Case Law Details
Sri S.K Bhaskar Raju Vs Addl. CIT (ITAT Bangalore)
The issue under consideration is whether the AO is correct in disallowing expenses incurred on developing and maintaining land in connection with real estate activity?
In the present case, the assessee owned certain lands at Bangalore. He took the responsibility to sell adjacent land belonging to some other person. The assessee developed the adjacent land by incurring expenses towards cleaning the same, putting fencing, paying watchman salary, legal fees etc., aggregating to Rs.8.50 lakhs. It is stated that the assessee incurred those expenses in order to make the land attractive and also to put it in saleable condition. The assessee identified a buyer and entered an agreement with him and received a sum of Rs.100 lakhs as advance from him. However, the proposed purchaser could not complete the sale transaction and hence the assessee forfeited the above said advance and the same was taken as his income. After deducting the expenses of Rs.8.50 lakhs spent on development and other expenses, the assessee offered the remaining amount of Rs.91.50 lakhs as his income. The AO disallowed the development expenses of Rs.8.50 lakhs stating it is capital in nature and hence the same is proposed to be disallowed. It was also mentioned that the assessee has incurred expenses on the lands not owned by him and hence the same cannot be allowed as deduction in the hands of the assessee.
ITAT states that there is no dispute with regard to the fact that the assessee was not the owner of land on which the expense was spent. Hence the question of treating the same as Capital expenditure does not arise. The assessee has undertaken to sell the land belonging to other person and accordingly he has entered into an agreement to sell the land with a person as representative of the owner of the land. Hence, the above said activities carried on by the assessee can only considered as real estate activity carried on by the assessee. There is also no dispute with regard to the fact that the assessee has incurred the expenses. Hence, we are of the view that there is merit in the contentions of the assessee that the development/maintenance of land is related to the real estate activity carried on by the assessee. Accordingly, ITAT is of the view that the assessee is entitled to claim deduction of Rs.8.50 lakhs against the gross receipts of Rs.100 lakhs. Accordingly, appeal filed by assessee is allowed.
FULL TEXT OF THE ITAT JUDGEMENT
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