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TMI Blog2014 (1) TMI 1297X X X X Extracts X X X X X X X X Extracts X X X X ..... f the compensation received – Held that:- The compensation is received for breach of terms by government of Maharashtra - The compensation is received for loss sustained by the assessee accrued in the year of receipt as decided in CIT Vs. A. Gajapathy Naidu [1964 (4) TMI 6 - SUPREME Court] - The amount of compensation has crystallized on the event of decision of the Hon'ble Supreme Court which has taken place in the F.Y. 2004- 05 relevant to the A.Y. 2005-06 – thus, The amount of compensation received was liable for consideration as business receipt in A.Y. 2005-06 as claimed by the assessee after considering allowable deductions under the Income- tax Act, 1961 - the CIT(A) was justified in directing the Assessing Officer to delete the addition for A.Y. 2001-02 , 2002-03 and 2003-04 – Decided against Revenue. Disallowance of pre-operative expenses u/s 37(1) of the Act - Held that:- The order of the CIT(A) upheld - The assessee has incurred expenditure during the period AY. 2000-01 to 2003-04 in relation to the proposed transaction of land purchase - The assessee has treated the said expenses as deferred expenses and has shown the same under the head pre-operative expenses on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respectively, is allowable expenses u/s 37(1) of the Act." 3. The brief facts of the case are that the assessee is a partnership firm consisting of eight partners engaged in the business of Developers and Builders. The partnership firm was formed on 20-11-2000. The assessee entered into an agreement with Aurangabad Zilla Utpadak Sahakari soot Girnee Maryadit, Garkheda, Aurangabad for purchase of land and accordingly, the assessee made payment of Rs. 7,81,00,000/- towards proposed purchase of land. The proposed transaction of land purchase could not be materialized and the possession of the said land was not given to the assessee as per the agreed terms. Being aggrieved by the same, the assessee filed Writ Petition in the Hon'ble Jurisdictional High Court for obtaining legal title over the said land. The matter travelled upto the Hon'ble Supreme Court whereby it was ultimately ordered that the assessee is entitled to an amount equal to simple interest calculated at 11% per annum for the period during which the amount remained with the Government over and above the amount of Rs. 7,81,00,000/- paid by the assessee. In compliance with the decision of the Hon'ble Supreme Court, the Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt was the business receipt and the same has rightly been held to be assessable to tax in the year of receipt. 3.2. After going through the rival submissions and perusing the material on record, we find that the assessee is a partnership firm consisting of eight partners engaged in the business of Developers and Builders. The assessee entered into an agreement with Aurangabad Zilla Kapus Utpadak Sahakari Soot Girnee Maryadit Garkhede, Aurangabad for purchase of land and accordingly the assessee made a payment of Rs. 7,81,00,000/- towards purchase of the land. The proposed transaction of land purchase could not be materialized and the possession of the said land was not given to the assessee as per agreed terms. The said act of refusal of possession of the land was agitated by the assessee by way of Writ Petition before the Hon'ble Jurisdictional High Court for obtaining the legal title and possession of the said land which was not allowed. The matter travelled upto the Hon'ble Supreme Court wherein ultimately it was held that the assessee is entitled to the amount equal to simple interest calculated at 11% p.a. for the period during which the amount remained with the Government o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d and not for any compensation. The Hon'ble Supreme Court has awarded compensation/loss of profit calculated at 11% p.a. on the amount paid towards purchase of land. The stand of the assessee was that the Assessing Officer was not justified in considering the income on notional basis and making addition in AY. 2001-02. We find that undisputedly the assessee firm made the payment of Rs. 7,81,00,000/- in the course of purchase of land. Prior to the same, assessee firm was brought into existence for business activities. The intention of the assessee was to develop the land which could not be materialized because the Government of Maharashtra denied to sell the land to the assessee though there was no breach of terms and conditions on the part of the assessee. The Hon'ble Supreme Court has not directed the State Government to give possession as per agreement but allowed compensation to be paid to the assessee as a measure to quantify the amount of compensation at 11% p.a. simple interest. The Hon'ble Supreme Court clearly held that the amount payable to the assessee will be for hardship or prejudice occasioned to the assessee. So it makes clear that the amount received by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer to delete the same. 5. As regards the disallowance of pre-operative expenses of Rs. 62,22,514/- the Assessing Officer noted that the assessee has capitalized expenses for years together on account of interest and pre-operative expenses and has claimed the expenses against the entire receipts in order to avoid tax incidences. The Assessing Officer has concluded that the said expenses are not the expenditure laid out or extended wholly and exclusively for the purposes of making or earning such income. The matter was carried in appeal before the first appellate authority and raised various contentions. The CIT(A) after considering the facts of the case and submissions made on behalf of the assessee observed that the assessee has incurred expenditure totaling to Rs. 62,22,514/- during the period AY. 2000-01 to 2003-04 in relation to the proposed transaction of land purchase. The assessee has treated the said expenses as deferred expenses and has shown the same under the head pre-operative expenses on the asset side of the Balance sheet. The assessee has claimed the deduction of the said expenses out of the amount received as compensation in the A.Y. 2005-06. The asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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