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2015 (4) TMI 581 - ITAT MUMBAI

2015 (4) TMI 581 - ITAT MUMBAI - TMI - Loss of Advance given to procure land for future projects - Failure to recover the advance amount - Loss of capital or a revenue expenditure - Held that:- We note that there is no dispute that the amount in question was advanced by the assessee for purchase of land which would be going to form part of stock in trade of the assessee being in the business of construction and development. Accordingly, the said advance becoming irrecoverable and consequently, w .....

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o. 7838/Mum/2010 - Dated:- 25-3-2015 - Vijay Pal Rao, JM And N. K. Billaiya, AM,JJ. For the Petitioner : Shri Jeetendra Kumar For the Respondent : Shri Deepak H. Padachh ORDER Per Vijay Pal Rao,JM. This appeal by the revenue is directed against the order dated 25.08.2010 of CIT (A) for A.Y. 2006-07. The revenue has raised following grounds in this appeal:- "1. "On the facts and circumstances of the case as well as in law, the Ld.CIT(A) has erred in holding that the payment of ₹ 2 .....

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and for future projects and hence were rightly treated as a capital expenditure outlay and the failure to recover the amounts advanced had to be treated as a loss of capital and not a revenue expenditure allowable u/s. 37(1) of the I.T.Act, 1961." 2. The assessee company is a builder and developer. During the course of assessment proceedings, the Assessing Officer found that the assessee has debited an amount of ₹ 39,00,000/- under the head "sundry balance written off". On b .....

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d the claim of the assessee being an allowable business loss as the same was on revenue account and loss suffered by the assessee in the normal course of business. 4. We have heard the Ld. DR as well as Ld. AR and considered the relevant material on record. The Ld. Authorized Representative of the assessee has submitted that this issue is covered by the decision of Delhi High Court in the case of CIT Vs. New Delhi Hotels Ltd 345 ITR 1. He has further submitted that the assessee is engaged in the .....

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wed the claim of the assessee on the ground that the advances are capital in nature. The Assessing Officer has not gone into the issue of genuineness of claim. Though, the assessee was having an agreement in which the advances were given to the parties for purchase of land, therefore, the said MOU with the parties is an enforceable right with the assessee for seeking specific performance of the obligation on the other party. Since the Assessing Officer has not gone into the other aspects of the .....

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s a revenue loss and an allowable claim being business loss of the assessee as held by Hon'ble Delhi High Court in the case of CIT Vs. New Delhi Hotels Ltd (supra) in para 4 to 7 as under:- "4. The tribunal has allowed the aforesaid loss under Section 37 of the Act, after recording the following findings:- "15. We have carefully perused the papers placed in the paper book filed by the assessee. The agreement to purchase the property was made by the assessee with M/s. Gulmohar Estat .....

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purchase of following properties:- (i) Property measuring 700 square feet for consideration of 11,47,500; (ii) Property measuring of 1960 square feet for consideration of ₹ 13,23,000/-; (iii) Property measuring 2900 square feet for ₹ 19,57,500/-. 16. The assessee, thus, agreed to purchase three number of dwelling units in designer housing complex being constructed by M/s. Gulmohar Estate Ltd. The assessee is not an individual so these flats could be considered with intent to use them .....

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lso received advances from flat owners against the flats to be sold to them, which has been shown under the head "current liabilities and provisions". The amount of ₹ 44,28,000/- receivable from M/s. Gulmohar Estate Ltd. paid towards purchase of flats were shown under the head "loans and advances" in the balance sheet as on 31.03.1991. The audited accounts for the year under consideration have been carefully perused by us. The assessee has shown rent and other income at .....

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has been shown at ₹ 82,88,005/- and the closing stock as on 31.03.2004 has been shown at ₹ 79,35,987/-. The profit from sale of flats (heritage city), has been shown under the head "profit and gains of business or profession". The object of the company as seen from the memorandum of association of the company is also to acquire by purchase, lease, exchange or otherwise, sale or otherwise and sell in and dispose of lands, building, heriditaments of any tenure or description .....

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in developing and pereparing land for building purposes and preparing building sites by planting, paving, drawing and by constructing, reconstructing pulling down, altering, improving, decorating, furnishing and maintaining and dealing in offices, flats, service flats, houses, bungalows, factories, warehouses, shops, cinema houses, bungalows, works and conveniences of all kinds and by consolidating or connecting or sub-dividing properties and by leasing, letting or renting, selling and otherwis .....

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buildings, and other property whether belonging to the Company or not and to let any portion of any premises for residential, trade or business purposes, and to collect rents, and incomes and to supply to tenants and occupiers all conveniences, amenities etc." 18. The assessee company was the promoter and developer of New Delhi House and Mercantile House at New Delhi. The assessee is also the promoter and developer of Heritage City at Gurgaon, in respect of which the profit has been shown .....

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e no physical possession was received by the assessee, the property proposed to be purchased by the assessee were not shown as stock in trade in the books of assessee as per the normal accounting practice. The assessee had debited the amount of ₹ 44,28,000/- in the books of account and shown under the head "loans and advances". Thereafter, in the year 2003- 04, M/s. Gulmohar Estage Ltd. locked their offices and it was found that the property purchased by the assessee were fraudul .....

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a case where amount was paid in advance for purchase of property. The assessee is in the line of business or real estate as discussed above. It can, therefore, be reasonably be presumed or a reasonable inference can be drawn that the assessee intended to purchase the property in the course of original business carried on by it or at best it can be said that the assessee purchased the property for residences of its employees including directors. Even if it is presumed that the assessee intended t .....

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not impressed by the aforesaid contention. The tribunal has referred to the nature of activities undertaken by the respondent-assessee, i.e., the assessee was a real estate company and was a contractor. The tribunal referred to the Memorandum of Association and mentioned other transactions of sale/purchase in which the assessee had treated immovable properties as stock-in-trade. The history for the business transactions undertaken by the assessee have been kept in mind. No doubt, the assessee al .....

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off as business loss either in the return of income filed or during the course of assessment proceedings or appellate proceedings before me that the advance was made for the purchase of stock-in-trade or the amount was advanced in the ordinary course of business. It is also observed from the Assessment Order that appellant has made investment in properties and has shown long term capital gain on sale of such property. In view of these facts, appellant's claim that he amount written off may b .....

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his order. In the aforesaid submission made before the ld. CIT(A), the assessee categorically stated that the assessee was a construction and real estate company promoted by Shri Ram Prasad Ji in 1968, and the assessee is promoter and developer of New Delhi House and Mercantile house at New Delhi and Heritage City at Gurgaon. The details about the agreement made during 1990-91 were also given to the ld. CIT(A). The ld. CIT(A) has not stated anything adverse to the assessee's contention to t .....

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ject the assessee's claim that from the assessment order, it was observed that the assessee made investment in property and has shown long term capital gain on such property. However, the answer to question whether any property purchased by the assessee, who is also in the business of construction and sale of flats/properties/housing complex, is on investment account or on trading account is to determined in the light of the intention of the assessee to be decided upon on facts and surroundi .....

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