TMI Blog2021 (8) TMI 636X X X X Extracts X X X X X X X X Extracts X X X X ..... e as security deposit for Joint Development Agreement. Disallowance of provision made for construction cost of balance flats not handed over to land owner - assessee had entered into a Joint Development Agreement (JDA) dated 18.01.2006 with his sister Smt. Seshu Rajan for development of land measuring 19.65 acres - HELD THAT:- Following various judicial precedents including decision of the Hon ble Supreme Court in the case of M/s. Bharat Earth Movers vs. CIT, [ 2000 (8) TMI 4 - SUPREME COURT ] we are of the considered view that provision made for cost of construction of 17 villas amounting to ₹ 4,76,00,000/- is ascertained liability which accrued for relevant assessment year.Hence, we direct the AO to allow provisions created in the books of accounts for assessment year 2012-13. Disallowance of bad debts - HELD THAT:- We find that the conditions for claim of bad debts as stipulated u/s.36(1)(vii) r.w.s. 36(2) of the Act has been complied with and hence, it is irrelevant whether debt pertains to business which was closed in earlier year or it pertains to business in continuation during the year in which said debt was written off. As long as debt was written off in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) and reject ground taken by the Revenue. - ITA Nos.:1002/CHNY/2018 & 743/CHNY/2015 And ITA No.:1161/CHNY/2018 - - - Dated:- 9-8-2021 - Shri Mahavir Singh, Vice President And Shri G. Manjunatha, Accountant Member For the Assessee : Shri K.R. Vasudevan, Advocate Shri G.Baskar, Advocate For the Revenue : Shri G. Srinivasa Rao, CIT ORDER PER G MANJUNATHA, AM: These two appeals filed by the assessee and one appeal filed by the Revenue are directed against separate orders of learned Commissioner of Income Tax (Appeals), Coimbatore, dated 03.02.2015 29.01.2018 and pertains to assessment years 2011- 12 2012-13. Since facts are identical and issues are common, for the sake of convenience, these appeals are heard together and are being disposed off, by this consolidated order. ITA No.743/Chny/2015 2. The assessee has raised the following grounds of appeal:- 1.l. The order of the Commissioner of Income-Tax (Appeals) is wrong, illegal and totally opposed to facts and is liable to be reversed. 1.2. The Commissioner of Income-Tax (Appeals) went wrong in disposing of the appeal in a summary manner without considering the facts of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 377; 90,00,000/- paid to Shri Naren Rajan for land advance. In order to ascertain nature of payments and also to examine whether said payments are hit by provisions of section 2(22)(e) of the Income Tax Act, 1961 (hereinafter the Act ), the AO called upon the assessee to furnish necessary evidences including nature of payments and purpose for which said advances are given to the assessee. In response, the assessee submitted that M/s. Tristar Accommodation Ltd., is engaged in the business of real estate development, was in the process of improving its rental income had given advance to Shri Naren Rajan, Proprietor of M/s. Tristar Consultancy Services for purchase of 20 independent villas to be constructed by the firm. The assessee further stated that the company has paid a sum of ₹ 90,00,000/- to Shri Naren Rajan, as advance for joint development of his land at Vedapatti. Since, both transactions are routine business transactions, same cannot be treated as loans and advances which is hit by provisions of section 2(22)(e) of the Act. 4. The AO, however was not convinced with the explanation furnished by the assessee and according to him, although the assessee has submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are normal business transactions which are given for the purpose of purchase of 20 villas from M/s. Tristar Consultancy Services, a firm developing villas. The assessee further contended that company has paid a sum of ₹ 90,00,000/- as advance for joint development of property owned by Shri Naren Rajan, for which necessary joint development agreement copy was furnished before the AO. The AO never disputed the fact that both transactions are normal commercial transactions between the parties, but, he has imputed his own views and estimated amount payable as per agreement between the parties and worked out excess payment by suspicion, on the ground that the assessee has paid lump sum payment over and above actual payment required to be made for the relevant period, without appreciating the fact that once a particular transaction is considered to be a normal commercial transaction, the AO has no rule to say, how and when payments need to be made. 7. The CIT(A) after considering relevant submissions of the assessee and also taken note of various facts brought out by the AO held that advance taken from M/s Tristar Accommodation Limited for sale of 20 Villas is loan and advan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... villas belon9!n to M/s. Tristar Accommodation Ltd. have been constructed or not. Hence, it is a dear case of payment made by M/s. Tristar Accommodations Limited to the Proprietary Concern of Shri Naren Rajen, M/s.Tristar Consultancy Services attracting provisions of Section 2(22)(e) of the Income Tax Act, 1961. As seen from the details discussed in the assessment order, the company has advanced an amount of ₹ 69,56,522/- more than what is agreed. I therefore agree with the Assessing Officer that the excess payment of ₹ 69,56,522/- is an independent benefit to the assessee and rightly considered as deemed dividend by the Assessing Officer under the provision of Section 2(22)(e) of the Income Tax Act, 1961. The grounds of appeal are DISMISSED. 8. As regards, advance paid to Shri Naren Rajan, for joint development of property, the CIT(A) observed that the AR could not establish that there was any business connection in paying advance of ₹ 90,00,000/- to Shri Naren Rajan. As stated by the AO, it is only a loan provided to Shri Naren Rajen in the name of security deposit for joint development of property. Therefore, he opined that even this payment was hit b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of months required to complete the property, ignoring the fact that there is no such arrangement between the parties. The ld.AR further submitted that as regards advances paid to Shri Naren Rajan for joint development of property, it was an admitted fact that Shri Naren Rajan was owner of 50 cents of land at Vedapatti, Coimbatore and company had entered into an agreement for joint development of property. It is also not in dispute that the assessee is into the business of real estate development. The AO having accepted the fact that said transaction is clearly a normal commercial transaction between the parties has failed to recognize the commercial decisions taken by the parties. The AR further submitted that the AO had imputed his own ideas and held that joint development agreement entered into by the company with M/s. Naren Rajan is a self-serving document, which cannot be relied upon. In this regard, he has relied upon the Circular No.19 of 2017 dated 12.06.2017 issued by the CBDT and the decision of ITAT, Chennai in ITA No.3374/CHNY/2019 in the case of Shri M. Kiran Kumar. 10. The ld. DR on the other hand supporting order of the ld.CIT(A) submitted that the AO as well a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The term loans or advances has not been defined u/s. 2(22)(e) of the Act. But in normal meaning loans and advances means any sum paid by a person to another person with or without any interest or security. Therefore, in order to verify whether payment made by a Company to its shareholder is in the nature of loans or advances which is hit by provisions of section 2(22)(e) of the Act or not is to be seen on the basis of nature of transactions between the parties. Further, it is a well settled principle of law that any payment by a company in the normal course of its business to a director / shareholder in which shareholder is a member or partner does not come under the ambit of provisions of section 2(22)(e) of the Act. In fact, the Central Board of Direct Taxes had issued a Circular No.19 of 2017 dated 12.06.2017 and has accepted judicial pronouncements made in this regard in respect of normal trade advance and clarified that trade advance which are in the nature of commercial transactions would not fall within the ambit of the word advance u/s. 2(22)(e) of the Act. The Board while issuing a Circular has considered number of decisions rendered by various High Courts including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he parties to agreement. In this case, the AO without any plausible reasons, has estimated equal installments based on his own estimation and treated amount paid in normal course of business as loans and advances to bring the same within the ambit of section 2(22)(e) of the Act. 13. As regards, advance payment of ₹ 90,00,000/- to Shri Naren Rajan, for joint development of property owned by him, we find that the AO has not disputed the fact that Shri Naren Rajan is owner of the property. The AO has also not disputed the fact that Shri Naren Rajan was engaged in developing a project in proprietary concern M/s. Tristar Consultancy Services. The only reason given by the AO to treat said advance as loans and advance is that Shri Naren Rajan has signed for both the parties, as Proprietor of M/s.Tristar Consultancy Services and Managing Director of M/s. Tristar Accommodations Limited, without understanding the legal position that there is nothing wrong in single person becoming a proprietor of a concern which is doing real estate development business and managing director of a company, which is also into similar or different business. In this case, Shri Naren Rajan is engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IT Act. b. The Hon'ble Mumbai High Court in the case of CIT Vs Nagindas M.Kapadia 177 ITR 393 (Bom) has held that advance received to purchase material for the purpose executing the job work entrusted to the assessee is a trade advance and will not fall within the ambit of section 2(22)(e). c. The Hon'ble Delhi High Court in the case of CIT Vs Ambassador Travels P Ltd in [2009] 318 ITR 376 (Del) held that the business transaction entered into by the assessee could not be treated as loans or advances within the meaning of section 2(22)(e). d. The Hon'ble Delhi High court in the case of CIT vs Arvind Kumar Jain in ITA no 589 of 2011 held that ('the payments made were the result of trading transactions between the parties and the amount given was not to be treated as 'loan' or 'advance' for the purpose of invoking the provisions of section 2(22)(e) of the Income Tax Act. iv) The Hon ble Calcutta High Court in the case of Pradip Kumar Malhotra vs. CIT in [2011] 338 ITR 538 (Cal) held as under: the phrase by way of advance or loan appearing in sub-clause (e) must be construed to mean those advances or loans which a shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well settled principle of law by the decision of various courts that any payment by a company in the normal course of its business to a related concern in which shareholder is a member or partner does not come under the ambit of provisions of section 2(22)(e) of the Act. In fact, the Central Board of Direct Taxes in its Circular No.19 of 2017 dated 12.06.2017 had examined the issue and issued directions to its field officers while examining the issue of deemed dividend u/s.2(22)(e) of the Act, in light of the decisions of various courts and clarified that trade advance which are in the nature of commercial transactions would not fall within the ambit of the word advance u/s.2(22)(e) of the Act. 8.7 In this legal background, if we examine the facts of the present case as brought out by the ld.AO and the ld.CIT(A), we find that the AO has treated a sum of ₹ 76,19,00,000/-, which is the cumulative credit balance in the books of M/s. AK Exports due to M/s. Infinity Jewellers and M/s. Mariyam Creations as deemed dividend u/s.2(22)(e) of the Act. As, we have already noted in previous paragraphs, M/s. AK Exports is an independent proprietorship concern of the assessee and engage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usion arrived at by the AO that these are not commercial transactions but circuitous transactions carried through group firms for diverting funds of the company to the Director is incorrect and unfounded under law. 8.9 We further noted that one another point made out by the AO is that there is no testing facility available for both these concerns. We find that the reason given by the AO is not acceptable because there is no requirement of having testing facility by each and every buyer and seller of gold and gold jewellery. Further, hall marking for 916 purity is done at the testing centre which is separate and certification is done by them. Purchase and sale of gold and gold ornaments by these two concerns is only after hall mark certification issued by the testing centre. Therefore, there is no necessity for testing by the assessee when purchase and sale of gold ornaments are already tested from a separate testing laboratory. Therefore, in our considered view, it is illogical for the AO to expect the testing facilities by the assessee or the two concerns M/s. Infinity Jewellers and M/s. Mariyam Creations. 8.10 The other reasons given by the AO to arrive at a conclusion that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not sustainable under law. Therefore, in our considered view, the AO has made addition only based on the formulated theory that the assessee avails the benefit in the nature of loans and advances in the capacity of shareholder. In order to consider any payment under the provisions of section 2(22)(e) of the Act, the first and foremost limb is that there should be some benefit arising out of the said transactions to the shareholder. In the present case, there is no personal benefit at all to the assessee. The AO himself accepts the fact that the funds were utilized during the course of business and therefore, this transaction at any point did not get out of the business circle at all. The provisions of section 2(22)(e) of the Act, is a deeming provision and should be construed strictly. It is an established fact that the said transaction took place during the course of business and there being no personal/individual benefit accrued to the assessee and hence section 2(22)(e) of the Act cannot be invoked. Had it been the case of the AO that the assessee had directly borrowed loans and advances from the company to his proprietorship concern, then the AO could have invoked the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er and a company in which the public are not substantially interested and the former has substantial stake, create mutual benefits and obilgations, then the provision of treating any sum received by the shareholder out of accumulated profits as deemed dividend would not apply. The company in the instant case fits the description conceived in the aforesaid provision to come within the ambit of Section 2(22)(e) of the Act. The controversy which falls for determination is whether the sum received by the assessee formed part of running current account giving rise to mutual obligations or the payment formed one-way traffic, assuming the character of loan or advance out of accumulated profit . A Co-ordinate Bench of this Court in the case of Pradip Kumar Maihotra V. CIT (2011) 15 taxmann.com 66/203 Taxman 110/338 ITR 538(CaI) has laid down the factors for testing the transactions between a company and its shareholder in the fight of the aforesaid provision :- . C) The Kerala High Court in the case of CIT Vs Malayala Manorama Co. Ltd - 405 ITR 595, at Para 25 held; 25. From the above discussion, it is quite evident that the amounts under the disputed heads were being received