TMI Blog2014 (7) TMI 677X X X X Extracts X X X X X X X X Extracts X X X X ..... s incurred by the assessee for the purpose of creating, curing or completing his title to capital, it must be regarded as capital expenditure - But, if it is for the purpose of protecting its business, it would be considered as revenue expenditure - whereas an expenditure incurred for creating, curing or completing title to the property is capital, any sum incurred to protect the business is revenue expenditure. Claim of the assessee for deduction of such expenses is neither barred by any direct judicial precedents nor is contrary to any specific statutory provision - the question as to whether deduction should be allowed for such write off falls in the realm of debate - the assessee kept on keeping this amount under the head ‘Loans and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ful in the bid, the assessee deposited an initial sum of ₹ 2.41 crore. Subsequently, noticing that the title to the abovesaid property was not clear, the assessee moved the Hon ble Delhi High Court praying for the setting aside of the transaction and the consequential refund of the initial deposit of ₹ 2.41 crore from the Official Liquidator with interest. In order to pursue the case and protect its interst, the assessee appointed Advocates and Consultants for which fee amounting to ₹ 2,48,410/- was paid during the period starting from financial year 1996-97 up to financial year 2001-02. Similarly, a Security agency was appointed to protect the property from encroachment and trespass by any unauthorized person for which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved against this sustenance of penalty. 3. We have heard the rival submissions and perused the relevant material on record. It is clear from the factual matrix of the case that the assessee made a bid for auction of land at Faridabad which was conducted on 13.12.1996. On being successful, the assessee made payment of ₹ 2.41 crore to the Official liquidator in two instalments on 17.12.1996 and 17.03.1997. Thereafter, it was noticed by the assessee that the title of property purchased was not clear. The assessee filed Petition for recall of the sale confirmation on the ground that the advertisement by which the deeds were notified was vitiated on account of misrepresentation and mistake of fact. To recover the amount already advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the original amount paid together with interests and also other sum paid to Security agencies, Advocates and Consultants. During the financial year relevant to the assessment year under consideration, the assessee entertained a bona fide belief that this amount of ₹ 22.84 lac has become irrecoverable and, hence, wrote it off in its books of account by claiming deductions for the same. At this stage, it is relevant to mention that though the Hon ble Court ordered for refund of the amount to the assessee with interest in subsequent year, but the cost incurred towards payment of legal and professional charges and for security, was never allowed. 4. It is in this background of the facts that we need to decide as to whether penalty i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sale transaction and also protecting its interests during the period when the final decision was not rendered by the Hon ble Court, it becomes manifest that the amount cannot be outrightly characterised as capital expenditure, ineligible for deduction. The Hon ble Bombay High Court in Minoo F Mehta vs. CIT (1996) 217 ITR 578 (Bom) has held that to decide on which side of the expenditure falls, it is necessary to look at the nature of the business, the nature of expenditure and the nature of right acquired. The Hon ble High Court held that : If it is incurred by the assessee for the purpose of creating, curing or completing his title to capital, it must be regarded as capital expenditure. But, if it is for the purpose of protecting its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her barred by any direct judicial precedents nor is contrary to any specific statutory provision. At any rate, the question as to whether deduction should be allowed for such write off falls in the realm of debate. It is settled legal position that no penalty can be imposed in respect of a debatable issue. 6. When we consider the entirety of the facts prevailing in the present case, it can be seen that the assessee kept on keeping this amount under the head Loans and advances in its balance sheets over the period with the hope of getting reimbursement from the seller of property. But for such chances of recovery to be effected from the seller, the assessee would have claimed deduction for the same on year to year basis, which might pos ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
