does not possess, will be applicable in the present case. Income would accrue to the assessee only with reference to consideration of the area for which the actual transfer was effected of the value of ₹ 18,69,15,000 only and not ₹ 63,12,00,000 for the whole area to be constructed in five years as alleged by AO. It was submitted that the following amounts being part of the sum of ₹ 44,42,85,000 (Rs.63,12,00,000 - ₹ 18,69,15,000) has already been offered to tax by the Assessee as its income accrued to it in the following years, when the respective rights were transferred on completion of the work as agreed, and has been taxed accordingly. 31st March, 2010 ₹ 2,97,52,500 - page 105 of PB 31st March, 2011 ₹ 13,09,40,000 - Page 148 of PB M/s BBMPL also capitalized the aforesaid amounts in their Balance Sheet as detailed herein below. 31st March, 2010 ₹ 2,97,52,500 - page 130 of PB 31st March, 2011 ₹ 13,09,40,000 - Page 169 of PB It was argued that the assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis of the terms of the Agreement dated 31.3.2008 and therefore, we shall confine ourselves to the question whether income to the tune of ₹ 63,12,00,000 accrued to the assessee and that had to be brought to tax in the relevant AY. 26. By a letter dated 31.03.2009 between the Assessee and SFFPL/BBMPL it was specifically mentioned after referring to the agreement dated 31.3.2009 that the area that has to be allotted to it will be so allotted only on completion of the bare construction and in respect of portions which remains incomplete, such area will be transferred only in the year of completion of construction. This letter is the basis on which the Assessee claims that accrual of income will be based on the completion of structure which is referred to as Bare construction in the said letter. 27. There is no dispute before us that the income in question is to be assessed under the head income from business. U/s.145 of the Act, income from business is computed in accordance with the regular method of accounting followed by the Assessee which could be either cash or mercantile system of accounting. The Assessee in the present case follows mercantile system of accounting. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not arise from execution of any construction contract by it. It arises out of the Assessee s action of trading the built up space which it was to get by virtue of its agreement for building new market with KMC. 29. The argument that even BBMPL recognised income only on the basis of completion of construction, is again irrelevant when it comes to determining income of the Assessee. The fact that the Assessee was offering to tax income as and when bare construction was completed is again not relevant. It was argued by the learned counsel for the Assessee that the revenue has taxed income offered in the subsequent years by the Assessee and taxing the same income in the present AY would amount to double taxation of the same income. We are of the view that these factors cannot decide the accrual of income in the hands of the Assessee. If there is double taxation of the same income then it is for the Assessee to work out its rights in a manner known to law. 30. For the reasons given above, we find no merits in Grds. 3 to 7 raised by the Assessee and accordingly dismiss the same. 31. In the result, appeal by the Assessee is partly allowed. Order pronounced in the Court on 03 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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