Compensation to real estate developer for closure of agreement allowable as revenue expenditure

DCIT Vs Sentinel Properties Pvt. Ltd. (ITAT Mumbai)

ITAT Mumbai held that compensation paid to a real estate developer for closure of agreement is allowable as revenue expenditure when the payment of such compensation is closely related to the business of the assessee.

Facts- The assessee is in business of land development and had over the years bought several parcels of land. It is engaged in property development business. During the course of assessment proceedings AO found that assessee has paid a compensation of ₹ 159,954,736/– to a private limited company namely Emtelle India Ltd. Assessee claimed the said compensation u/s. 37(1) as revenue expenditure.

AO rejected the same. CIT(A) deleted the disallowance holding that payment of compensation in the course of business of real estate is allowable. Being aggrieved, revenue has preferred the present appeal.

Conclusion- Hon’ble Karnataka High Court in the case of Nitesh Estate [P] Ltd V DCIT has allowed compensation paid to a real estate developer when the payment of such compensation is closely related to the business of the assessee.

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