PANKAJ INFRASTRUCTURES PVT. LTD.,PUNE vs. DCIT, CIRCLE-4, PUNE, PUNE

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “B”, PUNE BEFORE SHRI MANISH BORAD, ACCOUNTANT MEMBER AND SHRI VINAY BHAMORE, JUDICIAL MEMBER आयकर अपील सं. / ITA No.2108/PUN/2025 िनधा�रण वष� / Assessment Year : 2012-13 Pankaj Infrastructures Pvt. Vs. DCIT, Circle-4, Pune. Ltd., Yashodham, CTS No.440/7, Gokhale Cross Road, Shivaji Nagar, Pune- 411016. PAN : AADCP3662P Appellant Respondent Assessee by : Shri Vinay V. Kawdia (Virtual) Revenue by : Smt. Sailee Dhole Date of hearing : 05.01.2026 Date of pronouncement : 27.03.2026 आदेश / ORDER PER VINAY BHAMORE, JM: This appeal filed by the assessee is directed against the order dated 27.08.2025 passed by Ld. CIT(A)/NFAC for the assessment year 2012-13. 2. The appellant has raised the following grounds of appeal :- “1) On the facts and in the circumstance of the case and in law the ld. CIT(A) erred in confirming the action of the AO in initiating the reassessment proceedings u/s.147 purely on the basis of original assessment record and without any new tangible material available with the AO after completion of original

2 ITA No.2108/PUN/2025 assessment proceedings and accordingly the reassessment order is liable to be quashed. 2) On the facts and in the circumstance of the case and in law the ld. CIT(A) erred in confirming the action of the AO in initiating the reassessment proceedings u/s.147 for the issue which was considered in original assessment proceedings, and accordingly the reassessment order passed on the basis of change of opinion is liable to be quashed. 3) On the facts and in the circumstance of the case and in law, the ld. CIT(A) erred in confirming the action of AO in making the disallowance of Rs.2,85,00,000/-, i.e. advance paid and claimed as expenditure, by solely relying on decision of supreme Court in Pr. CIT v. Khyati Realtors (P.) Ltd. [2022] 141 taxmann.com 461 and by disregarding the fact that the amount claimed was forfeited by payee on non-fulfilment of contract during the normal course of business. 4) The appellant craves the permission to add, amend, modify, alter, revise, substitute, delete any or all grounds of appeal, if deemed necessary at the time of hearing of the appeal.” 3. Facts of the case, in brief, are that the assessee is a private limited company deriving income from real estate and infrastructure activity and has furnished its return of income on 21.09.2012 declaring an income of Rs. Nil. The return was processed u/s 143(1) of the IT Act. The case was selected for scrutiny under CASS. Notice u/s 143(2) and 142(1) of the IT Act were issued to the assessee. After considering the submissions of the assessee, the assessment order u/s 143(3) of the IT Act was passed on 30-03-2015 by determining loss at Rs.11,02,390/- as against Nil income returned by the assessee. The above assessed loss includes

3 ITA No.2108/PUN/2025 addition of Rs.3 lakh being disallowed out of expenses claimed in profit and loss account. 4. Subsequently, the case was reopened u/s 147 of the IT Act by issuing notice u/s 148 of the IT Act on 31-03-2017 and reasons for reopening were provided to the assessee, according to which, the expenditure of Rs.2,85,00,000/- debited to the profit and loss account was not for purchase of stock but was only an advance, therefore was required to be shown in the balance sheet & not in the profit & loss account. The expenditure of advance paid cannot be claimed in the profit and loss account since it was not an allowable expenditure either u/s 36 or u/s 37(1) of the IT Act. Accordingly, notices were issued u/s 148, 143(2) and 142(1) of the IT Act respectively. The assessee in response to above notices submitted that the above amount of Rs. 2,85,00,000/- in all was paid between 31st of January 2012 to 17th of February 2012 to Shri Praveen Chand Jain & his wife Ambuj Jain as an advance for purchase of property under construction at Delhi in connection with business, however the above advance amount was forfeited by Shri Praveen Chand Jain & his wife Ambuj Jain, the sellers, in the same assessment year on the basis of an unregistered agreement which was entered into on 27-01-2012 since the assessee company could not pay the agreed

