2018 (4) TMI 1125 - AT - Income Tax

Addition on account of Excessive Business Expenditure Claimed - assessee explained that the said amounts have been written off as the same has become irrecoverable- Held that - The claim of the assessee is genuine and correct. The assessee produced PAN No. of the parties and all evidences on record to prove identity of three parties and genuineness of the transactions, therefore, the deduction claimed as business loss suffered by the assessee out of the transaction for purchase of land is wholly justified. Ld.CIT(A), therefore, correctly deleted the addition. - Decided in favour of assessee

Summary

Issues Involved:
1. Deletion of addition on account of "Excessive Business Expenditure Claimed" amounting to ?14,49,33,613.

Issue-wise Detailed Analysis:

1. Deletion of Addition on Account of "Excessive Business Expenditure Claimed":

The Revenue appealed against the order of the CIT(A) which deleted the addition of ?14,49,33,613 on account of "Excessive Business Expenditure Claimed" by the assessee for the Assessment Year 2012-13. The assessee company, engaged in infrastructure development and real estate trading, had written off the said amount as deductible revenue expenditure, claiming it had become irrecoverable from three parties: M/s Salasar Corporation, M/s Sumit Trading Co., and Shree Ganpati Trading Co.

The assessee explained that advances amounting to ?21.40 crores were given to these parties to purchase land, which was its stock-in-trade. However, only ?6,90,66,387 could be recovered, and the remaining ?14,49,33,613 was written off due to the parties’ failure to provide the land or refund the advances. The assessee provided copies of correspondence, legal notices, and Deeds of Settlement to support its claim.

The Assessing Officer (AO) issued notices under section 133(6) of the Income Tax Act, 1961, to the parties, but there was no compliance. The AO thus treated the parties as non-existent or non-genuine and disallowed the deduction, adding ?14,49,33,613 back to the assessee's income.

Upon appeal, the CIT(A) considered the assessee’s explanation and the documents provided, including agreements and settlement deeds, and found the expenditure to be an allowable business loss/expense. The CIT(A) noted that the payments were made through banking channels, and the amounts were written off after executing valid deeds of settlement. The CIT(A) also directed the AO to furnish relevant information to the assessing officers of the three parties to tax the amounts written off as income in their hands if found transferred back to the assessee or its principals.

The Revenue's representative argued that the parties were non-existent and the transactions were not genuine, while the assessee's representative reiterated that the loss was a genuine business loss supported by sufficient evidence.

The Tribunal considered the facts and found that the assessee was engaged in the business of land acquisition and consolidation for its principal. The advances were made for business purposes and were ultimately written off as irrecoverable. The Tribunal cited various judicial precedents supporting the deduction of such business losses, including decisions by the Supreme Court and High Courts.

The Tribunal concluded that the loss was incidental to the assessee's business and was correctly written off in the books of accounts. The AO's adverse inference due to non-compliance with notices under section 133(6) was not sufficient to disallow the deduction, as held in the case of CIT vs GP International Ltd. The Tribunal upheld the CIT(A)’s order, finding no infirmity in the deletion of the addition.

Conclusion:

The appeal by the Revenue was dismissed, affirming the CIT(A)’s decision to delete the addition of ?14,49,33,613 on account of "Excessive Business Expenditure Claimed" as a legitimate business loss. The Tribunal emphasized that the assessee had provided adequate evidence to substantiate the claim, and the loss was incidental to the business operations.