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Shri Upendrabhai N. Versus The ACIT, Central Circle-1, Baroda

2016 (4) TMI 476 - ITAT AHMEDABAD

Disallowance in respect of loss on advances written off - Held that:- There can be hardly any dispute about the legal positions in view of hon’ble apex court decision in TRF Ltd. vs. CIT [2010 (2) TMI 211 - SUPREME COURT ] that after amendment in section 31(vii) of the Act post facto 01-04-1998 that it is not necessary for an assessee to establish the debts to have actually become bad. We find that the assessee has filed all necessary details even before the CIT(A) qua the bad debts in question. .....

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wable u/s. 37 of the Act. The Revenue is unable to either point out any distinction on facts or law thereto. We accept assessee’s arguments against the impugned disallowance and hold that its claim of bad debts in question of ₹ 20, 40,451/- is allowable as loss u/s. 28/37 of the Act. - Decided in favour of assessee

Disallowance of land development expenses - Held that:- As during the course of hearing that neither the Revenue has been able to support the impugned disallowance @ .....

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sum disallowance of ₹ 2,50,000/- instead of ₹ 24,95,422/- in question would be just and proper - Decided partly in favour of assessee - ITA No. 1564/Ahd/2010 - Dated:- 11-3-2016 - Shri Pramod Kumar, Accountant Member and Shri S. S. Godara, Judicial Member For The Revenue : Shri Lala Philips, Sr. D.R. For The Assessee : Shri M.G. Patel, A.R. ORDER PER : S. S. GODARA, JUDICIAL MEMBER:- This assessee s appeal for A.Y. 2006-07, arises from order of the CIT(A)-IV, Ahmedabad dated 04-03-2 .....

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in land development. He wrote off the impugned sum of ₹ 20,40,451/- as debts shown in profit and loss account of the proprietary concern. The same comprised of advances to M/s. Moogambiga Supplies, RRRDA (Rural Research and Rehabilitation Development Agency) and Molin Mission Church of ₹ 1,90,450/-, ₹ 8,50,000/- and ₹ 10 lacs respectively on purchase of inter alia materials, transport, earnest money deposit for obtaining construction work for building houses etc. It emerg .....

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ses and Engineers India Pvt. Ltd that mere debiting of the amount in question is not sufficient and the same have to be written off as well. This discussion resulted in the impugned disallowance being made in assessee s case. 3. The CIT(A) confirms Assessing Officer s findings as under:- 3.0 The second ground of appeal is regarding the addition of Rs-Rs. 18,50,000/- made by disallowing the claim of bad-debts made u/s 36(1)(vii) of the Act. The Assessing Officer had discussed this issue in para-5 .....

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c., out of the same, amount of ₹ 190450/- remained outstanding and could not be recovered. Further, the Appellant advanced sum of Rs.Wj,00,0007- to Molin Mission Church (Pls. see page Nos. 192,and 193 of the Paper Book) and ₹ 8,50,000/- to RRRDA (Rural Research & Rehabilitation Development Agency) (Pls. see page Nos. 190 and 191 of the Paper Book) as Earnest Money deposits for obtaining construction work for building houses in Thiruvallur District and surrounding areas for the be .....

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equently misappropriating against the funds. The appellant could not recover back the aforesaid amount in spite of efforts put in by him and hence these advances ofRs.20,40,451/- were written off. 1.1 The Assessing Officer disallowed claim of the appellant on the ground that such advances were not taken into account in computing the income of the Appellant of the previous year in which amount of such debt or part thereof is written off or of an earlier previous year, or had represented money len .....

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es concerned and till date no recovery has been made. Further, amounts were given to the parties concerned in course of business of construction by the Appellant. As the same could not be recovered in spite of the efforts made by the Appellant, the same were written off as business loss and such loss is allowable u/s 27/37 of the Income Tax Act, 1961 since the advance were given by the Appellant in course of his business. 1.3 Our above contention is supported by the following decisions: (I) Lord .....

