DCIT, New Delhi V. M/s. Embryonic Properties (P) Ltd., New Delhi

ITA 115/DEL/2013

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6610 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 1 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-02-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 28-02-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 07-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V K AGGARWAL
• Keywords: Business income; Bad and doubtful debts
• Section: 143(3); 131

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B , NEW DELHI BEFORE SRI AMIT SHUKLA, JUDICIAL MEMBER AND SRI O.P. KANT, ACCOUNTANT MEMBER ITA NO. 115 /DEL/201 3 AY: 200 9 - 10 DCIT, CIRCLE 11(1) VS. EMBRYONIC PROPERTIES (P) LTD. ROOM NO.312 1 ST FLOOR, ECE HOUSE CR BLDG. 28, KASTURBA GANDHI MARG NEW DELHI NEW DELHI 110 001 PAN: AABCE 5708 R (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ANIL KUMAR SHARMA, SR.D.R RESPONDENT BY : SH. VK AGGARWAL, A.R. ORDER PER AMIT SHUKLA, JUDICIAL MEMBER THE AFORESAID APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE IMPUGNED ORDER DT. 15.06.2010, PASSED BY THE LD.CIT(A) - 13, NEW DELHI, FOR THE QUANTUM OF ASSESSMENT PASSED U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) FOR THE ASSESSMENT YEAR (A.Y.) 200 9 - 10 . 2. THE REV ENUE HAS TAKEN THE FOLLOWING GROUND OF APPEAL. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS.4,32,42,500/ - MADE ON ACCOUNT OF DISALLOWANCE OF ADVANCE WRITTEN OFF. 3. T HE BRIEF FACTS QUA THE ISSUE INVOLVED ARE THAT , THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROMOTION , CONSTRUCTION , DEVELOPMENT AND SALE OF INTEGRATED TOWNSHIPS, RESIDENTIAL AND COMMERCIAL MULTI - STOREYED BUILDINGS, FLATS, SHOPPING MALLS, IT PARKS, HOTELS SEZS, HOUSES AND APARTMENTS. A S CULLED OUT FROM THE IMPUGNED ORDER TH E ASSESSEE IN THE FINANCIAL YEAR 2006 - 07 HAS MADE PAYMENT OF ITA 115/DEL/2013 AY 2009 - 10 EMBRYONIC PROPERTIES P.LTD. 2 RS.11,64,20,000/ - TO ONE MR.M. KISHORE FOR ACQUISITION OF LAND AT PILERNE, GOA IN THE NORMAL COURSE OF ITS BUSINESS ACTIVITY . H OWEVER , OUT OF THE TOTAL ADVANCE MADE , THE REGISTRATION OF THE LAND AT PILERNE, GOA WAS DONE FOR RS. 7,31,77,500/ - AND THE BALANCE AMOUNT OF RS.4,32,42,500/ - WAS SHOWN AS OUTSTANDING AMOUNT RECOVERABLE FROM MR.M.KISHORE. THE LAND WHICH WAS PURCHASED THROUGH MR. M.KISHORE HAS BEEN SHOWN AS STOCK IN TRADE IN THE BOOKS OF THE ASSESSEE COMPANY FOR THE YEAR ENDING 31 ST