CIT CENTRAL vs. M/S S.A.BUILDERS P.LTD.CHD.

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ITR/6/2002HC Punjab & HaryanaPHHC01053640200221 December 2007Author: MR. JUSTICE M.M. KUMAR,MR JUSTICE RAKESH KUMAR JAIN3 pages

AI SummaryRemanded

What did the High Court hold?

The High Court held that the bank guarantee amounting to Rs. 5,25,000/- revoked and Rs. 76,139/- forfeited constituted an allowable loss. The Court's decision was based on its own earlier judgment in I.T.R. No. 37 of 1991, which dealt with a similar question of law in the assessee's own case for assessment year 1983-84. In that prior case, the Division Bench, including one of the present judges, had answered the question in favour of the assessee and against the revenue. Therefore, following the same principle and precedent, the present reference was answered against the revenue and in favour of the assessee. The operative direction was to dispose of the reference accordingly.

What were the facts?

The assessee, M/s S.A. Builders Pvt. Ltd., is a building contractor maintaining accounts on a mercantile basis. For assessment year 1984-85, the assessee claimed a deduction of Rs. 6,01,139/- as an allowable loss. This claim comprised Rs. 5,25,000/- for a revoked bank guarantee and Rs. 76,139/- for a forfeited bank guarantee due to non-completion of a contract within the stipulated period. The Assessing Officer rejected this claim. The Commissioner of Income-tax (Appeals) deleted the additions made by the Assessing Officer. The Income Tax Appellate Tribunal (ITAT) decided the issue in favour of the assessee, relying on its own earlier order for assessment year 1983-84. The revenue has filed this Income Tax Reference (ITR) No. 6 of 2002 before the High Court of Punjab and Haryana.

What were the issues?

1. Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that the bank guarantee amounting to Rs. 5,25,000/- revoked and Rs. 76,139/- forfeited by the contractee for not completing the contract within the stipulated period constituted an allowable loss? Assessee's contentions: The judgment does not explicitly record the assessee's contentions. However, it implies the assessee argued that the forfeited and revoked bank guarantees represented an allowable business loss. Revenue's contentions: The judgment does not explicitly record the revenue's contentions. However, it implies the revenue argued against allowing the bank guarantee amounts as a deductible loss.

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH DATE OF DECISION: December 21, 2007 The Commissioner of Income-tax (Central), Ludhiana …Applicant Versus M/s S.A. Builders Pvt. Ltd., Chandigarh …Respondent CORAM: HON’BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE RAKESH KUMAR JAIN Present: Mr. S.K. Garg Narwana, Advocate, for the applicant-revenue. Mr. Akshay Bhan, Advocate, for the respondent-assessee. M.M. KUMAR, J. The Income Tax Appellate Tribunal, Chandigarh Bench ‘A’, Chandigarh (for brevity, ‘the Tribunal’), in pursuance to the order dated 3.8.2000, passed by this Court in I.T.C. No. 97 of 1996 (arising out of Tribunal’s order dated 18.7.1995, passed I.T.A. No. 805/Chandi/1989, in respect of assessment year 1984-85), has drawn up the statement of the case and referred the following question of law for opinion of this Court: “Whether on the facts and circumstances of the case, the Appellate Tribunal was right in law in holding that the bank guarantee amounting to Rs. 5,25,000/- revoked and Rs. 76,139/- forfeited by the contractee for not completing the contract within the stipulated period constituted an allowable loss?”

Brief facts as emerged from the statement of the case drawn by the Tribunal are that the assessee is a building contractor and during the relevant assessment year 1984-85 was mainly engaged in the execution of building contracts of Government and other agencies. The assessee maintained its accounts on mercantile basis. During the relevant assessment year, the assessee claimed a total amount of Rs. 6,01,139/- as allowable deduction as loss. The Assessing Officer, however, rejected the claim of the assessee. On an appeal, the CIT (A) deleted the additions made by the Assessing Officer. On further appeal, the Tribunal decided the issue in favour of the assessee while relying upon its earlier order dated 9.9.1988, passed in I.T.A. No. 493/Chandi/1987, in the cases of assessee’s own case in respect of assessment year 1983-84. It is apposite to notice that against the order dated 9.9.1988, passed in I.T.A. No. 493/Chandi/1987, the Tribunal referred a similar question for opinion of this Court being I.T.R. No. 37 of 1991 (The Commissioner of Income-tax, Patiala v. M/s S.A. Builders Pvt. Ltd., Chandigarh, decided on 16.5.2007). The Division Bench of this Court, of which one of us (M.M. Kumar, J.) was a member, answered the question of law in favour of the assessee and against the revenue. In view of above, following the same principle and precedent, the question referred is answered against the revenue and in favour of the assessee in terms of Division Bench judgment of this Court in I.T.R. No. 37 of 1991 (supra). The reference is disposed of accordingly. (M.M. KUMAR) JUDGE (RAKESH KUMAR JAIN) December 21, 2007 JUDGE Pkapoor 3

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