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TMI Blog2019 (5) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... agreement entered into between the assessee and the sub-lessees. 4. In the facts and circumstances of the case as well as in law, the CIT(A) I not justified in coming to the conclusion that the issue involved is revenue neurtral and there is no loss to the revenue, since the assessee will declare the enhanced compensation collected from the sub-lessees in the year of reciept. 5. It is prayed that the orders of the CIT(A) be set aside and that of the Assessing Officer held good. 3. The facts of the case are that the assessee is engaged in the business of acquiring/purchasing of freehold or leasehold land and undertake development thereof and develop all other infrastructure facilities including power, water, transportation, conducive for the development of industries based on rubber and rubber wood and sell, lease or otherwise dispose of the developed plots and other facilities including build up structures thereon to entrepreneurs. The assessee had set up an industrial park for making available land on long term lease to entrepreneurs engaged in manufacture of rubber based products. For this purpose, the assessee had taken a property on a long term lease, admeasuring 106.4 acr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt, in proceedings pursuant to the provisions of the Land Acquisition Act, the premium payable will get enhanced proportionately to that extent and the assessee shall be liable to pay the same as and when called upon to do so. During the relevant assessment years on the basis of the decision of the High Court, it was legally determined that KINFRA is liable to pay enhanced (additional) compensation which as per the clause referred above became legally payable by the assessee. As per the consistent accounting policy followed by the assessee, the value of land classified as Stock in Trade and then leased to various units were taken to the Profit and Loss Account of the respective assessment years as below: Sl.No Asst. Year Proportionate Cost of Land Debited (Rs.) Income from Sublease of land (Rs.) 1 2003-04 21,13,639.00 35,08,200.00 2 2004-05 47,81,727.00 1,04,95,000.00 3 2005-06 6,69,838.00 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 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apparently been made by the Dept and he has not shown or demonstrated in any manner that there has been any underestimation or under-reporting of taxable 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 Rs. 16,59,1367- being the amount collected from the lessees and the balance amount of Rs. 2,75,24,248/-[Rs. 2. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Central Government is required to be mandatorily followed. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing 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 the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to what extent the assessee is entitled for the claim of enhanced compensation as an expenditure. If there is enforceable clause in the lease agreement based on which the property was leased out by the assessee, the assessee can recover the amount of enhanced compensation from the lessee. Hence, the amount to the extent received or receivable from the lessee is to be brought to tax. In other words, 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, in our opinion, it is appropriate to remit the issue to the file of the Assessing Officer to examine the relevant lease agreement entered into by the assessee with its lesee 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 observat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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