there is a situation in which mr. x and Y entered in contract for purchase and sale of a building.

X is buyer and Y is seller. sale price is Rs.50 lacs and at the time of contract X paid advance of Rs.10 lacs .

later X could not pay the amount and breached the contract .

y then forfeited the amount . Now  y shall deduct this 10 lac from the cost of acquisition at the time of sale later.

now my question is what will be the treatment of Rs.10 lac in the hands of X .?

whether he can debit this amount in P&L or what?

is there applicability of Travancore co. case?

No.... it is a capital loss for the buyer x. he cannot claim this in P & L A/c.

 is there any specific section for denial or any case law plz tell

being a PCC student.... i havent read much case laws on income tax. but i have given u answer as i have also raised this question to my tuter and my CA, who answered the same as above.

ITS A CAPITAL loss. will not be allowed as deduction. travancore case applies to the the transferor, where the amt forfieted exceeds the amt of cost of quisition.

 travancore case does not apply to the party whose money is forfeited

 but that contract was in the course of biz ..

why should it not be considered as capital gain loss ?

is`nt  hardship for X

as the great people of India has said, "there is no space for "why" in Indian income tax act. :)

 capital expenditure for specified tangible assets and intangible assets are allowed under sec 32.

other capital expenditur like r/d , family promotion etc. is allowed u/s 35 36. these are all specific provisions which provide for allowance for capital expenditure.

no other capital expenditure is allowed as deduction.

also the amt forfieted cant be treated as bad debts....because no income was booked while creation of debt.

clearly even its hardship for x, such amt cant be allowable because its of capital nature

ok thanks both of u