ACIT, CIRCLE- 2(2), NEW DELHI vs. ANANT RAJ LTD., NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “A” NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER & DR. B.R.R. KUMAR, ACCOUNTANT MEMBER I.T.A. No. 5169/DEL/2017 Assessment Year: 2013-14 M/s Anant Raj Limited, v. ACIT, E-2, ARA Centre, Range-2, Jhandewalan Extension, Circle-2(2), New Delhi-110055 New Delhi TAN/PAN: AABCA3927B (Appellant) (Respondent)

I.T.A. No. 5677/DEL/2017 Assessment Year: 2013-14 ACIT, v. M/s Anant Raj Limited, Range-2, E-2, ARA Centre, Circle-2(2), Jhandewalan Extension, New Delhi New Delhi-110055 TAN/PAN: AABCA3927B (Appellant) (Respondent)

Appellant by: Shri V.K. Bindal, CA, Ms. Sweety Kothari, CA Ms. Rinki Sharma, CA Respondent by: Shri Sanjay Goel, CIT-DR Date of hearing: 18 02 2020 Date of pronouncement: 11 05 2020

O R D E R PER AMIT SHUKLA, JM;

The aforesaid appeal has been filed by the assessee against

I.T.A. Nos.5169 & 5677/DEL/2017 2

impugned order dated 02.06.2017, passed by Ld. CIT (Appeals)-I, New Delhi for the quantum of assessment passed u/s.143(3) for the Assessment Year 2013-14. 2. In the grounds of appeal, the assessee has raised the following grounds: - i. “That within the facts and circumstances of the case and law on the point, the impugned order dated June 02, 2017 framed by the Learned Commissioner of Income Tax (Appeals) I, New Delhi [learned CIT(A)], sustaining the assessment order with regard to disallowance of claim of bad debt made by the appellant and the addition made under section 50C of the Act, is bad in law, and impugned order therefore, deserves to be set aside, and the assessment in case of the appellant of being heard in the matter. ii. That within the facts and circumstances of the case and the law on the point, the learned CIT(A) has erred in sustaining disallowance of claim of Bad debt of Rs.77,98,88,400/- caused by learned Assessing Officer under section 36(1)(vii) of the Act read with section 36(2) of the Act under the head ‘Income from Business and profession’, as claimed by the appellant, and instead upholding the amount of claim of the appellant as assessed by the Learned Assessing Officer under the head ‘Income from Capital Gains’. iii. That within the facts and circumstances of the case and the law on the point, the learned CIT(A) has erred in sustaining addition of an amount of Rs.3,31,49,744/- pertaining to sale of a property by the appellant as per the provisions of section 50C of the Act without considering the reasons submitted by the appellant, and therefore, the impugned addition confirmed by the Learned CIT(A) deserves to be set-aside and the income on account of sale of the property he reassessed after giving an adequate opportunity to the appellant to represent and being heard in the matter.

I.T.A. Nos.5169 & 5677/DEL/2017 3

iv. That the grounds of appeal submitted hereinabove be read with prejudice to one another in cases and circumstances wherever the context so requires.”

I.T.A. Nos.5169 & 5677/DEL/2017 4

the assessee company and the income earned on account of development of plots of land has always been declared as business income. It had been stated that, this is the standard trade practice in this industry and accepted by the Government, where various companies together apply for the land use change (CLU) which is granted by the State Authorities.

I.T.A. Nos.5169 & 5677/DEL/2017 5

said company. The assessee agreed to sell the said contiguous plots of land owned by Silvertown by way of transferring the said total shares to M/s Kausar Leasing Ltd. (hereinafter referred to as ‘Kausar’). As agreed with the said buyer, the assessee was to obtain CLU and other clearances for the said plots of land. This fact is clearly evident from the correspondence between the assessee and Kausar as pointed out by the Ld. Counsel, where it has been clearly mentioned that CLU and other clearances was to be obtained by the assessee and not by Silvertown which was the main subject matter of the said sale transaction and the assessee company was to obtain all the requisite clearances and balance payment was to be received by the assessee only after handing over various clearances and approvals in respect of the said plots of land to the buyer who wanted to develop a motel thereon. It has stated that any plot of land with CLU and other clearances has much higher value as compared to pure agricultural land and the same can be developed only when such clearances from Government and other authorities are available as a business venture. Thus, the total sale consideration of Rs. 93 crores was embedded in the value of the agricultural plots of land along with necessary CLU and clearances in respect of those lands from the government authorities for commercial usage. In view of these facts, the assessee was to receive the total amount of Rs. 93 Crores against the following two transactions: a) Against the sale value of agricultural land through sale of shares of Silvertown as capital gains; and

I.T.A. Nos.5169 & 5677/DEL/2017 6

b) Against the services rendered for obtaining the CLU and other clearances in respect of the plots of land owned by Silvertown as business income.

