TaxTMI 
TaxTMI 
2011 (5) TMI 243
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....use. Regarding small amounts, it is seen that they represented mostly advances given to various parties and the assessee tried to recover but could not do so. The Assessing Officer allowed deductions of those small amounts, but declined that of Rs.4,22,114/- in respect of M/s.Kanpur Boot House of Shri Bhagwan Dass. He was not satisfied with the explanation given by the assessee with regard to the reasons for being unable to recover the said amount. He disallowed the deduction observing that the assessee had failed to produce any evidence regarding efforts made for the recovery of the said amount and thus had not established that it became bad during this year. 2. In appeal, the CIT(A) reversed the order of the Assessing Officer and allowed the said deductions holding the debt having become bad and thus irrecoverable against deceased Bhagwan Dass or his legal heirs. The Tribunal reversed the order of the CIT(A) and maintained that of the Assessing Officer vide its impugned order dated 3rd January, 2005. It is against this order that the assessee is in appeal before us. The following substantial question of law arises for consideration: Whether the ITAT erred in d....
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....n off in consultation with and after approval of the Reserve Bank of India. 4. As noted above, the Assessing Officer was not satisfied with the explanation of the assessee and proceeded to disallow on the ground that the assessee had not been able to produce any evidence regarding efforts made for recovery of the said amount and was also not able to establish that this debt became bad during this year. 5. Learned counsel for the assessee initially submitted that the Tribunal erred in disallowing deduction of bad debt under Section 36(1)(vii) inasmuch as the same has been given during the course of its trade and had been written off as irrecoverable in the accounts. However, during the course of further arguments, learned counsel conceded that the requirement of Section 36(2), a pre-requisite for the application of Section 36(1)(vii), was not fulfilled in the case of the assessee for the relevant assessment year, in respect of the debt in question. However, learned counsel submitted that the deduction was allowable as business loss under Section 28 read with Section 37 of the Act. To bolster his submissions that the non-recovery of trade advances amounted to busi....
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....n whether it was a bad debt or not as contemplated by Section 36 of the Act. It was then submitted by the learned counsel that the assessee was entitled to deduction under Section 28 read with Section 37 of the Act since the nature of the business was such that the assessee had to keep his business going on, had to advance money to the sub-contractors because without doing so it would not have been able to get the labour in time and carry on the supplies. 7. The Division Bench of J&K High Court has held as under:- "In my opinion if section 28 is read along with section 29 then it would be clear that the computation of the income as contemplated by section 28 has to be in accordance with the provisions contained in sections 30 to 43 which means that it should be also in accordance with section 37 if the case falls under section 37. In the present case out of sections 30 to 43 the only sections which can be made applicable are either section 36 or 37. I have already stated above that the assessee-company‟s learned counsel is not relying on section 36 but is relying on section 37 and to me it appears that sections 28 and 29 read together do not show that if a....
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....K High Court. 9. The case of CIT v. Mysore Sugar Co. Ltd. (supra) related to claim of bad debts under the Act of 1922. In that case also, case of the assessee company was changed from one section (S.10(2)(xi) corresponding to S.36(1)(vii) & S.36(2) of 1961 Act) to another (S.10(1) & S.10(2)(xv) corresponding to section 28(1) and Section 37 of 1961 Act) from time to time. In that context, the Hon‟ble Supreme Court observed that they did not wish to emphasise the nature of the question posed, because the central point to decide is whether the money which was given up represented a loss of capital, or must be treated as revenue expenditure. The supreme Court held as under: "The tax under the head "Business" is payable under section 10 of the Income-tax Act. That section provides by sub-section (1) that the tax shall be payable by an assessee under the head "profits and gains of business, etc." in respect of the profits or gains of any business, etc., carried on by him. Under sub-section (2), these profits or gains are computed after making certain allowances. Clause (xi) allows deduction of bad and doubtful business debts. It provides that when the assessee's....
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....retation of Sections 28, 29, 36(1)(vii), 36(2) and Section 37 of the Act as enunciated by the Division Bench of J&K High Court and the Apex Court in the afore-cited cases, we are of the considered view that it was in the totality of overall situation of the matter that the assessee decided to write off the advances made to M/s.Kanpur Boot House as bad debt. The reason as given by the assessee was apparently well-founded and was abruptly rejected by the Assessing Officer and the Tribunal. They did not appreciate the fact that the continuity of supply was essential to honour the agreement with the Corporation and that it was to continue the business without any break that the advances were made to the manufacturer, M/s.Kanpur Boot House. It was only on account of non recovery of the huge amount from the Corporation that the work had to be cancelled and the supplies had to be abruptly stopped by the Assessee and consequently production was necessarily required to be stopped. It is known practice that usually manufacturer gives advances to the workers which are adjusted or carried forward in the coming times against the works done by them. This was not an unusual practice which was lia....