TMI Blog2017 (3) TMI 480X X X X Extracts X X X X X X X X Extracts X X X X ..... doing of business in the present case because the assets of the club is property of the assessee and any accretion in the value of asset will be a gain to the assessee. Similarly, the club can charge admission fees and other fees without any cap and it will result in to income which was initially shared between the assessee and SP and after 20207. it was fully accruing to the assessee. The impugned payment of Rs. I Crore in the present year to PNB in settlement of the liability of SP had resulted into ownership of assets of the club to the assessee and therefore, it is as cost of purchase of assets of club and it cannot be allowed as revenue expenditure. Had the ownership of the assets of the club was required to be vested in the purchasers of plots or their association, there might have some merit in the claim of the assessee but when as per the JDA, the ownership is vested in the assessee and the plot owners have no right in the assets of the club, it cannot be said that creating the asset of the club is a revenue expenditure. Regarding commercial expediency aspect, we are of the considered opinion that this may be helpful in those cases where the expense is revenue in nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 234B and 234D of the I.T. Act. No opportunity has been given before the levy of interest uls 234B D of the Act. 8. Without prejudice to the appellant's right of seeking waiver before appropriate authority the appellant begs for consequential relief in the levy of interest u/s.234B and 234D. 9. For the above and other grounds and reasons which may be submitted during the course of hearing of this appeal, the assessee requests that the appeal be allowed as prayed and justice be rendered. 3. The brief facts of the case are that the assessee is a firm engaged in the business activity of builder and property developer and filed its return of income on 19/10/2007 declaring a total income of ₹ 71,21,040/-. The case was selected for scrutiny through CASS. The AO has mentioned in the assessment order that the assessee has offered net income of ₹ 3,28,523/- profits for one of its projects GR Greek Agora. The gross income from the project was admitted by the assessee was for ₹ 1,31,42,832/- which included short term capital gain of ₹ 32,74,265/-. Against this income, the asessee claimed a total expense of ₹ 1,18,03,920/- towards club facilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er In the ratio of 60:40. 6. The SP had constructed the Club House after availing loan form Punjab National bank and run the club house up to 2003. Subsequently the S.P. had become bankrupt and could not pay back the dues to the bank and, therefore, the bank took over the club house building for recovering its dues from the S.P. 7. As the ( SP) Summon Motels Ltd., became bankrupt and bank or work the charge of the club and nor services would render with the members / plot owners, therefore assessee negotiated with the bank to settle the dues of M/s Summon Motels Ltd for a consideration of ₹ 1 crore, so as to provide the club facility to the members and outsiders. AO was not convinced with the contention of the assessee and therefore disallowed the club expenses of ₹ 117,67,253/-. 8. Aggrieved by the order of the AO, the assessee preferred an appeal before the CIT(A) who was also not convinced with the submissions of the assessee disallowed the expenses towards club facility for the following reasons: 4.10 In. the light of the aforesaid decisions, the claim of ₹ 1,00,00,000/- as a liability creates certain doubts. The judgement on the suit has been del ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment agreement was to extend the club facilities for the utilization of the buyer of the plot. The attention of the Bench was drawn to paragraph 5.4 and 5.5 of the joint development agreement to the following extent: 5.4 That under the scheme of development the property measuring six acres in survey NO.61/3, Byanahalli Village, Jala Hobli, Bangalore North Taluk is agreed to be developed for locating club house with three star hotel facilities and also with necessary infrastructure including restaurant and bar, Indoor games, health club, business centre, meeting hall, departmental store, swimming pool, shuttle court, tennis court, children play ground and other facilities which shall be for the use and enjoyment of the purchasers of the sites in the schedule property and the cost for establishing the club house with all facilities including construction thereon and fittings, fixtures etc., therein shall be met by the second party and first party is not liable to pay any amount in respect thereto. The ownership of the club house area and fittings, furniture, equipments etc., shall exclusively belong to second party over which the first party or the purchasers of the sites ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur attention was drawn to page nos. 90 and 91 of the paper book. 13. Therefore , on the basis of this document, it was submitted that as the assessee was developer of the property and it was the duty of the assessee to maintain and provide the club facility to plot owners and since M/s S.P failed to run the club and the property of the club was taken over/attached by the Punjab National Bank, therefore, with a view to provide uninterrupted club facility to the plot owners, the assessee has paid a sum of ₹ 1,00,00,000/- to Punjab National Bank. 14. Secondly it was submitted that the assessee has incurred an amount of ₹ 1,00,00,000/- as prudent business man and this has been done considering the commercial expediency in mind and it was submitted that the Revenue should now sit in the arm chair of the assessee and should not decide which and how much expenses should be made. For that purpose, the learned AR relied upon the judgment of the Hon ble Supreme Court in the case of S.A Builders ltd [2007] 158 TAXMAN 74 (SC) which held as under : 34. We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (Bharat) Ltd. [2002] 254 ITR 377 2 that once ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious decisions