ITO, New Delhi V. M/s. Frontier Land Development Pvt. Ltd., New Delhi

ITA 5947/DEL/2016

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 5169 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 21-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHIMA NEB
• Keywords: Capital asset; Business expenditure; Revenue expenditure; Capital expenditure; Set aside
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH: B, NEW DELHI) BEFORE SH. N. K. BILLAIYA, ACCOUNTANT MEMBER AND SH. SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO:-5947/DEL/2016 ( ASSESSMENT YEAR: 2012-13) INCOME TAX OFFICER WARD 9 (3), ROOM NO.413A, 4 TH FLOOR, C. R. BUILDING NEW DELHI VS. M/S. FRONTINER LAND DEVELOPMENT PVT. LTD. D-293, DEFENCE COLONY, NEW DELHI 24 (PAN NO. AAACF8742M) APPELLANT RESPONDENT APPELLANT BY : MS. ASHIMA NEB, SR. DR RESPONDENT BY : SH. SALIL AGGARWAL, ADVOCATE SH. SHAILESH GUPTA, CA SH. MADHUR AGGARWAL, ADVOCATE DATE OF HEARING : 27.05.2019 DATE OF PRONOUNCEMENT : 28.05.2019 ORDER PER: N. K. BILLAIYA, AM THIS APPEAL BY THE REVENUE IS PREFERRED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX [APPEALS]-3, NEW DELHI, DATED 10.08.2016 PERTAINING TO A.Y 2012-13. 2 2. THE ONLY GRIEVANCE OF THE REVENUE IS THAT THE CI T(A) ERRED IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER AMOUNTIN G TO RS.3.50 CRORES ON ACCOUNT OF FORFEITURE OF ADVANCE. 3. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEED INGS THE ASSESSING OFFICER NOTICED THAT THE ENTIRE CAPITAL GAINS AND I NTEREST INCOME HAS BEEN OFFSET WITH THE AMOUNT OF RS.3.50 CRORES CLAIMED AS FORFEITURE OF ADVANCE. THE ASSESSEE WAS ASKED TO JUSTIFY THE OFFSET. THE ASSESSEE WAS FURTHER ASKED TO SHOW CAUSE WHY THE FORFEITURE OF ADVANCE F OR PURCHASE OF PROPERTY SHOULD NOT BE TREATED AS A CAPITAL EXPENDI TURE. 4. IN ITS REPLY THE ASSESSEE SUBMITTED THAT THE MAI N OBJECT OF THE COMPANY IS REAL ESTATE DEVELOPMENT AND THE ADVANCE WAS GIVEN DURING THE NORMAL COURSE OF BUSINESS. THE FORFEITURE OF THE S AME HAS BEEN TREATED AS ON REVENUE LOSS. THE ASSESSEE FURNISHED THE COPY O F CONFORMATION FROM HDIL REGARDING FORFEITURE OF ADVANCE AGAINST PROPER TY AND ALSO FURNISHED COPY OF BANK ACCOUNT HIGHLIGHTING ADVANCE GIVEN FOR PROPERTY. 5. THE REPLY FILED BY THE ASSESSEE DID NOT FIND FAV OUR WITH THE ASSESSING OFFICER WHO OBSERVED AS UNDER :- 3 D. E. F. G. H. 1 4 I. 6. AFTER MAKING THE AFOREMENTIONED OBSERVATIONS, TH E ASSESSING OFFICER WAS CONVENIENCE THAT THE FORFEITURE OF ADVANCE GIVE N IN 2004 IS NOTHING BUT COLORFUL DEVICE TO ADJUST THE CAPITAL GAINS. TH E ASSESSING OFFICER WAS OF THE STRONG BELIEF THAT THE FORFEITURE HAS THE CHARA CTER OF CAPITAL EXPENDITURE AND ACCORDINGLY MADE THE ADDITION OF RS.3.50 CRORES . 7. ASSESSEE STRONGLY AGITATED THE MATTER BEFORE THE CIT(A) AND REITERATED ITS CLAIM OF FORFEITURE AS REVENUE EXPEN DITURE. 