ACIT, CIRCLE- 5(2), NEW DELHI vs. CENTRAL PARK INFRASTRUCTURE DEVELOPMENT PVT. LTD., NEW DELHI

ITA 3905/DEL/2017Status: DisposedITAT Delhi09 December 2019AY 2013-144 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The tribunal found no infirmity in the CIT(A)'s order allowing the netting off of leased rentals received and paid. The excess expenditure was allowed to be capitalized as business operations had not commenced.

What were the facts?

The assessee, a construction company, incurred expenses during the pre-commencement period of its hotel project. The Assessing Officer disallowed rental payments due to faulty accounting of a rent equalization reserve. The assessee argued that lease rentals received should be netted against lease rentals paid.

What were the issues?

Whether lease rentals received during the pre-commencement period can be netted against lease rentals paid, and whether excess expenditure should be capitalized when business operations have not yet started.

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘B’, NEW DELHI

Before: SH. H.S. SIDHU & Dr. B. R. R. Kumar

For Respondent: Ms. Ashima Neb, Sr. DR

Hearing: 09.12.2019Pronounced: 09.12.2019

Per Dr. B. R. R. Kumar, Accountant Member:

The present appeal has been filed by the Revenue against the order of the ld. CIT(Appeals)-2, New Delhi dated 31.03.2017 pertaining to assessment year 2013-14.

Following grounds have been raised by the Revenue: a) “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) is not justified in allowing the additional ground that expenditure as well as income

2. Central Park Infrastructure Development P. Ltd. during pre commencement period should be netted out and only the resultant expenditure should be capitalized instead of entire expenditure incurred during pre commencement period as the contention of the assessed, in this regard, was duly considered by the Assessing Officer during the assessment proceedings. b) On the facts and in the circumstances of the case and in law, the order of the Ld. CIT(A) allowing additional ground is vague and not specific as the order does not mention as to which amount of income should be netted out with which amount of expenses. c) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing additional ground without giving due opportunity to the Assessing Officer.”

Brief facts of the case are that assessee is a limited company engaged in the business of construction of hotel near New Delhi Airport on the land taken on lease from DIAL. During the year the Assessing Officer observed that the assessee debited Rs. 7,70,14,078/- under the head “other expenses”. It was submitted that the assessee has entered into an agreement with the DIAL for a period of 26 years and 4 months for leasing of the property for which the assessee would pay a license fee of Rs. 1,92,35,07,853/-. The payment of this amount is in staggering and increasing order from 3.46 crores in F.Y. 2010-11 to 13.20 crores in 3 Central Park Infrastructure Development P. Ltd.

F.Y. 2035-36. These increasing amounts have been worked out taking into consideration the projected business growth of the assessee which entitles them to pay increasingly higher lease rentals from year to year totaling to Rs. 192.35 crores. The Assessing Officer has disallowed the amount of rental payments on the grounds that the accounting of rent equalization reserve is faulty. Before the Ld. CIT(A), the assessee pleaded that the lease rentals received from Oriental Structural Engineering Ltd. may be allowed to be set of against the lease rentals paid to DIAL. The asset of the land on which the lease rental received from Oriental Structural Engineering Pvt. Ltd. and paid to the DIAL is the same. The Ld. CIT(A) has also allowed the excess expenditure to be capitalized as the project of construction of hotel has not commenced business operations. Thus, we find no infirmity in the order of the Ld. CIT(A) in allowing the netting off of leased rental received and paid.

In the result, the appeal of the Revenue is dismissed.

Order Pronounced in the Open Court on 09/12/2019

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