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2015 (6) TMI 177 - ITAT MUMBAI

2015 (6) TMI 177 - ITAT MUMBAI - TMI - Security deposits paid to Electricity Authorities and Sales tax Authorities - CIT(A) deleted the addition - whether advance given is capital in nature and the same cannot be claimed as bad debt as per the provisions of sec. 36(2) r.w.S 36(1)(vii)? - Held that:- It appears that the assessee has transferred the factory premises along with the electricity connection. Therefore, no separate claim of business loss on account of security deposit of electricity co .....

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appeal against the disallowance made by the learned CIT(A). Consequently, the order of the learned CIT(A) qua this issue is set aside and the order of the Assessing Officer is restored. - Decided in favour of revenue.

Applicability of section 50C, in respect of the sale of lease hold property - CIT (A) treating the value of the property at ₹ 1,40,00,0001- instead of at its stamp value of ₹ 3,07,71,0001-, as done by the AO - the lease hold rights cannot be equated with the .....

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O [2011 (5) TMI 576 - ITAT, Mumbai] wherein held since the section 27(iiib) has not been extended to the computation of capital gains under section 45 and is limited to the computation of the income under the head "Income from house property", the conclusion of the CIT(A) that section 50C cannot be invoked where leasehold rights in land or building are transferred, seems to us, to be correct. - Decided against revenue.

Advance written–off in respect of old / ex–employees balance - CIT .....

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ness loss.- Decided in favour of assesse.

Deduction on account of written–off amount being deposit made to EGIL - Held that:- The assessee has claimed deduction of ₹ 3,75,880, written–off on account of deposit made for an old premises by EGIL which were merged with the assessee and subsequently the amount was identified as irrecoverable after the merger - Decided in favour of assesse. - ITA no.4464/Mum./2012, ITA no.4465/Mum./2012 - Dated:- 29-5-2015 - SHRI R.C. SHARMA AND SHRI .....

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ear 2006-07, vide which, following grounds have been raised:- 1. On the facts and in the circumstances of the case and in law, the Id. CIT (A) erred in deleting the addition of' 4,46,029/-, being security deposits paid to Electricity Authorities and Sales tax Authorities, without appreciating that advance given is capital in nature and the same cannot be claimed as bad debt as per the provisions of sec. 36(2) r.w.S 36(1)(vii). 2. On the facts and in the circumstances of the case and in law, .....

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nd itself whereas in the present case the assessee is holding land on lease deed signed with MIDC which is sold for ₹ 1,40,00,000/- thereby attracting the provisions of sec. 50C. 3. The appellant prays that the order of CIT(A) on the above ground be set aside and that of the Assessing Officer be restored. 3. Ground no.1, is regarding deletion of addition made by the Assessing Officer on account of security deposit with Maharashtra State Electricity Board (MSEB) and sales tax authorities. 4 .....

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siness loss. The Assessing Officer did not accept this submission of the assessee and disallowed the claim of written-off this amounts on the ground that it does not satisfy the conditions of section 36(2) and further, the assessee failed to prove that the deposit has become bad. 5. On appeal, the learned CIT(A) has allowed the claim of the assessee and deleted the addition made by the Assessing Officer. 6. Before us, the learned Departmental Representative submitted that the assessee has claime .....

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assessee and, accordingly, security deposit with the MSEB has been written-off by the assessee as irrecoverable. Similarly, the deposit with the Sales Tax Department has been written-off by the assessee because the assessee has sold its factory and the said deposit cannot be used by the assessee for business purpose. He has relied upon the decision of the Hon'ble Jurisdictional High Court in Harshad J. Choksy v/s CIT, [2012] 349 ITR 250 (Bom.) and submitted that the Hon'ble High Court ha .....

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ts with the Government Department cannot be treated as bad debt or the amounts become irrecoverable. Even otherwise when the assessee has sold its factory where this electricity connection was installed, then the deposit with the MSEB is part of the sale consideration of the factory premises. We do not agree with the findings of the learned CIT(A) as well as the contention of the assessee that since the assessee has sold the business premises / factory and, therefore, the amount of security depo .....

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nsferred along with the factory premises. Similarly, the deposit with the Sales Tax Department cannot be treated as irrecoverable amount. Merely because the assessee decided to written-off these amounts in the books of account would not automatically become an allowable deduction being business loss. We further note that for the assessment year 2007-08, this claim of the assessee has been disallowed by the learned CIT(A) and the assessee has not filed any appeal against the disallowance made by .....

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ng Officer has also referred the valuation of the property to the DVO who has valued the property at Rs. 2,05,96,600. However, the Assessing Officer has considered the full sale consideration by adopting the stamp duty valuation for the purpose of working out the capital gain. 11. Before the learned CIT(A), the assessee challenged the action of the Assessing Officer and questioned the applicability of section 50C in case of lease hold rights. The learned CIT(A) has accepted the claim of the asse .....

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n the case of assessee. He relied on the order of the Assessing Officer. 13. The learned Counsel for the assessee, on the other hand, submitted that the lease hold rights cannot be equated with the ownership of the land and, therefore, the deemed provisions of section 50C, cannot be applied in case of transfer of lease hold rights. He has relied upon the following decisions:- i) ITO v/s Pradeep Steel Re-rolling Mills Pvt. Ltd., [2013] 155 TTJ 294 (Mum.); ii) Atul G. Pauranik v/s ITO, ITA no.3051 .....

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e-rolling Mills Pvt. Ltd., the Tribunal, while dealing with an identical issue, has held as under:- 4. The revenue is in appeal. We are unable to find fault with the decision of the CIT(A) that section sac cannot be invoked to a transfer of leasehold rights. The section applies only to capital assets being land or building or both. It does not in terms include leasehold rights in the land or building within its scope. The Assessing Officer's conclusion to the contrary is based on section 27( .....

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ion of the income under the head "Income from house property". It has not been made applicable to the computation of capital gains. Secondly, the rights mentioned in the provision are rights over the building and any rights over the land have not been included in the section. In any case, since the section 27(iiib) has not been extended to the computation of capital gains under section 45 and is limited to the computation of the income under the head "Income from house property&qu .....

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r of the learned CIT(A) qua this issue. 16. In the result, Revenue s appeal for the A.Y. 2006-07 is partly allowed. We now take up Revenue s appeal for the assessment year 2007-08, vide which, following grounds have been raised:- a) On the facts and in the circumstances of the case and in law, the Id. CIT (A) erred in deleting the addition of Rs. 4,18,056/- being deduction claimed on account of advance written off in respect of tender amount due from the government, without appreciating that adv .....

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earlier years as per the provisions of sec. 36(2). c) On the facts and in the circumstances of the case and in law, the Ld. CIT (A) has erred in deleting' 3,75,888/-, being deposits made to EGIL, without appreciating that there is no evidence furnished by the assessee to show that the amount has been offered to tax in earlier years as per the provisions of sec. 36(2). 17. Ground no.1(a) is regarding deduction claimed on account of disallowance written-off in respect of the tender amount due .....

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nd no.1(b), is regarding deduction claimed on account of advance written-off in respect of old / ex-employees balance. 20. The assessee claimed deduction, inter-alia, in respect of the amount of Rs. 4,18,056, written-off towards earnest money deposit for leased premises for their employees. The Assessing Officer disallowed the claim of the assessee on the ground that this expenditure has not been incurred for the purpose of business and further it does not fulfill the condition prescribed under .....

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he learned Counsel for the assessee supported the order of the learned CIT(A) and submitted that the amount was paid for procuring the accommodation for the employees who have already left the services of the assessee, therefore, now this amount has become irrecoverable and is allowable deduction as business loss. 24. We have considered the rival contentions as well as the material on record. We find that the learned CIT(A) has allowed the claim of the assessee by following the orders of the Tri .....

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ises for its business and that it did not get ready factory for that purpose. It took a business decision to enter in agreements with the landlord who owned the land which did not have the factory shed and other structures required by the assessee. The landlord expressed difficulty in constructing the factory building and other structures. The assessee, in pursuance of other agreements entered in advanced moneys which were in the beginning to be adjusted against the future rents, but subsequentl .....

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t with Shri Dastur that the principles in this regard are laid down by the Supreme Court in its judgment in CIT v. Mysore Sugar Co. Ltd. [1962] 46 ITR 649. The relevant observations in this case have already been noted by us earlier in Empire Jute Co. Ltd. v. CIT, [1980] 124 ITR 1 (SC). Apart from the fact that this court had already held that the length of the lease agreement is not very material for the purpose of determining the nature of the expenditure incurred on lease agreement, the Supre .....

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oneys advanced by the assessee in pursuance of these agreements to the landlord for the purposes of and in connection with the acquisition of the premises on lease were for the purpose of business. Naturally, therefore, when such advances are lost to the assessee, the loss would be a business loss and not a capital loss. The decisions relied upon by Dr. Balasubramanian, according, to us, have no bearing on the question involved herein. In the Supreme Court decision, the question was of a third p .....

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