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2015 (4) TMI 581 - AT - Income TaxLoss of Advance given to procure land for future projects - Failure to recover the advance amount - Loss of capital or a revenue expenditure - Held that - We note that there is no dispute that the amount in question was advanced by the assessee for purchase of land which would be going to form part of stock in trade of the assessee being in the business of construction and development. Accordingly, the said advance becoming irrecoverable and consequently, writing off by the assessee is a revenue loss and an allowable claim being business loss of the assessee as held by Hon'ble Delhi High Court in the case of New Delhi Hotels Ltd. 2012 (3) TMI 325 - DELHI HIGH COURT Following the Judgment of Hon'ble Delhi High Court in the case of New Delhi Hotels Ltd. 2012 (3) TMI 325 - DELHI HIGH COURT , we do not find any error or illegality in the order of CIT(A) in allowing the claim of the assessee. - Decided against the revenue.
Issues Involved:
1. Deductibility of Rs. 21 lakhs paid to Shri. Nitin Purandare and Rs. 18 lakhs paid to Shri. Shamim Ahmed under Section 37(1) of the Income Tax Act, 1961. 2. Classification of the Rs. 39 lakhs expenditure as capital or revenue expenditure. Issue-wise Detailed Analysis: 1. Deductibility of Rs. 21 lakhs and Rs. 18 lakhs under Section 37(1): The appeal by the revenue challenged the order of the CIT(A) which allowed the deduction of Rs. 21 lakhs and Rs. 18 lakhs paid by the assessee to Shri. Nitin Purandare and Shri. Shamim Ahmed, respectively, under Section 37(1) of the Income Tax Act, 1961. The CIT(A) had held that these amounts, written off as sundry balances, were allowable as business losses since they were incurred in the normal course of the assessee's business of construction and development. 2. Classification of Rs. 39 lakhs expenditure as capital or revenue expenditure: The revenue contended that the Rs. 39 lakhs expenditure was not related to the projects on which the assessee declared income under the "Project Completion Method" for the A.Y. 2006-07. Instead, it was argued that these amounts were advanced to procure land for future projects, thus constituting a capital expenditure. The Assessing Officer disallowed the claim, treating the advances as capital in nature because they were made for land that was not in existence, and the failure to recover these amounts was considered a capital loss. Tribunal's Analysis and Judgment: The Tribunal considered the relevant material and submissions. The Authorized Representative of the assessee argued that the issue was covered by the decision of the Delhi High Court in CIT Vs. New Delhi Hotels Ltd, 345 ITR 1, and the Supreme Court's judgment in CIT Vs. Mysore Sugar Co. Ltd, 46 ITR 649. It was emphasized that the advances for land purchase were revenue expenditures, and writing them off when they became irrecoverable was an allowable business loss under Section 37 of the Income Tax Act. The Tribunal noted that the Assessing Officer did not question the genuineness of the claim but only focused on whether the loss was capital or revenue in nature. The Tribunal found that the advances were made for land intended to form part of the stock in trade for the assessee's construction and development business. Consequently, the irrecoverable advances written off constituted a revenue loss, allowable as a business loss. The Tribunal referred to the Delhi High Court's decision in CIT Vs. New Delhi Hotels Ltd, where similar facts were considered. The High Court had ruled that the advances made for purchasing properties, which were part of the assessee's business activities, were revenue expenditures. The Tribunal found no error or illegality in the CIT(A)'s order allowing the assessee's claim. Conclusion: The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision that the Rs. 39 lakhs expenditure was a revenue loss and allowable as a business loss under Section 37(1) of the Income Tax Act. The judgment was pronounced in the open court on 25.3.2015.
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