The ACIT, Circle-4, Ahmedabad V. Labh Construction And Industries Ltd., Ahmedabad

ITA 1609/AHD/2005

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60602 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 22-05-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 14-06-2005
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: INDUSTRIES LIMITED; LABH CONSTRUCTION
• Assessee Lawyers: I T A NO AHD ASSESSMENT YEAR
• Keywords: Speculation loss; Bad and doubtful debts; Revised return
• Section: 143(3); 263; 28

Judgement Text

ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 1 IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T.A. NO.1607 /AHD/2005 (ASSESSMENT YEAR: 2001 - 02) (BY ASSESSEE) I.T.A. NO.1609/AHD/2005 (ASSESSMENT YEAR :2001-02) (BY DEPARTMENT) LABH CONSTRUCTION & INDUSTRIES LIMITED, 104 SHANTANU OPP. CLASSIC GOLD HOTEL, SARDAR PATEL NAGAR ROAD, AHMEDABAD-380 009. (APPELLANT) VS. INCOME TAX OFFICER, CENTRAL CIRCLE-2(1), (PRESENT JURISDICTION WITH A.C.I.T. CIRCLE-4, KENDRIYA PRATYAKSHA BHAVAN PANJARA POLE, AMBAWADI, AHMEDABAD-380 015. (RESPONDENT) PAN: AAACL 2648 G APPELLANT BY : MR. SAKAR SHARMA. RESPONDENT BY : MR. S. K.GUPTA, CIT (DR) ( )/ ORDER DATE OF HEARING : 22-5-2012. DATE OF PRONOUNCEMENT :13 -7-2012 PER: SHRI ANIL CHATURVEDI, A.M. ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 2 THESE ARE TWO CROSS APPEALS ONE FILED BY THE ASSES SEE AND THE OTHER FILED BY THE REVENUE AGAINST THE COMMON ORDER DATED 29-3-2005 FOR THE ASSESSMENT YEAR 2001-02. 2 ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF CONSTRUCTION OF RESIDENTIAL & COMMERCIAL COMPLEXES ON CONTRACTS REC EIVED AGAINST TENDERS ON TURNKEY BASIS AND ON DEVELOPMENT BASIS UNDER THE TERMS OF DEVELOPMENT AGREEMENTS WITH VARIOUS COOPERATIVE SOC IETIES. IT IS ALSO ENGAGED IN THE MANUFACTURING OF HOLLOW BLOCKS AND P AVERS IN MANUFACTURING UNIT LOCATED AT BOPAL ON THE OUTSKIRT S OF AHMEDABAD. ASSESSEE FILED ITS RETURN OF INCOME ON 31.10.2001 D ECLARING LOSS OF RS.3,12,24,880/-. THE CASE WAS COMPLETED U/S 143(3) AND AFTER MAKING VARIOUS ADDITIONS THE TOTAL INCOME WAS DETERMINED A T RS. 2,21,85,400/-. AGGRIEVED BY THE ACTION OF A.O. ASSESSEE PREFERRED APPEAL BEFORE CIT (A) WHERE THE ASSESSEE WAS GRANTED PARTIAL RELIEF. THE ASSESSEE BEING AGGRIEVED, IS THEREFORE NOW IN APPEAL BEFORE US AND HAS RAISED VARIOUS GREOUNDS. 3 FIRST GROUND IS WITH RESPECT TO DISALLOWANCE OF BAD DEBTS IN RESPECT OF SHAIL PROJECT (RS. 18,65,743), SHRUSTI PLOTS PROJEC TS (RS 50,98,891/-) AND SHIROMANI FLATS (RS 1,28,06,718/-): 4 ON SCRUTINY OF THE WORK IN PROGRESS OFFERED FOR EACH OF THE PROJECTS, THE AO OBSERVED THAT THE ASSESSEE HAD CLAIMED PROJE CT DEFICITS GENERATED ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 3 IN THREE PROJECTS NAMELY SHAIL, SHRUSTI AND SHIROMA NI. THE ASSESSEE WAS ASKED TO SHOW CAUSE AS TO WHY THE PROJECT DEFICITS NOT BE DISALLOWED. THE ASSESSEE SUBMITTED HIS EXPLANATION AS UNDER:- IN RESPECT OF DEVELOPMENT PROJECTS, ASSESSEE HAD OF FERED INCOMES ON YEARLY BASIS WITHOUT ACTUALLY WORKING OUT AS TO WHE THER THE PROJECT IS GENERATING PROFITS OR LOSSES. IT WAS THE POLICY OF THE ASSESSEE TO OFFER ALL SURPLUS IN THE PROJECTS UPTO COMPLETION FOR TAX ATION AND CLAIM THE DEFICITS AS LOSS. THIS HAS BEEN THE CONSISTENT ACCO UNTING POLICY OF ASSESSEE AND THE SAME HAS BEEN ACCEPTED BY DEPARTME NT IN THE PAST. IN VIEW OF THE TERMS OF AGREEMENT THE DEFICIT IN TH E PROJECT HAVE TO BE BORNE BY THE DEVELOPER. EFFECTIVELY THERE IS NO DEF ICIT IN THE PROJECT IF THE REMUNERATION OFFERED IN EARLIER YEARS AND INCLU DED IN THE PROJECT COST ARE EXCLUDED. THE PROJECT DEFICIT CLEARLY INDI CATE THAT EVEN THOUGH THERE WAS NO SURPLUS IN THE PROJECT IN THE E ARLIER YEARS ASSESSEE COMPANY APPROPRIATED THE REMUNERATION ON A NNUAL BASIS IRRESPECTIVE OF THE DETERMINATION OF DEFICIT OR SUR PLUS IN THE PROJECT AND OFFERED THE SAME FOR TAXATION IN SPITE OF THE FACT THAT IT WAS NOT LIABLE TO OFFER THE INCOME IN THE PRECEDING ASSESSMENT YEA RS WHICH HAS BEEN BROUGHT TO TAX IN THE ASSESSMENT MADE. IT WAS THEREFORE, SUBMITTED THAT THE DEDUCTION OF DEFICIT OF RS.18,65 ,743/- BE ALLOWED IN THIS ASSESSMENT YEAR WHEN THE FINAL WORKING OF THE PROJECT HAS BEEN DONE, AS NO MORE WORK IS REQUIRED TO BE DONE FOR TH E SAID PROJECT. AS REGARDS DISALLOWING PROJECT DEFICIT OF RS.70,89 , 009/- IN RESPECT OF THE SHRUSHTI PROJECT IT WAS SUBMITTED THAT THE PROJ ECT DEFICIT HAS BEEN ARRIVED AT AND CLAIMED ON THE BASIS OF THE TERMS OF DEVELOPMENT AGREEMENT ENTERED INTO WITH THE RESPECTIVE SOCIETIE S/NTCS. THE TERMS OF DEVELOPMENT AGREEMENTS ARE MORE OR LESS SA ME AS IN THE CASE OF SHAIL PROJECT AND THEREFORE THE PROJECT DEF ICIT IS NOT REQUIRED TO BE REIMBURSED TO THE ASSESSEE COMPANY BY THE RES PECTIVE SOCIETIES/NTCS. AS PER THE DETAILED COMPUTATION FU RNISHED OVERALL DEFICIT IN THE PROJECT BEFORE PROVIDING THE REMUNER ATION WORKS OUT TO RS.19,90,110/-.APART FROM THIS TOTAL REMUNERATION O FFERED FOR TAXATION IN EARLIER YEARS FOR THIS PROJECT WORKS OUT TO RS.5 0,90,891/- WHICH IS ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 4 NOT GOING TO BE REALIZED TO THE ASSESSEE COMPANY DU