RELIANCE PROLIFIC TRADERS P. LTD, MUMBAI V. ITO WD 5(3)(1), MUMBAI

ITA 7326/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2844 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 13-12-2013
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR
• Assessee Lawyers: ARVIND SONDE; RITIKA JOSHI
• Keywords: Capital asset; Business income; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI , , , BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER , AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA NO.7326/MUM/2013 ASSESSMENT YEAR: 2010-11 RELIANCE PROLIFIC TRADERS P. LTD., 3 RD FLOOR, COURT HOUSE, LOKMANYA TILAK MARG, DHOBI TALAO, MUMBAI -400002 / VS. ITO WD 5 (3)(2) AAYAKAR BHAVAN, M.K. RD. MUMBAI- 20 (ASSESSEE ) (REVENUE) P.A. NO. AABCH6106L !' / ASSESSEE BY SHRI ARVIND SONDE & MS. RITIKA JOSHI (AR) / REVENUE BY SHRI JEETENDRA KUMAR (DR) # $ % / DATE OF HEARING : 23/09/2015 $ % / DATE OF ORDER: 28/10/2015 / O R D E R PER ASHWANI TANEJA (ACCOUNTANT MEMBER): THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE A GAINST THE ORDERS OF LD. COMMISSIONER OF INCOME TAX (APPEA LS) -9, RELIANCE PROLIFIC TRADERS PVT. LTD. 2 MUMBAI {IN SHORT, CIT(A)}, FOR THE ASSESSMENT YEA R 2010-11 DATED 18.10.2013, DECIDED AGAINST THE ASSESSMENT OR DER PASSED BY THE ASSESSING OFFICER (IN SHORT AO) U/S 143(3) OF THE ACT. THE GROUNDS RAISED BY THE ASSESSEE ARE REP RODUCED BELOW: 1. GROUND NO.1: LOSS ON LAND PURCHASE DEAL TERMINA TION: (I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) [HEREINAFTER REFERRED TO AS CIT(A)] ERRED IN DISALL OWING LOSS OF RS. 1,10,00,000/- INCURRED DUE TO TERMINATION OF LAND DEAL UNDERTAKEN BY THE APPELLANT AS BUSINESS LOSS A ND TREATING THE SAME AS CAPITAL LOSS. (II) HE FAILED TO APPRECIATE THAT THE TYPE OF BUSIN ESS IN WHICH THE APPELLANT WAS ENGAGED, SUCH LOSS IS NORMA L BUSINESS LOSS AND SHOULD HAVE BEEN ALLOWED AS SUCH. (III) THE APPELLANT PRAYS THAT THE LOSS AS INCURRED BY IT BE ALLOWED AS BUSINESS LOSS. 2. GROUND NO.2: DISALLOWANCE OF OPERATING AND OTHER EXPENSES: (I) THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISA LLOWANCE OF A SUM OF RS.69,49,764/- OUT OF NORMAL OPERATING EXPENSES BY TREATING THE SAME AS CAPITAL EXPENDITUR E. . (II) HE FAILED TO APPRECIATE THAT SUCH EXPENDITURE WAS INCURRED IN RELATION TO EXISTING FIXED ASSETS OF TH E APPELLANT AND THEREFORE WAS REVENUE EXPENDITURE AND SHOULD HA VE BEEN ALLOWED AS SUCH. (III) THE APPELLANT PRAYS THAT THE CIT(A)'S ACTION OF CONFIRMING THE A.O.'S TREATMENT OF CURRENT REVENUE EXPENDITURE AS CAPITAL EXPENDITURE IS TOTALLY UNJUS TIFIED AND DISALLOWANCE MADE ON THIS GROUND BE DELETED. 2. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND, VAR Y OR ALTER INCLUDING BY SUBSTITUTION ANY OF THE GROUNDS OF APPEAL AS THEY OR THEIR REPRESENTATIVES MAY THINK F IT. 2 . THIS APPEAL HAS BEEN ARGUED BEFORE US BY SHRI ARV IND SONDE & MS. RITIKA JOSHI LEARNED COUNSEL OF THE ASS ESSEE AND SHRI JEETENDRA KUMAR DEPARTMENTAL REPRESENTATIVE (DR). RELIANCE PROLIFIC TRADERS PVT. LTD. 3 3. GROUND NO. 3: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN DISALLOWING LOSS OF RS. 1,10,00,000/- INCURRED DUE TO TERMINATION OF LAND DEAL UNDERTAKEN BY THE ASSESSEE COMPANY AS BUSINESS LOSS, BY TREATING THE SAME AS CAPITAL LOSS. 3.1. THE BRIEF FACTS, AS CULLED OUT FROM ORDERS OF LOWE R AUTHORITIES, ARE THAT THE ASSESSEE COMPANY HAVING I NCOME FROM DEVELOPMENT OF COMMERCIAL PROPERTIES ETC. IT F URNISHED RETURN OF INCOME FOR ASSESSMENT YEAR 2010-11 ON 04. 