I.T.A. Nos.5169 & 5677/DEL/2017 7

10243.52 sq. mtr to 493.52 sq. mtr. In the wake of such event, the buyer refused to pay the balance amount and even the assessee company failed to obtain requisite sanction and CLU permission on the acquisition of major portion of land. Assessee Company was also unable to persuade the buyer to comply with its obligation. Since assessee has shown the entire amount of Rs. 93 Crores in the books of account, hence assessee has written off the balance receivable amount of Rs. 77.98 crores in the books during the Financial Year 2012-13 relevant to Assessment Year 2013-14. The assessee’s contention before the AO in view of the aforesaid facts and circumstances were as under: a) “That the assessee is in real estate business, wherein sale and purchase of land is part of one of the main business activities; since the land, which was sold was in the name of a subsidiary company of the assessee, by the underlying transaction was purely a business activity of the assessee. b) In the subject case, the assessee sold land, against which the consideration was partly received and the balance receivable became debtors in the books of the assessee. c) Now, since, the debtors could not be recovered and have become irrecoverable because of the reasons explained in above paras, the assessee has written off the debtors; d) It is also evident from the circumstances and facts of the transaction that it was purely a business activity and the assessee had prudently performed the transaction;

I.T.A. Nos.5169 & 5677/DEL/2017 8

e) Had this sale not happened, the Assessee would then have to write off its investments in its book or would then have to sell it at a very low price and would, in any case, have incurred business losses; f) In fact, the Assessee has not earned anything out of this transaction; rather paid undue taxes on profits, which were actually not realized. Hence, it is evident from above that the bad debts claimed by the assessee are in the nature of its business activities and are allowable under the provisions of the Income Tax Act.”

I.T.A. Nos.5169 & 5677/DEL/2017 9

sought to write off as a revenue amount of Rs.77.98 crore in P&L account as business expenses which is not permissible. Thus, he disallowed the entire claim and added the amount at Rs.77,98,88,400/-. 8. Ld. CIT (A) has confirmed the addition made by the AO inter alia on following reasoning: - I have considered the arguments of the appellant and the legal position available on the issue and it is held that: 1) The appellant had already declared long term capital gain in its return of income, disclosing the sale of shares having been made as sale of its investment. The appellant had computed long-term capital gain on the said sale of shares at Rs.71,84,37,748/- and paid taxes thereon. 2) The amount that appellant did not receive from Kausar Leasing Ltd. was Rs.77,98,88,400/- was capital receipt- capital loss. 3) In the subsequent year, the said amount was written off, however, the said bad debt is not out of any transaction on account of business or venture, therefore, the said loss was declared by the appellant itself as loss of an investment transaction. 4) xxxxxxxxxxxxxxxxxxxx xxxxxxxxxxxxxxxxxxxxx From the reading of above section, it is clear that bad debt in the case of appellant was related to its investment transactions and not related to any trade or business transactions. In other words, the transactions relating to bad debt in the appellant case was never included in the income of appellant in any previous year i.e. to say that the amount receivable should be on account of trade receivables against sales made or services rendered. But in the instant case, the

I.T.A. Nos.5169 & 5677/DEL/2017 10

amount sought to be claimed as bad debt represents the amount receivable on account of sale of shares and same is capital in nature. The appellant has itself admitted that the amount related to sale of shares was capital in nature and long-term gain was computed on such sale of shares and requisite tax was paid by the appellant. The case laws relied upon by the appellant in its submission are not applicable to the facts of the appellant’s case. As regards appellant’s claim that it should be allowed set off of the amount of the loss on sale of shares against future income under the head long term capital gain, it is observed that Assessing Officer has allowed carry forward of such capital loss to be set off against the future profits vide para 2.4 of the impugned assessment order. In view of the above discussion, it is held that appellant is not entitled to set off capital loss occurred to it on sale of shares as bad debt. Hence, ground no. 2 of the appellant is dismissed. However, it may be mentioned here that appellant is entitled to carry forward such capital loss which Assessing Officer has already allowed vide para 2.4 of the assessment order. 9. Before us, ld. counsel for the assessee, Mr. Vinod Kumar Bindal after explaining the entire facts and background of the case submitted that it is well settled law that income earned from activities undertaken during normal course of business is to be assessed as ‘business income’ and in support, he strongly relied upon the judgments of Hon’ble Supreme Court in the case of: (a) Karam Chand Thapar and Bros. (P.) Ltd. [1969] 74 ITR 26 (SC). (b) Karanpura Development Co. Ltd. vs. Commissioner of Income-tax [1962] 44 ITR 362 (SC).

I.T.A. Nos.5169 & 5677/DEL/2017 11

(c) Chennai Properties & Investments Ltd. [2015] 56 taxmann.com 456 (SC).

He further submitted that one has to be examine the substance of the transaction which here in this case clearly shows that sale consideration included consideration for sale of shares and income for services rendered in connection with the CLU and other clearance being a business activity of the assessee which is engaged in the real estate business. Even if the assessee has incorrectly declared the entire amount as capital gain in the return of income filed for the Assessment Year 2010-11, instead of business income and even if the entire amount was declared as income though same did not accrue to the assessee during the year, even though at that time only the buyer had categorically refused to pay the entire amount vide letter dated 18.01.2010. However, it does not mean that in the year in which the actual loss has been incurred the assessee cannot claim under the correct head which here in this case was business income/business loss. The income can be said to accrue only when the right to receive has arisen and, in this case, right to receive the income was depended upon getting the CLU and other clearances for the agricultural plot of land owned by the Silver Town, the income cannot be brought to tax. Since, the assessee could not get the CLU and other clearances from the Government during the assessment year 2010-11, the right to receive the balance amount did not arise in the favour of the assessee. He further pointed out from the records and the letters exchanged, that it was the sole responsibility of the assessee to get the CLU

I.T.A. Nos.5169 & 5677/DEL/2017 12

and other clearances which was part of its business venture and was not that of its subsidiary, Silver Town. Now when the matter got settled with Kaushal Leasing finally, that no amount will be payable in the relevant Assessment Year 2013-14, then only the said non receipt of income was declared as bad debts in the books or alternatively it should have been allowed as business deduction/loss in the return of income.

I.T.A. Nos.5169 & 5677/DEL/2017 13

been shown, then it can always be pointed out in the year of claim of loss or income. In support he strongly referred and relied upon the following judgments: (a) S.S. Gadgil Vs Lal and Co. 53 ITR 231(SC) (b) CIT v. Shelly Products [2003] 261 ITR 367 (SC) (c) Vijay Gupta [2016] 68 taxmann.com 131 (Delhi) (d) Abdul Qayume Vs CIT (1990) 184 ITR 404 (All) (e) Kedarnath Jute Mfg. Co. Ltd.Vs CIT 82 ITR 363 (SC) (f) CIT Vs Bharat General Reinsurance Co. Limited. 81 ITR 303 (Delhi) (g) R. Seshammal vs ITO 237 ITR 185 (Madras) (h) CIT Vs Bhawani Singhji [2018] 99 taxmann.com 338 (Delhi) (i) Shri Vipul P. Dalal Vs. DCIT - 12(2) 2016-LL-0603-1]- ITAT Mumbai (j) DCIT vs. Lab India Instruments (P) Ltd., 93 ITD 120 / 2005- TIOL-49-ITAT-PUNE (k) Raghavan Nair [2018] 89 taxmann.com 212 (Kerala)

I.T.A. Nos.5169 & 5677/DEL/2017 14

the previous year may be set off against the profits of that year. A decision recorded by the ITO who computes the loss in the previous year that the loss cannot be set off against the income of the subsequent year is not binding on the assessee in the subsequent year. The Hon’ble Apex Court held that:- “On a careful consideration of the covenants are of the view that the treasurer was not a servant of the Allahabad bank under the terms of the agreement dated 02/04/1931and the remuneration received by him was not “salaries” within the meaning of s. 7 of the IT Act. But that is not sufficient to conclude the matter in favour of the assessee. The benefit of s. 24(2) of the Indian Act may be availed of by the assessee only if the loss sought to be set off was suffered under the head “Profit and gains . . . in any business, profession or vocation”. It is difficult to regard the occupation of the treasurer under the agreement as a profession, for a profession involves occupation requiring purely intellectual or manual skill, and the work of the treasurer under the contact cannot be so regarded. Occupation of a treasurer is not one of the recognized professions, nor can it be said that it partakes of the character of a business or trade. In performing his duties under the agreement, the assessee exercised his skill and judgment in making proper appointments and made arrangements for supervising the work done by the staff in the cash department of the bank’s branches. The remuneration received by him was for due performance of the duties and also for the grantee against loss arising to the bank out of the acts or omissions of the cash and

I.T.A. Nos.5169 & 5677/DEL/2017 15

other staff of the bank. Taking into consideration the nature of duties performed, and the obligation undertaken, together with right to remuneration subject to compensation for loss arising to the bank from his own acts and omission or, of the servants introduced by him into the business of the bank, the assessee may be regarded as following a vocation. The remuneration must therefore computed under s. 10 of the IT Act and loss of profit suffered in that vocation in any year may be carried forward to the next year and be set off against the profit of the succeeding year.”

He further relied upon the catena of other judgments in his written submissions which for the sake of ready reference are reproduced herein below as we will be referring it extensively herein after: - 1. New Jehangir Vakil Mills Co. Ltd. Vs CIT (1963) 49 ITR 0137 (SC) wherein it was held as under:

“8. On the principle stated above, it seems to us that it was open to the taxing authorities to consider the position of the assessee in 1943 for the purpose of determining how the gains made in 1944 should be computed, even though the subject of the assessment proceedings was the computation of the profits made in 1944. The circumstance that in an earlier assessment relating to 1943, the assessee was treated as an investor would not in our opinion estop the assessing authorities from considering, for the purpose of computation of the profits of 1944, as to when the trading activity of the assessee in shares began. The assessing authorities found that it began in 1943. On that finding the profits were correctly computed and the answer given by the High Court to the question of the computation of the profits was correctly given.”

I.T.A. Nos.5169 & 5677/DEL/2017 16

“11. Our attention was then drawn by counsel of the assessee to CIT vs CIT v. Manmohan Das [1966] 59 ITR 699(SC) …… If this decision be properly analysed, it would seem that the application of the principle of finality, which has been submitted for our acceptance by counsel for the Revenue and which found favour with the Tribunal has been rejected by the Supreme Court in a substantially similar set up when it opined that the decision of the ITO in the preceding year that the loss cannot be set off against the income of the subsequent year is not binding on the assessee despite the fact that he has rested content with that decision and not carried further the matter by way of appeal. …… Once the correct principle flowing from Manmohan Das’ case (supra) is realised, it would appear that if in an earlier year it has been held that the correct head of income applicable to the assessee’s case is under s. 12, i.e., “Income from other sources” and by that reason the benefit of carrying forward of unabsorbed depreciation is denied to the assessee, such a decision will not bind the assessee in the subsequent year in which he wants to claim the set-off. He can have the question determined in the later year although in the earlier year in which the decision was given the assessee rested content with the order of the ITO and did not carry the matter further.” 3. The Hon’ble Delhi High Court in the case of CIT Vs Bhawani Singh ji (2018) 99 taxmann.com 338 (Del) held

“28. Calcutta Discount Co. Ltd. v. ITO [1961] 041 ITR 191 (SC) is a decision for the proposition that it is for the assessing officer (AO) to draw the correct conclusions, regardless of the position of the assessee: "It is for him to

I.T.A. Nos.5169 & 5677/DEL/2017 17

decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else far less the assessee to tell the assessing authority what inferences whether of facts or law should be drawn. Indeed, when it is remembered that people often differ as regards what inferences should be drawn from given facts, it will be meaningless to demand that the assessee must disclose what inferences-whether of facts or law-he would draw from the primary facts…". Therefore, it is now established that regardless of what an assessee claims, if the correct position deducible from primary facts is otherwise, the AO has to adopt that correct position. Consequently, it is held that merely because the late assessee (Sawai Man Singh) repeatedly claimed individual status while filing his returns, the correct legal status was as an individual and not HUF. Therefore, in the opinion of this court, there was no legal impediment for the legal representatives of the assessee to claim that the succession was of the HUF, upon the death of Sawai Man Singh.” 4. The appellant relied on the decision in the case of Gajendra Kumar T. Agarwal Vs ITO [2011] 11 taxmann.com 231 (Mum) wherein relying upon the judgment of the Western India Oil (supra) it has been held as under:

“19. Hon’ble Supreme Court's judgment did not specifically reflect whether revenue had taken any objection to re- determination of character of an income, which was earned in an earlier assessment year, and when characterization so assigned had received finality. One could have entertained a little doubt whether Manmohan Das judgment (supra) may or may not be viewed as an authority for the proposition that such an objection, when taken, can be rejected. However, Hon'ble jurisdictional High Court's judgment in the case of Western India Oil Distributing Co. Ltd. v. CIT[1980] 126 ITR 497 (Bom.)(as approved by Hon'ble Supreme Court in the judgment reported as CIT v. Western India Oil Distributing Co. Ltd. [2001] 249 ITR 517), while interpreting the scope of Hon'ble Supreme Court's judgment in the case of Manmohan Das (supra), set these doubts at rest, and thus nipped this

I.T.A. Nos.5169 & 5677/DEL/2017 18

possible controversy in the bud, by observing as follows :

If this decision [Hon'ble Supreme Court's judgment in the case of Manmohan Das (supra)] be properly analysed, it would seem that the application of the principle of finality, which has been submitted for our acceptance by counsel for the revenue and which found favour with the Tribunal has been rejected by the Supreme Court in a substantially similar set up when it opined that the decision of the ITO in the preceding year that the loss cannot be set off against the income of the subsequent year is not binding on the assessee despite the fact that he has rested content with that decision and not carried further the matter by way of appeal. To put it in other words, in the assessment year 1950-51, the ITO, dealing with the assessee's case, held that there was a net loss but that this could not be carried forward inasmuch as the income received by the assessee was not from the pursuit of any business, profession or vocation. For the succeeding year 1951-52, the assessee contended that his income was from pursuit of business, profession or vocation and sought to set off the preceding year's loss against the income for the succeeding year. This contention was urged despite the fact that in the preceding year the income had been held to be from a source other than a business, profession or vocation, and on that ground the carrying forward of the loss had not been allowed. It was held by the court that the income of the assessee for both the years must properly be regarded as having arisen from the pursuit of a vocation and, further, that because of this the assessee was liable to have the preceding year's loss set off against the income for the assessment year 1951-52. It brushed aside the argument of the revenue that the preceding year's decision by the ITO had become final and by reason of such finality the assessee in 1951-52 would not be entitled to set off the loss incurred in 1950-51, although the correct legal position was that the income was from the pursuit of a business, profession or vocation and that, if this was so,

I.T.A. Nos.5169 & 5677/DEL/2017 19

the assessee was entitled to carry forward the loss.

III. Third, that in the course of proceedings of the subsequent assessment year, i.e. the assessment year in which set off of

I.T.A. Nos.5169 & 5677/DEL/2017 20

loss is claimed, it is open to even decide the true nature and character of loss incurred in the earlier relevant assessment year. In other words, even a finding about the nature of loss, in the assessment year in which loss is incurred, does not bind the assessee, and that aspect of the matter can be decided afresh in the course of proceedings in the assessment year in which set off is claimed. As noted in third paragraph of Hon'ble Supreme Court's judgment itself, "In making his order of assessment for the year 1950-51, the Income-tax Officer declared that the loss computed in that year could not be carried forward to the next year under section 24(2) of the Income-tax Act, as it was not a business loss" and yet, while dealing with the assessment proceedings for the assessment year 1951-52, it was held that loss incurred by the assessee in 1950-51 was 'business loss' in nature. Similarly, as held by Hon'ble Bombay High Court in the case of Western India Oil Distributing Ltd. (supra) and as confirmed by Hon'ble Supreme Court, losses determined under the head 'income from other sources', which had attained finality, were subsequently treated as 'business losses' - though for the limited purposes of eligibility for set off against profits from same activity in subsequent years.” 12. On the other hand, ld. CIT-DR relying upon the observations and the findings of the AO and Ld. CIT(A), submitted that here in this case, it is an admitted fact that assessee itself has treated the transaction relating to transfer of shares as Long Term Capital Gain and the said shares were sold to other parties. Once, the character of income is in the nature of capital, assessable under the head ‘capital gain’, then same character cannot be changed. The AO has accepted the Long-Term Capital Gain @ 20% in Assessment Year 2010- 11, and therefore, with regard to same nature of transaction, the assessee cannot say that it was on

I.T.A. Nos.5169 & 5677/DEL/2017 21

revenue account assessable under the head ‘business income’. The character of income cannot be changed by any subsequent conduct to fulfill the condition of any agreement. In fact, it cannot be the case of bad debt because assessee had not shown any business income in the Assessment Year 2010-11. Further, the assessee had never revised the computation of return of income in the Assessment Year 2010-11 and has offered the Long-Term Capital Gain @ 20% instead of 30% which is rate applicable for business income. Thus, there is no infirmity in the order of the AO and ld. CIT (A) and same should be confirmed.

I.T.A. Nos.5169 & 5677/DEL/2017 22

investments were made in the equity share capital of the subsidiary, however, the underlying asset was land and the purpose was to acquire the land and develop the same to earn business income. Since investment was made in equity share capital, therefore, as per the disclosure norms under the Companies Act, same were declared as ‘Long-Term Investments’. The assessee in pursuance of its business objects had made investment in one of its subsidiary company, Silver Town Inn and Resorts Pvt. Ltd. for Rs.18,47,45,452/- as it owned agricultural/plot of land. The assessee was to undertake the development of the said land and CLU was to be obtained for commercial use, i.e., for Motel/Restaurant by the assessee and not by Silvertown. Since Assessee Company as a part of business venture decided to dispose-off the said investment and negotiated with the investors who were interested in making the investment even though the asset of the company was merely 2.53 acres of agricultural land. However, the aggregate consideration as agreed between the parties was totally depended upon the condition that if the assessee could get CLU and other clearances by the Government, then only the price would be paid which was agreed at Rs. 93 crores. Since, the aggregate consideration of Rs. 93 crores was subject to various conditions, that assessee shall apply and obtain valid and legal permission for change in land use and other requisite permission for the

I.T.A. Nos.5169 & 5677/DEL/2017 23

FSI and development of the project on the said land. As per the agreement with the buyer for sum Rs.93 crore, Rs.15 crore was initially payable and the balance amount of Rs. 77,98,88,400/- was payable subject to assessee getting various permission. Since, the agreement for transfer of shares was entered in the financial year 2009- 10, the assessee offered the entire amount of Rs. 93 crores on accrual basis under the head “Long Term Capital Gain. As stated above, there were certain turn of events that the adjacent land and the part of the land under the assessee’s project was acquired by the Government for widening of the national highways and certain areas were declared as green belt. Due to this governmental order, the entire project had failed and CLU and other legal permission ostensibly could not be obtained. As brought on record by the Ld. Counsel, later on, the said piece of plot/land was sold at a meagre sum of Rs.5,60,00,000/- as compared to the aggregate consideration of Rs. 93 crores, had all the conditions would have been fulfilled and the project could have been started by the buyer. In the relevant Financial Year 2012-13, i.e., relevant for the Assessment Year 2013-14, it became clear that the buyer will not pay the amount and since the assessee had already declared the said income in the Assessment Year 2010-11, the same has been claimed as business loss/written off as bad debt.

I.T.A. Nos.5169 & 5677/DEL/2017 24

I.T.A. Nos.5169 & 5677/DEL/2017 25

was mainly had the value purely due to its business venture and core business activities, and if such an income has accrued in pursuance of an agreement entered between the assessee and the buyer, then ostensibly, same was assessable under the head ‘business income’. The Revenue’s case is that once the character of income declared by the assessee was on capital account and has offered the income under the head ‘Long Term Capital Gain’, then any loss claimed on the same very transaction cannot be allowed as business loss.

I.T.A. Nos.5169 & 5677/DEL/2017 26

the principle laid down by the Hon’ble Apex Court in the case of CIT vs. Western India Oil Distributing Company Ltd. (supra), wherein their Lordships have confirmed the order of the Hon’ble Bombay High Court observed that once the correct principle flowing from Manmohan Das’s case is realised, it would appear that if in an earlier year it has been held that correct head income applicable to the assessee’s case was under the head ‘income from other sources’ and by that reason the benefit of carrying forward of depreciation is denied to the assessee, then such a decision will not bind the assessee in the subsequent year in which he wants to claim the set off against the business income.

I.T.A. Nos.5169 & 5677/DEL/2017 27

counsel as incorporated above. The assessee is required to disclose wholly and truly all material facts about his income and receipts, and then Assessing Officer is required to draw the correct conclusion regardless of the position of the assessee because it is for him to decide what inference of fact and legal inferences can be drawn. Hon’ble Delhi High Court in the case of CIT vs. Bhawar Singh Ji (supra) following the ratio and principle laid down by the Hon’ble Constitutional Bench in the case of Calcutta Discount Co. Ltd. vs. ITO [1961] 41 ITR 191, wherein proposition was laid down that it is for the AO to draw the correct conclusions, regardless of the position of the assessee and held that is now well established law that regardless of what an assessee claims, if the correct position deductible from the primary fact either the Assessing Officer has to adopt that correct position and there is no legal impediment for correcting the correct position. Once again, reiterating the same principle laid down by the Hon’ble Apex Court in the case of Manmohan Das in the case of Western Oil Distributing Co. Ltd. (supra) wherein almost in a similar position where in the case of the assessee in the assessment year 1950-51 the ITO held that there was a net loss but this could not be carried forward as inasmuch as the income received by the assessee were not from any business or profession or vocation for the succeeding year 1951-52. The assessee contended that his income from pursuit of

I.T.A. Nos.5169 & 5677/DEL/2017 28

business, profession or vocation should be allowed to set off all the preceding year’s loss against the income for the succeeding year. This contention was urged on the fact that in the preceding year the income has held to be from the sources other than business and on that ground the carried forward of the loss was not allowed. The Hon’ble Supreme Court held that income of the assessee for both the years must properly be recorded as having arisen from the pursuit of the auction and thus assessee was liable to set off preceding year’s loss against the income of the Assessment Year 1951-52. The Hon’ble Supreme Court brushed aside the argument of the Revenue that in the preceding year, the order has become final and reason of such finality, the assessee was not entitled to set off the loss incurred in the earlier years even though the correct legal position was that income was always from the pursuit of business or profession. The ITAT Mumbai Bench in the case of Gajendra Kumar T. Agarwal vs. ITO (supra) has sum up the proposition of Hon’ble Apex Court in the following manner: I. First, that the call, as to whether a particular business loss, speculative or non-speculative, incurred by the assessee in an earlier year is eligible for set off against business income in a subsequent year, is to be taken in the course of proceedings in the subsequent assessment year, i.e. the assessment year in which set off is claimed. Hon'ble Supreme Court has set out this proposition and this proposition was

I.T.A. Nos.5169 & 5677/DEL/2017 29

later clarified, in unambiguous words, by Hon'ble jurisdictional High Court in the case of Western India Oil Distributing Co. Ltd. (supra), which was approved by Hon'ble Supreme Court in the judgment reported as Western India Oil Distributing Co. Ltd. (supra).

II. Second, that section 24(2) of the 1922 Act, which is the same as section 73(2) in all material respects, confers "a statutory right upon the assessee who sustains a loss of profits in any year in any business, profession or vocation to carry forward the loss as is not set off under sub-section (1) to the following year, and to set it off against his profits and gains, if any, from the same business, profession or vocation for that year". The proposition that is set out is in fact in the words employed by Their Lordships and it does not need any elaboration. Once this statutory right is recognized, it is a natural corollary of that recognition that when an assessee incurs a loss in a business, speculative or non-speculative, in an year, such loss has to be, subject to fulfilment of other preconditions, is to be set off against the profits of the same business in subsequent year.

III. Third, that in the course of proceedings of the subsequent assessment year, i.e. the assessment year in which set off of loss is claimed, it is open to even decide the true nature and character of loss incurred in the earlier relevant assessment year. In other words, even a finding about the nature of loss, in the assessment year in which loss is incurred, does not bind the assessee, and that aspect of the matter can be decided afresh in the course of proceedings in the assessment year in which set off is claimed. As noted in third paragraph of Hon'ble Supreme Court's judgment itself, "In making his order of assessment for the year 1950-51, the Income-tax Officer declared that the loss computed in that year could not be carried forward to the next year under

I.T.A. Nos.5169 & 5677/DEL/2017 30

section 24(2) of the Income-tax Act, as it was not a business loss" and yet, while dealing with the assessment proceedings for the assessment year 1951-52, it was held that loss incurred by the assessee in 1950-51 was 'business loss' in nature. Similarly, as held by Hon'ble Bombay High Court in the case of Western India Oil Distributing Ltd. (supra) and as confirmed by Hon'ble Supreme Court, losses determined under the head 'income from other sources', which had attained finality, were subsequently treated as 'business losses' - though for the limited purposes of eligibility for set off against profits from same activity in subsequent years.”

I.T.A. Nos.5169 & 5677/DEL/2017 31

Acquiescence by the assessee by offering any income under different head cannot act as an estoppel against the assessee or there is any embargo on his claim that income is taxable or not taxable under the particular head. The Hon’ble Andhra Pradesh and Telangana High Court in the case of Prefab Gratings Ltd. (supra) observed that the finding can be reversed in the subsequent years and it is competent for an ITO to deal with the same independently by relying upon the judgment in the case of Manmohan Das (supra).

I.T.A. Nos.5169 & 5677/DEL/2017 32

can review the facts of the case and redetermined the taxability of income and the claims to be allowed against the same in the subsequent years and if certain mistake or wrong decisions has been rendered in the earlier years, the same cannot be perpetuated for subsequent year and it will not be a legal impediment even though the assessment for the earlier years has attained finality. Further, another important thing is that the claim of income or loss or any deduction has to be examined afresh in the year in which it is claimed. Thus, the law as culled out from the aforesaid judgment is that the bad debt or loss which is claimed in this year has to be determined in this year only without distributing the earlier assessment which has attained finality, and therefore, we hold that the claim of loss made in this year is allowable as business loss.

I.T.A. Nos.5169 & 5677/DEL/2017 33

No.1265 and 1469 of 2017, wherein the Hon’ble High Court after interpreting the Section 36(1)(vii) and Section 36(2) and relying upon the judgment of Hon’ble Supreme Court in the case of TRF Ltd. vs. CIT, 323 ITR 397 observed that, firstly, assessee need not required to establish/approve that debt has in fact become irrecoverable and it is sufficient that if the bad debt is written off irrecoverable in the account of the assessee; and secondly, the Court observed that there is no requirement under the Act that the bad debt has to accrue out of income under the same head ‘income from business or profession’ to be deducted as income. The relevant observation for the later proposition reads as under: “19. If that be the position, then there is compliance to the requirement of Section 36(1)(vii) of the act and the amount covered by the bad debts would be entitled to be deducted vide computing income under section 28 of the Act. Further, it is not necessary, rather there is no requirement under the Act that the bad debt has to accrue out of income under the same head i.e. ‘income from business or profession’ to be eligible for deduction. That is not a requirement of law. All that is required is that the debt in question must be written off by the assessee in its books of accounts as irrecoverable.” 20. Thus, such a contention raised by the Revenue does not hold ground.

I.T.A. Nos.5169 & 5677/DEL/2017 34

I.T.A. Nos.5169 & 5677/DEL/2017 35

assess the tax liability correctly in accordance with law. National Thermal Power Co. Ltd. v CIT (1998) 229 ITR 383 (SC)” This justice-oriented approach has earlier been ordained in CIT v. Shelly Products (2003) 26I ITR 367 (SC) also. The aforesaid principle can also be applied here.

I.T.A. Nos.5169 & 5677/DEL/2017 36

Act and explained that the circle rates in Jaipur were higher than the prevailing market rate. Besides, there was a crematorium ground in front of this property which also affected the market rate of the property significantly and therefore, this property fetched a lower market value. It was for the buyer to agitate the matter of the valuation before the valuation authorities as the buyer had to pay the stamp duty. The appellant also requested the CIT (A) to refer the said property for valuation.

I.T.A. Nos.5169 & 5677/DEL/2017 37

DVO though specifically requested for.

I.T.A. Nos.5169 & 5677/DEL/2017 38

which was sold was adjacent to cremation ground which adversely affected the market rate of the property, and therefore, the property could not be fetched the circle rate and was sold at the lower rate than the circle rate. Further, it was the buyer who has to contest the stamp value of the property before the Valuation Authority in which assessee has no control. In any case, when the assessee has disputed the stamp duty valuation because of clinching circumstances, then in our opinion matter should have been referred to DVO for the valuation of the said property. Accordingly, we remand this issue to the file of the Assessing Officer who shall refer the matter for the valuation of the property to the DVO and assessee will substantiate its case before the Assessing Officer or DVO to justify the sale price. Accordingly, this ground is partly allowed for statistical purpose.

I.T.A. Nos.5169 & 5677/DEL/2017 39

basis has been provided by the assessee for suo motu disallowance, therefore, he proceeded to make the disallowance in accordance with Rule 8D and worked out the disallowance of Rs.1,60,32,530/- being 0.5% of the average value of the investment.

I.T.A. Nos.5169 & 5677/DEL/2017 40

Order pronounced in the open Court on 11th May, 2020.

SSd Sd/- sd dSd Sd/- [Dr. B.R.R. KUMAR] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 11th May, 2020 PKK