AJAY KUMAR,CHANDIGARH vs. ACIT,CENTRAL CIRCLE-20, NEW DELHI

O R D E R PER C. M. GARG, J. M.:

1. 1. This appeal has been filed by the assessee against the order of the ld CIT(A)-27, New Delhi dated 30.11.2018 for AY 2013-14.

2. The assessee has raised the following grounds of appeal:- “1. The Ld. Commissioner of Income Tax, Appeals (CIT(A)), erred on facts and in law in confirming the order of the Assessing Officer (AO) and holding that the provisions of section 154 are attracted in this case

2. The Ld. Commissioner of Income Tax, Appeals (CIT(A)), erred in remanding back the matter to the Assessing Officer(AO) for ascertaining the correct share of interest paid by the applicant.

3. The Ld. Commissioner of Income Tax, Appeals (CIT(A)), erred on facts and in law in confirming the order of the Assessing Officer (AO) in holding that the Appellant is not involved in business of real estate activities 3.1 The Ld. Commissioner of Income Tax, Appeals (CIT(A)), erred on facts and in law in confirming the order of the Assessing Officer (AO) in making the addition of Rs. 40,50,346/- on account of bad debts claimed by the appellant.

4. The above grounds are all independent and without prejudice to one another. The appellant craves leave to supplement, cancel, amend, add and/ or otherwise alter/ modify any or all the grounds of appeal stated hereinabove.”

3. The assessee’s representative (AR) submitted that the ld CIT(A) has erred in confirming the order of the ld Assessing Officer and holding that the provisions of section 154 of the Income Tax Act, 1961 (for short the Act) are attracted in this case. The ld counsel further submitted that the first appellate authority has also erred in confirming the order of the AO and holding that the assessee is not involved in business of real estate activity therefore, not entitled to claim bad debts of Rs. 40,50,346/-. The ld counsel also submitted computation of income of assessee for AY 2013-14 to show that the assessee has declared income from salary, income from house property, income from business and profession, income from capital gains, therefore, authorities below were not correct and justified in dismissing the claim of bad debts of assessee incurred to him on account of booking of flat which was never delivered to the assessee and the amount deposited by the assessee was also not returned by builder.

4. Replying to the above the CIT DR submitted that the AO was well within its right in invoking of provision of section 154 of the Act and ld CIT(A) was also correct in upholding such action of the AO because there was no material or documentary evidence on record to support the claim of allowance of deduction on account of bad debts as claimed by the assessee. The ld CIT DR submitted that from the copy of computation of income submitted by the AR that is discernable that the assessee is receiving salary income from SB Township Ltd and has also declared income from capital gains on account of sale of property in Chandigarh. He further submitted that from the said computation of income it is clearly discernable that the assessee has not declared any income from business and profession, of property, except the claim of loss due to bad debts of Rs. 40,50,346/- which cannot be allowed as the assessee is not in the business of sale and purchase of property. 5. On careful consideration of the above submission we note that the ld CIT(A) has upheld the disallowance of bad debts with following observation and findings 4.3 to 4.3.2:- “4.3 Ground No 3 relates to disallowance of claim of bad debts in the absence of any books maintained and no business in the year under consideration. 4.3.1 It is observed that the applicant has booked a flat with a private builder and made payments in installments amounting to Rs 40,50,346/- Page | 2 over a period of 3-4 years, but was neither allotted the flat inspite of efforts made by him nor money was returned back by the builder. The appellant claimed it as "Bad debt" in the computation of income. This claim was disallowed by the AO on the ground that appellant has no business and has not maintained any books of accounts, 4.3.2 There are following conditions to be simultaneously met to claim a bad debt u/s 36(1)(vii) r.w.s.36(2)

(a) It must have been a bad Debt (b) It must have been included in the computation of income in previous year It is observed that (1) The applicant is not maintaining any books of accounts and has not shown any income or stock-in trade from trading activities of booking of flats or real estate activities. It has not produced any evidence that trading in real estate is his regular activity and this flat was classified as stock-in trade from the date of booking. Appellant has not maintained any balance sheet which reflects his statement affairs as claimed by him. (ii) The claim of the appellant that it is making income and expenditure accounts every year have no relevance, as the appellant is filing return under individual head for receipts and not as per income & expenditure account. Even in the year under consideration, the appellant has shown income under head "Capital gains" on sale of property & shares. Therefore, there is not a single evidence to prove that this flat is part of stock-in trade of the appellant. Further, the appellant has not shown in which year it was shown as part of business affairs & income out of those activities was offered for tax. The reliance on CBDT circular12/2016 can be placed w.r.t. disallowance on the basis of non-establishment of bad debt. It is not applicable to the facts of the present case as this amount at first instance cannot be classified as debt , then what to talk of bad debt. Thus from the above discussion it emerges that this was a case of simple investment made by the appellant for personal purposes and not as part of some trading business. The appellant is not involved in any such business activity, where it has held any asset as stock-in-trade and income of such business has been offered for tax anytime. The appellant has made capital investment from surplus funds available out of various incomes taxed under their appropriate heads. There is no accounting of any such assets separately in any business and claim of the appellant for this amount as bad debt is a seriously misplaced accounting. This loss, if any, is a capital loss and is of personal nature, as the asset was held as personal capital asset. In these circumstances, the action of the AO to disallow the claim of bad debt is upheld and this ground of appeal is dismissed.”

6. The ld CIT(A) has considered the requirement of section 36(1)(vii) read with section 36(2) of the Act and thereafter concluded that the appellant has not involved in any such business activity, he has not held any asset as stock-in-trade and never any income from such business has been offered for tax anytime. The ld CIT(A) rightly concluded that the appellant has made capital investment from surplus fund available out of various incomes taxed under their appropriate heads. There is no accounting of any such income thus claimed on account of bad debts is seriously misplaced accounting. In different facts and circumstances of the present case we are not in agreement with the conclusion drawn by the ld CIT(A) that the impugned loss is a capital loss of personal in nature as the asset was held by the assessee as personal capital assets. Accordingly, we are unable to find any valid reason to interfere with the findings of the ld CIT(A) in upholding the action of the AO and hence we confirm the same. Accordingly, grounds of assessee being devoid of merit are dismissed.