TaxTMI 
TaxTMI 
2014 (7) TMI 677
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..... Briefly stated, the facts of the case are that the assessee company is engaged in manufacturing of liquid mosquito destroyer apparatus and bottled mosquito repellants known with the brand name of 'All Out.' Pursuant to an advertisement by the Official Liquidator of M/s Bharat Carpets Limited for auction of land at Faridabad and on being successful in the bid, the assessee deposited an initial sum of Rs. 2.41 crore. Subsequently, noticing that the title to the abovesaid property was not clear, the assessee moved the Hon'ble Delhi High Court praying for the setting aside of the transaction and the consequential refund of the initial deposit of Rs. 2.41 crore from the Official Liquidator with interest. In order to pursue the case and protect....
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....urt in several judgments has held that any expenditure incurred to perfect title or for removing the defects in title were capital expenditure and the assessee was wholly unjustified in claiming deduction for such amount by writing it off in the books of account contrary to the ratio decidendi of such cases. The assessee is aggrieved against this sustenance of penalty. 3. We have heard the rival submissions and perused the relevant material on record. It is clear from the factual matrix of the case that the assessee made a bid for auction of land at Faridabad which was conducted on 13.12.1996. On being successful, the assessee made payment of Rs. 2.41 crore to the Official liquidator in two instalments on 17.12.1996 and 17.03.1997. There....
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....ng the interregnum. It is this sum amounting to Rs. 22.84 lakh which was paid from the financial year 1996-97 up to financial year 2002-03 which was paid by the assessee, but debited to 'Loans and advances', in its balance sheet. The amount was shown as Loan and advance because the assessee had filed suit for recovery of the original amount paid together with interests and also other sum paid to Security agencies, Advocates and Consultants. During the financial year relevant to the assessment year under consideration, the assessee entertained a bona fide belief that this amount of Rs. 22.84 lac has become irrecoverable and, hence, wrote it off in its books of account by claiming deductions for the same. At this stage, it is relevant to ment....
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....h of the verdict of several Courts including the Hon'ble Supreme Court. Here is a case in which the expenditure was incurred to set aside the sale transaction and not to cure the defect in the title of the property. If we consider the correct nature of the expenditure, being the amount spent on setting aside of the sale transaction and also protecting its interests during the period when the final decision was not rendered by the Hon'ble Court, it becomes manifest that the amount cannot be outrightly characterised as capital expenditure, ineligible for deduction. The Hon'ble Bombay High Court in Minoo F Mehta vs. CIT (1996) 217 ITR 578 (Bom) has held that to decide on which side of the expenditure falls, it is necessary to look at the natur....
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....provisions contained in Section 40(a)(ii) of the Act. It was in this background of the facts that the Hon'ble High Court held that the penalty should be sustained. On the contrary, when we advert to the facts of the instant case, it turns out that the claim of the assessee for deduction of such expenses is neither barred by any direct judicial precedents nor is contrary to any specific statutory provision. At any rate, the question as to whether deduction should be allowed for such write off falls in the realm of debate. It is settled legal position that no penalty can be imposed in respect of a debatable issue. 6. When we consider the entirety of the facts prevailing in the present case, it can be seen that the assessee kept on keeping ....