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Issues Involved:
1. Deduction of sales tax written off. 2. Deduction for security deposit forfeited, claimed as business loss or short-term capital loss. Issue-Wise Detailed Analysis: 1. Deduction of Sales Tax Written Off: The CIT(A) did not allow a deduction of Rs. 71,204 in respect of sales tax written off and instead restored the issue back to the Assessing Officer for fresh consideration. However, the assessee did not press this ground during the hearing as the relief was eventually allowed by the Assessing Officer after reassessment. Consequently, this ground was dismissed as not pressed. 2. Deduction for Security Deposit Forfeited: 2.1 Facts and Background: The assessee applied for an industrial plot in Panoli, Gujarat, and made a security deposit of Rs. 51,168 with Gujarat Development Industrial Corporation (GIDC). The plot was allotted for Rs. 17,75,397 with specific payment terms. The assessee decided not to proceed with the purchase, considering it against its business interest, and requested a refund of the security deposit, which was forfeited as per the terms of allotment. 2.2 Assessee's Argument: The assessee claimed the forfeiture as a bona fide short-term capital loss, citing relinquishment of rights in the land. The claim was supported by various judicial precedents including CIT v. A.R. Damodara Mudaliar & Co., CIT v. Tata Services Ltd., and others, arguing that the right to purchase the plot constituted a capital asset and its relinquishment amounted to a transfer under Section 2(47) of the Income-tax Act. 2.3 Revenue's Argument: The Revenue contended that mere issuance of an allotment letter did not confer ownership or any right in the capital asset. They argued that no asset was acquired, and hence, no right existed that could be relinquished. The Revenue relied on decisions such as Patel Brass Works v. Asstt. CIT and CIT v. J. Dalmia, asserting that statutory rights to purchase do not equate to property rights. 2.4 Tribunal's Analysis and Conclusion: The Tribunal examined the definitions of "capital asset" under Section 2(14) and "transfer" under Section 2(47) of the Income-tax Act. It noted that the term "property" includes both tangible and intangible assets and that the right to acquire property is a capital asset. The Tribunal concluded that the right acquired through the allotment letter constituted a capital asset, and the forfeiture of the security deposit on relinquishment of this right amounted to a short-term capital loss. The Tribunal held that this loss should be allowed to be carried forward as per Section 71(3) of the Act. Final Judgment: The Tribunal partly accepted the appeal, allowing the forfeiture of the security deposit as a short-term capital loss to be carried forward. The Tribunal emphasized that the right acquired through the allotment letter is a capital asset and its relinquishment is a transfer of such asset, thus entitling the assessee to claim the loss.
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