2014 (12) TMI 714 - AT - Income Tax

Deletion of compensation charges Capital expenses or revenue expenses Held that - The past position on identical claims can be said to be covered in assessee s favour - considering this past position the CIT(A) has arrived at a finding, however it is seen that the CIT(A) has been swayed by the past legal position on the issue and unfortunately has not cared to consider the same on facts - Simply because the past practice demonstrates that the assessee in its nature of business may require to compensate the parties to the extent the parties from whom advances have been received could not fulfill the commitment warranting payment of compensation does not mean that all claims without verification have to be allowed - as per assessee s submissions only some of the documents relatable to the issue were made available to the CIT(A) based on which finding has been arrived at CIT(A) held that assessee also filed a detail of payment made by it as compensation and also placed on record copies of some of the documents executed for payment of compensation and cancellation of bookings made by it the approach of the CIT(A) on facts cannot be upheld - CIT(A) is necessarily required to look at the complete evidence necessary for arriving at a conclusion thus, the matter is remitted back to the CIT(A) - assessee is granted liberty to place all necessary evidences before the CIT(A) in support of its claim as the same evidently has not been done Decided in favour of revenue.

Summary

Issues Involved:
1. Classification of compensation charges as revenue expenditure versus capital expenditure.
2. Consistency in the treatment of compensation charges in previous assessment years.
3. Requirement for thorough verification of claims and supporting documents.

Issue-wise Detailed Analysis:

1. Classification of Compensation Charges:
The primary issue was whether the compensation charges amounting to Rs. 1,54,38,601/- claimed by the assessee should be treated as revenue expenditure or capital expenditure. The Assessing Officer (AO) argued that these charges were essentially a purchase consideration for re-acquiring rights in plots and should be capitalized. The AO disallowed the compensation as a revenue expense, adding it back to the assessee's income and initiating penalty proceedings for filing inaccurate particulars of income.

2. Consistency in Treatment:
The assessee contended that similar compensation expenses had been consistently allowed in previous assessment years since 1995-96, except for the assessment year 2001-02 when the issue was remanded by the ITAT for fresh consideration. The CIT(A) acknowledged the principle of consistency, noting that the method of accounting for these transactions had not changed and that the expenses were recorded as advances until they were compensated due to business exigencies. The CIT(A) emphasized that the compensation was paid to maintain the assessee's reputation and was a business necessity, thus qualifying as revenue expenditure.

3. Requirement for Thorough Verification:
The CIT(A) allowed the assessee's claim based on past legal precedents and the principle of consistency. However, the Tribunal noted that the CIT(A) had not thoroughly verified all the necessary documents and evidence related to the compensation claims. The Tribunal emphasized that while past practices might support the assessee's position, each claim must be substantiated with complete evidence. The Tribunal restored the issue to the CIT(A) for a detailed examination of all relevant documents and a speaking order in accordance with the law.

Conclusion:
The Tribunal allowed the Revenue's appeal for statistical purposes, directing the CIT(A) to re-examine the evidence and pass a detailed order. The assessee was granted the liberty to present all necessary evidence to support its claim. The order was pronounced in the open court on 12th December 2014.