The case of Amarnath Aggarwal Builders (P) Ltd. v. DCIT deals with the issue of whether a business loss claimed by the assessee, a real estate developer, could be treated as a bad and doubtful debt by the tax authorities. The assessee had invested Rs. 1,10,00,000/- in the purchase of land and payment of fees to the Haryana government, but the project was not approved. The amount was recorded in the account books as a business loss and the assessee claimed a deduction for the same.
However, in the income tax return, the declaration area was specific, which forced the assessee to mention the loss under the bad and doubtful debts section. The Assessing Officer and the Commissioner (Appeals) treated the loss as a bad and doubtful debt under section 36(2) of the Income Tax Act and disallowed the deduction, adding the amount to the assessee’s income.
On appeal, the ITAT ruled in favor of the assessee, stating that the nature of the loss cannot be changed as it is supported by evidence and account books and is a genuine business loss. The ITAT emphasized that the investment was made for stock-in-trade related to the assessee’s business and the loss was incurred due to the non-utilization of the property. The ITAT also noted that there was no question about the genuineness of the transaction and that, as per accounting policy and general business practice, any nature of loss is recorded in the account books under a specific head.
The ITAT further noted that, in the income tax return, the area of declaration was specific, which compelled the assessee to mention the business loss in the bad and doubtful column. However, the nature of the loss could not be changed by the lower authorities, as it was supported by basic evidence and the account books. The ITAT concluded that the loss was a business loss and the assessee was eligible to claim the loss in the profit and loss account.
In conclusion, the ITAT deleted the impugned addition of Rs. 1.10 crores and ruled in favor of the assessee, stating that the loss claimed by the assessee was a genuine business loss and could not be treated as a bad and doubtful debt by the tax authorities. The ITAT emphasized the importance of considering the nature of the loss as recorded in the account books and supported by evidence, rather than changing it based on specific declaration areas in the Income tax return.
In this case, the ITAT highlighted the significance of considering the nature of the loss as recorded in the account books and supported by evidence, rather than changing it based on specific declaration areas in the return of income. It is essential for taxpayers to ensure that their investments and losses are recorded in their account books accurately and in accordance with accounting policies and general business practices. This case serves as a reminder to taxpayers and tax authorities alike of the importance of considering the evidence and the nature of the transactions in determining the eligibility of a deduction or loss.
In addition, this case also highlights the importance of proper documentation and record-keeping. It is crucial for taxpayers to maintain accurate records of their investments and losses, including the reasons for such investments and losses, in order to support their claims in the event of a tax dispute. Proper documentation and record-keeping can also assist taxpayers in presenting their case effectively and supporting their claims with evidence.
In conclusion, the case of Amarnath Aggarwal Builders (P) Ltd. v. DCIT serves as a significant reminder to taxpayers and tax authorities of the importance of considering the nature of the loss as recorded in the account books and supported by evidence, rather than changing it based on specific
