TaxTMI 
TaxTMI 
2010 (9) TMI 26
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....me unrealizable. 2. The AO disallowed these two amounts. The nature of these deposit/advances under which these were disallowed by the AO are as under: The assessee company was amalgamated with Gangeshwar Ltd. By virtue of this amalgamation, all the assets and liabilities of the amalgamating company became the assets and liabilities of the amalgamated company (i.e. the assessee company). Thus, the assets of the amalgamated company included certain security deposits, which were given to landlords for obtaining lease of premises for purposes of business as well as certain advances, which were given to the employees. Such security deposits as well as advances given to the employees were not recoverable. It was accordingly provided in Para 3.3 in the Scheme of Amalgamation, which was submitted to the High Court of Allahabad under Section 391-394 of the Companies Act, 1956, as under: "3.3 Treatment of Reserves: Upon this Scheme coming into effect, the reserves of the Transferor Company in the same form as those appeared in the financial statements of the Transferor Company as on the Appointed Date. Subject to any other treatment as deemed appropriate by the Board of the Tran....
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....ecovery of employee's advance was directly linked with the business of the assessee and therefore, it was in the nature of business loss allowance under Section 28 of the Act." 6. The Income Tax Appellate Tribunal (hereinafter referred to as „the Tribunal‟) vide its impugned order dated 08.08.2008 has accorded its approval to the order of the CIT (A), which order is under challenge in this appeal. 7. The present appeal was admitted on the following substantial question of law: "Whether the amount of Rs.5,34,951 and Rs.5,18,380 were a Revenue loss to the assessee so as to allow the same under Section 28 of the Act?" 8. The plea of Ms. P.L. Bansal, learned counsel appearing for the Revenue, is that the assessee had claimed deduction of the aforesaid amount as bad debts under Section 37 (1) (vii) of the Act. She submitted that the AO rejected the same holding that: (i) The same had not been written off by debiting the Profit and Loss Accounts but had been written off by debiting amalgamation reserve account; (ii) Section 37(1)(vii) is not applicable as the said amount had not been taken into consideration as income in the previous year or the earlie....
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....o employees are in the nature of loan, which was repayable. Loan cannot be the expenditure by any stretch of imagination. Further, in the case of Commissioner of Income Tax Vs. Abdullahbhai Abdulkadar [41 ITR 545], the Supreme Court has held that a debt was allowable only when it was a debt and arose out of and as an incident to the trade. Except in money lending trade, debts could only be so described if they were due from customers for goods supplied or loans to constituents or transactions of a similar kind. In every case, the test is: Is the debt due as an incident to the business? If it was not of that character, it would be a capital loss. She also referred to the judgment of Jurisdictional High Court in the case of Iron Traders P. Ltd. Vs. Commissioner of Income-tax 97 ITR 606 wherein it is held that unless the sum represented the price of stock-in-trade of the assessee or it represented expenditure incurred for preserving the assessee's business, it could not be said that the amount was in the nature of revenue expenditure. 10. Mr. Ajay Vohra, learned counsel appeared on behalf of the respondent-assessee and supported the decision rendered by the CIT (A) as affirmed by t....
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....he benefit of the business, or was it an outgoing in the doing of the business ? If money be lost in the first circumstances, it is a loss of capital, but if lost in the second circumstances, it is a revenue loss. In the first, it bears the character of an investment, but in the second, to use a commonly understood phrase, it bears the character of current expenses." 12. Mr. Vohra's plea was that the security deposits written off were given by the amalgamating company in the course of carrying on business in order to secure use of premises for purposes of business. Similarly, advances were given to employees employed with the amalgamating company, in the course of carrying on of the business. The same were written off due to non-recoverability thereof on account of disputes with the landlords/vacation of premises, termination of employees, etc. The security deposit/advances given to the employees were not for securing any capital assets or obtaining any enduring advantage in the capital field. The payment of security deposit to landlords was for obtaining use of premises for purposes of business against payment of rent, which payment is clearly in the revenue field, for facilita....