June 2019

Section 28 r.w.s. 37(1) – Business loss – Advance payment for booking commercial space – Deal failed and could not get refund – Object clause of the assessee covered this as business activities – Allowable as deduction

AJAY R. SINGH
Advocate

7

Pr. CIT-6 vs. Khyati Realtors Pvt. Ltd. [Income-tax Appeal No. 291 of 2017; (Bombay High Court)

Dated 30th April, 2019]

 

[Khyati Realtors Pvt. Ltd. vs. ACIT-6(2); Bench: “A”; ITA. No. 129/Mum/2014, Mum ITAT]

Dated 4th March, 2016;

A.Y. 2009-10.

 

Section 28 r.w.s. 37(1) – Business loss – Advance payment for booking commercial space – Deal failed and could not get refund – Object clause of the assessee covered this as business activities – Allowable as deduction

 

The assessee, who is a private limited company, had advanced a sum of Rs. 10 crore to one Bhansali Developers for booking commercial space in an upcoming construction project. For some reason, the deal failed. The assessee, despite full efforts, could not get refund of the said advance amount. In the return of income for the A.Y. 2009-2010, the assessee had claimed the said sum of Rs. 10 crore as a bad debt. The A.O. disallowed the same saying that the amount could not be claimed by way of business loss because buying and selling commercial space was not the business of the assessee.

 

On appeal, the CIT(A) confirmed the disallowance. The assessee suggested before the CIT(A) an alternate plea, that deduction should be allowed u/s. 37 of the Act if the write-off of the advance did not fall u/s. 36(2) of the Act. But the CIT(A) declined the assessee’s claim u/s. 36(2) on the plea that the assessee did not have a money-lending licence or an NBFC licence; therefore, the assessee was covered by explanation to section 37(1) of the Act. The CIT(A) also declined the claim of the assessee u/s. 37 on the plea that the claim of bad debts fell u/s. 30 to 36 of the Act.

 

Aggrieved with the CIT(A) order, the assessee filed an appeal to the ITAT. The Tribunal held that it is not in dispute that the expenditure claimed by the assessee is not covered by any of the provisions of sections 30 to 36 of the Act and being neither a capital nor personal expenditure, and having been incurred for the purpose of carrying on of business, is eligible for deduct

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