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Income Tax Appellate Tribunal, JAIPUR BENCHES “A”, JAIPUR
Before: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No. 1116/JP/2018
vkns'k@ ORDER PER: VIJAY PAL RAO, J.M.: This appeal by the revenue is directed against the order dated 30/07/2018 of ld. CIT(A)-I, Jaipur for the A.Y. 2014-15. The revenue has raised following grounds of appeal: “On the facts and in the circumstances of the case and in law, the ld. CIT(A)-I, Jaipur has erred in:-
1. Whether in the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the disallowance of Rs. 7,00,00,000/- made by the A.O. on account of forfeited advance and treating the same as capital expenditure.
2. Whether in the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in holding the forfeited advance as revenue expenditure by ignoring the fact that the business of the assessee AOP is to develop the land and not to purchase and sale of offices and the same cannot be treated revenue expenditure and hence not allowable in view of the provisions of Section 37(1) and 36(vii) of the Income Tax Act, 1961.” The assessee is an AOP constituted on 1st May, 2007 and was 2. engaged in the business of real estate. The assessee filed its return of income on 29/9/2014 declaring total income of Rs. 14,48,510/-. During the course of scrutiny assessment, the Assessing Officer noted that the assessee has debited Rs. 7.00 crores in the P&L account on account of amount forfeited. The Assessing Officer asked the assessee to furnish nature, details and amount forfeited. In response, the assessee explained that the assessee entered into an agreement with M/s Synod Farm and Infra Developers Pvt. Ltd., New Delhi for purchase of 20 offices bearing No. 222 to 241 at Vatika Business Park, Sohna Road, Gurgaon on 11/01/2014. At the time of agreement, the assessee paid Rs. 2.00 crores and as per the terms of the agreement, further payment of Rs. 2.00 crores to be made within 10 days from the date of execution of agreement and Rs. 3.00 crores within 30 days from the date of agreement. The balance full and final payment was to be made on or before 27/2/2014, however, the assessee submitted that the assessee could make only Rs. 7.00 crores and failed to make the payment of balance amount of Rs. 13.00 crores as per terms of the agreement and consequently the other party forfeited the said amount of Rs. 7.00 crores which has been claimed by the assessee as allowable expenditure. In support of the contention, the assessee furnished copy of the agreement, letters of M/s Synod Farm and Infra Developers Pvt. Ltd. dated 20/2/2014, 11/3/2014 and 18/3/2014. The Assessing Officer was not satisfied with the explanation of the assessee and held that this is only the arrangement between the parties to avoid the tax on the profit of the assessee and thereby reduced the profit by Rs. 7.00 crores. Accordingly, the Assessing Officer made addition of Rs. 7.00 crores in the total income of the assessee. The assessee challenged the action of the Assessing Officer before the ld. CIT(A) and reiterated its contention as well as filed the relevant record to show that M/s Synod Farm and Infra Developers Pvt. Ltd. has duly recorded the forfeiture amount in its books of account which has not been disputed by the Assessing Officer. The ld. CIT(A) called for remand report from the Assessing Officer and after considering the multiple remand reports, the ld. CIT(A) finally come to the conclusion that the claim of the assessee is an allowable claim on account of forfeiture of advance.
Before us, the ld CIT-DR has submitted that it is strange that Rs. 7.00 crores have been paid by the assessee for purchase of office buildings and the seller has just informed the assessee vide a simple letter that yours’ amount has been forfeited. The assessee have not made any efforts for recovery of same or even extension of time period for payment of the balance amount. The language and manner in which the transaction purported to have been entered into clearly shows that it was a fictitious arrangement between the parties to avoid the tax liability in the hand of the assessee as the seller has shown this amount as reduction in the block of assets. This is not a case of any unusual delay inviting forfeiture of the advance of a huge amount of Rs. 7.00 crores.
Even otherwise when the total consideration for 20 offices was agreed upon between the parties at Rs. 20.00 crores then at least the assessee could have purchased 7 offices against the payment of Rs. 7.00 crores.
Thus, the ld. CIT-DR has submitted that the claim of forfeiture of Rs. 7.00 crores is nothing but a mutual arrangement between the parties. He has relied upon the order of the Assessing Officer.