of the Apex Court, held as under: An acceptable formula of co-relating the notion of real income in conjunction with the method of accounting for the purpose of the computation of income for the purpose of taxation is difficult to evolve. Besides, any strait-jacket formula is bound to create problems in its application to every situation, it must depend upon the facts and circumstances of each case. When and how does an income accrue and what are the consequences that follow from accrual of income are well-settled. The accrual must be real taking into account the actuality of the situation. Whether an accrual has taken place or not must, in appropriate cases, be judged on the principles of the real income theory. After accrual, non-charging of tax on the same because of certain conduct based on the ipse dixit of a particular assessee cannot be accepted. In determining the question whether it is hypothetical income or whether real income has materialised or not, various factors will have to be taken into account. It would be difficult and improper to extend the concept of real income to all cases depending upon the ipse dixit of the assessee which would then b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act, on the other hand, prescribes the form and contents of balance-sheet and profit and loss account, which are to be maintained by the companies under the said Act. Sub-section (2) casts a duty on a company to give a true and fair view of the profit and loss of a company for the financial year in its profit and loss accounts. Sub-section (3A) adheres to the accounting standards for preparing profit and loss and balance-sheet. Sub-section (3C) defines accounting standards as under: (3C) For the purposes of this section, the expression 'accounting standards' means the standards of accounting recommended by the Institute of Chartered Accountants of India constituted under the Chartered Accountants Act, 1949 (38 of 1949) as may be prescribed by the Central Government in consultation with the National Advisory Committee on Accounting Standards established under sub- section (1) of section 210A: Provided that the standards of accounting specified by the Institute of Chartered Accountants of India shall be deemed to be the Accounting Standards until the accounting standards are prescribed by the Central Government under this sub-section. A conjoint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mergers and acquisitions, companies sometimes undertake to defer revenue expenditure over future years which brings in the concept of deferred tax accounting. Therefore, today it cannot be said that the concept of accrual is limited to one year. 83. It is a principle of recognizing costs (expenses) against revenues or against the relevant time period in order to determine the periodic income. This principle is an important component of accrual basis of accounting. As stated above, the object of AS 22 is to reconcile the matching principle with the fair valuation principles. It may be noted that recognition, .measurement and disclosure of various items of income, expenses, assets and liabilities is done only by Accounting Standards and not by the provisions of the Companies Act. 16. Delhi High Court in the case of Hotel Shiv (2014) 44 taxman.com 470 has held as under:- 16. As per the policy only those owners, who apply and pay the conversion charges, were permitted to put their residential properties to commercial or mixed use. Once a property stands converted to commercial/mixed land use, there was substantial enhancement and increase in value of the said property. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . At best it would be payment on behalf of and at the behest of the owners, who were also partners of the petitioner. 19. Individual owners and the partnership firm are two distinct tax entities for the purpose of the Act and are liable to pay income tax on their income after reducing revenue expenditure. But in the facts of the present case while deciding the question of enduring benefit, we cannot be oblivious and ignore the practical reality that unless the partners of the petitioner want the partnership firm i.e. the petitioner cannot continue to operate and run the guest house. Therefore, while determining and deciding the question whether the expenditure was capitalor revenue in nature, the fact and also the position that the expenditure should have been incurred by the owners cannot be ignored. 20. We are of the considered view that the nature of expenditure is clearly capital and incurred on account of the individual partners and is neither a capital nor revenue expenditure of the partnership firm respondent assessee. We find no infirmity in the order rejecting the application of the petitioner under Section 264 of the Act, refusing to interfere in the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he club to the assessee and therefore, it is as cost of purchase of assets of club and it cannot be allowed as revenue expenditure. Had the ownership of the assets of the club was required to be vested in the purchasers of plots or their association, there might have some merit in the claim of the assessee but when as per the JDA, the ownership is vested in the assessee and the plot owners have no right in the assets of the club, it cannot be said that creating the asset of the club is a revenue expenditure. Commercial expediency 20. Regarding commercial expediency aspect, we are of the considered opinion that this may be helpful in those cases where the expense is revenue in nature but the objection of the revenue is this much only that it is not for the purpose of business of the assessee. Then if the assessee can establish that incurring of such expenditure may not be a legal liability of the assessee but because of commercial expediency, such expenditure was incurred and it should be allowed but it cannot be stretched to hold that a capital expenditure resulting into ownership of an asset to the asset is a revenue expenditure because it was considered of commercial expedi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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