4 ITA No.2108/PUN/2025 installment amount within the stipulated dates. The assessee company claimed it as purchase of property in profit and loss account, however, the Assessing Officer found that it was shown in the schedule as an advance therefore not being satisfied with the submissions of the assessee the Assessing Officer reopened the case u/s 147 of the IT Act and made addition of Rs.2,85,00,000/- to the income of the assessee. 5. Being aggrieved with the above assessment order passed u/s 143(3) r.w.s. 147 of the IT Act, the assessee preferred an appeal before Ld. CIT(A)/NFAC. After considering the reply and submissions of the assessee, Ld. CIT(A)/NFAC dismissed the appeal filed by the assesse. 6. It is the above order against which the assessee is in appeal before this Tribunal. 7. We have heard Ld. counsels from both the sides and perused the material available on record including the paper book furnished by the assesse. In this regard, we find that the case of the assessee was reopened u/s 147 of the IT Act for the following reasons :- “The assessee had debited in the Profit and loss account an amount of Rs. 2,85,22,000/- as Purchase of stock in trade as per details given in the Schedule 17. In the Schedule it was mentioned that the amount was paid towards "Advances given for purchases". It is seen from the submissions made, that no details were given about this expenditure. Advance given cannot be shown in the profit and loss account but

5 ITA No.2108/PUN/2025 should have been shown as current assets in the Balance sheet. The only operational income shown by the assessee was on account of Land Dealing Income of Rs. 2,01,66,000/-. The verification of the details submitted shows that the assessee had an opening stock of land of 58,315 sq. mtrs. Of purchase value of Rs. 17,721,750/- out of which land of 50,415 sq. mtrs with the purchase value of the Rs. 105,90,000/- was sold for Rs.2,01,66,000/-. This shows that whatever land was sold was from opening stock and that no land was purchased during the year. Even if it was argued that the advance given was towards actually acquisition of land for stock in trade, then such land as it was sold should have been shown under the head "closing stock in trade". This was not done by the assessee. The assessee has not shown any purchase of land in stock statement nor has he disclosed the land purchased nor shown in the stock in trade. Hence the expenditure of advance paid claimed in the profit and loss account is not allowable expenditure u/s37(1) of the ITAct, as produced below. Section 37(1) of the income tax Act, 1961 provides that Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession. It is further to be stated that in order to allow deduction the expenses should be made during the concerned financial year. Advance given does not constitute expenditure unless the services or goods against which the advance is given are rendered or goods have been received." 8. In ground No. 1 & 2 raised before us it was the contention of Ld. AR that no new tangible material was available with the Assessing Officer after completion of original assessment proceedings & the reassessment is based on change of opinion on the same material therefore the reopening is not correct and Ld. CIT(A)/NFAC erred in confirming the action of the Assessing Officer.

6 ITA No.2108/PUN/2025 9. With regard to above ground, we find that Ld. CIT(A)/NFAC has dismissed the grounds no.1, 2 & 4 raised before Ld. CIT(A)/NFAC relating to reopening of assessment by observing as under :- “5. अवलोकन और िनण�यण� / OBSERVATION AND DECISION: 5.1 Ground no 1, 2 and 4 relates to the reopening of assessment. The appellant stated that the issue was covered in original assessment. However, he had not furnished anything in support of the same. The appellant apparently camouflaged it in his accounts and the word ‘advance’ was mentioned in the schedules only. The assessing officer had given detailed reasons of reopening and the same was also communicated to the appellant during assessment proceedings. I therefore find nothing illegal in the AO’s reopening of assessment. Ground no 1, 2 and 4 are therefore dismissed.” 10. Before us, Ld. AR also relied on judgement passed in the case of CIT vs. Kelvinator India Ltd. 320 ITR 561 in support of his contentions wherein it was held that mere change of opinion cannot form basis for reopening a completed assessment. 11. In this regard, we may refer section 147 as it was available on that point of time (relevant portion only) “147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :

7 ITA No.2108/PUN/2025 Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided ***** Provided also ***** Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. *****.” 12. From the plain reading of above section 147 of the IT Act, it is clear that the proceedings of reassessment can be initiated if the Assessing Officer has reason to believe that income has escaped from assessment by reason of the failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment and as per Explanation 1 Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.

