9911796707
TMI Blog1980 (6) TMI 59X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee 1 39 Rs. 7,00,000 Rs. 1,75,000 2 40 Rs. 7,75,000 Rs. 1,93,750 3 41 Rs. 8,00,000 Rs. 2,00,000 . . . Rs. 5,68,750 In the same auction the assessee had successfully bid two more plots, namely, plot Nos. 35 and 36 but that is not material for the dispute here. Shortly after successful bidding and also paying the earnest money of Rs. 5,68,750 for plot Nos. 39, 40 and 41, the assessee felt that these plots were unsuitable and the bids unremunerative for his business. Accordingly on 2nd March, 1973 the assessee retracted its bids for these three plots and wrote to the D.D.A. as under": 'On going through the details of those plots, we find that all these plots are too small to have any proper planning. Total covered area also being very small, we being the promoters do not feel it worth marketing the flats to the public. We, therefore, request your good self to kindly treat our bid for the above plots as withdrawn and refund our money at the earliest possible'. The D.D.A., however, relying on the terms and conditions under which the auction was held replied to the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fered to purchase the said plots of land from the D.D.A. and before the contract was final and complete, it retracted its bid and sought for refund of its earnest money which was allowed by the High Court. Thus there was no breach of the contract in this case and, therefore, the cases relied upon by it are not useful to the assessee company. (c)The bid was made for the auction on 6th Feb., 1973 and the assessee retracted from its bid on 2nd March, 1973 within the accounting period ending on 30th June, 1973 relating to the asst. yrs. 1974-75. The loss, therefore, should have been claimed for the asst. yr. 1974-75. (d)There was no forfeiture of the earnest money as the Singly Bench judgment of the Delhi High Court decreed the amount of Rs. 3,66,000 in the assessee's favour and refunded to it under bank guarantee pending decision on the appeal filed by the D.D.A." Even when the assessee had relied on the judgment in Narandas Mathuradas Co. vs. CIT (1) CIT vs. Tulsi Ram Karam Chand (2), Laxmi Ginning Oil Mills vs. CIT (3), CIT vs. Indian Biselers (4) and CIT vs. Sugar Dealers (5) while dealing with the reasons given by the ITO, the CIT (A) held as under in para 3.5 of his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eous. For one thing, as held in 52 ITR 180 and 82 ITR 958, when the loss of Rs. 3,66,000 was in fact incurred in the accounting year, the pendency of litigation would not constitute a good reason or justification for postponing allowance of the loss in the correct year to which it relates. Secondly it is not as if the Single Bench's judgment of the Delhi High Court has settled the matter in favour of the assessee. The assessee had to furnish a bank guarantee pending decision on the appeal filed by the D.D.A. and, therefore, even today there is no debt or right in the assessee's favour in respect of the amount of Rs. 3,66,000. Even if the assessee ultimately receives back the amount of Rs. 3,66,000 that would not in my opinion and in view of the High Court's decisions cited earlier constitute any reason why the amount of Rs. 3,66,000 can be disallowed in the year under appeal. The forfeiture took place in the year under appeal and the loss was actually and from a business and commercial point of view suffered by the assessee in the accounting year. If the assessee is ultimately successful, on the basis of the High Court's judgment cited above and the specific provisions of s. 41(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plot No. 95 (Vishal Bhawan) Rs. 16,00,000 . Rs. 30,00,000 Registration charges thereon payable in accordance with the term and conditions of the agreement with D.D.A. at 8 per cent Rs. 2,40,480 Add: Misc. Legal expenses Rs. 1,520 . Rs. 2,42,000 "Learned representative submitted that the very same principle on the basis of which the ITO allowed the provision for expenses on completion amounting to Rs.12.75 lakhs, calls for the allowance of the provision for registration of plots also." The ITO had disallowed the assessee's claim as follows: "The assessee has charged a sum of Rs. 2,42,000 (Rs. 1,29,000 for Vishal Bhawan and Rs. 1,13,000 for Agarwal Bhawan) to the two projects accounts in this year by way of "provision for registration of plots." On being requested to implement the basis of the claim reference has been invited (vide assessee's letter dt. 5th Dec., 1977) to the terms and conditions for sale of auction by D.D.A. of the perpetual lease hold rights in the commercial flats in Nehru Place to the effect that "the intending purchaser shall execute lease deed in the said firm when called upon to do so." The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inly to be executed and the D.D.A. is not going to exempt the assessee from this obligation. The only reason for the deals in this matter is cl. 33 of the agreement which the assessee has entered into with the purchasers of the plots, according to which the registration charges relating to the lease deeds would be borne by the Co-operative Society, Limited Company or other corporate body of buyers if formed to hold the properties and if the D.D.A. executes the lease deed directly in favour of such society company or corporate body of buyers. The D.D.A. has not so far agreed to execute such a direct lease deed by which the assessee would be able to escape the necessity of incurring the