10.2010 DISCLOSING TOTAL INCOME OF RS. NIL, AND CLAIMED CUR RENT YEAR LOSS OF RS.63,33,912/. IN THE ASSESSMENT PROCEEDING S, THE AO ASKED THE ASSESSEE WHY THE LOSS CLAIMED ON LAND DEA L TERMINATION AMOUNTING TO RS. L,38,57,823/- SHOULD N OT BE DISALLOWED BEING CAPITAL LOSS TO THE COMPANY. THE A SSESSEE SUBMITTED THAT THE DETAILS OF LOSS ON LAND PURCHASE DEAL CONSISTS OF TWO PARTS I.E. THE LOSS ON KARNATAKA ST ATE FINANCIAL CORPORATION (KSFC) RS.28,57,823/- AND THE LOSS ON HYDERABAD PROPERTY RS.1,10,00,000/-. IN THE CASE OF FIRST LAND DEAL I.E. KSFC, THE ASSESSEE HAD PAID THE FULL AMOU NT AND HAD OBTAINED LEASE DEED IN THEIR FAVOUR. BUT SUBSEQUENT LY, THE ORIGINAL OWNER OF THE LAND SUCCEEDED IN GETTING THE LAND DEAL CANCELLED AND ACCORDINGLY THE DEAL WAS CANCELLED AN D THE ASSESSEE SUFFERED LOSS OF RS.28,57,823/-. THE AO AC CEPTED THE SAME AS THE SAID EXPENDITURE WAS INCURRED TO GET TH E DEPOSIT AMOUNT REFUNDED ALONG WITH INTEREST, THEREFORE THE CLAIM OF THE APPELLANT COMPANY WAS ALLOWED ON THIS ACCOUNT. HOWEVER, THE A.O. DID NOT ALLOW THE OTHER CLAIM THAT THE BUI LDERS CUM RELIANCE PROLIFIC TRADERS PVT. LTD. 4 DEVELOPER OF HYDERABAD PROPERTY ALSO INCURRED EXPEN DITURE OF RS. 1,10,00,000/- ON APPLYING FOR AND GETTING VARIO US CLEARANCES REQUIRED FOR BUSINESS PURPOSE. THE AO DI SALLOWED THE LOSS OF RS. L,L0,00,000/- INCURRED ON TERMINATI ON OF LAND DEAL BY THE ASSESSEE ON THE GROUND THAT THE SAID LO SS WAS ON ACCOUNT OF CAPITAL ASSET, WHICH CANNOT BE ALLOWED A S REVENUE EXPENDITURE. 3.2. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER I N APPEAL BEFORE THE LD. CIT(A) AND FILED DETAILED WRI TTEN SUBMISSIONS. RELEVANT PORTION OF THE SUBMISSION IS REPRODUCED HEREUNDER FOR THE SAKE OF READY REFERENC E: 'GROUND NO.1: LOSS ON LAND PURCHASE DEAL TERMINATIO N: 2. THE APPELLANT COMPANY WAS INCORPORATED ON 20.07.2005. ONE OF THE MAIN OBJECTS OF THE COMPANY AS MENTIONED IN THE OBJECT CLAUSE OF THE MEMORANDUM OF ASSOCIATION OF THE COMPANY [RELEVANT EXTRACT ENCLOS ED IN ANNEXURE 1J ON ITS INCORPORATION ARE AS FOLLOWS: 2. TO BUILD, CONSTRUCT, ACQUIRE, ERECT, INSTALL, OW N, PURCHASE, HIRE, SELL, EXCHANGE, OPERATE, MAINTAIN, DEVELOP, PROMOTE, MANAGE, REPAIR, ADMINISTER, PROVIDE COMMUNICATION INFRASTRUCTURE FACILITIES FOR THE PUR POSE OF BUSINESS OF THE COMPANY. WE WOULD LIKE TO SUBMIT THAT PRIMARY BUSINESS OF TH E APPELLANT CONSISTS OF ACQUISITION AND DEVELOPMENT O F COMMERCIAL PROPERTIES. THE APPELLANT HAD ACQUIRED V ARIOUS LAND PARCELS FOR THE PURPOSE OF ITS BUSINESS, THE D ETAILS OF WHICH WERE GIVEN DURING THE ASSESSMENT PROCEEDING. WE ENCLOSE HEREWITH THE LIST OF PROPERTIES ON THE BALA NCE SHEET OF THE COMPANY AS ON 31.03.2009 AND 31.03.2010 IN ANNEXURE 2. DURING THE YEAR, THE ASSESSEE INCURRED 'LOSS ON DEA L TERMINATION' OF RS 1,38,57,823/- IN THE ORDINARY CO URSE OF CARRYING ON BUSINESS AND BEING, A BUSINESS LOSS WHI CH IS REVENUE IN NATURE, WAS DEBITED TO PROFIT AND LOSS A CCOUNT. RELIANCE PROLIFIC TRADERS PVT. LTD. 5 THE DETAILS OF LOSS ON DEAL TERMINATION ARE ENCLOSE D HEREWITH IN ANNEXURE 3. A. LOSS ON KARNATAKA STATE FINANCIAL CORPORATION (KSFC) 28,57,823 B. LOSS ON HYDERABAD PROPERTY 1,10,00,000 TOTAL LOSS 1,38,57,823 THE LOSS HAS BEEN INCURRED ON 2 LAND DEALS WHICH WE RE EITHER PARTIALLY COMPLETED OR WERE UNDER NEGOTIATIO N. IN THE CASE OF FIRST LAND DEAL I.E. KSFC, WE HAD PAID THE FULL AMOUNT AND HAD OBTAINED LEASE DEED IN OUR FAVOUR. B UT SUBSEQUENTLY, THE ORIGINAL OWNER OF THE LAND SUCCEE DED IN GETTING THE LAND DEAL CANCELLED AND ACCORDINGLY THE DEAL WAS CANCELLED AND WE SUFFERED LOSS OF RS 28,57,823. IN THE SECOND DEAL OF HYDERABAD, THE FACTS ARE AS F OLLOWS; (I) THE APPELLANT COMPANY, RELIANCE PROLIFIC, TRADE RS PVT. LTD. HAD ENTERED INTO AGREEMENT DT. 26.11.2007 UNDE R REGISTRATION NO. 591/07 DT. 06.12.2007 FOR PURCHASE OF A PIECE OF LAND ADMEASURING 1.5 ACRES IN HYDERABAD FR OM TAPADIA DEVELOPERS/KASANI HOTELS & RESORTS FOR A TO TAL CONSIDERATION OF RS. 81,77,13,600/-. PURSUANT TO TH E AFORESAID AGREEMENT, THE PURCHASER PAID PART PAYMEN T OF RS. 23,75,10,000/- TO THE BUILDER/DEVELOPER ON 26.11.2007. THE BUILDERS/DEVELOPER OF HYDERABAD PROPERTY ALSO INCURRED EXPENDITURE OF RS. 1,10,00,0 00/- ON APPLYING FOR AND GETTING VARIOUS CLEARANCES REQUIRE D FOR BUSINESS PURPOSE. ON RECONSIDERATION OF THE PURCHAS E PROPOSAL, IT WAS REALIZED THAT THE HYDERABAD LOCATI ON WHICH WAS SELECTED EARLIER DID NOT SUIT THE BUSINES S REQUIREMENTS AND RATHER THAN INCURRING FURTHER EXPENDITURE, IT WAS CONSIDERED PRUDENT TO CANCEL TH E DEAL AND RECALL BACK THE DEPOSIT OF RS.23,75,10,000/- PA ID TO THE VENDOR. ACCORDINGLY ON 29.08.2009, A CANCELLATION DEED WAS ENTERED AND IT WAS DECIDED THAT THE VENDOR NAMELY TAPADIA DEVELOPERS 1 KASANI HOTELS & RESORTS SHALL REFUND THE DEPOSIT OF RS. 23,75,10,000/- PAID BY TH E PURCHASER AFTER DEDUCTING EXPENDITURE OF RS. 1,10,00,000/- INCURRED BY THE VENDOR ON APPLYING FO R AND GETTING VARIOUS CLEARANCES REQUIRED FOR BUSINESS PU RPOSE. COPY OF THE CANCELLATION DEED IS BEING PROVIDED IN ANNEXURE 4. RELIANCE PROLIFIC TRADERS PVT. LTD. 6 (VI) AS A PART OF CANCELLATION DEED THE ACTUAL EXPE NDITURE INCURRED BY THE VENDOR HAD TO BE REIMBURSED. IT IS THESE EXPENSES OF RS. 1,10,00,000/- WHICH HAS RESULTED IN TO LOSS ON DEAL TERMINATION. THE ASSESSING OFFICER (HEREINAFTER REFERRED AS AO; HAS DISALLOWED THE AFO RESAID LOSS BY MAKING VARIOUS OBSERVATIONS IN THE ASSESSME NT ORDER. WE WOULD LIKE TO SUBMIT THAT THIS 'LOSS ON DEAL TERMINATION' HAS BEEN INCURRED IN THE ORDINARY COUR SE OF CARRYING ON BUSINESS AND IS A BUSINESS LOSS WHICH I S REVENUE IN NATURE BECAUSE THE PROPERTIES ARE PURCHA SED AND SOLD TO EARN REVENUE AND THE ACTIVITY HAS A DIR ECT NEXUS WITH GENERATING REVENUE AND EARNING PROFIT. ACCORDINGLY, SUCH LOSS WHICH HAS BEEN INCURRED IN T HE ORDINARY COURSE OF CARRYING ON BUSINESS IS A BUSINE SS LOSS AND IS ALLOWABLE AS SUCH. IN THE LAND DEAL OF KSFC, THE ASSESSING OFFICER HAS LOSS OF RS 28,57,823/-, BEING LOSS INCURRED IN THE ORDINARY COURSE OF BUSINESS. IN THE SECOND DEAL OF HYDERABAD, WE HAD PAID PART CONSIDERATION, BUT SUBSEQUENT REALIZATION THAT THE DEAL WAS NOT SUITABLE FOR BUSINESS PURPOSES, THE LAND PU RCHASE AGREEMENT WAS CANCELLED AND THE EXPENDITURE INCURRE D BY THE VENDOR OF THE LAND HAD TO BE REIMBURSED TO THEM , WHICH RESULTED IN LOSS ON SUCH DEAL CANCELLATION. W E WOULD FURTHER LIKE TO POINT OUT THAT THE MAIN OBJEC T OF THE COMPANY ON ITS INCORPORATION WAS TO CARRY ON THE BU SINESS OF PURCHASING OF COMMERCIAL PROPERTIES AND DEVELOPI NG THEM FOR BUSINESS PURPOSES AS DULY REFLECTED IN THE MAIN OBJECTS OF THE COMPANY SIGHTED EARLIER. ON PERUSAL OF THE LIST OF PROPERTIES IN THE BALANCE SHEET OF THE COMPANY IT WILL CLEARLY INDICATE THAT THE COMPA NY IS HOLDING NUMBER OF PROPERTIES AS ON 01.04.2009 THE T OTAL VALUE OF WHICH AMOUNTS TO RS.908.06/- CRORES. THE COMPANY HAD STARTED THE PROCEDURE OF ACQUISITION OF VENOUS PROPERTIES AS EARLY AS MARCH 2006. THE NATUR E AND VOLUME OF ACQUISITION CLEARLY