Eviction Charges paid are allowable as Business Expenditure: ITAT [Read Order]

The Chennai bench of the Income Tax Appellate Tribunal (ITAT) has held that eviction charges paid are allowable as business expenditure.

Shri. S. Sridhar appeared for the appellant and Shri. G. Johnson appeared for the respondent.

The assessee, Orchid Pvt ltd engaged in the business of real estate, promotion, development and construction of residential, commercial, individual complexes and other allied activities. The assessee reflected revenue of Rs.412.96 Lacs on the sale of a constructed area measuring 6607.38 Square Feet against a net available space of 37632 Square Feet.

The property was purchased by the assessee where the net value of the property was shown as 2874.16 Lacs, out of which Rs.1533.36 Lacs was like site encroachment charges, land owners’ payment etc.

The assessee stated that impugned expenditure was incurred for business purposes and the same was allowable u/s 37(1) of the Income Tax Act,1961. The revenue stated that impugned payments were not the liability of the assessee and the sale agreement was done concerning the already encroached property.

It further stated that the assessee entered into three sale agreements with M/s Sree Venkateswara Constructions (SVC) for a sale of 15.68 grounds for total consideration of Rs.1750 Lacs and they incurred a sum of Rs.811.75 Lacs by way of payment to various parties to clear the encroachment. Due to continuous litigation, SVC wanted to cancel the proposed deal and sought reimbursement of eviction charges spent by it on clearing the encroachments which were capitalized by the assessee as work-in-progress as Project development expenditure.

The Tribunal observed that the assessee was into the business of real estate development and such expenditure would fulfil the test laid down u/s 37(1) and the expenditure incurred for business purposes of the assessee was well proven by the documentary evidence in support of the claim

Shri Mahavir Singh, vice president and Shri Manoj Kumar Aggarwal, AM observed that the claim as made by the assessee was allowable as business expenditure and directed the AO to verify the fact that the aforesaid expenditure was never claimed by M/s SVC and if so the expenditure would be allowed to be capitalized and proportionate as claimed by the assessee.

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