Land is stock-in-trade for builders; money forfeited on cancellation of agreement to purchase land is revenue loss

Facts

a)  The assessee-company was engaged in the business of construction of residential complexes. It paid advance money to purchase a plot of land. It, however, cancelled the transaction and, consequently, advance money was forfeited by the vendor. The amount so forfeited was treated as revenue loss by assessee.

b)  The Assessing Officer (AO) treated the same as capital loss on the ground that the land in question was treated as capital transaction by the vendor of the land. The CIT(A) confirmed the order of the AO.

c)  Aggrieved by the order of the CIT(A), the assessee filed the instant appeal before the tribunal.

The tribunal held in favour of assessee as under-

1)  It was not disputed that assessee was engaged in the construction business. The advance money was paid to acquire land which was to be used for regular business of assessee, i.e., construction of residential complexes. Hence, loss suffered by the assessee on cancellation of agreement to purchase land was a regular business loss for it.

2)  The AO treated the loss as capital loss on ground that the land in question was treated as capital transaction by the vendor of the land. It was noted that, though the land was treated as capital asset by the vendor, yet when the land came to the possession of the assessee, it became a stock-in-trade since the assessee was, admittedly, engaged in the business of construction of flats.

3)  An asset may be a capital asset in the hands of the seller and it may be a stock-in-trade in the hands of the purchaser. It all depends upon the transaction. Therefore, the treatment in the hands of the vendor of the land could not be a determining factor to allow the claim of the assessee either as revenue loss or as capital loss.

4)  In the instant case, the assessee had, admittedly, acquired a stock-in-trade for construction of residential flats. Therefore, the loss suffered in the course of the acquisition of the stock-in-trade had to be necessarily allowed as a revenue loss- [2016] 69 taxmann.com 31 (Chennai - Trib.)