2014 (6) TMI 780 - AT - Income Tax

Rectification of mistake - Determination of cost of land Any expenses relating to allotment of land not debited Held that - The expenses reflected in Schedule-K are in the nature of stamp duty, registration fee incurred for registration of title deed and bank guarantee commission - This does not tantamount to incurring of any expenditure towards allotment of land by the Government - the assessee has offered the gross amount on sale of land/ building/IT Park as revenue receipt for taxation purposes and there is no deduction of land cost from it, taxing the cost of the land once again amounts to double taxation - if the assessee is not charging cost of land to the Profit and Loss A/c. and offered the receipt from sale of land/building/IT Park as revenue receipt, then the claim of the assessee could be allowed the AO is directed to verify whether the assessee has charged any cost incurred for allotment of land in its books of account as an expenditure and if it is not charged any expenditure towards allotment of land to Profit and Loss A/c., then the claim of the assessee is to be allowed - Decided in favour of Assessee.

Summary

Issues:
Rectification in Tribunal's order regarding release of bank guarantee and its tax treatment.

Analysis:
The assessee, engaged in real estate business, developed an industrial park in Hyderabad with land allotted by the Andhra Pradesh Government subject to rebate conditions. The Tribunal concluded that the release of the bank guarantee by the Government constitutes a revenue receipt chargeable to tax. The AR argued that the subsidy should be treated as a revenue receipt since the land was treated as trading assets. The Tribunal's reasoning was based on the treatment of land expenditure in the accounts and the nature of the concession received.

The AR contended that the Tribunal erred in assuming the land allotment cost was debited to the Profit and Loss Account, as it was not recorded in the accounts. Any reduction in price due to the subsidy not being recorded constitutes a mistake apparent from the record. The AR emphasized that treating the release as a revenue receipt would lead to double taxation since the land cost was not deducted in the books. The AR also highlighted that the rebate did not reduce employee costs, as it was related to lessees/licensees.

The Tribunal acknowledged that no expenses related to land allotment were debited in the accounts, only stamp duty, registration fees, and bank guarantee commission were reflected. It recognized the argument of double taxation if the land cost was taxed again without deduction. The Tribunal directed the AO to verify if any land allotment cost was charged in the books and allowed the claim if no such expenditure was recorded. The final decision was to partly allow the revenue appeals for statistical purposes.

In conclusion, the Tribunal allowed both Miscellaneous Applications filed by the assessee, emphasizing the importance of correctly treating the subsidy received in relation to the land allotment in the real estate business for tax purposes.