INDICATE THAT SUCH AC QUISITION IS FOR BUSINESS PURPOSES, THOUGH (FOR TECHNICAL REA SONS), SUCH PROPERTIES MIGHT HAVE BEEN REFLECTED UNDER THE HEAD 'FIXED ASSETS' IN THE BALANCE SHEET. CONSIDERING TH E VOLUME OF TRANSACTION ENTERED AND THE NATURE OF BUS INESS AS REFLECTED IN COMPANIES' ACCOUNTS AND DIRECTORS R EPORT, RELIANCE PROLIFIC TRADERS PVT. LTD. 7 ALL TRANSACTIONS RELATING TO PURCHASE OF LAND ARE P ART OF BUSINESS TRANSACTIONS AND ANY LOSS OR GAIN ARISING FROM SUCH TRANSACTION IS BUSINESS LOSS AND GAIN. WE DRAW YOUR ATTENTION TO DECISION OF DELHI HIGH COURT IN THE CA SE OF CIT VS NEW DELHI HOTELS LTD. (345 IR 0001) IN WHICH ON AN APPEAL BEING FILED BY THE ASSESSE, THE HIGH COURT H AD ALLOWED THE LOSS INCURRED ON ACCOUNT OF ADVANCES GI VEN FOR PURCHASE OF PROPERTIES WHICH SUBSEQUENTLY HAD TO BE WRITTEN OFF DUE TO THE FACT THAT PROPERTY WAS NOT H ANDED OVER TO THE ASSESSE. THE APPELLANT WANTS TO REFER TO THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT V. DHOOMKETU BUILDERS AND DEVELOPERS PVT. LTD [ITA 52812012 & 529/2012]. THE RELEVANT EXTRACT IS AS FOLLOWS: IN THE AFORESAID DECISION OF DELHI HIGH COURT, THE HIGH COURT HAS REFERRED TO THE DECISION OF THE ITAT AND HAS CONFIRMED THAT ON THE BASIS OF FACTS OF THE CASE, I N THE CASE OF REAL ESTATE DEVELOPERS, AS SOON AS THE FIRST ACT ION OF DEPOSITING THE EARNEST MONEY FOR THE PURCHASE OF LA ND IS UNDERTAKEN AND CORRESPONDING LOAN IS OBTAINED FOR T HE PURPOSE OF PAYMENT OF SUCH EARNEST MONEY, THE BUSIN ESS WOULD BE REGARDED AS HAVING BEEN SET UP AND ACCORDI NGLY, THE INTEREST RECEIPT ON REFUND OF EARNEST MONEY AND THE INTEREST PAYMENT ON THE LOAN TAKEN FOR PAYMENT OF S UCH EARNEST MONEY BOTH CONSTITUTE BUSINESS INCOME AND ACCORDINGLY, THE NET LOSS BEING THE DIFFERENCE OF I NTEREST RECEIVED AND INTEREST PAID IS A BUSINESS LOSS AND S HOULD BE ASSESSED AS SUCH. IN OUR CASE, THE FACT THAT WE HAVE BEEN PURCHASING PARCELS OF LAND AND BUILDING FOR THE PURPOSE OF BUSINESS IS NOT DENIED AS CAN BE SEEN FROM THE LIST OF PROPERTIES A S PER OUR BALANCE SHEET AS ON 31.03.2009 AND 31.03.2010 AND WHICH HAS BEEN GIVEN AS PER SEPARATE ANNEXURE. ALSO , WE ARE ALREADY HOLDING LARGE NUMBER OF PROPERTIES AND IN RESPECT OF 2 PROPERTY DEALS, THE LOSS OF RS. 1,38,5 7,823/- WORKED OUT AS FOLLOWS HAS BEEN INCURRED: A. LOSS ON KARNATAKA STATE FINANCIAL CORPORATION 28,57,823 B. LOSS ON HYDERABAD PROPERTY 1,10,00,000 TOTAL LOSS 1,38,57,823 RELIANCE PROLIFIC TRADERS PVT. LTD. 8 SINCE IN RESPECT OF LOSS OF (A) THE APPELLANT HAD R ECEIVED INTEREST INCOME OF RS. 1,41,56,951/-, THE AO. HAS A LLOWED THE LOSS OF RS. 28,57,823/-. HOWEVER, IN RESPECT OF LOSS ON CANCELLATION OF DEAL OF 2 ND PROPERTY (B), THE A O. HAS TAKEN A DIFFERENT VIEW AND HAS DECLINED TO ALLOW SUCH LOS S OF RS. 1,10,00,000/-. REGARDING THE A O. 'S REMARKS FOR NOT ALLOWING THE AFORESAID LOSS ON THE GROUND THAT THIS IS A CAPITAL LOSS, WE WOULD LIKE TO SUBMIT THAT ONE OF THE MAIN OBJECTS O F THE COMPANY ON ITS INCORPORATION IS: 2. TO BUILD, CONSTRUCT, ACQUIRE, ERECT, INSTALL, OW N, PURCHASE, HIRE, SELL, EXCHANGE, OPERATE, MAINTAIN, DEVELOP, PROMOTE, MANAGE, REPAIR, ADMINISTER, PROVIDE COMMUNICATION INFRASTRUCTURE FACILITIES FOR THE PUR POSE OF BUSINESS OF THE COMPANY. MOREOVER, AS WE HAVE ALREADY MENTIONED ABOVE THAT T HE APPELLANT HAD ACQUIRED VARIOUS LAND PARCELS FOR THE PURPOSE OF ITS BUSINESS (DETAILS ENCLOSED). IN RESP ECT OF ONE PARTICULAR LAND DEAL, THE APPELLANT WAS FORCED TO C ANCEL THE DEAL DUE TO ITS UN VIABILITY AND