2003 (7) TMI 266 - AT - Income Tax

Tribunal allows Rs. 98,61,884 business loss claim, dismisses appeal partially for Rs. 7,18,512 foreign travel expenses.

The Tribunal allowed the claim of Rs. 98,61,884 as a business loss and confirmed the deletion of Rs. 7,18,512 as foreign travel expenses. The Department's ... Business Loss, Business Deduction Issues Involved:1. Deletion of Rs. 98,61,884 as a business loss.2. Deletion of Rs. 7,18,512 as foreign travel expenses.Issue 1: Deletion of Rs. 98,61,884 as a Business LossFacts and Background:The assessee, a company engaged in manufacturing and sale of alcohol and Indian made foreign liquor, filed its original return for the assessment year 1996-97 on 29th November 1996, subsequently revised twice. The second revised return claimed a deduction of Rs. 98,61,884, which was credited in earlier years due to price escalation claims from the Madhya Pradesh Government for the supply of country liquor during the financial years 1985-86 to 1990-91. This claim was not accepted by the Madhya Pradesh Government, leading to a writ petition filed by the assessee. The High Court directed the Government to fix the price, resulting in the Government acknowledging only Rs. 16,43,436.94 and rejecting the balance Rs. 98,61,884.Assessment Officer's Decision:The Assessing Officer did not allow the claim as a deduction, stating that the loss was an irrecoverable debt, which should be allowed under section 36(1)(vii) provided the conditions under section 36(2) were satisfied. Since the amount was not written off in the accounts for the relevant year, the claim was disallowed.First Appellate Authority's Decision:The CIT(A) accepted the assessee's submission that the sum of Rs. 98,61,884 was never acknowledged as debt by the State Government and thus, could not be classified as a bad debt. The CIT(A) held that the loss arose out of carrying on the business and was incidental to it, allowing the claim as a business loss under section 28 read with section 29.Tribunal's Decision:- Judicial Member's View: The claim should be treated as a bad debt under section 36(1)(vii) and disallowed since it was not written off in the relevant year.- Accountant Member's View: The loss should be allowed as a business loss under section 28 since it was not a debt but a contingent liability not acknowledged by the State Government.- Third Member's Decision: Concurred with the Accountant Member, stating that the claim was a contingent liability and not a debt, thus allowable as a business loss in the assessment year under appeal.Issue 2: Deletion of Rs. 7,18,512 as Foreign Travel ExpensesFacts and Background:The assessee debited Rs. 7,18,512 on account of foreign travel expenses. The Assessing Officer disallowed the claim due to lack of evidence proving the purpose of the foreign tour.First Appellate Authority's Decision:The CIT(A) allowed the claim, noting that the assessee was engaged in export business and that the foreign trips were for promoting the assessee's products in the overseas market. The CIT(A) observed a significant increase in exports in the following financial year, indicating the business purpose of the trips.Tribunal's Decision:- Department's Argument: Justified the Assessing Officer's disallowance due to lack of evidence.- Assessee's Argument: Provided details of the foreign trips and subsequent export orders, justifying the expenses as business-related.- Tribunal's Conclusion: Confirmed the CIT(A)'s decision, allowing the foreign travel expenses as they were incurred exclusively for business purposes and resulted in increased exports.Conclusion:The Tribunal, by majority opinion, allowed the claim of Rs. 98,61,884 as a business loss and confirmed the deletion of Rs. 7,18,512 as foreign travel expenses. The appeal filed by the Department was dismissed in part.