The Income Tax Appellate Tribunal (ITAT) New Delhi held that the claim of deduction basedoncompensation paid for settlement of encroachment on the property is not allowable as business expenditure in the absence of evidence.
The bone of contention is the amount paid towards settlement/resolution of the dispute about the release of possession/encroachment of land including demolition of the Kachha structure, and temporary tube well to take possession of vacant land.
The assessee, M/s. Precision Realtors P. Ltd was asked to produce the parties to whom such compensation was made but the assessee failed to do so. The AO made an addition of Rs. 1,90,50,000/-.
The CIT(A) was convinced that the said payment of compensation is duly covered within the provisions of section 37 of the Act as the compensation was incurred wholly and exclusively for business purposes and capitalized towards inventory and deleted the disallowance of Rs. 1,90,50,000/-.
On perusal of the sale deed,it was observed that the seller was the absolute owner and was in actual possession of the impugned property. Nowhere in the sale deed, there is a mention of encumbrance/encroachment in the impugned property.
A Coram comprising Sh. N K Billaiya, Accountant Member and Ms Astha Chandra, Judicial Member viewed that if there were no encroachments, no encumbrances on the impugned property. The Tribunal restores the matter to the CIT(A) file to examine every sale deed and verify whether the impugned property was encroached/ encumbered by the occupants to whom the assessee paid compensation.
The CIT(A) was directed to decide the issue afresh after affording a reasonable and sufficient opportunity of being heard by the assessee. The appeal and the cross objection were allowed for statistical purposes.
Sh. R. K. Gupta appeared for the respondent while none appeared for the appellant.
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