1980 (6) TMI 59 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of Rs. 3,66,000 as business expenditure/loss.
2. Deletion of disallowance of Rs. 2,42,000 as provision for registration of plots.
3. Classification of the assessee company as an 'industrial company'.

Issue-wise Detailed Analysis:

1. Deletion of Rs. 3,66,000 as Business Expenditure/Loss:

Facts and Arguments:
The assessee, engaged in the business of construction and sale of multi-storeyed commercial flats, bid for certain plots auctioned by the D.D.A. The assessee retracted its bids, finding the plots unsuitable, leading to a forfeiture of Rs. 3,66,000 by the D.D.A. The assessee claimed this amount as a business loss for the year ended 30th June, 1974. The ITO disallowed the claim on several grounds, including that the plots were capital assets and the loss was not incurred in the relevant assessment year.

CIT (A) Findings:
The CIT (A) held that the assessee's business involved acquiring plots as stock-in-trade, and the forfeiture of Rs. 3,66,000 was a business loss incurred in the relevant accounting year. The CIT (A) relied on various High Court judgments to support the claim that the loss was incurred in the course of business and should be allowed.

Tribunal's Decision:
The Tribunal upheld the CIT (A)'s decision, agreeing that the loss was incurred in the normal course of business and was allowable as a trading loss. The Tribunal noted that the forfeiture occurred within the relevant accounting period and that the pending litigation did not affect the claim for the loss in the year it was incurred.

2. Deletion of Disallowance of Rs. 2,42,000 as Provision for Registration of Plots:

Facts and Arguments:
The assessee claimed Rs. 2,42,000 as a provision for registration charges of plots. The ITO disallowed this claim, arguing that the registration had not been done and the liability was not incurred in the relevant year. The ITO also noted that the expenses were to be borne by the buyers of the flats as per the agreement.

CIT (A) Findings:
The CIT (A) allowed the claim, stating that the provision for registration charges was a legitimate business expense under the method of accounting followed by the assessee. The CIT (A) noted that the D.D.A. had not exempted the assessee from this obligation, and the liability was incurred in the relevant accounting year.

Tribunal's Decision:
The Tribunal upheld the CIT (A)'s decision, agreeing that the provision for registration charges was an integral part of the total cost of the project. The Tribunal emphasized that the method of accounting adopted by the assessee was consistent and accepted by the Revenue authorities, and therefore, the provision should be allowed.

3. Classification of the Assessee Company as an 'Industrial Company':

Facts and Arguments:
The assessee claimed to be an 'industrial company' to avail concessional tax rates. The CIT (A) allowed this claim, relying on various judicial pronouncements and the definition of 'industrial company' in the Finance Act.

CIT (A) Findings:
The CIT (A) observed that the assessee's activities of constructing and selling flats constituted manufacturing and processing of goods, thus qualifying it as an 'industrial company'. The CIT (A) emphasized a liberal interpretation of the law to encourage industrial and productive enterprises.

Tribunal's Decision:
The Tribunal agreed with the CIT (A)'s findings, noting that the assessee's building operations met the criteria for being classified as an 'industrial company'. The Tribunal found no reason to interfere with the CIT (A)'s order, thus confirming the classification.

Conclusion:
The Tribunal dismissed the Revenue's appeal, upholding the CIT (A)'s decisions on all three issues. The assessee's cross-objection was partly allowed, with the Tribunal agreeing with the CIT (A) on the treatment of Rs. 3,66,000 as business loss and Rs. 2,42,000 as provision for registration charges, and confirming the classification of the assessee as an 'industrial company'.