Business losses from joint venture write-offs allowed as normal deductions under sections 28 and 37

ITAT Delhi allowed the appeal regarding write-off of loans and advances to joint venture company. The court held that business losses are allowable under section 28(i) read with section 36(1)(vii) or section 37(1) as normal business losses, following Supreme Court precedent in Madnani Development Corporation. The matter was remanded to AO for fresh consideration. Additionally, ITAT directed deletion of disallowances for bad debts written off, including supplier debit balances and employee loans, noting that genuineness was undisputed and amounts were given during normal business operations, making them allowable deductions.

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Issues Involved:

1. Disallowance of business loss claimed on account of advance written off to a joint venture company.
2. Disallowance of loans to employees and debit balance of suppliers written off.

Summary:

Issue 1: Disallowance of Business Loss Claimed on Account of Advance Written Off to a Joint Venture Company

The assessee challenged the disallowance of Rs. 57,19,947/- claimed as business loss for AY 2014-15 and 2015-16, arguing that the advances written off were allowable as business losses under section 28 or 37 of the Income Tax Act, 1961, as they were incurred during the normal course of business. The CIT(A) sustained the disallowance, relying on a previous ITAT decision for AY 2012-13, which held that the loss did not arise during the course of business and was not allowable under section 36(2) of the Act. The Tribunal noted that the issue was subjudice before the Hon'ble Delhi High Court and remanded the matter back to the AO to reconsider the submissions and contentions of the assessee and to decide the issue afresh in accordance with law.

Issue 2: Disallowance of Loans to Employees and Debit Balance of Suppliers Written Off

For AY 2014-15, the assessee contested the disallowance of Rs. 5,61,999/- on account of loans to employees and debit balance of suppliers written off. For AY 2015-16, the disallowance was Rs. 1,57,255/- for advances to suppliers written off. The AO disallowed these amounts on the grounds that the conditions under section 36(2) were not met, and the CIT(A) upheld the disallowances. The Tribunal observed that the loans/advances were given in the course of business and became irrecoverable, thus written off in the books of account. As the genuineness of the amounts written off was not doubted, the Tribunal directed the AO to delete the disallowances for both assessment years.

Conclusion:

The Tribunal allowed the appeals of the assessee for statistical purposes, directing the AO to reconsider the issue of business loss claimed on account of advance written off and to delete the disallowances of loans to employees and debit balance of suppliers written off, as per the directions provided.

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