DCIT, NEW DELHI vs. M/S. EMBRYONIC PROPERTIES (P) LTD.,, NEW DELHI

The aforesaid appeal has been filed by the Revenue against the impugned order dt. 15.06.2010, passed by the Ld.CIT(A)-13, New Delhi, for the quantum of assessment passed u/s 143(3) of the Income Tax Act, 1961 (the Act) for the Assessment Year (A.Y.) 2009-10.

The Revenue has taken the following ground of appeal. “On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.4,32,42,500/- made on account of disallowance of advance written off.”

The Ld.CIT(A) after noting down the facts and the background of the acquisition of the land, gave a categorical finding that firstly, an amount of Rs.4,32,42,500/- has become irrecoverable; and secondly, the amount written off is to be allowed as business loss of the assessee company. For coming to this conclusion he has strongly relied upon the following decisions of Honourable Delhi High Court. * CIT vs. Rose Services Apartment (India) P.Ltd. (2010) 326 ITR 100 (Del.) * Mohan Meakin Ltd. vs. CIT 348 ITR 109 (Del.)

The learned counsel first of all drew our attention to the sale deed executed between the assessee company and M/s Advitiya Fabrics Private Limited to whom the said land in Pilerne, Goa was sold. From the said sale deed he pointed out that the entire background of the acquisition of the land has been mentioned, that out of total plot of land admeasuring 1,71,050 square metres only a part of it was acquired. The said land has been sold for a sum of Rs.20,66,85,900/- on 20th of January,2009, i.e. in the year under consideration. He also drew our attention to the copy of ledger accounts of Mr. M.Kishore as on 31st March,2007 and 31st March,2009 and also the ledger account of bad debts. From these details he submitted that first of all, there cannot be any doubt that the part of the advance amount paid to Mr. M.Kishore, i.e. Rs.4,32,42,500/- was irrecoverable till this year. Even otherwise also the said amount is to be treated as ‘business loss’ incurred during the normal course of business, because it amounts to transaction relating to purchases of stock in trade. Therefore, any loss in the course of such a transaction is to be allowed as business loss only. He also strongly relied upon the decisions of Honourable Delhi High Court as have been relied upon by the learned CIT(A).

The Ld.D.R. had strongly relied upon the order of the Assisting Officer and also submitted that the amount which was advanced to Mr. M.Kishore as not been demonstrated or substantiated that, how it has become irrecoverable. Further the assessee cannot claim the loss both as a ‘bad debt’ and also as a ‘business loss’, because the conditions precedent for allowing the claim under both the provisions are entirely different.

We have heard the rival submissions, perused the relevant findings given in the impugned order as well as the material placed on record. First of all, so far as the observation of the Ld.A.O. that Provisions of section 79 are applicable, cannot be upheld for the reason that, here there is no issue of any brought forward losses which have been claimed to be set off against the current year’s income. Hence, such a reasoning of AO is hereby rejected. It is undisputed fact that the assessee company is engaged in the business loss of real estate development and during the course of its normal business activity it has sought to acquire a plot of land in Pilerne, Goa. The assessee had intended to purchase an area of land of 1,71,000 square metres through one, Mr.M.Kishore who was to facilitate the acquisition of the said land from various co-owners. For this purpose an advance of Rs.11,64,20,000/- was made to Mr.M.Kishore. However instead of acquiring 171000 sq.metres of land which was agreed for a rate of Rs.875/- per square metre, he could only facilitate to acquire 1,31,050 sq.metres of land which was purchased by the assessee at the rate of Rs.550/- per square metre. In the ledger account of Mr.M.Kishore maintained its books of account, it had shown the following payments between the period 1st April, 2005 and 31st March, 2007. The relevant ledger account for the said period is reproduced hereunder. Date Particulars Vch type Debit – Rs. Credit-Rs. 31.3.2006 To Emmar MGF Journal 40,000,000 Land P.Ltd.-SD Being advance paid to M.Kishore towards advance

On this basis of the above entry in the books of accounts, the said amount of Rs.43,24,500/- receivable from Mr.M.Kishore has been claimed as bad debt.

We are unable to understand the aforesaid manner in which the bad debts have been written off. If the assessee would have taken the cost of the inventory/stock in trade in the trading account by including this sum of Rs.4,32,42,500/- that is added to the cost of land, and in this year if the assessee had made sales and part of the said amount which remained irrecoverable, would have written off, then the assessee would have claimed it as a bad debt. The conditions precedent for claiming the bad debt has laid down in S.36(2) read with S.36(1)(vii) is not satisfied. The said claim cannot be allowed as bad debt. Further, in the balance sheet the amount appearing as advance to others for land under ‘loans and advances’, in Schedule 5 is still showing outstanding in the year, and, therefore, this ITA 115/Del/2013 AY 2009-10 Embryonic Properties P.Ltd. amount appears to be different, hence it is not a case of bad debts. However it is an undisputed fact that the amount of Rs.43,24,500/- which has been paid to Mr.M.Kishore prior to 31st March, 2007, till date has not been recovered which is even evident from the letters written before the Investigation Wing and also admitted by Mr.M.Kishore, before the investigation wing, that the said amount is lying with him which would be settled later on. This is evident from the facts and submissions, noted by Ld.CIT(A). If the said amount was not being recovered and has been claimed as loss by the assessee in this year, i.e. when sale of land was made, then the same needs to be allowed as business loss because, it was incidental and linked to the purchase of stock-in-trade and was taken as part of the cost of the land in this year while determining the business income from the sale of land in this year. Accordingly, the observation and finding of the Ld.CIT(A) following the decision of Hon’ble Delhi High Court is affirmed and thus the revenue’s appeal is dismissed.

In the result the appeal of the revenue is dismissed. Order pronounced in the Open Court on 28th February, 2017.