E TO DEFICIT IN THE PROJECT. DUE TO THIS REASON TOTAL LOSS TO THE ASSES SEE WORKS OUT TO RS.70,89,009/- (I.E. RS.19,90,110/- + 50,90,891/-) OUT OF THIS AN AMOUNT OF RS.19,90,110/- IS ALLOWABLE AS BUSINESS L OSS UNDER SECTION 28 WHEREAS RS.50,90,891/- IS ALLOWABLE AS BAD DEBTS OR AS BUSINESS LOSS AS THIS AMOUNT HAS BEEN WRITTEN OFF IN THIS YE AR BUT WAS SUBJECTED TO TAX IN THE EARLIER YEARS. AS REGARDS DISALLOWANCE OF PROJECT DEFICIT OF RS. 1 ,28,05,718/- IN RESPECT OF THE SHIROMANI PROJECT IT WAS SUBMITTED T HAT THE PROJECT DEFICIT HAS BEEN ARRIVED AT AND CLAIMED ON THE BASI S OF THE TERMS OF DEVELOPMENT AGREEMENT ENTERED INTO WITH THE RESPEC TIVE SOCIETIES/NTCS. THE TERMS OF DEVELOPMENT AGREEMENTS ARE MORE OR LESS SAME AS IN THE CASE OF SHAIL PROJECT AND THERE FORE THE PROJECT DEFICIT IS NOT REQUIRED TO BE REIMBURSED TO THE ASS ESSEE COMPANY BY THE RESPECTIVE SOCIETIES/NTCS. THE DETAILED COMPUTA TION INDICATES OVERALL SURPLUS IN THE PROJECT BEFORE PROVIDING THE REMUNERATION WORKS OUT TO RS.1,11,13,236/-.AGAINST THIS SURPLUS COMPAN Y HAS OFFERED TOTAL REMUNERATION FOR TAXATION IN EARLIER YEARS AT RS.2,39,19,954/- .THUS, RS.1,28,06,718/-(I.E. RS.2,39,19,954/- LESS RS.1,11,13,236/-) WHICH HAS BEEN OFFERED IN EARLIER YEARS AS INCOME W ITHOUT EARNING THE SAME FROM THE PROJECT, IS NOT GOING TO BE REALIZED TO THE ASSESSEE COMPANY. DUE TO THIS REASON THIS AMOUNT OF RS.1,28, 06,718/- HAS BEEN CLAIMED AS NET PROJECT DEFICIT WHICH IS NOTHIN G BUT IS IN THE NATURE OF BAD DEBTS BECAUSE THIS AMOUNT WAS SUBJECT ED TO TAX IN EARLIER YEARS BUT HAS NOW BECOME UNREALIZABLE. 5.. THE AO HELD THAT FACTS IN THE CASE IN THE PRE SENT YEAR WITH RESPECT TO SHAIL, SHRUSTI AND SHIROMANI PROJECTS WERE SIMIL AR TO THE ISSUE WITH RESPECT TO SHILALEKH PROJECT IN AY 1999-2000. FOLLO WING THE EARLIER YEARS ORDER, THE AO HELD THAT THE CLAIM OF BAD DEBTS (RS 18,65,743/- OF SHAIL PROJECT), (RS 50,98,891 OF SHRUSTI PROJECT) AND (RS 1,28,06,718/- OF SHIROMANI PROJECT) AS NOT ALLOWABLE AND THEREFORE DISALLOWED THE CLAIM OF THE ASSESSEE. THE AO FURTHER OBSERVED THAT AS PER T HE ORIGINAL DEVELOPMENT AGREEMENT EXECUTED WITH THE SOCIETIES T HE ASSESSEE WAS ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 5 ENTITLED TO RECEIVE 12% OF THE COST OF THE PROJECT IMPLEMENTED AND 8% OF THE AMOUNTS REALISED FROM THE MEMBERS. IN THE SUPPL EMENTARY AGREEMENT ENTERED WITH THE SOCIETIES, A CLAUSE WAS INSERTED W HICH STATED IF THERE IS ANY DEFICIT, THE SAME WILL BELONG TO THE DEVELOPER AND THE DEVELOPER ALONE WILL BEAR THE SAME. THE SOCIETY WILL NOT BE UNDER A NY OBLIGATION TO MAKE GOOD THE SAME NOR THE SOCIETY WILL PAY ANY AMOUNT S EPARATELY BY WAY OF REMUNERATION. PURSUANT TO THE AFORESAID CLAUSE IN THE SUPPLEMENTARY AGREEMENT THE ASSESSEE CLAIMED SUCH PROJECT DEFICIT AMOUNTING TO RS. 19,90,118 AS BUSINESS LOSS IN RESPECT OF SHRUSTI SO CIETY AS BUSINESS LOSS. THE AO OBSERVED IDENTICAL FACTS CAME UP FOR CONSIDE RATION BEFORE CIT DURING THE COURSE OF PROCEEDINGS U/S 263 IN AY 1997 -98 WHERE CIT HELD THAT THE ASSESSEE WAS NOT ENTITLED TO CLAIM SUCH PR OJECT DEFICIT. THUS, FOLLOWING THE ORDER OF CIT PASSED U/S 263 FOR AY 19 97-98, THE AO DISALLOWED THE CLAIM OF ASSESSEE. ASSESSEE BEING A GGRIEVED BY THE ORDER OF A.O, PREFERRED APPEAL BEFORE CIT (A) BUT ASSESSE E DID NOT GET ANY RELIEF BEFORE CIT (A). THE ASSESSEE IS NOW IN APPEAL BEFOR E US. 6. BEFORE US, AT THE OUTSET THE LD. A.R. SUBMITTED THAT THE AO HAD DISALLOWED THE CLAIM OF THE ASSESSEE FOLLOWING THE ORDER OF CIT PASSED U/S 263 FOR AY 1997-98. THE LD. A.R. INFORMED THAT THE HONBLE AHMEDABAD BENCH IN ITA NO 2197/A/2003 DTD 16.3.2007 HAS CANCE LLED THE ORDER OF CIT. HE PLACED ON RECORD AT PAGE 338 TO 342 THE COP Y OF THE AFORESAID ORDER OF ITAT. THE LD. A.R. THEN POINTED OUT TO THE FACT THAT THE AO HAD RELIED UPON THE FINDINGS OF THE AO IN ORDER PASSED U/S 143(3) FOR AY 1999- 2000. CIT (A) HAD REVERSED THE FINDING OF THE AO AN D THE ORDER OF CIT (A) HAS BEEN UPHELD BY HONBLE ITAT IN ITA NO. 170/A/20 03 DT 21.9.2007. IT ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 6 WAS THUS CONTENDED THAT IN VIEW OF THE AFORESAID FA CTS THE ASSESSEES CLAIM BE ALLOWED. THE LD. D.R. ON THE OTHER HAND RELIED O N THE ORDER OF THE AO. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE AO WHILE PASSING THE ORDER U/S 143(3) HAD RELIED ON THE ORDER OF CIT (A) FOR AY 19 97-98 AND THE AOS FINDING FOR AY 1999-2000. CO-ORDINATE BENCH OF ITAT IN ITA NO 170/AHD/2003 DATED 21.9.2007 HELD AS UNDER: 25. GROUND NO.7 IS REGARDING EXCLUSION OF INCOME O F RS.87,90,686/- FROM THE RETURNED INCOME. BRIEF FACTS ARE THAT THE REQUEST OF THE ASSESSEE FOR EXCLUSION OF INCOME OF SHILALEKH PROJE CT AT RS.1,07,49,031/- WAS DENIED BY THE A.O. VIDE PARA 3.7 OF HIS ORDER ASSESSEE HAD SHOWN DEVELOPMENT INCOME BY WAY OF REM UNERATION AND ORGANIZING FEE FOR SHILALEKH PROJECT IN THE BOO KS AS WELL AS IN THE RETURN OF INCOME, BUT CLAIMED IN THE ASSESSMENT PRO CEEDINGS THAT THIS INCOME WAS HYPOTHETICAL INCOME NOT LIABLE TO BE TAX ED. A.O. WAS NOT SATISFIED OF THE REPLIES OF THE ASSESSEE AND TAXED THE INCOME IN THE HANDS OF THE ASSESSEE. IN APPEAL, CIT (A) AFTER CON SIDERING THE REMAND REPORT OF THE A.O. REVISION ORDER PASSED UND ER SECTION 264 BY CIT-II, AHMEDABAD, ORDER GIVING EFFECT TO REVISI ON ORDER BY THE A.O. VIEWED THAT SHILALEKH PROJECT WAS IN DEFICIT U PTO 31-3-2001, AND THEREFORE, ASSESSEE HAD NO OCCASIONS TO MAKE ANY PR OFIT OR EARN ANY INCOME FROM THE PROJECT FOR THE YEAR UNDER CONSIDER ATION. THE CIT-II, AHMEDABAD HAS EXAMINED THIS ISSUE IN REVISION PROCE EDINGS AND HELD THAT INCOME CREDITED IN THE BOOKS OF ACCOUNTS ARE HYPOTHETICAL IN NATURE FOR THE SHILALEKH PROJECT. HENCE, THE CIT ( A) ALLOWED THE CLAIM OF THE ASSESSEE FOR EXCLUSION OF INCOME OF RS.87,90 ,686/- FOR THE YEAR UNDER APPEAL, AS PER THE CHARTERED ACCOUNTANT CERTI FICATE. 26. LD. D.R. RELIED ON THE ORDER OF A.O. WHILE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE CIT (A) AND CONTENDS THAT TH IS ISSUE WAS SIMILAR TO GROUND NO.4 IN ITA NO.167/AHD/2003 AND T HEREFORE, REITERATES THE SAME CONTENTIONS MADE IN A.Y. 1996-9 7, AND THE SAME BE DECIDED ACCORDINGLY. ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 7 27. AFTER HEARING THE RIVAL SUBMISSIONS, WE FIND TH AT THE ISSUE INVOLVED IN THIS GROUND NO.4 IN ITA NO.167/AHD/2003 IN THE CASE OF THE ASSESSEE. THE FACTS AND CIRCUMSTANCES BEING IDE NTICAL, WE FOLLOWING OUR ORDER IN THE SAID APPEAL, DISMISS THI S GROUND OF APPEAL OF THE REVENUE. 8. IN ITA NO 2197/A/2003 DATED 16.3.2007 (PLACED AT PAGE NO.324 TO 333 OF PAPER BOOK) THE CO-ORDINATE BENCH HAS ALLOWE D THE APPEAL OF THE ASSESSEE BY HOLDING AS UNDER: 9.1. FROM THE AFORESAID LETTER, THE ONLY CONCLUSIO N TO BE ARRIVED AT IS THAT (I) DRAFT ORDER GIVING EFFECT TO REVISION ORDER PAS SED U/S.264 OF THE ACT IN THE CASE OF LABH CONSTRUCTION AND INDUSTRIES LTD. FOR ASSESSMENT YEAR 1997-98 WAS SENT TO THE CIT FOR APP ROVAL AS PER A.OS LETTER NO. DCIT/CC-3(3)/MISC./02-03 ON 24-5-2 002 AND (II) THE CIT INFORMED THE A.O. AS PER HIS LETTER DA TED 31-5-2002 THAT NO FURTHER DIRECTIONS WERE REQUIRED TO BE GIVE N FOR GIVING EFFECT TO THE REVISION ORDER PASSED U/S.264 OF THE ACT,. AND THE AFORESAID FACTS ON RECORD CONFIRM BEYOND ANY DOUBT THAT FINAL ORDER GIVING EFFECT TO ORDER U/S. 264 OF THE ACT PASSED BY THE CIT WAS PAS SED BY THE A.O. NOT ONLY AS PER DIRECTIONS OF THE CIT CONTAINED IN ORDER U/S. 264 OF THE ACT BUT AFTER APPROVAL OF CIT ALSO. 9.2. THE EFFECT OF THE AFOREMENTIONED LETTER IS, TH EREFORE, NOTHING, BUT THE FACT THAT ORDER GIVING EFFECT ON THE BASI S OF SPECIFIC APPROVAL OF THE CIT AND, THEREFORE, WAS NOT AN ORDER OF A.O. AS ENVISAGED IN THE PROVISIONS OF SECTION 263 OF THE ACT. 10. AFTER HAVING CONSIDERED THE FACTS AND CIRCUMST ANCES OF THE CASE AND THE AFORESAID DECISIONS RELIED UPON BY THE LD. COUNSEL FOR THE ASSESSEE, WHICH ARE DIRECT ON THE ISSUE, WE ARE OF THE OPINION THAT THE CIT HAD NO JURISDICTION TO INVOKE HIS POWE RS VESTED U/S. 263 ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 8 OF THE ACT FOR REVISING THE ORDER PASSED BY THE A.O . ON 31-5-2002 GIVING EFFECT TO THE ORDER OF CIT PASSED U/S. 264 OF THE ACT DATED 22- 3-2002 AS THE SAME WAS PASSED AFTER THE APPROVAL OF THE CIT. 11. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE OPINION THAT THE ORDER OF THE CIT PASSED U/S. 263 OF THE ACT ON 18-3 -2003 IS NOT MAINTAINABLE IN LAW FOR WANT OF JURISDICTION AND, T HEREFORE, THE SAME IS CANCELLED . 12. SINCE WE HAVE CANCELLED THE ORDER PASSED U/S.26 3 OF THE ACT ON THE BASIS OF JURISDICTION OF THE CIT U/S.263 OF TH E ACT TO REVISE THE ORDERS PASSED AS PER DIRECTIONS OR APPROVAL; BY THE CIT, WE DO NOT CONSIDER IT NECESSARY, AT THIS STAGE, TO CONSIDER T HE ISSUES RAISED ON MERITS. 9. IN THE PRESENT CASE, THE A.O. IN THE ASSESS MENT ORDER HAS GIVEN A FINDING THAT THE FACTS IN THE PRESENT ASSESSMENT YE ARS ARE SIMILAR TO THE FACTS OF A.Y. 1999-2000. THE A.O. WHILE PASSING OR DER U/S. 143(3) HAS FOLLOWED THE ORDER OF CIT PASSED U/S.263 FOR A.Y. 1 997-98. THE CO-ORDINATE BENCH OF ITAT HAS ALLOWED THE APPEAL OF A.Y. 1999-2 000. THESE FACTS HAVE NOT BEEN CONTROVERTED BY LD. D.R. NOR HAVE THEY BRO UGHT ANY MATERIAL TO THE CONTRARY ON RECORD. IN VIEW OF THESE FACTS AND FOLLOWING THE DECISION OF CO-ORDINATE BENCH FOR A.Y. 1999-2000, WE ALLOW THIS GROUND OF THE ASSESSEE. GR. NO. 2: ADDITION OF RS 29,36,700 IN RESPECT OF S UN CITY PROJECT: 10. A.O. NOTICED THAT THE ASSESSEE HAD NOT OFFE RED ANY INCOME IN RESPECT OF SUN-CITY PROJECT DESPITE SUBSTANTIAL EXPENDITURE INCURRED ON IT. THE EXPLANATION OFFERED BY THE ASSESSEE WAS THAT IT WAS OF THE VIEW THAT THE PROJECT WOULD BE COMPLETED WITH DEFICIT DUE TO HEAV Y CHARGE OF INTEREST ON ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 9 THE BORROWINGS AND DUE TO NON-AVAILABILITY OF ADEQU ATE BUYERS AND THEREFORE NO INCOME FROM IT WAS OFFERED TO TAX. THE EXPLANATION OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE A.O. HE HE LD THAT HAD THE ASSESSEE FOLLOWED THE SAME METHOD OF ACCOUNTING AS HAS BEEN FOLLOWED IN EARLIER YEARS, THE INCOME THAT WOULD HAVE BEEN OFFE RED FROM THE PROJECT WOULD BE RS 29,36,700/- HE ACCORDINGLY ADDED RS.29, 36,700/- AS INCOME. AGGRIEVED, THE ASSESSEE APPEALED BEFORE CIT (A). CI T (A) HELD THAT THE ASSESSEE WAS NOT ABLE TO SUBSTANTIATE ITS CLAIM THA T THE SUN-CITY PROJECT WAS IN LOSS AND ACCORDINGLY HE UPHELD THE DECISION OF A.O. NOW THE ASSESSEE IS IN APPEAL BEFORE US. 11. BEFORE US, THE LD. A.R. SUBMITTED THAT THE ASSE SSEE HAS FOLLOWED PERCENTAGE COMPLETION METHOD BY EVALUATING PROJECT AT THE END OF EACH FINANCIAL YEAR TO ARRIVE AT THE REAL INCOME INSTEAD OF RECOGNISING INCOME BY APPLYING HYPOTHETICAL RATE OF 8% OF COLLECTION FROM MEMBERS AND 12% OF CONSTRUCTION COSTS AS FOLLOWED IN OTHER PROJECTS. F URTHER THE DEVELOPMENT AGREEMENTS APPLICABLE TO THE YEAR UNDER CONSIDERATI ON DO NOT PROVIDE ANY SUCH CONDITION ON THE ASSESSEE TO RECOGNISE INCOME ON HYPOTHETICAL BASIS. IN VIEW OF THESE FACTS NO INCOME ACCRUED TO THE ASS ESSEE AND THEREFORE URGED THAT THE ADDITION MADE BY A.O. BE DELETED. 12. THE LD. D.R. ON THE OTHER HAND RELIED ON THE OR DER OF THE AO. 13. WE HAVE HEARD THE RIVAL SUBMISSIONS AND MATERIA L ON RECORD. BEFORE US THE ASSESSEE HAS NOT BROUGHT OUT ANY TANGIBLE EV IDENCE IN ITS SUPPORT TO JUSTIFY ITS STAND THAT IT EXPECTS TO INCUR LOSS IN THE PROJECT TITLED SUN-CITY AND ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 10 FOR NOT ACCOUNTING FOR ANY INCOME. THE ASSESSEE HAS NOT SUBMITTED ANY DETAILED WORKING DULY SUPPORTED BY FACTS AND FIGURE S AND THE COMPELLING REASONS ALONG WITH THE NECESSARY SUPPORTING TO JUST IFY ITS STAND. IN VIEW OF THESE FACTS, WE ARE OF THE VIEW THAT NO INTERFERENC E IS CALLED FOR TO THE CONCLUSION ARRIVED BY THE A.O. IN RESULT THIS GROUN D OF THE ASSESSEE IS DISMISSED. 14. GR. NO. 3: DISALLOWANCE OF EXPENSES OF RS 62,47 ,845/- PERTAINING TO A.Y. 2001-02 BUT ACCOUNTED FOR IN THE BOOKS RELEVAN T TO AY 2002-03. 15. ON PERUSING THE COMPUTATION OF INCOME FILED ALO NG WITH THE REVISED RETURN, THE AO OBSERVED THAT ASSESSEE HAD SOUGHT DE DUCTION OF RS 72,17,922 FOR EXPENSES DEBITED IN THE FINANCIAL ACC OUNTS FOR THE YEAR ENDED 31.3.2002 BUT PERTAINED TO AY 2001-02. DURING THE C OURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE INFORMED THE A.O. THAT IT HAD ERRONEOUSLY CLAIMED RS 72,17,922/- INSTEAD OF RS 62,47,845/- AN D THEREFORE ITS CLAIM BE RESTRICTED TO RS 62,47,845/-. THE ASSESSEE WAS ASKE D TO PRODUCE THE DETAILS OF EXPENDITURE AND PROOF OF PAYMENT. IN THE ABSENCE OF SATISFACTORY EXPLANATION THE A.O. CONCLUDED THAT THE ASSESSEE CO ULD NOT SUBSTANTIATE ITS CLAIM AND THE ASSESSEE HAD SIMPLY MADE PROVISIONS I N THE BOOKS OF ACCOUNTS. HE ACCORDINGLY DISALLOWED THE EXPENDITURE CLAIMED. AGGRIEVED BY THE DECISION OF AO, THE ASSESSEE PREFERRED APPEAL B EFORE CIT (A). CIT (A) UPHELD THE ACTION OF THE AO. ON THE ALTERNATE PLEA OF THE ASSESSEE BEFORE CIT(A) THAT, IF THE CLAIM OF THE ASSESSEE IS NOT CO NSIDERED IN AY 2001-02, THEN THE AO BE DIRECTED TO CONSIDER THE CLAIM OF TH E ASSESSEE IN AY 2002- 03, CIT(A) DIRECTED THAT THE A.O. MAY CONSIDER THE CLAIM IN AY 2002-03 ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 11 AFTER PROPER VERIFICATION AND SATISFACTION. AGGRIEV ED BY THE ORDER OF THE CIT (A), THE ASSESSEE IS NOW IN APPEAL BEFORE US. 16. BEFORE US, THE LD A.R PLACED ON RECORD AT PAGE 219 OF THE PAPER BOOK THE LIST OF EXPENSES AGGREGATING TO RS 72,17,9 22/- DEBITED TO THE PROFIT & LOSS ACCOUNT. HE FURTHER SUBMITTED THAT THESE EXP ENSES REMAINED TO BE PROVIDED IN THE BOOKS WHILE FINALISING THE BOOKS FO R THE YEAR ENDED 31.3.2001 RELEVANT TO AY 2001-02 AND WERE PAID IN S UBSEQUENT YEAR I.E. IN AY 2002-03 AND THEREFORE ACCOUNTED FOR IN THE ACCOU NTS FOR THE YEAR ENDED 31.3.2002. I.E. AY 2002-03. IT WAS URGED BY HIM THA T SINCE THE DETAILS WERE NOT PROVIDED BEFORE A.O. DURING THE COURSE OF ASSES SMENT PROCEEDINGS, THE MATTER MAY BE REMITTED TO THE FILE OF A.O. FOR VERI FICATION. THE LD. D.R. DID NOT SERIOUSLY OBJECT TO IT. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS A FACT THAT THE DETAILS WERE NOT PROD UCED BY THE ASSESSEE BEFORE THE AO AT THE TIME OF ASSESSMENT PROCEEDINGS AND THEREFORE THE SAME WERE NOT VERIFIED BY THE AO. EVEN BEFORE THE C IT (A) NO DETAILS WERE FURNISHED. IN SUCH CIRCUMSTANCES, WE ARE OF THE VIE W THAT IN THE INTEREST OF JUSTICE AND FAIR PLAY, THE ISSUE BE REMITTED TO THE FILE OF A.O. FOR VERIFICATION. WE THEREFORE DIRECT ACCORDINGLY. NEEDLESS THE SAY T HAT THE ASSESSEE WILL COOPERATE FULLY WITH THE A.O. IN PROVIDING ALL THE NECESSARY DETAILS CALLED FOR BY HIM FOR VERIFICATION. THE AO SHALL GRANT REASONA BLE OPPORTUNITY OF HEARING TO THE ASSESSEE. THIS GROUND OF THE ASSESSE E IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. .GR. NO. 4: ADDITION OF RS 4,53,441/- IN RESPECT O F SHILALEKH PROJECT: ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 12 18. SCRUTINY OF THE DETAILS BY THE AO REVEALED THAT THE ASSESSEE HAS NOT OFFERED ANY INCOME IN RESPECT OF SHILALEKH PROJECT. IT WAS INFORMED BY THE ASSESSEE THAT IN ACCORDANCE WITH THE TERMS OF DEVEL OPMENT AGREEMENT, THE PROJECT WAS CONSISTENTLY IN DEFICIT AND THEREFORE T HE ASSESSEE WAS NOT ENTITLED TO RECEIVE ANY REMUNERATION OR ORGANISING FEE. THE AUDITORS OF THE ASSESSEE HAVE ALSO RECEIVED DEFICIT IN THE PROJECT AND HAVE QUALIFIED THEIR REPORT TO THE EXTENT THAT THE AMOUNTS SHOWN RECEIVA BLE AGAINST THE INCOMES OFFERED ARE NOT LIKELY TO BE REALISED IN FUTURE. TH E ASSESSEE FURTHER SUBMITTED THAT CONSIDERING THE QUANTUM OF PROPOSED ADDITION WHICH WAS TO THE EXTENT OF RS 4,53,441/-, THE ASSESSEE AGREED TO IT AT THE TIME OF ASSESSMENT PROCEEDINGS. THE A.O. MADE THE AFORESAID ADDITION FOR THE REASON THAT THE ASSESSEE HAD HIMSELF ADMITTED THAT THE PROJECT IS IN SURPLUS BASED ON THE QUERY RAISED DURING AY 1997-98. CIT (A ) ALSO AFFIRMED THE ACTION OF THE A.O. FOR THE REASON THAT THE ASSESSEE HIMSELF OFFERED THE INCOME FOR TAX. AGAINST THE ORDER OF THE CIT (A), T HE ASSESSEE IS NOW IN APPEAL BEFORE US. 19. AT THE OUTSET, THE LD. A.R. SUBMITTED THAT SIMI LAR ISSUES IN THE ASSESSEES OWN CASE HAVE BEEN DECIDED IN ASSESSEES FAVOUR BY HONBLE ITAT IN ITA NOS 167, 169 AND 170/AHD/003 FOR AY 199 6-97 TO AY 1999- 2000. HE PLACED ON RECORD THE COPIES OF THE AFORESA ID ORDERS (AT PAGE 315- 323, 324-333 * 338-342). HE THUS URGED THAT FOLLOWI NG THE EARLIER ORDERS OF CO-ORDINATE BENCH. THIS GROUND OF APPEAL BE ALLOWED . ON THE OTHER HAND THE LD. D. R. DID NOT SERIOUSLY OBJECT TO IT. ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 13 20. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE FACTUAL POSITION IS THAT THE A.O. DID N OT ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE PROJECT WAS STILL IN DEFICIT BECAUSE THE ASSESSEE HAD ADMITTED IN THE LETTER SUBMITTED TO DCIT FOR AY 199 7-98 THAT IF THE INTEREST IS REALLOCATED WITHOUT CONSIDERING THE REMUNERATION ON THE PROJECT, THE PROJECT TURNS INTO A SURPLUS IN THAT YEAR. AGAINST THE AFOR ESAID ADDITION, THE ASSESSEE PREFERRED APPEAL; BEFORE ITAT. THE CO-ORDI NATE BENCH OF AHMEDABAD TRIBUNAL IN ITA NO 170/AHD/2003 (FOR A.Y. 1999-2000) VIDE ORDER DATED 21.9.2007 ALLOWED THE APPEAL BY HOLDING AS UNDER: 25. GROUND NO.7 IS REGARDING EXCLUSION OF INCOME O F RS.87,90,686/- FROM THE RETURNED INCOME. BRIEF FACTS ARE THAT THE REQUEST OF THE ASSESSEE FOR EXCLUSION OF INCOME OF SHILALEKH PROJE CT AT RS.1,07,49,031/- WAS DENIED BY THE A.O. VIDE PARA 3.7 OF HIS ORDER ASSESSEE HAD SHOWN DEVELOPMENT INCOME BY WAY OF REM UNERATION AND ORGANIZING FEE FOR SHILALEKH PROJECT IN THE BOO KS AS WELL AS IN THE RETURN OF INCOME, BUT CLAIMED IN THE ASSESSMENT PRO CEEDINGS THAT THIS INCOME WAS HYPOTHETICAL INCOME NOT LIABLE TO BE TAX ED. A.O. WAS NOT SATISFIED OF THE REPLIES OF THE ASSESSEE AND TAXED THE INCOME IN THE HANDS OF THE ASSESSEE. IN APPEAL, CIT (A) AFTER CON SIDERING THE REMAND REPORT OF THE A.O. REVISION ORDER PASSED UND ER SECTION 264 BY CIT-II, AHMEDABAD, ORDER GIVING EFFECT TO REVISI ON ORDER BY THE A.O. VIEWED THAT SHILALEKH PROJECT WAS IN DEFICIT U PTO 31-3-2001, AND THEREFORE, ASSESSEE HAD NO OCCASIONS TO MAKE ANY PR OFIT OR EARN ANY INCOME FROM THE PROJECT FOR THE YEAR UNDER CONSIDER ATION. THE CIT-II, AHMEDABAD HAS EXAMINED THIS ISSUE IN REVISION PROCE EDINGS AND HELD THAT INCOME CREDITED IN THE BOOKS OF ACCOUNTS ARE HYPOTHETICAL IN NATURE FOR THE SHILALEKH PROJECT. HENCE, THE CIT (A ) ALLOWED THE CLAIM OF THE ASSESSEE FOR EXCLUSION OF INCOME OF RS.87,90 ,686/- FOR THE YEAR UNDER APPEAL, AS PER THE CHARTERED ACCOUNTANT CERTI FICATE. 26. LD. D.R. RELIED ON THE ORDER OF A.O. WHILE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE CIT (A) AND CONTENDS THAT TH IS ISSUE WAS SIMILAR TO GROUND NO.4 IN ITA NO.167/AHD/2003 AND T HEREFORE, ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 14 REITERATES THE SAME CONTENTIONS MADE IN A.Y. 1996-9 7, AND THE SAME BE DECIDED ACCORDINGLY. 27. AFTER HEARING THE RIVAL SUBMISSIONS, WE FIND TH AT THE ISSUE INVOLVED IN THIS GROUND NO.4 IN ITA NO.167/AHD/2003 IN THE CASE OF THE ASSESSEE. THE FACTS AND CIRCUMSTANCES BEING IDE NTICAL, WE FOLLOWING OUR ORDER IN THE SAID APPEAL, DISMISS THI S GROUND OF APPEAL OF THE REVENUE. 21. WE FIND THAT THE ISSUE INVOLVED IN THE PRESENT GROUND IS SIMILAR TO THAT OF GROUND NO 7 OF ITA NO 170/AHD/2003. SINCE THE FA CTS AND ISSUES INVOLVED IN THE PRESENT APPEAL ARE IDENTICAL TO THA T OF A.Y. 1999-2000, WE FOLLOWING THE ORDER OF THE CO-ORDINATE BENCH, ALLOW THE GROUND OF THE ASSESSEE. THUS THIS GROUND OF THE ASSESSEE IS ALLO WED. 22. GR. NO 5: NOT GRANTING CARRY FORWARD OF SPECULA TIVE CAPITAL LOSS OF RS.1,44,69,500/-. 23. BEFORE CIT (A) THE ASSESSEE CONTENDED THAT THE A.O. HAS NOT GRANTED CARRY FORWARD OF SPECULATIVE LOSS OF RS 1,44,69,500 /- DESPITE THE FACT THAT THE ASSESSEE HAD FILED ITS RETURN OF INCOME WITHIN THE TIME STIPULATED UNDER THE PROVISIONS OF SECTION 139(1) OF THE ACT. CIT (A ) DIRECTED THE A.O. TO GO THROUGH THE CLAIM OF THE ASSESSEE AND TAKE ACTION A S PER LAW. 24. BEFORE US IT WAS CONTENDED BY THE LD. A.R. THAT THE A.O. IS YET TO GIVE EFFECT TO THE ORDER OF CIT (A). HE THEREFORE URGED THAT SUITABLE DIRECTIONS BE GIVEN TO THE AO. THE LD. D.R. DID NOT SERIOUSLY OBJ ECT TO THE CONTENTIONS OF THE A.R. ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 15 25. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. FROM THE ORDER OF CIT (A) IT IS SEEN THAT C IT (A) DIRECTED THE A.O. TO VERIFY THE CLAIM OF THE ASSESSEE AND DEAL AS PER TH E PROVISIONS OF ACT. IT APPEARS THAT THE DIRECTIONS HAVE YET TO BE COMPLIED WITH. WE THEREFORE DIRECT THE A.O. TO VERIFY THE FACTS AND IF THE DIRE CTIONS OF CIT (A) HAVE NOT BEEN COMPLIED, THE A.O. SHOULD TAKE NECESSARY STEPS FOR ITS EARLY COMPLIANCE. THUS THIS GROUND OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES. 26. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. I.T.A. NO.1609/AHD/2005 AY 2001-02 GR. NO 1: DELETION OF ADDITION MADE U/S 41(1). 27. THE A.O. OBSERVED THAT THERE WERE SEVERAL PARTI ES APPEARING AS SUNDRY CREDITORS SINCE MANY YEARS. HE ACCORDINGLY H ELD THAT THE ASSESSEE HAS CEASED ITS LIABILITY TO PAY TO CREDITORS WHICH WERE OUTSTANDING IN THE BOOKS FOR MORE THAN 3 YEARS AND HAD NOT REPORTED AN Y TRANSACTIONS. HE ACCORDINGLY ADDED RS.16,13,965 U/S 41(1). CIT (A) D ELETED THE ADDITION BY HOLDING THAT THE PROVISIONS OF S. 41(1) ARE NOT ATT RACTED IF ENTRY FOR WRITING OFF THE LIABILITY IS NOT MADE IN THE BOOKS OF ACCOUNTS. AGGRIEVED BY THE ACTION OF CIT (A), THE REVENUE IS IN APPEAL BEFORE US. ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 16 28. BEFORE US THE LD. D.R. RELIED ON THE ORDER OF T HE A.O. ON THE OTHER HAND, THE LD. A.R. SUBMITTED THAT PROVISIONS OF SEC TION 41(1) ARE NOT APPLICABLE AS THE ASSESSEE ACKNOWLEDGES ITS LIABILI TY TO PAY AND HAS NOT WRITTEN BACK THE LIABILITY IN THE BOOKS OF ACCOUNTS . HE FURTHER SUBMITTED THAT SIMILAR ADDITION MADE IN AY 2000-01 WERE DELETED BY CIT(A) AND THE REVENUE HAS NOT PREFERRED ANY APPEAL. 29. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACT IS THAT THE ASSESSEE HA S SHOWN THE AMOUNT AS SUNDRY CREDITORS IN ITS BALANCE SHEET AND ACCORDING LY IT ACKNOWLEDGES ITS LIABILITY TO PAY. THE ASSESSEE HAS NOT WRITTEN BACK THE LIABILITY IN ITS BOOKS. THE LIABILITIES IN QUESTION HAVE NOT CEASED TO EXIS T. THE A.O. HAS NOT DOUBTED THE EXISTENCE OF THE PARTIES. THE REVENUE D OES NOT HAVE ANY MATERIAL OR EVIDENCE TO SUBSTANTIATE THAT THE PARTI ES HAVE GIVEN UP THEIR CLAIM AGAINST THE ASSESSEE. THESE FACTS HAVE NOT BE EN CONTROVERTED BY THE REVENUE NOR HAVE THEY BROUGHT ON RECORD ANY MATERIA L TO THE CONTRARY. IN VIEW OF THESE FACTS WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF CIT (A) AND THEREFORE AFFIRM HIS ACTION. IN THE RESULT THIS GRO UND OF THE REVENUE IS DISMISSED. 30. GR. NO 2: DELETION OF ADDITION OF RS 53,85,475/ - WITH REGARD TO RAJIV TRADERS PVT LTD. 31. THE ASSESSEE HAD WRITTEN OFF RS 53,85,475/- BEI NG THE AMOUNT RECOVERABLE FROM RAJIV TRADERS PVT LTD (A COMPANY U NDER THE SAME MANAGEMENT). THE A.O. DISALLOWED THE CLAIM ON THE G ROUND THAT THE ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 17 ASSESSEE FAILED IN GIVING JUSTIFICATION FOR NON REC OVERY OF AMOUNT AND ALSO FOR THE REASON THAT THE ASSESSEE HAD NOT FURNISHED DOCUMENTARY EVIDENCE TO SUBSTANTIATE THAT THE NET WORTH OF RAJIV TRADERS WAS NOT CAPABLE TO MEET THE LIABILITY. THE ASSESSEE APPEALED BEFORE CIT (A) . CIT (A) ALLOWED THE APPEAL OF THE ASSESSEE BY HOLDING AS UNDER: 5.2. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, FINDINGS OF THE A.O. IN THE ASSESSMENT ORDER, SUBMISSIONS OF THE AP PELLANT AND AUTHORITIES RELIED UPON. I FIND THAT SURYAMANI PROJ ECT WAS UNDERTAKEN IN THE NORMAL COURSE OF BUSINESS OF DEVELOPMENT OF PROPERTIES AND REAL ESTATE AND AS SUCH ANY LOSS BORNE IN THE COURS E OF BUSINESS IS ALLOWABLE AS BUSINESS LOSS. I FIND THAT DECISION RE LIED UPON ARE SQUARELY APPLICABLE ON THE FACTS OF THE CASE. UNDER THESE CIRCUMSTANCES, I HAVE NO OPTION BUT TO GRANT DEDUCT ION OF RS.53,85,474/- AS BUSINESS LOSS. THE APPELLANT SUCC EEDS IN THIS GROUND OF APPEAL. THE A.O. IS DIRECTED TO DELETE TH E DISALLOWANCE SO MADE. 32. AGGRIEVED BY THE ORDER OF THE CIT (A), THE REVE NUE IS NOW IN APPEAL BEFORE US. 33. BEFORE US, THE LD. D.R. RELIED ON THE ORDER OF THE AO. ON THE OTHER HAND, THE LD. A.R. SUBMITTED THAT THE FACTS ARE THA T ONE LAND WAS OWNED BY M/S. RAJEEV TRADERS PVT. LTD. NEAR OFF C.G. ROAD, AHMEDABAD. THE ASSESSEE COMPANY FOR DEVELOPING THE SAME ACQUIRED T HE SAID LAND BY ACQUIRING THE ENTIRE SHARE CAPITAL TOGETHER WITH TH E GROUP CONCERNS AND ITS DIRECTORS IN THE EARLIER YEARS. THE ENTIRE AMOUNT W AS INVESTED IN THE SAID LAND FOR DEVELOPMENT AND IN ANNOUNCING THE SURYAMAN I PROJECT THEREON. THE TOTAL CONSTRUCTION EXPENSES TOGETHER WITH REMUN ERATIONS ADDED THEREON WERE OFFERED AS WORK IN PROGRESS FOR TAXATI ON IN THE EARLIER YEARS BY ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 18 CREDITING THE SAME TO THE PROFIT AND LOSS ACCOUNT. PENDING FORMATION OF SOCIETY/.NTC THIS AMOUNT OF WORK IN PROGRESS WAS DE BITED TO THE ACCOUNT OF RAJEEV TRADERS PVT. LTD. SUBSEQUENTLY, DUE TO CHANG ES IN THE GOVERNMENT POLICY AND THE PATTERN OF APPROVING THE PLANS ETC, THE SAID PROJECT WAS ABANDONED AND DISPOSED OFF TO THE OUTSIDE PARTY BY TRANSFERRING THE ENTIRE SHARE HOLDING OF RAJEEV TRADERS PVT. LTD. TO THE OU TSIDE PARTY. AT THE TIME OF TRANSFER OF THE PROJECT IN AN ABANDONED POSITION TO TAL AMOUNT RECEIVABLE IN THE NATURE OF WORK IN PROGRESS COMPRISING OF CONSTR UCTION COST AND INCOME ACCOUNTED THEREON WAS AT RS.1,13,85,474/-.AGAINST T HIS AMOUNT ONLY RS.60,00,000/- HAVE BEEN REALIZED AND THE REST OF T HE AMOUNT BEING UNRECOVERABLE HAS BEEN WRITTEN OFF AS BAD DEBTS. TH E ACTUAL AMOUNT WRITTEN OFF IN THE PROFIT AND LOSS ACCOUNT IS THEREFORE WOR KS OUT TO RS.53,85,474/-. THIS AMOUNT IS REQUIRED TO BE ALLOWED AS BAD DEBT A S THE SAID AMOUNT WAS DISCLOSED IN THE BOOKS AS SUNDRY DEBTORS IN EARLIER YEARS. ALTERNATIVELY, THE SAID AMOUNT IS ALLOWABLE AS BUSINESS LOSS BEING GEN ERATED DURING THE COURSE OF NORMAL BUSINESS ACTIVITY OF REAL ESTATE D EVELOPMENT BEING CARRIED OUT BY THE COMPANY. 34. THE LD. A.R. FURTHER SUBMITTED THAT THE LOSS ON SALE OF SHARES OF RAJIV TRADERS P LTD HAS BEEN ALLOWED AS BUSINESS LOSS BY HONBLE ITAT IN AY 1998-99 IN ITA NO 169/AHD/2003. HE PLACED ON RECORD AT PAGE 334 TO 337 OF PAPER BOOK THE COPY OF THE ORDER OF TRIBUNAL. HE THUS URGED THAT IN VIEW OF THE FACTS, THE CIT (A) HAS RIGHTLY DELETED THE A DDITION MADE BY THE A.O. AND THE SAME BE UPHELD. ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 19 35. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACT IS THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS REAL ESTATE DEVELOPERS AND CIVIL CONTRACTORS. A PIE CE OF LAND WAS OWNED BY RAJIV TRADERS PVT LTD. THE ASSESSEE FOR DEVELOPING THE SAID LAND ACQUIRED THE ENTIRE SHARE CAPITAL OF RAJIV TRADERS PVT LTD. SUBSEQUENTLY, THE SAID PROJECT WAS ABANDONED AND DISPOSED OFF BY TRANSFERR ING THE ENTIRE SHARE HOLDING OF RAJEEV TRADERS. AT THE TIME OF TRANSFER OF THE PROJECT, THE TOTAL AMOUNT RECEIVABLE IN THE NATURE OF WORK IN PROGRESS COMPRISING OF CONSTRUCTION COST AND INCOME ACCOUNTED THEREON WAS RS. 1,13,85,474/-. THE TOTAL CONSTRUCTION EXPENSES TOGETHER WITH REMUN ERATION ADDED WAS OFFERED AS WORK IN PROGRESS AND CREDITED TO PROPFIT AND LOSS ACCOUNT AND WAS THUS OFFERED TO TAX. AGAINST THIS AMOUNT, ONLY RS 60,00,000/- WAS REALISED AND THE BALANCE AMOUNT OF RS 53,85,475/- W AS WRITTEN OFF. THE CO- ORDINATE BENCH OF TRIBUNAL HAS ALSO ALLOWED THE LOS S ON SALE OF SHARES AS BUSINESS LOSS WHILE DECIDING THE APPEAL FOR AY 1998 -99. THESE FACTS HAVE NOT BEEN CONTROVERTED BY THE REVENUE NOR HAVE THEY BROUGHT ANY MATERIAL ON RECORD TO REBUT IT. IN VIEW OF THESE CIRCUMSTANC ES, WE ARE OF THE CONSIDERED VIEW THAT NO INTERFERENCE IS CALLED FOR TO THE ORDER OF CIT (A). WE ACCORDINGLY UPHOLD HIS ORDER AND THEREFORE THIS GROUND OF THE REVENUE IS DISMISSED. GR. NO 3: CLAIM OF BAD DEBTS OF RS 495899/- AND BUS INESS LOSS OF RS 1,76,004/-. GR. NO 4 : ADDITIONAL GROUND ON BAD DEBTS OF RS. 3, 93,750/-. ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 20 36. SINCE GROUND NO 3 AND 4 ARE INTERRELATED THE SA ME ARE DISPOSED OFF TOGETHER. 37 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO OBSERVED THAT THE ASSESSEE HAS CLAIMED BAD DEBTS/ BUSINESS LOSS W ITH RESPECT TO SHIROMANI BUNGLOW. THE ASSESSEE SUBMITTED THAT INTE REST INCOME OF RS 4,95,899/- WAS OFFERED FOR TAXATION IN RESPECT OF A DVANCE GIVEN TO B. NANJI FINANCE LTD IN AY 1998-99 WHICH COULD NOT BE REALI SED AND THE AMOUNT OF RS 1,76,004 REPRESENTED THE AMOUNT WHICH WAS NOT AC CEPTED BY B. NANJI GROUP WHILE EXECUTING THE LAND CANCELLATION AGREEME NT. THE AO DID NOT ALLOW THE DEDUCTION FOR THE REASON THAT THE ASSESSE E COULD NOT ADDUCE ANY DOCUMENTARY EVIDENCE TO SHOW THAT RS 4,95,899/- WAS OFFERED FOR TAX IN AY 1998-99. RS 1,76,004/- WAS DISALLOWED BY THE A.O. F OR THE REASON THE ASSESSEE COULD NOT ADVANCE ANY JUSTIFIABLE REASON T O ALLOW THE SAME AS BUSINESS LOSS. AGGRIEVED BY THE ORDER OF THE A.O. T HE ASSESSEE PREFERRED APPEAL BEFORE CIT (A). BEFORE CIT (A), ASSESSEE ALS O RAISED ADDITIONAL GROUND FOR CLAIMING DEDUCTION OF RS 3,93,750/- ON T HE GROUND THAT THE DEDUCTION WAS NOT GRANTED IN AY 1999-2000 THOUGH TH E AMOUNT WAS ACTUALLY WRITTEN OFF. CIT (A) ALLOWED THE RELIEF TO THE ASSESSEE BY HOLDING AS UNDER: 6.2. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, FINDINGS OF THE A.O. IN THE ASSESSMENT ORDER, SUBMISSIONS OF THE AP PELLANT AND AUTHORIZED OFFICER IN THE ASSESSMENT ORDER, SUBMISS IONS OF THE APPELLANT AND AUTHORITIES RELIED UPON. I FIND THAT SHIROMANI BUNGALOW PROJECT WAS UNDERTAKEN IN THE NORMAL COURSE OF BUSI NESS OF DEVELOPMENT OF PROPERTIES AND REAL ESTATE AND AS SU CH ANY LOSS BORNE IN THE COURSE OF BUSINESS IS ALLOWABLE IS ALL OWABLE AS BUSINESS LOSS. I FIND THAT APPELLANT HAD OFFERED INTEREST IN COME OF RS.4,95,899/- ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 21 AND RS.3,93,750/- IN A.Y. 1998-99 AND A.Y. 1999-00. WRITTING OFF OF THESE AMOUNTS IN THE BOOKS DUE TO NON-REALIZATION I S CERTAINLY IN THE NATURE OF BAD DEBTS AND AS SUCH APPELLANT IS ENTIT LED TO CLAIM THE SAME AS BAD DEBTS. THE A.O. IS THEREFORE DIRECTED T O GRANT DEDUCTION OF RS.8,89,649/-.AS REGARDS REMAINING AMOUNT OF RS. 1,76,004/- IS CONCERNED, I FIND THAT THE SAME HAS ARISEN IN THE C OURSE OF BUSINESS OF DEVELOPMENT OF PROPERTIES AND REAL ESTATE AND AS SUCH IS ALLOWABLE AS BUSINESS LOSS. THE A.O. IS THEREFORE, DIRECTED T O GRANT DEDUCTION OF RS.1,76,004/- AS BUSINESS LOSS. IN THE RESULT APPEL LANT GETS RELIEF OF RS.10,65,653/- AGAINST THESE GROUNDS OF APPEAL. 38. AGGRIEVED BY THE ORDER OF CIT (A), THE REVENUE IS IN APPEAL BEFORE US. 39. LD. D.R. SUBMITTED THAT BEFORE A.O. THE ASSESSE E DID NOT FURNISH NECESSARY EVIDENCE TO PROVE THAT THE AMOUNT WAS OFF ERED AS INCOME IN EARLIER YEARS. THE ASSESSEE HAS NOT BROUGHT ANYTHIN G ON RECORD TO JUSTIFY ITS STAND. WITH RESPECT TO THE CLAIM OF RS 3,93,750/- M ADE BEFORE CIT(A), IT WAS SUBMITTED THAT THE CLAIM WAS MADE FIRST TIME BE FORE THE CIT(A). NO SUCH CLAIM HAS BEEN MADE BEFORE A.O. IT WAS THEREF ORE URGED THAT THE RELIEF GRANTED BY CIT (A) BE QUASHED. IN THE ALTERN ATE IT WAS SUBMITTED THAT THE MATTER BE SENT BACK TO THE FILE OF A.O. FOR VER IFICATION. THE LD. A.R. DID NOT OBJECT TO THE PLEA OF SENDING THE MATTER TO THE FILE OF A.O. FOR VERIFICATION. 40. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE S CLAIM WAS NOT ALLOWED BY THE A.O. FOR THE REASON THAT THE ASSESSEE DID NO T ADDUCE NECESSARY EVIDENCE TO PROVE THAT THE AMOUNT THAT WAS BEING WR ITTEN WAS IN THE PAST ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 22 OFFERED TO TAX. EVEN THE ADDITIONAL CLAIM WAS MADE BEFORE THE CIT (A) FOR THE FIRST TIME AND THE A.O. DID NOT HAD AN OPPORTUN ITY TO VERIFY IT. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT IN THE INTER EST OF JUSTICE AND FAIR PLAY, THE MATTER BE REMITTED TO THE FILE OF A.O. FO R VERIFICATION. WE ACCORDINGLY DIRECT IT TO THE FILE A.O. WITH A DIREC TION TO VERIFY THE CLAIM OF THE ASSESSEE AND ALLOW AS PER LAW. THE A.O. SHALL GRANT DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESSEE SHALL ALSO CO OPERATE AND FURNISH ALL THE REQUIRED AND NECESSARY DETAILS CALLED FOR BY TH E A.O. IN THE RESULT THIS GROUND OF THE REVENUE IS ALLOWED FOR STATISTICAL PU RPOSES. 41. GR. NO 5: LOSS OF RS 13,98,938 ON ACCOUNT OF NO N RECOVERY OF AMOUNTS ADVANCED TO LEASE HOLDERS OF GRANITE MINES 42. THE A.O OBSERVED THAT THE ASSESSEE HAS WRITTEN OFF AGGREGATE AMOUNT OF RS 13,98,938/- . THE AMOUNT REPRESENTED A DVANCE GIVEN TO THE HOLDERS OF GRANITE MINE LEASE. THE ASSESSEE HAD WRI TTEN OFF THE AMOUNT AS IT COULD NOT RECOVER THE AMOUNTS FROM THE PARTIES. THE A.O. WAS OF THE VIEW THAT THE LOSS WAS OF CAPITAL IN NATURE AND THEREFOR E NOT ALLOWABLE. HE ACCORDINGLY DISALLOWED IT AS CAPITAL LOSS. AGGRIEVE D, THE REVENUE PREFERRED APPEAL BEFORE CIT (A). CIT (A) DELETED THE ADDITION BY HOLDING AS UNDER: 9.1. IN THE COURSE OF APPELLATE PROCEEDINGS, LD. A .R. OF THE APPELLANT SUBMITTED THAT THE APPELLANT IS IN THE BUSINESS OF PROPERTY DEVELOPMENT AND REAL-ESTATE BUSINESS. GRANITE BEING ONE OF THE RAW MATERIAL USED IN THE CONSTRUCTION, LOSS ARISING ON ACCOUNT OF NON RECOVERY OF THE ADVANCES GIVEN TO THE MINE OWNERS I S ON BUSINESS ACCOUNT AND AS SUCH IS ALLOWABLE AS BUSINESS LOSS. ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 23 9.2. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, FINDINGS OF THE A.O. IN THE ASSESSMENT ORDER, SUBMISSIONS OF THE AP PELLANT. I FIND THAT WRITING OFF OF THE NON-RECOVERED ADVANCES GIVEN IN THE COURSE OF BUSINESS AND FOR PURPOSE OF BUSINESS CANNOT BE SAID TO BE CAPITAL IN NATURE, THE SAME IS SQUARELY ALLOWABLE AS BUSINESS LOSS. THE A.O. IS DIRECTED TO GRANT DEDUCTION OF THE SAME. 43 AGGRIEVED BY THE DECISION OF CIT (A), REVENUE IS IN APPEAL BEFORE US. BEFORE US, THE LD D.R. RELIED ON THE ORDER OF THE A .O. ON THE OTHER HAND THE LD. A.R. RELIED ON THE ORDER OF THE CIT (A). HE ALS O PLACED ON RECORD AT PAGE 198 TO 203 OF THE PAPER BOOK THE COPY OF LEDGER ACC OUNT. HE URGED THAT CIT (A) HAS RIGHTLY DELETED THE ADDITION MADE. 44. WE HAVE HEARD THE RIVAL CONTENTION MADE AND PER USED THE MATERIAL ON RECORD. THE UNDISPUTED FACT IS THAT THE ASSESSEE IS ALSO IN THE GRANITE BUSINESS. THE AMOUNT WAS GIVEN AS ADVANCE TO THE HO LDERS OF GRANITE MINES FROM WHOM IT USED TO PURCHASE GRANITES. THE A MOUNT WAS ADVANCED IN THE NORMAL COURSE OF BUSINESS. THE AMOUNT OF WRI TE OFFS WERE OF THE ADVANCES GIVEN IN THE NORMAL COURSE OF BUSINESS. TH E ASSESSEE HAD ALSO MADE PURCHASES FROM THESE PARTIES IN THE PAST. THES E FACTS HAVE NOT BEEN DISPUTED BY THE REVENUE NOR HAVE THEY BROUGHT ANY M ATERIAL TO THE CONTRARY ON RECORD. IN VIEW OF THESE FACTS WE ARE O F THE VIEW THAT THE CIT (A) HAS RIGHTLY DELETED THE ADDITION MADE. WE THERE FORE DO NOT FEEL NECESSARY TO INTERFERE WITH HIS ORDER. ACCORDINGLY THE GROUND OF THE REVENUE IS DISMISSED. 45. GR. 6 & 7: GENERAL IN NATURE AND HENCE NOT ADJU DICATED. THUS, THE APPEAL OF THE REVENUE IS PARTLY ALLOWED. ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 24 46. IN RESULT THE APPEALS OF ASSESSEE AND REVENUE A RE PARTLY ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 13 - 7- 2012. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) III, AHMEDABAD. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD. ITA NO.1 607 & 1609/AHD/2005 ASSESSME NT YEAR 2001-02 . 25 1.DATE OF DICTATION 2 - 7 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 9 -10 / 7 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S 10 - 7 -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 13 - 7 -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 13 -7 -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 1 3 - 7 -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..