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2019 (2) TMI 1062 - AT - Income TaxNature of expenditure - loss on forfeiture of advance to be treated as capital expenditure - AO has doubted the genuineness of forfeiture - AO has rejected the claim of the assessee on the ground that the assessee has not made any effort to recover the forfeitured advance and no documents have been filed to show that the assessee sought extension of time or recovery of the advance - allowable claim U/s 37 - Held that:- Forfeiture amount was either to be reduced from the cost of the asset/property or to be assessed as income as per the provisions of Section 56(2)(ix) of the Act. Since the provisions of Section 56(2)(ix) of the Act are not applicable for the year under consideration, therefore, the only option was to reduce the said amount from the cost of acquisition of the property in the hand of the seller and consequently the profit earning on the sale of the said property would be enhanced by the said amount. The provisions of Section 51 of the Act is a safeguard against the loss of revenue on account of such forfeiture. Therefore, the said claim of forfeiture of ₹ 7.00 crores is not a revenue affecting transaction but it will be taken into consideration at the time of sale of the property by the seller. Hence, it is only a matter of different assessment year when finally the properties in question are to be sold by the seller. The Assessing Officer has not brought any material or fact that the seller has circumvented the provisions of Section 51 of the Act. Further the payment of ₹ 7.00 crores by the assessee to the seller is not in dispute and this is a real transaction but the Assessing Officer has disallowed the claim on the ground that the forfeiture of the amount is not genuine. It is pertinent to note that once the parties to the transaction have accepted the forfeiture and the assessee has not made any claim or the amount was otherwise not paid to the assessee then there is no reason to treat the forfeiture as non-genuine. Accordingly, when the AO has duly examined all the relevant facts as well as the seller during the course of remand proceedings and nothing adverse was either found or brought on record to contradict the claim of the assessee then the claim of forfeiture of the amount in question is an allowable claim U/s 37 as it is a business loss occurred during the course of business activity of the assessee being business of real estate. The Assessing Officer has not disputed the business activity and the income offered by the assessee from the business of real estate, therefore, in the facts and circumstances of the case, we do not find any error or illegality in the impugned order of the ld. CIT(A) and the same is hereby upheld. - decided against revenue
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