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The assessing officer, therefore, issued a show cause notice requiring the appellant to explain as to why the sale of inventory of Rs. 29,62,901,000/- through e-auction should not be considered income of the assesses company. The assessing officer considered the submissions of the assessee and analysed the facts of thecaseand stated that the assessee acquired in pieces and parcels of land at Kanchipuram for a consideration of Rs. 20.38 lakhs in the year 2006. The assessee-company along with the assessee's holding company HPGPL were to have developed the said property under a facilitation agreement. In the year 2008, the assessee's holding company HPGPL availed Rs. 550 crores as construction loan from HDFC for which the assessee-company had mortgaged its land property. Thus, the assessee's property (inventors) of book value Rs. 8,89,47,109/- was mortgaged against the loan of Rs. 550 crores. The holding company HPGPL defaulted in the payment of the loan taken and consequently the lender -HDFC invoked the SAFAESI Act and appropriated the mortgaged property sold (E auction) the same to Evita Constructions Pvt. Ltd. for a consideration of Rs. 2,96,29,01,000/-. As a result the assessee company made the following adjustments - Inventories in the form of land was shown at Rs. 8,89,47,109/- as on 31/3/2013 was shown as Nil as on 31/3/2014, the profit and loss account for the year showed revenue from sale of undivided sale of flat at Rs. 3,53,60,899/- and the corresponding cost of land was shown at Rs. 3,47,45,141/-. The Annexures/notes in this regard showed the cost of land at Rs. 3,47,45,141/-. Details of 'comparative format balance sheet' filed by the assessee showed an amount of Rs. 2,53,61,691/- as advance holding company as on 31/3/2014. Further an amount of Rs. 5,02,54,749/- was shown as advance received from customers as on 31/3/2013 had become Nil for the year ending 31/3/2014. The Assessing Officer opined that in view of the facts, the contention of the assessee, that the receipts arising from option of the mortgaged property is against the development (construction of building and infrastructure), receivable from customers upon sale of land of the assessee company, appeared to be incorrect as the description of the rights encumbered as enlisted in the sale certificate issued by HDFC speaks of only the immovable property as piece and parcel of the land. Therefore, with regard to the description of the property, the assessee was asked to clarify and explain with all the supporting evidences the breakup of the value shown under 'inventory'. Referring to the terms of agreement of sanction of loan learned counsel submitted that the loans were linked to stage of construction of the said land and they were disbursed to them after the due diligence of the project development by the bank. He submitted that by no stretch of imagination it can be said that Rs. 550 crores loan was given on mortgage of land of Rs. 8 crores. He submitted that all the cost of construction was incurred by HPGPL and not by the assessee. Hence, learned counsel submitted that the Assessing Officer was totally wrong in taking adverse inference that cost of construction is not appearing in assessee’s book. Further learned counsel claimed that the project was being constructed by HPGPL. The project was e-auctioned by HDFC and sum was received amounting to Rs. 296 crores by HDFC against loan sanctioned to HPGPL on the basis of their project developed till that date. s per the said agreement the assessee was entitled to 5% of the sale proceeds of the constructed property. Since in the presentcaseholding company’s loss was adjusted upon by e-auctioned of the property for an amount of Rs. 296 crores, the assessee-company’s share out of the same as per the facilitation agreement clearly accrued to the assessee-company. If the assessee-company did not press for or forwent its claim it cannot be diversion of income by overriding title. But it will be treated as application of income. Hence, firstly assessee’s share has to be considered as income of the assessee for which necessary consequences of taxation has to follow. In this view of the matter in our considered opinion assessee’s contention that it had lost everything. That its land which was its stock-in-trade has been lost and hence assessee should be allowed loss to that extent is not acceptable as assessee’s share will be deemed to have been applied by the assessee after accrual and hence, contention of the assessee is not accepted. We further note that sale of land by e-auction and consequent realisation of moneys are income of the assessee, as the land was a trading asset. Hence the income, which accrues to the assessee upon sale of trading asset is to be considered debt. Even Assessing Officer has recognised that the sale proceeds of land are sale receivable in the land of the assessee. The non-realisation of debt can result in bad debt written off if the same is written off in the books. Since it is not thecasethat any bad debt has been written in the books the assessee’s plea fails. As per section 36(1)(vii) the allowance of bad debt is depending upon its being written off as irrecoverable in the accounts of the assessee in the previous year. Hence, in absence of this prerequisite the assessee’s claim of bad debt fails. 25. Accordingly, in the background of the aforesaid discussion and precedent in our considered opinion there is no infirmity in the order of learned CIT(A). Accordingly, we uphold the same

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Sec. 36(1) of Income Tax Act, 1961— Business Disallowance — The assessee was a registered company and was engaged in the business of construction and development of real estate. It had entered into facilitation agreement with its holding company HPGPL for development of project in Chennai on the land holdings belonging to the assessee as well as other group companies. In 2008, the said HPGPL was sanctioned loan of Rs. 550 crores as construction loan from HDFC to be disbursed, subsequently on the basis of development of the construction of the project. The assessee’s land was also given as mortgage . There was also an amended facilitation agreement. As per this agreement the assessee company was entitled to 5% of sale proceeds of the project developed by HPGPL. There was some development of the project and some sales were also accounted for. The assessee company got 5% as agreed.
The Assessing Officer took adverse inference as the construction was not done by the assessee and the same was not appearing in assessee’s books. The Assessing Officer proceeded to hold that the entire Rs. 296 crores belonged to the assessee. He also opined that there was no need by the assessee to mortgage the said property. Assessee appealed before CIT(A).  It was quite evident that the receipt of e-auction by the HDFC against its finance to HPGPL did not belong to the assessee in its entirety as the same was of project as it stood as on that date. It comprised of the constructions there on as well receivable by HPGPL. CIT(A) was correct in his appreciation that the assessee can be entitled to 5% which was agreed upon in the facilitation agreement between the assessee and its developer holding company i.e. HPGPL.
Accordingly, in the aforesaid discussion and precedent in considered opinion there was no infirmity in the order of CIT(A). Accordingly, tribunal upheld the same, therefore, these appeals stand dismissed. --- GREEN HABITATS PVT. LTD. vs. Deputy CIT.[2020] 23 ITCD Online 57 (MUM)