2018 (5) TMI 1017 - AT - Income Tax

Disallowance on account of sundry balances written off being capital loss and not allowed as business expenses under section 36(1)(vii) - Held that - The money due from sundry debtors which could not realized till the last year has to be allowed under section 36(i)(vii). In view of these facts, we are not in agreement with the conclusion reached by the CIT(A) that sundry balances written off were of capital in nature and could not be allowed. In our considered opinion all these advances/deposits are arising out of business exigencies of the assessee and have to be allowed whether or not routed through the profit and loss account. So far as sundry debtors are concerned, the same are allowable in the year of writing off. We are inclined to reverse the order of Ld. CIT(A) on this issue and allow the ground raised by the assessee. Disallowance on account of non payment of license fee under the provisions of section 43B - Held that - After perusing the order of the authorities below, we find that facts are not coming out conspicuously as to the nature of the payment except that the assessee submitted before the authorities below that the said payment represented the non refundable deposit to be placed with the BMC for the multi storey building constructed by it. The matter requires a thorough examination and verification at the level of AO. Therefore, we restore it back to the file of AO with a direction to examine the same and decide afresh as per law and facts after affording a reasonable opportunity of being heard to the assessee. This ground is allowed for statistical purposes. Disallowance regarding society maintenance charges - Held that - The said expenses are covered in the mutual settlement reached between the builder and the society. A.R. also filed a certificate before the Bench stating that society has provided some amount towards expenses as settlement amount for handing over to the society. The matter needs examination and verification at the level of AO as to whether the said expenses incurred by the assessee to the tune of ₹ 47,35,028/- is in fact borne by the assessee in terms of the various documents filed by the assessee during the year. Accordingly, we restore this issue to the file of AO with a direction to decide the same afresh, as per facts and law after affording a reasonable opportunity of being heard to the assessee. The ground raised is allowed for statistical purpose. Disallowance on account of legal expenses - Held that - The material on record including the documents filed by the Ld. A.R. in the form of certificate from the assessee and minutes of proceedings of the society, we find that the issue is seized off between the society and the assessee as is apparent from the documents placed before us. Since these documents require verification and examination at the level of AO, we restore the issue back to the file of the AO with the direction to examine the same and decide the issue afresh as per law after affording the reasonable opportunity of hearing to the assessee. The ground is allowed for statistical purpose.

Summary

Issues Involved:
1. Disallowance of sundry balances written off as capital loss.
2. Disallowance of license fees under section 43B.
3. Disallowance of society maintenance charges.
4. Disallowance of legal expenses.

Issue-Wise Detailed Analysis:

1. Disallowance of Sundry Balances Written Off:
The assessee contested the disallowance of ?77,96,174/- made by the AO, treating it as capital loss and not business expenses under section 36(1)(vii). The AO observed that these balances, comprising loans, advances, deposits, and sundry debtors, were capital in nature. The CIT(A) upheld this view, stating these balances were not credited to the P&L Account and thus not covered under section 36(1)(vii). The Tribunal found that the advances and deposits were given for business purposes and should be allowed as business expenses under section 36(1)(vii) or 37, reversing the CIT(A)'s decision.

2. Disallowance of License Fees:
The assessee claimed a license fee of ?2,35,50,100/- payable to BMC, which was disallowed by the AO under section 43B for not being paid before the due date. The CIT(A) upheld this disallowance, noting it as a statutory liability. The Tribunal observed the need for further examination of the nature of the payment and restored the issue to the AO for a thorough review and decision as per law.

3. Disallowance of Society Maintenance Charges:
The assessee claimed ?47,35,028/- as society maintenance charges, which the AO disallowed, arguing these should be borne by the tenants as per the agreement. The CIT(A) upheld this disallowance. The Tribunal noted the need for verification of the expenses and the mutual settlement between the builder and the society, restoring the issue to the AO for re-examination.

4. Disallowance of Legal Expenses:
The assessee claimed ?50,00,000/- as legal expenses for future liabilities related to society formation and conveyance deed. The AO and CIT(A) disallowed this, citing a lack of basis for the liability and clarity on the payable entity. The Tribunal found the need for verification of the documents and the settlement between the society and the assessee, restoring the issue to the AO for further examination.

Conclusion:
The appeal was partly allowed for statistical purposes, with several issues remanded to the AO for further verification and decision as per law. The Tribunal emphasized the need for a detailed examination of the nature and basis of the claimed expenses and liabilities.