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TMI Blog2019 (11) TMI 138X X X X Extracts X X X X X X X X Extracts X X X X ..... MI 622 - ITAT DELHI] (to which one of the Accountant Member was a party) is fully applicable in the facts of the case wherein as held that when advances are returned alongwith interest, for booking of plots, when deal could not be materialized the compensation paid was business expenditure. This decision has been elaborately quoted by learned CIT(A) in his order reproduced above. Similarly, Hon'ble Delhi High Court in the case of CIT Vs. Bhagwan Das Rameshwar Dayal [ 1984 (5) TMI 35 - DELHI HIGH COURT] has held that damages paid on account of breach of contract are normal loss incidental to business. There is no infirmity in the order of learned CIT(A) that the compensation paid by the assessee is business expenditure/loss and the same is allowable in the present assessment year itself. - Decided against revenue - I.T.A. No. 5514/Mum/2018 (Assessment Year 2015-16) - - - Dated:- 19-9-2019 - Shri Shamim Yahya (AM) And Shri Ravish Sood (JM) Assessee by Shri K. Shivram And Ms. Neelam Jadhav Department by Shri R. Manjunatha Swamy ORDER Per Shamim Yahya (AM) :- This app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pment Zone. The persons/parties from whom the assessee had received the advances filed legal suit to claim additional compensation and the Court vide its order dated 30.03.2015 directed the assessee to pay additional compensation and accordingly the assessee paid compensation to these persons/parties, from whom advances were received, and also entered into cancellation agreement with them. The assessee had to pay a sum of ₹ 69,28,20,000/- to these persons/parties and since the assessee had received a sum of ₹ 28,20,00,000/- as advance from them, the balance of ₹ 41,08,20,000/- was charged/debited to P L account. The said compensation paid was claimed as revenue expenditure by the assessee on the ground that the same had arisen during the course of business. During the relevant financial year the assessee could sell 31.795 acres land out of 40 acres, since only 31.795 acres were in Development Zone and sale receipt was shown as business receipt in the Profit loss account. 4. The Ld. AO did not accept the claim of the assessee for deduction of additional compensation paid by the assessee in full. While completing the assessment the Ld. AO obser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar issue of ITAT has decided the issue in favour of the assessee in the case of DCIT Vs. VAtika Town Ships (P) Ltd. (60 SOT 115). Learned CIT(A) further observed that the Revenue expenditure incurred in a particular year have to be allowed as such and there cannot be issue of deferred revenue expenditure. In this regard learned CIT(A) referred to Hon'ble Apex Court decision in the case of Taparia Tools Lt. Vs. JCIT (55 taxmann.com 361). Accordingly, learned CIT(A) deleted the disallowance of amount allocated by the Assessing Officer to the cost of land. 8. Against the above order the Revenue is in appeal before us. 9. Before proceeding further, we may gainfully refer to the order of learned CIT(A) in this case as under :- 5.5. The contentions of the assessee have been considered carefully. It is admitted fact that the assessee had entered into agreement with the VEL for development of same land which has been held as stock in trade and the assessee had entered into agreement to sell part the said land and received advances therefore. Due to appellant's failure in fulfilling agreement with the VEL for devilment of the la ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s persons/parties to sell and deliver un-demarcated parts of land held by appellant as stock in trade. It had also received advances from such persons/parties. Due to reasons discussed above, the appellant could not fulfill its commitment as per the contract and hence, as per court's order it had to pay additional compensation to such parties. The said liability had not arisen for acquisition/sale of any capital asset, but said liability had arisen during the course of business. It is settled legal position that any loss or income arising out of non fulfillment of contract of supply the goods is revenue in nature and is allowable or taxable, as the case may be, in the year in which the same arises or accrues. Similar law has been laid down by the Hon'ble ITAT, Delhi in the case of DCIT vs. Lear Automotive India P. Ltd. 64 taxmann.com 417 and the Hon'ble ITAT, Jaipur in the case of Mewar Oil General Mills 34 Taxman 102(JP)(MAG.). 