Tuesday, April 10, 2012

CLAIM OF AMOUNT FORFEITED AS BUSINESS LOSS

CIT VS NEW DELHI HOTELS LIMITED DATED 22 MARCH 2012 ITA 1258/2010

Issue
Whether a person can claim business loss in respect of amount forfeited and/or not recoverable in respect of purchase of an immoveable property where the assessee is engaged in business of dealing in properties

Facts of the Case
The assessee was a developer of properties. The assessee was also an investor and had in its balance sheet investment in properties. The Assessee has also claimed long term capital gains on sale of flat at HUDA.  The assessee had advances a sum of Rs 44.28 Lacs to M/s Gulmohar Estate Limited in FY 1990-91 for purchase of three plots of land. Inspite of repeated reminders the vendor did not give physical possession. Rather it was absconding and premises locked. The assessee in its return in AY 2004-05 claimed bad debts in respect of amount non recoverable.

 The Assessing Officer contended that the assessee could not provide an iota of evidence in spite of various opportunities given, that this amount an advanced for purchase of stack-in-trade or in ordinary course of business. Further on the ground that provisions of Section 36(1)(vii) read with Section 36(2) of the Act were not satisfied as the amount had not been taken into account in computing income of the earlier years.

Held
it is well settled that it is the intention of the assessee which would matter in deciding as to whether the property purchased were intended for carrying on business or to hold it as an investment coupled with the line of the business carried on by the assessee. We find that the assessee’s intention to purchase three flats in housing complex by making total payment in advance was to do business of real estate or otherwise transaction was undertaken for the purpose of business ordinarily carried on by the assessee.

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