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TMI Blog2019 (5) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... h the property was leased out by the assessee, the assessee can recover the amount of enhanced compensation from the lessee. Hence, the amount to the extent received or receivable from the lessee is to be brought to tax. I When the assessee is claiming the payment of enhanced compensation as an expenditure, it is incumbent on the part of the assessee to offer the recoverable amount of compensation from its lessee. The assessee cannot pick and choose only the claim of expenditure towards payment of enhanced compensation and cannot withhold the offering of receipt of enhanced compensation from its lessee. Hence, it is appropriate to remit the issue to the file of the AO to examine the relevant lease agreement entered into by the assessee with its lessee and decide thereupon. However, we make it clear that if the assessee offered the receipt of enhanced compensation from its lessee in any other assessment year, there cannot be double taxation in these years. With this observation, we remit this issue to the file of the Assessing Officer for fresh consideration. Appeals filed by the Revenue are partly allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... /-. (Though the area mentioned in the lease deed aggregated to 106.40 acres, the actual area of land made available to the assessee was 107.52 acres. The difference is very marginal). Of these land taken on lease as above, the assessee had converted an area of 77.07 acres into stock-in-trade in an earlier assessment year, as the said land was to be leased to entrepreneurs for setting up industrial units on long term basis. The balance area of 23.98 acres was used for setting up the common utilities for use of the units to set up in the industrial park. The Assessing Officer found that the compensation was paid on the basis of clause 3 of the lease deed with KINFRA dt. 25.02.2005. According to the Assessing Officer, in the lease agreement entered into between the entrepreneurs and the assessee, there was no provision to recover the enhanced compensation. Income from revenue operation was received during the period 2003-04 and onwards. It was noticed that there was no specific condition to collect enhanced compensation from the sub-lessees. The Assessing Officer found that the assessee had issued demand notices to all lessees and the receipts from the lessees towards enhanced land co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter of enhanced compensation. The CIT (A) reworked the allowable expenses at ₹ 2,72,59,316/- for the AY 2012-13 and at ₹ 2,83,42,420/- for AY 2013-14. The CIT(A) allowed the remainder amounts (i.e., ₹ 34,34,193/- and ₹ 35,70,645/- respectively for AY 2012-13 & AY 2013-14) to be retained as stock in trade, since the said amounts related to stock of land not yet sold. The CIT(A) observed that Clause No.2 of the Lease Deed with KINFRA stipulates that if any additional premium payable will get enhanced proportionately to that extent and the lessee shall be liable to pay the same as and when called up on to do so. According to the CIT(A), any change in the accounting system on accrual-mercantile basis will create inter-temporal entries and transfers that are revenue neutral in the long-run and therefore counter productive in terms of costs and effort. The consistent treatment by the Dept. of these receipts in the accounts of the assessee over the preceeding financial years provides for a valid claim in the current financial year too. The CIT (A) relied on the decision of the Supreme Court in the case of CIT v. Realest Builders and Services Ltd. (307 1TR 202) wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,83,384/- & ₹ 3,19,13,065/-respectively in respect of the 77.07 acres of land converted into Stock in Trade in AY 2003-04. However, in the absence of any enforceable clause in the agreements based on which the property was leased out by the Respondent, the Respondent could not recover the full amount of compensation from the lessees. Hence, the amounts to the extent received from lessees was offered to tax by the Respondent assessee. This treatment was consistently followed by the assessee and accepted by the Revenue for the above assessment years and the income was assessed to tax and the expenditure was allowed as such. 6.1 The Ld. AR submitted that the assessee had converted the property under reference as stock-in-trade in the assessment year 2003-04 and as and when the property was sold/ leased out, the cost portion of the stock in trade was debited to P&L A/c and the amounts recovered from subleases were offered as income. It was submitted that in the case of enhanced compensation paid to lessors relating to the stock in trade, there is no enabling clause in the lease deeds to recover such enhanced compensation and hence, there is high degree of uncertainty of collect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imself had accepted that there is no enabling clause in the sub lease deed to collect proportionate enhanced compensation from the sub lessees. Accordingly, as per the above Accounting Standard, the relative income cannot be said to have been earned or received. In such a case, the said income can be accounted as income and offered to tax only when it is recovered/received. In the above circumstances, it was submitted that the question of accounting for income prior to actual receipt does not arise. The assessee had therefore offered the income relating to enhanced compensation as and when it was recovered. 6.3 The Ld. AR referred to Accounting Standard 11 which relates to disclosure of Prior period and Extraordinary items and changes in accounting policies. The Accounting Standard II requires that any change in an accounting policy shall be made only if: - the adoption of a different accounting policy is required by Statute or - if it is considered that the change would result in a more appropriate preparation or presentation of the financial statements by an assessee. In view of the above, the Ld. AR submitted that there is no power for the AO to change the accounting polic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... personal expenses of the Respondent assessee and the expenditure was incurred wholly and exclusively for the purposes of the business of the assessee. 6.6 It was submitted that the assessee had offered the amounts recognized in the assessment year under appeal and thereafter to tax as detailed below: Sl. No Asst. Year Amount Actually Received (Rs.) Whether offered to Tax 1 2012-13 1,659,136.00 yes 2 2013-14 9,707,630.00 yes 3 2014-15 7,913,119.00 yes 4 2015-16 1,533,210.00 yes 5 2016-17 Nil Not applicable 6 2017-18 1,344,159.00 yes 7 2018-19 16,620,955.00 yes The Ld. AR submitted that the AO though disallowed the assessee's claim of expenditure in the AY 2012-13 and also in the AY 2013-14, no allowance was given when the same amount was actually offered to tax which resulted in taxing an income twice, which is against the basic principles of income tax law. From the above, it may be seen that the AO was not justified in disturbing the consistently accepted accounting policy in respect of the years under appeal, viz., for the AY 2012-13 & AY 2013-14, without stating any detailed reasons, though the said policy was accepted by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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