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Income Tax Appellate Tribunal, ‘ B’ BENCH : CHENNAI
Before: SHRI ABRAHAM P.GEORGE & SHRI GEORGE MATHAN
आदेश / O R D E R
PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:
Assessee in this appeal, which is directed against an order dated 27.04.2017 of ld. Commissioner of Income Tax (Appeals)-1, Chennai, is aggrieved on a disallowance of �33,18,000/- claimed by it as security deposits written off.
ITA No.1680/2017. :- 2 -:
Ld. Authorised Representative submitted that the sum of �33,18,000/- was given as security deposits to Chennai Metropolitan Development Authority (in short ‘’the CMDA’’) for the purpose of sanctioning various projects and such amounts were never refunded by the CMDA. As per the ld. Authorised Representative, assessee, being a developer of residential and commercial projects, could not do its business, without giving such deposits which were a prerequisite for obtaining various permits and licenses from CMDA. Further, as per the ld. Authorised Representative, there was no violation to Explanation to Section 37(1) of the Income Tax Act, 1961 (in short ‘’the Act’’) in the write-off of the CMDA deposits. Contention of the ld. Authorised Representative was that CMDA had not forfeited the deposits for violation of any planning permission or building plans.
According to him, assessee had considered it fit to write off the deposits since it could not pursue with the CMDA for refund of such amount and the decision was taken in the interest of its business so as to keep good relations with CMDA. As per the ld. Authorised Representative, though assessee did not produce any evidence to substantiate its claim for refund of the deposits with CMDA, this could not by itself disentitle the assessee from claiming a write-off, due to the impracticality of getting the amount back from CMDA.
ITA No.1680/2017. :- 3 -:
Per contra, ld. Departmental Representative strongly supporting the orders of the lower authorities submitted that assessee could not produce any evidence for any claim for refund made by it with CMDA. Further, as per the ld. Departmental Representative, CMDA through its letter dated 11.03.2014 had mentioned about forfeiture of deposits and this was taken note of by ld. Commissioner of Income Tax (Appeals). Contention of the ld. Departmental Representative was that assessee chose not to make an application for refund since it was aware that there were various violations committed by it viz-a-viz the sanctioned building plans.
Ad libitum reply of the ld. Authorised Representative was that the claim of write off of the deposits with CMDA, if it was considered as not allowable, it should be allowed to be added to the cost of construction of the related projects. As per the ld. Authorised Representative, such a claim was preferred as an alternative ground before the ld. Commissioner of Income Tax (Appeals) by the latter authority did not allow it.
We have considered the rival contentions and perused the 5. orders of the authorities below. It is not disputed that write-off of ITA No.1680/2017. :- 4 -:
�33,18,000/- effected by the assessee were of CMDA deposits.
Assessee could not place any evidence to show that it had ever made any claim for refund with CMDA. Contention of the ld. Authorised Representative is that in the interest of its business, it could not make such a claim. We are unable to appreciate this contention. Once the amounts placed with CMDA are classified as deposits, claiming refund of such amount, in our opinion, will not affect assessee’s business in any manner. Especially so, since CMDA is a pubic authority. Assessee cannot say that it had claimed the write-off as bad debts since admittedly, there were deposits. Thus, in our opinion, lower authorities were justified in disallowing the claim of write-off of deposits with CMDA. However, there is an alternative submission of the assessee that it should be allowed to add such written off amounts to the cost of construction of the projects for which such deposits were given to CMDA, to the extent forfeited by CMDA. This issue in our opinion can be looked into by the ld. Assessing Officer. Once the assessee has claimed the deposits as a write off in its books of accounts, then it could legitimately argue for addition of such amounts, to the extent forfeited by CMDA to the cost of construction. Hence, while confirming the orders of the lower authorities in so far as disallowance of write off of deposits is concerned, we set aside the orders of the lower authorities in so far as it relates to the alternative claim of the ITA No.1680/2017. :- 5 -: assessee that the forfeited amounts of CMDA deposits are to be allowed as part of cost of construction the respective projects. Assessee has to produce evidence before ld. Assessing Officer substantiating its claim of forfeiture of deposits. For this limited purpose, we remit the issue back to the file of the ld. Assessing Officer for consideration afresh, in accordance with law.
In the result, the appeal of the assessee is partly allowed for statistical purpose.
Order pronounced in the open court at the time of hearing on Monday, the 9th day of July, 2018, at Chennai.