Ahmedabad Finvest Co.Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(4), Ahmedabad

ITA 3050/AHD/2004

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0258 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 02-09-2009
• Assessment Year: 2001-2002
• Appeal Filed On: 14-10-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J P SHAH
• Keywords: Capital asset; Valuation report; Commercial expediency; Revised return; Revenue expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE SHRI MAHAVIR SINGH, JUDICIAL MEMBER, AND SHRI D. C. AGRAWAL, ACCOUNTANT MEMBER ITA NO.3050/AHD/2004 ITA NO.2375/AHD/2006 ASSESSMENT YEAR: 2001-02 DATE OF HEARING:2.9.09 DRAFTED:8.9.09 AHMEDABAD FINVEST CO.PVT. LTD., 37-B, PHASE-I, GIDC, VATVA, AHMEDABAD-382445 PAN NO.AABCA3022G AHMEDABAD FINVEST CO. PVT. LTD. CO. PVT. LTD., 37-B, PHASE-I.G.I.D.C. VATVA, AHMEDABAD- 382445 V/S . V/S . INCOME TAX OFFICER, WARD-1(4), AHMEDABAD ASSTT. C.I.T., CIRCLE-I, AHMEDABAD (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI J.P. SHAH, AR REVENUE BY:- SHRI MAHESH KUMAR, SR. DR O R D E R PER MAHAVIR SINGH, JUDICIAL MEMBER:- THESE TWO APPEALS BY THE ASSESSEE ARE ARISING OUT OF DIFFERENT ORDERS OF COMMISSIONER OF INCOME-TAX(APPEALS)-V, AHMEDABAD IN APPEAL NO. CIT(A)- V/ITO(OSD-1&3)/36/004-05 AND CIT(A)-V/ACIT CIR.1/08 /2006-07 DATED 19-08-2004 AND 22-09-2006. THE ASSESSMENT WAS FRAMED BY THE I TO, AHMEDABAD WARD-1(4), AHMEDABAD U/S.143(3) OF THE INCOME-TAX ACT, 1961 (H EREINAFTER REFERRED TO AS THE ACT) VIDE HIS ORDER DATED 27-02-2004 AND THE PENAL TY UNDER DISPUTE WAS LEVIED BY THE ACIT, CIRCLE-1, AHMEDABAD U/S.271(1)(C) OF THE ACT DATED 22-03-2006. FIRST WE WILL DEAL WITH ASSESSEES APPEAL ITA NO.30 50/AHD/2004. 2. THE ONLY ISSUE IN THIS APPEAL OF THE ASSESSEE IS AS REGARDS TO THE ORDER OF CIT(A) IN NOT ALLOWING THE LOSS INCURRED BY THE ASS ESSEE ON ACCOUNT OF PURCHASE OF ITA NO.3050/AHD/04 & 2375/AHD/206 A.Y. 01-02 AHMEDABAD FINVEST CO.PVT. LTD. V. ITO WD-1(4), ABD PAGE 2 CAPITAL ASSETS I.E. LAND, AS REVENUE LOSS. FOR THI S, THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE GROUND NO.3 :- 3. THE LEARNED C.I.T. (APPEALS) HAS NOT ALLOWED RS .950000/- LOSS FOR THE PURCHASE CAPITAL ASSET THOUGH FULLY EXPLAINED. THE LOSS OF RS.950000/- BE ALLOWED. 3. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT THE ASSESSING OFFICER NOTICED FROM THE REVISED RETURN, THAT THE ASSESSEE HAS CLAIMED LOSS OF RS.9.50 LAKHS ON ACCOUNT OF FORFEITURE OF AMOUNT BY THE SELLER OF THE LAND. THE AO REQUIRED THE ASSESSEE TO JUSTIFY THE CLAIM AND GIVE THE DETAILS. THE ASSESSEE REPLIED THAT THE COMPANY WANTED TO PURCHASE THE LAND AND ACCORDINGLY AGREEMENT FOR SALE OF LAND WAS EXECUTED FOR AN AMOUNT OF 82 LAKHS AND FOR THE SAME, ADVANCE WAS PAID AT RS.9.50 LAKHS. SUBSEQUENTLY, THE COMPANY DECIDED N OT TO BUY THE AFORESAID LAND AFTER PAYING ADVANCE AND AS SUCH ADVANCE OF RS.9.50 LAKS WAS FORFEITED BY THE SELLER OF THE LAND IN THE AGREEMENT TO SELL. DURING THE CO URSE OF ASSESSMENT PROCEEDINGS, THE ASSESSEE WAS FURTHER REQUIRED TO GIVE FOLLOWING DETAILS:- THE SCRUTINY OF THE REVISED RETURN, IT WAS SEEN TH AT THE ASSESSEE HAS CLAIMED LOSS OF RS.9.50,000/-. IN REPLY TO THE QUESTIONNAIR E ISSUED THE ASSESSEE SUBMITTED VIDE ITS LETTER DATED 26.11.2003 THAT THE COMPANY WANTED TO PURCHASE THE LAND OR RS.82 LAKHS AND ACCORDINGLY AG REEMENT FOR SALE WAS EXECUTED. THE ADVANCED MONEY OF RS.9.50,000/- WAS P AID IN LIEU OF AGREEMENT FOR SALE. THE COMPANY DECIDED NOT TO BUY AFTER PAYING ADVANCE OF RS.9,50,000/- AND THEREFORE SUCH ADVANCE OF RS.9,50 ,000/- WAS FORFEITED BY THE SELLER OF THE LAND IN VIEW OF AGREEMENT OF SALE . DURING THE COURSE OF HEARING THE ASSESSEE WAS ASKED TO FURNISH THE FOLLO WING VIDE MY LETTER DATED 27.1.2003. [I] THE VALUATION REPORT OF THE PROPERTY TO BE PURC HASED [II] FOR WHAT PURPOSE THIS PROPERTY OR ASSETS ARE B EING PURCHASED, [III] BUSINESS OF THE VENDOR, PARTNERS IN THIS FIRM . [IV] WHETHER THEY ARE RELATIVE OF THE FAMILY MEMBER S OF THE DIRECTORS [V] WHAT COMPEL THE ASSESSEE NOT TO HONOUR THIS AGR EEMENT, [VI] WHY IT HAS NOT CLAIMED THE ORIGINAL RETURN. THE ASSESSEE REPLIED AND FILED THE DETAILS VIDE LET TER DATED 03-02-2004 AS UNDER:- (1) THAT THE COMPANY WANTED TO START THE MANUFACTU RING ACTIVITY. AFTER HAVING DUE DISCU9SSION AT THE MANAGEMENT LEVEL THE COMPANY DECIDED NOT TO PURCHASE THE LAND DUE TO ADVERSE FINANCIAL MARKET C ONDITION. THEREFORE THE COMPANY DECIDED NOT TO PURCHASE THE LAND. (2) THAT THE COMPANY WAS TO BUY THE LAND BUT AS SAI D EARLIER WE WERE NOT KNOWN ABOUT THE ACTIVITY OF THE COMPANY OR RATHER W E WERE NOT SUPPOSED TO ASK VENDOR ABOUT THEIR PRESENT ACTIVITY AND OR BUSI NESS ACTIVITY OF THE VENDOR. ITA NO.3050/AHD/04 & 2375/AHD/206 A.Y. 01-02 AHMEDABAD FINVEST CO.PVT. LTD. V. ITO WD-1(4), ABD PAGE 3 (3) THAT THE COMPANY DID NOT ASK THE NAME OF THE FI RM, (4) THAT NONE OF THE DIRECTORS OR RELATIVE OF THE C OMPANY ARE CONNECTIVE OR INTERESTED IN THE PARTNERSHIP FIRM OF THE SELLER. (5) THAT AS STATED EARLIER DUE TO HEAVY FINANCIAL C OMMITMENT THE COMPANY DECIDED NOT TO PURCHASE THE LAND. THE LAND ENVISAGE D GOOD AMOUNT OF THE BUSINESS WHEN IT WAS DECIDED TO BUY THE LAND AND TO START MANUFACTURING ACTIVITY BUT THE BUSINESS DID NOT MATERIALIZE. FINA LLY THE COMPANY DECIDED NOT BUY THE LAND. (6) THAT AT THE TIME OF FILING THE ORIGINAL RETURN IT WAS GONE OUT OF SIGHT TO PUT THE CLAIM WHICH WAS REGULARIZED BY FILING REVISED R ETURN OF INCOME. 