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2019 (5) TMI 1713

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..... ice. Whether the write off is a capital expenditure and revenue expenditure ? - There is no dispute that the advance for the purchase of property given to HDIL was given in the year 2004. As per the agreement the assessee had to pay the balance amount of 8.15 crores within three years from the date of agreement. The deal could not be materialized due to the inability of the assessee to pay balance sum of money. Assessing Officer cannot step into the shoes of the assessee so as to hold that when the funds were available why the balance sum of money was not paid. As mentioned elsewhere by treating the forfeiture as a capital expenditure, the Assessing Officer himself has accepted the transaction of adjustment and its write off / forfeiture su .....

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..... to show cause why the forfeiture of advance for purchase of property should not be treated as a capital expenditure. 4. In its reply the assessee submitted that the main object of the company is real estate development and the advance was given during the normal course of business. The forfeiture of the same has been treated as on revenue loss. The assessee furnished the copy of conformation from HDIL regarding forfeiture of advance against property and also furnished copy of bank account highlighting advance given for property. 5. The reply filed by the assessee did not find favour with the Assessing Officer who observed as under :- "a. As per details submitted by the assessee, it belongs to group which is leading player in the real .....

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..... earned due to sale of Defence colony property against forfeiture of advance. f. The colorful devise of forfeiture of advance is also apparent as the agreement to sale was entered into by the assessee company in 12.10.2004 with M/s HDIL and the substantial amount of ₹ 3.50 Crores has been paid and the balance amount of ₹ 8.15 Crores was to be paid and all of sudden when assessee company has sold their defence colony property and earned short term capital gains, the forfeiture of advance has arisen. g. The forfeiture of earnest money by M /s HDIL is nothing but a capital loss & not revenue loss as claimed by the assessee company. h. It has been held in the number of judicial pronouncements that forfeiture of advance again .....

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..... :- "2.2 In the instant case the advance of ₹ 3.50 crore was given in the ordinary course of business. If the expenditure is made for acquiring or bringing into existence an asset or advantage for the enduring benefit of the business, it is properly attributable to the capital and is of the nature of capital expenditure. On the other hand, it is not made for the purpose of bringing into existence any such asset or advantage but for running the business or working it with a view to produce the profits, it is a revenue expenditure. The advance of ₹ 3.50 crore was given in the ordinary course of business to purchase the land for the development of the real estate. The forfeiture of the advance has been made by M/s HDIL purely on .....

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..... red to be decided is whether the write off is a capital expenditure and revenue expenditure. The judicial decisions relied upon by the Ld. DR (supra) would do no good to the revenue. 13. There is also no dispute that the advance for the purchase of property given to HDIL was given in the year 2004. As per the agreement the assessee had to pay the balance amount of ₹ 8.15 crores within three years from the date of agreement. The deal could not be materialized due to the inability of the assessee to pay balance sum of money. This is clear from the conformation letter of HDIL which reads as under :- "This is to inform you that amount of ₹ 3.50 crores paid by you vide pay order / Sh.No. 6020 on UTI Bank Limited for ₹ .....

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..... le why the balance sum of money was not paid. 15. As mentioned elsewhere by treating the forfeiture as a capital expenditure, the Assessing Officer himself has accepted the transaction of adjustment of ₹ 3.50 crores and its write off / forfeiture subsequently. On identical set of facts the coordinate bench in the case of Rekhi Lamba Realtors Vs. ITO in ITA No.888/Mum/2009 held as under :- "After considering the rival contentions and relevant record. We find that the CIT(A) has not subscribed the view taken by the Assessing Officer on the disallowance of the claim of the assessee but rejected the claim of the assessee on the ground that forfeiture earnest money is a capital loss to the assessee. It is undisputed fact that the forf .....

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