Loss on Abandoned Real Estate Project Allowable as Revenue Deduction: ITAT Overturns ₹64.72 Cr Disallowance [Read Order]

Sourya Towers Pvt. Ltd. (assessee), a company engaged in real estate development, claimed a loss of Rs. 64,72,52,645/- in its profit and loss account for the Assessment Year 2012-13, arising from the abandonment of its Amritsar project.

The project was abandoned due to disputes between the company’s directors which led to arbitration proceedings and a compromise deed dated 20-07-2012. The AO disallowed the loss as it pertained to the Assessment Year 2010-11, constituting prior period expenses, and was capital in nature.

The CIT(A) upheld the AO’s decision. Aggrieved, the assessee appealed to the ITAT, which initially upheld the disallowance on 29-08-2017. Subsequently, the assessee filed miscellaneous applications, which were dismissed by the ITAT.

The assessee then approached the Hon’ble Delhi High Court which remitted the matter back to the ITAT for fresh consideration, noting that the Tribunal had not examined the Supplementary Paper Book filed by the assessee during the original proceedings.

In the present proceedings the tribunal examined whether the CIT(A) was justified in confirming the disallowance of the Amritsar project loss. The assessee argued that the loss arose in the ordinary course of its real estate business, was revenue in nature as the project was classified under current assets.

The assessee supported the claim with evidence from the Supplementary Paper Book, demonstrating that disputes persisted until the compromise deed resolved them.

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The two-member bench, comprising M. Balaganesh (Accountant Member) and Yogesh Kumar U.S. (Judicial Member) observed that the loss was genuine, as undisputed by the lower authorities, and arose from the abandonment of the Amritsar project, a current asset in the assessee’s real estate business.

The Tribunal rejected the Revenue’s contention that the loss crystallized in 2010-11, finding that documentary evidence in the Supplementary Paper Book confirmed the disputes continued until the compromise deed of 20-07-2012.

The Tribunal further held that the loss was revenue in nature, as it was incurred in the ordinary course of business and allowed its recognition in the Assessment Year 2012-13 due to events after the balance sheet date.

The bench held that the loss of Rs. 64,72,52,645/- was an allowable deduction for the Assessment Year 2012-13. The appeal of the assessee was partly allowed

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