TaxTMI 
TaxTMI 
2020 (5) TMI 461
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....addition made under section 50C of the Act, is bad in law, and impugned order therefore, deserves to be set aside, and the assessment in case of the appellant of being heard in the matter. ii. That within the facts and circumstances of the case and the law on the point, the learned CIT(A) has erred in sustaining disallowance of claim of Bad debt of Rs. 77,98,88,400/- caused by learned Assessing Officer under section 36(1)(vii) of the Act read with section 36(2) of the Act under the head 'Income from Business and profession', as claimed by the appellant, and instead upholding the amount of claim of the appellant as assessed by the Learned Assessing Officer under the head 'Income from Capital Gains'. iii. That within the facts and circumstances of the case and the law on the point, the learned CIT(A) has erred in sustaining addition of an amount of Rs. 3,31,49,744/- pertaining to sale of a property by the appellant as per the provisions of section 50C of the Act without considering the reasons submitted by the appellant, and therefore, the impugned addition confirmed by the Learned CIT(A) deserves to be set-aside and the income on account of sale of the property he ....
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....though the subsidiaries owned land bank and were incorporated only to acquire plots of land as part of the real estate business. Factually the same was treated as business investment. 5. As regards the particular issue involved in the present appeal, the assessee company had acquired equity shares of its subsidiary company, Silver Town Inn and Resorts Pvt. Ltd. as part of business venture as the said company owned two contiguous plots of land at Village Kherki Daula, Tehsil Manesar, Gurgaon, Haryana having commercial prospects. Assessee has clarified that shares were not acquired for the purpose of investment to earn dividends, albeit for pure business purpose. The assessee purchased the entire equity share capital of the said company being 50,000 equity shares of Rs. 10/- each at Rs. 18,19,20,452/-, i.e., at a significant premium considering the development / business prospects of the plots of land held by the said company. The assessee agreed to sell the said contiguous plots of land owned by Silvertown by way of transferring the said total shares to M/s Kausar Leasing Ltd. (hereinafter referred to as 'Kausar'). As agreed with the said buyer, the assessee was to obtain CLU ....
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....ed by the Govt. and out of the total land admeasuring 10243.52 sq. mtr and 4790 sq. mtr. thereof, came under road widening and 4906 sq. mtr area under wide green belt. The only area of 493.52 sq. mtr. remained with the assessee. In support, assessee has also filed the necessary documents and the sketch plan wherein the area has been demarcated under the road widening of land falling under the green belt. The assessee's grant for CLU was thus rejected by the Government Authorities. Thus, by the stroke of such governmental orders, the asset of Silver Town Resort Pvt. Ltd. had drastically reduced from 10243.52 sq. mtr to 493.52 sq. mtr. In the wake of such event, the buyer refused to pay the balance amount and even the assessee company failed to obtain requisite sanction and CLU permission on the acquisition of major portion of land. Assessee Company was also unable to persuade the buyer to comply with its obligation. Since assessee has shown the entire amount of Rs. 93 Crores in the books of account, hence assessee has written off the balance receivable amount of Rs. 77.98 crores in the books during the Financial Year 2012-13 relevant to Assessment Year 2013-14. The assessee....
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....own as capital in the earlier years. The assessee has earned profit at Rs. 71.84 crore as capital gain in the earlier year and sought to write off as a revenue amount of Rs. 77.98 crore in P&L account as business expenses which is not permissible. Thus, he disallowed the entire claim and added the amount at Rs. 77,98,88,400/-. 8. Ld. CIT (A) has confirmed the addition made by the AO inter alia on following reasoning: - I have considered the arguments of the appellant and the legal position available on the issue and it is held that: 1) The appellant had already declared long term capital gain in its return of income, disclosing the sale of shares having been made as sale of its investment. The appellant had computed long-term capital gain on the said sale of shares at Rs. 71,84,37,748/- and paid taxes thereon. 2) The amount that appellant did not receive from Kausar Leasing Ltd. was Rs. 77,98,88,400/- was capital receiptcapital loss. 3) In the subsequent year, the said amount was written off, however, the said bad debt is not out of any transaction on account of business or venture, therefore, the said loss was declared by the appellant itself....
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....om 456 (SC). He further submitted that one has to be examine the substance of the transaction which here in this case clearly shows that sale consideration included consideration for sale of shares and income for services rendered in connection with the CLU and other clearance being a business activity of the assessee which is engaged in the real estate business. Even if the assessee has incorrectly declared the entire amount as capital gain in the return of income filed for the Assessment Year 2010-11, instead of business income and even if the entire amount was declared as income though same did not accrue to the assessee during the year, even though at that time only the buyer had categorically refused to pay the entire amount vide letter dated 18.01.2010. However, it does not mean that in the year in which the actual loss has been incurred the assessee cannot claim under the correct head which here in this case was business income/business loss. The income can be said to accrue only when the right to receive has arisen and, in this case, right to receive the income was depended upon getting the CLU and other clearances for the agricultural plot of land owned by the Silver....
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....edarnath Jute Mfg. Co. Ltd.Vs CIT 82 ITR 363 (SC) (f) CIT Vs Bharat General Reinsurance Co. Limited. 81 ITR 303 (Delhi) (g) R. Seshammal vs ITO 237 ITR 185 (Madras) (h) CIT Vs Bhawani Singhji [2018] 99 taxmann.com 338 (Delhi) (i) Shri Vipul P. Dalal Vs. DCIT - 12(2) 2016-LL-0603-1]- ITAT Mumbai (j) DCIT vs. Lab India Instruments (P) Ltd., 93 ITD 120 / 2005-TIOL-49-ITAT-PUNE (k) Raghavan Nair [2018] 89 taxmann.com 212 (Kerala) 11. Thus, he submitted that even if the income has been incorrectly assessed in the wrong head under the Assessment Year 2010-11, the same cannot be impediment for assessing the income under the correct provisions of the law. In support, he strongly relied upon the judgement of Hon'ble Supreme Court in the case of Hon'ble Supreme Court in the case of CIT v. Manmohan Das (Deceased) [1966] 59 ITR 699, wherein it was held that it is for the ITO of the subsequent year to determine whether the loss of the previous year may be set off against the profits of that year. A decision recorded by the ITO who computes the loss in the previous year that the loss cannot be set off against the income of the subse....
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....d above, it seems to us that it was open to the taxing authorities to consider the position of the assessee in 1943 for the purpose of determining how the gains made in 1944 should be computed, even though the subject of the assessment proceedings was the computation of the profits made in 1944. The circumstance that in an earlier assessment relating to 1943, the assessee was treated as an investor would not in our opinion estop the assessing authorities from considering, for the purpose of computation of the profits of 1944, as to when the trading activity of the assessee in shares began. The assessing authorities found that it began in 1943. On that finding the profits were correctly computed and the answer given by the High Court to the question of the computation of the profits was correctly given." 2. The Hon'ble Supreme Court in the case of CIT Vs Western India Oil Distributing Co. Ltd. (2001) 249 ITR 0517 (SC)confirmed the order of the Bombay High Court in the case of Western India Oil Distributing Co. Ltd. Vs CIT (1980) 126 ITR 0497 (Bom.) wherein relying upon the judgment in the case of Manmohan Das, it was observed as under: "11. Our attention was then d....
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....osition. Consequently, it is held that merely because the late assessee (Sawai Man Singh) repeatedly claimed individual status while filing his returns, the correct legal status was as an individual and not HUF. Therefore, in the opinion of this court, there was no legal impediment for the legal representatives of the assessee to claim that the succession was of the HUF, upon the death of Sawai Man Singh." 4. The appellant relied on the decision in the case of Gajendra Kumar T. Agarwal Vs ITO [2011] 11 taxmann.com 231 (Mum) wherein relying upon the judgment of the Western India Oil (supra) it has been held as under: "19. Hon'ble Supreme Court's judgment did not specifically reflect whether revenue had taken any objection to redetermination of character of an income, which was earned in an earlier assessment year, and when characterization so assigned had received finality. One could have entertained a little doubt whether Manmohan Das judgment (supra) may or may not be viewed as an authority for the proposition that such an objection, when taken, can be rejected. However, Hon'ble jurisdictional High Court's judgment in the case of Western Indi....
