TMI Blog2016 (5) TMI 30X X X X Extracts X X X X X X X X Extracts X X X X ..... egular course of business. The Assessing Officer treated the loss as capital loss on the ground that the land in question was treated as capital transaction by the vendors of the land. The Assessing Officer has also found that if the land was retained and sold, the assessee would have earned more gain than incurring loss. We are unable to uphold the reasoning of the authorities below. As discussed earlier, it is for the assessee to decide whether to proceed with the project or not. The assessee can also decide to sell the land as such by keeping the same. The Assessing Officer cannot step into the shoes of the assessee and suggest what should be for the best interest of the assessee. The assessee being a businessman knows well how to arrange its affairs for earning maximum profit. This Tribunal is of the considered opinion that merely because the assessee abandoned the project after paying advance of ₹ 50 laks, that cannot be a reason for treating the loss claimed by the assessee as capital loss. An asset may be a capital asset in the hands of the seller and it may be a stock-in-trade in the hands of the purchaser. It all depends upon the transaction. For example, when a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made to labourers who engaged in the construction activity that alone cannot be reason for disallowing any part of the expenditure on estimate basis. Therefore, this Tribunal is of the considered opinion that the disallowance made by the Assessing Officer at 3% of the total expenditure is not called for. Accordingly, the orders of the lower authorities are set aside and the disallowance made by the Assessing Officer @ 3% to the extent of ₹ 37,37,206/- is deleted. Allowability of interest on borrowed funds - Held that:- This Tribunal is of the considered opinion that the entry in the books of account is irrelevant for the computation of taxable income. The income is computed as per the Income-tax Act, 1961 irrespective of the entries made in the books of account. When the assessee borrowed funds and paid interest on such borrowed funds, this Tribunal is of the considered opinion that the interest paid on the borrowed funds has to be allowed as business expenditure. Thaiyur is one of the project proposed by the assessee. Merely because the loan was borrowed for Thaiyur project there is no restriction for the assessee to use the borrowed funds for other projects. The borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... am Village and hence, the Board of Directors decided to abandon the project. The land owners, however, forfeited the advance given by the assessee. Therefore, the advance given by the assessee to the extent of ₹ 50 lakhs was not refunded by the land owners and hence, this was treated as loss and claimed while computing the total income. However, the Assessing Officer rejected the claim of the assessee on the ground that the sale of the land as such would have resulted in more gain than incurring loss to the assessee. Moreover, the sellers of the land treated the land as capital asset and treated the transaction itself as capital transaction even after forfeiting of the advance. The sellers of the land have also not treated the advance forfeited by them as income in their hands. Therefore, the loss suffered by the assessee is a capital loss hence, it cannot be allowed as business loss while computing the total income. According to the ld. Counsel, merely because the sellers treated the amount in question as capital asset in their hands that does not automatically be treated as capital asset in the hands of the assessee-company. Admittedly, the assessee-company is engaged in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact remains that the assessee is engaged in the business of construction of flats and in order to promote the construction of flats, the assessee intended to purchase 6.68 acres of land at Ambattur, Madhavaram Village. After entering into an agreement, the assessee has also paid ₹ 50 lakhs as advance. The payment of ₹ 50 lakhs as advance for purchase of 6.68 acres of land is not in dispute. The assessee, for the reasons best known to it, decided not to proceeded with the project and accordingly abandoned the project which resulted in forfeiture of the advance amount of ₹ 50 lakhs by the vendors of the land. It is for the assessee to decide whether it intend to proceed with the project or not. The Assessing Officer cannot comment upon the decision of the assessee. When the assessee decided not to proceed with the project, whatever may be the reason, it was the decision taken by the assessee in the course of the business activity, therefore, the forfeited amount is a loss in the business. It is not in dispute that the advance paid by the assessee to acquire stock-in-trade in the course of the business was forfeited. Therefore, this Tribunal is of the considered op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing factor to allow the claim of the assessee either as revenue loss or as capital loss. It has to be decided whether the loss has occurred in the course of the business activity for acquiring a stock-in-trade in the hands of the assessee. In this case, admittedly, the assessee acquired a stock-in-trade for construction of residential flats at Ambattur in Madhavaram Vilalge. Therefore, the loss, if any, suffered in the course of the acquisition of the stock-in-trade has to be necessarily allowed a revenue loss, hence, it has to be allowed as business loss while computing the total income. In view of the above, we are unable to uphold the orders of the lower authorities. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow ₹ 50 lakhs as business loss while computing the taxable income of the assessee. 6. The next ground of appeal is with regard to disallowance of labour expenditure. 7. Shri D. Anand, ld. Counsel for the assessee submitted that the assessee has claimed ₹ 12,45,73,509/- towards labour expenditure. However, the Assessing Officer found that the vouchers maintained by the assessee are not complete ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessarily make self-made vouchers to evidence the payment of salary to such labourers engaged in the construction activity. Therefore, the Assessing Officer has to examine whether there was any inflation of the expenditure claimed by the assessee after comparing the nature of the work carried out by them. In the case before us, it is nobody s case that the assessee has inflated the expenditure. In the absence of any allegation that the assessee has inflated the expenditure, this Tribunal is of the considered opinion that merely because self-made vouchers are made with regard to payment made to labourers who engaged in the construction activity that alone cannot be reason for disallowing any part of the expenditure on estimate basis. Therefore, this Tribunal is of the considered opinion that the disallowance made by the Assessing Officer at 3% of the total expenditure is not called for. Accordingly, the orders of the lower authorities are set aside and the disallowance made by the Assessing Officer @ 3% to the extent of ₹ 37,37,206/- is deleted. 10. The next ground of appeal is with regard to disallowance of brought forward losses and unabsorbed depreciation to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is admittedly engaged in the business of construction of flats. During the course of business activity, the assessee proposed to construct residential flats at Thaiyur, Chennai. The assessee has also borrowed loan for the abovesaid housing project. The assessee is claiming interest on the borrowed funds as revenue expenditure. Since the construction of flats was not commenced due to delay in getting approvals from multiple authorities, the assessee carried forward the deferred revenue expenditure and claimed the same during the year under consideration. The question arises for consideration is when the assessee is in the business of construction of residential flats and borrowed funds for the purpose of business, whether the interest on such borrowed funds is an allowable expenditure or not? This Tribunal is of the considered opinion that when the assessee borrowed funds for the purpose of business, merely because the project in Thaiyur could not be commenced for whatever reason, the assessee is very much in the business of construction industry, therefore, the interest on the borrowed funds is an allowable expenditure while computing the total income. The fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
