2012 (9) TMI 553 - AT - Income Tax

Claim of compensation paid as allowable business expenditure - the assessee allowed possession of the land to the intending purchaser only after payment of full consideration and registration of sale deed. In some cases, since the intending purchaser did not want to buy the land as per mutual agreement and advance received was refunded along with some excess amount as return on investment. This excess amount was termed as compensation. - AO did not accept the submissions of the assessee on the ground that compensation was nothing but consideration to reacquire the rights in plots. - CIT(A) deleted the addition. - Held that - order passed by the CIT(A) is cryptic and grossly violative reflecting non application of mind by the concerned authority to the issues/points raised before it - set aside the order of the ld. CIT(A) and restore the matter to his file for deciding the aforesaid issues - in favour of revenue. Disallowance of repair and maintenance of building - no documentary evidence to be treated as revenue expenditure - CIT(A) deleted the addition - Held that - The assessee did not produce all the bills and vouchers in relation to expenditure incurred on repairs to building and the CIT(A),without ascertaining the nature of construction or verifying the bills/vouchers or any other material concluded that expenditure was incurred on temporary structures. There is nothing to suggest that the assessee produced the relevant bills & vouchers before the ld. CIT(A) nor seems to have verified the genuineness of expenditure or even recorded any such findings - as CIT(A) without disclosing any basis or giving opportunity to the AO, concluded that expenditure was on temporary structure it is appropriate to vacate the findings of the CIT(A) and the matter is to be remanded to the AO to go into the matter afresh - in favour of revenue.

Issues Involved:
1. Deletion of addition of Rs.36,60,500/- as business expenditure.
2. Deletion of addition of Rs.21,81,197/- on account of repair and maintenance of building.

Issue-wise Detailed Analysis:

1. Deletion of addition of Rs.36,60,500/- as business expenditure:

The Revenue appealed against the deletion of Rs.36,60,500/- claimed as business expenditure by the assessee, a real estate company. The Assessing Officer (AO) disallowed this claim, treating the compensation paid to various parties as capital expenditure. The AO argued that the compensation was for reacquiring rights in plots, which should be capitalized.

On appeal, the assessee contended that such compensation had been consistently treated as revenue expenditure in previous years. The CIT(A) accepted the assessee's argument, noting that the compensation was paid due to business exigencies and was a regular business expenditure. The CIT(A) held that the nature of the expense was revenue and not capital, thus deleting the addition.

The Revenue argued that there was no commercial expediency or contractual obligation to pay the compensation, citing the case of Commissioner of Income-tax v. H. P. Housing Board. The assessee countered by relying on past ITAT decisions and various case laws that supported the treatment of such compensation as revenue expenditure.

The Tribunal observed that the CIT(A) did not analyze the nature of each payment or provide specific findings on how the amounts paid were compensations for reacquiring rights in the plots. The Tribunal noted that the CIT(A) failed to pass a reasoned order, as mandated by Section 250(6) of the Income-tax Act, 1961. Consequently, the Tribunal set aside the CIT(A)'s order and remanded the matter for fresh adjudication, directing the CIT(A) to pass a speaking order considering all relevant facts and judicial pronouncements.

2. Deletion of addition of Rs.21,81,197/- on account of repair and maintenance of building:

The AO disallowed Rs.21,81,197/- claimed by the assessee for repair and maintenance of a building, treating it as capital expenditure due to the lack of supporting bills and vouchers. The CIT(A) concluded that the expenditure was for temporary structures in the basement of the building and allowed depreciation at 100%.

The Revenue argued that the assessee did not provide any evidence to substantiate the claim that the expenditure was for temporary structures. The Tribunal noted that the CIT(A) did not verify the bills or vouchers and did not provide an opportunity to the AO to examine the claim. The Tribunal emphasized the need to determine whether the expenditure was for current repairs, revenue, or capital in nature, referencing several judicial pronouncements, including those from the Hon'ble Supreme Court and High Courts.

The Tribunal vacated the CIT(A)'s findings and remanded the matter to the AO for a fresh examination. The AO was directed to ascertain the nature, purpose, and use of the construction, and to pass a speaking order based on the materials provided by the assessee, in light of relevant judicial decisions.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, setting aside the CIT(A)'s order on both issues and remanding the matters for fresh adjudication with specific directions to ensure a reasoned and detailed analysis in compliance with legal standards.

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