ITAT Allows 64.72 Cr Project Loss as Business Deduction

In AY 2012–13, the assessee reported a loss of Rs. 64.72 crores as a result of the cancellation of its Amritsar project due to disagreements among its directors. The CIT(A) upheld the Assessing Officer‘s decision to deny the loss, which was deemed to be capital in nature and prior period. After the Tribunal rejected the assessee’s appeal and other applications, the High Court issued a writ ordering the filing of a substantive appeal.

The High Court remanded the case as the Supplementary Paper Book was not considered. The Tribunal held the loss was revenue in nature and crystallized on July 20, 2012, per the compromise deed. The assessee filed the current appeal with the Income Tax Appellate Tribunal after being displeased with the previously upheld disallowance.

Issue Raised: Should the Rs. 64.72 crore project loss be recognised as a revenue loss in AY 2012-13 when the dispute was ultimately settled, or was it properly disallowed by being classified as either capital or prior-period?

ITAT Held: The ITAT ruled in favour of the assessee, holding that the business loss genuinely crystallised only on 20.07.2012, when a compromise deed conclusively ended the long-running dispute. Though an arbitration award was passed in 2007, the Tribunal noted that the legal battle continued until 2012, when rights and obligations were finally settled.

Rejecting the tax authorities’ view that the loss belonged to AY 2010–11, the Tribunal held that AY 2012–13 was the correct year based on evidence. It also clarified that the loss was revenue in nature since the project was part of regular business and shown as a current asset. Since the revenue had accepted the related income in the same year, the Tribunal observed that with uniform tax rates, the timing of the deduction should not be contested.

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