5.9. The next question arises that even when the said compensation paid for non fulfilment of contractual obligation is revenue expense, as to whether the same needs to be apportioned to the cost of land. The ICAI has formula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is payment of interest is not only payment due to the depositor, but it is also payment made as a sound business policy, lest other prospective buyers be shooed away by the factum of non-payment of interest to the earlier customers, even though the advance amounts kept lying with the assessee for years together. Since the payment was in the course of business of the assessee company, it was rightly claimed as a business expenditure. The nomenclature of the payment being not determinative of the nature thereof, it matters little that it was termed as 'compensation' which, otherwise too, it indeed is, as discussed. The payment, however, has never been shown to be sale consideration for re-purchasing the plots, as tried to be made out by the Assessing Officer. Once the plots never left the ownership and possession of the assessee, there is no question of their being re-purchased by the assessee company. Moreover, in earlier years, such payments by the assessee to other customers have also been allowed consistently to the assessee as business expenditure, as taken note of by the Ld. CIT (A), as observed in para 16 above. 19. The Ld. CIT (A) has passed an ela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te as such appellant rightly claimed it as revenue expenditure. (iii) One time payment theory also does not determine the nature of payment. (iv) It was merely an advance received from the buyers which were repaid with compensation. There is no transfer of title till a sale deed is executed or possession of the premise given in pursuance to part performance u/s 53A of the transfer of property Act. The compensation paid was for utilizing the funds made available by the buyers. (v) In a business, when a compensation is paid in respect of stock in trade for non-performance of a contract, the compensation paid is always considered as revenue expenditure. (vi) In a decision of Delhi High Court in the matter of CIT vs. Bhagwandas Rameshwar Dayal 149 ITR 387 it was held that if a contract is broken for any reason and one party is unable to give delivery or other party is unable to take delivery, it is a case of breach of contract and the damage paid on account of such breach of contract was a normal loss incidental to business. In a similar case of M/s Gopal Dass Estate and Housing Ltd. IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered opinion that the claim of additional compensation paid under consideration is revenue in nature and the same cannot either be apportioned to the cost of land or deferred over the years, but the same has to be in the assessment year under consideration. Therefore, the Ld. AO is directed to allow the same, Accordingly, the disallowance of ₹ 22,15,44,625/- made by the AO is directed to deleted and the Grounds of appeal No. 2 to 5 are allowed. 5.13. Since, the impugned disallowance of ₹ 22,15,44,625/-, by which the Ld. AO had enhanced the value of closing stock of land, stands deleted, the Ld. AO is directed to adopt the value of closing stock of land without including the said amount of ₹ 22,15,44,625/- and the opening stock of land in next year should be adopted accordingly. 10. We have heard both the counsel and perused the records. Learned Departmental Representative relied upon the order the Assessing Officer. He submitted that the Assessing Officer has rightly allocated compensation expenditure incurred to the cost of land on prorate basis. He submitted that since only portion of land has been sold, expenditure a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as business receipt as profit and loss account. The Assessing Officer was of the opinion that compensation paid pertains to entire 62 acres of land which were under consideration for sale and accordingly he allocated it proportionately. Since only 28,656 acres of land was sold. Accordingly, he pro rata disallowed ₹ 22,15,44,625/- as addition to the cost of the land remaining in stock of the assessee. 13. Now, we find that this approach of the Assessing Officer is totally fallacious. Learned CIT(A) is quite correct in holding that the compensation paid by the assessee to the prospective buyers was business loss liable to be allowed in the said year itself. The said amount was not incurred in connection with acquiring of land. Hence, there is no question at all of increase in cost/value of work-in-progress by artificial increase in cost of land. As a matter of fact while doing so the Assessing Officer has himself observed that said compensation will be revenue expenses to the assessee as and when land is sold by the assessee in future. This is a clear case of treating revenue expense as capital expenditure without any cogent basis. This we note is not at all ..... X X X X Extracts X X X X X X X X Extracts X X X X
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