SHRI RAJNIKANT CHIMANLAL PATEL,,AHMEDABAD vs. THE ASSTT. COMMISSIONER OF INCOME TAX, CIRCEL-2(2),, AHMEDABAD

The only ground taken by the assessee in this case is reproduced below:

At the outset, the learned AR submitted that assessee is engaged in the business of civil construction and during the year under consideration he has debited an amount of Rs.10 Lakhs in the Profit & Loss account which he had given as advance for purchase of land but since the deal could not materialize, therefore, the assessee had to write it off as bad debt during the year under consideration. Inviting our attention to the copy of such agreement placed at paper book page nos. 15 to 17, the learned AR submitted that though this advance was given in AY 2007-08, but was not written off in earlier years as the assessee was persuading the payee to repay the amount but when the assessee failed to recover the same, he wrote it off in the profit & Loss account. It was submitted the learned CIT(A) did not agree with the contentions of assessee as in his opinion the assessee was not able to demonstrate as to whether during AY 2007-08 the assessee was engaged in the construction business or not. In this respect, learned AR took us to the copy of balance sheet for AY 2007-08 placed at paper book page nos.8 to 13 and our specific attention was invited to Profit & Loss account where the nature of expenses debited and as well as receipts clearly demonstrate that assessee was engaged in the construction business. Our attention was also invited to copy of balance sheet where under the head ‘loan & advance’ the amount of Rs.10Lakhs was included within the amount of Rs.28,21,379/-. The learned AR also took us to assessment order for AY 2006-07 placed at paper book page nos. 21 to 23 where the AO himself has mentioned the nature of business as civil construction. Therefore, it was prayed that the writing off of Rs.10 Lakhs being not receivable was a business expense and therefore, the authorities below had wrongly disallowed the same.

The learned DR, on the other hand, relied upon the orders of authorities below.

We have heard the rival parties and have gone through the material placed on record. We find that the AO disallowed the deduction on account of bad debt by holding that in view of Section 36(2) of the Act, the same can be disallowed only if the same has been declared as income in a previous year. The AO further held that assessee failed to produce any documentary evidence in respect of alleged advance for purchase of land and therefore, he did not allow the deduction even under the residuary Section i.e. under s.37 of the Act. The learned CIT(A) held that receipt of Rs.10Lakhs was dated 9th May, 2006, which was not in the name and style of M/s. Mukhi Construction but in the name of Mr. Rajnibhai C. Patel. The learned CIT(A) held that if the assessee was running the business of construction in the name and style of M/s. Mukhi Construction, the receipt for purchase of land should have been in the name of M/s. Mukhi Construction only. Therefore, he held that the advance was made by the assessee in his personal capacity. The learned CIT(A) further held that assessee did not file any details/evidences to prove that he was engaged in the business of real estate in FY 2006-07 when the advance was actually made. Therefore, he upheld the findings of AO and further held that the reliance placed by the assessee on the judgment of Hon’ble Supreme Court in the case of T.R.F. Ltd. vs. CIT was not applicable. However, before us, the learned AR had invited our attention to copy of assessment order for AY 2006-07 placed at paper book page nos. 21 to 23 where the nature of business has been mentioned as civil construction and name of the assessee has been mentioned as Shri Rajnikant C. Patel proprietor of M/s. Mukhi Construction. We were also taken to copy of balance sheet for the year ending 31st March, 2007 wherein the assessee had disclosed the amount of advance of Rs.10 Lakhs under the head ‘loans & advances’ in the total of loans and advances amounting to Rs.28,21,379/-. This fact is also verifiable from paper book page no.11 where the breakup of loans & advances is placed. Since the authorities below have held that assessee did not produce any document to demonstrate that he was engaged in the business of civil construction during AY 2007-08 whereas before us sufficient material was placed, therefore, we deem it appropriate to remit the matter back to AO with the direction to re-adjudicate the issue after taking account the assessment order for AY 2006-07 & 2007-08 and also balance sheet and P&L account for AY 2007-08 for the purposes of determining as to whether the assessee was engaged in the construction business or not. In the light of above documents, the Assessing Officer will further examine the allowability of the claim as bad debts during the year under consideration. Needless to say that assessee will be provided sufficient opportunity of being heard.

In the result, the appeal of the assessee is allowed for statistical purposes.