M/s. Sarovar Enterprises, Raigad V. Assistant Commissioner of Income-tax,

ITA 2509/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9132 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2010-2011
• Appeal Filed On: 28-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts; Revenue expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, PUNE , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKAR A RAO, AM . / ITA NO.2509/PUN/2016 / ASSESSMENT YEAR : 2010-11 M/S. SAROVAR ENTERPRISES, 114, SAI POOJA, M.C.C.H, NEAR AMEYA CLINIC, PANVEL, RAIGAD 410 206 PAN : AAWFS9785N . /APPELLANT VS. ACIT, PANVEL . / RESPONDENT / APPELLANT BY : NONE / RESPONDENT BY : SHRI ACHAL SHARMA, ADDL.CIT / DATE OF HEARING : 15.03.2018 / DATE OF PRONOUNCEMENT: 21.03.2018 / ORDER PER D. KARUNAKARA RAO, AM : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF C IT(A)-2, THANE, DATED 29-08-2016 FOR THE ASSESSMENT YEAR 2010-11. 2. GROUNDS RAISED BY THE ASSESSEE READ AS UNDER : 1. THE LD.CIT-APPEAL HAS ERRED IN LAW AND ON FACTS IN SUSTAINING/CONFIRMING ADDITION/DISALLOWANCE OF BAD DEBTS WRITTEN OFF ADVANCE PAID RS.7,50,000/-. FOR PURCHASE OF LAND, INSPITE OF CLEAR PROVISION OF LAW IN THIS RESPECT. 2. THE LD.CIT-APPEAL HAS ERRED IN LAW AND ON FACTS BY NOT CONSIDERING SUBMISSION OF ASSESSEE IN HIS ORDER AND CONFIRMED A DDITION BY QUOTING IRRELEVANT CASE LAW IN FACTS, OF DELHI H.C. CIT V. JANSAMPARK ADVERTISING AND MARKETING P. LTD. 3. THE LD.CIT-APPEAL HAS ERRED IN LAW AND ON FACTS BY NOT CONSIDERING WITH REASONING THE DECISION OF SUPREME COURT AND H. C. AND OTHER SUBMITTED IN COURSE OF HEARING BY SIMPLY STATING TH AT SAME ARE NOT RELEVANT. 2 3. BRIEFLY STATED RELEVANT FACTS ARE THAT THE ASSESSEE IS A BUILDER AND DEVELOPER. ASSESSEE FILED THE RETURN OF INCOME DECLARING T OTAL INCOME OF RS.3,99,360/-. ASSESSEES CASE WAS SELECTED FOR SCRUTINY AND NOTICES WERE ISSUED ON THE ASSESSEE. ASSESSEE IS ENGAGED IN CONSTRU CTION OF A PROJECT KANAK SAROVAR AT THANA NAKA, PANVEL. DURING THE ASSE SSMENT YEAR UNDER CONSIDERATION, THE NET PROFIT OF THE ASSESSEE AFTER REMUNERATION TO PARTNERS IS SHOWN AT RS.3,99,357/-. IN THE SCRUTINY PROC EEDINGS, THE AO NOTICED THAT ASSESSEE DEBITED AN AMOUNT OF RS.7,50,000/- ON ACCOUNT OF ADVANCE WRITTEN OFF. AO OPINED THAT THE SAID ADVANCE AMO UNT/EXPENDITURE DOES NOT FORM PART OF ON-GOING PROJECT AND BY NO STRET CH OF IMAGINATION IT CONSTITUTES A REVENUE EXPENDITURE. ACCORDINGLY, AO AD DED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. EVENTUALLY, THE AO DET ERMINED THE ASSESSED INCOME AT RS.12,49,360/- AFTER MAKING ADDITION OF R S.7,50,000/- (DEBTS WRITTEN OFF) AND RS.1 LAKHS ADHOC DISALLOWANCE ON ACCO UNT OF EXPENSES MADE ON PURCHASES. 4. THE CORE ISSUE RAISED IN THE GROUNDS RELATES TO THE SAID ADDITION OF RS.7,50,000/- ON ACCOUNT OF ADVANCES WRITTEN OFF. RELEVANT FACTS OF THIS ISSUE INCLUDE THAT THE ASSESSEE PAID THE SAID AMOUNT AS ADVANCE FOR THE PURCHASE OF LAND NEAR SORTYA MARUTI DEVSTHAN, PANVEL. TH E SAID PURCHASE TRANSACTION NOT ONLY FAILED TO MATERIALIZE BUT ALSO THE AS SESSEE FAILED TO RECOVER THE SAID ADVANCE. THEREFORE, THIS SAID FAILURE RESU LTED IN WRITE OFF OF THE SAID ADVANCE AND DEBITING THE SAME TO THE PROFIT A ND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION. AT THE END OF THE ASS ESSMENT PROCEEDINGS, AO HELD THAT THE CLAIM OF THE ASSESSEE IS N OT ALLOWABLE AS THE SAID ADVANCE IS IN THE NATURE OF CAPITAL. HE FURTHER MENTI ONED THAT THE ADVANCE GIVEN BY THE ASSESSEE HAS NOTHING TO DO WITH T HE ON-GOING PROJECT OF THE ASSESSEE. 