AKIL KURESHI, J.

1. This Appeal is filed by the assessee to challenge the judgment of Income Tax Appellate Tribunal. Following questions are presented for our consideration;

“1. Whether on the facts and circumstances of the case and in law, the Hon’ble ITAT erred by confirming the action of the Ld. CTD(A) that the amount got forfeited during the course of carrying on of the business was capital expenditure and not allowable as Revenue Expenditure in the absence of any concrete asset acquired by the appellant ?

2. Whether on the facts and circumstances of the case and in law, the Hon’ble Tribunal erred in holding that it was capital expenditure without appreciating the legal position that when assessee incurs a liability under a contract (Abandoned project) or in pursuance of contract, no amount is receivable the assessee is entitled to claim said amount incurred as expeditious in implementing contract S. 37(1) r.w.s 28(1)?”

2. Brief facts are as under;

The Appellant is an individual. The Appellant had filed the return of income for the year 2009-2010, in which the assessee had claimed deduction of a sum of Rs.90,00,000/-. This claim arises in following background;

3. The assessee had entered into an agreement titled as Memorandum Of Understanding dated 27/08/2008 with one Sunshine Enterprises for purchase of Suzlon-made Windmill along with land on which the same was situated. This entire asset i.e. the land along with installed windmill thereon, was referred in the said MOU as the ‘project’. We shall take note on various terms of this MOU at a later stage. For the time being sufficient to record that the total sale consideration agreed between the parties was Rs.5.71 Crores which comprised of Rs.50,000/- towards the land and rest towards the cost of windmill and its accessories and parts. The assessee had to make payment in the installments. In the meantime, the assessee was to be put in possession of the asset and would be able to generate the electricity from the same. No separate rental charges for this purpose were envisaged. This MOU contained clause (10) providing for cancellation of the contract and forfeiture for a sum of Rs.90,00,000/-, if the assessee did not make full payment towards purchase price as per the schedule.

4. After making initial payment of a sum of Rs.1 Crore, the assessee defaulted in making further payments, upon which the said MOU dated 27/08/2008 was cancelled. The parties executed a further deed of cancellation of MOU on 28/02/2009. The seller forfeited the sum of Rs.90,00,000/- and returned the rest to the assessee. The assessee contended that the sum of Rs.90,00,000/- was his revenue loss. The Assessing Officer held that the loss was a capital loss. The Tribunal in the impugned judgment observed that the payment was made pursuant to the said MOU, which was by way of advance for acquisition of Windmill. The assessee entered into new business of generation of power. The advance was therefore in the nature of capital advance or capital investment. The loss in the present case did not arise during the course of business but from the investment in capital asset.

5. In background of such facts, Mr. V. Sridharan, the Counsel appearing for the Appellant raised following contentions;

(i) The MOU in question was in nature of agreement to sale;

(ii) The assessee was put in possession of the asset pursuant to such MOU. No separate rent was charged from the assessee.

(iii) The assessee had already commenced operation of generating power. In fact receipt from such activity was offered to tax. In such circumstances if as per the agreement, the title can be seen to have been vested in the assessee. The depreciation on such capital asset ought to have been granted, whether the assessee claimed it or not. The cancellation of MOU, can be seen as sale of capital asset, at which time by virtue of the provision for balancing allowance, adjustment towards written down value and the sale price would be adjusted. On the