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2014 (7) TMI 501 - AT - Income TaxTransfer of property - Development agreement where possession was not handed over yes - No real income accrued Held that - the assessee has recognised the income in accordance with the true terms of the agreement and if there is any inconsistency in recognising the income then only revenue authorities can disturb the same. Once the assessee recognised the income in accordance with the agreements, the AO cannot substitute his assessment to say that the assessee has postponed the tax liability. The assessee initially entered into Development Agreement with M/s. ECE Industries Ltd. on 17.9.2007 for development of land admeasuring 67824 sqy situated at Sy. Nos. 74/P and 75/P at Borabanda, Fathenagar village, Ashok Marg, Hyderabad for which the assessee was required to pay ₹ 30,50,36,525 to M/s. ECE Industries Ltd. as a consideration for obtaining Development and GPA rights - it is too early to assess business profit out of the sale of constructed area to M/s. Janapriya Engineers Syndicate - The assessee neither received substantial consideration or assets to be sold are ready for handing over the possession to the concerned parties so as to transfer the title in the property - Till such time, it cannot be said that the parties involved in are ready to perform the contract - neither possession of the property has been given to the ultimate buyer or the assessee has received any substantial consideration - When the property is to be sold is not readily available or constructed, the assessee cannot recognise income with certainty. The agreement entered into by the assessee herein is only for sale of piece of property and sale will take place only after completion of construction and after assessee's share of property is identified - The proposed sale agreement cannot be put into action due to various litigations pending with various courts - Nobody can transfer title in a property when the property is not in existence - when there is litigation pending on the same property and no profit can be anticipated when the agreement itself is subject matter of litigation - It is not possible to bring the same to tax - it is not possible to hold that income has actually accrued to the assessee - When consideration is not determinable with reasonable certainty, the assessee is justified in postponing recognition of income and it is appropriate to recognise the income only when it is reasonably certain that the ultimate realisation is possible - revenue could be recognised at the time of sale or handing over of possession of flats to the ultimate customers -The Department cannot thrust upon the assessee so as to tax the future income. Income arising out of sale of flats to M/s. Janapriya Engineers Syndicate in which constructed property was sold by the assessee, profit on such transaction is to be assessable not in the year of agreement and it should be assessable proportionately in the previous years in which the constructed area was sold by the assessee or constructed flats were handed over by the assessee to the buyers Relying upon BL. Subbaraya Versus Deputy Commissioner of Income-tax, Cir. 6(3), Bangalore 2005 (4) TMI 535 - ITAT BANGALORE thus, the CIT(A) is justified in deleting the addition made by the AO as there is no income accrued to the assessee on the basis of agreement entered by the assessee with M/s. Janapriya Engineers Syndicate there was no infirmity in the order of the CIT(A) Decided against Revenue. Disallowance of Expenses u/s 40(a)(ia) of the Act - Foreign travel expenditure Held that - The AO is directed not to disallow the expenditure if TDS has been remitted by the assessee before due date of filing of the return of income - if the expenditure is not debited to Profit and Loss A/c., it could not be disallowed by invoking the provisions of section 40(a)(ia) of the Act Director of the assessee company went on foreign travel for the purpose of business - expenditure on this could will be allowed if the same is incurred for the purpose of business - CIT(A) recorded that the assessee had failed to produce necessary evidence to prove that the expenditure is incurred for the purpose of business - It is also not brought on record by the lower authorities that the expenditure is in the nature personal expenses - thus, the matter is remitted back to the AO for fresh adjudication Decided in partly in favour of Assessee.
Issues Involved:
1. Deletion of addition by CIT(A) regarding income accrual due to land and construction dispute. 2. Disallowance of expenditure under section 40(a)(ia) for non-deduction of TDS. 3. Disallowance of foreign travel expenses. Detailed Analysis: Issue 1: Deletion of Addition by CIT(A) Regarding Income Accrual Due to Land and Construction Dispute The Revenue argued that the CIT(A) erred in deleting the addition made by the AO, asserting that the litigation pending as of 31.03.2008 had no impact on the accrual of income to the assessee company, which follows the mercantile system of accounting. The AO held that the purchase and sale transactions were completed and taxable on a due basis, referring to Accounting Standard-9 on revenue recognition. The AO concluded that income from business was to be taxed based on the transfer of rights to Janapriya Engineers Syndicate. The CIT(A) observed that the basic question was whether the assessee should have recognized revenue from the development agreement with Janapriya Engineers Syndicate. The CIT(A) noted that the Hon'ble High Court of Andhra Pradesh had given an injunction on construction, creating uncertainty about the income arising from the construction. The CIT(A) concluded that due to ongoing litigation and the High Court's restraint order, there was no certainty of income realization as of 31.03.2008. The Tribunal upheld the CIT(A)'s decision, noting that the agreement entered into by the assessee was subject to litigation, and the ultimate realization of income was uncertain. The Tribunal cited various case laws supporting the principle that income should only be recognized when it is reasonably certain that it will be realized. Issue 2: Disallowance of Expenditure Under Section 40(a)(ia) for Non-Deduction of TDS The assessee argued that the AO erroneously invoked the provisions of section 40(a)(ia) and disallowed the expenditure, ignoring the fact that the provisions apply to expenses outstanding at the end of the previous year. The assessee contended that the expenditure was actually paid and not outstanding at the year-end. The Tribunal directed the AO to not disallow the expenditure if the TDS was remitted by the assessee before the due date of filing the return of income, following the decision of the Hon'ble Andhra Pradesh High Court in the case of CIT vs. PEC Electricals Pvt. Ltd. The Tribunal also clarified that if the expenditure was not debited to the Profit and Loss Account, it could not be disallowed under section 40(a)(ia). Issue 3: Disallowance of Foreign Travel Expenses The assessee claimed foreign travel expenses for the director's visit to Germany to finalize the import of fabricated panels. The AO disallowed the expenses, questioning the necessity since the project was handed over to Janapriya Engineers Syndicate. The CIT(A) upheld the disallowance, noting the lack of evidence proving the expenditure was for business purposes. The Tribunal remitted the issue back to the AO for fresh consideration, directing the assessee to provide necessary evidence to prove that the expenditure was incurred for business purposes. The AO was instructed to pass a fresh order after considering the evidence. Conclusion: The Tribunal dismissed the Revenue's appeal, confirming that no real income accrued to the assessee as of 31.03.2008 due to ongoing litigation and uncertainty. The assessee's appeal was partly allowed for statistical purposes, with directions for the AO to re-examine the disallowance of expenditure under section 40(a)(ia) and foreign travel expenses.
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