The Commissioner Of Income-Tax, Bombay City-I, Bombay v. M/S. Unistar Investments (P) Ltd

IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORIGINAL SIDE INCOME TAX APPEAL NO.539 OF 2002 The Commissioner of Income-tax,Bombay City-I, Bombay vs. M/s. Unistar Investments (P) Ltd. Appellant Respondent Mr. R. V. Desai, senior counsel with Ms.S.V.Bharucha i/b.M/s. H.D. Rathod for the appellant. CORAM: R. M. LODHA &J.P.DEVADHAR,JJ. DATED: 25th August 2004 P.C. Heard. 2. The Tribunal considered the matter thus: "Admittedly, the assessee neither earlier norlater has indulged in any business in realestate. This is the only attempt to carry onbusiness in real estate. But it failed. Ascan be seen from the profit & loss account,the assessee showed sales of Rs.23,176/- whichconsisted of the opening stock and the balanceof Rs.4,971/- was shown as closing stock.This was the only attempt to deal in the realestate. The Memorandum of Association of theassessee company permits the assessee to dealin real estate. It is in pursuance of thisclause that the assessee tried its hand in thebusiness of real estate but since it could notfind the resources, it had to forfeit thedeposit made in the auction. Even a singleventure can amount to a business if the plungeis in the water of trade. It is not the caseof the income-tax authorities that theassessee company was trying to purchase aproperty for its own use or for the use of itsdirectors. In the year 1993, the property price in Bombay were rising which is commonknowledge and the assessee might have thoughtit prudent to make a profit out of thetransaction, which failed because of itsinability to find the resources. To me, itappears to be a foray into the business ofreal estate which failed. The amount has beenwrongly described by the AO as penalty thoughsome blame has to be taken by the assesseealso for this as the amount was described aspenalty in the profit & loss account itself.The real nature of the amount is that it isnot a penalty but is a deposit towards thepurchase price of a flat. The CIT(A) has heldthat it is a capital loss as it represented apart payment for the flat. But, if theintention was to carry on business inimmovable property, the amount cannot beconsidered as capital, but has to be allowedas part of the cost of the stock in trade. Ifthe transaction had gone through, the amountwould have qualified for deduction. Butmerely because it was unsuccessful, the amountcannot be considered as capital loss. As Ihave already held, there appears to have beenan intention to do business in immovable property. Therefore, the amount must beallowed as a business loss." 3. The consideration of the matter by the Tribunal is concluded on facts. 4. No substantial question of law arises in this appeal. 5. Appeal is dismissed in limine. (R.M. LODHA, J.) (J.P. DEVADHAR,J.)