8 ITA No.2108/PUN/2025 13. In this regard, we find that the assessee camouflaged and wrongly debited advance for purchase of property in the profit and loss account in the name of purchase of stock in trade, however in the Schedule 17 the same amount was shown as advance for purchase of property. This misrepresentation or arrangement of accounts falls in the category of non-disclosing truly and fully all material facts necessary for his assessment. 14. We further find that in the original assessment proceedings details of sundry debtors and creditors & bad debts were called for. Since in the balance sheet the name of the seller party Pravin Chand Jain & Smt. Ambuj Jain did not appeared as the debtor, question of providing details by the assessee in the original assessment proceedings does not arise and therefore the contention of the assessee that on same material, Assessing Officer has changed his opinion is not correct. Therefore, the reliance placed by the assessee on the judgement in the case of Kelvinator India Ltd. (supra) is not applicable to the facts of the present case. 15. Accordingly, we are of the considered opinion that the assessee has not disclosed truly and fully all material facts necessary for his assessment therefore the reassessment proceedings were validly initiated by the Assessing Officer and

9 ITA No.2108/PUN/2025 confirmed by Ld. CIT(A)/NFAC and therefore we do not find any error in the order passed by Ld. CIT(A)/NFAC. Accordingly, ground no.1 and 2 raised by the assessee are dismissed. 16. In ground no. 3, the assesse has challenged the order of Ld. CIT(A)/NFAC wherein Ld. CIT(A)/NFAC relied on the judgement of Hon’ble Supreme Court in the case Pr. CIT vs. Khyati Realtors (P.) Ltd. [2022] 141 taxmann.com 461 and confirmed the action of AO in making the disallowance of Rs.2,85,00,000/-, i.e. advance paid and claimed as expenditure by disregarding the fact that the amount claimed was forfeited by payee on non-fulfilment of contract during the normal course of business. 17. In this regard, we find that learned CIT(A) has dismissed the grounds no.5 raised before him relating to addition of Rs.2,85,00,000 made by the Assessing Officer by observing as under :- “5.3 Ground no 5 is with respect to the addition made in assessment. I have considered the appellant’s submissions and the facts of the case. Brief facts is that the appellant assessee had advanced amount of Rs.2,85,00,000/- for purchase of property and had debited the amount in the profit and loss account as advance for purchases. However, no purchases were made and the amount as per appellant was treated as bad debts and written off. The amounts paid were in the current financial year on 31.01.2012 for Rs. 1,40,00,000/-, on 04.02.2012 for 1,40,00,000 and on 17.02.2012 for Rs.5,00,000/-. Apparently, all these payment were made at the last quarter of the financial year and claimed as bad debts in the same year.

10 ITA No.2108/PUN/2025 5.4 Hon'ble Supreme Court had in the case of Pr. CIT v. Khyati Realtors (P.) Ltd. [2022] 141 taxmann.com 461 in similar circumstances held that the advancement for property cannot be treated as bad debts. It cannot be treated as a deduction u/s 37 also. Hon’ble court held : 11. Section 36 of the Act occurs under the heading ‘other deductions’, and its relevant extract, for the purpose of this case, is as follows: “36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28— (vii) subject to the provisions of sub-section (2), the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year: Provided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause: Provided further that where the amount of such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof becomes irrecoverable or of an earlier previous year on the basis of income computation and disclosure standards notified under sub-section (2) of Section 145 without recording the same in the accounts, then, such debt or part thereof shall be allowed in the previous year in which such debt or part thereof becomes irrecoverable and it shall be deemed that such debt or part thereof has been written off as irrecoverable in the accounts for the purposes of this clause. Explanation 1.—For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee. Explanation 2.—For the removal of doubts, it is hereby clarified that for the purposes of the proviso to clause (vii) of this sub-section and clause (v) of subsection (2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under clause (viia) and such account shall relate to all types of advances, including advances made by rural branches;…. *** (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply— (i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in

11 ITA No.2108/PUN/2025 the ordinary course of the business of banking or money-lending which is carried on by the assessee; (ii) if the amount ultimately recovered on any such debt or part of debt is less than the difference between the debt or part and the amount so deducted, the deficiency shall be deductible in the previous year in which the ultimate recovery is made; (iii) any such debt or part of debt may be deducted if it has already been written off as irrecoverable in the accounts of an earlier previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year), but the Assessing Officer had not allowed it to be deducted on the ground that it had not been established to have become a bad debt in that year; (iv) where any such debt or part of debt is written off as irrecoverable in the accounts of the previous year (being a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year) and the Assessing Officer is satisfied that such debt or part became a bad debt in any earlier previous year not falling beyond a period of four previous years immediately preceding the previous year in which such debt or part is written off, the provisions of sub-section (6) of Section 155 shall apply; (v) where such debt or part of debt relates to advances made by an assessee to which clause (viia) of sub-section (1) applies, no such deduction shall be allowed unless the assessee has debited the amount of such debt or part of debt in that previous year to the provision for bad and doubtful debts account made under that clause.” Section 37 reads as follows: “37. (1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head "Profits and gains of business or profession". Explanation 1.—For the removal of doubts, it is hereby declared that any expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure.” 12. The income of every assessee has to be assessed according to the statutory framework laid out Chapter IV, Part D of the Act. That chapter deals with heads of income. Section 28 of the Act deals with the chargeability of income to tax under the head ‘Profits and Gains of Business or Profession’. The other deductions that an assessee can claim are elaborated under Section 36 of the Act, which opens with the phrase “the deductions provided for in the following clauses shall be

12 ITA No.2108/PUN/2025 allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28”. For the purposes of computing income chargeable to tax, therefore, besides specific deductions, ‘other deductions’ enumerated in different clauses of Section 36 can be allowed by the AO. Each of the deductions must relate to the business carried out by the assessee. If the assessee carries on a business and writes off a debt relating to the business as irrecoverable, it would without doubt be entitled to a corresponding deduction under clause (vii) of subsection (1) of Section 36 subject to the fulfilment of the conditions set forth in subsection (2) of Section 36 of the IT Act. 13. Before the amendment in 1989, the law was that even in cases where the assessee had made only a provision in its accounts for bad debts and interest thereon, without the amount actually being debited from the assessee’s Profit and Loss account, the assessee could still claim deduction under Section 36(1)(vii) of the Act. With effect from 1 April 1989, with the insertion of the new Explanation under Section 36(1)(vii), any bad debt written-off as irrecoverable in the account of the assessee would not include any ‘provision’ for bad and doubtful debt made in the accounts of the assessee. In other words, before this date, even a provision could be treated as a write off. However, after this date, the Explanation to Section 36(1)(vii) brought about a change. As a result, a mere provision for bad debt per se was not entitled to deduction under Section 36(1)(vii). This position in law was recognized by this court in Southern Technologies Ltd. v. Joint Commissioner of Income Tax, Coimbatore9: “25. [B]y insertion (w.e.f. 1.4.1989) of a new Explanation in Section 36(1)(vii), it has been clarified that any bad debt written off as irrecoverable in the account of the assessee will not include any provision for bad and doubtful debt made in the accounts of the assessee. The said amendment indicates that before 1.4.1989, even a provision could be treated as a write off. However, after 1.4.1989, a distinct dichotomy is brought in by way of the said Explanation to Section 36(1)(vii). Consequently, after 1.4.1989, a mere provision for bad debt would not be entitled to deduction under Section 36(1)(vii). To understand the above dichotomy, one must understand “how to write off”. If an assessee debits an amount of doubtful debt to the P&L Account and credits the asset account like sundry debtor’s Account, it would constitute a write off of an actual debt. However, if an assessee debits “provision for doubtful debt” to the P&L Account and makes a corresponding credit to the “current liabilities and provisions” on the Liabilities side of the balance sheet, then it would constitute a provision for doubtful debt. In the latter case, assessee would not be entitled to deduction after 1.4.1989. 38. The point to be noted is that the IT Act is a tax on “real income”, i.e., the profits arrived at on commercial principles subject to the provisions of the IT Act.

13 ITA No.2108/PUN/2025 Therefore, if by Explanation to Section 36(1)(vii) a provision for doubtful debt is kept out of the ambit of the bad debt which is written off then, one has to take into (2010) 2 SCR 380. account the said Explanation in computation of total income under the IT Act failing which one cannot ascertain the real profits. This is where the concept of “add back” comes in. In our view, a provision for NPA debited to P&L Account under the 1998 Directions is only a notional expense and, therefore, there would be add back to that extent in the computation of total income under the IT Act. 39. One of the contentions raised on behalf of NBFC before us was that in this case there is no scope for “add back” of the Provision against NPA to the taxable income of the assessee. We find no merit in this contention. Under the IT Act, the charge is on Profits and Gains, not on gross receipts (which, however, has Profits embedded in it). Therefore, subject to the requirements of the IT Act, profits to be assessed under the IT Act have got to be Real Profits which have to be computed on ordinary principles of commercial accounting. In other words, profits have got to be computed after deducting Losses/ Expenses incurred for business, even though such losses/ expenses may not be admissible under Sections 30 to 43D of the IT Act, unless such Losses/ Expenses are expressly or by necessary implication disallowed by the Act. Therefore, even applying the theory of Real Income, a debit which is expressly disallowed by Explanation to Section 36(1)(vii), if claimed, has got to be added back to the total income of the assessee because the said Act seeks to tax the “real income” which is income computed according to ordinary commercial principles but subject to the provisions of the IT Act. Under Section 36(1)(vii) read with the Explanation, a “write off” is a condition for allowance.” 14. It is thus evident that merely stating a bad and doubtful debt as an irrecoverable write off without the appropriate treatment in the accounts, as well as non-compliance with the conditions in Section 36(1)(vii), 36(2), and Explanation to Section 36(1)(vii) would not entitle the assessee to claim a deduction. This position was reiterated again in Catholic Syrian Bank (supra): “5. The language of Section 36(1)(vii) of the Act is unambiguous and does not admit of two interpretations. It applies to all banks, commercial or rural, scheduled or unscheduled. It gives a benefit to the Assessee to claim a deduction on any bad debt or part thereof, which is written off as irrecoverable in the accounts of the Assessee for the previous year. This benefit is subject only to Section 36(2) of the Act. It is obligatory upon the Assessee to prove to the assessing officer that the case satisfies the ingredients of Section 36(1)(vii) on the one hand and that it satisfies the requirements stated in Section 36(2) of the Act on the other. The proviso to Section 36(1)(vii) does not, in absolute terms, control the application of this provision as it comes into operation only when the case of the Assessee is one which falls squarely under Section

14 ITA No.2108/PUN/2025 36(1)(viia) of the Act. We may also notice that the explanation to Section 36(1)(vii), introduced by the Finance Act, 2001, has to be examined in conjunction with the principal section. The explanation specifically excluded any provision for bad and doubtful debts made in the account of the Assessee from the ambit and scope of 'any bad debt, or part thereof, written off as irrecoverable in the accounts of the Assessee'. Thus, the concept of making a provision for bad and doubtful debts will fall outside the scope of Section 36(1)(vii) simplicitor. The proviso, as already noticed, will have to be read with the provisions of Section 36(1) (viia) of the Act.” 15. The assessee had relied on the ruling in T.R.F. Limited (supra). In that judgment, this court had inter alia, observed that: “4. This position in law is well-settled. After 1st April, 1989, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. However, in the present case, the Assessing Officer has not examined whether the debt has, in fact, been written off in accounts of the assessee. When bad debt occurs, the bad debt account is debited and the customer’s account is credited, thus, closing the account of the customer. In the case of Companies, the provision is deducted from Sundry Debtors. As stated above, the Assessing Officer has not examined whether, in fact, the bad debt or part thereof is written off in the accounts of the assessee. This exercise has not been undertaken by the Assessing Officer. Hence, the matter is remitted to the Assessing Officer for de novo consideration of the above-mentioned aspect only and that too only to the extent of the write off.” 16. This court did not examine the impact of Section 36(2) and the condition of write off, in the accounts of the assessee during the previous year, in T.R.F Ltd. (supra). However, the judgments in Southern Technologies (supra), and Catholic Syrian Bank (supra) spelt out the conditions subject to which an assessee could write off a bad and doubtful debt. Interestingly, Kapadia, C.J was a party to T.R.F and Catholic Syrian Bank; he in fact authored the judgment in Southern Technologies. Furthermore, Catholic Syrian Bank (supra) is by a bench of three judges, whereas the other decisions are by benches of two Judges. In the circumstances, this Court has to accord primacy to Southern Technologies (supra). 17. It is evident from the above rulings of this court, that: (i) The amount of any bad debt or part thereof has to be written-off as irrecoverable in the accounts of the assessee for the previous year; (ii) Such bad debt or part of it written-off as irrecoverable in the accounts of the assessee cannot include any provision for bad and doubtful debts made in the accounts of the assessee;

15 ITA No.2108/PUN/2025 (iii) No deduction is allowable unless the debt or part of it “has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year”, or represents money lent in the ordinary course of the business of banking or moneylending which is carried on by the assessee; (iv) The assessee is obliged to prove to the AO that the case satisfies the ingredients of Section 36(1)(vii) as well as Section 36(2) of the Act. 18. In the present case, the record shows that the accounts of the assessee nowhere showed that the advance was made by it to M/s C. Bhansali Developers Pvt. Ltd. in the ordinary course of business. Its primary argument was that the amount of 10 crores was given for the purpose of purchasing constructed premises. However, the amount was written-off on 28.03.2009. As noted by the CIT(A), there was no material to substantiate this submission, in respect of payment of the amount, the time by which the constructed unit was to be given to it, the area agreed to be purchased, etc. Equally, in support of its other argument that the amount was given as a loan, the assessee nowhere established the duration of the advance, the terms and conditions applicable to it, interest payable, etc. The assessee conceded that it had received interest income for the relevant assessment year. However, it could not establish that any interest was paid (or shown to be payable in its accounts) for the sum of 10 crores. Furthermore, there is nothing on record to suggest that the requirement of the law that the bad debt was written-off as irrecoverable in the assessee’s accounts for the previous year had been satisfied. Another reason why the amount could not have been written-off, is that the assessee’s claim was that it was given to M/s Bhansali Developers Pvt. Ltd. for acquiring immovable property – it therefore, was in the nature of a capital expenditure. It could not have been treated as a business expenditure. In A.V. Thomas and Co. Ltd., Alleppey v. The Commissioner of Income Tax, (Bangalore) Kerala10 this court held as follows: “16. Now, a question under s. 10(2)(xi) can only arise if there is a bad or doubtful debt. Before a debt can become bad or doubtful it must first be a debt. What is meant by debt in this connection was laid down by Rowlatt J., in Curtis v. J. & G. Oldfield Ltd., (1925) 9 TC 319 as follows :- “When the Rule speaks of a bad debt it means a debt which is a debt that would have come into the balance sheet as a trading debt in the trade that is in question and that it is bad. It does not really mean any bad debt which, when it was a good debt, would not have come in to swell the profits.” 17. A debt in such cases is an outstanding which if recovered would have swelled the profits. It is not money handed over to someone for purchasing a thing which that person has failed to return even though

16 ITA No.2108/PUN/2025 no purchase was made. In the section a debt means something more than a mere advance. It means something which is related to business or results from it. To be claimable as a bad or doubtful debt it must first be shown as a proper debt…” 19. In view of the above discussion, it is held that the assessee’s claim for deduction of 10 crore as a bad and doubtful debt could not have been allowed. The findings of the ITAT and the High Court, to the contrary, are therefore, insubstantial and have to be set aside. 20. The second issue relates to the admissibility of an expenditure as a deduction, which does not fall within the provisions of Sections 28 to 43, and is not capital in nature, but is laid out or spent exclusively for the purpose of business, under Section 37 of the Act. A similar provision existed under the old Income Tax Act, 1922 as in the case of provision for bad debts, by Section 10(2)11. This aspect was considered [1963] Supp (1) SCR 776. Section 10(2): [Such profits or gains shall be computed after making the following allowance, namely :- by this court in The Commissioner of Income Tax v. The Mysore Sugar Co., Ltd.12 The assessee there was engaged in production of sugar. It used to advance monies to cane growers in consideration of supply of sugarcane. Due to drought, the cane growers could not repay amounts advanced. The assessee claimed the outstanding to be bad debts, and sought to write them off. This was not allowed; the Income Tax Officer held the expenditure to be capital in nature. The High Court however, set aside that determination. This court confirmed the view of the High Court. However, the court also examined the argument whether in such eventualities, the expenditure could be claimed to be exclusively laid out for the purpose of business (under the provision corresponding to Section 37(1) of the Act). This court held as follows: “7. The tax under the head “Business” is payable under s. 10 of the Income-tax Act. That section provides by sub-s. (1) that the tax shall be payable by an assessee under the head “profits and gains of business, etc.” in respect of the profits or gains of any business, etc. carried on by him. Under sub-s. (2), these profits or gains are computed after making certain allowances. Clause (xi) allows deduction of bad and doubtful business debts. It provides that when the assessee’s accounts in respect of any part of his business are not kept on the cash basis, such sum, in respect of bad and doubtful debts, due to the assessee in respect of that part of the his business is deductible but not exceeding the amount actually written off as irrecoverable in the books of the assessee. Clause (xv) allows any expenditure not included in cls. (i) to (xiv), which is not in the nature of capital expenditure or personal expenses of the assessee, to be deducted, if laid out or expanded wholly and exclusively for the purpose of such business, etc. The clauses expressly provided what can be deducted; but the general scheme of the

17 ITA No.2108/PUN/2025 section is that profits or gains must be calculated after deducting outgoings reasonably attributable as business expenditure but so as not to deduct any portion of an expenditure of a capital nature. If an expenditure comes within any of the enumerated classes of allowances, the case can be considered under the appropriate class; but there may be an *** (xi) When the assessee's accounts in respect of any part of his business, profession or vocation are not kept on the cash basis, such sum, in respect of bad and doubtful debts, due to the assessee in respect of that part of his business, profession or vocation, and in the case of an assessee carrying on a banking or money lending business such sum in respect of loans made in the ordinary course of such business as the Income-tax Officer may estimate to be irrecoverable but not exceeding the amount actually written off as irrecoverable in the books of the assessee : *** (xv) any expenditure (not being an allowance of the nature described in any of the clauses (i) to (xiv) inclusive, and not being in the nature of capital expenditure or personal expenses) laid out or expended wholly and exclusively for the purpose of such business, profession or vocations". 1963 (2) SCR 976 expenditure which, though not exactly covered by any of the enumerated classes, may have to be considered in finding out the true assessable profits or gains. This was laid down by the Privy Council in Commissioner of Income-tax v. Chitnavis I.L.R. (1932) IndAp 290 and has been accepted by this Court. In other words, s. 10(2) does not deal exhaustively with the deductions, which must be made to arrive at the true profits and gains. 8. To find out whether an expenditure is on the capital account or on revenue, one must consider the expenditure in relation to the business. Since all payments reduce capital in the ultimate analysis, one is apt to consider a loss as amounting to a loss capital. But this is not true of all losses, because losses in the running of the business cannot be said to be of capital. The questions to consider in this connection are : for that was the money laid out? Was it to acquire an asset of an enduring nature for the benefit of the business, or was it an outgoing in the doing of the business? If money be lost in the first circumstances, it is a loss of capital, but if lost in the second circumstances, it is a revenue loss. In the first, it bears the character of an investment, but in the second, to use a commonly understood phrase, it bears the character of current expenses. 21. It is apparent that this court was satisfied that the disallowance of the amount, on account of bad and doubtful debt, did not preclude a claim for deduction, on the ground that the expenditure was exclusively laid out for the purpose of business. The court applied the test of whether the expense was incurred for business, or whether it fell into

18 ITA No.2108/PUN/2025 the capital stream. In the facts of the case, the tests were satisfied – the expenditure was for the purpose of business, and did not fall in the capital stream. 22. The assessee had relied on a few High Court judgments which have ruled that even if a claim for deduction under Section 36(1) is not allowed, the possibility of its exclusion under Section 37 cannot be ruled out. This court is of the opinion that as a proposition of law, that enunciation is unexceptional, since the heads of expenditure that can be claimed as deduction are not exhaustive – which is the precise reason for the existence of Section 37. Therefore, in a given case, if the expenditure relates to business, and the claim for its treatment under other provisions are unsuccessful, application of Section 37 is per se not excluded. 23. This court is of the opinion however, that in the facts of this case, the judgment in Southern Technologies (supra) on this issue (where the claim of bad and doubtful debt was disallowed) is appropriate, and applicable. The relevant extract of the said judgment is as follows: “44. As stated above, Section 36(1)(vii) after 1.4.1989 draws a distinction between write off and provision for doubtful debt. The IT Act deals only with doubtful debt. It is for the assessee to establish that the provision is made as the loan is irrecoverable. However, in view of Explanation which keeps such a provision outside the scope of “written off” bad debt, Section 37 cannot come in. If an item falls under Sections 30 to 36, but is excluded by an Explanation to Section 36 (1) (vii) then Section 37 cannot come in. Section 37 applies only to items which do not fall in Section 30 to 36. If a provision for doubtful debt is expressly excluded from Section 36 (1) (vii) then such a provision cannot claim deduction under Section 37 of the IT Act even on the basis of “real income theory” as explained above.” 5.5 It was held that for claiming as a bad debt, it should have been taken as income first. Relying of the decision of Hon’ble Supreme Court, I hold that the assessing officer had rightly disallowed the claim of appellant. 5.6 Ground no 5 is accordingly dismissed.” 18. From the perusal of above order passed by Ld. CIT(A)/NFAC with regard to ground no.5 raised before him by the assessee, which is related to ground no.3 raised before us, we are of the

19 ITA No.2108/PUN/2025 considered opinion that there is no error in the above order passed by Ld. CIT(A)/NFAC. 19. In this regard, we further find that the impugned transaction appears to be a sham transaction and colourable devise to avoid tax, since there were lot of errors in the unregistered agreement on the basis of which the assessee could have followed the recourse to take the matter in the court of law, however the assessee failed to take such a step which he ought to have taken. In this regard, following points were observed by us :- 1. That the agreement was an unregistered one executed on Rs.100 stamp paper in the presence of unknown and unidentified witnesses. 2. That 60% of the sale amount was agreed to be paid in a short span of 30 days whereas this amount was not available with the assessee and according to the assessee he was suffering losses. 3. That on page No. 48 of the paper book furnished by the assessee which is page 2 of the unregistered agreement, in the last para it was mentioned that the balance payment i.e. Rs.855 lakhs shall be paid upto 06th February 2012, which does not appears to be correct since in the earlier paras the amount of Rs.285 lakhs only was agreed to be paid within 10 days of signing the agreement i.e. on or before 6th February 2012.

20 ITA No.2108/PUN/2025 4. Similarly on page No. 49 of the paper book furnished by the assessee which is page 3 of the unregistered agreement, in para 6 the date is mentioned as 30th June 2013 whereas in the next line it is mentioned as 30th June 2012. 5. That on page No. 50 of the paper book furnished by the assessee which is page 4 of the unregistered agreement, in 7th para it was mentioned that if the assessee company does not perform its part of contract within the stipulated period the amount paid in excess of Rs.285 lakhs shall only be refunded and amount already paid shall be forfeited. This condition itself proves that it was pre-decided that the assessee company will provide assistance in the shape of provision of entry of Rs.285 lakhs only and not more than that. 20. All the above errors and fact that the assessee company has not made any effort to safeguard the interest of the company by approaching before the court of law from where reasonable relief could have been obtained in the shape of procuring some more time from the sellers to make the remaining installment’s payment, indicates that it was only an arrangement to provide entry to the seller. Since no prudent person can allow the forfeiture of such a huge amount of Rs.2,85,00,0000/- out of which Rs.2,80,00,000/- itself was received as advance from other persons. Accordingly,

21 ITA No.2108/PUN/2025 the order passed by the Assessing Officer & upheld by Ld. CIT(A)/NFAC is confirmed. 21. Regarding various case laws relied on by the assessee company, we are of the considered opinion that these are not squarely applicable to the facts of the instant case and the reliance placed by Ld. CIT(A)/NFAC in the case of PCIT vs. Khyati Realtors (P) Ltd 2022 141 taxmann.com 461 (SC) is appropriate wherein the deduction of advance for purchase of property claimed by the assessee was disallowed. Accordingly, the ground no.3 raised by the assessee is dismissed. 22. In the result, the appeal filed by the assessee is dismissed. Order pronounced on this 27th day of March, 2026. Sd/- Sd/- (MANISH BORAD) (VINAY BHAMORE) ACCOUNTANT MEMBER JUDICIAL MEMBER पुणे / Pune; �दनांक / Dated : 27th March, 2026. Sujeet/DOC आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The Pr.CIT concerned. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B” ब�च, 4. पुणे / DR, ITAT, “B” Bench, Pune. गाड� फ़ाइल / Guard File. 5. आदेशानुसार / BY ORDER, // True Copy // Assistant Registrar आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune.