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TMI Blog2018 (4) TMI 1125X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 14,49,33,613/- on account of Excessive Business Expenditure Claimed . 2. Briefly stated facts of the case are that the assessee company was incorporated on 29.04.2010 and was engaged in the business of development of infrastructure including construction as well as trading in real estate assets especially land. The return of income was filed declaring income of ₹ 11,28,32,682/-. 3. On perusal of the audited financial results of the assessee company, it was seen that the assessee company has written off amounts of following parties aggregating to ₹ 14,49,33,613/- and has claimed the same as deductible revenue expenditure :- S.No. Name of the Party Amount (Rs.) 1. M/s Salasar Corporation 4,49,33,613/- 2. M/s Sumit Trading Co. 5,00,00,000/- 3. Shree Ganpati trading Co. 5,00,00,000/- Total 14,49,33,613/- 4. On being confronted, the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid advances through persuasive as well as coercive measures, yet nothing could be recovered from them. Necessary evidences in this regard are enclosed. In such a situation, adopting a prudent approach, the assessee company has written off such advances as deductible business expenditure in its profits and loss account. The following judicial pronouncements support the legal stand of the assessee in this regard. In Ramchandar Shivnarayan v. CIT (1978) 111 ITR 263, the Hon'ble Supreme Court summed up the principles in the following words at page 269 of the report: The principle applicable in India is more or less the same. If there is a direct and proximate nexus between the business operation and the loss or it is incidental to it, then the loss is deductible, as, without the business operation and doing all that is incidental to it, no profit can be earned. It is in that sense that from a commercial standard such a loss is considered to be a trading one and becomes deductible from the total income, although, in terms neither in the 1922 Act nor in the 1961Act .... In the case of CIT v. Mysore Sugar Co. Ltd., (1962) 46 ITR 649 (SC), the assessee was a man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business of the assessee. Hence, the assessee's claim for treating the said amount as a revenue deduction for the purpose of determining its total income was held justified. In T. J. Lalvani v. CIT, (1970) 78 ITR 176 (80m) it was held that the financing by the assessee of another person's business and of all its import of goods on his license was an activity of the assessee in the course of his business and the loss arising on the loan, therefore, was a loss, which had occurred in connection with the business of the assessee and was incidental to it and was, therefore, claimable by the assessee as a trading loss. In CIT vs Globe Theaters Ltd (1950) 8 ITR 403 (cal) the assessee, who was an exhibitor of cinema films, advance money to a company for constructing a cinema house. The said advance was made on the understanding that the company would lease out the cinema house to the assessee. When the financial position of the company became unsatisfactory and the cinema house was never built, the assessee wrote off the amount and claimed it as a bad debt. The sum appeared to have been paid as an advance payment of rent under the lease which was to come into existence. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount cannot be allowed deduction as business expenditure. The AO accordingly made addition of ₹ 14,49,33,613/-. 7. The assessee challenged the addition before Ld.CIT(A). The written submissions of the assessee are reproduced in the appellate order in which the assessee reiterated the same facts as were submitted before the AO. It was also submitted that the assessee entered into agreement with the three parties for purchasing land being stock-in-trade ultimately agreements were terminated and only part amount was recovered. The settlement deeds were signed. The payments were given through banking channel only through HDFC Bank, source of which was also explained. The assessee filed copies of account with HDFC Bank, ledger account of all the three parties. 8. Ld.CIT(A) considering explanation of the assessee held that the expenditure is allowable as business loss/expenses and deleted the entire addition. His findings in para 6.1 to 8 of the order are reproduced as under:- 6.1. I have considered the assessment order, the submissions made, the documents filed and also the assessment records (called from the AO). The relevant documents filed before me were also fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity despite having filed all documents and evidence which have never been doubted. It is rejection of the claim of loss without proper opportunity which has been disputed by the appellant in this appeal. 6.2 The details of payments made I recovered to I from the three parties are as under: M/s Salasar Corporation, Sirsa PAYMENTS RECEIPTS Date Amount Date Amount (Rs.) 14.09.2010 30000000 05.05.2011 2500000 16.09.2010 50000000 09.05.2011 7250000 23.09.2010 25000000 10.05.2011 15400000 24.09.2010 9000000 11.05.2011 16000000 12.05.2011 17500000 23.05.2011 1747887 02.06.2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abu Lal', and also against payments for construction activities and service tax account of EISM. The balances in these two accounts as on 31.03.2012 amounting to ₹ 6,99,32,078/- (land acquisition account) and ₹ 5,97,900/- (construction activities and service tax account), totaling ₹ 7,05,29,978/-, have been converted to unsecured loan from EISM, which is duly reflected in the appellant's balance sheet. Thus, except for this amount of unsecured loan, there is nothing to be paid by the appellant to EISM as on 3l.03.2012. In the books of the appellant, amounts paid to the three parties are not credited to the account of EISM, implying that these amounts have not been charged to EISM but remained the risk and responsibility of the appellant company. I further find that the appellant company or its directors are not directly or indirectly related to or linked with the entities of the Educomp group. Their relationship is purely business-based. 6.4 The facts of the case are not in dispute. From the above facts, it cannot be concluded that claim of the appellant is incorrect. The only dispute is whether the loss claimed by the appellant company in writing off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ld. DR submitted that these parties are not existing and are not genuine. The identity of the parties has not been proved by the assessee. Since genuineness of the parties is not proved, therefore, business loss should not have been allowed. On the other hand, Ld. Counsel for the assessee reiterated the submissions made before the authorities below and referred to Paper Book page 7 to 30 which are Agreement with all three parties to whom advances have been given for business purposes; Paper Book page 31 to 39 are copies of the Deed of Settlement with three parties; Paper Book page 40 to 50 are correspondences with three parties for recovery of the amount in question. Ld. Counsel for the assessee submitted that it was a business loss which have been correctly allowed as deduction by Ld.CIT(A). He has also submitted that merely because the parties did not respond to the notice issued by the AO u/s 133(6) of the Income Tax Act, 1961, it cannot be taken that said transaction was not genuine. He has relied upon various decisions:- [i] CIT vs Rose Services Apartment (India) Pvt.Ltd. (2010) 326 ITR 100 (Del.) [ii] DCIT vs Embroynic Properties (P.) Ltd. in ITA No.115/Del/2013 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the issue and determine whether the assessee was entitled to claim a loss, if at all, under one section or the other. 11. ITAT, Delhi Bench in the case of DCIT vs Embroynic Properties (P.) Ltd. (supra) following the same decision of the Delhi High Court (supra) held as under:- 10. If the said amount was not being recovered and has been claimed as loss by the assessee in this year, i.e. when sale of land was made, then the same needs to be allowed as business loss because, it was incidental and linked to the purchase of stock-in-trade and was taken as part of the cost of the land in this year while determining the business income from the sale of land in this year. Accordingly, the observation and finding of the Ld.CIT(A)following the decision of Hon ble Delhi High Court is affirmed and thus the revenue s appeal is dismissed. 12. The assessee proved that impugned amount was given to three companies in the course of the business for purchase of land i.e. stock-in- trade. However, the said companies did not carry out their obligation and ultimately the assessee could not get the land as well as could not recover the amount in question from these parties. There ..... X X X X Extracts X X X X X X X X Extracts X X X X
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