Case Law Details
PCIT Vs Khyati Realtors Pvt. Ltd. (Supreme Court)
Conclusion: Assessee was not entitled to claim deduction of bad debt as the case did not satisfy the ingredients of both Section 36(1)(vii) and Section 36(2) and also advance written off was not allowable as business expenditure u/s 37(1).
Held: Assessee carried on real estate development business, trading in transferable development rights (TDR) and finance. Assessee contended that an amount of ₹ 10 crores was deposited with one M/s C. Developers Pvt. Ltd. towards acquisition of commercial premises two years prior to the assessment year in question (i.e., in 2007). It was contended that the project did not appear to make any progress, and consequently, assessee sought return of the amounts from the builder. However, the latter did not respond. As a result, the assessee’s Board of Directors resolved to write off the amount as a bad debt in 2009. AO disallowed the sum of ₹ 10 crores claimed as a bad debt in determining its income under “Profits and Gains of Business or Profession”. In the present case, the record showed that the accounts of the assessee nowhere showed that the advance was made by it to M/s C. Developers Pvt. Ltd. in the ordinary course of business. As noted by CIT(A), there was no material to substantiate in respect of payment of the amount, the time by which the constructed unit was to be given to it, the area agreed to be purchased, etc. Assessee conceded that it had received interest income for the relevant assessment year. However, it could not establish that any interest was paid (or shown to be payable in its accounts) for the sum of ₹ 10 crores. Furthermore, there was nothing on record to suggest that the requirement of the law that the bad debt was written-off as irrecoverable in the assessee’s accounts for the previous year had been satisfied. Another reason why the amount could not have been written-off, was that the assessee’s claim was that it was given to Developers for acquiring immovable property – it therefore, was in the nature of a capital expenditure. It could not have been treated as a business expenditure. It was held that the assessee’s claim for deduction of ₹ 10 crore as a bad and doubtful debt could not have been allowed. The findings of the ITAT and the High Court, to the contrary, were therefore, insubstantial and had to be set aside as the case did not satisfy the ingredients of both Section 36(1)(vii) and Section 36(2) and also, advance written off was not allowable as business expenditure u/s 37(1).
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Special leave granted. With consent of the counsels for the parties, the appeal was heard finally. The Revenue has appealed a decision of the Bombay High Court1 which affirmed an order2 of the Income Tax Appellate Tribunal (hereinafter, “ITAT”) which had upheld a claim by the respondent (hereinafter, “assessee”) for writing off ₹ 10 crores as a bad debt.
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