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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri Rajesh Kumar & Shri Sonjoy Sarma]
14.03.2023 Date of Hearing / सुनवाई क$ �त&थ Date of Pronouncement/ 05.04.2023 आदेश उ)घोषणा क$ �त&थ For the Appellant/ Shri Soumitra Choudhury, Advocate �नधा�/रती क$ ओर से For the Respondent/ Shri Vijay Kumar, Addl. CIT राज�व क$ ओर से ORDER / आदेश Per Rajesh Kumar, AM: This is an appeal preferred by the assessee against the order of the Ld. Commissioner of Income Tax (Appeal)-NFAC, Delhi (hereinafter referred to as the Ld. CIT(A)”] dated 21.11.2022 for the AY 2006-07.
The only issue raised by the assessee in the various grounds of appeal is against the confirmation of addition of Rs. 1,23,40,000/- by Ld. CIT(A) as made by the AO in the assessment framed u/s 143(3)/254/143(3) of the Act dated 11.03.2015 on account of “Tenancy Vacancy Charges”.
Facts in brief are that this is the second round of appeal before the Tribunal. In the first round the Tribunal, vide order dated 23.05.2013 in for AY 2006-07, set aside the appeal of the assesse by restoring the case to the file of AO with the directions to verify the agreements entered into the assessee with the tenants for payment of compensation for vacating the property and since this being a company and following mercantile system of accounting , the said tenancy vacancy charges of Rs. 1,23,40,000/- were to be allowed accrual basis. The tribunal restored this issue because these agreements were not before the Tribunal nonetheless these agreements were before the authorities. The AO examined these agreements and also investigated the issue by issuing notices u/s 133(6) to all the tenants however only three parties replied and notices to two parties remained unserved. The AO treated these agreements as colourable device on the ground that actual movement of funds could not be verified and thus disallowed the same adding to the income of the assesse in the assessment framed u/s 143(3)/254/143(3) dated 11.03.2015.
In the appellate proceedings, the Ld. CIT(A) again affirmed the order of AO on the ground that payments against the Tenancy Vacancy Charges could not be verified.
After hearing the rival contentions and perusing the material on record including the decision of Co-ordinate Bench in for AY 2006- 07 dated 23.05.2013, we observe that case was restored to the AO with the specific direction of in this case the to the AO to verify the agreements with the tenants which were not available before the AO. The operative part of the decision in para 8 is extracted below for the sake of ready reference:
“7. We have considered the rival submissions. A perusal of the assessment order clearly shows that the AO has disallowed the claim of tenancy vacalion charges to the extent of Rs. 1,.23,40,000/- on the ground that the same were contingent in nature. He has taken the view that it is only in the event of vacating the plots of land by the respective tenants the real expenditure would be crystallized. A perusal of the agreements entered into by the assessee with the purchasers clearly shows that it was the duty of the assessee to provide vacant possession of the purchasers by May, 2009. A perusal of the deed of declaration also clearly shows that if the vendor cannot give vacant possession the vendor would have to pay back the consideration to the purchaser along with the legal expenses including stamp duty and interest. On the basis of this deed of declaration the purchasers have purchased the property for the consideration of Rs. 1,94,25,000/-. Before entering into the indenture of conveyance itself the assessee has entered into an agreement with the tenants for vacating the premises. The agreement with the tenants dated 20th February, 2006 and the agreements talk of handing over post dated cheques dated 31.03.2009, being the last month before which tenants have to vacate the premises. A perusal of the indenture of conveyance with the deed of declaration as also the agreement entered into by the assessee with the five tenants clearly show that if the agreement with the tenants show that without vacating of the premises the transaction would not be complete in respect of the sale of the property. However, in so far as the indenture of conveyance has been entered into on 4th March, 2006 for the transfer of the immovable property as per the provision of section 2(47) of the Act it would have to be held that the transfer took place during the assessment year 2006-07. Admittedly when computing the income from business the assessee would be entitled to all expenditures in relation to transaction., Admittedly the charges paid or payable in respect of the vacation of the.e-ants is an expenditure associated with the transaction of the sale of the immovable property. Thus the assessee would be entitled to any and all expenses which the assessee has incurred in connection with the transactions involving the sale or transfer of the immovable property in question. It must also be understood that the assessee is a company and consequently must follow mercantile method of accounting . A perusal of the paper book filed before us shows that all the agreements entered into between the assessee and the tenants are not before us though the assessee has claimed the same has been filed before the AO. In the circumstances the issue of the expenses in relation to the tenancy vacation charges debited to the‘extent of Rs. 1,23,40,000/- is restored to the file of the AO to verify the agreements entered into by the assessee with the tenants. The AO is to examine whether the agreement have been entered into during the year, the AO shall examine the claim/as to whether the agreements are in relation to the land in question and the transactions in question. If the answer to both the issues are in the affirmative then the AO shall grant the assessee the benefit of the deduction of the expenditure representing the tenancy vacant charges. We have also examined the agreement with the respective tenants and suit filed by the purchaser of the property in the Court of Civil Judge, Junior Division, at Alipore against the assessee necessary decree and injunction claiming the refund of consideration already paid with interest of 15% and compensation of Rs. 50,00,000/- towards expenses on stamp duty etc. We also note that out of five parties, three have responded to the notices issued u/s 133(6) of the Act and admitted to have received the tenancy vacancy charges and only two do not respond. Since the assesse is a private limited company and following mercantile system of accounting, so the assesse has to be allowed these tenancy vacancy charges on accrual basis.In our opinion, the both the authorities below have not complied with the directions given by the Tribunal and simply made the addition on the ground that these payments could not be verified. In our considered view this is in complete violation of direction given by the tribunal vide order dated 23.05.2013. The non service of notice us 133(6) of the Act can not be a ground for non compliance of the tribunal direction. We have examined the agreements with the tenants and also the suits filed by the purchaser in the court against the assesse. Therefore after considering the totality of the facts and circumstances and the order of the coordinate bench, we reverse the order of Ld.
In the result, the appeal of the assessee is allowed.
Order is pronounced in the open court on 5th April, 2023 Sd/- Sd/- (Sonjoy Sarma /संजय शमा�) (Rajesh Kumar/राजेश कुमार) Judicial Member/�या�यक सद�य Accountant Member/लेखा सद�य Dated: 5th April, 2023 SB, Sr. PS Copy of the order forwarded to: 1. Appellant- Metropolitan Real Estate Pvt. Ltd., 20d, Lake Road, W.B-700029 2. Respondent – ITO, Ward-12(2), Kolkata 3. Ld. CIT(A)-NFAC, Delhi 4. Pr. CIT- , Kolkata 5. DR, Kolkata Benches, Kolkata (sent through e-mail)