Surya Merchants Ltd., New Delhi V. DCIT, Ghaziabad

ITA 165/DEL/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 3537 (ITAT-DELHI)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 17-04-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 10-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BEDOBANI CHAUDHURI
• Assessee Lawyers: C S AGGARWAL SR SHRI R P MALL
• Keywords: Capital asset
• Section: 37(1); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH SMC NEW DELHI BEFORE SHRI B.P. JAIN, ACCOUNTANT MEMBER ITA NO.165/DEL/2016 ASSESSMENT YEARS 2013-14 SURYA MERCHANTS LTD. 1010, FAIZ ROAD, KAROL BAGH, NEW DELHI. PAN: AAFCS 9517A VS. DY. COMMISSIONER OF INCOME TAX, (CENTRAL CIRCLE), GHAZIABAD. (APPELLANT) (RESPONDENT) REVENUE BY : MS. BEDOBANI CHAUDHURI, SR.D.R. ASSESSEE(S) BY : SHRI C.S. AGGARWAL, SR.ADVOCATE, SHRI R.P. MALL, ADVOCATE. / DATE OF HEARING : 17/04/2017 / DATE OF PRONOUNCEMENT: 18/04/2017 ORDER THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-IV, KANPUR DATED 28.10.2016 FOR ASSESSMENT Y EAR 2013-14. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE LEARNED CIT(A)-IV, KANPUR HAS ERRED IN SUSTAINING AND CONFIRMING THE A DDITION MADE BY AO ON ACCOUNT OF FORFEITUR E OF EARNEST MONEY OF RS.1,50,00,000/- GIVEN FOR PURC HASE OF BUILDING BY THE APPELLANT FOR ITS BUSINESS PURPOSES . 2. THAT ON THE FACT AND IN THE CIRCUMSTANCES OF THE CA SE LEARNED CIT(A)-IV, KANPUR HAS ERRED IN UPHOLDING THE ADDITION MADE BY AO ON A CCOUNT OF FORFEITURE OF EARNEST MONE Y OF RS . 1,50,00,000/- ALLEGING THAT THERE IS A POSSIBILITY OF PURCHASEOF C ONSTRUCTED BUILDING FOR OWN MOU. 4.THAT ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE LEARNED CIT(A)-IV, KANPUR HAS ERRED IN UPHOLDING THE ADDITION ON ACCOUNT OF F ORFEITURE OF EARNEST MONEY OF RS . 1,50,00,000/- ALLEGING THAT THE PAYMENT WAS MADE FO R ACQUIRING THE CAPITAL ASSET AS SUCH WHICH CAN-NOT BE ALLOWED AS EXPENSES. 5.THAT ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE LEARNED CIT(A)-IV, KANPUR HAS ERRED IN UPHOLDING THE ADDITION ON ACCOUNT OF F ORFEITURE OF EARNEST MONEY OF RS . 1,50,00,000/- THAT THE CASES RELIED UPON BY APPELLA NT ARE DISTINGUISHABLE FROM THE FACTS OF APPELLANT CASE . ITA NO.165/DEL/2016 2 6. THAT ON THE FACT AND IN THE CIRCUMSTANCES OF THE CASE LEARNED CLT(A)-IV, KANPUR HAS ERRED IN UPHOLDING THE ADDITION ON ACCOUNT OF F ORFEITURE OF EARNEST MONEY OF RS. 1,50,00,000/- ALLEGING THAT APPELLANT COULD NOT PRO VE THAT THE APPELLANT IS ENGAGED IN TRADING IN BUILDING. 