4. THE ASSESSING OFFICER AFTER CONSIDERING THE SUB MISSION OF THE ASSESSEE, REJECTED THE CLAIM OF THE ASSESSEE AND TREATED THE EXPENDITURE AS CAPITAL BY GIVING FOLLOWING FINDING IN PARA-5 OF HIS ASSESSMENT ORDER:- 5. THE SUBMISSION OF THE ASSESSEE HAS BEEN CONSIDE RED CAREFULLY. FROM THE SUBMISSION IT IS CLEAR THAT INVESTMENT HAS BEEN MAD E FOR THE PURCHASE OF CAPITAL ASSET. THUS THE EXPENDITURE INCURRED FOR SU CH CAPITAL ASSET IS A CAPITAL LOSS. AS THE SAME IS SNOT A REVENUE LOSS, THE ASSES SEE IS NOT ENTITLED TO ANY DEDUCTION. AS THE SAID EXPENDITURE IS NOT AN ALLOWA BLE EXPENDITURE WITHIN THE MEANING OF SECTION 36 OR 37, THE SAME IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. PENALTY PROCEEDING U/S.271( 1) INITIATED SEPARATELY. 5. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT( A) AND CIT(A) ALSO CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY GI VING FOLLOWING FINDING IN PARA-2.3 OF HIS APPELLATE ORDER:- 2.3 I HAVE GONE THROUGH THE FACTS OF THE CASE, ASS ESSMENT ORDER, SUBMISSION MADE BY THE LD. AUTHORIZED REPRESENTATIVE OF THE AP PELLANT AS ALSO THE CASE LAWS RELIED UPON. I FIND THAT THE AMOUNT OF RS.9,50 ,000/- HAS BEEN PAID FOR THE PURCHASE OF LAND WHICH IS A CAPITAL ASSET. IT IS VE RY CLEAR IN THIS CASE THAT ONLY AN AGREEMENT WAS SIGNED FOR WHICH, NO ANY BUSINESS NEED AND PURPOSE COULD BE CLASSIFIED BY THE APPELLANT. ALSO THE AGREEMENT HAS NOT BEEN MATERIALIZED. NO BUSINESS NEXUS IS CLEAR. SINCE THE LOSS CLAIMED IS NOT IN THE NATURE OF A REVENUE LOSS FOR THE PURPOSE OF BUSINESS AND HENCE THE APPELLANT IS NOT ENTITLED TO ANY DEDUCTION. THE ASSESSING OFFICER HA S RIGHTLY CONSIDERED THE CLAIM OF LOSS OF LAND AGREEMENT OF RS.9,50,000/- NO T INCURRED DURING THE COURSE OF BUSINESS AND FOR THE PURPOSE OF BUSINESS NEED. I AM IN AGREEMENT WITH THE ACTION OF THE ASSESSING OFFICER. THE DISAL LOWANCE AND ADDITION MADE BY THE ASSESSING OFFICER IS THEREFORE CONFIRMED. TH E APPEAL ON THIS POINT IS REJECTED. AGGRIEVED, ASSESSEE CAME IN SECOND APPEAL BEFORE US . ITA NO.3050/AHD/04 & 2375/AHD/206 A.Y. 01-02 AHMEDABAD FINVEST CO.PVT. LTD. V. ITO WD-1(4), ABD PAGE 4 6. BEFORE US LD. COUNSEL FOR THE ASSESSEE, SHRI J.P . SHAH HAS STATED THAT THE ASSESSEE BEFORE THE ASSESSING OFFICER SUBMITTED HIS REPLY VIDE LETTER DATED 26-11- 2003, IN WHICH IT WAS CONTENDED THAT THE ASSESSEE W ANTED TO PURCHASE THE LAND FOR A SUM OF RS.82 LAKHS AND FOR WHICH AN AGREEMENT FOR S ALE WAS EXECUTED AND AN ADVANCE OF RS.9.50 LAKHS WAS PAID. IT WAS ALSO