1978 (2) TMI 114

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....ar under consideration the assessee while tendering the purchase of Kendu leaves from the different units of forest, paid earnest money of Rs. 10,000 and subsequently, made security deposit of Rs. 19,883. But afterwards the assessee found that there was possibility of incurring heave losses from this business and, therefore, it decided not to act upon this particular contract. Consequently, the Forest Department forfeited both the amounts of earnest money and the security deposit for infraction of the contract. The assessee claimed deduction for both the amounts as it business expenses but the ITO disallowed that claim of the assessee because he was of the opinion that the expenditure incurred by the assessee was capital in nature. On appea....

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.... the ITO nor the AAC had disputed about the genuiness of the assessee's claim for both the amounts on account of forfeiture of earnest money as well as security deposit made by the assessee with the Orissa Forest Corporation while submitting tender for the purpose of Kendu leaves from them. It is also clear from the assessment order as also from the record that the assessee was not confronted to produce evidence in support of its claim on the ground of incurring of heavier losses by purchasing Kendu leaves in accordance with particular contract. Therefore, it can be legitimately presumed that from the facts of the case the ITO felt satisfied that the reason for allowing the amount to be forfeited by the assessee was genuine. When a piece of....

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....sly. Held, that the contracts were enered into by the assessee wholly and exclusively for the purpose of supplying themselves with one of the raw materials of their business, that they granted no interest in land, or in the trees or plants, that under them it was the Kendu leaves and nothing but the Kendu leaves that were acquired, that the right to pick the leaves or to go on to the land for the purpose were merely ancillary to the real purpose of the contracts and if not expressed would be implied by law in the sale of a growing corp, and that therefore, the expenditure incurred in acquiring the raw material was in a business sense an expenditure on Revenue account and not on capital account, just as much as if the Kendu leaves had been b....