8. AFTER CONSIDERING THE FACTS AND THE SUBMISSIONS AND AFTER CONSIDERING THE SOME JUDICIAL DECISIONS THE CIT(A) CONCLUDED AS UNDER :- 2.2 IN THE INSTANT CASE THE ADVANCE OF RS.3.50 CRO RE WAS GIVEN IN THE ORDINARY COURSE OF BUSINESS. IF THE EXPENDITURE IS MADE FOR ACQUIRING OR BRINGING INTO EXISTENCE AN ASSET OR ADVANTAGE FOR THE ENDURING BE NEFIT OF THE BUSINESS, IT IS PROPERLY ATTRIBUTABLE TO THE CAPITAL AND IS OF THE NATURE OF CAPITAL EXPENDITURE. ON THE OTHER HAND, IT IS NOT MADE FOR THE PURPOSE OF B RINGING INTO EXISTENCE ANY SUCH ASSET OR ADVANTAGE BUT FOR RUNNING THE BUSINESS OR WORKING IT WITH A VIEW TO PRODUCE THE PROFITS, IT IS A REVENUE EXPENDITURE. T HE ADVANCE OF RS.3.50 CRORE WAS GIVEN IN THE ORDINARY COURSE OF BUSINESS TO PURCHAS E THE LAND FOR THE DEVELOPMENT OF THE REAL ESTATE. THE FORFEITURE OF THE ADVANCE H AS BEEN MADE BY M/S HDIL 5 PURELY ON THE REVENUE ACCOUNT. IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSING OFFICER IS DIRECTED TO TREAT THE ADVA NCE BEING GIVEN IN THE ORDINARY COURSE OF BUSINESS AND RIGHTLY TREATED AS LOSS INCU RRED BY THE COMPANY. THE ADDITION OF RS.3,50,00000/- MADE BY THE ASSESSING O FFICER IS DELETED. 9. AGGRIEVED BY THIS THE REVENUE IS BEFORE US. 10. THE DR STRONGLY SUPPORTED THE FINDINGS OF THE A SSESSING OFFICER AND IN SUPPORT RELIED UPON THE DECISION OF HONBLE SUPR EME COURT IN THE CASE OF DURGA PRASAD MORE REPORTED IN 82 ITR 540, SUMATI DA YAL REPORTED IN 214 ITR 801 AND MC DOWELL & COMPANY LIMITED REPORTED IN 1986 AIR 649. IT IS THE SAY OF THE DR THAT THE CIT(A) IGNORED THE FACTS HIGHLIGHTED BY THE ASSESSING OFFICER TREATING THE TRANSACTION AS A COL OURABLE DEVICE. 11. PER CONTRA THE COUNSEL FOR THE ASSESSEE VEHEMEN TLY SUPPORTED THE FINDINGS OF THE CIT(A). IT IS THE SAY OF THE COUNS EL THAT IT IS INCORRECT TO SAY THAT THE TRANSACTION IS A COLOURABLE DEVICE WHEN TH E SAME HAS BEEN ACCEPTED BY THE ASSESSING OFFICER WHILE TREATING TH E WRITE OFF AS CAPITAL EXPENDITURE. 12. WE HAVE GIVEN A THOUGHTFUL CONSIDERATION TO THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISPUTE THAT THE FO RFEITURE OF RS.3.50 CRORES CLAIMED BY THE ASSESSEE AS REVENUE EXPENDITURE HAS BEEN TREATED BY THE ASSESSING OFFICER AS CAPITAL EXPENDITURE. THIS CONC LUSIVELY ESTABLISHES THE 6 GENUINENESS OF THE TRANSACTION AND THEREFORE, CANNO T BE ACCEPTED AS A COLOURABLE DEVICE. ALL THAT IS NOW REQUIRED TO BE D ECIDED IS WHETHER THE WRITE OFF IS A CAPITAL EXPENDITURE AND REVENUE EXPE NDITURE. THE JUDICIAL DECISIONS RELIED UPON BY THE LD. DR (SUPRA) WOULD D O NO GOOD TO THE REVENUE. 13. THERE IS ALSO NO DISPUTE THAT THE ADVANCE FOR T HE PURCHASE OF PROPERTY GIVEN TO HDIL WAS GIVEN IN THE YEAR 2004. AS PER THE AGREEMENT THE ASSESSEE HAD TO PAY THE BALANCE AMOUNT OF RS.8. 15 CRORES WITHIN THREE YEARS FROM THE DATE OF AGREEMENT. THE DEAL COULD N OT BE MATERIALIZED DUE TO THE INABILITY OF THE ASSESSEE TO PAY BALANCE SUM OF MONEY. THIS IS CLEAR FROM THE CONFORMATION LETTER OF HDIL WHICH READS AS UNDER :- 1. 2. 