Asst. Commissioner of Income tax Cir. 1, Margao V. M/s. Kala Mines and Minerals., Margao

ITA 76/PAN/2014

• Counselvise Citation: 7624114 RSA 2014
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 23-09-2014
• Assessment Year: 2010-2011
• Appeal Filed On: 28-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHA DESAI LD
• Keywords: Bad and doubtful debts; Non compliance; Revenue expenditure
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, PANAJI BENCH, PANAJI BEFORE S/SHRI P.K.BANSAL (AM) AND D.T.GARASIA (JM) I.T.A. NO.76 /PAN/2014: ASSESSMENT YEAR 2010 - 2011 ACIT, CIRCLE - 1, MARGAO. VS. M/ S. KALA MINES AND MINERALS, FO - 32, 35, BABOY COMMERCE CENTRE, MARTIERS DIES ROAD, PAJIFOND, MARGAO, GOA PA NO.AABFK 1543 M APPELLANT RESPONDENT FOR THE APPELLANTS: SHRI SMT. ASHA DESAI, LD D.R. FOR T HE RESPONDENT: SHRI ORANID /VAUDTAM ADV/LORENCE MALEKAR DATE OF HEARING: 2 3 .9.2014 DATE OF PRONOUNCEMENT: 14 /11/2014 ORDER PER D.T.GARASIA, JM THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST ORDER DATED 22.11.2013 OF LD CIT(A), PANAJI FOR THE ASSESSMENT YEAR 2010 - 2011. 2. GROUNDS RAISED BY THE REVENUE ARE AS UNDER: 1. THE ORDER OF I D. CIT(A) IS OPPOSED TO LAW AND FACT OF THE CASE. 2. THE LD. CIT(A) FAILED TO APPRECIATE THAT EXPENSES INCURRED FOR THE PURPOSE OF LAUNCHING A NEW PROJECT OR INITIATING A NEW LINE OF BUSINESS SEPARATE FRO M THE EXISTING BUSINESS CANNOT BE HELD TO BE REVENUE EXPENDITURE INCURRED IN CONNECTION WITH THE EXISTING BUSINESS. IT WAS SO HELD IN THE CASES OF INDIA OXYGEN LTD VS. CIT(CAL) 164 ITR 466 AND TRADE WINGS LTD., VS. CIT(BOM ) 183 ITR 267. 3. THE LD CIT(A) FA ILED TO APPRECIATE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF MINES EXTRACTION, EXCAVATION AND TRADING IN MINERAL ORE. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE INTENDED TO START A NEW LINE BUSINESS VIZ CONSTRUCTION AND SALE OF FLATS IE REAL ESTATE BUSINESS AND PAID ADVANCE FOR PURCHASE OF LAND. NON RECOVERY OF ADVANCE PAID FOR PURCHASE OF LAND FOR STARTING NEW LINE OF BUSINESS IS A CAPITAL LOSS U/S 37(1) APPLYING THE ABOVE REFERRED DECISION. 2. FACTS IN BRIEF ARE THAT DURING THE COUR SE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD CLAIMED BAD DEBT AMOUNTING TO RS.1,30,00,000/ - . IN RESPONSE TO THE ASSESSING OFFICERS REQUISITION TO SUBMIT THE DETAILS OF BAD DEBT CLAIM, THE ASSESSEES REPRESENTATIVE SUB MITTED THAT AS PART OF THE EXPANSION OF ITS REAL ESTATE ACTIVITY, 2 I.T.A. NO.76/PAN/2014: ASSESSMENT YEAR 2010 - 2011 THE ASSESSEE FIRM WANTED TO PURCHASE A LAND PROPERTY AT QUEPEM - GOA. THE ASSESSEE ENTERED INTO MOU WITH MR CEDRIC SOUZA FARIA ON 27.7.2009, FOR PURCHASE OF SAID PROPERTY. THE ASSESSEE MADE ADVANCE PAYMENT OF RS.1.3 CRORE TO THE ABOVE SAID MR CEDRIC SOPUZA FARIA BUT FAILED TO MEET THE CONDITIONS IN THE MOU WITHIN STIPULATED TIME. ACCORDINGLY, THE SAID AMOUNT OF RS.1.3 CRORE WAS FORFEITED IN FAVOUR OF MR CEDRIC SOUZA FARIA. BEFORE THE AO, AS SESSEE, SUBMITTED WRITTEN SUBMISSIONS AS UNDER: A LEGAL OPINION WAS SOUGHT FROM AN ADVOCATE, WHO, UPON VERIFICATION OF RELEVANT DOCUMENTS OPINED THAT NO SUIT OF RECOVERY OF THE AMOUNT PAID OF RS. 1,30,00,000 WILL BE GRANTED BY THE COURT OF LAW CONSIDER ING SPECIFIC CLAUSES CONTAINED IN THE SUBJECT MOU. BASED ON THE LEGAL OPINION REFERRED TO ABOVE AND CONSIDERING COMMERCIAL PRUDENCE, THE AMOUNT WAS FORFEITED. ACCORDINGLY, AN AMOUNT OF RS.1,30,00,000 HAS BEEN WRITTEN OFF AS BAD DEBTS ON 31.03.2010. AS THE SAID ADVANCE WAS LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS AND IT BEING A BUSINESS LOSS, DEDUCTION IS CLAIMED UNDER THE PROVISIONS OF SECTION 37. IT IS IMPERATIVE TO NOTE THAT THE ASSESSEE IS, INTER - ALIA, ENGAGED IN THE BUSINESS OF REAL ESTATE. THIS IS CORROBORATED BY THE ACTIVITIES CARRIED OUT BY THE ASSESSEE DURING LAST TWO YEARS WHICH PROMINENTLY SHOWS PLOTS & PROJECTS IN PROCESS UNDER INVENTORIES AMOUNTING TO RS.4,50,93,980. HENCE, ADVANCE TOWARDS PURC HASE OF PROPERTY WOULD QUALITY AS REVENUE IN NATURE. IT IS TO APPRECIATE THAT BAD DEBTS WRITTEN OFF IN BOOKS OF ACCOUNTS/CLAIMED AS EXPENSE ARE NOT MERELY CONFINED TO BAD DEBTS AS CONTEMPLATED U/S 36(1) (VII) R.W.S. 36(2) OF THE INCOME TAX ACT, 1961 . BAD DEBTS IS A GENERIC TERM WHICH CAN CONNOTE EITHER DEBTS PERTAINING TO SALES WHICH ARE IRRECOVERABLE, OR A DEBT REPRESENTING A PAYMENT/ADVANCE TOWARDS REVENUE EXPENDITURE WHICH CANNOT BE RECOVERED OR ADJUSTED FOR VALUE TO BE RECEIVED IN EXCHANGE. AS SUCH, WRITE OFF OF ADVANCES MADE TOWARDS REVENUE EXPENDITURE, ALTHOUGH NOT SATISFYING C ONDITIONS LAID DOWN IN SECTION 36(2) WILL QUALIFY FOR DEDUCTION U/S.28 R.W.S 37 OF THE INCOME TAX ACT, 1961. 3. AFTER CONSIDERING THE ASSESSEES REPLY, THE AO WAS OF THE VIEW THAT ASSESSEE HAD PAID AN ADVANCE OF RS.1,30,00,000/ - TO MR CEDRIC SOUZA FARIA AND IN THE SAME YEAR, THE SAID AMOUNT CLAIMED AS BAD DEBTS. THE ASSESSEE HAD FILED SUIT OF THE RECOVERY OF THE ABOVE SAID ADVANCES IN THE COURT OF CIVIL JUDGE S ENIOR DIVISION AT MARGAO ON 19.3.2010. MR CEDRIZ SOUZA FARIA ALSO FILED AN APPLICATION U/S.8 OF THE ARBITRATION AND CONCILIATION ACT, 1996 AND SAID APPLICATION WAS DISMISSED BY THE COURT STATING THAT THE DISPUTE IS NOT PERTAINING TO MOU BUT ONLY A RECOVER Y OF MONEY. THEREFORE, AFTER CONSIDERING VARIOUS DECISION, THE AO DISALLOWED THE BAD DEBTS CLAIM OF RS.1,30,00,000/ - AND ADDED THE SAME TO ASSESSEES INCOME. 3 I.T.A. NO.76/PAN/2014: ASSESSMENT YEAR 2010 - 2011 4. ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE LD CIT(A) AND LD CIT(A) DELETED THE ADDITION OF R S.1,30,00,000/ - MADE BY THE AO, INTER ALIA, BY OBSERVING AS UNDER: I HAVE GONE THROUGH THE ASSESSMENT ORDER AND THE SUBMISSION OF THE APPELLANT. FACTS NARRATED ABOVE, HAVE NOT BEEN DISPUTED BY THE A.O. THERE IS NO DOUBT ABOUT THE FACT THAT THERE HAS BE EN A LOSS TO THE APPELLANT. THE ONLY QUESTION TO BE DECIDED REMAINS. WHETHER AN ADVANCE GIVEN CAN BE CLAIMED AS BAD DEBTS OR NOT. THE A.O. HAS PLACED RELIANCE ON A FEW DECISIONS, BUT HAS BEEN SILENT ON THE FACT AS TO HOW THEY CAN BE APPLIED IN THE CASE OF THE APPELLANT. ON THE OTHER HAND, THE APPELLANT HAS PLACED RELIANCE ON THE DECISION IN THE CASE OF MYSORE SUGAR, WHEREIN, HONBLE APEX COURT AS UNDER: THERE WAS HARDLY ANY ELEMENT OF INVESTMENT WHICH CONTEMPLATES MORE THAN PAYMENT OF ADVANCE PRICE. THE RESULTING LOSS TO THE ASSESSEE COMPANY WAS JUST AS MUCH A LOSS ON THE REVENUE SIDE AS WOULD HAVE BEEN, IF IT HAD PAID FOR THE READY CROP WHICH WAS NOT DELIVERED. IN THE MYSORE SUGAR CO. CASE, THE COMPANY HAD PAID ADVANCE TO SUGARCANE GROWERS, BUT THE SUGARCANE WAS NOT DELIVERED. THE COMPANY CLAIMED BAD - DEBTS, THE HONBLE APEX COURT ALLOWED IT AS BUSINESS LOSS. THE HONBLE HIGH COURT, BOMBAY FOLLOWED THE DECISION OF HONBLE APEX COURT IN THE MYSORE SUGAR WHEN IT DECIDED THE APPEAL IN THE CASE O F IBM WORLD TRADE CORPORATION V. CIT [1990] 186 ITR 412 (BORN). SIMILAR DECISION HAS BEEN TAKEN IN THE CASE OF CIT V/S NEW D ELHI HOTELS LTD [20121 345 ITR 1(DEL). IN THE CASE OF HARSHEED J, CHOKSI V. CIT [20121 349 ITR 250 (BORN), THE HONOURABLE BOMBA Y HIGH COURT DECIDED AS UNDER: ...,.IT CAN BE CONCLUDED THAT EVEN IF THE DEDUCTION IS NOT ALLOWABLE AS BAD DEBTS, THE TRIBUNAL OUGHT TO HAVE CONSIDERED THE ASSESSEES CLAIM FOR DEDUCTION AS BUSINESS LOSS. THIS IS PARTICULARLY SO, AS THERE IS NO BAR IN CLAIMING A LOSS AS A BUSINESS LOSS, IF THE SAME IS INCIDENTAL TO CARRYING ON OF A BUSINESS. THE FACT THAT CONDITION OF BAD DEBTS WERE NOT SATISFIED BY THE ASSESSEE WOULD NOT PREVENT HIM FROM CLAIMING DEDUCTION AS A BUSINESS LOSS INCURRED IN THE COURSE OF CARRYING ON BUSINESS AS SHARE BROKER. APART FROM THE ABOVE, THE APPELLANT HAS ALSO PLACED RELIANCE ON DECISIONS IN THE CASES OF CHENAB FOREST CO. V/S CIT [1974] 96 1TR568[J & 1(1, MOHAN MEAKIN LTD V/S CIT [2012] 348 ITR 109 (DEL), ITW SIGNODE INDI A LTD. V DCIT [2007) 110 TTJ 170(HYD.), CIT V. ANJANI KUMAR CO. LTD. [2003) 259 ITR 114 (RAJ.). WHEREIN SIMILAR VERDICT HAS BEEN GIVEN. IN MY OPINION, FACTS OF THE INSTANT CASE IS COVERED BY THE ABOVE REFERRED JUDICIAL PRONOUNCEMENTS. IN THE INSTANT C ASE, THE ADVANCE AMOUNTING TO