Forfeiture of earnest money as business loss remains allowable when supported by contract terms and genuine documents.

Loss of earnest money forfeited under an agreement to purchase immovable property was treated as a genuine business loss where the contract contained a forfeiture clause, time was of the essence, and the record did not show a sham or fabricated transaction. The Assessing Officer could not reject the claim on mere suspicion or a general allegation of non-genuineness. Where contemporaneous documents support the forfeiture and there is no material of deliberate contrivance or collusion, the resulting loss is allowable in computing income. The appellate finding that the disallowance was unsustainable was affirmed on the factual matrix described.

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Issues: Whether the loss of earnest money on forfeiture of the advance paid under an agreement to purchase immovable property was a genuine business loss allowable in computing income.

Analysis: The agreement contained a forfeiture clause making time the essence of the contract. The record did not show that the transaction was sham or fabricated. The Assessing Officer could not dislodge the assessee's claim merely on suspicion or by a general allegation of non-genuineness. Where contractual terms provide for forfeiture on failure to perform, and there is no material showing deliberate contrivance or collusion, the loss flowing from such forfeiture cannot be rejected as non-genuine. The appellate authority had appreciated the evidence and factual matrix correctly.

Conclusion: The forfeiture loss was allowable, and the disallowance was rightly deleted; the finding was in favour of the assessee.

Final Conclusion: The Revenue failed to establish any infirmity in the appellate finding, and the addition disallowing the forfeiture loss was not sustainable.

Ratio Decidendi: A contractual forfeiture loss supported by contemporaneous documents and not shown to be a sham transaction is an allowable business loss, and a disallowance based only on suspicion cannot stand.

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