Gopal Das Estates & Housing Pvt. Ltd. Vs CIT (Delhi High Court)
The Delhi High Court dealt with multiple appeals under Section 260A of the Income-tax Act, 1961, involving common questions of law relating to a real estate developer engaged in construction and sale of commercial space.
The assessee followed the Completed Contract Method (CCM) of accounting, under which revenue is recognized only upon completion or substantial completion of the project. The project in question was completed in Financial Year 1994–95.
Issue 1: Nature of Compensation Paid to Flat Buyers
The assessee had refunded advances and paid additional compensation to certain allottees who surrendered their rights in flats. This compensation was claimed as revenue expenditure.
The Assessing Officer (AO) treated the payment as capital expenditure, holding that it amounted to repurchase of flats and not a business expense. The AO also relied on the fact that recipients treated such receipts as capital gains.
The Commissioner (Appeals) reversed the AO’s finding, holding that expenditure related to stock-in-trade is revenue in nature and cannot be treated as capital. However, the Tribunal (ITAT) disagreed and restored the AO’s view, stating that the payment was for extraneous considerations and not justified by the agreements.