3. THE BALANCE AMOUNT OF RS.8.15 CRORES WAS EXPECT ED TO BE PAID BY THE COMPANY OUT OF INTER CORPORATE LOANS AND LOANS FROM BANKS / FIN ANCIAL INSTITUTIONS. 7 14. IN OUR CONSIDERED OPINION THE ASSESSING OFFICER CANNOT STEP INTO THE SHOES OF THE ASSESSEE SO AS TO HOLD THAT WHEN THE F UNDS WERE AVAILABLE WHY THE BALANCE SUM OF MONEY WAS NOT PAID. 15. AS MENTIONED ELSEWHERE BY TREATING THE FORFEITU RE AS A CAPITAL EXPENDITURE, THE ASSESSING OFFICER HIMSELF HAS ACCE PTED THE TRANSACTION OF ADJUSTMENT OF RS.3.50 CRORES AND ITS WRITE OFF / FO RFEITURE SUBSEQUENTLY. ON IDENTICAL SET OF FACTS THE COORDINATE BENCH IN THE CASE OF REKHI LAMBA REALTORS VS. ITO IN ITA NO.888/MUM/2009 HELD AS UND ER :- AFTER CONSIDERING THE RIVAL CONTENTIONS AND RELEV ANT RECORD. WE FIND THAT THE CIT(A) HAS NOT SUBSCRIBED THE VIEW T AKEN BY THE ASSESSING OFFICER ON THE DISALLOWANCE OF THE CLAIM O F THE ASSESSEE BUT REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUN D THAT FORFEITURE EARNEST MONEY IS A CAPITAL LOSS TO THE ASSESSEE. I T IS UNDISPUTED FACT THAT THE FORFEITURE MONEY DEPOSITED WAS AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT EXECUTED BETWEEN THE CID CO AND THE ASSESSEE AND NOT BECAUSE OF IN VIOLATION OF ANY LAW WHICH WOULD AMOUNTS TO ANY OFFENCE AND AN ACT WHICH PROHIBITED B Y LAW. THEREFORE, THE FORFEITURE OF THE EARNEST MONEY BY TH E CIT(A) AS PER THE TERMS OF THE AGREEMENT DOES NOT FALL UNDER THE EXPLANATION TO SECTION 37 (1). AS FAR AS THE NATURE OF LOSS IS CO NCERNED SINCE THE 8 ASSESSEE IN THE BUSINESS OF SALE PURCHASE OF THE PROPERTY/ LAND, THEREFORE, THE EARNEST MONEY PAID BY THE ASSESSEE WA S FOR PURCHASE OF PLOT OF LAND WHICH SHOULD HAVE BEEN STOCK IN TRAD E OF THE ASSESSEE AND NOT FOR ACQUISITION OF CAPITAL ASSET. ACCORDINGLY, LOSS DUE TO THE FORFEITURE OF THE EARNEST MONEY DEPOSITE D CANNOT BE A CAPITAL LOSS. THE EARNEST MONEY DEPOSIT WAS MADE BY THE ASSESSEE WAS NOT FOR ACQUIRING OF ANY CAPITAL ASSET FOR INVES TMENT OF BUSINESS ASSETS BUT IT WAS DEPOSIT FOR THE BUSINESS OF THE AS SESSEE I.E. THE SALE AND PURCHASE OF LAND. ACCORDINGLY, THE FORFEI TURE OF EARNEST MONEY IN THE CASE IN HAND IS A BUSINESS EXPENDITURE . THEREFORE, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND TH E CLAIM OF THE ASSESSEE IS ALLOWED. 16. CONSIDERING THE FACTS IN TOTALITY, IN THE LIGHT OF THE DECISION OF THE COORDINATE BENCH WE DO NOT FIND ANY REASON TO INTER FERE WITH THE FINDINGS OF THE CIT(A). THE APPEAL FILED BY THE REVENUE IS DISMISSED. 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28.05.2019. SD/- SD/- (SUDHANSHU SRIVASTAVA) (N.K.BILLAIYA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 28.05.2019 NEHA 9 COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI DATE OF DICTATION 27.05.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 28.05.2019 DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT 2 8 . 0 5 . 2 0 1 9 DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER