REKHI LAMBA REALTORS, NAVI MUMBAI v. ITO 15(2)(4), MUMBAI

ITA 888/MUM/2009 | 2005-2006
Pronouncement Date: 20-12-2010 | Result: Allowed

Appeal Details

RSA Number 88819914 RSA 2009
Assessee PAN AAIFR5092H
Bench Mumbai
Appeal Number ITA 888/MUM/2009
Duration Of Justice 1 year(s) 10 month(s) 10 day(s)
Appellant REKHI LAMBA REALTORS, NAVI MUMBAI
Respondent ITO 15(2)(4), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 20-12-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted D
Tribunal Order Date 20-12-2010
Date Of Final Hearing 12-07-2010
Next Hearing Date 12-07-2010
Assessment Year 2005-2006
Appeal Filed On 10-02-2009
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D MUMBAI BEFORE SHRI R.S.SYAL ACCOUNTANT MEMBER AND SHRI VIJAY PAL RAO JUDICIAL MEMBER ITA NO. 888/MUM/2009 (ASSESSMENT YEARS: 2005-06) REKHI LAMBA REALTORS 404 J K CHAMBERS SECTOR-17 VASHI NAVI MUMBAI-400705 PAN: AAIFR5092H . APPELLANT VS INCOME TAX OFFICER WARD 15(2)(4) TARDEO MUMBAI-400007 RESPONDENT APPELLANT BY : SHRI PRAKASH PANDIT RESPONDENT BY : SHRI JITENDRA YA DAV. O R D E R PER VIJAY PAL RAO JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER DATED 11.12.2008 OF CIT(A)-XV MUMBAI FOR TH E ASSESSMENT YEAR 2005-06. 2. THE ASSESSEE HAS RAISED VARIOUS GROUNDS IN THIS APPEAL HOWEVER THE ONLY ISSUE ARISES FOR OUR CONSIDERATIO N AND ADJUDICATION IS WHETHER IN THE FACTS AND CIRCUMSTAN CES OF THE CASE THE CIT(A) IS JUSTIFIED IN CONFIRMING THE DIS ALLOWANCE CLAIMED BY THE ASSESSEE OF RS.7 92 000/- ON ACCOU NT OF ITA NO. 888/MUM/2009 (ASSESSMENT YEARS: 2005-06) 2 FORFEITURE OF EARNEST MONEY DEPOSIT (EMD) HOLDING THAT IT IS A CAPITAL EXPENDITURE. 3. DURING THE YEAR THE ASSESSEE HAS APPLIED FOR T WO PLOTS BEARING NO.12 AND 13 IN SECTOR 19 OF KHARGHAR NAVI MUMBAI AND PAID THE EARNEST MONEY O F RS.11 00 000 AND 7 9 2 000/- RESPECTIVELY TO THE CIDCO. THE ASSESSEE WAS ALLOT TED TWO PLOTS BEARING NO.12 AND 13 IN SECTOR 19 OF KHARGH AR NAVI MUMBAI VIDE ALLOTMENT LETTER DATED 19.05.2004. THE COST OF PLOTS NO.12 AND 13 WAS RS.2.17 CRORES AND 1.57 CR ORES RESPECTIVELY. THE ASSESSEE DID NOT ACCEPT THE A LLOTMENT OF PLOT NO.13 AND CONSEQUENTLY THE CIDCO FORFEITED T HE EARNEST MONEY AMOUNTING TO RS.7 92 000/- DEPOSITED WITH T HE CIDCO IN RESPECT OF THE PLOT NO. 13. THE ASSESSEE DEBITED THE SAID AMOUNT OF RS.7 92 000/- TO THE PROFIT AND LOSS ACCOUNT AND BUSINESS LOSS AND CLAIMED THE EXPENDITU RE AS BUSINESS EXPENSES. THE AO DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE FORFEITURE OF EARNE ST MONEY OF RS.7 92 000/- IS IN THE NATURE OF PENALTY /FINE FOR BREACH OF CONTRACT WHICH CANNOT BE ALLOWED AS BUSINESS EXPEN DITURE IN VIEW OF THE EXPLANATION TO SECTION 37(1) OF THE A CT . 4. ON APPEAL THE CIT(A) HAS CONFIRMED THE DISALLO WANCE BUT ON THE GROUND THAT EARNEST MONEY TAKEN BY THE CIDCO IS A CAPITAL LOSS. ITA NO. 888/MUM/2009 (ASSESSMENT YEARS: 2005-06) 3 5. WE HAVE HEARD THE LEARNED AR AS WELL AS THE LEAR NED DR AND CONSIDERED THE RELEVANT RECORD. THE LEARNED AR OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE IS IN THE BUSINESS OF REAL ESTATE AND EARNEST MONEY WAS DEPOSITED BY THE ASSESSEE DURING THE NORMAL COURSE OF BUSINESS. WHEN THE ASSESSEE FINDS THAT THE PURCHASE OF THE SAID PLOT I S NOT VIABLE AND WAS NOT IN A POSITION TO RAISE THE SUFFICIENT FUNDS TO PURCHASE IT THEREFORE HE DECIDED NOT TO ACCEPT THE ALLOTMENT OF THE PLOT NO.13. ACCORDINGLY THE EARNEST MONEY DEPOSITED BY THE ASSESSEE WITH THE CIDCO WAS FORFEITED BY TH E CIDCO IN TERMS OF THE AGREEMENT ENTERED WITH THE ASSESSEE . THEREFORE THE SAID FORFEITURE IS NOT A PENALTY OR FINE FALLS UNDER THE EXPLANATION TO SECTION 37(1) OF THE ACT . HE HAS FURTHER POINTED OUT THAT SINCE THE LOSS OF THE EARN EST MONEY IS IN THE NORMAL COURSE OF BUSINESS OF THE ASSESSEE AN D THEREFORE THE SAME IS ALLOWABLE AS BUSINESS LOSS AN D DIRECTLY RELATED TO THE INCOME AS WELL AS BUSINESS TRANSACTI ONS OF THE ASSESSEE 6. ON THE OTHER HAND THE LEARNED DR HAS RELIED UPO N THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT WHY THE ASSESSEE HAS NOT ACCEPTED THE ALLOTMENT IS NOT CLEA R FROM THE RECORD. HE HAS FURTHER SUBMITTED THAT THE ASSESSE E HAS TAKEN ONE STAND BEFORE THE AO BY SAYING THAT PURCHASE O F PLOT ITA NO. 888/MUM/2009 (ASSESSMENT YEARS: 2005-06) 4 NO.13 IS NOT VIABLE AND PROFITABLE TO THE BUSINESS OF THE ASSESSEE WHEREAS BEFORE THE CIT(A) THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE WAS NOT ABLE TO REALIZE THE SUFFICIENT FUNDS FOR PAYMENT OF THE PURCHASE CONSID ERATION. 7. AFTER CONSIDERING THE RIVAL CONTENTIONS AND RELE VANT RECORD. WE FIND THAT THE CIT(A) HAS NOT SUBSCRIB ED THE VIEW TAKEN BY THE AO ON THE DISALLOWANCE OF THE CLAIM O F THE ASSESSEE BUT REJECTED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT FORFEITURE EARNEST MONEY IS A CAPITAL LOSS TO THE ASSESSEE. IT IS UNDISPUTED FACT THAT THE FORFEITURE MONEY DEP OSITED WAS AS PER THE TERMS AND CONDITIONS OF THE AGREEMENT EX ECUTED BETWEEN THE CIDCO AND THE ASSESSEE AND NOT BECAUSE OF IN VIOLATION OF ANY LAW WHICH WOULD AMOUNTS TO ANY OFF ENCE AND AN ACT WHICH PROHIBITED BY LAW. THEREFORE THE FORFEITURE OF THE EARNEST MONEY BY THE CIT(A) AS PER THE TERMS OF THE AGREEMENT DOES NOT FALL UNDER THE EXPLANATION TO SECTION 37(1). AS FAR AS THE NATURE OF LOSS IS CONCERNED S INCE THE ASSESSEE IN THE BUSINESS OF SALE- PURCHASE OF THE P ROPERTY/ LAND THEREFORE THE EARNEST MONEY PAID BY THE ASS ESSEE WAS FOR PURCHASE OF PLOT OF LAND WHICH SHOULD HAVE BEEN STOCK IN-TRADE OF THE ASSESSEE AND NOT FOR ACQUISITION OF CAPITAL ASSET. ACCORDINGLY LOSS DUE TO THE FORFEITURE OF THE EARNEST MONEY DEPOSITED CANNOT BE A CAPITAL LOSS. THE EARN EST MONEY DEPOSIT WAS MADE BY THE ASSESSEE WAS NOT FOR ACQUI RING OF ITA NO. 888/MUM/2009 (ASSESSMENT YEARS: 2005-06) 5 ANY CAPITAL ASSET FOR INVESTMENT OR BUSINESS ASSE TS BUT IT WAS DEPOSIT FOR THE BUSINESS OF THE ASSESSEE I.E THE SA LE AND PURCHASE OF LAND. ACCORDINGLY THE FORFEITURE OF E ARNEST MONEY IN THE CASE IN HAND IS A BUSINESS EXPENDITURE. THE REFORE WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND T HE CLAIM OF THE ASSESSEE IS ALLOWED. 8. IN THE RESULT THE APPEAL OF THE ASSESSEE IS ALL OWED. PRONOUNCED IN THE OPEN COURT ON 20.12.2010 SD SD (R.S.SYAL) (VIJ AY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMB ER MUMBAI ON THIS 20 TH DAY OF DEC 2010 SRL:131210 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT CONCERNED 4. CIT(A) CONCERNED 5. DR CONCERNED BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR ITAT MUMBAI