RS. 1,30,00,000/ - WAS GIVEN IN ORDER TO ACQUIRE LAND FOR THE PURPOSE OF THE REAL ESTATE BUSINESS OF THE APPELLANT. FOR REASONS MENTIONED EARLIER, THE APPELLANT HAD TO FORFEIT THE ADVANCE. THEREFORE, IN VIEW OF THE ABOVE REF ERRED JUDICIAL PRONOUNCEMENTS, THE LOSS IS A BUSINESS LOSS AND THAT TOO OF A REVENUE NATURE. HENCE, THIS LOSS, IF NOT ALLOWED AS BAD - DEBTS, HAS TO BE ALLOWED AS A. NORMAL BUSINESS LOSS. THE AO THEREFORE WAS NOT JUSTIFIED IN DISALLOWING THE CLAIM OF BAD DEBTS AND NOT ALLOWING THE SAME AS BUSINESS LOSS. THE A,O. IS DIRECTED TO DELETE THE ADDITION OF RS.1,30,00,000/ - AND ALLOW THE SAME AS BUSINESS LOSS TO THE ASSESSEE. THIS GROUND OF APPEAL OF THE APPELLANT IS ALLOWED. 4 I.T.A. NO.76/PAN/2014: ASSESSMENT YEAR 2010 - 2011 5. AGGRIEVED BY THE DELETION OF R S.1,30,00,000/ - BY LD CIT(A), THE REVENUE HAS FILED THIS APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD LD REPRESENTATIVES OF PARTIES AND PERUSED THE RECORD OF THE CASE. LOOKING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, WE OBSERVE THAT THE ASSESSEE HAD ADV ANCED AN AMOUNT OF RS.1,30,00,000/ - TO MR CEDRIC SOUZA FARIA TO PURCHASE A LAND FOR ITS REAL ESTATE BUSINESS. HE HAD ENTERED INTO AN MOU WITH MR CEDRIC SOUZA FARIA AND AS PER THE TERMS OF THE MOU, THE ASSESSEE WAS REQUIRED TO OBTAIN NO OBJECTION CERTIFI CATE FROM HEALTH DEPARTMENT, TOWN AND COUNTRY PLANNING DEPARTMENT, VILLAGE PANCHAYAT AND CONVERSION OF LAND USE WITHIN 30 DAYS FROM THE DATE OF MOU. AS PER THE MOU, IN CASE OF NON COMPLIANCE OF THE TERMS AND CONDITIONS OF MOU, THE AMOUNT WILL BE FORFEITE D. IT IS A FACT THAT THE ASSESSEE WAS UNABLE TO COMPLY WITH THE TERMS AND CONDITIONS MENTIONED IN MOU AND, ACCORDINGLY, THE AMOUNT WAS FORFEITED. IN VIEW OF THIS, ASSESSEE HAD NO OPTION BUT TO ACCEPT THIS LOSS AND CLAIMED THE SAME AS BAD DEBTS. WE FIND THAT LD CIT(A) HAS DELETED THE ADDITION MADE BY THE AO FOLLOWING VARIOUS JUDICIAL PRONOUNCEMENTS AS MENTIONED IN THE IMPUGNED ORDER, INTER ALIA, OBSERVING THAT THE LOSS IS A BUSINESS LOSS AND THAT TOO OF A REVENUE NATURE. CONSIDERING THE TOTALITY OF THE F ACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE VIEW THAT NO INTERFERENCE IS CALLED FOR IN THE IMPUGNED ORDER AND, ACCORDINGLY, WE UPHOLD THE SAME. 7. IN THE RESULT, APPEAL F ILED BY THE REVENUE IS DISMISSED. PRONOUNC ED IN THE OPEN COURT ON 1 4 /11/2014 S D / - S D / - (P.K.BANSAL) (D.T.GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED, PANAJI 1 4 /11/2014 B.K.PARIDA,SR. PS COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE : 2. THE REVENUE: 3. THE CIT, PANAJI 4. THE CIT(A),PANAJI, GOA 5. DR, PANAJI BENCH 6. GUARD FILE. TRUE COPY// BY ORDER ASST. REGISTRAR, ITAT, PANAJI