The Mumbai Bench of Income Tax Appellate Tribunal ( ITAT ) chaired by Aby T. Varkey (Judicial) and Amarjit Singh (Accountant Member) deleted the addition of Rs.278 crores made by the Assessing Officer (AO).
The tribunal opined that the compensation received for non-performance of obligation by Delhi Development Authority (DDA) is a capital receipt and not chargeable to tax.
The appeal was filed by the Department of Revenue against the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)].
The assessee Kenneth Builders & Developers Limited, filed return of income declaring total loss of Rs.1,43,70,54,268 and Subsequently, the return was revised declaring the same net loss. Further it was subjected to scrutiny assessment.
The AO noticed that the assessee has treated compensation of Rs.2,78,82,74,243 received from Delhi Development Authority as a capital receipt not chargeable to tax.
The AO further noticed that in the original return of income the assessee had included this amount in the book profit, however, in the revised return of income this was not included in the total income or in the book profit under section 115JB of Income Tax Act, 1961.
The bench observed the facts that the assessee had entered into an agreement with DDA for development of a residential project and paid advance for Rs.450 crores to DDA for purchase of land. Development cost of Rs.587.73 crores was reflected in the balance sheet of the assessee under the head ‘inventory cost’ of the project.
Additionally, the forest department objected on the grounds that the project’s site was in a ridge area, necessitating the suspension of all building works, which resulted in significant losses for the assessee.
Consequently, the assessee filed writ petition before the Hon’ble Delhi High Court and it is held that assessee is entitled to refund of the entire sum paid to the DDA with interest @ 6% per annum.
The assessee submitted that the compensation received was on account of non-performance of obligation by the DDA, therefore, it was a capital receipt not taxable in the hands of the assessee.
The AO viewed that the amount of Rs.2,78,82,74,243 was a revenue receipt and not of the capital receipt. Therefore, the same was added to the income under the head profit and gain of business or profession and also under section 115JB of Income Tax Act to the book profit.
The bench upheld the decision of the Commissioner of Income Tax (Appeals) [CIT(A)] holding that the amount of compensation received was a capital receipt.
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