by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Company to the registered shareholder and the other conditions set out in Section 2(22)(e) of the Act are satisfied, that amount of loan would be liable to be regarded as deemed dividend within the meaning of this section. e) The lndore bench of the tribunal in Asian Business Connections (P) Ltd Vs. DCIT - 101 Taxmann.com 455, relying on the various decisions at Paras 36, 37 held at Para 39, which is extracted below; 36. Similarly in the case of CIT v. Creative Dyeing Printing (P.) Ltd. 120091 184 taxmann.com 483/318 ITR 476 (Delhi) Hon ble High Court held that the section 2(22)(e) can be applied to loans or advances simplicitor and not to those transaction carried out in the course of business as such. In the course of carrying of business transaction between the company and the stockholder the company may be required to give advance in mutual interest. There is no legal bar in having such transaction. What is to be ascertained is what is the purpose of such advance. If the amount is given as an advance simplicitor or as such per se without any further application, receiving such advance may be treated as deemed dividend but if it is otherwise, the amount given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee was substantial shareholder of the company and the company has sold flat to the assessee and major portion of price remains unpaid at the end of the previous year. Under those facts, the Hon ble High Court came to the conclusion that amount due to the company as an advance to the director falling within the mischief of section 2(22)(e) of the Act. In this case, the concern in which assessee is a proprietor is engaged in the business of buying and selling goods and has continuous transactions with the assessee company in the normal course of business. Therefore, we are of the considered view that the case law relied upon by the ld.DR is distinguishable on facts and hence not applicable to the facts of the present case. 8.14 In this view of the matter and considering facts and circumstances of this case and also by following the case laws discussed herein above, we are of the considered view that commercial transactions in the books of M/s. AK Exports due to M/s. Infinity Jewellers and M/s. Mariyam Creations cannot be considered as indirect borrowing from LJM to treat the same as deemed dividend u/s.2(22)(e) of the Act. Hence, we direct the ld.AO to delete the addition mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 006 with his sister Smt. Seshu Rajan for development of land measuring 19.65 acres. As per the JDA between the parties, the assessee has agreed to build and handover 30 villas approximately admeasuring about 2000 sq.ft., each, out of the total units to be developed by the assessee in the project named TRILOK , which was to be undertaken on the 19.65 acres of land. However, upon completion of Phase-I of the project on an extent of 10.86 acres of land, the assessee had only handed over 13 villas to land owner as her share of consideration and balance units of phase-I were either sold or capitalized in its books for deriving rental income. Since, the assessee has not honoured the conditions of JDA dated 18.01.2006, a supplementary agreement was entered into between the assessee and Smt. Seshu Rajan on 12.03.2012, wherein it was mutually agreed that the assessee would compensate Smt. Seshu Rajan for delay in handing over of balance 17 villas at the rate of construction cost of ₹ 1,000/-per sq.ft., for land admeasuring 47,600 sq.ft., in which the 17 villas ought to have been built. In terms of supplementary agreement between the parties, the assessee had made provision for con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and hence, the assessee has made provision for construction cost of 17 villas by taking scientific method on the basis of TRILOK project, as per which each villa is built in a land admeasuring 2000 sq.ft., land and total area of 17 villas works out to 47,600 sq.ft. Further, the assessee has estimated cost of construction of ₹ 1,000/- per sq.ft., on the basis of cost of construction required to be incurred for the project which is once again based on past experience and present obligation. Therefore, it is incorrect to say that liability was not accrued for the relevant financial year and further it is unascertained liability. He further submitted that the AO has accepted the fact that as per the JDA, the assessee shall hand over 30 villas in exchange of 19.86 acres land, but could hand over only 13 villas within the stipulated time. The balance 17 villas could not be given to the land owner because remaining villas were either sold or capitalized in the books of the assessee for deriving rental income. Therefore, to compensate cost of 17 villas, the assessee has entered into a supplementary agreement and agreed to pay a sum of ₹ 4,76,00,000/- for which the land own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has developed land in two phases, as per which out of 19.65 acres of land, the assessee has completed Phase-I of the project on an extent of 10.86 acres of land. As per agreement, the assessee agreed to handover 30 villas within 3 years from the date of agreement. However, he could handover only 13 villas in first phase of the project. The remaining land could not be developed within the agreed time of 3 years. Therefore, a supplementary agreement was entered into between assessee and Smt. Seshu Rajan on 12.03.2012 and mutually agreed that assessee would compensate Smt. Seshu Rajan for delay in handing over of balance 17 villas at the rate of construction cost of ₹ 1,000 per sq.ft., for land admeasuring 47,600 sq.ft., in which 17 villas ought to have been built by the assessee. 