TMI Blog2019 (5) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... from the lessee. Hence, the amount to the extent received or receivable from the lessee is to be brought to tax. I When the assessee is claiming the payment of enhanced compensation as an expenditure, it is incumbent on the part of the assessee to offer the recoverable amount of compensation from its lessee. The assessee cannot pick and choose only the claim of expenditure towards payment of enhanced compensation and cannot withhold the offering of receipt of enhanced compensation from its lessee. Hence, it is appropriate to remit the issue to the file of the AO to examine the relevant lease agreement entered into by the assessee with its lessee and decide thereupon. However, we make it clear that if the assessee offered the receipt of enhanced compensation from its lessee in any other assessment year, there cannot be double taxation in these years. With this observation, we remit this issue to the file of the Assessing Officer for fresh consideration. Appeals filed by the Revenue are partly allowed for statistical purposes. - I.T.A. Nos. 135 And 353/Coch/2017 - - - Dated:- 6-5-2019 - S/Shri Chandra Poojari, AM And George George K., JM For the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecuted between Kerala Industrial Infrastructure Development Corporation (KINFRA) and the assessee of an area, for a value of ₹ 3,74,50,870/-. (Though the area mentioned in the lease deed aggregated to 106.40 acres, the actual area of land made available to the assessee was 107.52 acres. The difference is very marginal). Of these land taken on lease as above, the assessee had converted an area of 77.07 acres into stock-in-trade in an earlier assessment year, as the said land was to be leased to entrepreneurs for setting up industrial units on long term basis. The balance area of 23.98 acres was used for setting up the common utilities for use of the units to set up in the industrial park. The Assessing Officer found that the compensation was paid on the basis of clause 3 of the lease deed with KINFRA dt. 25.02.2005. According to the Assessing Officer, in the lease agreement entered into between the entrepreneurs and the assessee, there was no provision to recover the enhanced compensation. Income from revenue operation was received during the period 2003-04 and onwards. It was noticed that there was no specific condition to collect enhanced compensation from the sub-lessees. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 838.00 18,65,100.00 4 2006-07 86,18,379,00 2,72,12,200.00 5 2007-08 28,32,952.00 91,30,200.00 6 2008-09 1,42,38,748.00 5,93,79,790.00 7 2009-10 78,60,488.00 4,10,41,650.00 8 2010-11 21,77,458.00 1,34,10,900.00 9 2011-12 5,34,164.00 56,40,000.00 8. 4. On appeal, the CIT(A) deleted the disallowance made by the AO. However, the CIT (A) reworked the claim of enhanced compensation paid, with reference to the port ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable income under the said accounting practice/method. 5. Against this, the Revenue is in appeal before us. 5.1 The Ld. DR submitted that the payment of enhanced compensation to the 70 land owners of 47.28 acres of land cannot be treated as general expenses and it does not come under the provisions of section 37(1) of the Income-tax Act. In view of the same, a portion of the cost of land value originally fixed by the KINFRA had been treated as fixed assets of the company and the remaining value in respect of 77.07 acres of land was accounted as stock in trade in the audited accounts of the assessee company until the lease rents are collected from the lessees in proportion to the land sub-leased, the claim of expenditure under enhanced compensation was restricted to the extent of additional amount of enhanced compensation collected from the sub-lessees. Thus, the expenditure under land compensation expenses was restricted to ₹ 16,59,1367- being the amount collected from the lessees and the balance amount of ₹ 2,75,24,248/-[₹ 2.91,83,384 - 16,59,136 = ₹ 2,745,24,248] was added to the returned income. He relied on the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollowed. By virtue of provisions of sec. 145(2) of the Income Tax Act, the Central Government by Notification No. S.O 69(E), dt 25.01.2996, has notified Accounting Standards I II, to be followed by all assesses following the mercantile system of accounting. According to the Ld. AR, Accounting Standard I is 'Disclosure of accounting Policies'. In accordance with the said accounting standard, the fundamental accounting assumptions are: - Going concern - Accrual - Consistency It was submitted that the Accounting Standard describes the term 'Accrual' as the assumption that revenues and costs are accrued, that is, recognized as and when they are earned (and not as money is received or paid) and recorded in the financial statements of the periods to which they relate. In the assessee s case, the enhanced compensation expenses relating to stock in trade were incurred and paid and hence as per the above definition of the term 'Accrual' the said expenditure was accrued. Hence, the assessee had rightly accounted such enhanced compensation paid relating to stock in trade as expenditure and claimed in the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lity to assess the ultimate collection with reasonable certainty is lacking at the time of raising any claim, e.g., for escalation of price, export incentives, interest etc., revenue recognition is postponed to the extent of uncertainty involved. In such cases, it may be appropriate to recognise revenue only when it is reasonably certain that the ultimate collection will be made. Where there is no uncertainty as to ultimate collection, revenue is recognised at the time of sale or rendering of service even though payments are made by instalments... Thus, it was submitted that the assessee had been correctly following the above mandatory accounting standard consistently and accounting for enhanced compensation as and when it was recovered, in view of the high degree of uncertainty involved. Thus, it was submitted that the findings of the AO were not supported by any of the provisions of the Income Tax Act. 6.5 It was submitted that as per the provisions of sec. 37(1) of the Act, any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , viz., for the AY 2012-13 AY 2013-14, without stating any detailed reasons, though the said policy was accepted by the revenue from the AY 2003-04 to AY 2011-12. Thus, it was submitted that the findings of the AO were not supported by any of the provisions of the Income Tax Act. 7. We have heard the rival submissions and perused the record. In these appeals, the assessee claimed enhanced compensation as expenditure. According to the Assessing Officer the assessee is entitled to recover it from the lessee from whom the loan was taken. In view of this, he allowed payment of enhanced compensation to the extent of amount recovered from the lessee which was offered as income. The balance compensation payable was not allowed by the Assessing Officer. However, neither the Assessing Officer nor the CIT(A) has examined the lease agreements based on which the assessee is entitled to recover the enhanced amount of compensation from the lessee. Without examining the lease agreement entered into by the assessee with the lessee, it is not possible for us to hold that to what extent the assessee is entitled for the claim of enhanced compensation as ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