CON TENDED BY THE LD. COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE FURNISHED DETAILS IN WHI CH IT WAS CONTENDED THAT THE ASSESSEE WANTED TO START MANUFACTURING ACTIVITY BUT DUE TO FINANCIAL CRUNCH, THE PROJECT WAS GIVEN UP AND AS A RESULT OF WHICH THIS AMOUNT WAS ALLOWED TO BE FORFEITURE. HE FURTHER STATED THAT THE SAID INVEST MENT HAS BEEN MADE FOR PURCHASE OF LAND AND IT IS NOT IN DISPUTE THAT THE ASSESSEE ENT ERED INTO AN AGREEMENT FOR PURCHASE OF LAND FOR THE PURPOSE OF ITS BUSINESS AC TIVITY AND ULTIMATELY IT WAS DECIDED NOT TO PURCHASE THE SAID LAND DUE TO ADVERSE FINANC IAL CONDITIONS. ACCORDING TO HIM, THIS EXPENDITURE WAS THUS INCURRED FOR THE PURCHASE OF BUSINESS ASSETS AND WAS GIVEN UP ON THE GROUND OF COMMERCIAL EXPEDIENCY. AS A RESULT, DUE TO ADVANCE FOR LAND, THE ASSESSEE COULD NOT BE SAID TO HAVE ACQUIR ED ANY CAPITAL ASSET BUT HAS GOT RID OF ONEROUS OBLIGATION OF PURCHASE OF LAND UNDER THE SAID AGREEMENT. ACCORDING TO HIM, ON THE GIVEN SET OF FACTS, NO CAPITAL ASSETS C AME INTO EXISTENCE AND THE EXPENDITURE RELATED TO BUSINESS OF THE ASSESSEE OUG HT TO HAVE BEEN ALLOWED AS EXPENDITURE INCURRED IN THE COURSE OF BUSINESS U/S. 37(1) OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE ALSO MADE ALTERNATIVELY PLEA THAT THE SAME SHOULD HAVE BEEN ALLOWED U/S.28 OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE FURTHER RELIED ON THE CASE LAW OF HONBLE SUPREME COURT IN THE CASE OF PATNIK & C. LTD. V. CIT (1986) 161 ITR 365 (SC), WHEREIN THE HONBLE APEX COURT HAS HE LD AS UNDER:- ACCORDING TO THE STATEMENT OF THE CASE, DRAWN UP O N THE BASIS OF THE APPELLATE ORDER OF THE APPELLATE TRIBUNAL, THE ASSE SSEE WAS TOLD THAT IF IT SUBSCRIBED FOR THE GOVERNMENT LOAN, PREFERENTIAL TR EATMENT WOULD BE GRANTED TO IT IN THE PLACING OF ORDERS FOR MOTOR VEHICLES R EQUIRED BY THE VARIOUS GOVERNMENT DEPARTMENTS AND TO THE FURTHER BENEFIT O F AN ADVANCE FROM THE GOVERNMENT UP TO 50 PER CENT, OF THE VALUE OF THE O RDERS PLACED. PURSUANT TO THAT UNDERSTANDING AN ADVANCE TO THE EXTENT OF RS.1 8,37,062/- WAS RECEIVED BY THE ASSESSEE AND A CIRCULAR WAS ALSO ISSUED BY T HE STATE GOVERNMENT TO VARIOUS DEPARTMENTS TO MAKE PURCHASES OF THE VEHICL ES REQUIRED BY THEM FROM THE ASSESSEE. BECAUSE OF THE ADVANCE RECEIVED FROM THE GOVERNMENT, THE ASSESSEE WAS ABLE TO SAVE RS.45,000 AS BANK INT EREST DURING THE YEAR. IT WAS ALSO NOTICED THAT THE SALES SHOT UP SUBSTANTIAL LY. ON SEPTEMBER 4, 1961, THE ASSESSEE MADE A DEPOSIT OF RS.5 LAKHS CONSEQUEN T UPON A RESOLUTION OF THE BOARD OF DIRECTORS PASSED ABOUT SIX WEEKS BEFOR E AFTER A STATEMENT MADE BY THE CHAIRMAN DURING THE BOARD MEETING THAT THE