Income Tax Appellate Tribunal - Delhi
Bhagwati Coal Mines (P) Ltd., Faridabad vs Assessee on 27 December, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'A' DELHI
BEFORE SHRI C.L. SETHI AND SHRI K.G. BANSAL
ITA No. 4431(Del)/2010
Assessment Year: 2007-08
M/s Bhagwati Coal Movers Deputy Commissioner of
(P) Ltd., Plot no. 419-A, Vs. Income-tax, Circle 2(1),
Sector 17, Faridabad. New Delhi.
(Appellant) (Respondent)
Appellant by : Shri Vijay Gupta, C.A.
Respondent by : Mrs. Anusha Khurana, Sr. DR
ORDER
PER K.G. BANSAL : AM This appeal emanates from the order of Commissioner of Income- tax (Appeals)-V, New Delhi, passed in appeal no. 58/09-10 on 18.06.2010 relating to assessment year 2007-08. The corresponding assessment order was framed by the Deputy Commissioner of Income-tax, Circle-2(1), New Delhi, on 29.09.2009 under the provisions of section 143(3) of the Income-tax Act, 1961. The assessee has taken up two grounds, the sum and substance of which is that the ld. CIT(Appeals) erred in allowing the deduction of a sum of ` 2,24,500/-, being the advance paid to the Municipal Corporation of Faridabad by it.
2 ITA No. 4431(Del)/2010
2. The facts of the case are that the assessee company filed its return on 30.10.2007 declaring total income of ` 43,10,400/-. The return was processed u/s 143(1) of the Income-tax Act, 1961 on 21.11.2008. Thereafter, the case was taken up for scrutiny by issuing notice u/s 143(2) on 26.9.2008. The assessee is carrying on the business of purchase and sale and transportation of coal and allied material. It is also carrying on the business of development of real estate. It was noticed that the assessee claimed deduction of bad debt amounting to ` 11,59,019/- which inter-alia contained a sum of ` 2,24,500/-, being the advance paid to Municipal Corporation of Faridabad in respect of open bid for purchase of land for the purpose of constructing shops thereon. The assessee could not pay further installments, therefore, the amount was forfeited. Accordingly, the amount was written of as bad debt. The assessee was required to explain how the amount is deductible in computing the total income, particularly in view of the provisions contained in sections 36(1)(vii) and 36(2) of the Act. It appears that no particular argument was made before the AO. He came to the conclusion that the amount had not been taken into account for computing the income of this or an earlier year. Therefore, the amount was not deductible under the aforesaid provisions. Further, as the expenditure was incurred 3 ITA No. 4431(Del)/2010 in relation to acquisition of land, a capital asset, the loss was held to be on capital account.
3. Before the ld. CIT(Appeals) it was submitted that the assessee is carrying on the business of real estate. The expenditure was incurred for acquisition of land, being stock-in-trade. Therefore, the expenditure was in the nature of revenue expenditure. For the purpose of deduction of the expenditure in computing the total income, reliance was inter-alia placed on the decision of Hon'ble Supreme Court in the case of Empire Jute Co. Ltd. Vs. CIT, 124 ITR 1. The ld. CIT(Appeals) mentioned that the aforesaid advance was not shown by way of stock-in-trade in the profit and loss account or the balance-sheet. It was merely shown as advance in the balance-sheet. The expenditure was incurred in relation to acquisition of land. On non-payment of subsequent installments, the amount was forfeited and consequently the assessee wrote off the amount from the balance-sheet. In view thereof, he concurred with the AO that the loss was on capital account.
4. Before us, the only argument made by the ld. counsel is that the loss has been incurred in the course of carrying on the business of 4 ITA No. 4431(Del)/2010 development of real estate. Therefore, the loss is deductible in computing the income. He, however, persisted with the argument that it is a case of debt which has been written off and, therefore, the claim is allowable as a bad debt. In reply, the ld. DR submitted that both the lower authorities have given a concurrent finding that the loss is on capital account. The amount was not shown in profit and loss account or balance-sheet as stock-in-trade but only as an advance. Therefore, on forfeiture of the amount by the Municipal Corporation of Faridabad, the loss occurring to the assessee is on capital account.
5. We have considered the facts of the case and submissions made before us. The AO has clearly mentioned in paragraph 2 of the assessment order that the assessee is carrying on the business inter-alia of development of real estate. The money was advanced to the Municipal Corporation for purchase of land on which shops were proposed to be construction. After making the initial advance, the assessee was not able to make payments of subsequent installments. Therefore, the Corporation forfeited the amount. From the aforesaid, it is clear that the advance was made for the purpose of acquisition of stock-in-trade. It was not for the purpose of acquiring any fixed asset for running the business, 5 ITA No. 4431(Del)/2010 rather it was for acquiring the stock-in-trade. Therefore, the advance made to the Corporation was in the course of carrying on the business of real estate. Accordingly, the loss on forfeiture of the advance is in the revenue field. The assessee has not acquired any capital asset. It has also not obtained any advantage of enduring nature so as to constitute the expenditure to be capital expenditure. Accordingly, it is held that the loss has been incurred in revenue field in the course of business. Therefore, the same is deductible in computing the total income.
5.1 We, however, agree with the findings of the lower authorities that it is not a case of bad debt, covered under sections 36 and 37, because it was not taken into account while computing the income of this year or an earlier year. The amount is deductible as loss on first principle u/s 29 of the Act.
6. In the result, the appeal is allowed as indicated above. This order was pronounced in the open court on 27th December, 2010.
Sd/- sd/-
(C.L. Sethi) (K.G.Bansal)
Judicial Member Accountant Member
Date of order: 27th December, 2010.
SP Satia
6 ITA No. 4431(Del)/2010
Copy of the order forwarded to:-
Bhagwati Coal Movers Pvt. Ltd., Faridabad.
Dy. CIT, Circle 2(1), New Delh98i.
CIT(A)
CIT
The DR, ITAT, New Delhi. Assistant Registrar.