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September 2012

Business loss: Section 28: A. Y. 2004-05: Real estate business: Amount advanced for purchase of property: Property not transferred and amount not repaid: Loss is business loss, deductible.

By K. B. Bhujle, Advocate
Reading Time 1 mins
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[CIT v. New Delhi Hotels Ltd; 345 ITR 1 (Del.)]

Assessee
was carrying on business in construction and real estate. The assessee
had paid an amount of Rs. 44,28,000/- to M/s Gulmohar Estate for
purchase of property/plot. The property/plot was neither
transferred/sold nor the amount was refunded. The assessee claimed the
said amount as bad debt/business loss in the A. Y. 2004-05. The
Assessing Officer disallowed the claim on the ground that the provisions
of section 36(1)(vii) r.w.s. 36(2) of the Income-tax Act, 1961 are not
satisfied. The Tribunal found that the assessee treated immovable
properties as stock in trade and allowed the assessee’s claim.

On appeal by the Revenue, the Delhi High Court upheld the decision of the Tribunal and held as under:

“i)
The assessee also had rental income but this factum alone did not show
and establish that the properties which were being purchased from
Gulmohar Estate were to be treated as investment and not for the purpose
of stockin- trade.

ii) In view of the factual findings recorded by the Tribunal, the loss was deductible.”

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