G OVERNMENT HAD APPROACHED HIM TO SUBSCRIBE TO THE GOVERNMENT LOAN AND THAT THE COMPANY ITA NO.3050/AHD/04 & 2375/AHD/206 A.Y. 01-02 AHMEDABAD FINVEST CO.PVT. LTD. V. ITO WD-1(4), ABD PAGE 5 SHOULD DO SO AS GOOD NUMBER OF ORDERS COULD BE EXPE CTED. THE PURCHASE OF THE LOAN WAS APPROVED BY THE BOARD OF DIRECTORS AND WAS RATIFIED IN THE ANNUAL GENERAL MEETING OF THE SHAREHOLDERS HELD ON DECEMBE R 31, 1961. THE APPELLATE TRIBUNAL FOUND THAT HAVING REGARD TO THE SEQUENCE OF EVENTS AND THE CLOSE PROXIMITY OF THE INVESTMENT WITH THE RECEIPT OF THE GOVERNMENT ORDERS., THE CONCLUSION WAS INESCAPABLE THAT THE INVESTMENT W4AS MADE IN ORDER TO FURTHER THE SALES OF THE ASSESSEE AND BOOST ITS BUS INESS. IN THE CIRCUMSTANCES, THE APPELLATE TRIBUNAL HELD THAT THE INVESTMENT WAS MADE BY WAY OF COMMERCIAL EXPEDIENCY FOR THE PURPOSE OF CAR RYING ON THE ASSESSEES BUSINESS AND THAT, THEREFORE, THE LOSS SUFFERED BY THE ASSESSEE ON THE SALE OF THE INVESTMENT MUST BE REGARDED AS A REVENUE LOSS. WE ARE OF OPINION THAT THE APPELLATE TRIBUNAL IS RIGHT. 7. SIMILAR RELIANCE WAS ALSO PLACED BY THE LD. COUN SEL FOR THE ASSESSEE ON THE CASE LAW IN THE CASE OF CIT V. GUJARAT STEEL TUBES LTD. (2002) 258 ITR 235 (GUJ), WHEREIN THE JURISDICTIONAL HIGH COURT HAS HELD IN PAGE-238 AS UNDER:- SO FAR AS THE THIRD QUESTION IS CONCERNED, IT IS O BSERVED BY THE TRIBUNAL IN ITS ORDER THAT THE ASSESSEE HAD ADVANCED CERTAIN SUMS O F MONEY TO ACQUIRE PREMISES IN THE PROPERTY KNOWN AS NEPTUNE TOWER. HO WEVER, THE SAID TRANSACTION WAS NOT MATERIALIZED AND THE ASSESSEE H AD TO INCUR AN EXPENDITURE OF RS.22,000 BY WAY OF FEES PAID TO AN ADVOCATE FOR RECOVERING THE SUMS SO INVESTED. THE ASSESSING OFFICER HAS TAK EN THE VIEW THAT THE EXPENDITURE WAS A CAPITAL LOSS SUFFERED IN CONNECTI ON WITH THE CAPITAL ASSET AND THE SAID FINDING WAS CONFIRMED BY THE COMMISSIO NER (APPEALS). THE MATTER WAS TAKEN TO THE TRIBUNAL AND IT WAS CONTEND ED BEFORE THE TRIBUNAL THAT THE EXPENDITURE SO INCURRED HAS NO DIRECT CONN ECTION WITH THE ACQUISITION OF THE CAPITAL ASSET BUT IT WAS IN FACT CONNECTED W ITH THE RECOVERY OF THE AMOUNT WHICH WAS BLOCKED BY WAY OF ADVANCE FOR THE PURPOSE OF CAPITAL ASSET AND, THEREFORE, AN ALLOWABLE EXPENDITURE. THE TRIBU NAL HAS ACCEPTED THIS CONTENTION URGED ON BEHALF OF THE ASSESSEE AND HELD THAT THE AMOUNT WAS INCURRED ONLY FOR THE PURPOSE OF RECOVERY OF THE AM OUNT ADVANCED FOR THE ACQUISITION OF THE CAPITAL ASSET. THE TRIBUNAL HAS FURTHER OBSERVED THAT THE IMPUGNED ASSET IS NOT ACQUIRED AND, THEREFORE, THE TRANSACTION OR THE AGREEMENT FAILED. THE TRIBUNAL HAS FURTHER TAKEN TH E VIEW THAT ONCE THERE WAS A BREACH OF AN AGREEMENT