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TMI Blog2020 (3) TMI 389X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in the case of Goetz India Ltd. vs. CIT [ 2006 (3) TMI 75 - SUPREME COURT] however in the case of CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd. [ 2012 (7) TMI 158 - BOMBAY HIGH COURT] has held that appellate authorities can entertain a claim of the assessee which is not made in the return of income after considering the decision of Hon ble Supreme Court in the case of Goetz India Ltd. vs. CIT (supra). Loss has genuinely arisen due to fall in prices of property during the period when preemptive right by member of Lalbaug Industrial Estate Ltd. was excercised. Needless to mention that assessee has already returned the gain on this property resulting from the transfer of the property through MOU and part handing over the possession to the prospective buyer and thus are recognised the the transaction of sale in the books of accounts. In our opinion, this is a genuine short fall in recovery of the sale consideration originally agreed to and recognized in the books of accounts by the assessee. Therefore, the action of Ld. CIT(A) in allowing the carried forward of the said loss is as per the provisions of Income Tax Act. Accordingly, we do not find any infirmity in the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut appreciating the fact that assessee has not established the business. 3. The facts in brief are that during the course of assessment proceedings the AO observed that assessee has incurred ₹ 5,65,404/- for the purpose of increasing the authorised and paid up share capital. According to AO, these expenses are of capital nature and accordingly called upon the AO to show cause as to why the same should not be disallowed. The assessee replied that the expenses were incurred for increase of authorised and paid up share capital are eligible to be allowed under section 35D. The AO added the same to the income of the assessee by rejecting the claim of the assessee by holding that no extension of undertaking or setting up of new unit was approved during the assessment year 2010-11 and thus assessee is not eligible for deduction under section 35D. 4. In the appellate proceedings, the Ld. CIT(A) allowed the appeal of the assessee by observing and holding as under: 5.1 Ground No. 1 5.1.1 This ground relates to disallowance of claim of ₹ 5,65,4047- u/s. 35D of the Act. The assessing officer has discussed this issue at para 4 of his order. The assessing officer has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty was given and transaction was recognized in the books of account accounting for the resultant gain of ₹ 15,47,33,888/- during the financial year ended 31.03.2007. Thereafter, a member of Industrial Estate Ltd. exercised his preemptive right to buy the property. The assessee could not fulfill the terms of the MOU and the said party backed out from the MOU and by that time the prices of the property had fallen and thus the assessee realised the sale consideration short by ₹ 7,19,96,655/- and claimed this under section 36(1)(vii) of the Act and earlier the initial consideration was fully shown as recoverable in the books of the assessee. According to the AO, since the said loss is resulting out of capital asset and therefore assessee is not entitled to write off this amount as bad debt as there is a separate and distinguished head to deal with the capital loss. The AO also observed that since the loss was arising out of capital assets therefore the same could not be allowed as bad debt and thus rejected the claim of the assessee. 8. In the appellate proceedings, the Ld. CIT(A) partly allowed the claim of the assessee by observing and holding as under: 5.2.2 In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y debt in relation to the business of the appellant that became irrecoverable and hence had to be written off. 5.2.4 At the same time, it cannot be denied that the appellant has suffered loss in respect of its own expected sale price of the asset. The occurrence of this loss took place on the date of execution of the deed of assignment between the appellant, UHL and Shri Hemant Vyas, i.e. 01/09/2009, in the Financial Year relevant to AY 2010-11. If the appellant did not have business losses against which it set of capital gains in AY 2006-07, it would have had to pay tax. In the instant case, the appellant carried forward lower business loss on account of excess capital gain calculated. Any way the facts and circumstances are seen, the appellant has suffered some form of loss and that loss is quantifiable at ₹ 7.19 cr. 5.2.5 On the date of execution of deed of assignment, the appellant possessed certain rights in the impugned property that may be termed as the rights of an Assignor . Without transferring/relinquishing that right, the impugned property could not lawfully be purchased by Shri Hemant Vyas. Such a right in any property has to be treated as capital ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital gain in the year under consideration. Legal right of any form in a property has been held as capital asset by jurisdictional ITAT in several cases. Development rights were held as capital asset in /TO vs Bharat Raojibhai Patel in IT APPEAL NO. 5038/MUM/2010 vide order dt. 31/05/2016 wherein the Hon'ble Bench onserved The term 'property' as stated in the definition of 'capital asset under section 2(14) does not merely mean physical property but also includes rights, title or interest in it and that ownership of land carried with it bundle of rights attached to it, of which the right of development is most important one. [Para 10] 5.2.7 Similar interpretation was done by Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay v. CIT 260 ITR 491/129 Taxman 497. The principles of above ratio provide guidance in the instant case and in my opinion, the appellant possessed rights of an Assignor and by relinquishing/transferring those rights, it suffered a loss that should not be denied in the interest of natural justice. 5.2.8 The claim of appellant in respect of s. 36(1)(vii) was rightly rejected by the assessing officer. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.Y. 2007-08. The Ld. A.R. therefore prayed that the Ld. CIT(A) has very fairly and legally considered the claim of the assessee and allowed the carry forward of the long term loss to the subsequent years to be set off against the long term capital gain. The Ld. A.R. relied strongly on the decision of CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd. (supra) wherein the Hon ble Bombay High Court has held that appellate authorities have power / jurisdiction to consider any claim not made in the return of income. The Ld. A.R. pointed out that while passing the order the decision of Goetz India Ltd. vs. CIT (2006) 284 323 SC was also referred to. The Ld. A.R. therefore prayed that ground no.3 raised by the Revenue may kindly be dismissed by upholding the order of Ld. CIT(A). 11. After hearing both the parties and perusing the material on record including the impugned order, we observe that the Ld. CIT(A) has rightly entertained the claim of the assessee and allowed the long term capital loss to be carried forward to the subsequent years. The Revenue has relied on the decision of Hon ble Supreme Court in the case of Goetz India Ltd. vs. CIT 284 ITR 322, however, the Hon ble Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade in a routine and mechanical manner without recording any objective satisfaction having regards to the books of the assessee warranting no disallowance under section 14A of the Act. According to Ld. CIT(A) the dissatisfaction has to be recorded by the AO having regard to the accounts of the assessee and by following the decision in the case of CIT vs. Hero Cycles Ltd. 323 ITR 518(P H) and also various decisions of the Tribunal deleted the disallowance under rule 8D(2)(iii). The revenue has challenged the deletion of disallowance under rule 8D(2)(iii) by CIT(A) before us. 15. After hearing both the parties and perusing the material on record, we observe that Ld. CIT(A) has given a correct finding on the issue that no disallowance is required to be made under rule 8D2(iii) where no satisfaction has been recorded having regard to the books of accounts of the assessee as to how the claim of the assessee that no expenses are to be disallowed is wrong. We note that in point No.17(1) of 3CD report the assessee has worked out the expenses at nil. Accordingly, we are inclined to uphold the order of Ld. CIT(A) by dismissing the appeal of the Revenue. 16. The issue raised in ground N ..... 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