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2020 (12) TMI 231 - HC - Income TaxDeduction u/s 36 or 37 - provisions for claims and compensation - Security deposits given under development agreement - assessee is under obligation to construct a pent house but due to non-approval of the permission from local authorities, the assessee could not construct the pent house but the landlord did not return the deposit as the assessee failed to satisfy the terms of the agreement - Revenue as well as the Tribunal disallowing the same as "provisions for claims and compensation" on the ground that it was not written off in the Books of Accounts of the Assessee - HELD THAT:- Claim of creation of provision for such expenditure, which is not yet incurred and is only intended to be written off as compensation paid to the land owner for the admitted failure of the Assessee to complete the contract in the manner as agreed between the parties, does not entitle the Assessee to claim the same either as Bad Debts under Section 36(1)(vii) of the Act or as Business Expenditure under Section 37 Either the Assessee admits this liability and pays the said amount to the land owner or the advance given thereafter is written off in its Book of Accounts to conclusively express its intention not to claim anything back from the land owner only could have been a reasonable conclusion of such expenditure being claimed as Compensation or a Business Expenditure under Section 37 of the Act. It is not a question of such advance turning to be a bad debt but the more relevant provision applicable to such facts would be Section 37 of the Act. A developer of a building could claim it as an expenditure in the year in which such expenditure is actually incurred or the advance is written off and its right to claim the refund of such security is completely waived off. Nothing of this sort has happened in the present case and merely by making a book entry for creating a provision for future expenditure or compensation, the Assessee cannot be permitted to claim deduction under Section 36 or 37 of the Act. The provision as such, cannot be allowed as Business Expenditure in the hands of the Assessee.The appeal filed by the Assessee is liable to be dismissed.
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