TMI Blog2020 (12) TMI 231X X X X Extracts X X X X X X X X Extracts X X X X ..... see - HELD THAT:- Claim of creation of provision for such expenditure, which is not yet incurred and is only intended to be written off as compensation paid to the land owner for the admitted failure of the Assessee to complete the contract in the manner as agreed between the parties, does not entitle the Assessee to claim the same either as Bad Debts under Section 36(1)(vii) of the Act or as Business Expenditure under Section 37 Either the Assessee admits this liability and pays the said amount to the land owner or the advance given thereafter is written off in its Book of Accounts to conclusively express its intention not to claim anything back from the land owner only could have been a reasonable conclusion of such expenditure being c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, both the writ appeals are being disposed of by separate orders. 2. The substantial questions of law arising in the present appeal filed by the Assessee, as framed by the Assessee, are as under: (i) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the bad debt was not written off as required by law as per the provisions of Section 36 of the Act, though the write off of the debt is made from the accounts of the debtors, and the amount of loans and advances at the year end in the balance sheet is shown as net of the provisions for impugned debt? (ii) Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in not considering the alternate cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only) by way of cheques as security deposit interest free for due performance of the contract which the first party shall return without interest after completion of the first party's share of the total built up area including the penthouse as per the specifications and acceptance thereof by the second party and in the case the penthouse is not constructed for want of permission the settlement is made as per condition mentioned in clause 7. 7. The second party has also agreed to construct a penthouse exclusively for the first party admeasuring 1250 sq.ft. out of which 1000 sq.ft. at its own cost and for the balance 250 sq.ft. the cost of construction will be borne by the first and second party equally. The construction of the pent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of AO. 9. We have heard both the parties and perused the material on record. The amount of ₹ 30 lakhs was still appearing in the balance sheet of assessee under the head provisions for claims and compensation and it was not written off in the books of accounts of assessee . Being so, it cannot be treated as bad debt in the assessment year under consideration. Accordingly, placing reliance on the judgment of Supreme Court in the case of M/s. T.R.F. Ltd., reported in [2010] 323 ITR 397 (SC) wherein held that:- After the amendment of section 36(1)(vii) of the Income Tax Act, 1961, with effect from April 1, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld have been allowed in the hands of the Assessee, since a provision was made with regard to the said compensation of ₹ 30.00 Lakhs. 6. Per contra, Mr.M.Swaminathan, learned Senior Standing Counsel appearing for the Revenue, argued that mere creating of a provision for the said advance of security deposit made by the Assessee in favour of the land owner will not entitle the Assessee to claim deduction, as the Assessee, by his own conduct, has shown it as outstanding receivable in the Balance Sheet of the Assessee for the relevant previous year. The fact that the Assessee has not written off the said claim against the land owner and has not actually paid the said amount to the land owner during this year, mere creating of a provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Book of Accounts to conclusively express its intention not to claim anything back from the land owner only could have been a reasonable conclusion of such expenditure being claimed as Compensation or a Business Expenditure under Section 37 of the Act. 9. It is not a question of such advance turning to be a bad debt but the more relevant provision applicable to such facts would be Section 37 of the Act. A developer of a building could claim it as an expenditure in the year in which such expenditure is actually incurred or the advance is written off and its right to claim the refund of such security is completely waived off. Nothing of this sort has happened in the present case and merely by making a book entry for creating a provision ..... X X X X Extracts X X X X X X X X Extracts X X X X
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