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Facts
The assessee, engaged in real estate, incurred a loss on the Amritsar project due to a dispute between directors, leading to its abandonment. This loss was claimed as a revenue loss in the profit and loss account. The Assessing Officer and CIT(A) disallowed the loss, considering it a prior period expense and capital in nature.
Held
The Tribunal held that the loss on the Amritsar project crystallized on the date of the compromise deed, which was July 20, 2012. The Tribunal also noted that the tax rates remained the same for the relevant assessment years, and the loss was incurred in the ordinary course of business and shown under current assets, thus qualifying as a revenue loss.
Key Issues
Whether the loss on the Amritsar project, abandoned due to director disputes, is a revenue loss allowable as a deduction in AY 2012-13.
Sections Cited
143(3)
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Income Tax Appellate Tribunal, DELHI BENCH “G”: NEW DELHI
Before: SHRI M. BALAGANESH & SHRI YOGESH KUMAR U.S.
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in AY 2012-13, arises out of the order of the Commissioner of Income Tax (Appeals)-14, New Delhi [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. 295/15- 16/IT/2016-17 dated 23.02.2017 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 13.03.2015 by the Assessing Officer, DCIT, Circle-23(1), New Delhi (hereinafter referred to as „ld. AO‟).
The Ground Nos. 2 and 3 raised by the assessee is challenging the confirmation of the action of Learned AO by the Learned CITA regarding the disallowance of Rs 64,72,52,645/- on account of loss on Amritsar project written off.
We have heard the rival submissions and perused the materials available on record. The assessee company is engaged in the business of real estate and had undertaken Amritsar project as one of the real estate projects in the ordinary course of its business. Pursuant to the dispute that erupted between the directors, arbitration proceedings had to be invoked, as a result of which, Amritsar project had to be abandoned and the entire amount incurred on that project resulted into loss which was claimed as loss in the profit and loss account against the taxable business profits. This loss in the first round of proceedings was sought to be disallowed by the Learned AO on the ground that the same relates to Assessment Year 2010-11 thereby representing prior period expenses and the loss is capital in nature. This action of the Learned AO was upheld by the Learned CITA in the first round of proceedings. Aggrieved, the assessee preferred an appeal before this Tribunal and this Tribunal vide its order dated 29-08-2017 upheld the action of the Learned CITA. A miscellaneous application was preferred by the assessee before this Tribunal on 15-2-2018. Amended miscellaneous application was also preferred by the assessee before this Tribunal on 12-4-2018. Pending disposal of the miscellaneous application by the Tribunal, the assessee also preferred an appeal before the Hon‟ble Delhi High Court and the Hon‟ble Delhi High Court vide its order dated 16-02-2018 permitted the assessee to withdraw the appeal with liberty to approach the court , if necessary, depending upon the outcome of the miscellaneous application pending before the Tribunal. The original miscellaneous application was dismissed by this Tribunal in MA No. 96/Del/2018 dated 7.11.2022 . The amended miscellaneous application was also dismissed by this Tribunal in MA No. 233/Del/2018 dated 9.11.2022 . The assessee filed a writ petition before the Hon‟ble Delhi High Court against the dismissal of miscellaneous applications by this Tribunal. The Hon‟ble Delhi High Court vide its order dated 31-1-2023 directed the assessee to file a substantive appeal both against the final order of the Tribunal as well as the disposal of two miscellaneous applications by the Tribunal. With these directions, the Writ petitions of the assessee were dismissed by the Hon‟ble Delhi High Court. Later appeal was preferred before the Hon‟ble Delhi High Court which was numbered as ITA 132/2023. This appeal was disposed by the Hon‟ble Delhi High Court vide order dated 9-4-2024 wherein it was observed that this Tribunal had not examined the Supplementary Paper Book filed by the assessee during the original appellate proceedings and accordingly the matter was remitted back to this Tribunal for considering the appeal afresh. The present appeal is to be looked into from this perspective by us.
