Canara Housing Development Company Vs DCIT (ITAT Bangalore)
ITAT held that advances given for purchase of land in the normal course of business of carrying on real estate development, if not recoverable could be allowed as either trading loss u/s 28 of the Act or as expenditure u/s 37 of the Act. In fact, the AO has accepted the loss to the extent of Rs.1.94 crores specifically observing that these kinds of payments/write off are incidental to the business, meaning thereby, the AO has actually applied the provisions of sec.28/37 of the Act. Before us, the Ld. A.R. has furnished a written submission explaining the reasons, which compelled the assessee to write off these amounts. We noticed that the Ld CIT(A) has proceeded to examine the claim as bad debts u/s 36(1)(vii) of the Act and the AO has disallowed the claim only for the reason that the amount written off are larger advances. In our view, the criteria applied by the AO for allowing the claim to the extent of Rs.1.94 crores should be applied to other advances also.
11. In view of the foregoing discussions, we are of the view that the claim of the assessee is required to be examined either u/s 28 or u/s 37 of the Act. Accordingly, we are of the view that this issue requires fresh examination at the end of the A.O. Accordingly, we set aside the order passed by the Ld. CIT(A) on this issue and restore the same to the file of the A.O. with the direction to examine the claim of the assessee u/s 28 / 37 of the Act. The assessee should be given adequate opportunity of being heard.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
The assessee has filed this appeal challenging the order dated 22.3.2019 passed by Ld. CIT(A)-11, Bengaluru and it relates to the assessment year 2013-14. The assessee is aggrieved by the decision of Ld. CIT(A) in confirming the disallowance of write off of property advances amounting to Rs.7.86 crores.
2. The facts relating to the issue are stated in brief. The assessee is engaged in the business of real estate development. The A.O. noticed that the assessee has written off Rs.9,81,13,042/- as bad debts. The assessee submitted that the amount so written off represents ‘property advances’ made to various parties during the normal course of business, which became irrecoverable. The A.O. noticed that the assessee has not entered into any MOU/Agreement with the parties to whom advances have been paid. In the absence of the same, the A.O. held that the assessee could not establish beyond doubt that the advances made are indeed land advances and not any other payment. Accordingly, the AO took the view that the claim of write off of large advances exceeding Rs.50.00 lakhs should be disallowed. Accordingly the AO disallowed large advances aggregating to Rs.7,86,78,212/-, the details of which are given below:-