ACCORDINGLY IN CURRED A LOSS OF RS. 1,10,00,000/- BEING THE EXPENDITURE INC URRED BY THE VENDOR OF THE LAND DURING THE PERIOD WHEN TH E LAND DEAL WAS BEING NEGOTIATED. SUCH LOSS WAS APPROPRIAT ELY DEBITED UNDER THE HEAD 'LOSS ON DEAL TERMINATION' I N THE PROFIT & LOSS ACCOUNT. WE HAVE ALSO OFFERED INTERES T INCOME ARISING OUT OF THE CANCELLATION OF LAND DEAL TRANSACTION OF KSFC AS INCOME OF THE CURRENT YEAR AND WE HAD NOT PAID ANY INTEREST ON THE FUNDS BORROWED FOR PAYING DEPOSIT FOR THE AFORESAID BOTH THE PROPERTIE S. BOTH THE STREAMS OF INTEREST INCOME AND LOSS ON DEA L TERMINATION FORM PART OF THE SAME SET OF TRANSACTIO NS AND WE HAVE NOT CLAIMED ANY INTEREST EXPENDITURE AGAINS T SUCH INTEREST INCOME. A PERUSAL OF THE AFORESAID FACTS INDICATES THAT IN ONE CASE THE DEAL HAD BEEN CANCELLED BY THE SELLER (KSFC) AN D IN THE SECOND CASE TO AVOID FURTHER LOSSES TO THE BUSI NESS IT WAS A PRUDENT DECISION TAKEN BY THE APPELLANT TO CA NCEL THE DEAL AND AVOID FURTHER LOSSES. THE DECISION OF THE ASSESSEE IS IN THE LINE OF BUSINESS OF REAL ESTATE AND IT IS QUITE CLEAR THAT THAT THE ASSESSEE PURCHASED THE PR OPERTIES IN ORDINARY COURSE OF ITS REGULAR BUSINESS ACTIVITY . THE OBJECT CLAUSE OF THE MEMORANDUM OF ASSOCIATION OF T HE RELIANCE PROLIFIC TRADERS PVT. LTD. 9 COMPANY (COPY ENCLOSED) ALSO MENTIONS THE MAJOR ACT IVITIES THE COMPANY DEALS IN AND IS RELEVANT IN THIS REGARD . WE SUBMIT THAT THE OBJECT CLAUSE, OTHER TRANSACTIONS O F PURCHASE AND SALE OF PROPERTIES AND THE HISTORY OF BUSINESS TRANSACTIONS OF THE ASSESSE CLEARLY INDICA TES THAT LOSS OF RS. 1,10,00,000/- IS BUSINESS LOSS AND SHOU LD BE ALLOWED AS SUCH. IN VIEW OF THIS, WE REQUEST YOU TO CONSIDER THE AFO RESAID SUBMISSIONS AND ALLOW THE LOSS OF RS. 1,10,00,000/- . 3.3 . THE SUBMISSIONS OF THE ASSESSEE WERE CONSIDERED I N DETAIL BY LD. CIT(A) BUT THESE WERE NOT ACCEPTED AND THE DISALLOWANCE MADE BY THE AO WAS CONFIRMED. IT WAS H ELD BY THE LD. CIT(A) THAT IT IS AN UNDISPUTED FACT THAT T HE LOSS ON TERMINATION OF LAND DEAL OF RS.1.10 CRORES PERTAINS TO THE CAPITAL ASSET OF THE ASSESSEE I.E. THE LAND, AND AL SO THAT THE ASSESSEE HAS SHOWN THE LAND AS A FIXED ASSET IN ITS BALANCE SHEET. OTHERWISE ALSO, NEITHER THE LAND IN QUESTION IS STOCK IN TRADE IN THE HANDS OF THE ASSESSEE, NOR IS IT, THE BUSINESS OF THE ASSESSEE TO PURCHASE AND SALE LAND. UNDER THESE CIRCUMSTANCES, LD CIT(A) AGREED WITH THE FINDING OF THE A.O THAT THE LOSS OF RS.1.10 CRORE IN THE LAND DEAL OF THE ASSESSEE COMPANY WAS A LOSS IN CONNECTION WITH A CAPITAL ASS ET, THEREFORE, THE SAME WAS NOT ALLOWABLE AS REVENUE EX PENDITURE IN THE HANDS OF THE ASSESSEE COMPANY. 3.4 BEING AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFOR E THE TRIBUNAL. 3.5 DURING THE COURSE OF HEARING BEFORE US, LD. COUNSE L HAS SUBMITTED THAT LOWER AUTHORITIES HAVE ERRED IN TREA TING THE RELIANCE PROLIFIC TRADERS PVT. LTD. 10 LOSS OF RS.1.10 CRORES AS CAPITAL LOSS. IT HAS BEEN SUBMITTED THAT NATURE OF BUSINESS OF THE ASSESSEE HAS BEEN ME NTIONED AT PAGE 4 OF THE ORDER OF LD. CIT(A), AS PART OF WRITT EN SUBMISSIONS OF THE ASSESSEE, AND REPRODUCED BY LD C IT(A). LD. COUNSEL ALSO TOOK US THROUGH VARIOUS PAGES OF THE P APER BOOK CONSISTING OF AGREEMENTS OF HYDERABAD PROPERTY DATE D 26.11.2007 AND COPY OF CONCILIATION DEED WITH VENDO RS. OUR ATTENTION HAS ALSO BEEN DRAWN ON THE DETAILS OF VAR IOUS PIECES OF LAND PURCHASED BY THE ASSESSEE TIME TO TIME. IT HAS BEEN ARGUED THAT THE ASSESSEE HAS BEEN REGULARLY AND FRE QUENTLY PURCHASING PIECES OF LAND TIME TO TIME. OUR ATTENTI ON WAS FURTHER DRAWN ON THE ASSESSMENT ORDER PASSED BY LD. AO WHEREIN LOSS OF RS. 28.57 LAKHS CLAIMED BY THE ASSE SSEE IN THE RETURN OF INCOME DUE TO CANCELLATION OF AN AGREEMEN T IN THE SIMILAR CIRCUMSTANCES, HAS BEEN TREATED AS BUSINESS LOSS BY THE AO. IT WAS THUS ARGUED THAT SINCE THIS LOSS HAS BEEN INCURRED DURING THE COURSE OF BUSINESS, THEREFORE, IT SHOULD BE ALLOWED AS BUSINESS LOSS. IT WAS LASTLY ARGUED THAT NO SUCH DISALLOWANCE HAS BEEN MADE BY THE AO SO FAR, IN ANY PRECEDING YEAR. 3.6. ON THE OTHER HAND, LD. DR HAS SUPPORTED THE ORDERS OF LOWER AUTHORITIES. IT WAS SUBMITTED THAT IMPUGNED A MOUNT OF LOSS IS CAPITAL LOSS. THE ACTION OF LOWER AUTHORITI ES IN TREATING THE SAME AS CAPITAL LOSS IS CORRECT AS PER LAW AND FACTS OF THIS CASE. OUR ATTENTION HAS BEEN DRAWN BY THE LD. DR ON THE BALANCE SHEET OF THE ASSESSEE COMPANY, TO SHOW THAT THE LAND PURCHASED BY THE ASSESSEE HAS NEVER BEEN SHOWN AS P ART OF RELIANCE PROLIFIC TRADERS PVT. LTD. 11 STOCK IN TRADE, RATHER IT HAS BEEN SHOWN AS PART OF THE FIXED ASSETS. IN FACT THE ASSESSEE DOES NOT HAVE ANY STOC K IN TRADE, AS WOULD BE EVIDENT FROM THE PERUSAL OF THE FINAL A CCOUNTS OF THE ASSESSEE COMPANY. IT WAS FURTHER SUBMITTED THAT TRADING OR DEALING IN LAND IS NOT MAIN OBJECT OF THE ASSESS EE COMPANY, IT MAY BE JUST ONE OF THE OBJECTS. THE BUSINESS OF THE ASSESSEE IS NOT CLEAR. IT IS CERTAINLY NOT DEALING IN LAND. IT WAS FURTHER SUBMITTED THAT COMPLETE FACTS HAVE NOT BEEN PROPERL Y NARRATED BY THE ASSESSEE BEFORE THE AO AND LD. CIT(A). WITH REGARD TO LOSS OF RS.28.57 LAKHS, ALLOWED BY THE AO, IT WAS S UBMITTED BY LD. DR THAT AO HAS FAIRLY ALLOWED THE EXPENSES INC URRED BY THE ASSESSEE ON OTHER DEAL OF A PIECE OF LAND, WHIC H COULD NOT BE FRUCTIFIED. THE NATURE OF IMPUGNED TRANSACTION I S QUITE DIFFERENT FROM THE NATURE OF LOSS INCURRED WITH RES PECT TO THE AMOUNT OF RS.28.57 LAKHS. IT WAS SUBMITTED THAT THE ASSESSEE HAD WRONGLY CLAIMED THE IMPUGNED LOSS AS BUSINESS L OSS, IT WAS APPARENTLY A CAPITAL LOSS, AND THEREFORE, LOWER AUTHORITIES HAVE RIGHTLY TREATED THE SAME AS SUCH. 3.7 WE HAVE CONSIDERED THE SUBMISSIONS MADE BY BOTH TH E SIDES AND FACTUAL MATRIX OF THIS CASE AS WELL AS MA TERIAL PLACED BEFORE US FOR OUR CONSIDERATION. WE FIND THAT IN TH IS CASE FACTS HAVE NOT BEEN THRASHED OUT PROPERLY. THERE ARE CONF USIONS AND CONTRADICTORY STANDS TAKEN BY BOTH THE SIDES I. E. AO AND ASSESSEE. THE ASSESSEE IS CLAIMING THIS LOSS AS BUS INESS LOSS ON ACCOUNT OF CANCELLATION OF DEAL OF PURCHASE OF L AND. BUT THE ASSESSEE HAS SHOWN ALL THE ASSETS AS PART OF FIXED ASSETS. NO AMOUNT OF LAND HAS EVER BEEN SHOWN AS PART OF STOCK IN TRADE, RELIANCE PROLIFIC TRADERS PVT. LTD. 12 EVEN TILL DATE. IN FACT, AS PER ANNUAL ACCOUNTS OF THE ASSESSEE COMPANY, IT DOES NOT HAVE ANY STOCK IN TRADE. THE A SSESSEE HAS CLAIMED THAT ASSESSEE IS IN THE BUSINESS OF SAL E AND PURCHASE OF LAND. BUT WE ARE NOT ABLE TO ACCEPT OR REJECT THIS CONTENTION OF THE ASSESSEE, SINCE FROM THE PERUSAL OF THE PROFIT AND LOSS ACCOUNT OF THE IMPUGNED YEAR OR ANY OTHER YEAR, WE COULD NOT FIND ANY RECEIPTS ARISING TO THE ASSESSE ON ACCOUNT OF SALE OR PURCHASE OF LAND. WE WERE SHOWN THE DETA ILS OF PURCHASE OF LAND DONE BY THE ASSESSEE IN THIS YEAR AS WELL AS IN PAST YEARS, RUNNING INTO HUGE NUMBER. BUT WE WER E NOT ABLE TO GRASP THE PURPOSE OF PURCHASING THESE LANDS . IT WAS SUBMITTED THAT MAIN OBJECT OF THE ASSESSEE COMPANY IS TO DEAL IN THE IMMOVABLE PROPERTIES. THIS CONTENTION OF THE ASSESSEE HAS BEEN OBJECTED TO BY THE LD. DR, ON THE GROUND T HAT THE CORRECT FACTS HAVE BEEN BROUGHT ON RECORD BY THE AO IN THE ASSESSMENT ORDER AT PAGE 6, WHEREIN IT WAS OBSERVED THAT MAIN OBJECT OF THE ASSESSEE COMPANY WAS TO CARRY ON THE TRADING BUSINESS OF VARIOUS PRODUCTS. IN THE MAIN O BJECTS, DEALING IN THE IMMOVABLE PROPERTIES WAS NOT MENTION ED. IT WAS FURTHER OBSERVED IN THE ASSESSMENT ORDER THAT THE O BJECT QUOTED BY THE ASSESSEE COMPANY AS MAIN OBJECT BEFORE US, I S ACTUALLY JUST ONE OF THE ANCILLARY OBJECT OF THE AS SESSEE COMPANY. IT WAS THUS, CONTENDED BY THE LD. DR THAT DEALING IN IMMOVABLE PROPERTY IS NOT MAIN OBJECT OF THE ASSESS EE COMPANY. ON THE OTHER HAND, LD. AO HAS ALSO TAKEN A CONTRADICTORY STAND IN THE ORDER. HE HAS ALLOWED EX PENDITURE INCURRED AGGREGATING TO RS.28.57 LAKHS, WHICH HAD L ED TO A LOSS ON TERMINATION OF DEAL OF SALE OF LAND. IT IS SEEN FROM THE RELIANCE PROLIFIC TRADERS PVT. LTD. 13 COMPUTATION OF INCOME DONE BY THE AO IN THE ASSESSM ENT ORDER THAT INCOME HAS BEEN COMPUTED BY HIM UNDER TH E HEAD INCOME FROM BUSINESS, WHEREIN THIS AMOUNT OF RS.28. 57 LAKHS HAS BEEN ALLOWED AS BUSINESS LOSS, BUT THE IMPUGNED AMOUNT OF LOSS OF RS.1.10 CRORE HAS BEEN DISALLOWED. 3.8 THUS, THERE ARE CONTRADICTORY STANDS, TAKEN BY BOT H THE SIDES AND THERE IS LACK OF CLARITY ON THE FACTS. IN OUR CONSIDERED OPINION THIS ISSUE NEEDS TO GO BACK TO T HE AO. THE AO SHALL REEXAMINE ALL THE FACTS PROPERLY. THE ASSE SSEE SHALL PLACE ALL REQUISITE MATERIAL ON RECORD. THE AO SHAL L THEREAFTER, AFTER GIVING THE ADEQUATE OPPORTUNITY OF HEARING, D ECIDE THE NATURE OF BUSINESS OF THE ASSESSEE AND ACCORDINGLY THEREAFTER HE SHALL DECIDE THE NATURE OF THE TRANSACTIONS ON W HICH IMPUGNED LOSS OF RS.1.10 CRORES HAS BEEN INCURRED. THE ASSESSEE SHALL EXPLAIN AS TO WHY THE IMPUGNED LOSS CAN BE CLAIMED AS REVENUE LOSS, EVEN, WITHOUT THE LAND HAV ING BEEN SHOWN AS PART OF STOCK-IN-TRADE. THE AO SHALL ALSO TAKE INTO CONSIDERATION THIS CRUCIAL ASPECT THAT WHEN LOSS OF RS.28.57 LAKHS HAS BEEN TREATED AS BUSINESS LOSS BY THE AO H IMSELF, THEN WHETHER DIFFERENTIAL TREATMENT CAN BE GIVEN TO THE IMPUGNED LOSS OF RS.1.10 CRORES, IF THE NATURE OF T RANSACTION AND OTHER CONNECTED FACTS ARE SIMILAR. WE ARE SENDI NG THIS ISSUE BACK TO THE FILE OF THE AO TO CLARIFY AND THR ASH OUT ALL THESE ISSUES. THEREFORE, GROUND NO.1 IS SENT BACK T O THE FILE OF THE AO IN TERMS OF OUR DIRECTIONS CONTAINED ABOVE. 4 . GROUND NO. 2: IN THIS GROUND, THE ASSESSEE HAS CHALLENGED THE ACTION OF LD. CIT(A) IN CONFIRMING THE DISALLOW ANCE OF A RELIANCE PROLIFIC TRADERS PVT. LTD. 14 SOME OF RS. 69,49,764/- OUT OF NORMAL OPERATING EXP ENSES BY TREATING THE SAME AS CAPITAL EXPENDITURE. 4.1 THE BRIEF FACTS ARE THAT THE AO DISALLOWED AFORESA ID AMOUNT OF EXPENSE ON THE GROUND THAT THESE RELATED TO PURCHASES OF FREE HOLD LAND AND COMPLETION OF VARIO US FORMALITIES OF PROPERTY PURCHASES LIKE REGISTRATION , STAMP DUTY AND PROPERTY/LAND TAXES ETC. THE ASSESSEE CONTESTED THE MATTER BEFORE THE LD. CIT(A) AND SUBMITTED AS UNDER : AS MENTIONED EARLIER THE APPELLANT IS THE HOLDER O F VARIOUS LAND PARCELS. THE REVENUE EXPENDITURE INCURRED DURI NG THE YEAR IN RESPECT OF VARIOUS ASSETS HAS BEEN DEBITED TO PROFIT & LOSS ACCOUNT. THE DETAILS OF SUCH EXPENDITURE ARE PROVIDED TO THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS. HOWEVER, THE AO HAS TREATED A PART OF SUCH REVENUE EXPENDITURE OF RS. 69,49,764/- AS CAPITAL EXPENDITURE AND HAS DISALLOWED