TMI Blog2019 (4) TMI 562X X X X Extracts X X X X X X X X Extracts X X X X ..... ceased to exist. Hence no addition can be made under section 41 (1) as held by the honourable Supreme Court in COMMISSIONER OF INCOME-TAX VERSUS SUGAULI SUGAR WORKS PVT. LIMITED [1999 (2) TMI 5 - SUPREME COURT] and the honourable Delhi High Court in CIT VERSUS HOTLINE ELECTRONICS LTD [2011 (12) TMI 90 - DELHI HIGH COURT]. Disallowance of payment of compensation - debited to the profit and loss account as project expenses - assessee was to launch some plot development and group housing schemes and offered at a very attractive price. However later on it realized that it would not be viable for the company to deliver the project properties at such a low price and that if the company holds the stock the same can give better results in future and paid compensation - as per AO above amount should have been shown as project expenditure and from year to year should have been carried in the project account and not in the profit and loss account as assessee following PCM method - CIT(A) allowed stating project itself was given up is not viable there is no question of the compensation being added to the cost of the project - HELD THAT:- in the present case no such facts have been demons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee paid taxes under the provisions of section 115JB of the act. The return of the assessee was picked up for scrutiny and the learned assessing officer passed an assessment order u/s 143 (3) on 26/2/2014 at the assessed income of ₹ 119118713/ . The learned assessing officer disallowance u/s 14 A of the act of INR 2304177/ , addition of ₹ 414744/ on account of reconciliation of 26AS with the profit and loss account, disallowance of project expenses on account of transfer from personal expenses of INR 1 16452/ , brokerage of INR 2608832/- and compensation payment of INR 26227500/ . The further addition of INR 1098998/ was made on account of outstanding creditors u/s 41 (1) of the act. The assessee aggrieved with the order of the learned AO preferred an appeal before the learned CIT A. The learned CIT A upheld the disallowance u/s 14 A of the act stating that the company has an investment of about INR 145,000,000 during the year and expenditure against such investment would have been incurred. Therefore he confirmed the disallowance u/s 14 A of the act. Therefore, assessee aggrieved with the order of the learned CIT A has preferred this appeal. The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 8D computed the interest disallowance of INR 1 577693 and other expenditure of INR 7 26484, thereby, computing total disallowance of INR 2304177/- . 5. On appeal before the learned CIT A the reasons given by the learned assessing officer were upheld. The learned CIT A also relied upon the decision of the honourable Delhi High Court in case of Maxopp Ltd vs CIT 203 taxman 364. Accordingly, the disallowance was upheld. 6. The learned authorised representative submitted that assessee has not earned any exempt income and therefore disallowance u/s 14 A cannot be made. 7. The learned departmental representative relied upon the orders of the lower authorities. 8. We have carefully considered the rival contention and perused the orders of the lower authorities. Undisputedly during the year, the assessee has not earned any exempt income. In absence of any exempt income earned by the assessee, no disallowance can be made u/s 14 A of the income tax act as held by the honourable Delhi High Court in case of Cheminvest vs CIT [2015] 61 taxmann.com 118 (Delhi)/[2015] 234 Taxman 761 (Delhi)/[2015] 378 ITR 33 (Delhi)/[2015] 281 CTR 447 (Delhi). Therefore, respectfully following ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be written off without the consent of the creditors. The learned AO noted that there are 10 parties whose outstanding balance is INR 1098998/- which remained unchanged from financial year 2008 09 until 2010 11. Therefore, the learned AO noted that as assessee has failed to provide any confirmation from the above parties and in some of the cases the addressee is provided were also not complete. Therefore, the learned assessing officer was of the view that unchanged liability from year to year shows that the above parties either not longer exist or have return of the amount into their books of accounts. Therefore, he held that these liabilities do no longer exist. Hence, he made the addition. The assessee challenged the same before the learned CIT A who deleted the above disallowance as per para number 2.3 of his order. The learned AO has challenged the same. 12. The learned departmental representative reiterated the findings of the learned assessing officer and stated that when the parties shown as sundry creditors remained unchanged for last three financial years and the assessee has also not provided the addresses of these parties the learned assessing officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the group housing were offered at a very attractive price. However later on it was claimed that the company realized that it would not be viable for the company to deliver the project properties at such a low price and that if the company holds the stock the same can give better results in future. Consequently as a business decision, these investors were given exit after duly paying them the compensation on investment made by them. The payments made were for the purposes of the business and hence are allowable expenditure as claimed by the assessee. It was further stated that all these expenses are of revenue nature and are fully vouched and verifiable. The learned assessing officer rejected the contention of the assessee and stated that the nature of these expenses is certainly linked to the project undertaken by the assessee, which are at various stages of the completion. Since the assessee is following the percentage completion method of revenue recognition, according to which all the purchases and expenses for the purposes of the construction are booked in work in progress and based on the percentage completion method the said amount is transferred to profit and loss accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar 1997 98 wherein the above compensation was allowed as revenue expenditure. Therefore he submitted that the above said amount of compensation paid by the assessee for upcoming future project which was abandoned cannot be debited to the work in progress as there was no work in progress in respect of such project which could be charged to revenue in a percentage completion basis. He therefore submitted that the issue is not squarely covered in favour of the assessee. On the facts, he referred the page number 46 of the paper book wherein there is a list of 45 persons to whom the compensation have been paid. 18. We have carefully considered the rival contentions and perused the orders of the lower authorities. The claim of the assessee is that during the year it has incurred expenses on compensation for cancellation of the booking amount received of INR 26227500/ the same has been debited to the project expenditure and claimed as revenue expenditure for the year. The assessee s claim is that the assessee was to launch some plot development and group housing for which the company mobilized section of investors to invest in such properties. It was further claimed that to attract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvestors. This is pertinent for the reason that claim of the assessee is that it has accepted the booking for plots and the group housing but later on in the same year it was found that the same is not viable. All these things happened in the one financial year. Therefore, it is necessary for the revenue authorities to look at the reasons for abandoning the project in such a short time. Naturally if the bookings are made for the plots in the group housing scheme, there would necessarily be the supporting of the plot of land and in case of group housing there would be housing schemes for which the investors have made investment. It is highly improbable that a person would pay money to an estate developer without identifying the property itself. Though the assessee has stated before the learned CIT A that it is submitted all these details before the assessing officer but neither the AO nor the CIT appeal has discussed these documents. Furthermore, the investors have been given an exit therefore whether the payment was made as compensation or as an interest is also required to be verified. In the list submitted by the assessee at page number 46 of the compensation paid is a simple l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project itself has been completed in the same year it should be allowed in that year. Further as per para number 5 of the order this shows the fact that the spaces were allotted to various person who had been surrendering them for various reasons. Those persons have invested the money, which remained with the assessee for a number of years, and therefore they were compensated for the loss of the interest income on such investment. Further in para number 25 there was a specific reason why the advances received for sale were returned with the compensation as the lower ground floor initially approved by NDMC as air condition space and therefore while booking that space prospective buyers proceeded on that basis that it would be for commercial use however in the terms of the completion certificate issued by NDMC , LGF was sanctioned as a storage and therefore the buyers lost the interest and therefore the assessee decided to return the advances received and also compensate the buyers since the buyers funded the assessee for years. However, in the present case no such facts have been demonstrated that what the real reasons for cancellation of the bookings are. The assessee has given ..... X X X X Extracts X X X X X X X X Extracts X X X X
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