DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE - 3, PUNE vs. SOPAN GAHUNAJI LANKE, PUNE

आदेश / ORDER PER ANIL CHATURVEDI, AM :

Assessee is an individual and stated to be engaged in the business of real estate operations, promoters and builders. Assessee

electronically filed his return of income for A.Y. 2012-13 on

30.09.2012 declaring total income of Rs.1,06,56,569/-. The assessee

thereafter revised the return of income on 19.12.2012 declaring nil

income and carried forward the current year losses. The case was

selected for scrutiny and thereafter assessment was framed u/s 143(3)

of the Act vide order dt.25.03.2015 and the total income was

determined at Rs.3,61,94,740/-. Aggrieved by the order of AO,

assessee carried the matter before Ld. CIT(A) who vide order dated

02.02.2017 (in appeal No.PN/CIT(A)-3/Wd 3(4), Pn/156/2015-16)

granted partial relief to the assessee. Aggrieved by the order of

Ld.CIT(A), Revenue is now in appeal before us and has raised the

following grounds :

“1. On the facts and circumstances of the case, the Ld. Commissioner of Income Tax (Appeal) has erred in allowing the of Rs.2,99,64,500/- being loss of business advances written off without appreciating the facts that without any documentation, the assessee had made payment of Rs.551 lacs to another promoter builder for purchase of land though the assessee is in the business of promoters and builders.

assessee had debited an amount of Rs.2,99,64,500/- under the head

of “Business Advances Written Off” which was not in the original

return of income that was filed by the assessee. On going through the

details furnished by the assessee, AO noticed that he had written off

Rs.2,75,00,000/- as bad debts out of the advance given to M/s.

Sharad Mutha Housing Development Ltd., which was stated to be on

account of an advance of purchase of land during the year and the

transaction could not be completed since the assessee was deceived

and hence, the market value of advance was reduced to 50% and the

amount was written off. The assessee was asked to furnish the

necessary details and prove the genuineness of expenditure. The

assessee filed the details wherein it was inter-alia submitted that

assessee has given Rs.551 lakhs to Sharad Mutha Housing

Development Ltd., for purchasing land and most of the payments

were made through cheques. On the basis of details filed, AO noticed

that the claim of loss of the assessee being business loss cannot be

accepted and cannot be considered to be a genuine business

transaction. He was of the view that it was some sort of

accommodation entry between the parties and not for the purpose of

business. He accordingly disallowed the claim of loss made by the

assessee. Aggrieved by the order of AO, assessee carried the matter

before Ld. CIT(A), who decided the issue in favour of the assessee by

observing as under :

“6.3. DECISION:- The appellant is an individual engaged in business of real estate operations, promoters & builders and renting of marriage hall. The appellant filed return of income for the year under appeal on 30.9.2012 declaring total income of Rs.1,06,56,569/-. Subsequently, the return was revised on 19.12.2012 declaring NIL income and carry forward of current year loss. During the course of assessment proceedings, the AO observed that the appellant had debited to his profit and loss account an amount of Rs.2,99,64,500/- being "Business Advances Written Off'. The AO called for the details of such amounts written off. The appellant submitted the relevant documents and explained the advance was given for purchase of land during the year and the transaction could not materialize since the appellant was deceived. This resulted in the reduction in the market value of the land to 50% and hence the amount was written off. To buttress his claim, the appellant relied on the decision of the Apex Court in the case of Badridas Daga Vs CIT (1958) 34 ITR 10 (SC) and requested to allow the claim of advance written off as genuine business expenditure. The AO

after examining the submissions made inferred from the explanation received that the genuineness of the transaction was not proved since the appellant had failed to prove that this transaction was the regular business transaction of the appellant.

6.3.1. The Ld AR on the other hand has strongly contended as regards to the loss of Rs. 2,75,00,000/- that, at the first instance the transaction of lendihg the said amount by the appellant was in good faith. Mr. Sharad Mutha who had approached the appellant was a good friend of the appellant. He had demonstrated to the appellant, the future prospects and potential in the said project and hence convinced him to buy the land of M/s TAKSHASHILA Society. The appellant believing his friend, invested in the said project. The Ld. AR for the appellant has then contended that it was only when the appellant began his construction work, he came across various hindrances. After realising the copious challenges to carry on the work, he referred the matter to one of the lawyers of the city. After perusal of the papers and the related documents and information; the lawyer opined that the land only had a nuisance value. In response to the various objections raised by the AO in the assessment order, the Ld AR has submitted as under:

a. Bad Debts are Genuine: Mr. Sharad Mutha and M/s SMDPL (appellant) are not any related entities of the appellant. By making any advance, no accommodation adjustment could possibly exist. The appellant has indeed issued a public notice through an advocate wherein understanding of land sale by M/s SMHDL has been mentioned in the initial public notice in the Newspaper and also in the legal notice given by appellant's advocate to M/s SMDPL.

b. Timing of Claim of Loss: A loss takes place when the related event takes place and not when the related court matter comes to a conclusion. In fact, court matter comes to a conclusion only for the issue / remedy sought for.

c. Non-offering of any Income in the past years: An advance is not same as any sales related debtor. The claim of bad-debt in the present case is nothing but a business loss of the appellant.

d. Non-disclosure of complete facts by M/s. SMHDL : Mr. Sharad Mutha approached appellant and requested to buy the said land of M/s. TAKSHASHILA society. Related documents of registered agreement between the said society and his company, specific agreements with individual members, copies of EOGM, and legal opinion of clear and marketable title of Advocate Baburao Wagh, etc. were all extended to the appellant. Mr. Mutha informed the appellant that, three parts of the said society are to be made, wherein, one part is to be constructed for the existing members of TAKSHASHILA, one part is to remain with M/s SMHDL and other land part is to be a complete ownership of M/s SMHDL which was extended to the appellant for purchase. After primary verification of base documents, the appellant decided to go forward with the proposal. Appellant, later on, realised that, Mr. Sharad Mutha did not inform him about many more legal aspects of the entire matter.

e. Cheating by SMHDL: money was paid to M/s SMHDL in good faith, and on belief of existence of absolute and valid land rights with M/s SMHDL. Subsequent realisation that the alleged absolute land rights of M/s SMHDL were seriously encumbered considering the aspects of deals between TAKSHSHILA SOCIETY and M/s Star Constructions, etc. and some understanding reached between Mr. Mutha and Mr Sharma, etc. leads to only once conclusion, that the appellant, was seriously

cheated by M/s SMHDL and in particular, Mr. Sharad Mutha.

The Ld AR for the appellant has submitted a chart of the events that occurred chronologically which is explicit about the said transactions. Also it indicated the efforts made by the appellant to recover the money paid to Mr. Mutha.

6.3.2 As regards the loss of Rs.24,64,500/-, the Ld AR has submitted the list of the customers, recovery of the amount from whom is not possible and hence needs to be accordingly written off as bad debts.

6.33 I have carefully perused the assessment order and the submissions made by the Ld. AR along with the material produced before me. During the course of appellate proceedings, the appellant was directed to file a detailed status update till current date, to test bonafide of the transactions. It transpires, that apart from sending legal notices through advocates and taking legal recourse, etc.; appellant has approached the police authorities. Complaint before Economic Offence Wing (Crime Branch) is perused and it appears, payment of Rs. 5.50 CR reflected in the Balance-Sheet is mentioned in detail in the said complaint. Charges of fraudulent practice of Mr. Sharad Mutha are explicitly stated therein. The Police Authorities have initiated the investigation. From the facts stated before the AO, legal notices appear to have been issued from Mr. R. V. Nangre and Mr. R. V. Chikate, Advocate of the appellant. From the public notices given in the Newspapers, factum of litigation is clearly forthcoming. From the subsequent details filed pursuant to my enquiry direction, many more aspects are revealing, such as challenge to the General Meeting giving approving transaction with Mr. Mutha. Further, the thick litigation between Mr. Mutha and Mr. Sharma is also revealing vide various suits filed by the respective parties. Indeed, it transpires, even, as of present date, no any money has been returned to the Appellant much less, any land rights.

It is relevant that all parties are Arm’s Length Parties. All payments are made by crossed a/c payee cheques. Apart from raising doubts about genuineness of the transaction, no further enquiry was done by the AO. In such a situation, the conclusion drawn by the AO appears over- reached.

Appellant is claiming business loss of 50% of advanced amounts based on the legal opinion sought from Advocate Ms. Puja Harkal. The same can't doubted per se. Considering totality of facts, I am convinced that !he transaction was genuine and not a make-believe or bogus transaction. As the appellant is engaged in real estate activities wherein, such situations do occur, I find merit in the grounds raised by the appellant. As regards the issue of bad-debts and the requirements of offering the related revenue in the earlier years, it appears, the expectation of the learned AO is misconceived. Business loss is a set of many possible eventualities for a business-man and bad-debt is one of specie of the same. Legislature has provided certain norms for bad-debts claim. No such conditions are so provided for other streams of business losses, except that the business loss ought to be claimed when it occurs. Appellant's analogy that business loss has occurred in current year is sound since, he realized the folly of his investment in the current year. As such, on all fours, appellant is entitled to claim the loss in A.Y. 2012-13. The same needs to be permitted and hence, the first part of Ground No. 2 is allowed. If, in the subsequent years, any recovery is made from M/s SMHDPL or from Mr. Sharad Mutha, the same will be taxable on logical reasoning.

6.3.4. As regards second part of the business loss of Rs. 24,64,500/-, it transpires, appellant has provided detailed customer-wise breakup for the same. The same does not appear to have been verified by the AO. Bad-debts loss is deductible in the year of write-off. As it is claimed in the A.Y. 2012-13, the same needs to be allowed following the decision of the Apex Court in the case of TRF Limited Vs. CIT – 323 ITR 397 (SC). AO is directed to allow the same after verifying that, related revenue was indeed offered to tax in the earlier years. Accordingly, the Ground No. 2 raised by the appellant is allowed.”

Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal

before us.

the AO and supported the order of AO and submitted that Ld.CIT(A)

was not justified in granting relief to the assessee. Ld.A.R. on the

other hand reiterated the submissions made before AO and Ld.CIT(A)

and supported the order of Ld.CIT(A).

on record. The issue in the present appeal is about the relief granted

by Ld.CIT(A). We find that Ld.CIT(A) after considering the

documents and evidence filed by the assessee has given a finding that

the transaction executed by the assessee was genuine and not a make

belief or bogus transaction, the transaction between the assessee and

Sharad Mutha Housing Development Ltd., was at Arm’s Length and all

the payments were made by crossed account payee cheques. Assessee

had also filed legal notices through advocates and taken legal recourse

etc., and had approached police authorities wherein the charges of

fraudulent practice of Sharad Mutha Housing Development Ltd., were

stated and police authorities had initiated the investigation. Based on

the material available before him, Ld.CIT(A) was of the view that the

transaction was genuine and accordingly allowed the deduction.

Before us, no material has been placed on record by the Revenue to

point out any fallacy in the findings of Ld.CIT(A). We therefore find no

reason to interfere with the order of Ld.CIT(A) and thus, the grounds

of the Revenue are dismissed.

Order pronounced on 19th day of December, 2019.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER

पुणे Pune; �दनांक Dated : 19th December, 2019. Yamini

आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A) – 3, Pune. . 4. Pr.CIT-2, Pune. 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” / DR, ITAT, “B” Pune; 6. गाड� फाईल / Guard file.

आदेशानुसार/ BY ORDER,स / / TRUE COPY / / व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.