Company's advance to commission agent for land purchase allowed as bad debt deduction under business loss provisions

The ITAT Raipur allowed the assessee's claim for deduction of advance written off as bad debt. The assessee company had advanced money to a commission agent for purchasing agricultural land as stock-in-trade in its real estate business. When the advance became irrecoverable, the company claimed it as business loss. The ITAT held that following the Mysore Sugar Co. Ltd. SC precedent, the written-off advance qualified as deductible business loss since it was incurred in the normal course of business for acquiring stock-in-trade. The lower authorities' disallowance was set aside.

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Issues Involved:
1. Disallowance of Rs. 27,67,124/- on account of advance/balance written off claimed by the appellant as a deduction.
2. Determination of whether the irrecoverable advance qualifies as a business loss deductible under the Income-tax Act, 1961.

Summary:

Disallowance of Rs. 27,67,124/-:
The assessee, a real estate developer, advanced Rs. 39 lacs to a commission agent for the purchase of land. Following the agent's sudden demise, the legal heir refused to refund the remaining Rs. 27.67 lacs, prompting the assessee to write off the amount as irrecoverable and claim it as a deduction. The Assessing Officer (A.O.) disallowed the claim, stating that the amount was not previously offered as income, thus failing the pre-condition for a bad debt deduction.

Determination of Business Loss:
The CIT(Appeals) upheld the A.O.'s disallowance, emphasizing that the amount was not offered as income and lacked sufficient evidence of recovery efforts. The CIT(A) referenced several judicial decisions to support the disallowance. The assessee argued that the amount should be considered a business loss, citing the Supreme Court judgment in CIT Vs. Mysore Sugar Co. Ltd., which allowed similar deductions for irrecoverable advances in the normal course of business.

Tribunal's Decision:
The Tribunal examined the facts and judicial precedents, concluding that the irrecoverable advance was indeed a business loss. The Tribunal noted that the amount was advanced in the normal course of business and, following its irrecoverability, was rightly claimed as a deduction. The Tribunal set aside the CIT(A)'s order, allowing the appeal and vacating the disallowance of Rs. 27.67 lacs.

Conclusion:
The appeal was allowed, and the disallowance of Rs. 27.67 lacs was vacated, recognizing the amount as a deductible business loss.

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