TMI Blog2009 (10) TMI 923X X X X Extracts X X X X X X X X Extracts X X X X ..... red by the assessee on account of purchase of capital assets i.e. land, as revenue loss. For this, the assessee has raised the following effective ground No.3:- 3. The learned C.I.T. (Appeals) has not allowed ₹ 950000/- loss for the purchase capital asset though fully explained. The loss of ₹ 950000/- be allowed. 3. The brief facts leading to the above issue are that the Assessing Officer noticed from the revised return, that the assessee has claimed loss of ₹ 9.50 lakhs on account of forfeiture of amount by the seller of the land. The AO required the assessee to justify the claim and give the details. The assessee replied that the company wanted to purchase the land and accordingly agreement for sale of land was executed for an amount of 82 lakhs and for the same, advance was paid at ₹ 9.50 lakhs. Subsequently, the company decided not to buy the aforesaid land after paying advance and as such advance of ₹ 9.50 laks was forfeited by the seller of the land in the agreement to sell. During the course of assessment proceedings, the assessee was further required to give following details:- The scrutiny of the revised return, it was seen that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal by giving following finding in para-5 of his assessment order:- 5. The submission of the assessee has been considered carefully. From the submission it is clear that investment has been made for the purchase of capital asset. Thus the expenditure incurred for such capital asset is a capital loss. As the same is snot a revenue loss, the assessee is not entitled to any deduction. As the said expenditure is not an allowable expenditure within the meaning of section 36 or 37, the same is disallowed and added to the total income of the assessee. Penalty proceeding u/s.271(1) initiated separately. 5. Aggrieved, assessee preferred appeal before CIT(A) and CIT(A) also confirmed the action of the Assessing Officer by giving following finding in para-2.3 of his appellate order:- 2.3 I have gone through the facts of the case, assessment order, submission made by the ld. Authorized Representative of the appellant as also the case laws relied upon. I find that the amount of ₹ 9,50,000/- has been paid for the purchase of land which is a capital asset. It is very clear in this case that only an agreement was signed for which, no any business need and purpose could be classi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Supreme Court in the case of Patnik C. Ltd. v. CIT (1986) 161 ITR 365 (SC), wherein the Hon ble apex court has held as under:- According to the statement of the case, drawn up on the basis of the appellate order of the Appellate Tribunal, the assessee was told that if it subscribed for the Government Loan, preferential treatment would be granted to it in the placing of orders for motor vehicles required by the various Government Departments and to the further benefit of an advance from the Government up to 50 per cent, of the value of the orders placed. Pursuant to that understanding an advance to the extent of ₹ 18,37,062/- was received by the assessee and a circular was also issued by the State Government to various Departments to make purchases of the vehicles required by them from the assessee. Because of the advance received from the Government, the assessee was able to save ₹ 45,000 as bank interest during the year. It was also noticed that the sales shot up substantially. On September 4, 1961, the assessee made a deposit of ₹ 5 lakhs consequent upon a resolution of the board of directors passed about six weeks before after a statement made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he impugned asset is not acquired and, therefore, the transaction or the agreement failed. The Tribunal has further taken the view that once there was a breach of an agreement it could not be said that the expenditure incurred for recovery of the advance had direct connection with the acquisition of the capital asset. According to the Tribunal, the expenditure incurred had only connection with the recovery of the amount and, therefore, the same ought to have been considered as laid out during the course of carrying on business and, therefore, a revenue expenditure which should have been required to be allowed. We find no error in the view taken by the Tribunal and, hence, we confirm the finding arrived at by the Tribunal. We, therefore, answer this question in the affirmative, i.e., in favour of the assessee and against the Revenue. 8. On the other hand, Ld. Sr. Departmental Representative relied on the orders of the lower authorities. He stated that the amount was paid for the purchase of land, which is a capital asset and in the present case, there is no business need and the purpose is also not classified by the assessee. He further stated that there is no business expedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e test of identity laid down by the Supreme Court in the above cited case law, and since no benefit of enduring nature resulted to the assessee, the expenditure in question cannot be treated to be of capital nature and this admitted fact that the advance was paid for acquiring the land to set up a factory but when the land was not acquired, no capital asset came into existence, therefore there is no question of not allowing this expenditure as revenue. If any, asset is acquired and if it is a benefit of enduring nature, then, of course, the assessee cannot get deduction of the amount for acquisition of land as revenue expenditure. When land was not acquired, no capital asset has been acquired and therefore, the payment of ₹ 9.50 lakhs is to be allowed as a business loss. In view of the above, we allow the claim of the assessee as business loss and the findings of the lower authorities on this issue are revised and this issue of the assessee s appeal is allowed. Now coming to assessee s appeal in ITA No.2375/Ahd/2006. 10. Since we have already deleted the addition in the quantum appeal of the assessee in ITA No.3050/Ahd/2004, the penalty levied by the Assessing Officer a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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