2020 (11) TMI 825 - AT - Income Tax

Allowable business expenses OR capital expenditure - payment of forfeited amount earlier received by the assessee - HELD THAT - The above claim of the assessee on account of repayment of forfeited amount earlier received by the assessee, taxed duly in AY 15-16, subsequently, those persons received forfeited amount from assessee, booked the real estate during the year and therefore, forfeited amount was returned by the assessee is definitely an expenditure which springs from the business of the assessee of the real estate. The above expenditure has been incurred by the assessee wholly and exclusively for the purpose of booking of a real estate, cannot be held to be a capital expenditure. Same forfeited amount received from the same person has already been taxed for AY 2015-16, when the same is returned during the current year on booking of the flat, cannot be held to be capital expenditure. When the said sum was received, the revenue taxed as revenue receipt and when the same sum is refunded the revenue treated it as a capital expenditure. Thus blowing hot and cold in the same breath by revenue is not acceptable. Accordingly, reversing the order of the lower authorities the ld AO is directed to delete the disallowance expenditure incurred by the assessee is wholly and exclusively incurred for the purpose of the business and it is not a capital expenditure.

Summary

Issues:
Disallowance of deduction claimed by the assessee of ? 3,55,999 as sustained by the ld CIT(A) - Whether the amount paid on account of flat forfeiture is a revenue expense or a capital expenditure.

Analysis:
The appeal was filed by the assessee against the order of the ld CIT(A)-9, New Delhi, upholding the disallowance made by the ld ACIT, Circle-26(1), Delhi of ? 3,55,999 as per the assessment order passed u/s 143(3) of the Act. The assessee contended that the amount claimed as a deduction was previously included in the total income of the preceding year and should be allowed as a deduction while computing the total income of the current year. The brief facts revealed that the assessee, a real estate company, forfeited an amount of ? 3,55,999 on account of flat forfeiture, which the assessing officer considered as a capital expenditure and disallowed under section 37 of the Act.

The disallowance was contested before the ld CIT(A) and subsequently appealed to the ITAT. The ITAT observed that the forfeited amount had been considered as real estate income and offered for taxation in the preceding year. The assessee had returned the amount to certain allottees during the current year, claiming it as a revenue expenditure. The ITAT held that the amount paid on account of the forfeited amount was incurred wholly and exclusively for the purpose of the real estate business and could not be categorized as a capital expenditure. The tribunal noted that the revenue had treated the same amount as a revenue receipt in the earlier year and as a capital expenditure in the current year, which was deemed inconsistent. Therefore, the ITAT directed the assessing officer to delete the disallowance of ? 3,55,999, allowing the appeal of the assessee.

In conclusion, the ITAT allowed the appeal of the assessee, emphasizing that the amount paid on account of forfeited flat was a revenue expenditure and not a capital expenditure. The tribunal held that the expenditure was incurred for the purpose of the real estate business and should be allowed as a deduction. The decision highlighted the inconsistency in the revenue's treatment of the amount as both revenue and capital in different assessment years, leading to the reversal of the lower authorities' order and the deletion of the disallowance.