ACIT Vs K.B. Developers (ITAT Kolkata)
Sole ground on which the disallowance is made is that the assessee had entered into these agreements, without making solid provisions to raise funds by due dates and hence it does not make any sense for a firm engaged in commercial venture to enter into these agreements. He drew attention to the Bench to the order of the ld. CIT(Appeals) and supported the same. He vehemently contended that the Assessing Officer has not doubted the genuineness of the agreement of sales nor he has been made any enquiry or investigation with the sellers of the land or with the arbitrators who had given the arbitration award, and only based on the Assessing Officer’s perception, that the loss was disallowed. He vehemently contended that the Assessing Officer does not have any iota of evidence to controvert the documentary evidences filed by the assessee in support of its claim. He submitted that the fact of payment of earnest money to the parties, who are nowhere connected with the assessee-firm and the fact that the amount is forfeited by such parties, is not disputed by the ld. Assessing Officer. He prayed that the order of the ld. CIT (Appeals) be upheld.
The AO has disallowed the claim of the forfeiture of the amount of Rs.9,92,00,000/- only on the ground that the assessee should not have entered into the agreement of purchase of land without making arrangement for the balance amount payable by 18.2.2013. Since according to him it does not make any sense for a firm to be engaged in commercial venture. It may be submitted that the assessee had in its balance sheet assets over 81 crores and there was every chance to realize the same and pay for the balance. But the same could not be collected. However, the factum of tile forfeiture and the award is not disputed. The AO has also verified the said agreement by making necessary enquiries and there is no dispute about the same
We find that the Assessing Officer in this case has not made any enquiry or investigation, based on which he has come to the abovestated conclusions-
Nobody was examined. No questions were asked to third parties. No information was called for from third parties. There is no evidence collected against the claim of the assessee.
In our view, there is no contradiction between the versions of agreements for sale and the submissions made by the assessee-firm to the arbitrator that the assessee-firm was desirous to develop the plots of land for earning profit and that there were fall in prices of properties. No adverse inference can be drawn.
This observation cannot lead into a conclusion that the agreements are bogus. The fact that agreements were entered into, amounts were paid and the facdt that these advances or earnest money was forfeited by the seller is not controverted with evidence by the Assessing Officer.
The ld. CIT(Appeals) at para 5.3.7 of his order narrated the facts and thereafter at para 5.3.10 referred to the judgment of the Hon’ble Supreme Court in the case of Satish Batra –vs.- Sudhir Rawal dated 18.10.2012 in Civil Appeal No. 7588 of 2012. The Hon’ble Supreme Court in the case of Satish Batra came to the conclusion that the seller in this case was justified in forfeiting the amount of Rs.7,00,000/- as per the relevant clause, since the earnest money was primarily a security for the due performance of the agreement and the seller is entitled for forfeit the entire deposit. The undisputed fact is that the assessee is engaged in the business of real estate and that these payments were made in the course of business and that the earnest money was forfeited resulting into business loss of the assessee.
Such loss is allowable as a deduction as held in the following cases:-