3 5. DURING THE FIRST APPELLATE PROCEEDINGS, ASSESSEE REITER ATED THE SAID ARGUMENTS. HE ALSO FILED WRITTEN SUBMISSIONS AND THE SAME ARE EXTRACTED IN PARA NO.6 OF THE CIT(A) ORDER. ACCORDINGLY, IT IS THE C ASE OF THE ASSESSEE THAT HE IS ENGAGED IN THE BUSINESS OF REAL-ESTATE AND IT INVOLVES PURCHASE AND SALE OF LAND AS A PART OF THE BUSINESS ACTIVITIES OF THE ASSESSEE. GIVING ADVANCES IS ON TRADING ACCOUNT AND THEREFORE, WHEN THE SAID ADVANCE IS WRITTEN OFF, THE SAME CONSTITUTES AN ALLOWABLE REVENUE/BUSIN ESS EXPENDITURE. ASSESSEE RAISED THE ISSUE THAT THE OFFICERS HAVE ERRONEOUSLY INVOKED THE PROVISIONS OF SECTION 36(2) OF THE ACT WHICH IS IN APPLICABLE TO THE BUSINESS TRANSACTIONS. ON CONSIDERING THE SAME, CIT(A ) DISMISSED THE SUBMISSION OF THE ASSESSEE HOLDING THAT THE ASSESSEE FAILED TO DISCHARGE THE ONUS IN FURNISHING THE CREDIBLE EVIDENCES AND DOCUMENT S TO ESTABLISH THE EXISTENCE OF PLOT OF LAND WITH SAID SORTYA MARUTI DEVST HAN, PANVEL, ATTEMPTS OF THE ASSESSEE IN RECOVERING THE SAME, REASONS FOR ABOR TING OF THE SAID TRANSACTION ETC. CONTENTS OF PARA NO.7.4 CONSTITUTES AN OPERATIONAL PARA, THEREFORE, THE SAME IS EXTRACTED HERE AS UNDER : 7.4 FROM THE ABOVE FACTS IT IS SEEN THAT THE LD. A R COULD NOT FILE ANY CREDIBLE DOCUMENTS, NAMELY COPY OF AGREEMENT FOR PU RCHASE OF LAND, CANCELLATION DEED, REASONS FOR CANCELLATION OF DEAL , STEPS TAKEN FOR RECOVERY OF ADVANCE, CONFIRMATION FROM THE PARTY CONCERNED R EGARDING RECEIPT OF ADVANCE, PLOT DETAILS, KHASRA NO., SIZE OF THE PLOT ETC. IN SUPPORT OF HIS ABOVE CLAIM, THEREFORE, THE PURPOSE OF SAID ADVANCE COULD NOT BE ESTABLISHED. DURING THE YEAR UNDER CONSIDERATION, THE APPELLANT HAD DECLARED THE TOTAL TURNOVER OF RS.3,41,85,821/-, OPENING WIP RS.7,82,1 1,158/-, CLOSING WIP AT RS.5,30,90,834/-, FROM CONSTRUCTION BUSINESS AND DE CLARED A MEAGER PROFIT OF RS.3,99,357/- @1.6% ONLY. THESE FACTS CLEARLY E STABLISH THAT THE APPELLANT HAD SUPPRESSED ITS TAXABLE INCOME BY WRIT ING OF SO CALLED ADVANCE OF RS.7,50,000/- AS ABOVE. THE LD. AR HAS SQUARELY FAILED TO FURNISH ANY CREDIBLE DOCUMENTS WHICH CAN ESTABLISH THE EXISTENC E OF LAND/PLOT WITH SORTYA MARUTI DEVSTHAN, AGAINST WHICH, SO CALLED TH E ADVANCE OF RS.7,50,000/- WAS GIVEN. IN VIEW OF THESE FACTS, I N MY CONSIDERED OPINION, THE APPELLANT HAS SQUARELY FAILED TO ESTABLISH THE NATURE AND PURPOSE OF SAID TRANSACTION, I.E. FOR BUSINESS PURPOSE OR OTHERWISE , THEREFORE, THE SAME CANNOT BE ALLOWED. ACCORDINGLY, THE DISALLOWANCE O F RS.7,50,000/- MADE BY THE AO IS SUSTAINED. ........... 6. BEFORE US, DESPITE THE ISSUE OF NOTICE ON COUPLE OF TIMES , I.E., ON 02- 11-2016 AND 20-02-2018, THERE IS NONE TO REPRESENT TH E CASE OF THE ASSESSEE BEFORE US. CONSIDERING THE SMALLNESS OF THE ADDIT ION AS WELL AS 4 THE AVAILABILITY OF THE ASSISTANCE OF LD. DR FOR THE REVENUE, WE FIND IT APPROPRIATE TO ADJUDICATE THE APPEAL BASED ON THE INFORMATION BEFOR E US. 7. AFTER NARRATING THE ABOVE FACTS OF THE CASE IN GENERA L AND THE ISSUE IN PARTICULAR, LD. DR FOR THE REVENUE SUBMITTED THAT THIS IS A CASE WHERE ESSENTIALLY THE AO HAD TO DISALLOW THE CLAIM OF THE ASSESSE E OF RS.7,50,000/- FOR WANT OF EVIDENCES AND DETAILS. FAILURE TO E STABLISH THE BUSINESS CONNECTION OF PAYMENT OF RS.7,50,000/- FOR PURCHA SE OF THE LAND IS A MATTER OF FACT AND THE SAME CAN BE DECIDED ONLY BA SED ON THE EVIDENCE OR AGREEMENT OR CORRESPONDENCE BETWEEN THE PARTIES. THE NAMES AND ADDRESSES OF THE PAYEES ARE NOT AVAILABLE ON RECORD TO EXPLAIN THE NATURE OF THE TRANSACTION LEAVE ALONE THE BUSINESS NATURE OF IT. IT IS ALSO EVIDENT THAT THE MANNER OF PAYMENT, PURPOSE OF PAYMENT, REASON FOR DE BITING THE TRANSACTION TO THE PROFIT AND LOSS ACCOUNT ARE NOT AVAILA BLE ON RECORD. CONSIDERING THE SAME, IT IS THE REQUEST OF THE LD. DR FOR T HE REVENUE THAT THE ADDITION MADE BY THE AO SHOULD BE CONFIRMED. 8. AFTER HEARING THE LD. DR FOR THE REVENUE ON THIS ISSU E AS WELL AS THE PERUSAL OF THE ORDERS AVAILABLE ON RECORD, WE ARE OF THE OPINION THAT TH ERE IS NO DISPUTE ABOUT THE ASSESSEES BUSINESS ACTIVITIES, I.E. BU ILDER AND DEVELOPER. ASSESSEE HAS RECORDED THE SALES TURNOVER O F RS.3.42 CRORES (ROUNDED OFF) IN THE YEAR UNDER CONSIDERATION. THE CLOSING WI P IS REFLECTED AT RS.5.21 CRORES (ROUNDED OFF). CONSIDERING THE SAME, WE AR E OF THE OPINION THAT THERE IS NO DISPUTE ABOUT THE ASSESSEES BUSINESS OF DEALING WITH THE DEVELOPER OF LAND AND BUILDINGS. THEREFORE, THE PA YMENT OF ADVANCE OF RS.7,50,000/- FOR THE PURCHASE OF THE LAND AS P ART OF BUSINESS ACTIVITY, NEED NOT INVITE ANY SUSPICION OR SURMISES. THE NEXT LIMB OF THE SAME ISSUE RELATES TO WRITE OFF OF THE SAID ADVANCE OF RS.7,50,000/-. IN OUR VIEW, SO LONG AS PAYMEN T OF ADVANCE IS 5 FOR THE PURCHASE OF THE LAND, THE SAME OUGHT TO CONST ITUTE THE BUSINESS ACTIVITIES OF THE ASSESSEE. CONSEQUENTLY THE SAME FALLS WIT HIN THE SCOPE OF REVENUE. ACCORDINGLY, THE LOSS BY WAY OF ADVANCE NOT REC OVERED BY THE ASSESSEE CONSTITUTES AN ALLOWABLE BUSINESS LOSS U/S.28 OF T HE ACT. IN OUR VIEW, THIS ASPECT OF THE ASSESSEES SUBMISSION IS COMPLETEL Y IGNORED BY THE REVENUE AUTHORITIES. AO AND CIT(A) WERE MERELY INVOKED T HE PROVISIONS OF SECTION 36(2) OF THE ACT. CONSIDERING THE NATURE OF ADVANC E AS WELL AS THE ASSESSEES DECISION TO WRITE OFF THE SAME IN THE YEAR UND ER CONSIDERATION, WE ARE OF THE OPINION THAT THE SAME CONSTITUTES AN ALLOWA BLE EXPENDITURE. EVEN IF THE SAID ADVANCE IS GIVEN IN THE CONTEXT OF ANY AB ORTED BUSINESS PROJECT OF THE ASSESSEE, THE SAME IS ALLOWABLE U/S.28 OF THE ACT. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 21 ST DAY OF MARCH, 2018. SD/- SD/- (SUSHMA CHOWLA) (D.KARUNAKAR A RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; DATED : 21 ST MARCH, 2018. SATISH / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A)-2, THANE 4. / THE CIT-2, THANE 5. , , / DR SMC, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, //TRUE COPY// //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE