Law:

Section:

Section 37(1) of the Income-tax Act, 1961 - Business expenditure - Allowability of - Assessment year 1979-80 - Though assessee-company paid advance for acquiring agricultural land to set up a factory, it could not acquire land - Further, on its failure to get a refund of said advance in spite of a civil suit, assessee wrote off that amount and claimed deduction as revenue loss - Whether since land was not acquired and no benefit of enduring nature resulted to assessee, expenditure in question could not be treated to be of capital nature and, therefore, assessee was entitled to deduction - Held, yes FACTS The assessee-company paid a sum as advance to the agriculturist for acquiring the agricultural land to set up a boiler factory. But, ultimately that was not materialised. The agriculturist refused to refund the amount. The assessee filed a civil suit in the court, where the assessee lost its claim. The assessee wrote off that amount in books of account and claimed deduction on the incurred amount as revenue loss. The Assessing Officer rejected the assessee's claim. In appeal, the Commissioner (Appeals) confirmed the disallowance. However, on further appeal, the Tribunal allowed the assessee's claim. On reference : HELD The advance was paid for acquiring the agricultural land to set up a factory, but when the agricultural land was not required, no capital asset came into existence; therefore, there was no question of allowing depreciation on such asset. If any asset is acquired and if it is a benefit of enduring nature, then the assessee cannot get the deduction of amount for acquisition of land as revenue expenditure. When land was not acquired, no capital asset had been acquired, and, therefore, the payment of advance was to be allowed as business loss. Anuroop Singhi for the Applicant. ORDER 1. On an application filed under section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question for our opinion : "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in allowing the assessee's claim for writing-off of the sum of Rs. 52,489 and litigation expenses at Rs. 12,000?" 2. During the…

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