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2019 (5) TMI 199 - HC - Income TaxAllowability of bad debts - advanced to one Developers for booking commercial space in an upcoming construction project - allowable u/s. 36(1) (vii) OR business loss u/s. 37(1) - Tribunal was of the opinion that Assessee in business of real estate, loss was business loss and was allowed u/s 37(1) - HELD THAT - We do not find any error in the view of the Tribunal. The Assessee was engaged in the business of real estate and financing. The object clause for incorporation of the company widely worded and would cover within its fold range of activities such as erection, construction of buildings and houses as also purchase, sale and dealing in freehold and leasehold land to carry on business as developers of land, buildings, immovable properties. It was in furtherance of such object that the Assessee had entered into a commercial venture by booking commercial space with a developer in the upcoming construction of commercial building, the payment being in the advance booking. The sum was not refunded. This was thus clearly a business loss. We may notice that in the later year when due to continued efforts, the Assessee recovered a part of the said sum, the same was offered as business income. - Decided against revenue.
Issues:
Challenge to ITAT Judgment on bad debt claim under Section 36(1)(vii) of the Income Tax Act, 1961 and alternative claim under Section 37(1) of the Act. Analysis: 1. The appeal before the High Court challenged the Judgment of the Income Tax Appellate Tribunal (ITAT) regarding the treatment of a bad debt claim by the Respondent Assessee. 2. The main question for consideration was whether the ITAT was correct in allowing the Assessee's alternate claim that the bad debt should be treated as a business loss under Section 37(1) of the Income Tax Act, 1961. 3. The Assessee, a Private Limited Company, had claimed a bad debt of ?10 Crores in the return of income for the Assessment Year 2009-2010. The Assessing Officer disallowed the claim, leading the Assessee to alternatively seek treatment as a business loss under Section 37(1) before the CIT (A) and subsequently the ITAT. 4. The disputed amount arose from an advance of ?10 Crores made by the Assessee to a developer for booking commercial space, which ultimately failed to materialize. Despite efforts, the Assessee could not recover the advanced amount, leading to the claim for bad debt or business loss. 5. The ITAT considered the Assessee's business activities, including real estate development and financing, and concluded that the transaction in question was part of the Assessee's business operations. The irrecoverability of the amount was not in dispute, leading the ITAT to treat the loss as a business loss under Section 37(1) of the Act. 6. The High Court upheld the ITAT's decision, noting that the Assessee's business activities aligned with the wide-ranging object clause of the company, which included activities related to real estate development and dealing in properties. The Court found no error in the ITAT's conclusion that the loss incurred was a business loss. 7. The object clause of the company encompassed various activities related to construction, development, and dealing in real estate properties, supporting the Assessee's engagement in the business of real estate and financing. The Court emphasized that the transaction in question was in line with the company's objectives, justifying the treatment of the loss as a business loss under Section 37(1). 8. Ultimately, the High Court dismissed the Income Tax Appeal, concluding that no question of law arose from the ITAT's decision to allow the bad debt claim as a business loss under Section 37(1) of the Income Tax Act, 1961.
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