The short point that arises for our consideration is as to whether the Learned CITA was justified in confirming the disallowance made by the Learned AO on account of loss of Amritsar Project written off in the facts and circumstances of the instant case. As stated earlier, the assessee company is in the business of real estate promotion and development in residential and commercial segment and undertook one real estate project in Amritsar. The real estate projects/ lands are in the nature of current assets for the assessee and income/ loss pertaining thereto are shown as revenue income / loss in the profit and loss account. Some differences had arisen between the two then directors of the assessee group which is Shri Anil Jain and Shri K N Shukla. The same resulted in arbitration proceedings. Consequent to the same, the Amritsar project has to be abandoned and the entire cost incurred on such project resulted in a loss and the same was claimed in the profit and loss account by the assessee. During the course of the assessment and thereafter in the appellate proceedings, the Learned AO and Learned CITA did not doubt the genuineness of the said loss. The thrust of the lower authorities was that the said loss has not crystallized in the year under consideration and that the said loss is capital in nature and hence the said loss was disallowed.
The assessee submitted that there was a settlement agreement / arbitration award dated 26-04-2007 passed by the Arbitrator in respect of the disputes between Shri K N Shukla and his group companies and Shri Anil Jain and his group companies. By virtue of the said settlement agreement / arbitration award, the pre-emptive rights and / or the rights, title and interest in land situated at revenue village of Manawala, Rachita, Bishramur and Chita kalan, all coming under the district of Amritsar, Punjab were to be transferred to Shri K N Shukla and his group companies by Shri Anil Jain and his group companies. Even after the Settlement Agreement / Arbitration Award, disputes continued between Shri K.N. Shukla and Shri Anil Jain. Accordingly, Shri K.N. Shukla filed an execution petition of the aforesaid Settlement Agreement / Arbitration Award in Court of Additional District Judge, Amritsar on 22-2-2008. The Court of Additional District Judge, Amritsar, vide order dated 11-2-2009, ordered the execution of the Settlement Agreement / Arbitration Award in favour of Shri K.N. Shukla and dismissed the objections of Shri Anil Jain. Local Commissioner was appointed by the Court of Additional District Judge, Amritsar to execute the sale deeds, vide order dated 28-5-2009.
Against the order of Additional District Judge, Amritsar, Shri Anil Jain and his group companies filed an appeal to the Hon‟ble High Court of Punjab and Haryana. The same was dismissed by the Hon‟ble High Court on 14-7-2009. On 18-1-2010, a FIR was filed in the concerned police station registered by Shri K.N. Shukla and his wife Smt Meenu Shukla against Shri Anil Jain in the capacity of Director of M/s Nitishree Infrastructure Limited (NIL in short), for the alleged criminal breach of trust, forgery, etc. and he was arrested and put behind the bar. Shri Anil Jain was sent to judicial custody on 9-9-2010. After remaining in judicial custody for almost 4 months, the Magistrate ordered the release of Shri Anil Jain on execution of the bail bond on 11-1-2011.
Parallely on 16-1-2010, a police complaint was filed by M/s Nitishree Infrastructure Limited ( now known as M/s Shourya Towers Private Limited – assessee herein) against Shri K.N. Shukla and his wife Smt Meenu Shukla for not honouring the cheque issued and criminal intimidation. On 20-7-2012, a compromise deed was finally executed between Shri K.N. Shukla and Shri Anil Jain and all the matters and disputes were put to rest. In the said compromise deed, the rights and interests of the property situated at Amritsar were transferred to Shri K.N. Shukla and his group companies, whereas the rights and interests of the property situated at Jalandhar were transferred to Shri Anil Jain and his group companies. On this date, since the accounts of the assessee company for the Assessment year 2012-13 were not finalized, the claim of loss on Amritsar Project was made by the assessee in Assessment Year 2012-13 by debiting to profit and loss account by applying the principles governed in Accounting Standard -4 (AS-4) issued by the Institute of Chartered Accountants of India (ICAI) on the subject „Events occuring after the Balance Sheet Date‟. Further this loss was claimed in Assessment Year 2012-13 in accordance with the matching principle pursuant to the compromise deed. Income is recognised in Assessment Year 2012-13 to the tune of Rs 6,84,38,414/- which is included in the total figure of „revenues from land‟ of Rs 59,24,91,158/- as per the audited profit and loss account. The lower authorities had not disputed the recognition of revenue from execution of the compromise deed dated 20-7-2012 but had disputed the claim of loss alone arising from Amritsar Project which was duly written off by the assessee. Either way, the lower authorities does not doubt about the genuinity of the said loss arising on Amritsar Project which stood abandoned as far as the assessee is concerned. Since the said loss had arose in the ordinary course of business of the assessee, it cannot be construed as a capital loss. Further the assessee herein is engaged in the business of real estate and had shown the investments made in Amritsar project under the head „Current Assets‟ and hence the loss arising under the said project would only be revenue loss. Hence the second objection raised by the lower authorities to disallow the loss is hereby rejected.
We find that the lower authorities had raised the first objection that the loss on Amritsar Project had arose to the assessee in Assessment Year 2010-11. This is based on the dismissal of the order by the Hon‟ble Punjab & Haryana High Court vide order dated 14-7-2009 as narrated supra. We find that the lower authorities were of the opinion that the entire dispute stood resolved between Shri K N Shukla group and Shri Anil Jain group in Assessment Year 2010-11 itself, which is factually incorrect. It could be seen that even after the arbitration award dated 26-4-2007 , the disputes between the parties remained and these were finally resolved vide compromise deed dated 20-7-2012 executed between the parties i.e Shri K N Shukla and his group companies and Shri Anil Jain and his group companies. Hence the effective date when the matter was put to rest is the date of compromise deed dated 20-7- 2012 and not 14-7-2009 as stated by the lower authorities. The documents relating to the continuation of disputes between the parties post 14-7-2009 were placed in the Supplementary Paper Book filed before this Tribunal in the original round of proceedings before this Tribunal. Hence on perusal of the documentary evidences enclosed in Supplementary Paper Book, we are convinced of the fact that the disputes had continued between the parties upto 20-7-2012 and the same were put to rest only pursuant to compromise deed dated 20-7- 2012. Hence it could be safely concluded that the loss on Amritsar Project got crystallized on 20-7-2012 only. The assessee had given convincing explanation already as to why the loss on Amritsar Project that stood finally settled on 20-7-2012 had been claimed as deduction in Assessment Year 2012-13 instead of Assessment Year 2013-14. Moreover, it is pertinent to note that the tax rates remained the same from Assessment Years 2010-11 onwards. Hence there would be no loss to the exchequer with regard to the tax portion if the deduction is allowed in either of the years. In this regard, the Hon‟ble Apex Court in the case of CIT vs Excel Industries Ltd reported in 358 ITR 295 (SC) wherein it was held that the revenue should not have any grievance when the rate of tax remained the same in the year under consideration, in the earlier year and in the subsequent year and thereby making the entire dispute raised by the revenue academic.
Similar view was also taken by the Hon‟ble Delhi High Court in the case of CIT vs Dinesh Kumar Goel reported in 331 ITR 10 (Del) wherein it was held as under:-
“26. Though our discussion on the issue is complete, the parting comments need to be made. The receipts relate to the unexecuted packages, which are not shown in the in- stant year would be shown in Page | 7 the succeeding year. Rate of tax in respect of companies remains the same in all these years. Therefore, the Revenue does not lose anything, as it would receive the tax on this income in the succeeding year. Still issues are raised and much outcry is made for nothing.”
In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, we hold that the loss on Amritsar Project which was sought to be written off by the assessee during the year under consideration in the sum of Rs 64,72,52,645/- would be an allowable deduction in Assessment Year 2012-13. Accordingly, the Ground Nos. 2 & 3 raised by the assessee are allowed.
All other grounds had already been adjudicated by this Tribunal vide its order dated 29-8-2017.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open court on 27/06/2025.