2010 (12) TMI 1348 - AT - Income Tax

Summary

Issues involved: Deduction of advance paid to Municipal Corporation of Faridabad u/s 143(3) of the Income-tax Act, 1961 for assessment year 2007-08.

Summary:

Issue 1: Deduction of advance payment

The appellant contested the deduction of a sum of Rs. 2,24,500/-, being the advance paid to the Municipal Corporation of Faridabad, as allowed by the ld. CIT(Appeals).

Facts:
- The appellant, engaged in coal and real estate businesses, claimed a bad debt deduction which included the advance paid to the Corporation for land purchase.
- The AO concluded that the advance was not deductible under sections 36(1)(vii) and 36(2) as it was not accounted for in previous years and was related to a capital asset.
- The ld. CIT(Appeals) upheld the AO's decision, stating that the loss was on capital account as the advance was not shown as stock-in-trade.

Appellant's Argument:
- The appellant argued that the loss was incurred in the real estate business and should be deductible as revenue expenditure or a bad debt.

Decision:
- The Tribunal found that the advance was for acquiring stock-in-trade, not a fixed asset, and the loss was in the revenue field, hence deductible.
- The loss was not considered a bad debt but was allowed as a loss u/s 29 of the Act.
- The appeal was allowed, confirming the deduction of the advance payment.

This judgment highlights the distinction between revenue and capital expenditure in the context of advance payments made for business purposes, ultimately allowing the deduction of the advance payment as a loss incurred in the course of business operations.