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TMI Blog2022 (4) TMI 165X X X X Extracts X X X X X X X X Extracts X X X X ..... d not to reproduce. 3. The brief facts are that the assessee is a private limited company incorporated with the main object to start an Aviation Training School. The assessee filed its return of income claiming total loss of Rs. 6,01,88,401/-, comprising of the following income and losses i) Gain from sale of land & building : Rs. 4,77,38,633 ii) Irrecoverable advance taken to profit and loss account (however claimable as capital loss) : Rs. 12,37,27,087 iii) Pre-Operative expenses : Rs. 75,17,501 iv) Gain from Venture : Rs. 2,35,00,000 The main issue now before us is, the loss claimed by assessee of Rs. 12,37,27,087/- held by CIT(A) as 'capital loss'. The AO during the course of assessment proceedings noted that the assessee is in formative stage and business did not take off and hence, the land was sold to one M/s. AmarPrakaash Developers Pvt. Ltd., for a consideration of Rs. 16.73 crores. This land is stated at No.92, Thirumudivakkam Village, Sriperumbudur and the extent of land sold is 7 acres and 76 cents. The assessee company and its Associate Enterprise M/s. Raghav Techpark Pvt. Ltd., are the joint vendors. The assessee's portion of sale consideration i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision in the case of Kwality Fun Foods and Restaurants (P) Ltd., supra and EID Parry India Ltd., supra, has considered this loss as capital loss and not revenue loss as claimed by the assessee in the return of income. The CIT(A) after considering the submissions of the assessee noted that on the exit from the project by the assessee, the same become eligible to be written off as capital loss which can be set off against capital loss arising out of the same transaction in term of section70 of the Act. Accordingly, he directed the AO to allow capital loss at Rs. 12,37,27,087/- which shall be set off against the current income from all sources, interalia capital gains. Aggrieved, now Revenue is in appeal before the Tribunal. 5. Before us, the ld.CIT-DR, stated that in the present case, capital asset within the definition of provisions of section 2(14) of the Act and consequently there is no transfer of any asset as envisaged u/s.45 of the Act and accordingly, the impugned loss does not qualify as capital loss to be set off against other incomes in term of section 70 of the Act. He argued that the claimed expenditure was capital in nature and loss arising out of the same is not al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Hon'ble Madras High Court has considered the loss as capital loss and not business loss following the decision of Hon'ble Supreme Court in the case of Hasimara Industries Ltd., vs. CIT, (1998) 231 ITR 842 (SC). The ld.AR also stated that even in the case of Swadeshi Cotton Mills Co. Ltd., supra, the purchase of taxable machinery and subsequent breach of contract, the loss was considered as capital loss by observing as under:- On the facts put forward by the appellant itself and accepted by the Tribunal and the High Court, it is clear that the sum of Rs. 35,000 claimed as deduction under section 10(2)(xv) was really paid for breach of contracts in respect of purchase of textile machinery which would have been a capital asset. The payment was, therefore made to avoid a larger capital expenditure that would not have served the interests of the appellant-company. Such a payment made is clearly in the nature of a capital expenditure and not an expenditure incurred wholly or exclusively for the purpose of the business. The payment was neither made for the purpose of earning profits, nor for the purpose of furthering, protecting or continuing its business which was to be carried on fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to acquire A320 & B737 simulation equipment. Accordingly, assessee company made an initial advance payment of Rs. 14,10,97,242/-, which includes assessee's share, being joint venture business agreement with Raghav Tech Park to the extent of Rs. 12,37,27,087/-. The assessee before us filed complete details of advance amount paid including bank charges. The assessee constructed building therein to create the infrastructure for housing the equipment and technology to be imported from UK based company. Due to economic reason and general downturn subsequent to signing of agreement with UK company, the assessee could not mobilize and arrange capital and to raise loans for the project. This resulted into the inability to make further payments to M/s. Thales Training & Simulation Ltd., and continued with the project. Consequently, the assessee took a decision to abandon the project and exit from the joint venture partnership. In this regard, the assessee and the joint venture partner M/s. Raghav Tech Park Ltd., sold the lands and also the amounts spend in the project were written off in the profit & loss account as revenue expenditure. Now, the only limited dispute remains is whether the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the decision of Hon'ble Madras High Court in the case of R. Chidambaranatha Mudaliar, supra, wherein the Hon'ble High Court was concerned with the allowances of capital loss against the set off of subsequent year income i.e., capital gains. The Hon'ble Madras High Court held that any loss arising on account of transfer of own capital asst, which is a pre-condition of loss to be treated as capital loss, such loss cannot be carried forward and set off against capital gains of subsequent year. In the present case before us, the facts are very clear that the assessee is claiming loss of current year against the incomes of current year and particularly capital gains. The issue before the Hon'ble Bombay High Court in Sterling Investment Corporation Ltd., supra, is as regards to loss occurred due to forfeiture and not by relinquishment of assessee by its capital asset. But in the present case, the issue is abandon of the project due to certain reasons. We have gone through the decision of Hon'ble Madras High Court in the case of Mascon Technical Services Ltd., supra, and noted that the issue before Hon'ble Madras High Court is as regards to share issue expenses whether is to be allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pointed out by the Hon'ble Supreme Court in Empire Jute Co. Ltd. (supra), we cannot take a decision sans facts and the factual position as set out in the preceding paragraph would clearly show that the abandoned project was not a new one and it was a decision taken by the Government after about 12 years after the petitioner was invited to take over the project, which was already in existence, as they were an expert in the same line of business. Therefore, on facts, we find that the CIT(A) was perfectly right in deleting the addition and holding that the expenditure was revenue not capital expenditure. We may point out that the decision in the case of Ideal Cellulura Ltd. (supra) was also a case where the expenditure was incurred to bring into existence a new asset, which is not so in the case on hand. Therefore, the said decision is also distinguishable on facts. Even the Hon'ble Madras High Court in Kwality Fun Foods and Restaurants (P) Ltd. supra, has held that even the advance to contractor for execution of work for the purpose of business, if become irrecoverable, the amount was not allowable as business loss but it is capital in nature. In view of the above, we noted that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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