2024 (1) TMI 54 - AT - Income Tax

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 ... Bad debts - Disallowance of advance/balance written off claimed as deduction - amount as advanced by the assessee company towards the purchase of property, i.e., stock-in- trade but was written off on becoming irrecoverable - HELD THAT:- As in the present case before us, it is an admitted fact that the amount advanced by the assessee company to commission agent, for the purchase of certain agricultural land as stock-in-trade of its business in its normal course of business as a real estate developer, i.e., for purchase of stock-in-trade, i.e., agricultural lands at had thereafter become irrecoverable; therefore, the same, in our considered view, as per the principle laid down in the aforesaid judgment of Mysore Sugar Co. Ltd.[1962 (5) TMI 3 - SUPREME COURT] was rightly claimed by the assessee company as a business loss that was deductible while computing its income for the year under consideration. We, thus, not being able to persuade ourselves to subscribe to the view taken by the lower authorities who had declined the assessee’s claim for the deduction, set aside the order of the CIT(Appeals) and vacate the disallowance - Decided in favour of assessee. 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.