THE SAME. WE ENCLOSE HEREWITH A TABLE INDICATING THE TOTAL EXPENDITURE AS DEBITED IN THE P & L A/C AND AS ALLO WED BY THE A. O. AND ALSO THE EXPENDITURE WHICH HAS BEEN DISALLOWED BY THE A. O. FOR THE YEAR ENDING ON 31.0 3.2009 AND 31.03.2010 IN ANNEXURE 5. THE APPELLANT SUBMITS THAT THE FACT THAT THE BUSINESS HAS BEEN SET UP AND COMMENCED (REFER TO THE DECISION IN THE CASE OF CIT V. DHOOMKETU BUILDERS AND DEVELOPERS PVT. LTD. - COPY ENCLOSED) AND ALSO THE FACT THAT THE APPELLANT ITSE LF WHEREVER THE EXPENDITURE RELATED TO ANY PARTICULAR ASSET/LAND PARCEL HAD DEBITED THE SAME TO THAT PART ICULAR ASSET/LAND PARCEL AND ONLY HAD DEBITED REVENUE EXPENDITURE NOT RELATED TO ANY SPECIFIC ASSET TO TH E P & L A/C, THE ACTION OF THE A. O. IN SELECTIVELY DISALLO WING ALL PROPERTY RELATED EXPENSES BY TREATING THE SAME AS C APITAL EXPENDITURE IS UNJUSTIFIED AND SUCH DISALLOWANCE OU GHT TO BE DELETED.' RELIANCE PROLIFIC TRADERS PVT. LTD. 15 4.2. DURING THE COURSE OF HEARING IT WAS SUBMITTED BY T HE LD. COUNSEL THAT FACTS HAVE NOT BEEN PROPERLY APPRECIAT ED BY THE LOWER AUTHORITIES. THE DETAILS WERE PROVIDED TO THE AO, THEREAFTER NO QUERY WAS ASKED AND INFERENCES WERE D RAWN AGAINST THE ASSESSEE. ATTENTION WAS DRAWN ON THE RE LEVANT PAGES OF THE PAPER BOOK CONTAINING DETAILS AND BREA KUP OF THE IMPUGNED EXPENSES. IT WAS REQUESTED THAT THESE EXPE NSES SHOULD BE ALLOWED AS REVENUE EXPENSES. ON THE OTHER HAND, LD DR HAS ARGUED THAT THE ASSESSEE COULD NOT PROPERLY SUBSTANTIATE ITS CLAIM THAT THESE EXPENSES HAVE BEE N INCURRED FOR CARRYING OUT ITS BUSINESS. IT WAS SUBMITTED BY HIM THAT THESE EXPENSES WERE INCURRED EITHER FOR ACQUIRING THE LAND DURING THE YEAR OR FOR BETTERMENT OF THE LAND ALREA DY ACQUIRED IN EARLIER YEARS, AND IN BOTH SITUATIONS IMPUGNED EXPENSES WOULD BE CAPITAL EXPENSES, AND THEREFORE, RIGHTLY T REATED AS SUCH BY THE LOWER AUTHORITIES. 4.3 WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH MATE RIAL PLACED BEFORE US. IN OUR CONSIDERED OPINION THE FIN DINGS OF THE AO WITH RESPECT TO EXAMINATION AND DETERMINATION OF FACTS WITH RESPECT TO GROUND NO.1 ABOVE MAY HAVE BEARING ON THE ADJUDICATION OF THIS GROUND AS WELL. FURTHER WE FIN D THAT THE ASSESSEE OMITTED TO GIVE PROPER DETAILS AND EVIDENC ES TO SHOW WITH RESPECT OF EACH AND EVERY EXPENSES THAT WHETHE R THE EXPENSE HAS BEEN INCURRED DURING THE COURSE OF THE BUSINESS AND WHETHER THESE EXPENSES HAVE BEEN INCURRED FOR A CQUIRING THE LAND DURING THE YEAR OR FOR MAINTENANCE OF THE LAND/PROPERTIES WHICH WERE ACQUIRED IN EARLIER YEAR S. IF THESE RELIANCE PROLIFIC TRADERS PVT. LTD. 16 EXPENSES HAVE BEEN INCURRED FOR THE PURPOSE OF ACQU IRING LAND DURING THE YEAR, THESE WOULD CERTAINLY BE NOT ALLOW ED AS REVENUE EXPENDITURE. WITH THESE DIRECTIONS AND ALSO THE DIRECTIONS AS CONTAINED IN GROUND NO.1 ABOVE, WE SE ND THIS GROUND BACK TO THE FILE OF THE AO, WHEREIN THIS ISS UE SHALL BE REEXAMINED BY THE AO AFTER GIVING ADEQUATE OPPORTUN ITY OF HEARING TO THE ASSESSEE. 5 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH OCTOBER, 2015. SD/- (SHAILENDRA KUMAR YADAV) SD/- (ASHWANI TANEJA) '# / JUDICIAL MEMBER $# / ACCOUNTANT MEMBER # MUMBAI; ( DATED : 28/10/2015 CTX? P.S/. .. %'&'()(*& / COPY OF THE ORDER FORWARDED TO : 1. * +, / THE APPELLANT 2. -.+, / THE RESPONDENT. 3. / / 0 ( * ) / THE CIT, MUMBAI. 4. / / 0 / CIT(A)- , MUMBAI 5. 34 5 -6 , / *% 6 7 , # / DR, ITAT, MUMBAI 6. 5 ! 8 # / GUARD FILE. / BY ORDER, . 3* - //TRUE COPY// / (DY./ASSTT. REGISTRAR) , # / ITAT, MUMBAI