2012 (10) TMI 82 - AT - Income Tax

Dis-allowance of bad debts, namely project deficits generated in three projects - assessee contended that it had offered incomes on yearly basis without actually working out as to whether the project is generating profits or losses. It was the policy of the assessee to offer all surplus in the projects upto completion for taxation and claim the deficits as loss. This has been the consistent accounting policy of assessee and the same has been accepted by Department in the past - Held that - In the present case, the A.O. in the assessment order has given a finding that the facts in the present assessment years are similar to the facts of A.Y. 1999-2000, wherein appeal has been allowed by Tribunal. In view of these facts and following the decision of co-ordinate Bench for A.Y. 1999-2000, we allow this ground of the assessee. Addition in respect of Sun City Project on ground that assessee had not offered any income in respect of Sun-City project despite substantial expenditure incurred on it - explanation offered by the assessee was that it was of the view that the project would be completed with deficit due to heavy charge of interest on the borrowings and due to non-availability of adequate buyers and therefore no income from it was offered - Held that - Assessee has not brought out any tangible evidence in its support to justify its stand. Hence addition sustained. Dis-allowance of expenses pertaining to A.Y. 2001-02 but accounted for in the books relevant to AY 2002-03 - Held that - Since details were not produced by the assessee before the AO or CIT(A). Issue be remitted to the file of A.O. for verification. Addition in respect of Shilalekh project - assessee has not offered any income on ground that project was consistently in deficit and therefore the assessee was not entitled to receive any remuneration or organising fee - Held that - Since Tribunal in earlier year allowed claim of assessee on observation that assessee had no occasions to make any profit or earn any income from the project for the year under consideration. Thus this ground of the assessee is allowed. Addition made u/s 41(1) - Held that - The undisputed fact is that the assessee has shown the amount as sundry creditors in its balance sheet and accordingly it acknowledges its liability to pay. The assessee has not written back the liability in its books. The liabilities in question have not ceased to exist. The A.O. has not doubted the existence of the parties. The Revenue does not have any material or evidence to substantiate that the parties have given up their claim against the assessee. Therefore, CIT(A) rightly deleted the addition. Addition of amount written off being the amount recoverable from Rajiv Traders (a company under the same management) - land owned by Rajiv Traders - assessee for developing the said land acquired the entire share capital of Rajiv Traders - Held that - Said project was abandoned and disposed off by transferring the entire share holding of Rajeev traders. The total construction expenses together with remuneration added was offered as WIP and credited to P/L A/c and was thus offered to tax. Against this amount, only Rs 60,00,000/- was realised and the balance amount of Rs 53,85,475/- was written off. The Coordinate Bench of tribunal has also allowed the loss on sale of shares as business loss while deciding the appeal for AY 1998-99. These facts have not been controverted by the Revenue nor have they brought any material on record to rebut it. In view of these circumstances, CIT(A) rightly deleted the addition. Claim of bad debts and business loss - dis-allowance on ground that assessee did not adduce necessary evidence to prove that the amount that was being written was in the past offered to tax - Held that - Matter be remitted to the file of A.O. for verification Loss on account of non recovery of amounts advanced to lease holders of granite mines - dis-allowance on ground that loss was of capital in nature and therefore not allowable - Held that - Amount of write offs were of the advances given in the normal course of business. The assessee had also made purchases from these parties in the past. These facts have not been disputed by the Revenue nor have they brought any material to the contrary on record. Hence, CIT(A) rightly deleted the addition made. Accordingly the ground of the Revenue is dismissed.

Summary

Issues Involved:
1. Disallowance of bad debts in respect of Shail Project, Shrusti plots Projects, and Shiromani Flats.
2. Addition of income in respect of Sun City Project.
3. Disallowance of expenses pertaining to AY 2001-02 but accounted for in AY 2002-03.
4. Addition of income in respect of Shilalekh project.
5. Non-grant of carry forward of speculative capital loss.
6. Deletion of addition made u/s 41(1).
7. Deletion of addition of Rs 53,85,475/- with regard to Rajiv Traders Pvt Ltd.
8. Claim of bad debts and business loss.
9. Loss on account of non-recovery of amounts advanced to leaseholders of granite mines.

Detailed Analysis:

1. Disallowance of Bad Debts:
The Assessee claimed project deficits for Shail, Shrusti, and Shiromani projects based on their consistent accounting policy. The AO disallowed these claims following the earlier year's order, and CIT (A) upheld this disallowance. However, the ITAT noted that similar issues were resolved in favor of the Assessee in previous years (AY 1997-98 and AY 1999-2000). The ITAT allowed the Assessee's claim, referencing earlier ITAT decisions that had canceled the CIT's orders under section 263, and noted that the facts were not controverted by the Revenue.

2. Addition of Income in Respect of Sun City Project:
The AO added Rs 29,36,700/- as income from the Sun City project, which the Assessee had not offered, citing expected deficits. CIT (A) upheld this addition. The ITAT found that the Assessee did not provide tangible evidence to support its claim of expected losses and upheld the AO's addition.

3. Disallowance of Expenses Pertaining to AY 2001-02:
The AO disallowed Rs 62,47,845/- claimed by the Assessee for expenses pertaining to AY 2001-02 but accounted for in AY 2002-03 due to lack of satisfactory evidence. CIT (A) upheld the disallowance but directed the AO to consider the claim in AY 2002-03 after verification. The ITAT remitted the issue back to the AO for verification, instructing the Assessee to provide necessary details.

4. Addition of Income in Respect of Shilalekh Project:
The AO added Rs 4,53,441/- as income from the Shilalekh project, which the Assessee had not offered, citing consistent deficits. CIT (A) affirmed the AO's action. However, the ITAT found that similar issues had been resolved in favor of the Assessee in previous years and allowed the Assessee's claim, referencing earlier ITAT decisions.

5. Non-Grant of Carry Forward of Speculative Capital Loss:
The Assessee contended that the AO had not granted carry forward of speculative loss of Rs 1,44,69,500/-. CIT (A) directed the AO to verify the claim and take action as per law. The ITAT instructed the AO to verify and comply with CIT (A)'s directions if not already done.

6. Deletion of Addition Made u/s 41(1):
The AO added Rs 16,13,965/- u/s 41(1), considering sundry creditors as ceased liabilities. CIT (A) deleted the addition, stating the provisions of s. 41(1) are not attracted if the liability is not written off in the books. The ITAT upheld CIT (A)'s decision, noting that the liabilities were acknowledged by the Assessee and not written back in the books.

7. Deletion of Addition of Rs 53,85,475/- with Regard to Rajiv Traders Pvt Ltd:
The AO disallowed Rs 53,85,475/- written off by the Assessee, citing lack of justification and evidence. CIT (A) allowed the claim, considering it a business loss. The ITAT upheld CIT (A)'s decision, noting that the loss was incurred in the normal course of business and was supported by earlier ITAT decisions.

8. Claim of Bad Debts and Business Loss:
The AO disallowed claims of Rs 4,95,899/- and Rs 1,76,004/- for lack of evidence. CIT (A) allowed the claims, considering them as bad debts and business loss. The ITAT remitted the issue back to the AO for verification, instructing the Assessee to provide necessary details.

9. Loss on Account of Non-Recovery of Amounts Advanced to Leaseholders of Granite Mines:
The AO disallowed Rs 13,98,938/- written off by the Assessee, considering it a capital loss. CIT (A) allowed the claim, considering it a business loss. The ITAT upheld CIT (A)'s decision, noting that the advances were given in the normal course of business and the write-offs were justified.

Conclusion:
The appeals of the Assessee and Revenue were partly allowed, with several issues remitted back to the AO for verification and necessary actions as per the directions of the ITAT. The ITAT's decisions were largely based on consistency with previous rulings and the verification of facts and evidence.