registration charges from its pocket. The correct position till now is, therefore, that the assessee is bound with the D.D.A. to incur the registration charges as claimed by it. Such a claim is a proper deduction in the year under appeal under the method of accounting followed by the assessee and accepted by the ITO and in accordance with the principle laid down by the Supreme Court in 37 ITR 1. In the event of D.D.A. either relieving the assessee from its obligation to incur the registration expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t he observed while allowing the assessee's claim: "10.4. Find considerable force in the contentions raised. The ratio of the various cases quoted above, particular by the Delhi High Court's decision in 74 ITR 465 leaves no room to doubt the legal validity of the assessee's claim. Viewed from the factual, business point of view also, what the assessee has been doing is clearly manufacture and processing of goods. In considering matters like this, I think I should be guided by the following approach approved by the Delhi High Court is Sant Ram vs. Union of India (14). 'One of the surest indications of a nature and developed jurisprudence is not to make a fortress of the dictionary but to remember that statutes have always some purpose and object to accomplish, whose sympathetic and imaginative discovery was the surest guide to their meaning.' The annual Finance Act, prescribed a concessional rate of tax for industrial companies as a measure of encouraging the setting up and growth of industrial, manufacturing and productive enterprises in the country and thereby increase the levels of production, employment and incomes. While from a broad business, commercial and even commo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auctioned the plots and recovered Rs. 3,66,000 from the assessee out of the deposit of Rs. 5,68,750 and refunded the balance amount of Rs. 2,20,078. This was done on 3rd Dec., 1973. Not accepting that forfeiture, the assessee filed a suit against the D.D.A. before the Delhi High Court. The ld. Single Judge of Delhi High Court decreed the amount with interest in favour of the assessee, but the matter is pending before the Full Bench of the Delhi High Court. We will first decide whether the claim of the assessee was within the accounting period before us. The D.D.A. having deducted the amount on 3rd Dec., 1973 fell beyond the accounting period relatable to the asst. yr. 1974-75 as the accounting period of the assessee for that closed in June, 1973. As the deduction was made during the accounting period relevant to the assessment year before, we agree with the ld. CIT that the loss pertains to this year. 7. The second issue to be decided is whether in the case of the assessee who is a builder, the forfeiture was in the normal course of the carrying on the business of a builder or was on account of an infraction in law. In case of contract, security deposits are made and for non-acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d expenses in connection with the formation of the Co-operative Society, Limited Company or any other Corporate Body of buyers as well as the cost of the preparing, engrossing, stamping and registering all the agreements, deeds of assignment, sale deeds, conveyance, or any other documents to be executed under these presents by the Promoter or the buyer as well as the entire professional costs of the attorneys of the Promoter in preparing and approving all such documents shall be borne by the Society or Limited Company if formed and otherwise proportionately by all the holders of flats in the said building. The Promoter shall not be liable to contribute any amount towards such expenses. The same will be the position regarding the lease to be executed by D.D.A. if it is executed directly in favour of the Company/Society or Incorporated body of buyers. The proportionate share of such costs, charges and expenses payable by the buyer as worked out by the Promoter shall be paid immediately on demand." It was, therefore, submitted that keeping in view the contract by the assessee with the D.D.A. and his prospective buyers, this was not a case of an ascertained liability. The ld. counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Their Lordships of the Supreme Court in 37 ITR 1, very closely touches the assessee's case in his favour. As the registration charges of Rs. 2,42,000 are an integral and inseparable part of the totality of the mode of accounting, they are to be allowed as claimed. Otherwise the whole mode of accounting is rendered defective. As the claim relates to the accounting period before us and is inseparable, agreeing with the Commissioner, we confirm the deletion of Rs. 2,42,000. While doing so, we also agree with the observations of the ld. Commissioner in para 4.4. 11. The third issue is regarding the treatment of the assessee as an industrial company. We have already detailed with the case law on which the ld. CIT relied on with which we fully agree. As the building operation is a manufacturing process as defined in s. 2(8)(c) of the Finance Act, 1975, we find nothing to disagree with the finding of the ld. CIT as reproduced above. We see no reason to interfere with his order. 12. Appeal dismissed. 13. Since we have dismissed the Revenue's appeal, the ground 1(a),(b) and (c) taken by the assessee in the cross objection stand allowed. As regards ground No. 2 of the cross objecti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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