2017 (3) TMI 1517 - HC - Income Tax

High Court affirms Tribunal's decision on bad debt deduction & site expenses provision under Income Tax Act

The High Court upheld the Tribunal's decision regarding the deduction of bad debt write-off of advances made to another concern, allowing a deduction of ... Deduction of write-off of advances made to another concern whose business was inextricably connected with the assessee's business disallowed - Held that:- We find that the impugned order of the Tribunal on the basis of the record before it has rendered a finding of fact that the bank guarantee of only ₹ 41.75 lakhs was given at the instance of appellant-assessee by its bankers to the customers of M/s. MPFSL and the same alone could be allowed as business losses. There is nothing in the impugned order of the Tribunal to indicate that bank guarantee was given at the instance of the appellant-assessee exceeding ₹ 41.75 lakhs to the customers of M/s. MPFSL. No fault can be found with the impugned order of the Tribunal. Deduction in respect of site expenses disallowed - Held that:- Tribunal renders a finding of fact that although the provision of ₹ 12.22 lakhs was made in respect of purchases for the Assessment year 2005-06 the purchase orders were placed in the next Assessment year i.e. 8th April, 2005 and 12th May, 2005. Thus this expenditure related to a subsequent year and could not be booked in the subject Assessment Year as “provision for site expenses”. Therefore the impugned order of the Tribunal has upheld the order of the CIT(A) and disallowed the claim of the appellant-assessee. We find that the finding of the fact arrived at by the Tribunal, that purchase orders for items in respect of which provision is made were in fact placed in the subsequent year. This finding of fact is not shown to be incorrect and/or perverse. Issues:1. Deduction of write-off of advances made to another concern2. Deduction in respect of site expensesAnalysis:Issue 1: Deduction of write-off of advances made to another concernThe appellant claimed a deduction of Rs. 2.45 crores as a bad debt write-off of advances given to a concern. The Assessing Officer disallowed the claim stating it did not meet the criteria under Section 36(1)(vii) of the Income Tax Act. The Commissioner of Income Tax (Appeal) also dismissed the appeal. The Tribunal allowed a deduction of Rs. 41.75 lakhs as a business loss under Section 28 of the Act, as it was related to a bank guarantee given by the appellant to customers of a sister concern. The remaining amount was considered a gratuitous payment and not connected to the appellant's business. The appellant contended that the bank guarantee amount was higher, but the Tribunal's finding was based on the record. The High Court upheld the Tribunal's decision, stating that no substantial question of law arose.Issue 2: Deduction in respect of site expensesThe appellant claimed Rs. 84.32 lakhs as expenditure for water supply contracts, including a provision of Rs. 12.22 lakhs. The Assessing Officer disallowed this claim for lack of details. The CIT(A) also dismissed the appeal on the same grounds. The Tribunal found that the provision made for site expenses related to purchases in a subsequent year, not the subject Assessment Year, and upheld the CIT(A)'s decision. The High Court agreed with the Tribunal's factual finding, stating that the question raised did not give rise to any substantial question of law. Therefore, the appeal was dismissed without costs.