TMI Blog2020 (5) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... tax due should be collected as enshrined in the taxing statute and which is also the mandate of the Constitution of India. Here assessee is fastened with tax liability on a hypothetical income which did not materialize /received and in this situation a justice oriented approach is warranted when assessee has, on one hand incurred huge loss and on other, tax is charged merely on technicality that, since assessee had offered the tax under one particular head which it is claiming in this year to be set-off in the other head, is precluded from doing so. When assessee itself has pointed out its bonafide and legal claim before the AO that correct head in which it is assessable is business income , then acquiescence by the assessee in earlier year cannot be the ground to tax the same or deny any legal claim. We hold that the claim for the amount as business loss or bad debt is allowable in revenue account in this year and is allowed to be set-off in the revenue account as claimed by the assessee and not as a capital loss. - Decided in favour of assessee. Addition pertaining to sale of property in terms of Section 50C - Reference to DVO - HELD THAT:- Before the Appellate Authority ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment passed u/s.143(3) for the Assessment Year 2013-14. 2. In the grounds of appeal, the assessee has raised the following grounds: - i. That within the facts and circumstances of the case and law on the point, the impugned order dated June 02, 2017 framed by the Learned Commissioner of Income Tax (Appeals) I, New Delhi [learned CIT(A)], sustaining the assessment order with regard to disallowance of claim of bad debt made by the appellant and the addition made under section 50C of the Act, is bad in law, and impugned order therefore, deserves to be set aside, and the assessment in case of the appellant of being heard in the matter. ii. That within the facts and circumstances of the case and the law on the point, the learned CIT(A) has erred in sustaining disallowance of claim of Bad debt of ₹ 77,98,88,400/- caused by learned Assessing Officer under section 36(1)(vii) of the Act read with section 36(2) of the Act under the head Income from Business and profession , as claimed by the appellant, and instead upholding the amount of claim of the appellant as assessed by the Learned Assessing Officer under the head Income from Capital Gains . iii. That within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tandard trade practice in this industry and accepted by the Government, where various companies together apply for the land use change (CLU) which is granted by the State Authorities. 4. Further, it has clarified that, since the investment made in the equity share capital of the subsidiaries has to be declared under the head long term investments as per provision of the Companies Act, the same was declared by the assessee company under the said head though the subsidiaries owned land bank and were incorporated only to acquire plots of land as part of the real estate business. Factually the same was treated as business investment. 5. As regards the particular issue involved in the present appeal, the assessee company had acquired equity shares of its subsidiary company, Silver Town Inn and Resorts Pvt. Ltd. as part of business venture as the said company owned two contiguous plots of land at Village Kherki Daula, Tehsil Manesar, Gurgaon, Haryana having commercial prospects. Assessee has clarified that shares were not acquired for the purpose of investment to earn dividends, albeit for pure business purpose. The assessee purchased the entire equity share capital of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84,37,748/- was worked and assessee paid the tax as Long-Term Capital Gain amounting to ₹ 14.37 crores in the return of income for the Assessment Year 2010-11. The assessee has been further brought on record that assessee after the receipt of initial amount of ₹ 15 crores made an application on 25.08.2009 to the Director Town and Country Planning for the grant of CLU permission for construction of hotel/restaurant. In the meantime, a major portion of the said land was acquired by the Govt. and out of the total land admeasuring 10243.52 sq. mtr and 4790 sq. mtr. thereof, came under road widening and 4906 sq. mtr area under wide green belt. The only area of 493.52 sq. mtr. remained with the assessee. In support, assessee has also filed the necessary documents and the sketch plan wherein the area has been demarcated under the road widening of land falling under the green belt. The assessee s grant for CLU was thus rejected by the Government Authorities. Thus, by the stroke of such governmental orders, the asset of Silver Town Resort Pvt. Ltd. had drastically reduced from 10243.52 sq. mtr to 493.52 sq. mtr. In the wake of such event, the buyer refused to pay the balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any earlier years. He further observed that, in the instant case, the amount said to be claimed as bad debt is not trade receivable but it is sale of shares which is capital in nature and the shares sold were held as investment and not in stock-in-trade. Without prejudice, he also held that the same is not allowable as revenue expenditure or loss and assessee cannot be permitted to charge non receipt any amount to the revenue account and it has been rightly shown as capital in the earlier years. The assessee has earned profit at ₹ 71.84 crore as capital gain in the earlier year and sought to write off as a revenue amount of ₹ 77.98 crore in P L account as business expenses which is not permissible. Thus, he disallowed the entire claim and added the amount at ₹ 77,98,88,400/-. 8. Ld. CIT (A) has confirmed the addition made by the AO inter alia on following reasoning: - I have considered the arguments of the appellant and the legal position available on the issue and it is held that: 1) The appellant had already declared long term capital gain in its return of income, disclosing the sale of shares having been made as sale of its investment. The ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at income earned from activities undertaken during normal course of business is to be assessed as business income and in support, he strongly relied upon the judgments of Hon ble Supreme Court in the case of: (a) Karam Chand Thapar and Bros. (P.) Ltd. [1969] 74 ITR 26 (SC). (b) Karanpura Development Co. Ltd. vs. Commissioner of Income-tax [1962] 44 ITR 362 (SC). (c) Chennai Properties Investments Ltd. [2015] 56 taxmann.com 456 (SC). He further submitted that one has to be examine the substance of the transaction which here in this case clearly shows that sale consideration included consideration for sale of shares and income for services rendered in connection with the CLU and other clearance being a business activity of the assessee which is engaged in the real estate business. Even if the assessee has incorrectly declared the entire amount as capital gain in the return of income filed for the Assessment Year 2010-11, instead of business income and even if the entire amount was declared as income though same did not accrue to the assessee during the year, even though at that time only the buyer had categorically refused to pay the entire amount vide letter dated 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w. However, if the same has not been shown, then it can always be pointed out in the year of claim of loss or income. In support he strongly referred and relied upon the following judgments: (a) S.S. Gadgil Vs Lal and Co. 53 ITR 231(SC) (b) CIT v. Shelly Products [2003] 261 ITR 367 (SC) (c) Vijay Gupta [2016] 68 taxmann.com 131 (Delhi) (d) Abdul Qayume Vs CIT (1990) 184 ITR 404 (All) (e) Kedarnath Jute Mfg. Co. Ltd.Vs CIT 82 ITR 363 (SC) (f) CIT Vs Bharat General Reinsurance Co. Limited. 81 ITR 303 (Delhi) (g) R. Seshammal vs ITO 237 ITR 185 (Madras) (h) CIT Vs Bhawani Singhji [2018] 99 taxmann.com 338 (Delhi) (i) Shri Vipul P. Dalal Vs. DCIT - 12(2) 2016-LL-0603-1]- ITAT Mumbai (j) DCIT vs. Lab India Instruments (P) Ltd., 93 ITD 120 / 2005-TIOL-49-ITAT-PUNE (k) Raghavan Nair [2018] 89 taxmann.com 212 (Kerala) 11. Thus, he submitted that even if the income has been incorrectly assessed in the wrong head under the Assessment Year 2010-11, the same cannot be impediment for assessing the income under the correct provisions of the law. In support, he strongly relied upon the judgement of Hon ble Supreme Court in the case of Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e succeeding year. He further relied upon the catena of other judgments in his written submissions which for the sake of ready reference are reproduced herein below as we will be referring it extensively herein after: - 1. New Jehangir Vakil Mills Co. Ltd. Vs CIT (1963) 49 ITR 0137 (SC) wherein it was held as under: 8. On the principle stated above, it seems to us that it was open to the taxing authorities to consider the position of the assessee in 1943 for the purpose of determining how the gains made in 1944 should be computed, even though the subject of the assessment proceedings was the computation of the profits made in 1944. The circumstance that in an earlier assessment relating to 1943, the assessee was treated as an investor would not in our opinion estop the assessing authorities from considering, for the purpose of computation of the profits of 1944, as to when the trading activity of the assessee in shares began. The assessing authorities found that it began in 1943. On that finding the profits were correctly computed and the answer given by the High Court to the question of the computation of the profits was correctly given. 2. The Hon ble Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts . Therefore, it is now established that regardless of what an assessee claims, if the correct position deducible from primary facts is otherwise, the AO has to adopt that correct position. Consequently, it is held that merely because the late assessee (Sawai Man Singh) repeatedly claimed individual status while filing his returns, the correct legal status was as an individual and not HUF. Therefore, in the opinion of this court, there was no legal impediment for the legal representatives of the assessee to claim that the succession was of the HUF, upon the death of Sawai Man Singh. 4. The appellant relied on the decision in the case of Gajendra Kumar T. Agarwal Vs ITO [2011] 11 taxmann.com 231 (Mum) wherein relying upon the judgment of the Western India Oil (supra) it has been held as under: 19. Hon ble Supreme Court's judgment did not specifically reflect whether revenue had taken any objection to redetermination of character of an income, which was earned in an earlier assessment year, and when chara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss set off against the income for the assessment year 1951-52. It brushed aside the argument of the revenue that the preceding year's decision by the ITO had become final and by reason of such finality the assessee in 1951-52 would not be entitled to set off the loss incurred in 1950-51, although the correct legal position was that the income was from the pursuit of a business, profession or vocation and that, if this was so, the assessee was entitled to carry forward the loss. 20 . In our humble understanding, Hon'ble Supreme Court's judgment in Manmohan Das's case (supra), read with Hon'ble Bombay High Court's judgment in the case of Western India Oil Distributing Co. Ltd. (supra), is thus authority for three significant propositions. These propositions are summed up as follows: I. First, that the call, as to whether a particular business loss, speculative or non-speculative, incurred by the assessee in an earlier year is eligible for set off against business income in a subsequent year, is to be taken in the course of proceedings in the subsequent assessment year, i.e. the assessment year in which set off is claimed. Hon'ble Supreme Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Hon'ble Supreme Court, losses determined under the head 'income from other sources', which had attained finality, were subsequently treated as 'business losses' - though for the limited purposes of eligibility for set off against profits from same activity in subsequent years. 12. On the other hand, ld. CIT-DR relying upon the observations and the findings of the AO and Ld. CIT(A), submitted that here in this case, it is an admitted fact that assessee itself has treated the transaction relating to transfer of shares as Long Term Capital Gain and the said shares were sold to other parties. Once, the character of income is in the nature of capital, assessable under the head capital gain , then same character cannot be changed. The AO has accepted the Long-Term Capital Gain @ 20% in Assessment Year 2010-11, and therefore, with regard to same nature of transaction, the assessee cannot say that it was on revenue account assessable under the head business income . The character of income cannot be changed by any subsequent conduct to fulfill the condition of any agreement. In fact, it cannot be the case of bad debt because assessee had not shown any business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #8377; 93 crores was subject to various conditions, that assessee shall apply and obtain valid and legal permission for change in land use and other requisite permission for the FSI and development of the project on the said land. As per the agreement with the buyer for sum ₹ 93 crore, ₹ 15 crore was initially payable and the balance amount of ₹ 77,98,88,400/- was payable subject to assessee getting various permission. Since, the agreement for transfer of shares was entered in the financial year 2009-10, the assessee offered the entire amount of ₹ 93 crores on accrual basis under the head Long Term Capital Gain. As stated above, there were certain turn of events that the adjacent land and the part of the land under the assessee s project was acquired by the Government for widening of the national highways and certain areas were declared as green belt. Due to this governmental order, the entire project had failed and CLU and other legal permission ostensibly could not be obtained. As brought on record by the Ld. Counsel, later on, the said piece of plot/land was sold at a meagre sum of ₹ 5,60,00,000/- as compared to the aggregate consideration of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the same very transaction cannot be allowed as business loss. 15. In a classical judgment in the case of New Jahangir Vakil Mills Company Ltd. vs. CIT (supra), the Hon ble Apex Court held that if the assessee was treated as an investor in the earlier year would not stop the authorities for computing the income as a profit in the subsequent year. Further, Hon ble Apex Court in the case of CIT vs. Manmohan Das (supra) held that it is for the ITO in the subsequent year to determine whether the loss of the previous year may be set off against the profit of that year. The decision rendered by the ITO who computed the loss in the previous year that the loss cannot be set off against the income of the subsequent year is not binding on the assessee in the subsequent year. The relevant observation of the Apex Court has already been quoted above. Following the same ratio and the principle laid down by the Hon ble Apex Court in the case of CIT vs. Western India Oil Distributing Company Ltd. (supra), wherein their Lordships have confirmed the order of the Hon ble Bombay High Court observed that once the correct principle flowing from Manmohan Das s case is realised, it would a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t this could not be carried forward as inasmuch as the income received by the assessee were not from any business or profession or vocation for the succeeding year 1951-52. The assessee contended that his income from pursuit of business, profession or vocation should be allowed to set off all the preceding year s loss against the income for the succeeding year. This contention was urged on the fact that in the preceding year the income has held to be from the sources other than business and on that ground the carried forward of the loss was not allowed. The Hon ble Supreme Court held that income of the assessee for both the years must properly be recorded as having arisen from the pursuit of the auction and thus assessee was liable to set off preceding year s loss against the income of the Assessment Year 1951-52. The Hon ble Supreme Court brushed aside the argument of the Revenue that in the preceding year, the order has become final and reason of such finality, the assessee was not entitled to set off the loss incurred in the earlier years even though the correct legal position was that income was always from the pursuit of business or profession. The ITAT Mumbai Bench in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Income-tax Officer declared that the loss computed in that year could not be carried forward to the next year under section 24(2) of the Income-tax Act, as it was not a business loss and yet, while dealing with the assessment proceedings for the assessment year 1951-52, it was held that loss incurred by the assessee in 1950-51 was 'business loss' in nature. Similarly, as held by Hon'ble Bombay High Court in the case of Western India Oil Distributing Ltd. (supra) and as confirmed by Hon'ble Supreme Court, losses determined under the head 'income from other sources', which had attained finality, were subsequently treated as 'business losses' - though for the limited purposes of eligibility for set off against profits from same activity in subsequent years. 17. Ergo, the key sequitur of the aforesaid principles laid down by the Hon ble Apex Court and other rulings are that, if either the assessee has offered income or the Assessing Officer in the earlier assessment year has assessed the income under the particular head which originally was assessable in a different head, i.e., capital gain, even though the same was liable to be assessed under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be examined afresh in the year in which it is claimed. Thus, the law as culled out from the aforesaid judgment is that the bad debt or loss which is claimed in this year has to be determined in this year only without distributing the earlier assessment which has attained finality, and therefore, we hold that the claim of loss made in this year is allowable as business loss. 19. Now coming to the issue where one of the contentions raised by the department that the amount written off during the year cannot be allowed as a bad debt, because the income which has accrued to the assessee in the earlier year was not assessable under the same head, i.e., income from the business or profession. We find that precisely the same issue now stands covered by the judgment of Hon ble Bombay High Court in the case of PCIT vs. Hybrid Financial Services Ltd. vide judgment and order dated 11th February, 2020 in ITA No.1265 and 1469 of 2017 , wherein the Hon ble High Court after interpreting the Section 36(1)(vii) and Section 36(2) and relying upon the judgment of Hon ble Supreme Court in the case of TRF Ltd. vs. CIT, 323 ITR 397 observed that, firstly, assessee need not required to establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y holding that Rules of procedure have been construed to be handmaiden of Justice. Kailas v. Nanku (2005) 4SCC 480; State of Punjab v Shamal Murari (1976) 1 SCC 719. The purpose of assessment proceedings is to assess the tax liability correctly in accordance with law. National Thermal Power Co. Ltd. v CIT (1998) 229 ITR 383 (SC) This justice-oriented approach has earlier been ordained in CIT v. Shelly Products (2003) 26I ITR 367 (SC) also. The aforesaid principle can also be applied here. 22. Accordingly, we hold that the claim for the amount of ₹ 77,98,88,400/- as business loss or bad debt is allowable in revenue account in this year and is allowed to be set-off in the revenue account as claimed by the assessee and not as a capital loss. 23. In the result, the ground no.2 raised by the assessee is allowed. 24. In so far as the issue of addition of ₹ 3,31,49,744/- pertaining to sale of property in terms of Section 50C. The facts in brief are that the assessee has sold the property situated at Budh Singh Pura, Jaipur for a sale consideration of ₹ 12,61,00,000/- during the year, whereas the stamp duty valuation of the said property was ₹ 15,92 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee during the course of assessment proceedings. Thus, the authorities below were duty bound to refer the same for valuation. The appellant specifically had stated before the CIT(A) that the FMV of the said plot was lower due to a nearby cremation ground, which by itself becomes raising an objection to the value and the CIT(A) must have referred the same to the DVO for valuation. Thus, failure to refer must lead to deletion of this addition. Alternatively, in the interest of justice, he submitted that the matter should be referred back to the assessing officer with a direction to refer the said property for valuation to determine the fair market value of the said property. 28. After hearing both the parties and on perusal of the relevant finding given in the impugned order and the material placed before us, we find that before the Appellate Authority, the assessee has categorically stated that though the circle rate of the vicinity area was higher than prevailing market rate but the land in question which was sold was adjacent to cremation ground which adversely affected the market rate of the property, and therefore, the property could not be fetched the circle rate and was ..... X X X X Extracts X X X X X X X X Extracts X X X X
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