MARCH, 2007 WHICH IS REFLECTED AS INVENTORY IN THE BALANCE SHEET. THIS PLOT OF LAND WAS SUBSEQUENTLY SOLD AND THE SURPLUS WAS OF FERED TO TAX AS BUSINESS INCOME IN THIS YEAR. 4. BEFORE US THE LD.COUNSEL FOR THE ASSESSEE , EXPLAINING THE FACTS AND BACKGROUND OF THE CASE POINTED OUT THAT THE ASSESSEE COMPANY HAD INTENDED TO PURCHASE 1,77,000 SQUARE METRES OF LAND WHICH WAS OWNED BY AS MU CH AS 42 CO - OWNERS, THE LIST OF WHICH HAS BEEN GIVEN AT PAGE 35 OF THE ASSESSEE S PAPER BOOK. THE SAID PIECE OF LAND WAS INTENDED TO BE PURCHASED @ RS.875/ - PER SQUARE METRE. HOWEVER, MR.M.KISHORE WAS UNABLE TO PROCURE THE ENTIRE LAND AND WAS ONLY ABLE T O FACILITATE THE PURCHASE OF 1,31,050 SQUARE METRES WHICH WAS BOUGHT BY THE ASSESSEE @ RS.550/ - PER SQ.METRE. THE BALANCE AMOUNT WAS TO BE SETTLED WITH MUTUAL UNDERSTANDING LATER ON . HOWEVER, THE AMOUNT OF RS.4,32,42,500/ - WHICH WAS TO BE RECEIVED FROM MR.M.KISHORE COULD NOT BE RECOVERED AND THIS IS AN ADMITTED FACT BEFORE INVESTIGATION WING OF THE DEPARTMENT . THE ASSESSEE IN ITS BOOKS OF ACCOUNTS HAS WRITTEN OFF THE SAID AMOUNT AS BAD DEBT AND THE SAME WAS APPROPRIATE D TOWARDS THE COST OF THE LAND. A COPY OF LEDGER ACCOUNT IN THE NAME OF MR.M.KISHORE WHEREIN THIS AMOUNT HAS BEEN SHOWN AS RECOVERABLE WAS ALSO FILED BEFORE THE AUTHORITIES BELOW. IT HAS ALSO BEEN POINTED OUT BY HIM THAT THESE FACTS WERE DISCLOSED EVEN BEFORE THE J OINT D IRECTOR OF I NC OME T AX (I NVESTIGATION W ING ), PANAJI , GOA V IDE LETTER DATED 2 3. 1 .2 010 , UNDER PROCEEDINGS ISSUED UNDER SECTION 131 OF THE I NCOME T AX A CT , 1961 ( THE A CT ). THE A.O. FIRST OF ALL DISALLOWED THE CLAIM OF BAD D EBT ON THE GROUND THAT HE HAS NOT FILED ANY CONFIRMATION FROM MR . M . KISHORE , AND, THEREAFTER HE PROCEEDED TO INVOKE THE PROVISIONS OF SECTION 79 OF THE A CT ON THE GROUND ITA 115/DEL/2013 AY 2009 - 10 EMBRYONIC PROPERTIES P.LTD. 3 THAT , 100% SHAREHOLDING OF THE ASSESSEE COMPANY HAS BEEN CHANGED DURING THE YEAR UNDE R CONSIDERATION . T HEREFORE , ANY PREVIOUS LOSSES / BAD DEBTS CANNOT BE ALLOWED AS PER SECTION 79 OF THE A CT . 5. THE LD.CIT ( A) AFTER NOTING DOWN THE FACTS AND THE BACKGROUND OF THE ACQUISITION OF THE LAND , GA VE A CATEGORICAL FINDING THAT FIRSTLY , AN AM OUNT OF RS.4,32,42,500/ - HAS BECOME IR RECOVERABLE ; AND SECONDLY , THE AMOUNT WRITTEN OFF IS TO BE ALLOWED AS BUSINESS LOSS OF THE ASSESSEE COMPANY . F OR COMING TO THIS CONCLUSION HE HAS STRONGLY RELIED UPON THE FOLLOWING DECISIONS OF H ONOURABLE DELHI HIGH COURT . * CIT VS. ROSE SERVICES APARTMENT (INDIA) P.LTD. (2010) 326 ITR 100 (DEL.) * MOHAN MEAKIN LTD. VS. CIT 348 ITR 109 (DEL.) 6. T HE LEARNED COUNSEL FIRST OF ALL DREW OUR ATTENTION TO THE SALE DEED EXECUT ED BETWEEN THE ASSESSEE COMPANY AND M /S ADVITIYA FABRICS P RIVATE L IMITED TO WHOM TH E SAID LAND IN PILERNE, GOA WAS SO LD. F ROM THE SAID SALE DEED HE POINTED OUT THAT THE ENTIRE BACKGROUND OF THE ACQUISITION OF THE LAND HAS BEEN MENTIONED , THAT OUT OF TOTAL PLOT OF LAND A D MEASURING 1 , 71 , 05 0 SQUARE METRES ONLY A PART OF IT WAS ACQUIRED . T HE SAID LAND HAS BEEN SOLD FOR A SUM OF RS.20,66,85,900/ - ON 20TH OF JANUARY , 2009 , I.E. IN THE YEAR UNDER CONSIDERATION . H E ALSO DREW OUR ATTENTION TO TH E COPY OF LEDGER ACCOUNTS OF MR . M . KISHORE AS ON 31 ST MARCH , 2007 AND 31 ST MARCH , 2009 AND ALSO THE LEDGER ACCOUNT OF BAD DEBTS. F ROM THESE DETAILS HE SUBMITTED THAT FIRST OF ALL , THERE CANNOT BE ANY DOUBT THAT THE PART OF THE ADVANCE AMOUNT PAID TO MR . M . K ISHORE , I.E. RS.4,32,42,500/ - WAS IRRECOVERABLE TILL THIS YEAR . E VEN OTHERWISE ALSO THE SAID AMOUNT IS TO BE TREATED AS BUSINESS LOSS INCURRED DURING THE NORMAL COURSE OF BUSINESS , BECAUSE IT AMOUNTS TO TRANSACTION RELATING TO PURCHASES OF STOCK IN TRADE. T HEREFORE , ANY LOSS IN THE COURSE OF SUCH A TRANSACTION IS TO BE ALLOWED AS BUSINESS LOSS ONLY . H E ALSO STRONGLY RELIED UPON THE DECISIONS OF H ONOURABLE DELHI HIGH COURT AS H AVE BEEN RELIED UPON BY THE LEARNED CIT(A). ITA 115/DEL/2013 AY 2009 - 10 EMBRYONIC PROPERTIES P.LTD. 4 7. THE LD.D.R. HAD ST RONGLY RELIED UPON THE ORDER OF THE A SSISTING O FFICER AND ALSO SUBMITTED THAT THE AMOUNT WHICH WAS ADVANCED TO MR . M . KISHORE AS NOT BEEN DEMONSTRATED OR SUBSTANTIATED THAT, H OW IT HAS BECOME IRRECOVERABLE . FURTHER THE ASSESSEE CANNOT CLAIM THE LOSS BOTH AS A BAD DEBT AND ALSO A S A BUSINESS LOSS , BECAUSE THE CONDITIONS PRECEDENT FOR ALLOWING THE CLAIM UNDER BOTH THE PROVISIONS ARE ENTIRELY DIFFERENT . 8 . W E HAVE HEARD TH E RIVAL SUBMISSIONS , PERUSED THE RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDER AS WELL AS THE MATERIAL PLACED ON RECORD. F IRST OF ALL , SO FAR AS THE OBSERVATION OF THE LD.A.O. THAT P ROVISIONS OF SECTION 79 ARE APPLICABLE , CANNOT BE UP HELD FOR THE REASON THAT , HERE THERE IS NO ISSUE OF ANY BROUGHT FORWARD LOSSES WHICH HAVE BEEN CLAIMED TO BE SET OFF AGAINST THE CURRENT YEAR S INCOME . HENCE, SUCH A REASONING OF AO IS HEREBY REJECTED. IT IS UNDISPUTED FACT THAT TH E ASSESSEE COMPANY I S ENGAGED IN THE BUSINESS LOSS OF REAL ESTATE DEVELOPMENT AND DURING THE COURSE OF ITS NORMAL BUSINESS ACTIVITY IT HAS SOUGHT TO AC QUIRE A PLOT OF LAND IN PILERNE, GOA . THE ASSESSEE HAD INTENDED TO P URCHASE AN AREA OF LAND OF 1,71,000 SQUARE METRES THROUGH ONE , MR .M. KISHORE WHO WAS TO FA C ILI TATE THE ACQUISITION OF THE SAID LAND FROM VARIOUS CO - OW NERS . F OR THIS PURPOSE AN ADVANCE OF RS. 11,64,20,000/ - WAS MADE TO MR .M. KISHORE . H OWEVER INSTEAD OF ACQUIRING 17100 0 SQ.METRES OF LAND WHICH WAS AGREED FOR A RATE OF RS.875/ - PER SQUARE METRE , HE COULD ONLY FACILITATE TO ACQUIRE 1,31,050 SQ.METRES OF LAND WHICH WAS PURCHASED BY THE ASSESSEE AT THE RATE OF RS.550/ - PER SQUARE METRE . I N THE L EDGER ACCOUNT OF MR.M.KISHORE MAINTAINED ITS BOOKS OF ACCOUNT, IT HAD SHOWN THE FOLLOWING PAYM ENTS BETWEEN THE PERIOD 1 ST APRIL , 2005 AND 31 ST MARCH, 2007. THE RELEVANT LEDGER ACCOUNT FOR THE SAID PERIOD IS REPRODUCED HEREUNDER. DATE PARTICULARS VCH TYPE DEBIT RS. CREDIT - RS. 31.3.2006 TO EMMAR MGF LAND P.LTD. - SD BEING ADVANCE PAID TO M.KISHORE TOWARDS ADVANCE JOURNAL 40,000,000 ITA 115/DEL/2013 AY 2009 - 10 EMBRYONIC PROPERTIES P.LTD. 5 AGAINST LAND 15.5.2006 TO HSBC A/C 051 - 330918 - 001 CH.NO.288252 ISSUED IN FAVOUR OF M.KISHORE ALIA KISHORE MULLA PAYMENT 31,420,000 30.6.2006 TO EMMAR MGF LAND P.LTD. - SD BEING PAYMENT MA DE BY EMMAR TO M.KISHORE ON OUR BEHALF JOURNAL 45,000,000 31.3.2007 BY INDEX NO.78/0 & 84/0 DATE OF REGISTRY 23.5.2006, REGISTRY AMOUNT RS.7,31,72,000/ - ,STAMP DUTY 29,28,900/ - (PAID BY CHINTZ BUILDCON P.LTD.) & MISC. RS.5,500/ - . JOURNAL 116,420,000 73,177,500 73,177,500 43,242,500 CLOSING BALANCE 116,420,000 116,420,000 THUS , THE PAYMENT OF RS.11,64,20,000/ - WAS MADE TO MR.M.KISHORE UP TO 31 ST MARCH, 2007 WHICH IS NOT IN DISPUTE. FURTHER THE ASSESSEE HAD ACQUIRED THE LAND FOR A SUM OF RS.7,31,77,500/ - AND THE BALANCE AMOUNT WHICH WAS PAID TO MR.M.KISHORE REMAINED AS ADVANCE RECEIVABLE BY THE ASSESSEE IN THE ACCOUNTS IN THE FINANCIAL YEAR 1 ST APRIL,2008 TO 31 ST MARCH, 2009 . IN THE CURRENT FINANCIAL YE AR, THE ASSESSEE HAS FIRST MADE A JOURNAL ENTRY WHEREBY THE PROVISION FOR BAD DEBTS FOR AMOUNT OF RS.4,32,42,500/ - ITA 115/DEL/2013 AY 2009 - 10 EMBRYONIC PROPERTIES P.LTD. 6 WAS SHOWN ON CREDIT SIDE AND CORRESPONDING DEBIT WAS MADE IN THE ACCOUNT OF MR. M.KISHORE. AT THE YEAR END ON 31.3.2009 , THE ASSESSE E HAD PASSED THE FOLLOWING ENTRY IN THE LEDGER ACCOUNT FOR CLAIMING IT AS A BAD DEBT . EMBRYONIC PROPERTIES P.LTD. BAD DEBTS LEDGER ACCOUNT 1 ST ARPIL,2008 TO 31 ST MARCH, 2009 DATE PARTICULARS VCH TYPE DEBIT CREDIT 31.3.2009 TO PROVISION FOR BAD DEBTS BEING AMOUNT TRANSFERRED JOURNAL 43,242,500 31.3.2009 BY COST OF SALES BEING AMOUNT WRITTEN OFF JOURNAL 43,242,500 CLOSING BAL. 43,242,500 43,242,500 9 . ON THIS BASIS OF THE ABOVE ENTRY IN THE BOOKS OF ACCOUNTS, THE SAID AMOUNT OF RS.43,24,500/ - RECEIVABLE FROM MR.M.KISHORE HAS BEEN CLAIMED AS BAD DEBT. 10. WE ARE UNABLE TO UNDERSTAND THE AFORESAID MANNER IN WHICH THE BAD DEBTS HAVE BEEN WRITTEN OFF. IF THE ASSESSEE WOULD HAVE TAKEN THE COST OF THE INVENTORY/STOCK IN TRADE IN THE TRADING ACCO UNT BY INCLUDING THIS SUM OF RS.4,32,42,500/ - THAT IS ADDED TO THE COST OF LAND, AND IN THIS YEAR IF THE ASSESSEE HAD MADE SALES AND PART OF THE SAID AMOUNT WHICH REMAINED IRRECOVERABLE, WOULD HAVE WRITTEN OFF, THEN THE ASSESSEE WOULD HAVE CLAIMED IT A S A BAD DEBT. THE CONDITION S PRECEDENT FOR CLAIMING THE BAD DEBT HAS LAID DOWN IN S.36(2) READ WITH S. 36(1)(VII) IS NOT SATISFIED. THE SAID CLAIM CANNOT BE ALLOWED AS BAD DEBT. FURTHER, IN THE BALANCE SHEET THE AMOUNT APPEARING AS ADVANCE TO OTHERS FO R LAND UNDER LOANS AND ADVANCES , IN SCHEDULE 5 IS STILL SHOWING OUTSTANDING IN THE YEAR, AND, THEREFORE, THIS ITA 115/DEL/2013 AY 2009 - 10 EMBRYONIC PROPERTIES P.LTD. 7 AMOUNT APPEARS TO BE DIFFERENT, HENCE IT IS NOT A CASE OF BAD DEBTS. HOWEVER IT IS AN UNDISPUTED FACT THAT THE AMOUNT OF RS.43,24,500/ - WHICH HAS BEEN PAID TO MR.M.KISHORE PRIOR TO 31 ST MARCH, 2007 , TILL DATE HAS NOT BEEN RECOVERED WHICH IS EVEN EVIDENT FROM THE LETTERS WRITTEN BEFORE THE INVESTIGATION WING AND ALSO ADMITTED BY MR.M.KISHORE , BEFORE THE INVESTIGATION WING, THAT THE SAID AMOUNT IS LYING WITH HIM WHICH WOULD BE SETTLED LATER ON. THIS IS EVIDENT FROM THE FACTS AND SUBMISSIONS, NOTED BY LD.CIT(A). 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 YEA R. ACCORDINGLY, T HE 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. 11 . I N THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH FEBRUARY, 2017 . SD/ - SD/ - (O.P. KANT) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: THE 28 TH FEBRUARY, 2017 M ANGA ITA 115/DEL/2013 AY 2009 - 10 EMBRYONIC PROPERTIES P.LTD. 8 COPY FORWARDED TO: - 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR, ITAT - TRUE COPY - BY ORDER, ASSISTANT REGISTRAR