M/S. BENGAL OMNITECH NIRMAN LTD.,KOLKATA vs. A.C.I.T./I.T.O., WARD - 8(1), KOLKATA , KOLKATA

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ITA 1551/KOL/2024Status: DisposedITAT Kolkata02 December 2025AY 2018-2019Bench: SHRI RAJESH KUMAR, AM\nAND\nSHRIPRADIP KUMAR CHOUBEY, JM\nITA No.1551/KOL/2024\n(Assessment Year:2018-19)\nM/s Bengal Omnitech Nirman Ltd.\n30, Chowringhee Road,\nChowranghee Mansion,\npark Street, Kolkata-700016\nWest Bengal\n(Appellant)\nVs.\nACIT/ ITO, Ward 8(1), Kolkata\nAaykar Bhawan, P-7,\nChowringhee Square,\nKolkata-700069, West Bengal\n(Respondent)\nPAN No. AACCB1063F\nAssessee by\n: S/Shri S.M. Surana &\nSunil Surana, ARs\nRevenue by\n: Shri Pankaj Pandey, DR\nDate of hearing:\n1310 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal allowed the appeal on all grounds. Regarding the ₹1,50,00,000/- advance, it was held to be a trading loss incurred in the ordinary course of business, even if the corresponding revenue was not recognized. The Tribunal relied on the Delhi High Court's decision in CIT Vs. Sumangal Overseas Ltd., stating that a trading loss has a wider connotation than a bad debt and can be deducted. The interest paid on customer refunds was also allowed as a business expense, as it arose from the failure to deliver flats as promised. The addition for interest on director loans was deleted, finding merit in the assessee's contention that current account transactions often involve higher interest rates and that similar interest had been allowed previously. The addition for stock difference was set aside, as the AO used incorrect area figures, and the Tribunal noted it was a revenue-neutral addition. Finally, the disallowances of service tax and professional tax were deleted, as these were shown as liabilities and not debited to the profit and loss account, thus falling outside the ambit of Section 43B.

What were the facts?

The assessee, M/s Bengal Omnitech Nirman Ltd., filed an appeal against the order of the National Faceless Appeal Centre, Delhi (NFAC) for Assessment Year 2018-19. The appeal challenged the confirmation of additions made by the Assessing Officer (AO). The primary dispute involved a business loss of ₹1,50,00,000/- claimed by the assessee as bad debts related to an advance given to New Look Intex P. Ltd. for ready-mix concrete. The AO disallowed this, treating it as a capital loss. Other issues included disallowances of interest paid on customer refunds, interest on unsecured loans from directors, addition for stock difference, and disallowances of outstanding service tax and professional tax.

What were the issues?

1. Whether the assessee can claim a business loss of ₹1,50,00,000/- on account of an advance given to a supplier which became irrecoverable, when the revenue from the related project had not yet been recognized, and if such a loss is eligible for deduction as bad debts under Section 36(1)(vii) of the Income Tax Act, 1961. - Assessee's contention: The advance was in the ordinary course of business and became a trading loss, eligible for deduction. Relied on CIT Vs. Sumangal Overseas Ltd. - Revenue's contention: The amount was a capital loss and not eligible as bad debts as revenue was not recognized from the project. 2. Whether interest paid on refunds of customer advances, due to delayed project delivery, is admissible as a business expense. - Assessee's contention: The interest paid is a business expense. - Revenue's contention: The interest should be added to work-in-progress as revenue was not recognized. 3. Whether interest paid at 18% on unsecured loans from directors is excessive and unreasonable, warranting disallowance of the differential amount. - Assessee's contention: The interest rate is justified for current account transactions and has been allowed in earlier years. - Revenue's contention: The interest rate is excessive compared to interest received from a group company at 9%. 4. Whether an addition for stock difference of ₹82,62,931/- in the closing stock of Project Omni Tulasi is justified. - Assessee's contention: The AO's calculation of stock difference was based on incorrect area figures, and the difference is negligible and revenue-neutral. - Revenue's contention: Confirmed the AO's addition based on stock difference. 5. Whether outstanding service tax and professional tax, not debited to the profit and loss account, are disallowable under Section 43B of the Income Tax Act, 1961. - Assessee's contention: The taxes were shown as liabilities and not debited to P&L, hence not covered by Section 43B. - Revenue's contention: Not recorded.

Which sections of the Income-tax Act were involved?

Section 36(1)(vii),Section 43B

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Income Tax Appellate Tribunal, “B” BENCH, KOLKATA

Before: SHRI RAJESH KUMAR, AM & SHRIPRADIP KUMAR CHOUBEY, JM

For Appellant: Shri S.M. Surana &
For Respondent: Shri Pankaj Pandey, DR
Hearing: 13.11.2025Pronounced: 02.12.2025

This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 21.05.2024 for the AY 2018-19.

2.

The issue raised in ground no.1 is against the confirmation of addition of ₹1,50,00,000/- by the ld. CIT (A) as made by the ld. AO by disallowing the business loss claimed by the assessee.

2.1. The facts in brief are that during the course of assessment proceedings, the ld. AO observed from the Profit and Loss account that the assessee has charged off bad debts of ₹1,50,00,000/- and 2.2. In the appellate proceedings, the ld. CIT (A) affirmed the order of the ld. AO by dismissing the appeal of the assessee on this issue by observing that the amount was given for Omni Lake View Kolkata from which no revenue was recognized as the expenses incurred were shown under the head work-in-progress and secondly Rs. 1,50,00,000/- was capital loss and not offered to tax or included in the total income for any preceding years and therefore, not eligible as bad debts u/s 36(1)(vii) of the Act.

2.3. After hearing the rival contentions and perusing the materials available on record, we find that the assessee is in the business of “A trading loss has a wider connotation than a bad debt. A bad debt may also be a trading loss. But a trading loss need not necessarily be a bad debt. There, may be a bad debt which may not fall within the purview of section 36(1)(vii) of the Act, by may well be regarded as one eligible for deduction incurred in the course of carrying on business will come under that category and will naturally

3.

The issue raised in ground no.2 is against the confirmation of disallowances of interest ₹3,13,530/- and ₹6,36,432/- paid on refund of advances to the customers on cancellation and agreements for sale.

3.1. The facts in brief are that the ld. AO in the assessment proceedings observed that assessee has paid interest on unsecured loans during the year which included ₹6,36,432/- paid to Smt. Meena Bajpai & Ashutosh Kumar on the outstanding loans. Accordingly, the assessee was called upon to clarify the same. The assessee submitted that the parties had given booking advance for flat no.6A in Omni Lake View Project, which could not delivered in time and hence, the amount was refunded along with interest of ₹6,36,432/-. The assessee furnished before the ld. AO the booking form as well as the receipt issued to the said party. The ld. AO disallowed the interest paid to Smt. Meena Bajpai & Ashutosh Kumar on the ground that the income was not booked from Omni Lake View Project Kolkata and therefore, the said interest paid should be added to the work-in-progress. The ld. AO in Para no.7.3 noted that the assessee 3.2. In the appellate proceedings, the ld. CIT (A) confirmed the addition.

3.3. After hearing the rival contentions and perusing the materials available on record, we find that the interest was paid to the purchasers of the property on the money received as booking advance in respect of flat no.6A, which could not be delivered in time and therefore, the interest was paid to the said party of ₹6,36,432/-. The AO did not allow the same on the ground that the income of the same project was not recognized in the profit and loss account. The ld. AO disallowed the interest to the tune of ₹3,13,530/- on the ground that the assessee apportioned the interest expenditure of ₹2,00,59,506/-on all the projects on the basis of average capital employed. The ld. AO disallowed the said amount on the ground that interest amount of ₹6,36,432/- exclusively pertained to Omni Lake View Project, Kolkata. The ld. AO disallowed this on the ground that the amount of ₹6,36,432/- should be added to Omni Lake View Project, Kolkata and cannot be apportioned on all the purchases. However the AO disallowed Rs. 3,13,530/- only. Apparently, the interest was paid to the purchaser of the flat when the amount received as booking advance was refunded to the purchaser along with interest upon assessee failing to deliver the flat as promised.

4.

The issue raised in ground no.3 is against the order of ld. CIT (A) confirming the addition of ₹14,55,630/- in respect of interest on unsecured loans which are carrying over from the earlier years on the ground that the interest paid is excessive and unreasonable.

4.1. The facts in brief are that the ld. AO found during the course of assessment proceedings that the assessee has paid interest at the rate of 18% to the directors of the assessee company. The details thereto is given in para no.8.1 of the assessment order and interest was received only 9% on the loans to another company. Therefore, the assessee was asked to justify the same. The assessee submitted that interest received from the group company is lower, as the said company paid interest at the rate of 9% to several parties. The ld. AO rejected the contention of the assessee and brought differential amount to tax by disallowing the same.

4.2. In the appellate proceedings, the ld. CIT (A) confirmed the order of the ld. AO.

4.3. After hearing the rival contentions and perusing the materials available on record, we find that the assessee has current account with the directors of the assessee company on day-to-day transactions basis meaning thereby that the loans were taken and repaid as and when the funds are available. Sometime, the period ranges from one day to few days. Therefore, we find merit in the contention of the assessee that in case of current account the interest is normally higher than the interest paid on the fixed amount of loan. We note that interest paid to other parties by the assessee

5.

The issue raised in ground no.4 is against the confirmation of addition of ₹82,62,931/- in the closing stock by the ld. CIT (A) as made by the ld. AO on account of stock difference.

6.

During the course of assessment proceedings, the ld. AO observed that assessee has shown closing stock of finished goods of Project Omni Tulasi at ₹11,66,17,174/-.The AO noted from the working of the closing stock filed by the assessee that the assessee has computed the closing stock by taking into account the total area at 104374 sq. ft, whereas area stated by the assessee himself was 111717 Sq. ft. Consequently, the difference in closing stock was worked out at ₹82,62,931/- and added to the income of the assessee which was confirmed by the ld. CIT (A).

6.1. After hearing the rival contentions and perusing the materials available on record, we find that the ld. AO computed the stock difference by taking into the area of 1,04,657 sq. ft and calculating the total cost of the project at ₹23,43,85,640/- by the same area which calculated the cost per sq. ft. at 2,239.56, whereas according to the assessee the cost per sq. ft should be computed on the basis of total area of the project i.e. 1,11,717/- Sq. Ft. The computation of details furnished by the assessee are as under:-

Total cost of project Omni Tulasi ₹23,43,85,640 6.3. Considering the above facts and circumstances and also the relying on the decisions of Hon'ble Supreme Court, the appeal of the assessee is allowed.

7.

The issue raised in ground no.5 is against the confirmation of addition of ₹2,57,290/- as made by the ld. AO on account of service tax and ₹1,560 /- on account of professional tax, which was outstanding when the same was not disallowable as per the Provisions of the Act as not debited into the profit and loss account Hubli Electricity Supply vs DCIT dated 1.12.2023 Wadhwa Residency (P) Ltd. vs. ACIT (2018) 95 taxmann.com 294, Mumbai Bench; DCIT vs. M/s. M.C. Retail Pvt. Ltd., dated 28.09.2018, ITAT Mumbai Bench: Envision Enterprise Solutions Pvt. Ltd. vs. ITO, dated 12.08.2016, ITAT Hyderabad Bench; 7.2. Consequently, we set aside the order of the ld. CIT (A) and direct the ld. AO to delete the addition. The ground no. 5 is allowed.

8.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 02.12.2025.

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