Compensation to Developer on Termination of JDA cannot be claimed as 'Project Expenditure': ITAT upholds Addition [Read Order]

The Chennai bench of the ITAT has held that the amount of compensation paid to the developer on termination of a Joint Development Agreement cannot be claimed as “Project Expenditure” under the provisions of the Income Tax Act, 1961.

The assessee, M/s Ankur Foundation Pvt Ltd, has paid Rs.200 Lacs as compensation towards one property Kushal Das Garden. The joint-owners of this property entered into joint development agreement (JDA) with another entity namely M/s Gee Gee Hire Purchase & Leasing Private Ltd. (GHLPL). Since GHLPL was unable to progress with development, the agreement was cancelled and the owners entered into another MOU with the assessee for development of the property. Asper the terms of the agreement, it was the responsibility of the assessee to settle the matter of JDA with GHLPL. The assessee claimed that the compensation of Rs.200 Lacs was paid to GHLPL towards project expenditure.

However, the claim was rejected by AO on the ground that it was the duty of land owners to give possession of the land free from any claim or encumbrance. While adding back the amount to the income of the assessee, the AO held that the payment was nothing but charity and the payment was not supported by the terms of the agreement / MOU.

The Tribunal bench comprising Shri Mahavir Singh, Vice President and Shri Manoj Kumar Aggarwal, AM held that the project did not materialize and hence the amount paid by the assessee was claimed as project expenses. The expenses were incurred in the regular course of business of property development. Another pertinent fact brought to the notice was that the assessee took steps to collect the amount from the owners and succeeded in realizing the same. The same was offered to tax in AY 2011-12.

Upholding the order of the Assessing Officer, the Tribunal held that “the amount was paid by the assessee in the regular course of its business to settle the claim of the earlier developer. It is also undisputed fact that the amount was subsequently recovered by the assessee and offered to tax during AY 2011-12. Therefore, impugned order does not call for any interference on our part. The grounds thus raised stands dismissed.”

To Read the full text of the Order CLICK HERE

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