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2014 (10) TMI 109 - HC - Income TaxClaim of expenses disallowed u/s 37(1) - expenditure/loss incurred on abandoned project – Held that:- The FAA has looked into the profit and loss account and was convinced that for the first two years the expenditure is shown as “work-in-progress” but as the expenditure was not shown as work-in-progress and the entire expenditure was shown as expenditure the assessee is not entitled to the benefit - the assessee in that previous year has shown the entire amount incurred as expenditure and sought for writing off as business expenditure - This aspect has been missed by the FAA - It is only in the relevant year the assessee has not shown the amount spent towards expenditure as work-in-progress - It is during that year the contract was terminated and he put forth the present claim - He could not have shown it as work-in-progress - the finding that he is not entitled to the benefit is ex-facie illegal and cannot be sustained. Relying upon Laxmi Ginning And Oil Mills Versus Commissioner of Income-Tax, Patiala [1970 (12) TMI 17 - PUNJAB AND HARYANA High Court] - if the assessee incurs a liability and when the contract under which that liability was incurred was terminated and when no amounts under the contract or in pursuance of a claim is receivable, he is entitled to claim the said amount incurred as expenditure in implementing the contract as a set off u/s 37(1) r/w 28 of the Act - though the assessee has incurred expenditure during the AYs 2000-2001, 2001-02 and 2002-2003 during which period he has not received any amount as against the expenditure, if and when he receives the money in pursuance of the award which is already passed, if it is upheld by the High Court, the amount is chargeable to income tax as the income of that previous year in which he receives the said amount whether the business in respect of which the deduction has been made is in existence in that year or not - the interest of the revenue is fully protected - All the three authorities have not applied their mind to the factual aspects of the case and have not kept in mind the statutory provisions and thus committed a serious illegality in passing the orders – thus, the order of the Tribunal is set aside – Decided in favour of assessee.
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