IT COULD NOT BE SAID THAT THE EXPENDITURE INCURRED FOR RECOVERY OF THE ADVANCE HAD DIRECT CONNECTION WITH THE ACQUISITION OF THE CAPITAL ASSET. ACCORDING TO THE TRIBUNAL, THE EXPEN DITURE INCURRED HAD ONLY CONNECTION WITH THE RECOVERY OF THE AMOUNT AND, THE REFORE, THE SAME OUGHT TO HAVE BEEN CONSIDERED AS LAID OUT DURING THE COURSE OF CARRYING ON BUSINESS AND, THEREFORE, A REVENUE EXPENDITURE WHICH SHOULD HAVE BEEN REQUIRED TO BE ALLOWED. WE FIND NO ERROR IN THE VIEW TAKEN BY THE TRIBUNAL AND, HENCE, WE CONFIRM THE FINDING ARRIVED AT BY THE TRIBUNAL. WE, THEREFORE, ANSWER THIS QUESTION IN THE AFFIRMATIVE, I.E., IN FAVOUR OF THE ASSESSEE AND AG AINST THE REVENUE. ITA NO.3050/AHD/04 & 2375/AHD/206 A.Y. 01-02 AHMEDABAD FINVEST CO.PVT. LTD. V. ITO WD-1(4), ABD PAGE 6 8. ON THE OTHER HAND, LD. SR. DEPARTMENTAL REPRESEN TATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. HE STATED THAT THE AMOUNT WAS PAID FOR THE PURCHASE OF LAND, WHICH IS A CAPITAL ASSET AND IN THE PRESENT CASE, T HERE IS NO BUSINESS NEED AND THE PURPOSE IS ALSO NOT CLASSIFIED BY THE ASSESSEE. HE FURTHER STATED THAT THERE IS NO BUSINESS EXPEDIENCY IN THE PRESENT TRANSACTION AS A RGUED BY THE LD. COUNSEL FOR THE ASSESSEE. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE HAVE ALSO PERUSED TH E CASE RECORDS INCLUDING THE ASSESSMENT ORDER, THE ORDER OF CIT(A) AS WELL AS AS SESSEES PAPER BOOK FILED CONTAINING PAGES 1 TO 42. WE FIND THAT AS PER THE TERMS OF AGREEMENT FOR SALE ENTERED BETWEEN THE ASSESSEE AND THE SELLER OF THE LAND, THE TERM OF B OF THE AGREEMENT READS AS UNDER:- THE VENDORS HAVE CONSTRUCTED FACTORY BUILDING AND ADMINISTRATIVE BUILDING THEREON; AND WE ALSO FIND THAT IN CASE OF DEFAULT THE SELLER IS ENTITLED FOR FORFEITURE OF THE DEPOSIT AS LIQUIDATED DAMAGES AS PER CLAUSE-11 OF THE AGREEMEN T, WHICH READS AS UNDER:- 11. IF THE SALE IS NOT COMPLETED DUE TO ANY DELAY OR DEFAULT ON THE PART OF THE PURCHASER, THE VENDORS SHALL BE ENTITLED TO FORFEIT THE DEPOSIT AS LIQUIDATED DAMAGES. THE ASSESSEE FROM THE VERY BEGINNING, BEFORE THE AS SESSING OFFICER, MADE CLAIM AND AS PER WRITTEN SUBMISSION, IT WAS SUBMITTED THA T THE ASSESSEE-COMPANY WANTED TO START THE MANUFACTURING ACTIVITY AND AFTER HAVIN G DUE DISCUSSION AT THE MANAGEMENT LEVEL, THE ASSESSEE-COMPANY DECIDED NOT TO PURCHASE THE LAND DUE TO ADVERSE FINANCIAL MARKET CONDITION. THEREFORE, THE COMPANY DECIDED NOT TO PURCHASE THE LAND. THE ASSESSEE-COMPANY WAS TO BUY THE LAND BUT AS PER SAID AGREEMENT, EARLIER THE ASSESSEE WAS NOT KNOWN ABOUT THE ACTIVI TY OF THE SAID COMPANY, RATHER THE ASSESSEE WERE NOT SUPPOSED TO ASK THE VENDOR AB OUT THEIR PRESENT ACTIVITY