2020 (7) TMI 461 - AT - Income Tax

Accrual of income - Additions based on TDS statements - Addition on account of sum received which was allegedly not shown as income by Assessee - HELD THAT - It is apparent that outstanding receivable from the above party debited by admass Builders to the account of the assessee towards various charges. The gross sale price of the above project has already been offered for taxation in the earlier year. The receipt of consideration of income, which has been already offered for taxation in earlier years, received in this year, naturally cannot suffer tax once again. This amounts to double taxation in the hands of the assessee. The lower authorities rejected the submissions of the Assessee asking for the confirmation when all the agreement were already available before them and copies of the ledger account depicting the conditions of the agreement before them.There were details of each and every expenditure incurred by Admass Builder pursuant to above agreement. The agreement itself shows various stages of payment and various obligations of the parties. The buyer was to obtain certain approvals at the cost of the appellant on payment as per the agreements. Buyer incurred such cost and debited the account of the appellant as payment of sale consideration. The appellant also accepted the same and credited the account of the buyer. Just because the payer has deducted tax at source, it cannot become the income of recipient automatically. It is undisputed that total c sales consideration received/ receivable is offered for taxation in immediately preceding year. In view of this, merely because the assessee did not furnish confirmation and more so even when each and every expenditure is part of the agreement, this addition cannot be made so it cannot be sustained. In view of this, we direct the ld AO to delete the addition. Disallowance of depreciation - HELD THAT - Assessee has earned gross revenue of ₹ 81,50,271/- such as miscellaneous income and lease rent income etc. These incomes is offered by the assessee as business income and accepted by the ld AO in the assessment. The assessee has been allowed several business expenditure during the year. Further, the assets on which depreciation is claimed by the assessee are also general asset as per Schedule No. 5 of the balance sheet. They are in the nature of air conditioner, fax machine, Xerox machine, computers, motor cars. These assets were not purchased during the year but was part of the assets i.e. block of assets in earlier. These assets were used for the purposes of the business. Merely because there was no project undertaken by the assesse during the year, and was trying to complete the formalities of sale of the huge project sold last year , which has certain obligations cast on assesse to be fulfilled, it cannot be said that those assets are not used during the year. The business of the assessee is continuing. In view of this, it cannot be said that the assessee did not carry onany business during the year. Accordingly, ground No. 4 of the appeal of the assessee is allowed and the ld AO is directed to grant depreciation accordingly. Disallowance of legal and professional charges - HELD THAT - As per the agreement, some of the expenses were on account of assessee. Those expenses were incurred during the year as bills of the same were received during the year, they were acknowledged in this year, and consequently obligation to pay by assessee and right to receive by the service providers arose in this year. Therefore, assessee incurred this expenditure during this year. Under section 209(3)(b) of the Companies Act, 1956 now section 128(1) of the Companies Act, 2013 , all companies are required to follow the accrual basis of accounting However the profit on sale of the project Global Technology park was offered for taxation in the immediately previous year. As the allowability of these expenditure , the above bills agreed during the year and itwas paid during the year. we do not find any reason for the disallowance of the same. Assessee was to record and recognize expenses when they are incurred in case those expenses relate to past performances. The sale took place last year, full sales consideration was offered for taxation by assessee. Some of the expenses of such a large project are bound to spill over to next year. It was a continuous process to incur expenditure when such a large project was soldand to account for in the books of account. Therefore, even though they were treated technically as prior period expenses, it related to a continuous flow of expenditure. Therefore, there was no justification in disallowing the expenditure, otherwise normally eligible for deduction. It is not the case of the revenue that the assessee towards the business of the assessee did not incur these expenses. In view of this, we direct the ld AO to delete the above disallowance.

Issues Involved:
1. Addition of ?2,10,73,800 as reflected in Form No. 26AS and received from Adamas Builders Private Limited.
2. Disallowance of Depreciation of ?729,706 on fixed assets.
3. Disallowance of expenses of ?1,89,08,562 on account of legal and professional charges.

Issue-wise Detailed Analysis:

1. Addition of ?2,10,73,800 as reflected in Form No. 26AS:
The assessee received ?3,14,58,417 from Adamas Builders Private Limited, out of which ?2,10,73,800 was not credited to the profit and loss account. The assessee argued that this sum was part of the outstanding sale consideration for a project sold in the previous year. The Assessing Officer (AO) added this amount to the income, and the Commissioner of Income Tax (Appeals) [CIT(A)] confirmed the addition, stating that the assessee did not provide a confirmation from Adamas Builders and could not explain the tax deduction under Section 194J.

Upon appeal, the Tribunal found that the assessee had already offered the total sale consideration for taxation in the previous year. The amount of ?2,10,73,800 was adjusted by Adamas Builders towards various statutory charges and approvals, which were part of the sale agreement. The Tribunal concluded that taxing this amount again would result in double taxation. Therefore, the Tribunal directed the AO to delete the addition of ?2,10,73,800.

2. Disallowance of Depreciation of ?729,706:
The AO disallowed the depreciation on the grounds that the assessee did not carry out any business during the year. The CIT(A) upheld this disallowance. The assessee contended that it had earned revenue of ?82 lakhs during the year and that the assets in question were general business assets like computers and motor cars, which were used for business purposes.

The Tribunal noted that the assessee had indeed earned revenue and that the assets were part of the block of assets from previous years. The Tribunal held that the business of the assessee was continuing and that the assets were used for business purposes. Consequently, the Tribunal directed the AO to allow the depreciation of ?729,706.

3. Disallowance of Expenses of ?1,89,08,562:
The AO disallowed the legal and professional charges related to the Global Technology Park, Bangalore, project, which was sold in the previous year. The AO reasoned that these were prior period expenses and not allowable in the current year. The CIT(A) confirmed this disallowance.

The assessee argued that the expenses were incurred during the year as the bills were received and approved during the year. The Tribunal found that the expenses were related to the project sold in the previous year but were incurred during the current year. The Tribunal noted that the expenses were supported by necessary bills and receipts and were in line with the accrual basis of accounting. The Tribunal held that the expenses should be allowed as they were incurred during the year and directed the AO to delete the disallowance of ?1,89,08,562.

Conclusion:
The Tribunal allowed the appeal of the assessee, directing the deletion of the addition of ?2,10,73,800, the allowance of depreciation of ?729,706, and the allowance of legal and professional charges amounting to ?1,89,08,562. The appeal was partly allowed, providing relief to the assessee on all the contested issues.

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