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....was that the income was from the pursuit of a business, profession or vocation and that, if this was so, the assessee was entitled to carry forward the loss. 20. In our humble understanding, Hon'ble Supreme Court's judgment in Manmohan Das's case (supra), read with Hon'ble Bombay High Court's judgment in the case of Western India Oil Distributing Co. Ltd. (supra), is thus authority for three significant propositions. These propositions are summed up as follows: I. First, that the call, as to whether a particular business loss, speculative or non-speculative, incurred by the assessee in an earlier year is eligible for set off against business income in a subsequent year, is to be taken in the course of proceedings in the subsequent assessment year, i.e. the assessment year in which set off is claimed. Hon'ble Supreme Court has set out this proposition and this proposition was later clarified, in unambiguous words, by Hon'ble jurisdictional High Court in the case of Western India Oil Distributing Co. Ltd. (supra), which was approved by Hon'ble Supreme Court in the judgment reported as Western India Oil Distributing Co. Ltd. (supra). ....
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.... On the other hand, ld. CIT-DR relying upon the observations and the findings of the AO and Ld. CIT(A), submitted that here in this case, it is an admitted fact that assessee itself has treated the transaction relating to transfer of shares as Long Term Capital Gain and the said shares were sold to other parties. Once, the character of income is in the nature of capital, assessable under the head 'capital gain', then same character cannot be changed. The AO has accepted the Long-Term Capital Gain @ 20% in Assessment Year 2010-11, and therefore, with regard to same nature of transaction, the assessee cannot say that it was on revenue account assessable under the head 'business income'. The character of income cannot be changed by any subsequent conduct to fulfill the condition of any agreement. In fact, it cannot be the case of bad debt because assessee had not shown any business income in the Assessment Year 2010-11. Further, the assessee had never revised the computation of return of income in the Assessment Year 2010-11 and has offered the Long-Term Capital Gain @ 20% instead of 30% which is rate applicable for business income. Thus, there is no infirmity in the order of the AO a....
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....le and the balance amount of Rs. 77,98,88,400/- was payable subject to assessee getting various permission. Since, the agreement for transfer of shares was entered in the financial year 2009-10, the assessee offered the entire amount of Rs. 93 crores on accrual basis under the head "Long Term Capital Gain. As stated above, there were certain turn of events that the adjacent land and the part of the land under the assessee's project was acquired by the Government for widening of the national highways and certain areas were declared as green belt. Due to this governmental order, the entire project had failed and CLU and other legal permission ostensibly could not be obtained. As brought on record by the Ld. Counsel, later on, the said piece of plot/land was sold at a meagre sum of Rs. 5,60,00,000/- as compared to the aggregate consideration of Rs. 93 crores, had all the conditions would have been fulfilled and the project could have been started by the buyer. In the relevant Financial Year 2012-13, i.e., relevant for the Assessment Year 2013-14, it became clear that the buyer will not pay the amount and since the assessee had already declared the said income in the Assessment Year 20....
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....her, Hon'ble Apex Court in the case of CIT vs. Manmohan Das (supra) held that it is for the ITO in the subsequent year to determine whether the loss of the previous year may be set off against the profit of that year. The decision rendered by the ITO who computed the loss in the previous year that the loss cannot be set off against the income of the subsequent year is not binding on the assessee in the subsequent year. The relevant observation of the Apex Court has already been quoted above. Following the same ratio and the principle laid down by the Hon'ble Apex Court in the case of CIT vs. Western India Oil Distributing Company Ltd. (supra), wherein their Lordships have confirmed the order of the Hon'ble Bombay High Court observed that once the correct principle flowing from Manmohan Das's case is realised, it would appear that if in an earlier year it has been held that correct head income applicable to the assessee's case was under the head 'income from other sources' and by that reason the benefit of carrying forward of depreciation is denied to the assessee, then such a decision will not bind the assessee in the subsequent year in which he wants to claim the set off against t....
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....tention was urged on the fact that in the preceding year the income has held to be from the sources other than business and on that ground the carried forward of the loss was not allowed. The Hon'ble Supreme Court held that income of the assessee for both the years must properly be recorded as having arisen from the pursuit of the auction and thus assessee was liable to set off preceding year's loss against the income of the Assessment Year 1951-52. The Hon'ble Supreme Court brushed aside the argument of the Revenue that in the preceding year, the order has become final and reason of such finality, the assessee was not entitled to set off the loss incurred in the earlier years even though the correct legal position was that income was always from the pursuit of business or profession. The ITAT Mumbai Bench in the case of Gajendra Kumar T. Agarwal vs. ITO (supra) has sum up the proposition of Hon'ble Apex Court in the following manner: I. First, that the call, as to whether a particular business loss, speculative or non-speculative, incurred by the assessee in an earlier year is eligible for set off against business income in a subsequent year, is to be taken in the course ....
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....n nature. Similarly, as held by Hon'ble Bombay High Court in the case of Western India Oil Distributing Ltd. (supra) and as confirmed by Hon'ble Supreme Court, losses determined under the head 'income from other sources', which had attained finality, were subsequently treated as 'business losses' - though for the limited purposes of eligibility for set off against profits from same activity in subsequent years." 17. Ergo, the key sequitur of the aforesaid principles laid down by the Hon'ble Apex Court and other rulings are that, if either the assessee has offered income or the Assessing Officer in the earlier assessment year has assessed the income under the particular head which originally was assessable in a different head, i.e., capital gain, even though the same was liable to be assessed under the head 'business or profession', then there is no embargo either on the Assessing officer or on the assessee to show the income or loss under the head 'business or profession' in the subsequent year. The assessee can always point out in the subsequent year in which it is claiming any deduction or loss that the income offered in the earlier years was not shown ....
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....iness loss. 19. Now coming to the issue where one of the contentions raised by the department that the amount written off during the year cannot be allowed as a bad debt, because the income which has accrued to the assessee in the earlier year was not assessable under the same head, i.e., income from the business or profession. We find that precisely the same issue now stands covered by the judgment of Hon'ble Bombay High Court in the case of PCIT vs. Hybrid Financial Services Ltd. vide judgment and order dated 11th February, 2020 in ITA No.1265 and 1469 of 2017, wherein the Hon'ble High Court after interpreting the Section 36(1)(vii) and Section 36(2) and relying upon the judgment of Hon'ble Supreme Court in the case of TRF Ltd. vs. CIT, 323 ITR 397 observed that, firstly, assessee need not required to establish/approve that debt has in fact become irrecoverable and it is sufficient that if the bad debt is written off irrecoverable in the account of the assessee; and secondly, the Court observed that there is no requirement under the Act that the bad debt has to accrue out of income under the same head 'income from business or profession' to be deducted as income. The releva....
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....n ordained in CIT v. Shelly Products (2003) 26I ITR 367 (SC) also. The aforesaid principle can also be applied here. 22. Accordingly, we hold that the claim for the amount of Rs. 77,98,88,400/- as business loss or bad debt is allowable in revenue account in this year and is allowed to be set-off in the revenue account as claimed by the assessee and not as a capital loss. 23. In the result, the ground no.2 raised by the assessee is allowed. 24. In so far as the issue of addition of Rs. 3,31,49,744/- pertaining to sale of property in terms of Section 50C. The facts in brief are that the assessee has sold the property situated at Budh Singh Pura, Jaipur for a sale consideration of Rs. 12,61,00,000/- during the year, whereas the stamp duty valuation of the said property was Rs. 15,92,49,744/-. The AO made the addition of Rs. 3,31,49,744/- u/s 50C of the Act alleging that the assessee did not contest the valuation of the said property before the stamp duty valuation authorities. 25. Ld. Counsel pointed out that, the appellant specifically objected to the proposition of application of the section 50C of the Act and explained that the circle rates in Jaipur were higher than th....
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....r must lead to deletion of this addition. Alternatively, in the interest of justice, he submitted that the matter should be referred back to the assessing officer with a direction to refer the said property for valuation to determine the fair market value of the said property. 28. After hearing both the parties and on perusal of the relevant finding given in the impugned order and the material placed before us, we find that before the Appellate Authority, the assessee has categorically stated that though the circle rate of the vicinity area was higher than prevailing market rate but the land in question which was sold was adjacent to cremation ground which adversely affected the market rate of the property, and therefore, the property could not be fetched the circle rate and was sold at the lower rate than the circle rate. Further, it was the buyer who has to contest the stamp value of the property before the Valuation Authority in which assessee has no control. In any case, when the assessee has disputed the stamp duty valuation because of clinching circumstances, then in our opinion matter should have been referred to DVO for the valuation of the said property. Accordingly,....