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by the Department against decision of Bombay High Court in director of Income Tax v Oman International Bank (313 ITR 128) holding that the assessee is entitled to claim deduction of bad debt when it is written off as irrecoverable in the books of accounts and there was no obligation on the assessee to establish that the debt has become bad. In the decision of Bombay High Court, Order of Special Bench in case of DCIT v. Oman Internation Bank (287 ITR AT 8) has been upheld. Reliance is also place .....

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ision in case of Morgan Securites & Credits (P) Ltd. 1.6 In view of the same, decision in the case of dhall Enterprises & Engineers (P) Ltd. (supra) is no longer a good law. 1.7 In view of the same, advances of ₹ 20,40,451/- written off be allowed as deduction as business loss. 3.2 I have carefully considered the submission of the Ld. Counsel and the facts of the case. Out of the amount of ₹ 18,50,000/-, the amount of ₹ 10,00,000/- was given to Molin Mission Church and .....

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n computing the income of the appellant. The Ld. Counsel's plea that it is allowable as loss u/s 28/37 is also not acceptable, if the appellant had claimed the deduction u/s 36(1)(vii), it cannot be entertained in sec. 28/37 as held by the Madras High Court in the case reported in 296 ITR 514 (Mad.). Secondly, even if it is treated as loss, the same will be capital loss and not the revenue loss as the initial payments were made for earnest money deposits. Anyhow, as per the decision of the H .....

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n view of hon ble apex court decision in TRF Ltd. vs. CIT 323 ITR 397 that after amendment in section 31(vii) of the Act post facto 01-04-1998 that it is not necessary for an assessee to establish the debts to have actually become bad. It impliedly overruled hon ble jurisdictional high court decision in Dhall Enterprises (supra). We find that the assessee has filed all necessary details even before the CIT(A) qua the bad debts in question. There is no evidence much less cogent one with both the .....

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ading loss as allowable u/s. 37 of the Act. The Revenue is unable to either point out any distinction on facts or law thereto. We accept assessee s arguments against the impugned disallowance and hold that its claim of bad debts in question of ₹ 20, 40,451/- is allowable as loss u/s. 28/37 of the Act. This substantive ground succeeds. 5. This leaves us with assessee s second substantive ground challenging disallowance of ₹ 24,95,442/- of land development expenses. He had debited vari .....

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03-04 and ₹ 7,32,634/- in the next assessment year. The Assessing Officer treated the same as prior period expenses debited to P & L account of the impugned assessment year. The Assessing Officer accordingly disallowed the impugned sum forming gross total of the above two figures coming to ₹ 17,23,034/-. It emerges from the case file that the Assessing Officer thereafter disallowed 20% of ₹ 38,61,940/- {(854,440/- +449100+2558400-(42,81,434/- less 17,23,034/-)}by holding th .....

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Ld. Counsel could not prove that the liability was materialised during the year under condideration. Since, the expenses were incurred in the A.Y. 2003- 04 and A.Y. 2004-05, the same cannot be allowed. In view thereof, have no alternative except to confirm the finding of the Assessing Officer. The disallowances of expenses of ₹ 17,23,034/- (Rs. 9,90,400/- + ₹ 7,32,634/-) are accordingly sustained. I have also gone through the details of other expenses. The leveling expenses were paid .....

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of ₹ 18,500/- to 19,500/- per day. Likewise, the land development expenses of ₹ 25,58,400/- were paid to sixseven persons on the basis of ₹ 12,000/- to 18,800/- per day per person and the same were paid in cash. There was no basis to expenses of ₹ 1,50,000/-, ₹ 2,50,000/-, ₹ 1,00,000/- ₹ 1,25,000/-, ₹ 1,25,000/- and ₹ 1,00,000/- paid respectively to Shri Vinod Patel, Shri Rohit Patel, Shri Bharat Patel, Shri Sudhir Patel, Shri Sanjay Patel ( .....

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uchers before the Assessing Officer and could not explain the basis ' of daily payments even during appellate proceedings, the Assessing Officer was justified in j disallowing 20% of the expenses of ₹ 38,61,940/-. The finding of the Assessing Officer is in order and the same is sustained. The disallowances so made are confirmed. The additions of ₹ 24,95,422/- ( ₹ 9,90,400/- + ₹ 7,32,634/- + ₹ 7,72,388/-) are confirmed. The fourth ground of appeal is accordingly .....

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