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2020 (2) TMI 713 - AT - Income TaxDisallowances of bad debt - Whether the assessee is carrying on business of real estate activities ? - HELD THAT - We hold that the assessee was carrying out the business activities in the year under consideration. Accordingly, we are not impressed with the finding of the learned CIT (A) for the reasons as discussed above on the issue that the assessee was not carrying out any business activity of the real estate. Whether the assessee is entitled for the deduction of the bad debts in a situation where the 3rd party acknowledges to make the payment to him? - we note that the assessee is entitled for the bad debts once he has written off the same in the books of accounts. As such, the assessee is not required to justify the irrecoverability of the amount from the debtors. In holding so we find support and guidance from the judgment of Hon ble Supreme Court in the case of T.R.F. Ltd. 2010 (2) TMI 211 - SUPREME COURT Admittedly, the party to whom the assessee has sold its properties namely Shukan Corporation Pvt Ltd has become insolvent and accordingly the assessee was of the view that the amount due from it was not recoverable. Undisputedly, the party namely M/s Shree Hari Enterprises has agreed to make the payment to the assessee as evident from the order of the Debt Recovery Tribunal dated 29.03.2016. This order of the tribunal was passed on 29th of March 2016 whereas the case before us pertains to the assessment year 2014-15 and this fact was not in the knowledge of the assessee at the relevant point of time. As such it was not possible for the assessee to foresee in future for the recovery of the amount by the order of the Debt Recovery Tribunal. As such, the assessee cannot be blamed for claiming the bad debts in the year under consideration. We hold that the assessee was entitled for the bad debts claimed by him in the year under consideration. - Decided in favour of assessee Disallowances on account of land levelling expenses - absence of sufficient documentary evidence, that such expenditure were not incurred by the assessee for its alleged business activities - HELD THAT - We note that the assessee in support of the expenses incurred toward the land levelling/ Mati puran have furnished the copies of the bills - k. However, none of the authorities has exercised his power granted under the statute to verify the genuineness of the expenses claimed by the assessee by issuing notices under section 131/133(6) of the Act. In our view, the authorities below were under the obligation before rejecting the claim of the assessee to verify the veracity of the bills produced by the assessee. Inspector of the income tax has visited to the site of the assessee and furnished to report that there was no brick bhatta thereon whereas the assessee claimed that the Brick Bhatt was set up the after taking the approval from the Revenue Authorities. Report from the inspector is not supported on the basis of any corroborative evidence. As such the revenue was under the obligation to collect the requisite report from the revenue authorities to find out whether there was any brick Bhatta as discussed above. Thus in the absence of any corroborative evidence, we are not impressed with the report of the inspector of the income tax. We also note that there are certain bills furnished by the assessee pertaining to the prior period, therefore the same, amounting to 9,14,600/-, cannot be allowed as deduction as the assessee has already claimed expenses of ₹ 46,74,000/- under the head Mati Puran in immediate previous year. There was an expenditure incurred by the assessee after the transfer of the property to M/s Shukun Corporation dated 18th April 2013. In our considered view once the property has been transferred, then there was no reason for the assessee to incur any expenditure thereon. As such the assessee before us has not justified, based on any documentary evidence, that he was under the obligation to incur the expense after the date of the transfer of the property. Accordingly, the bills raised upon the assessee after the date of 18th April 2013 are not eligible for deduction. The total of these bill comes to ₹ 15,69,400/-. The same is disallowed. Hence the ground of appeal of the assessee is partly allowed.
Issues Involved:
1. Disallowance of bad debt of ?11.5 crores. 2. Disallowance of land leveling expenses of ?33,42,400. Issue-wise Detailed Analysis: 1. Disallowance of Bad Debt of ?11.5 Crores: The first issue raised by the assessee pertains to the disallowance of a bad debt claim amounting to ?11.5 crores. The assessee, engaged in construction and real estate development, sold a project to Shakun Corporation Pvt. Ltd. (SCPL) for ?14 crores but only received ?2.5 crores. The remaining amount was claimed as a bad debt due to SCPL's insolvency. The Assessing Officer (AO) disallowed the bad debt claim, citing that: - The assessee did not file an FIR against SCPL. - The project was mortgaged and transferred to Shree Hari Enterprise through auction. - Shree Hari Enterprise, in a statement, acknowledged an understanding to pay the remaining amount to the assessee. The AO argued that the assessee did not take concrete steps to cancel the sale contract and could legally recover the amount from Shree Hari Enterprise as per the Debt Recovery Tribunal's order. The Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the assessee was not engaged in real estate business, as evidenced by the absence of business income and stock in trade in previous and subsequent years. The CIT(A) asserted that the property was shown as an investment, not as stock in trade. Upon appeal, the Tribunal analyzed whether the assessee was carrying on business activities and whether the bad debt claim was justified. The Tribunal found several infirmities in the CIT(A)'s findings: - The Revenue accepted the sale as a business transaction. - The CIT(A) did not reclassify the transaction under the appropriate income head. - The AO did not dispute the business activity. - The assessee had an approved construction plan and a business brochure. - The transaction with SCPL was genuine and at arm's length. - The assessee recovered part of the bad debt in subsequent years and offered it to tax. The Tribunal concluded that the assessee was indeed carrying on business activities and was entitled to the bad debt deduction once it was written off in the books, as per the Supreme Court's decision in T.R.F. Ltd. vs. CIT. The Tribunal directed the AO to delete the addition, allowing the assessee's ground of appeal. 2. Disallowance of Land Leveling Expenses of ?33,42,400: The second issue involved the disallowance of land leveling expenses claimed by the assessee. The AO disallowed the expenses due to a lack of documentary evidence. The CIT(A) confirmed the disallowance, noting the absence of bills, contractor identity, and mode of payment, and observed that the expenses were claimed after the property transfer. The Tribunal reviewed the case and found that the assessee provided bills for the expenses, but the authorities did not verify their genuineness through statutory powers. The Tribunal noted that the inspector's report, which stated no brick kiln was found, lacked corroborative evidence. The Tribunal partially allowed the assessee's claim, disallowing: - ?9,14,600 for prior period expenses, as similar expenses were already claimed in the previous year. - ?15,69,400 for expenses incurred after the property transfer, as there was no justification for incurring these expenses post-transfer. The Tribunal directed the AO to allow the remaining expenses, thus partly allowing the assessee's ground of appeal. Conclusion: The appeal was partly allowed, with the Tribunal directing the AO to delete the bad debt addition and partially allowing the land leveling expense claim. The order was pronounced on 12/02/2020 at Ahmedabad.
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