On the other hand, the ld AR of the assessee has submitted that the agreement in question is not in dispute and the Assessing Officer has not held that agreement dated 11/1/2014 is bogus document. It is also not in dispute that there is a forfeiture condition as per the clauses of the agreement and on failure on the part of the assessee to make the entire payment of sale consideration within the time period prescribed under the agreement, the advance paid by the assessee was liable to be forfeited.
The ld AR has further contended that the seller has duly declared the amount of Rs. 7.00 crores in its books of account by reducing the same from the cost of property, therefore, there is no revenue effect as per the provisions of Section 51 of the Income Tax Act, 1961 (in short the Act) when the forfeiture amount would reduce the cost of acquisition in the hand of the seller and therefore, the profit on the sale of the property will be increased by the same amount. The ld. AR has further submitted that during the course of remand proceedings, the Assessing Officer has examined the seller and also verified the facts that the seller has duly declared the said amount in the books of account and assessment of the seller was completed U/s 143(3) of the Act. Therefore, once the seller has confirmed the forfeiture as well as declaration of the forfeiture amount in the books of account which was not disturbed by the Assessing Officer while completing the assessment U/s 143(3) of the Act then the ld. CIT(A) is right in deleting the addition. He has supported the order of the ld. CIT(A) and submitted that the ld. CIT(A) has given the finding on the basis of the fact after considering the remand reports of the Assessing Officer.
5. We have considered the rival submissions as well as relevant material on record. The Assessing Officer has recorded that the assessee has shown the gross profit @ 46.8%, however, the net profit was reduced by claiming the deduction of Rs. 7.00 crores on account of forfeiture. The Assessing Officer has doubted the genuineness of forfeiture. Finally the Assessing Officer has rejected the claim of the assessee on the ground that the assessee has not made any effort to recover the forfeitured advance and no documents have been filed to show that the assessee sought extension of time or recovery of the advance. Language and contents of the agreement are contradictory to the facts and suggest that it is an arrangement for avoiding the tax liability. The forfeiture was made by the seller by giving a simple letter. On appeal, the ld. CIT(A) has called for remand reports and we find that there are two remand reports submitted by the Assessing Officer dated 26/6/2018 and 03/7/2018. The relevant findings of the ld. CIT(A) is as under:
“(vi) I have duly considered the assessment order, submissions of the appellant, remand reports of the AO and its rejoinder by the appellant, the judicial pronouncements relied upon by the appellant and the material placed on record. As already mentioned above that the AO has disallowed loss of Rs. 7 Crore claimed by the appellant in its profit and loss account on account of forfeiture of the same by M/s Synod by treating the same as not genuine. It may be mentioned that M/s Synod has declared the forfeited amount of Rs. 7 Crore in its financial statements for the financial year 2013-14 relevant to AY 2014-15 wherein, the sum of Rs. 7 Crore was adjusted in the gross block under the head ‘Building’ and the assessment of M/s Synod was also completed u/s 143(3) of the Act and in fact, the returned income was accepted thereon. It appears from the impugned assessment order that no enquiries were made by the AO from M/s Synod and a huge disallowance was made by the AO on the basis of suspicion. In view of this fact, the AO was directed to make enquiries from M/s Synod in this regard. It is to be noted from the remand report of the AO that the enquiries were made by the AO and the statement of Shri R.C. Gupta, the Director of M/s Synod was recorded on oath u/s 131 of the Act, wherein, the transaction under consideration was confirmed by him and he admitted that its company M/s Synod has forfeited the amount of Rs. 7 Crore advanced by the appellant AOP. It is further noted that in the remand report, the AO has just repeated its version as recorded in the assessment order. It has already been mentioned earlier that the forfeited amount of Rs. 7 Crore has already been declared by M/s Synod in its financial statements for the year under consideration and its assessment for the year under consideration has been completed u/s 143(3) of the Act and no adverse inference has been drawn thereof. Thus, there is no evidence on record, which may establish that the transaction under consideration was not genuine. The only ground on the basis of which the addition was made was that the appellant has not taken any action for recovery of the forfeited amount and the period for forfeiture was too short.
