TaxTMI 
TaxTMI 
2011 (5) TMI 571
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.... The assessee at the relevant point in time, was carrying on the business of construction, purchase and sale of flats. It appears that the assessees sister concern, i.e., Pragati Construction Co. (P) Ltd. (hereinafter referred to as „PCL) had made a bid, in an auction, held by the Slum Wing of the Delhi Development Authority (in short „DDA), in respect of, plot no. 8 situate at Asaf Ali Road, New Delhi. PCL had hoped that if it were to succeed in the auction, it would construct a multi-storey building thereon under the name and style of Ambika Tower House. It is important to note that the auction was held on 12.03.1982. On the same day, the assessee evidently issued a cheque in the sum of Rs. 44.50 lacs to purchase a bank draft of an equivalent amount. The bank draft was evidently handed over to PCL on 12.03.1982, ostensibly to purchase commercial space in the proposed multi-storey building, i.e., Ambika Tower House. 2.2 Since PCL tendered a bid in the sum of Rs. 1.92 crores, which was the highest bid, it was declared as the successful bidder. The terms of the auction, however, required payment of 25% at the fall of the hammer PCL evidently paid a sum of Rs. 48 lacs as....
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....y equivalent to 25% of the said amount which would ordinarily come to a sum of Rs. 23.25 lacs. The said calculation was worked out on the basis that the rate would be about Rs. 2500 per sq. ft. 2.5 Even though, as indicated above, the forfeiture of the earnest money of the PCL by the DDA took place on 04.05.1985, the assessee debited the sum of Rs. 31.50 lacs in its accounts only on a receipt of the letter from PCL dated 14.12.1988. By this letter, PCL apparently communicated to the Assessee, the factum of forfeiture of Rs. 48 lacs paid to DDA and also the fact that since it does not have any tangible assets which could be encashed in the market, it would not be possible for it to refund the money to the assessee. It may however be noted at this juncture that it has been found as a matter of fact that, in assessment year 1984-85, at the request of the assessee a sum of Rs. 5.50 lacs was returned by PCL to the assessee, which is why, the outstanding dues had come down from Rs. 36.55 lacs to Rs. 31.05 lacs. The authorities below also found as a matter of fact that in the accounting year prior to the one in issue, regular transactions had taken place between assessee and PCL. The ass....
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....nclusion that since the assessee had not reflected the amount in issue, as income either in the previous year in issue or in the earlier year in which it was sought to be written off, the assessees claim for deduction was not maintainable. The CIT(A) analysis was based on the amendment brought about in Section 36(2)(i) by the Direct Taxes law (Amendment) Act, 1987 w.e.f. 01.04.1989. By virtue of the said amendment clause (i) of Section 36(2) of the I.T. Act was substituted for the following: "No such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee." 5. This amendment was applicable for the assessment year in issue, i.e., 1989-90. It may however be noted that the CIT(A) while passing the order took into account the contention of the Assessing Officer that the agreement executed with the PCL by the assessee was erroneous. The CIT(A) took note of the agreement date....
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....as well as the revenue, we are of the view that the deduction ought not to have been allowed. The reasons for the same are as follows: As already noticed by us while recording the facts, which have emerged from the record, it is quite clear that at the point in time when cheque in the sum of Rs. 44.50 lacs was remitted by the assessee to the PCL, it was not in a position to allot any space in the proposed multi-storey complex. The amount was remitted on 12.03.1982 which is the very date on which the plot was auctioned. It has emerged from the record that PCL had joined issue with the DDA with regard to defects in the control drawings. This dispute obtained in May 1982 and even thereafter. It was precisely for this reason that a suit bearing no. 766 /1982 was filed in 1982. During the pendency of the said suit, a second suit being CS(OS) No. 993/1983 was filed. This suit is pending even today. Commercial space, if any, could have been booked by PCL only after it had acquired the control drawings. The record also shows that any sale of commercial space had to have the permission of the DDA for which a fee of Rs. 100 had to be paid. Curiously, the assessee has trotted out an agreement....
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....rpose which was incidental to the assessees business. As correctly found, the money had been paid to PCL as an advance. Given the fact that there is every likelihood that the money may be recovered, we concur with the view of the authorities below that the amount cannot be written off. DISCUSSIONS OF JUDGMENTS CITED BY COUNSEL 11. In support of his submissions Mr Mehta has cited several judgments. Mr Mehra began with the judgment of the Supreme Court in the case of S.A. Builders (supra). In the said case the Supreme Court was called upon to decide whether the assessee would be entitled to deduction under Section 36(1)(iii) of the I.T. Act in respect of interest paid by the assessee to the bank on funds borrowed by it, which were, in turn advanced by it to its sister concern in the form of interest free loan. The Assessing Officer had disallowed a proportionate amount of interest out of the interest paid by the assessee to the bank, to the extent, the assessee had diverted borrowed funds to its sister concern. In principle, the CIT(A), in that case, had upheld the decision of the Assessing Officer though had reduced the disallowance, as he came to the conclusion that, out of....
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....s in Malaya. After partition, assessee continued in money-lending business in Malaya. Due to the bombing carried out by the Japanese, the assessee suffered damages. The losses suffered on account damages reflected was claimed by the assessee as business loss. 14.1 The issue travelled to the Supreme Court for consideration as to whether loss suffered on account of the aforementioned circumstances was incidental to the business carried out by the assessee in Malaya during the war. 14.2 The Supreme Court decided the issue in favour of the assessee. In coming to a conclusion, the Supreme Court observed that since it is not disputed that the assessee was carrying on business in Malaya which was a war zone carrying with it every possibility of the area being bombed. Thus, if the assessee had earned profits out of this business, undoubtedly profits earned would have been included in the assessees assessable income then could it be said that the loss occurring in such a situation was not a loss incidental to the business carried on by the assessee in Malaya during war. 15. The third case cited is the judgment in Ramchandran Shivnarayan (supra). Facts pertaining to this cas....
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....d sustained the claim of trading loss made by the assessee on the ground that had the assessee not paid, that is, lent money, the assessee could not have realized his investment made to acquire distribution rights in the film. Since the money lent became irrecoverable by reason of picture failing at the box office and the producer being unable to repay his debts, the money so lost by the assessee was rightly held by the Commissioner and the Tribunal to be a trading loss. The court distinguished its earlier judgment in the case of CIT vs Coimbatore Pictures (1973) 90 ITR 452 on facts. 17. It is, therefore, important to focus, in our opinion, on the facts obtaining in the instant case. In the instant case before the Assessing Officer a claim was made for deduction of the amount in issue, on the ground that it had become a bad debt. This contention continued till the matter reached the CIT(A). There was, however, a flip flop before the CIT(A) as noticed by us hereinabove. Before the Tribunal the assessee gave up its claim that the amount in issue should be allowed as a deduction on the ground that it had become a bad debt. The assessee claimed a deduction on the ground that it was a ....
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....The suit filed is pending adjudication. It has also emerged that PCL could not have sold any commercial space without the permission of the lessor (DDA). Another aspect to be noticed is that despite the dispute obtaining between PCL and DDA with regard to the control drawings the assessee curiously entered into an agreement with PCL on 02.06.1982. Given these facts it is quite evident that the transaction between the assessee and PCL was one where perhaps money had been lent to enable PCL to bid. At that stage contrary to what the assessee had sought to portray there was no intention to purchase commercial space in the proposed building as the plot which PCL sought to bid for was nowhere on the scene. Therefore, the expense was certainly not incurred for the purposes of the assessee‟s business notwithstanding the fact that it may or may not have earned income or profits. Furthermore, if the test of prudence is applied and that too from the point of view of a businessman, and not that of the revenue, the assessee in our view fails to pass the test. The reason being: that a prudent businessman would not have committed his money for purchase of commercial space at a stage when t....