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TMI Blog2015 (4) TMI 581X X X X Extracts X X X X X X X X Extracts X X X X ..... oner : Shri Jeetendra Kumar For the Respondent : Shri Deepak H. Padachh ORDER Per Vijay Pal Rao,JM. This appeal by the revenue is directed against the order dated 25.08.2010 of CIT (A) for A.Y. 2006-07. The revenue has raised following grounds in this appeal:- 1. On the facts and circumstances of the case as well as in law, the Ld.CIT(A) has erred in holding that the payment of ₹ 21 lakhs made to Shri. Nitin Purandare and ₹ 18 lakhs made to Shri. Shamim Ahmed had to be allowed as deduction u/s. 37(1) of the Income Tax Act, 1961. 2. On the facts and circumstances of the case as well as in law, the Ld.CIT(A) failed to appreciate that the expenditure of ₹ 39 lakhs was not expended by the assessee on the projects on which the assessee was declaring income under the Project Completion Method for the A.Y. 2006-07 and they were expended to procure land for future projects and hence were rightly treated as a capital expenditure outlay and the failure to recover the amounts advanced had to be treated as a loss of capital and not a revenue expenditure allowable u/s. 37(1) of the I.T.Act, 1961. 2. The assessee company is a builder and develope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the amount in question was advanced by the assessee for purchase of land which would be going to form part of stock in trade of the assessee being in the business of construction and development. Accordingly, the said advance becoming irrecoverable and consequently, writing off by the assessee is a revenue loss and an allowable claim being business loss of the assessee as held by Hon'ble Delhi High Court in the case of CIT Vs. New Delhi Hotels Ltd (supra) in para 4 to 7 as under:- 4. The tribunal has allowed the aforesaid loss under Section 37 of the Act, after recording the following findings:- 15. We have carefully perused the papers placed in the paper book filed by the assessee. The agreement to purchase the property was made by the assessee with M/s. Gulmohar Estate Ltd., which was desirous of building a designer house complex having a number of dwelling units of various sizes and specifications, common facilities, provision of private electricity and water supplies, club, shopping centre etc. and in pursuance thereto they were building dwelling units of different sizes and specifications. The assessee was desirous of purchasing the dwelling units being construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en shown at ₹ 79,35,987/-. The profit from sale of flats (heritage city), has been shown under the head profit and gains of business or profession . The object of the company as seen from the memorandum of association of the company is also to acquire by purchase, lease, exchange or otherwise, sale or otherwise and sell in and dispose of lands, building, heriditaments of any tenure or description etc. The clause (3) of the memorandum of association is relevant in this regard, which has been reproduced as under:- 3(a) To acquire by purchase, lease, exchange or otherwise and sell or otherwise deal in and dispose of lands, buildings and heridtaments of any tenure of description and any estate or interest therein or any part thereof or any tenements therein on ownership basis or otherwise and any rights over or connected with lands and in particular by laying out, developing, or assist in developing and pereparing land for building purposes and preparing building sites by planting, paving, drawing and by constructing, reconstructing pulling down, altering, improving, decorating, furnishing and maintaining and dealing in offices, flats, service flats, houses, bungalows, facto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to write off the entire amount as business loss. It is also an admitted position that the possession of the fats agreed to be purchased by the assessee was not given to the assessee and, thus, the transfer of flats within the meaning of Income Tax Act was not completed. Therefore, it is a case where amount was paid in advance for purchase of property. The assessee is in the line of business or real estate as discussed above. It can, therefore, be reasonably be presumed or a reasonable inference can be drawn that the assessee intended to purchase the property in the course of original business carried on by it or at best it can be said that the assessee purchased the property for residences of its employees including directors. Even if it is presumed that the assessee intended to purchase the three flats of use of its employees and directors, the amount so advanced to M/s. Gulmohar Estate Pvt. Ltd would be considered to be made as incidental to the business carried on by the assessee. 5. Learned counsel for the Revenue has submitted that in the end of paragraph 18 the tribunal has drawn an assumption without any basis that the intended purchase was in the course of business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gurgaon. The details about the agreement made during 1990-91 were also given to the ld. CIT(A). The ld. CIT(A) has not stated anything adverse to the assessee's contention to the fact that the assessee is promoter and developer of New Delhi House and Mercantile House of New Delhi and Heritage City at Gurgaon. The assessee also explained before the ld. CIT(A) that since the possession of the proposed property was not given to the assessee, the property could not be shown under the head stock-in-trade but the amount advanced had to be shown under the head loans and advances . 20. One more reason given by the A.O. as well as by the ld. CIT(A) to reject the assessee's claim that from the assessment order, it was observed that the assessee made investment in property and has shown long term capital gain on such property. However, the answer to question whether any property purchased by the assessee, who is also in the business of construction and sale of flats/properties/housing complex, is on investment account or on trading account is to determined in the light of the intention of the assessee to be decided upon on facts and surrounding circumstances relating to the giv ..... X X X X Extracts X X X X X X X X Extracts X X X X
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