Capital loss – Expenditure claimed on abandoned project

Author

CA. AJAY KUMAR AGRAWAL 

 

 

 

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 ITAT CHENNAI :-  THE ACIT, CORPORATE CIRCLE – 5 (2) , CHENNAI – 34.

VERSUS

M/S. RUDRADEV AVIATION PVT. LTD. AND (VICE-VERSA)- No.- ITA No.:2100/CHNY/2017 And

C.O. No.: 152/CHNY/2017 (in I.T.A. No. 2100/CHNY/2017

Dated.- March 31, 2022

The assessee is a private limited company incorporated with the main object to start an Aviation Training School. The assessee filed its return of income claiming total loss of ₹ 6,01,88,401/-, comprising of the following income and losses
i) Gain from sale of land & building : ₹ 4,77,38,633
ii) Irrecoverable advance taken to profit and loss account (however claimable as capital loss) : ₹ 12,37,27,087
iii) Pre-Operative expenses : ₹ 75,17,501
iv) Gain from Venture : ₹ 2,35,00,000
The main issue now before us is, the loss claimed by assessee of ₹ 12,37,27,087/- held by CIT(A) as ‘capital loss’. The AO during the course of assessment proceedings noted that the assessee is in formative stage and business did not take off and hence, the land was sold to one M/s. AmarPrakaash Developers Pvt. Ltd., for a consideration of ₹ 16.73 crores. This land is stated at No.92, Thirumudivakkam Village, Sriperumbudur and the extent of land sold is 7 acres and 76 cents. The assessee company and its Associate Enterprise M/s. Raghav Techpark Pvt. Ltd., are the joint vendors. The assessee’s portion of sale consideration is ₹14,57,40,400/-. The assessee in its accounts claimed joint venture loss of ₹ 12,37,27,087/-. The AO noted that the assessee vide the purchase agreement dated1 8.01.2007 had intended to purchase A320 flight simulation equipment from M/s. Thales Training & Simulation Ltd., and for that purpose paid a sum of ₹14,10,97,242/-. According to AO, due to breach of terms and conditions, the procurement was not completed and the assessee had written off the entire sum of ₹ 14,10,97,242/- as joint venture loss and assessee’s share of ₹ 12,37,27,087/-. According to AO, an irrecoverable advance made towards acquisition of capital asset cannot be allowed as expenditure u/s.28(i) r.w.s. 36(1)(vii) of the Act in view of the decision of Hon’ble Madras High Court in the case of Kwality Fun Foods and Restaurants (P) Ltd., vs. DCIT, [2013] 356 ITR 170 and also considered the decision of Hon’ble Apex Court in the case of Swadeshi Cotton Mills Co. Ltd., vs. CIT, [1967] 63 ITR 65 and the Hon’ble Jurisdictional High Court in the case of EID Parry (India) Ltd., 257 ITR 253. In view of the above, the AO disallowed the claim of loss by observing in para 6.6 as under:-

“6.6 Under an hypothetical situation, that if the assessee were to receive the amounts paid or if the asset is delivered, such items would not certainly enter the P&L A/c., but will come into the Balance Sheet.

Therefore, following the rationale clearly expressed by the Madras High Court in the case of M/s. Kwality Fun Foods and Restaurants (P.) Ltd (supra) and M/s. E.I.D Parry India and the Supreme Court in the case of Abdullabhai Abdulkadar (supra) and swdeshi cotton mills, the claim of loss of ₹ 12,37,27,087/- is treated as capital loss and is not allowed to be adjusted against the profits credited to the P & L A/c. Since the provisions of section 37(1) of the I.T. Act, 1961 does not provide for deduction of capital expenses or losses, the claim of expenditure of ₹ 12,37,27,087/- is added to the taxable income of the assessee for the year.”

4. The CIT(A) following the decision of Hon’ble Calcutta High Court in the case of M/s. Binani Cements Ltd., 380 ITR 116 (Cal) allowed the assessee’s claim of loss as capital loss to be set off against capital gains arises from transactions relating to the abandoned project. The CIT(A) also noted that even the AO relying on the Hon’ble Jurisdictional High Court decision in the case of Kwality Fun Foods and R…
[9:42 am, 04/04/2022] CA Ajay Kumar Agrawal New Delhi: Sir – What’s your views on nonest return .  can Ao treat 148 return filed after 30 days, nonest and non issue of notice 143(2)

 Ref :- Hon’ble Pune I.T.A.T.,(T.M) -G.C. Bafna v DCIT (2004) 90 ITD 115 (Pune)(TM)-the assessee had filed a return after expiry of the time allowed in the notice issued under section 158BC of the Act and the same was treated by the Assessing Officer as non-est and the assessment was completed without considering the return so filed. The Tribunal, by a majority opinion, held that the belated return was a valid return and, therefore, the entire assessment was to be restructured on the premise that the assessee did file a valid return

ITAT  PUNE -Shri Ramesh Maruti Patil, VS Asstt. Commissioner of Income-tax- ita- 326/PN/07-The assessee filed his return on 30.4.2004 wherein total income declared at Rs 47,670/- was the same as declared in the return filed originally. However, the return filed on 30.4.2004 was beyond the time stipulated in the notice issue under section 148 of the Act and, therefore, the Assessing Officer treated the said return as an invalid return. He, therefore, proceeded to finalise the assessment under section 144 read with section 147 of the Act

 issue : “Whether on the facts and circumstances of the case and in law, the assessment order is required to be set aside since the Assessing Officer admitted and ld CIT (A) confirmed that the assessment was made on a non-est return and therefore the AO should not have proceeded to complete the assessment following the Hon’ble Pune I.T.A.T.,(T.M) judgment in the case of G.C. Bafna v DCIT (2004) 90 ITD 115 (Pune)(TM)?-

 HELD  In the instant case, the fact-situation stands on an entirely different footing, inasmuch as the assessee does not dispute that the return filed on 30.4.2004 and which has been treated as non-est by the Assessing Officer has been so wrongly treated. In other words, the assessee does not dispute that the return filed on 30.4.2004 is a non-est return. The fact-situation in the case of G.C .Bafna (supra) was to the contrary. Therefore, the ratio of the decision of the Tribunal in the case of G.C., Bafna cannot help the assessee in negating the impugned assessment. Therefore, the plea of the assessee is hereby dismissed.