(vii) It is noted from the letter dated 18.03.2014 of M/s Synod written to the appellant that the appellant has made request for extension of time for payment of the balance consideration of Rs. 13 Crore but the same was not agreed to by M/s Synod. It would be appropriate to reproduce the above referred letter of M/s Synod as under:
“This has reference to our letter dated 20.02.2014 dated 11.03.2014 and the discussions you had with us for the balance payment of Rs. 13 crores in terms of the Agreement to sale dated 11.01.2014. You have requested to extend the time but there is no question of increasing the time limit. You were well aware that time was the essence of the Agreement and we cannot give any extension for making balance payment.
We finally inform you that the advance of Rs. 7 Crore paid by you stands forfeited as per clause No. IX of the Agreement and no claim of whatsoever will be entertained."
(viii) It is to be noted that there was a specific clause no. 7 in the ‘Agreement to Sell’, which empower the seller to forfeit the amount in case of failure on the part of the buyer i.e. the appellant. Since, there was failure of specific performance of the contractual obligation on the part of the appellant, hence, seller was entitled to forfeit the amount. It is to be noted that contractual agreement and time limits in the contract are the essence of any contract. The appellant could have filed a suit for the recovery of the forfeited amount but the same was not done by the appellant perhaps because of the ill health of the main member of the AOP i.e. Shri Ramesh Chandra Pradhan who was detected to be suffering from ‘ca right lower alveolar’ and was finally admitted in P.D. Hinduja National Hospital & Medical Research Centre on 21.05.2014, operated on 22.05.2014 and discharged on 28/29.05.2014. Even otherwise, it is the assessee, who has to take its commercial decisions and the AO cannot dictate to the assessee the way to conduct its business. There is no evidence on record which may establish that the transaction under consideration was sham, the ‘Agreement to Sell' was a sham document, the sum of Rs. 7 Crore was received back by the appellant from M/s Synod either directly or indirectly or in cash. It appears that the disallowance was made by the AO on the basis of surmise and conjectures and it is trite law that the suspicion, however strong it may be, cannot substitute evidence which is required for making the addition/disallowance. It is to be noted that there is nothing on record which may justify the addition except the suspicion of the AO which cannot be the basis of either making or sustaining an addition as at best it could have been the basis for making a further enquiry which was already made in the remand proceedings. It is the evidence and evidence alone which can dictate the true picture of things. Further, it may be mentioned that it is not the case of the AO that M/s Synod was not owning/having these offices and the contract was executed without owning the assets.
(ix) It may be mentioned that in the case of ITO Vs New Wave Realtors Pvt. Ltd. in /DEL/2009, the similar issue was before the Hon'ble ITAT, New Delhi, wherein, vide its order dated 20.05.2016, it was held by the Hon'ble tribunal that:
“11. We have perused all the records and heard both the parties. The Assessing Officer has elaborately quoted the relevant portion of the agreement of the assessee with the other company. There was nothing on record to show that the transaction was not a genuine transaction. Merely by saying that the transaction is not genuine cannot result in a just and proper transaction in the eyes of law being held as not a genuine transaction. When the parties agreed to certain terms and conditions in a contract, the same are binding on the parties and it is not for the A.O. to say otherwise. One has to look into the aspect that under certain circumstances, if the parties cannot fulfill the terms of the agreement, the agreement provides certain mechanism to save the party who will suffer from the monetary loss. The genuineness of the agreement cannot be doubted by the Assessing Officer by simply giving one general statement to that effect. The Assessing Officer has to make out through the terms and conditions of the contract between the parties and the circumstantial evidences that the agreement was deliberately not fulfilled by any of the ' parties. There was nothing to show on record to that effect in this particular case. All these aspect was taken into account by CIT (A), therefore, the CIT (A) has rightly given a finding in favour of the assessee. In view of the above discussion, we do not find any necessity to interfere into factual findings given by the CIT (A). Hence we uphold the CIT(A)’s order."(emphasis supplied). (x) In the case of CIT vs. Ratnaraj N Bhandari 2016-TIOL-1392-HC- MUM-IT in of 2013, the similar issue was before the Hon'ble High Court of Bombay, wherein it was held that:
“6. Being aggrieved, the revenue is in appeal before us. The grievance of the Revenue as articulated by Mr. Pinto is that the agreement between the vendor and the assessee is collusive in nature. This agreement between them was only in order to enable the respondent -assessee to claim as expenditure of the amount forfeited and the vendor showing the receipt on capital account in its returns.
Nothing has been shown to us so as to conclude that the sale agreement between the respondent-assessee and his vendor M/s. Emtech Solution (P) Ltd. is collusive. We find that the CIT (A) as well as the Tribunal have rendered concurrent findings of fact that the parties had entered into agreement which was genuine. In fact, the vendor M/s. Emtech Solutions (P) Ltd. had itself confirmed the transaction and also of having received the sum of Rs.2.40 crores from the respondent. The transaction could not be completed as a ready buyer one Mr. Gandhi had withdrawn his offer to purchase the subject property. The further cheques issued by the respondent had been dishonoured, which led the respondent to permit forfeiting the advance/part payment. In respect of the manner in which the vendor has shown the receipt, we asked Mr. Pinto whether it has shown its receipt on capital account to avoid paying taxes. Mr. Pinto responded by stating he is not aware. In any case it is a settled position that nature of receipt in the hands of the payee will not determine the nature of payment i.e. capital or revenue in the hands of the payer. The respondent assessee is dealer in immovable property and it is for a businessman to decide the manner in which he should conduct his business and take steps which are in the best interest of his business. A mere loss in a venture does not mean that the transaction is not genuine. Therefore, the revenue has not been able to show that the findings of fact rendered by the CIT (A) and the Tribunal are perverse and/or arbitrary. Accordingly, the question of law as proposed does not give rise to any substantial question of law.
Accordingly, the Appeal is dismissed. No order as to costs.”
(xi) In view of the above judicial pronouncements and looking to the facts of the case, it is, therefore, held that the disallowance of Rs. 7 Crore was made by the AO without any basis and without having any iota of evidence and was made on the basis of surmises and conjectures.
(xii) Regarding the observation of the AO that the purchase and sale of offices was not the business of the appellant, it is to be noted that during the assessment proceedings, a show cause notice was issued by the AO for disallowance of the said loss but it has not been stated therein that the same would be treated as capital expenditure as the purchase and sale of offices was not its business and thus, the addendum could not be produced during the assessment proceedings. Therefore, the additional evidence filed by the appellant is being admitted under Rule 46A of the IT Rules as the same is required for adjudicating the appeal and in the interest of natural justice.
(xiii) It is to be noted that the appellant AOP was constituted on 01.05.2007 between Shri Ramesh Chandra Pradhan and Smt. Geeta Pradhan w/o Shri Ramesh Chandra Pradhan, as members of the AOP, to develop the land purchased by both the members of AOP. It would be appropriate to reproduce the relevant para no. 5 of ‘Agreement of Joint Venture of AOP’ as under:-
"Whereas party no. 1 and 2 are now desirous to market port of these plots in joint venture of AOP under the name and style of "Sukh Sagar Enclave." For this purpose party no. 1 and 2 hove agreed to transfer a port of their plots prevalent market rates as on 01.05.2007 to the aforesaid AOP which shall be taken up as Stock in trade of the AOP and shall be credited proportionately to the capital account of the respective members of the AOP equivalent to the cost of the plots transferred by them to the AOP. Accordingly the profits shall also be distributed proportionately as per their capital contribution in the form of plots transferred to the AOP periodically as recorded in the books of the AOP and as decided mutually by the members of the AOP.”
(xiv) Further, vide addendum dated 04/12/2013, the object of the AOP was modified as under:
“1. Shri Ramesh Chondra Pradhan S/o Late Shri Gopi Nath Pradhan by caste Bagra Brahmin aged 57 years resident of 38, Shiv Path, Suraj Nagar, (West) Civil Lines, Jaipur (referred as Party No. 1).
2. Smt. Geeta Pradhan W/o Shri Ramesh Chandra Pradhan by caste Bagra Brahmin, aged 51 years resident of 38 Shiv Path, Suraj Nagar, (West) Civil Lines, Jaipur (referred as Party No.2).
Had entered into an agreement of joint venture on 1.5.2007 to undertake certain ventures jointly as per terms and conditioners as laid down in the said agreement.
Today, i.e. on 04.12.2013 at Jaipur, we the party No. 1 and 2 above have further mutually agree to carry on and undertake following further ventures jointly.
(i) To invest and trade in shares, debentures, funds bonds and other derivatives of all types.
(ii) To invest and trade in any other properties other than the properties as mentioned in the aforesaid joint venture dated 1.5.2007.
(iii) To undertake construction works, works of land development etc.
(iv) Any other venture of any nature with mutual consent of both the parties. (V) To jointly undertake business ventures of any nature including real estate trading etc.
3. Both the parties have gone through the contents of this addendum carefully and have accepted the same without any fear and duress and put their signatures in the presence of the following witnesses.”
(xv) Thus, evidently the AOP was formed to develop the land purchased by its members and sale of the plots under the name and style of ‘Sukh Sagar Enclave’. It is noted from the various other clauses of the said document that the AOP was to develop the land and sold plots thereof. It was not stated therein that it would also engage in any construction activities on the said land. However, it is noted from the profit and loss account of the appellant that it was engaged in the construction activities also as it has not only sold plots but sold the Villas also after constructing them and in fact, the Villas were appearing in the opening stock as well as closing stock, for which no adverse comments were made by the AO and the AO has also accepted the same. Further, vide the addendum dated 04.12.2013, the purchase and sale of offices has also become one of the object of the appellant AOP.
(xvi) Even otherwise, an AOP is a mutual agreement between the members and in the instant case under consideration, the members of the AOP were husband and wife. Further, any act done by the AOP after its formation with mutual understanding, even though not specified in the deed will not make such activity as non business activity as there is nothing on record which may require that only the activity which is authorized by the deed will form part of the business. It is an undisputed fact that the appellant was engaged in the real estate business i.e. after developing the land, it has been selling the plots as well as Villas after constructing the same on these plots. The appellant has extended its business of real estate by purporting to purchase 20 offices to resell them at profit in future. There is no evidence on record which may establish that these offices were to be purchased for enjoying the rental income from them and thus, the loss on forfeiture of advance amount cannot be treated as capital expenditure as stated by the AO. Even if the addendum dated 04.12.2013 is ignored, then the purchase and sale of offices was nothing but the extension of the real estate business of the appellant as there was unity of control, intermingling and interlacing of funds; and marketing under supervision and control of same set of persons i.e. member of the appellant AOP in both the arms of the real estate business as held in number of judicial pronouncements.
(xvii) In the case of Jay Engineering Works Ltd. Vs CIT [2008] 166 Taxman 115 (Delhi), the Hon’ble High Court has considered a number of judicial pronouncements and has held as under:
"9. In Prern Spg. & Wvg. Mills Co. Ltd. v. CIT [1975] 98 ITR 20 (All.), the assessee was a limited company running a spinning and weaving mill as well as a new project of straw-board manufacturing factory. The question before the Court was whether the expenditure incurred for the new venture was a revenue expenditure or not. The Allahabad High Court noted that control over the existing spinning mill as well as the new project of straw-board manufacturing factory was in the hands of the assessee and it was effectively one establishment controlling both the units. The business of the two units were interconnected; the profit and loss account of the company embraced the business of the straw-board manufacturing factory and the balance sheet represented the financial picture of the company after taking into consideration the affairs of both the units. Relying upon Produce Exchange Corpn. Ltd. v. CIT [1970] 77 ITR 739 (SC), it was held that unity of control is a decisive test and not the nature of the two lines of business. It was further held that if the management, the trading organization, the administration, the funds and the place of business were common, then it cannot be said that the two ventures are two different businesses carried on by the same company.
In CIT v. Alembic Glass Industries Ltd. [1976] 103 ITR 715 (Guj.), the assessee was a company manufacturing glass at Baroda. The assessee desired to set up a new glass manufacturing unit in Bangalore and the question that arose was whether the amount spent for the undertaking in Bangalore should be taken on the revenue account or on the capital account. The Gujarat High Court took into consideration the fact that the business organization, administration and fund of both the units of the assessee are common; there was, therefore, complete interconnection, inter-lacing and inter-dependence between the two units. The fact that the Bangalore unit is many miles away from Baroda was of no consequence since the head office at Baroda controlled the affairs of both the units.
CIT v. Expanded Metal Manufacturers [1991] 189 ITR 317(AII.) was a case in which the assessee was engaged in the business of expanding of iron metal by a mechanical process and its supply. It started a new business of manufacturing of rubber products. Relying upon Prem Spg. & Wvg. Mills Co. Ltd.'s case (supra), it was held that the expenditure incurred for setting up a unit for the manufacture of rubber products was a revenue expenditure.
In CIT v. Modi Industries Ltd. (No. 3) [1993] 200 ITR 341 (Delhi), the supplementary factors earlier laid down were reiterated, viz., whether the management of the new business and the earlier business is the same and whether there is also unity of control and a common fund. The assessee in this case was engaged in the manufacture of various commodities like sugar, vanaspati, soaps, paints and varnish, torch and lantern and it was intending to diversify its activities by manufacturing a new commodity, that is, special alloy wire and billets. Based on the finding that the new business and the earlier business is the same, in a broad sense namely that the activity is of manufacture and that there is unity of control and a common fund, it was held that the business of manufacture of special alloy wire and billets was an extension of the existing business and not a new business.
Consequently, the expenditure incurred was held to be a revenue expenditure.
Finally, in Veecumsees v. CIT [1996] 220 ITR 185(SC), the assessee ran a jewellery business and then commenced business in the exhibition of cinematographic films. The assessee obtained loans for building a cinema theatre and the question was whether the interest payable on the loans borrowed for the new business was a revenue expenditure or not. While answering the question in favour of the assessee, the Supreme Court found that the two businesses were composite in the sense that there was inter-connection, inter-lacing or inter- dependence between the jewellery business and the cinema business.
On an appreciation of the law laid down by the various decisions referred to above, it is clear that the nature of the new business is not a decisive test for determining whether or not there is an expansion of an existing business. The nature of the business could be as distinct as a jewellery business and a business of cinematographic films; it could be as different as manufacture of metal alloys and manufacture of rubber products. What is of importance is that the control of both the ventures, the existing venture as well as the new venture, must be in the hands of one establishment or management or administration. The place of business of the existing business and the new business may not be in close proximity - it could be as far apart as Baroda and Bangalore. However, the funds utilised for the management of both the concerns must be common as reflected in the balance sheet of the company.
In other words, there may be several permutations and combinations that may arise for determining whether the expenditure is revenue or capital and each case must, of course, be dealt with on the broad principles that have been accepted by the Courts as are mentioned above.
Applying these principles to the present case, it is quite clear to us that the control over the two units is in the hands of the same management and administration. There is no doubt on this score and in fact the annual report of the assessee, which has been shown to us by learned counsel, makes a reference to the Project at Hyderabad. There can be no dispute from the facts that have been placed before us on record that the new venture was managed from common funds and there is the necessary unity of control leading to an interconnection, interdependence and interlacing of the two ventures
such that it can be said that the fuel injection equipment project is only an extension of the existing business of the assessee and, therefore, the expenditure incurred by the assessee on this Project is a revenue expenditure."
(xviii) In the case of CIT Vs Monnet Industries Ltd. [2009] 176 Taxman 81 (Delhi)(Head note), it has been held by the Hon’ble High Court that:
‘‘Section 36(1) (Hi) of the Income-tax Act, 1961 - Interest on borrowed capital - Assessment year 1996-97 - In 1991, assessee- company had set up a ferro-alloys manufacturing plant - In relevant year, it had also set up a sugar manufacturing plant at different places and commenced its trial production - It paid interest on monies borrowed for purpose of setting up sugar plant and claimed deduction of same as revenue expenditure - Assessing Officer disallowed its claim primarily on ground that sugar plant constituted a new source of income and it was not same business in which assessee was engaged in - On appeal, Tribunal found as a fact that there was a common board of directors controlling both plants; that funds for two plants were common and, hence, there was intermingling and interlacing of funds; and that even though two divisions were geographically located at different sites, yet marketing of final products was carried out under supervision and control of same set of executives at head office - Tribunal, accordingly, held that sugar plant was a mere extension of existing business of ferro-alloys plant and, therefore, interest paid on funds borrowed for purpose of setting up of sugar plant was allowable under section 36(1) (iii) - Whether in view of findings of fact recorded by Tribunal, there was any error in Tribunal's order - Held, no”]
(xix) It may be mentioned that the above judgement was affirmed by the Hon'ble Apex Court in the case of CIT Vs Monnet Industries Ltd. [2012] 25 taxmann.com 236 (SC), wherein the appeal of the revenue was dismissed.
(xx) In the case of Vijayashanthi Builders Ltd. Vs JCIT [2016] 69 taxmann.com 31 (Chennai - Trib.), it has been held by the Hon’ble Tribunal that:
“In this case, admittedly, the assessee acquired a stock-in-trade for construction of residential flats at Ambattur in Madhavaram Village. Therefore, the loss, if any, suffered in the course of the acquisition of the stock-in-trade has to be necessarily allowed a revenue loss, hence, it has to be allowed as business loss while computing the total income. In view of the above, we are unable to uphold the orders of the lower authorities. Accordingly, the orders of the lower authorities are set aside and the Assessing Officer is directed to allow Rs. 50 lakhs as business loss while computing the taxable income of the assessee.”
(xxi) In the case of CIT Vs Anjani Kumar Co. Ltd. [2002] 124 TAXMAN 429 (RAJ.), it has been held by the Hon'ble High Court of Rajasthan that:
"4. In appeal before the Tribunal, the Tribunal allowed the claim of the assessee. In para 6 of its order, the Tribunal observed as under:
"After carefully considering all the facts and circumstances of the case, we are inclined to uphold the assessee's contention. So far as the identity of the business is concerned, it is not the nature of the item manufactured but the test for the identity of the business is that there should be a single trading and profit and loss account and the transaction as well as the business should have been done by a common organization. In these circumstances, the assessee would be entitled to the unabsorbed loss in the shape of shares against the income. This was so held by the Hon’ble Supreme Court in Standard Refinery & Distillery Ltd. v. CIT 79 ITR 589 and again in Produce Exchange Corporation Ltd. v. CIT 77 ITR 739 . So far as the authorities relied upon by the revenue are concerned, in all these cases, the criteria adopted by the Court was that since the expenditure incurred brought into existence a benefit of enduring nature, it can be treated as capital nature, meaning thereby that depreciation can be claimed upon the total expenditure for setting up the new project. But in the present case, the new project has never matured. The expenditure incurred by the assessee has, therefore, to be written off. The efforts to make a new project by the same management in relation to the same business would certainly come within the test of identity laid down by the Hon’ble Supreme Court in the two authorities cited aforesaid and since no benefit of enduring nature resulted to the assessee, the expenditure in question cannot be created to be of capital nature."
The admitted facts are that the advance was paid for acquiring the agricultural land to set-up a factory, but when the agricultural land was not acquired, no capital asset came into existence, therefore, there is no question of allowing depreciation on such asset. If any asset is acquired and if it is a benefit of enduring nature, then of course the assessee cannot get the deduction of amount for acquisition of land as revenue expenditure. When land was not acquired, no capital asset has been acquired, therefore, the payment of Rs. 50,489 is to be allowed as business loss. We agree with the view taken by the Tribunal. No interference is 6. called for." In the case of CIT Vs Himalayan Tiles & Marble (P.) Ltd. [1975] 100 ITR (xxii) 177 (Bombay), it has been held by the Hon'ble Bombay High Court that:
"It was further submitted that the acquisition or purchase of an actionable claim as subject-matter of the litigation cannot be trade or business. It was pointed out in connection with this branch of the argument—and this seems to have impressed the Tribunal also—that the memorandum of objects of the company did not permit it to trade in actionable claims. The fact that there was no such provision in the memorandum of objects appears to me to be irrelevant for the purpose of this decision, though if there had been such a provision it would have clearly decided the matter against the assessee. That the assessee embarked upon a venture different from his usual line of business or even embarked on a venture which in law it was not permitted to embark upon, cannot really affect the consideration of the question whether the venture embarked upon was by way of trade or not. In this connection I have already noted how in the facts and circumstances of the case it would be proper to come to the conclusion that such acquisition was with a view to or in the expectation of making a profit."
(xxiii) Therefore, in view of the above discussion and looking to the totality of facts and judicial pronouncements, it is held that the AO was not justified in making disallowance of Rs: 7 Crore on account of forfeiture of advance by M/s Synod and thus, the same is hereby deleted.”
We find that during the course of remand proceedings, the Assessing Officer examined the seller wherein the seller has confirmed the transaction of purchase and sale of the office vide agreement dated 11/1/2014 as well as forfeiture of the advance of Rs. 7.00 crores. It was also brought on record that the seller has disclosed this amount of forfeiture in the books of account as well as the assessment framed U/s 143(3) of the Act. The amount of Rs. 7.00 crores was reduced from the cost of the properties by the seller and therefore, when these offices to be sold by the seller, the profit from the transaction would be increased automatically to the tune of Rs. 7.00 crores. Even otherwise, Section 51 of the Act envisaged that the money has to be reduced from the cost of the asset acquired or written down value of the asset as the case may be for the purpose of computing the capital gain. For ready reference, we reproduce Section 51 of the Act as under: “51. Where any capital asset was on any previous occasion the subject of negotiations for its transfer, any advance or other money43 received and retained by the assessee in respect of such negotiations shall be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition: 44[Provided that where any sum of money, received as an advance or otherwise in the course of negotiations for transfer of a capital asset, has been included in the total income of the assessee for any previous year in accordance with the provisions of clause (ix) of sub-section (2) of section 56, then, such sum shall not be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition.]” Therefore, the forfeiture amount was either to be reduced from the cost of the asset/property or to be assessed as income as per the provisions of Section 56(2)(ix) of the Act. Since the provisions of Section 56(2)(ix) of the Act are not applicable for the year under consideration, therefore, the only option was to reduce the said amount from the cost of acquisition of the property in the hand of the seller and consequently the profit earning on the sale of the said property would be enhanced by the said amount.
The provisions of Section 51 of the Act is a safeguard against the loss of revenue on account of such forfeiture. Therefore, the said claim of forfeiture of Rs. 7.00 crores is not a revenue affecting transaction but it will be taken into consideration at the time of sale of the property by the seller. Hence, it is only a matter of different assessment year when finally the properties in question are to be sold by the seller. The Assessing Officer has not brought any material or fact that the seller has circumvented the provisions of Section 51 of the Act. Further the payment of Rs. 7.00 crores by the assessee to the seller is not in dispute and this is a real transaction but the Assessing Officer has disallowed the claim on the ground that the forfeiture of the amount is not genuine. It is pertinent to note that once the parties to the transaction have accepted the forfeiture and the assessee has not made any claim or the amount was otherwise not paid to the assessee then there is no reason to treat the forfeiture as non-genuine. Accordingly, when the Assessing Officer has duly examined all the relevant facts as well as the seller during the course of remand proceedings and nothing adverse was either found or brought on record to contradict the claim of the assessee then the claim of forfeiture of the amount in question is an allowable claim U/s 37 of the Act as it is a business loss occurred during the course of business activity of the assessee being business of real estate. The Assessing Officer has not disputed the business activity and the income offered by the assessee from the business of real estate, therefore, in the facts and circumstances of the case, we do not find any error or illegality in the impugned order of the ld. CIT(A) and the same is hereby upheld.
In the result, appeal of the revenue is dismissed.
Order pronounced in the open court on 11th January, 2019.
Sd/- Sd/- ¼foØe flag ;kno½ ¼fot; iky jko½ (VIKRAM SINGH YADAV) (VIJAY PAL RAO) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 11th January, 2019 *Ranjan आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- The I.T.O. Ward-2(2), Jaipur. 1. 2. izR;FkhZ@ The Respondent- M/s Sukh Sagar Enclave, Jaipur. vk;dj vk;qDr@ CIT 3. vk;dj vk;qDr@ CIT(A) 4. 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण]जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत xkMZ QkbZy@ Guard File (ITA No. 1116/JP/2018) 6. vkns'kkuqlkj@ By order,
सहायक पंजीकार@Aेेज. त्महपेजतंत