24. The fact, that assessee shall handover 30 villas in exchange of 19.86 acres land in terms of JDA between the parties is not disputed by the AO as well as the CIT(A). In fact, both authorities had accepted the fact that as per the JDA between the parties, the assessee shall handover 30 villas, but could handover only 13 villas up to the end of the financial year 2011-12. It was an adm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0.03.2012, which falls within the financial year 2011-12, the provision of ₹ 4,76,00,000/- was crystallized / ascertained liability for assessment year 2012-13 and hence, we are of the considered view the AO as well as the ld.CIT(A) were completely erred in holding that said liability is not ascertained for the relevant assessment year. 26. Coming back to the observations of the AO in light of completion of Phase-I of the project and non-commencement of Phase-II in remaining portion of the land. We find that it was never agreed by the parties, that the project was developed in two separate phases. All that was mutually decided in the JDA was that the assessee would develop the project on 19.65 acres of land belonging to the land owner in lieu of handing over 30 villas to Smt. Seshu Rajan. Further, supplementary agreement has to be read along with earlier JDA between the assessee and landowner, wherein it is an undisputed fact that Phase-I of the project carried out by the assessee has been completed. Therefore, the allegation that supplementary agreement is on a project which does not exist is baseless. Further, it is irrelevant whether the person executing the earlier pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 245 ITR 428 held as follows The law is settled: if a business liability has definitely arisen in the accounting year, the deduction should be allowed although the liability may have to be quantified and discharged at a future date. What should be certain is the incurring of the liability. It should also be capable of being estimated with reasonable certainty though the actual quantification may not be possible. If these requirements are satisfied the liability is not a contingent one. The liability is in praesenti though it will be discharged at a future date. It does not make any difference if, the future date on which the liability shall have to be discharged is not certain. iii. The Hon'ble ITAT, Chennai in the case of F.F.E. Minerals India private Limited vs. JCIT (2004) 84 TTJ Chennai 907 held as follows Since the liability has arisen and is crystallised as a result of binding contract between the parties the same is allowable as held by the Hon ble Supreme Court reported in Calcutta co. Ltd. v. CIT (1959) 37 ITR I (SC) and Bharat Earth-Movers v. CIT (2000) 245 ITR 428 (SC) as well as the decision of the Special Bench reported in 35 ITR 18 [(sic)--(1990) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at supplementary agreement dated 20.03.2012 is a sham, and therefore, advance has been treated as loan and advances within the meaning of section 2(22)(e) of the Act. It was the contention of the assessee before the AO as well as the ld.CIT(A) that advance was given for purchase of 8 villas and said fact was never in dispute. The only allegation by the AO was that a lump sum advance was paid by M/s. Tristar Accommodation Ltd., when there is no villas are ready for selling. But, fact remains that as on the date of entering into MOU as on 18.04.2011, the assessee had 13 unsold villas and he was under the honest belief that he could sell out of this 13 villas, 8 villas in the name of M/s. Tristar Accommodation Ltd. Therefore, it is incorrect on the part of the AO as well as the CIT(A) to allege that supplementary agreement was a sham to overcome advances given to the assessee. 30. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, advance received from M/s. Tristar Accommodation Ltd., was for the purpose of purchase of villas. This fact has not been disputed by the AO. The AO has categorically admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The next issue that came up for our consideration from Ground No.5 of assessee appeal and Ground No. 3 6 of Revenue appeal is unexplained cash credit. The facts borne out from record indicate that the assessee has made cash deposit in Indusind Bank Account No.: 0021-430129-001 and HDFC Bank Account No.: 003110001999571. During the course of assessment proceedings, the assessee was asked to explain source of cash deposit in two savings bank accounts. In response, the assessee filed a letter dated 27.03.2015, and explained source by filing cash flow statement. As per which, the assessee has explained cash deposit into bank accounts, out of, cash withdrawal from two savings bank account itself in earlier occasion, cash withdrawal from M/s. Tristar Consultancy Services and further from land advance paid in earlier