7. THAT THE APPELLANT CRAVES LIBERTY TO ADD, ALTER OR VARIES ANY GROUND OF APPEAL EITHER BEFORE OR AT THE TIME OF HEARING. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E ENTERED INTO MOU WITH THE SELLER FOR THE PURCHASE OF BUILDING AND DEPOSIT ED RS.1.5 CRORE AS EARNEST MONEY WHICH IN FACT WAS FORFEITED BY THE SELLER AND THE AO TREATED THE SAME AS EXPENDITURE OF CAPITAL IN NATURE, AGAINST THE TR EATMENT DECLARED BY THE ASSESSEE AS REVENUE IN NATURE. 4. THE CIT(A) HAS CONFIRMED THE ACTION OF THE AO. 5. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE FACTS OF THE CASE. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF REAL EST ATE WHICH IS EVIDENT FROM THE MAIN OBJECTS CLAUSES PLACED ON RECORD AND AS PE R FINAL ACCOUNTS PLACED BEFORE ME. THERE IS NO DOUBT TO THE FACT THAT THE A SSESSEE IS CARRYING OUT THE REAL ESTATE BUSINESS AND ALSO DEALING IN LANDS, HOU SES, BUILDINGS, SHEDS AND OTHER FIXTURE ETC. WHICH IS APPARENT FROM MAIN OBJE CT NO.2 AVAILABLE AT PAPER BOOK 113. THE AO COULD NOT BRING ON RECORD ANY MATE RIAL OR COGENT EVIDENCE TO PROVE THAT THE SAID PURCHASE WAS MEANT FOR PERSONAL IN NATURE WHO IN FACT HAS IGNORED THE MAIN OBJECTS OF THE ASS ESSEE AS WELL AS THE ACTUAL ACTIVITIES BEING CARRIED OUT BY THE ASSESSEE. 6. LEARNED CIT(A) HAS DELIVERED THE DECISION ON THE BASIS OF POSSIBILITY OF PURCHASE OF CONSTRUCTED BUILDING FOR OWN PURPOSE OF THE ASSESSEE WITHOUT ANY COGENT EVIDENCE OR MATERIAL ON RECORD BUT ONLY ON THE BASIS OF SURMISES AND CONJECTURES. IT IS NOT DISPUTED THAT ASSESSEE F AILS TO MAKE THE PAYMENT WITHIN STIPULATED PERIOD AND EXTENDED PERIOD AS AGR EED AND THEREFORE SUCH ADVANCE IN FACT IS OF THE REVENUE IN NATURE AND CAN NOT BE CALLED OF CAPITAL IN ITA NO.165/DEL/2016 3 NATURE. THE RELIANCE HAS BEEN PLACED BY THE LEARNED COUNSEL FOR THE ASSESSEE ON THE DECISION OF VARIOUS COURTS OF LAW AS UNDER: 1. NEW DELHI HOTELS LTD. REPORTED IN [2012] 23 TAXMANN .COM 456 (DELHI) WHERE THE RELEVANT FACTS AND DECISION OF TH E HONBLE JURISDICTIONAL HIGH COURT IS REPRODUCED HEREINBELOW . '5. LEARNED COUNSEL FOR THE REVENUE HAS SUBMITTED T HAT IN THE END OF PARAGRAPH 18 THE TRIBUNAL HAS DRAWN AN ASSUMPTION WITHOUT ANY BASIS THAT THE INTENDED PURCHASE WAS IN THE COURSE OF BUSINESS OR AT BEST T HE PURCHASE WAS FOR A RESIDENCE OF ITS EMPLOYEES, INCLUDING DIRECTORS. WE ARE NOT I MPRESSED BY THE AFORESAID CONTENTION. T HE TRIBUNAL HAS REFERRED TO THE NATURE OF ACTIVITIE S UNDERTAKEN BY THE RESPONDENT-ASSESSEE , I . E., THE ASSESSEE WAS A REAL ESTATE COMPANY AND WAS A CONTRACTOR . THE TRIBUNAL REFERRED TO THE MEMORANDUM OF ASSOCIAT ION AND MENTIONED OTHER TRANSACTIONS OF SALE / PURCHASE IN WHICH THE ASSESSEE HAD TREATED IMMOVABLE PROPERTIES AS STOCK - IN - TRADE. THE HISTORY FOR THE BUSINESS TRANSACTIONS UNDERTAKEN BY THE ASSESSEE HAVE BEEN KEPT IN MIND. NO DOUBT, THE ASSESSEE ALSO HAD RENTAL INCOME BUT THIS FACTUM ALONE DOES NOT SH OW AND ESTABLISH THAT THE PROPERTIES , WHICH WERE BEING PURCHASED FROM M / S. GULMOHAR ESTATE LIMITED , WERE TO BE TREATED AS INVESTMENT AND NOT FOR THE PU RPOSE OF STOCK IN TRADE . THE TRIBUNAL THEREAFTER IN PARAGRAPHS 19 AND 20 HAS OBS ERVED AS UNDER:- '19. THE ID. CIT(A) HAS REJECTED THE ASSESSEE'S CLA IM OF BUSINESS LOSS MERELY BY OBSERVING AS UNDER:- '6.3 IT MAY ALSO BE MENTIONED HERE THAT THE APPE L LANT HAS NOT CLAIMED SUCH WRITTEN OFF AS BUSINESS LOSS EITHER IN THE RETURN O F INCOME FILED OR DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR APPEL L ATE PROCEEDINGS BEFORE ME THAT THE ADVANCE WAS MADE FOR THE PURCHASE OF STOCK - IN - TRADE OR THE AMOUNT WAS ADVANCED IN THE ORDINARY COURSE OF BUSIN ESS. IT IS ALSO OBSERVED FROM THE ASSESSMENT ORDER THAT APPELLANT H AS MADE INVESTMENT IN PROPERTIES AND HAS SHOWN LONG TERM CAPITAL GAIN ON SALE OF SUCH PROPERTY. IN VIEW OF THESE FACTS, APPELLANT'S CLAIM THAT HE AMOUNT WR ITTEN OFF MAY BE TREATED AS BUSINESS LOSS IS ALSO REJECTE D.' FROM THE SAID OBSERVATION OF THE ID . CIT(A), WE FIND THAT THE ID. CIT(A) WAS OF THE VIEW THE ASSESSEE FAILED TO PRODUCE ANY EVIDENCE THAT THE ADVANCE WAS MADE FOR THE PURPOSE OF STOCK IN TRADE OR THE AMOUNT WAS ADVANCED IN THE ORDINARY COURSE OF BUSINESS, WHICH IN OUR CONSIDERED OPINION , IS NOT CORRECT IN THE LIGHT OF THE SUBMISSIONS OF T HE ASSESSEE MADE BEFORE THE ID. CIT(A), WHICH HAS BEEN REPRODUCED BY THE ID. CIT(A) IN HIS ORDER AT PARA 5 OF HIS ORDER . IN THE AFORESAID SUBMISSION MADE BEFORE THE ID. CIT(A) , THE ASSESSEE CATEGORICALLY STATED THAT THE ASSESSEE WAS A CONSTRUCTION AND REAL ESTATE COMPANY PROMOTED BY SH RI RAM PRASAD JI IN 1968 , AND THE ASSESSEE IS PROMOTER AND DEVELOPER OF NEW D ELHI HOUSE AND MERCANTILE HOUSE AT NEW DELHI AND HERITAGE CITY AT GURGAON. THE DETAILS ABOUT THE AGREEMENT MADE DURING 1990 - 91 WERE ALSO GIVEN TO THE ID. CIT(A) . THE ID. CIT(A) HAS NOT STATED ANYTHING ADVERSE TO T HE ASSESSEE'S CONTENTION TO THE FACT THAT THE ASSESSEE IS PROMOTE R AND DEVELOPER OF NEW ITA NO.165/DEL/2016 4 DELHI HOUSE AND MERCANTILE HOUSE OF NEW DELHI AND H ERITAGE CITY AT GURGAON. THE ASSESSEE ALSO EXPLAINED BEFORE THE ID. CIT(A) THAT SINCE THE POSSESSION OF THE PROPOSED PROPERTY WAS NOT GIVEN T O THE ASSESSEE , THE PROPERTY COULD NOT BE SHOWN UNDER THE HEAD 'STOCK - IN-TRADE' BUT THE AMOUNT ADVANCED HAD TO BE SHOWN UNDER THE HEAD 'LOA NS AND ADVANCES' . 20. ONE MORE REASON GIVEN BY THE A . O. AS WELL AS BY THE ID. CIT(A) TO REJECT THE ASSESSEE'S CLAIM THAT FROM THE ASSESSMEN T ORDER , IT WAS OBSERVED THAT THE ASSESSEE MADE INVESTMENT IN PROPERTY AND H AS SHOWN LONG TERM CAPITAL GAIN ON SUCH PROPERTY. HOWEVER, THE ANSWER TO QUESTION WHETHER ANY PROPERTY PURCHASED BY THE ASSESSEE , WHO IS ALSO IN THE BUSINESS OF CONSTRUCTION AND SALE OF FLATS / PROPERTIES / HOUSING COMPLEX , IS ON INVESTMENT ACCOUNT OR ON TRADING ACCOUNT IS TO DETERMINED IN T HE LIGHT OF THE INTENTION OF THE ASSESSEE TO BE DECIDED UPON ON FACTS AND SUR ROUNDING CIRCUMSTANCES RELATING TO THE GIVEN PROPERTY IN QUESTION NO UNIFO RM OR ABSTRACT TEST CAN BE APPLIED TO ALL THE TRANSACTIONS CARRIED ON BY AN Y ASSESSEE. IT DEPENDS ON FACTS AND CIRCUMSTANCES OF ANY GIVEN TRANSACTION. W E, THEREFORE , HAVE TO DECIDE THE CONTROVERSY IN THE LIGHT OF THE FACTS RE LATING TO THE PROPERTY IN QUESTION AND THE INTENTION OF THE ASSESSEE WITH REG ARD TO THAT PROPERTY . IN THE LIGHT OF THE FACTS RELATING TO THE TRANSACTION IN QUESTION, WE HAVE ALREADY OBSERVED ABOVE THAT THE TRANSACTION TO PURC HASE PROPERTY FROM M / S . GULMOHAR ESTATE LTD. WAS RELATED OR INCIDENTAL TO T HE ASSESSEE'S BUSINESS. AFTER TAKING INTO ACCOUNT THE INTENTION O F THE ASSESSEE , IT IS WELL SETTLED THAT IT IS THE INTENTION OF THE ASSESSEE WH ICH WOULD MATTER IN DECIDING AS TO WHETHER THE PROPERTY PURCHASED WERE INTENDED FOR CARRYING ON BUSINESS O R TO HOLD IT AS AN INVESTMENT COUPLE D WITH THE LINE OF THE BUSINESS CARRIED ON BY THE ASSESSEE. IN THE PRESENT CASE, AFTER CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, WE FIND THAT THE ASSESSEE'S INTENTION TO PURCHASE THREE FLATS IN HOUSING COMPLEX BY MAKING T OTAL PAYMENT IN ADVANCE WAS TO DO BUSINESS OF REAL ESTATE OR OTHERWISE TRANSACTION WAS UNDERTAKEN FOR THE PURPOSE OF B U SINESS ORDINARILY CARRIED ON BY THE ASSESSEE.' 6 . THE AFORESAID REASONING GIVEN BY THE TRIBUNAL IS FA CTUAL IN NATURE . IT CANNOT BE SAID THAT THE FINDINGS RECORDED BY THE TRIBUNAL ARE UNREASONABLE OR PERVERSE. 7 . IN VIEW OF THE AFORESAID FACTUAL FINDINGS RECORDED BY THE TRIBUNAL , THE ANSWER TO THE QUESTION HAS TO BE IN AFFIRMATIVE, I.E. IN FAVO UR OF THE ASSESSEE AND AGAINST THE REVENUE. 6.2 THE DECISION OF HONBLE BANGALORE BENCH OF ITAT IN THE CASE OF ITO VS. M.M. DEVELOPERS IN ITA NO.179/BLPR/2011 DATED 1 7.07.2015 IS REPRODUCED HEREINBELOW: 4. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS . AS PER THE ADMITTED FACTS OF THE CASE, THE ASSESSEE HAS ENTERED INTO AN AGREEMENT FOR PURCHASE OF A SHOP IN BHILAI FOR 1.85 CRORES. A SUM OF . 25 LAKHS WAS PAID IN ADVANCE. THE SAID AGREEMENT DEED PROVIDE FOR FORFEITURE OF THE AMOUNT PAID AS ADVANCE IN THE EVENT OF ASSESSEE NOT HONOURING THE CONTRACT AND PAYING T HE BALANCE AMOUNT . IN THIS CASE IT IS UNDISPUTED THAT THE ASSESSEE HAS NOT COMPLETE D THE CONTRACT . IT HAS NOT PAID THE BALANCE AMOUNT. HE DID NOT GET THE PROPERTY REG ISTERED. HENCE THIS RESULTED IN ITA NO.165/DEL/2016 5 THE FORFEITURE OF THE SUM PAID AS ADVANCE AMOUNTING TO '.25 LAKHS. THE REASON FOR ASSESSEE'S FAILURE TO COMPLETE THE CONTRACT IS THAT THE ASSESSEE AFTER ENTERING INTO THE CONTRACT WAS OF THE OPINION THAT IT WOULD NOT B E PRUDENT TO GO THROUGH WITH THE HUGE INVESTMENT AS THE MARKET VALUE OF THE PROPERTY FELL SHARPLY SUBSEQUENTLY , AND HAD THE ASSESSEE PURCHASED THE PROPERTY IT WOULD HA VE INCUR MORE LOSS. IN THIS VIEW OF THE MATTER, TO MINIMIZE THE LOSS THE ASSESS EE CHOSE TO FOREGO THE AMOUNT OF ADVANCE OF ' . 25 LAKHS. THE ASSESSEE IS IN THE BUSINESS OF REAL E STATE DEALINGS. HENCE THE TRANSACTION WAS CLEARLY IN THE REVENUE FI ELD. THE ASSESSING OFFICER HAS NOT DISPUTED THE MERIT OF THE ASSESSEE'S CONTENTION THAT THE ASSESSEE WOULD HAVE INCURRED MORE LOSS HAD HE GONE WITH THE TRANSACTION BECAUSE OF THE SHARP FALL IN THE PREVALENT MARKET IN THE AREA. IN THIS VIEW OF T HE MATTER , WE ARE OF THE OPINION THAT THE LEARNED CIT(APPEALS) IS CORRECT IN HOLDING THAT THE LOSS OF THE ADVANCE AMOUNT IS ALLOWABLE AS BUSINESS LOSS UNDER SECTION 28 AS WELL AS DEDUCTION UNDER SECTION 37(1) . LEARNED CIT(APPEALS) HAS GIVEN A FINDING THAT THE A GREEMENT PRODUCED BY THE ASSESSEE CANNOT BE SAID TO AN AFTER THOUGHT OR A SHAM. MOREOVER, LACK OF CORRESPONDENCE BETWEEN THE PARTIES CANNOT B E SAID TO BE REASON TO DISBELIEVE TO THE ASSESSEE'S CLAIM . IT IS SETTLED LAW THAT THE ASSESSING OFFICER CANNOT SIT INTO THE SHOES OF THE ASSESSEE AND DECID E WHAT IS REASONABLE . IN THIS VIEW OF MATTER, WE ARE OF THE CONSIDERED OPINION THAT THERE IS NO INFIRMITY IN THE ORDER OF LEARNED CIT(A). ACCORDINGLY, WE UPHOLD THE SAME. 6.3 THE DECISION IN THE CASE OF M/S. BCL SECURITIES & JEWELERS LTD. VS. DCIT IN ITA NO.782/CHD/2016 DATED 9 TH DECEMBER, 2016 IS REPRODUCED HEREINBELOW: 6. AFTER CONSIDERING RIVAL SUBMISSIONS, WE ARE OF THE VIEW ADDITION IS WHOLLY UNJUSTIFIED. IT IS ADMITTED FACT THAT ASSESSEE COMP ANY IS IN THE BUSINESS OF REAL ESTATE. IT IS ALSO NOT IN DISPUTE THAT ASSESSEE MAD E ADVANCE FOR PURCHASE OF SHOP IN A SUM OF RS.35 LACS TO M/S. AMITY AMUSEMENT LTD. PB-12 IS THE CONFIRMATION OF ACCOUNT TO SHOW THAT ON 01.04.2004 RS.35 LACS WAS PENING BALANCEOF ADVANCE GIVEN TO THE AFORESAID COMPANY AS ADVANCE. SINCE AD VANCE IS GIVEN FOR PURCHASE OF SHOP, THEREFORE, IT WAS RIGHTLY NOT TAKEN INTO S TOCK-IN-TRADE BECAUSE THE PROPERTY WAS YET TO BE PURCHASED BY THE ASSESSEE. S INCE ASSESSEE IS IN REAL ESTATE BUSINESS, THEREFORE, PURCHASE OF SHOP IS A REGULAR BUSINESS ACTIVITY OF THE ASSESSEE AND COULD NOT BE TREATED AS INVESTMENT. SINCE RS.2 LACS HAVE BEEN FORFEITED ON ACCOUNT OF CANCEL LAT ION OF THE DEAL, THEREFORE, R S.2 LACS SHOULD HAVE BEEN CONSIDERED AS BUSINESS LOSS OF THE ASSESSEE. THE AS SESSEE IN THE ACCOUNTS ALSO, SPECIFICALLY NOTED THAT IT IS DEALING I THE REAL ES TATE AND HAS SHOWN IN THE TRADING ACCOUNT, RS.2 LACS ON ACCOUNT OF PURCHASE WHICH SHO ULD BE MENTIONED AS ADVANCE FOR PURCHASE, WHICH HAVE BEEN FORFEITED. THEREFORE, AUTHORITIES BELOW WERE NOT JUSTIFIED IN REJECTING THE CLAIM OF THE ASSESSEE OF BUSINESS LOSS CONSIDERING THAT BOOKING OF THE SHOP WAS NOT REFLECTED IN THE STOCK- IN-TRADE. THEREFORE, BUSINESS LOSS SUFFERED BY ASSESSEE CANNOT BE CONSIDERED AS C APITAL LOSS. 6.4 THE DECISION CITED HEREINABOVE ARE ON THE IDENT ICAL FACTS OF THE ASSESSEE AND THEREFORE RELYING UPON THE DECISION HE REINABOVE AND FACTS OF THE ITA NO.165/DEL/2016 6 PRESENT CASE THE ASSESSEE IS ENTITLED TO CLAIM THE REVENUE LOSS AND ACCORDINGLY THE DECISION OF THE LEARNED CIT(A) IS R EVERSED AND ALL THE GROUNDS OF THE ASSESSEE ARE ALLOWED. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY 18 TH APRIL, 2017 SD/- (B.P. JAIN) ACCOUNTANT MEMBER DATED: 18/04/2017 PRABHAT KUMAR KESARWANI, SR.P.S. COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(APPEALS) 5.DR: ITAT ASSTT. REGISTRAR, ITAT, NEW DELHI