2018 (9) TMI 1547 - AT - Income Tax

Advance received by the assessee from the customers to allot plots in future - capital receipt or revenue receipt - expenses collected in connection with receiving advances has to be treated as revenue receipts - Held that - The revenue receipts admitted from other sources during the year relevant to Assessment Year 2009-10 was ₹ 48,11,812/-. The expenditure incurred towards earning of the above receipts could be reasonably estimated at 30% which would be ₹ 14,43,543/-. Thus, the income from other sources to be subjected to tax would be of ₹ 33,68,269/-. We find that the CIT(A) by considering all the facts and relevant material, he came to a conclusion that the amount collected by the assessee for allotment of the plots in future, though not allotted, has to be treated as a capital receipt because the assessee has collected the deposits from various customers to acquire the capital asset and therefore, the amount received by the assessee has to be treated as a capital receipt. So far as expenditure incurred by the assessee in relation to acquire of the capital asset, it cannot be considered as a revenue receipt. We find that ld. CIT(A) has correctly directed the Assessing Officer to delete the addition and also directed corresponding expenditure would not be allowed as revenue expenditure. Disallowance under section 40(a)(ia) - as submitted before the ld. CIT(A) that TDS was effected and remitted to government account - CIT(A) directed the Assessing Officer to verify the claim and if it is found that TDS was effected and remitted to government account within the time prescribed, then the impugned addition may be deleted - no infirmity in the order passed by the ld. CIT(A). Thus, this ground of appeal raised by the revenue is dismissed. Allowable revenue expenditure incurred towards collection of deposits - Held that - Assessing Officer treated the plot advance received by the assessee from the customers is a revenue receipt and taxed accordingly. The assessee only received advance and not allotted any plot to the customers and the assessee also not started any developmental activity. Therefore, it has to be considered that assessee not started its activities for which the advance received from the customers. The ld. CIT(A) has rightly held that the advances received by the assessee from the customers is only a capital receipt. So far as expenditure claimed by the assessee is concerned, we find that these expenditure claimed by the assessee in connection with the plot advance received by the assessee. Therefore, the plots advance has already treated as a capital receipt, therefore, this cannot be considered as a revenue receipt. The ld. CIT(A) rightly held that the expenditure incurred towards collection of these deposits would not take the character of revenue expenditure and accordingly, directed the Assessing Officer to estimate the income. We find no infirmity in the order passed by the ld. CIT(A). Unverifiable expenses - CIT(A) has observed that the above expenses are apparently found to be incurred towards collection of deposits and are not to be allowed as a revenue expenditure, the addition made towards disallowance of expenditure is not warranted, hence, directed the Assessing Officer to delete the same. No infirmity in the order passed by the ld. CIT(A). - Appeal of revenue dismissed.

Issues Involved:
1. Whether the amounts collected by the assessee towards refundable plot booking advances should be treated as capital receipts or revenue receipts.
2. Whether the expenses incurred by the assessee in connection with receiving advances should be treated as revenue expenditures.
3. The applicability of Section 40(a)(ia) regarding TDS deductions and remittances.
4. The reliability of the assessee's books of account and the appropriateness of the assessment under Section 144 of the Act.
5. Whether the advances received by the assessee can be considered as income for the assessment years in question.

Issue-wise Detailed Analysis:

1. Treatment of Refundable Plot Booking Advances:
The primary issue was whether the amounts collected by the assessee towards refundable plot booking advances should be considered as capital receipts or revenue receipts. The assessee, a public limited company engaged in selling agricultural plots and farm lands on an installment basis, collected advances from customers with a promise to register plots in the future. The Assessing Officer (AO) treated these advances as revenue receipts, arguing that the amounts collected were not correlated with specific plots and that no plots were registered even after three years.

The Commissioner of Income Tax (Appeals) [CIT(A)] observed that the agreements with customers did not specify the exact land to be allotted, and no development work was carried out. Thus, the money collected could not be considered as plot advances but as capital receipts. The CIT(A) concluded that the scheme was a mechanism to collect deposits from the public, and the amounts collected were in the nature of capital receipts. This view was upheld by the Tribunal, which found no infirmity in the CIT(A)'s order.

2. Treatment of Expenses Incurred:
The AO noted that the assessee claimed various expenses related to the collection of plot booking advances as revenue expenditures, which resulted in a distorted picture of the company's financial affairs. The CIT(A) held that since the amounts collected were capital receipts, the corresponding expenses incurred towards acquiring such capital should be adjusted against these receipts and not claimed as revenue expenditures. The Tribunal agreed with this view, stating that the expenses related to the collection of deposits could not be considered as revenue expenditures since no revenue-generating activity had commenced.

3. Applicability of Section 40(a)(ia):
The AO disallowed certain expenses under Section 40(a)(ia) of the Act, noting that TDS was not remitted to the government account within the stipulated due dates. The CIT(A) directed the AO to verify if the TDS was effected and remitted within the prescribed time and to delete the addition if this was the case. The Tribunal found no infirmity in this direction and upheld the CIT(A)'s order.

4. Reliability of Books of Account and Assessment under Section 144:
The AO rejected the assessee's books of account as unreliable and completed the assessment under Section 144 of the Act. The CIT(A) supported this view, stating that the method of accounting adopted by the assessee gave a distorted picture of its profits. The Tribunal agreed with the CIT(A), noting that the books of account were not reliable and justified the assessment under Section 144.

5. Advances as Income:
For the assessment years 2009-10 and 2010-11, the AO treated the advances received by the assessee as revenue receipts and taxed them accordingly. The CIT(A) and the Tribunal held that since the assessee had not commenced any developmental activity and the advances were collected for acquiring capital assets, they should be treated as capital receipts. The Tribunal found no infirmity in the CIT(A)'s order, which directed the deletion of the addition made by the AO and disallowed the corresponding expenditures as revenue expenditures.

Conclusion:
The Tribunal upheld the CIT(A)'s decision that the amounts collected by the assessee towards refundable plot booking advances were capital receipts and not revenue receipts. Consequently, the expenses incurred in connection with these advances could not be treated as revenue expenditures. The Tribunal also agreed with the CIT(A) on the applicability of Section 40(a)(ia) and the assessment under Section 144, dismissing the appeals filed by the Revenue.

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