TaxTMI 
TaxTMI 
2006 (3) TMI 213
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....,176 under the head "Provision for doubtful debts/advances" in the P&L A/c. during the year. On enquiry it was found that out of the above amount a sum of Rs. 10,18,131 was written off as irrecoverable debts which were credited on account of sale of finished goods made to the various customers. The Assessing Officer was satisfied about this claim. However, the remaining amount of Rs. 6,07,045 was found as written off, as advance irrecoverable from the vendors. On examining the details filed by the assessee, it was noticed by the Assessing Officer that these advances were credited on account of "payment to vendors" against the purchase orders issued for supply of raw-material. It was also found that they were written off under section 36(1)(vii) on the ground that the vendors neither supplied the material nor returned the money. The Assessing Officer rejected the version of the assessee on the ground that this amount was never considered as income of the assessee in any of the assessment year. According to him, the conditions under section 36(2)(i) were, therefore, not satisfied. 4.1 The Assessing Officer also rejected the claim of the assessee under section 37 by observing that th....
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....on 31-3-1997; and P&L A/c. for the year ending on 31-3-1998. According to the learned counsel, the amounts were pending since 1993-94 and had been written off in assessment year 1997-98 because in some cases the parties were not traceable and in other cases the amounts were irrecoverable. According to learned counsel all the advances were made in the course of business and to the parties which were not related to the assessee. He also pointed out that debit notes were raised against parties. In this regard our attention was invited by him to page 2 of the paper book which is a debit note. 6. The learned DR, on the other hand, supported the order of the learned CIT (Appeals). He pointed out that assessee had made only a provision for doubtful debts and advances in its accounts. He also pointed out that the Assessing Officer had allowed deduction in relation to the bad debts relating to finished goods. According to the learned DR, since condition laid down under section 36(2)(i) was not satisfied, the learned CIT (Appeals) was justified in sustaining the disallowance. 7. We have carefully considered the entire material on record and the rival submissions. From the details furnished....
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....at the assessee therein was also a distributor even as the assessee here is a distributor, does not imply that decision, without anything more, will be applicable to this case as well. A decision is to be regarded as a precedent for its ratio decidendi and not for the facts in relation to which such ratio was laid down. The ratio of that case as we read it is that before a deduction can be claimed on the ground of business loss should have been incurred in the course of business, and it should be in the nature of revenue loss. We are in entire agreement with that proposition. On the facia of this case, the loss to the assessee being a revenue loss which had been incurred in the course of business, the assessee was entitled to deduct the same under section 37 of the said Act." 7.2 In the case of Jhalani & Co. also, the assessee made certain advances to his employee, which could not be recovered even after his retirement. The assessee claimed this amount as deduction on account of bad debts. In the alternative, deduction was also claimed on account of business loss. The ITAT, Delhi, after placing reliance on the decision in the case of CIT v. Abdul Razak & Co. [1982] 136 ITR 825 (Gu....
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....handar Shivnarayan and it was held that the loss was directly connected with the business operation and was incidental to the carrying out of the business of purchase of Government securities to earn profit and hence it was part of drawing allowance and deductible as such in arriving at the true profits of the assessee. 7.5 In the case of Commonwealth Trust (India) Ltd. v. CIT [2000] 242 ITR 593; the Hon'ble Kerala High Court held that if there is a direct and proximate, nexus between the business operation and the loss or it is incidental to it, then the loss is deductible as without the business operation and doing all that is incidental to it, no profit can be earned. 7.6 In that case the assessee claimed deduction of a sum of Rs. 68,434 from its total income, as trading loss on account of the defalcation made by the employee. According to the assessee, the employee was entrusted with the cash for payment of wages and, therefore, the defalcation was a trading loss and allowable. Up to the stage of ITAT the disallowance made by the Assessing Officer was upheld on the ground that the employee of the assessee who defalcated the amount was not authorized to disburse the amount....