years, received during assessment year 2012-13. The AO however was not convinced with cash flow statement filed by the assessee explaining source of cash deposit into two bank accounts and according to him, cash withdrawn in same bank accounts in earlier occasion was used to deposit in term deposit in HDFC Bank account on same dates. Therefore, he has not considered cash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of land, but due to his sudden death, the legal heirs are finding it difficult in tracing the whereabouts of the person to whom advance was paid and obtaining confirmation from said parties. Therefore, merely for the reason that no confirmation has been filed, additions cannot be made when the assessee has explained source, out of advance received back as per his books of accounts. 34. The ld. DR on the other hand submitted that the ld. CIT (A) has erred in accepting explanation of the assessee to the extent of source for cash, out of cash withdrawal from same bank accounts in earlier occasions, drawings from his proprietary concerns, without appreciating the fact that cash withdrawn in earlier occasions are used for making fixed deposits in same bank accounts. The ld. DR further submitted that the AO has brought out clear facts to the effect that two cash withdrawals from same bank accounts were used on the same date and the assessee has not able to prove availability of cash from withdrawals. Therefore, it is incorrect on the part of the ld. CIT(A) to allow benefit to the assessee to explain source out of cash withdrawals. 35. We have heard both the parties, perused mate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/- treating term deposits made in HDFC bank. The ld.AR for the assessee at the time of hearing submitted that the assessee has got relief from the AO in rectification proceedings u/s.154 of the Act and hence, he does not want to press ground No.4, challenging addition made u/s.69 of the Act. Hence, Ground No.4 of the assessee is dismissed as not pressed . 37. The next issue that came up for our consideration from Ground Nos. 2 4 of Revenue appeal is deleting disallowance of bad debts of ₹ 37,40,415/-. 38. The assessee was carrying on the business in the name and style M/s. Mobile Gourmet, which supplied food packets to M/s. Paramount Airways Private Limited. The supply of food packets was on credit basis and there had been regular outstanding receivable from them. M/s. Paramount Airways Pvt. Ltd., has closed its operations and hence, its last outstanding balance of ₹ 37,40,415/- has been written-off as bad debt, since it could not be recovered from them. The AO has disallowed bad debts written off expenses on the ground that catering business was closed down three years ago and the bad debts of a business that has been closed down cannot be claimed against ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the year in which said debt was written off. As long as debt was written off in the books of accounts of the assessee, the same needs to be allowed as deduction. This proposition is supported by the decision of Hon ble High Court of Madras in the case of CIT v. M/s. Rajini Investment Private Limited, TCA No.912 of 2009 dated 05.10.2009, where it was clearly held that merely because the money lending business was subsequently discontinued, that is in the subsequent accounting year relating to assessment year, it cannot be held that the assessee was disentitled to claim such deduction. Therefore, we are of the considered view that there is no error in the findings recorded by the ld.CIT(A) to delete addition made towards disallowance of bad debts and hence, we are inclined to uphold findings of the ld.CIT(A) and reject ground taken by the Revenue. 43. The next issue that came up for our consideration from Ground Nos.3 5 of Revenue appeal is capitalization of land for project expenses amounting to ₹ 75,00,000/-. During the financial year relevant to assessment year 2012-13, the assessee has completed Phase-I of real estate project called TRILOK developed by him under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sale to outsider but the same has been let out on rent till the assessee finds buyer. The land owner has not transferred proportionate undivided share in relation to 48 row houses. The assessee has not paid any consideration to land owner towards cost of land, which was intended for sale to third party. Therefore, the CIT(A) after considering the facts has rightly held that cost of land cannot be capitalized in the books of accounts of the assessee. 46. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. Admittedly, lands on which 48 row houses have been built were in pursuance of Joint Development Agreement with Smt. Seshu Rajan. The lands on which row houses have been built were never purchased from the land owner. Further, the assessee has incurred cost of construction of 48 row houses and debited under the head direct project expenses into profit loss account. Since the row houses are retained to earn rental income, cost of building of 48 row houses was capitalized in his books of accounts as fixed assets. Since, land was in pursuant to JDA and assessee has not paid any consideration for land ..... X X X X Extracts X X X X X X X X Extracts X X X X
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