Case Law Details
Jayant Hari Mulay Vs DCIT (ITAT Pune)
Introduction: The Income Tax Appellate Tribunal (ITAT) Pune’s recent ruling in the case of Jayant Hari Mulay vs Deputy Commissioner of Income Tax (DCIT) brings clarity to the tax treatment of compensation paid to landlords for delayed possession of constructed flats. The decision centered around the applicability of such compensation as a deductible expense under work-in-progress.
Analysis: The appellant, Jayant Hari Mulay, is a promoter and builder who faced delays in completing a construction project. The delay led to a compensation payout of Rs. 37 lakh to the landlord, out of which Rs. 12 lakh was claimed as a deductible expense for the year in question. The tax authorities disallowed this claim, citing section 18 of the Real Estate Regulatory Authority (RERA), 2016, arguing that it pertains to compensating flat owners rather than land sellers.
In the appeal, the ITAT noted that the compensation was not for the purchase of the land but for the delay in handing over the constructed area. It was further noted that Rs. 25 lakh of this compensation had been claimed in earlier years as part of work-in-progress and was undisputed by the tax authorities. The ITAT considered an agreement provided by the appellant as additional evidence, suggesting the compensation was indeed for delay in possession handover. Considering this, the ITAT deemed it fair to remit the case back to the AO for verification of the agreement’s relevant clauses.
Conclusion: In its judgment, ITAT Pune asserted that if a compensation payment was due to delay in handing over possession, it should indeed be treated as part of work-in-progress. This ruling provides clarity on the tax treatment of such payments, and affirms that builders can deduct them as part of work-in-progress in their income tax computation. The outcome underscores the role of agreements in tax assessments and reemphasizes the need for detailed record-keeping in property transactions. This judgement can have a substantial impact on the real estate industry, where delays in construction and handover are unfortunately quite common.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