AND / OR BUSINESS ACTIVITY OF THE VENDOR. NONE OF THE DIR ECTOR OR THEIR RELATIVE OF THE COMPANY ARE CONNECTED OR INTERESTED IN THE PARTNER- FIRM OF THE SELLER. THE ASSESSEE- COMPANY AS STATED EARLIER, DUE TO HEAVY FINANCIAL C OMMITMENT, THE ASSESSEE DECIDED NOT TO PURCHASE THE LAND AND ASSESSEE ENVIS AGED GOOD AMOUNT OF THE BUSINESS, WHEN IT WAS DECIDED TO BUY THE LAND AND T O START MANUFACTURING ACTIVITY. BUT ITA NO.3050/AHD/04 & 2375/AHD/206 A.Y. 01-02 AHMEDABAD FINVEST CO.PVT. LTD. V. ITO WD-1(4), ABD PAGE 7 THE BUSINESS DID NOT MATERIALIZE AND FINALLY, THE A SSESSEE-COMPANY DECIDED NOT TO BUY THE LAND. IN VIEW OF THE ABOVE FACTS AND THE ARGUMENTS OF THE LD. COUNSEL FOR THE ASSESSEE AND ALSO OF LD. SR. DEPARTMENTAL REPRESENTATIVE, WE ARE OF THE VIEW THAT IN THE PRESENT CASE THE NEW PROJECT HAS NEVER MATURED. THE EXPENDITURE INCU RRED BY THE ASSESSEE HAS, THEREFORE, TO BE WRITTEN OFF. THE BUSINESS WOULD CERTAINLY COME W ITHIN THE TEST OF IDENTITY LAID DOWN BY THE SUPREME COURT IN THE ABOVE CITED CASE LAW, AND SINC E NO BENEFIT OF ENDURING NATURE RESULTED TO THE ASSESSEE, THE EXPENDITURE IN QUESTION CANNOT BE TREATED TO BE OF CAPITAL NATURE AND THIS ADMITTED FACT THAT THE ADVANCE WAS PAID FOR AC QUIRING THE LAND TO SET UP A FACTORY BUT WHEN THE LAND WAS NOT ACQUIRED, NO CAPITAL ASSET CA ME INTO EXISTENCE, THEREFORE THERE IS NO QUESTION OF NOT ALLOWING THIS EXPENDITURE AS REVENU E. IF ANY, ASSET IS ACQUIRED AND IF IT IS A BENEFIT OF ENDURING NATURE, THEN, OF COURSE, THE AS SESSEE CANNOT GET DEDUCTION OF THE AMOUNT FOR ACQUISITION OF LAND AS REVENUE EXPENDITURE. WHE N LAND WAS NOT ACQUIRED, NO CAPITAL ASSET HAS BEEN ACQUIRED AND THEREFORE, THE PAYMENT OF RS. 9.50 LAKHS IS TO BE ALLOWED AS A BUSINESS LOSS. IN VIEW OF THE ABOVE, WE ALLOW THE C LAIM OF THE ASSESSEE AS BUSINESS LOSS AND THE FINDINGS OF THE LOWER AUTHORITIES ON THIS ISSUE ARE REVISED AND THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED. NOW COMING TO ASSESSEES APPEAL IN ITA NO.2375/AHD/ 2006. 10. SINCE WE HAVE ALREADY DELETED THE ADDITION IN T HE QUANTUM APPEAL OF THE ASSESSEE IN ITA NO.3050/AHD/2004 , THE PENALTY LEVIED BY THE ASSESSING OFFICER AND C ONFIRMED BY THE CIT(A) WILL NOT SURVIVE. ACCORDINGLY, WE DELETE THE PENALTY AND THIS ISSUE OF THE ASSESSEES APPEAL IS ALLOWED. 11. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 16/10/2009 SD/- SD/- (D.C.AGRAWAL) (MAHAV IR SINGH) (ACCOUNTANT MEMBER) (JUDICIAL MEMBER) AHMEDABAD, DATED : 16/10/2009 *DKP COPY OF THE ORDER FORWARDED TO :- 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT(APPEALS)- V, AHMEDABAD 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD