TAJ SATS AIR CATERING LTD,MUMBAI vs. ASST CIT CIRCLE- 2(3)(1), MUMBAI

स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AABCT4686P (अपीलाथी /Appellant) (प्रत्यथी / Respondent) .. Revenue by: Ms. Neelima Nadkarni (DR) Assessee by: Shri M.P. Lohia/ Hemen Chandariya सुनवाई की तारीख / Date of Hearing: 25.04.2019 घोषणा की तारीख /Date of Pronouncement: 30/04/2019 आदेश / O R D E R

PER AMARJIT SINGH, JM:

3. The brief facts of the case are that the assessee filed its return of income on 28.11.2014 declaring total loss to the tune of Rs.9,66,30,068/-. Thereafter, the case was selected for scrutiny under CASS. Notices u/s 2 A.Y. 2014-15 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee is engaged in the business of catering to various airlines and other allied services. The assessee submitted the audited Balance Sheet, P & L Account etc. during the course of assessment proceedings. The assessee claimed write off advance of Rs.160.95 lakhs. The notice was given and after the reply of the assessee, the said amount was considered as capital in nature, hence, disallowed and added to the income of the assessee. The total income of the assessee was assessed to the tune of Rs.7,99,64,560/-. Feeling Aggrieved, the assessee filed an appeal before the CIT(A) who confirmed the order, therefore, the assessee has filed the present appeal before us. GROUND NO. 1 4. Under this ground the assessee has challenged the confirmation of the disallowance of Rs.160.95 lakhs. The assessee claimed the write off of advance of Rs.160.95 lakhs towards security deposit and incidental charges. The contention of the assessee is that the Mumbai International Airport Ltd. had come up for request for proposal to select the single player on non- exclusive concession to the concessionaire to design, fit-out, finance, develop, operate, maintain and manage the common use lounges. As per the request for proposal, the Mumbai International Airport would provide a license to the successful bidder for a period aggregating to 11 years for operating and managing the lounge. In order to participate in the bid process, the bidder had to furnish a refundable cash deposit of Rs.1,50,00,000/- as security. The said security was refundable to the bidder after the completion of bid period. According to clause 5 to the bid documents, the security was liable to be forfeited if the bidder refuses to perform his duties. Mumbai International airport accepted the bid of the assessee but the assessee showed his disability to perform his work, therefore, the said amount was forfeited. The assessee claimed as business loss and claimed write off as deduction while computing the taxable income 3 A.Y. 2014-15 for the A.Y. 2014-15. The AO was of the view that the assessee has started the new business, therefore, the said amount is capital in nature, hence, disallowed the same. The CIT(A) has also confirmed the view of the AO on the basis of this fact that the assessee was to acquire a new business, therefore, the amount was capital in nature and incidental to security the amount in sum of Rs.10,95,510/- has also been disallowed. The Ld. Representative of the assessee has argued that the assessee did not start a new business and the business of the assessee is of the catering to various airlines and allied services. The factual position is not in dispute. It is required to be seen that the whether the assessee has started the new business, therefore, is not entitled to write off the security as well as ancillary amount or not. The nature of the business of the assessee is not in dispute as the assessee company is engaged in the business of catering to various airlines and allied service. Mumbai International Airport had come up with the request of proposal to select the single player on non-exclusive concession to the concessionaire to design, fit-out, finance, develop, operate, maintain and manage the common use lounges. As per the request for proposal, the Mumbai International Airport would provide a license to the successful bidder for a period aggregating to 11 years for operating and managing the lounge. The assessee was one of the bidder and deposited a sum of Rs.150,00,000/- crores as security to Mumbai International Airport. It is not in dispute that the work was allotted to the assessee and subsequently the assessee showed his inability to perform the work, therefore, his security was forfeited. The request of proposal is quite in consonance of business of the assessee. In the case of Thackers H.P. & Co. Vs. CIT it is specifically held by the Hon’ble High Court of Madhya Pradesh that- “It is well settled that the forfeiture of a security deposit under a contract is a business loss and not a capital loss. The security amount deposited under a contract is not for obtaining the contract but for the due 4 A.Y. 2014-15 performance of its terms. Moreover, in the instant case, it was obvious that the contract with the corporation was not a new business started by the assessee but was only a venture in the course of business which the assessee was already carrying on and, therefore, it could in no sense be held that the deposit of security was made for acquiring a business. Accordingly, the loss resulting from the forfeiture of security money was a revenue loss.” In the case of Narandas Mathuradas & Co. Vs. CIT (1959) 35 ITR 461 (Bom) High Court has specifically held that- “This was not a case where the assessee made the deposit in order to acquire a business, nor was this a case where an amount was deposited as a short or a temporary, investment yielding interest, the deposit being necessary in order that the assessee should be permitted to carry on a particular business. The assessee already had his business. It was one of the terms of the tender that he must make the deposit. Therefore, the making of the deposit was incidental to the business which he was carrying on, and was for the purpose of producing profits in conduct of the business. This was not a case where the assessee had committed a breach of the contract fraudulently or that he deliberately failed to discharge his obligation under the contract. The failure to deliver the goods to the railway company was incidental to the business. Therefore, this was a trading loss and the assessee was entitled to deduct it from his profits in order that the assessable profits could be ascertained. Note : The decision was in favour of the assessee.”

5. No doubt if the expenditure incurred for starting a new business which was not carried out by assessee earlier then such expenditure is held to be capital in nature whereas in the instant case nothing came into notice that the assessee has started the new business and was subsequently not carried out by assessee, therefore, no doubt the finding of the CIT(A) is not liable to be justifiable. In the case of CIT Vs. Priya Village Roadshows Ltd. the Hon’ble High Court of Delhi has drawn the line between the capital expenditure and revenue expenditure in connection with the security and write off expenses. The finding is hereby reproduced as under. “A harmonious reading of Triveni Engg. Works Ltd. v. CIT [1998] 232 ITR 639/100 Taxman 19 (Delhi). and CIT v. Modi Industries [1993] 200 ITR 341/68 Taxman 114 (Delhi) would demonstrate that one has to keep in mind the essential purpose for which such an expenditure is incurred. If the expenditure is incurred for starting a new business which was not. carried out by the assessee earlier, then such is held to be of capital nature in that event, it would be irrelevant as to whether project really