TaxTMI 
TaxTMI 
2016 (5) TMI 341
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.....T. (Appeals) erred in upholding the disallowance of trading loss of Rs. 27,55,547/- consisting of advance of Rs. 23,61,396/- to Rayees Readymade and Rs. 3,94,151/- to Dengus Apparels lost by the assessee. 3. The brief facts of the case, as emerging from the case records, are that during the year under consideration the assessee-company has claimed bad debt of Rs. 27,55,557/- for advances given in earlier years to Rayees Readymades for Rs. 23,61,396 and Denguz Apparels for Rs. 3,94,151/-. The Assessing Officer asked the assessee as to why such amount should not be disallowed as there was no business connection of such waiver. The assessee vide its letter dated 08.11.2010 made written submission and after considering the same, the Assessi....
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....support of its claim and pleaded that the addition in question may be deleted. On the other hand, ld. Departmental Representative submitted that the assessee was not able to prove that the debt has become bad and therefore cannot be allowed as deduction. He further submitted that the assessee has never offered any income from the said transactions and the debt written off was not towards any sale transactions, hence provision of Section 36(1)(iii) cannot be applied in the case of assessee. Thus, he supported the order of the lower authorities and pleaded that the order of the Revenue Authorities may be upheld. 4. After going through the rival contentions and material available on record, we find that the only issue before us is regarding....
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....ither under section 37(1) or Section 28 on account of debts becoming irrecoverable, which is clear from the accounts of the assessee, the computation of total income filed with the return of income and the written reply filed before the Assessing Officer dated 10.09.2010. To be precise, the assessee-company, during the year under consideration, has written off certain advances irrecoverable from the vendors and claimed deduction thereof on the ground that the vendors neither supplied the material for which the advances were made nor returned the money back to the assessee-company. The details of advances made by the assessee-company for purchase of material are as under:- Sr. No. Name Amount (Rs.) 1. Rayees Readymades 23,6....
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.... the said section. The condition prescribed under Section 37(1) is as under: (a) the expenditure should be covered under specific section i.e. 30 to 36; (b) the expenditure should not be of a capital nature; (c) the expenditure should have been during the previous year; (d) the expenditure should not be of a personal nature; . (e) the expenditure should have been incurred wholly and exclusively for its business or profession; 4.2 Without prejudice to the above, the said loss is a trading loss incurred by the assessee and is allowable under Section 37 of the Act, since the advances written off in the books of account had a direct nexus with the business activity carried out by the assessee and ....
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....duction from the business income of the assessee. 4.3 Similar question arose before the Hon'ble Gujarat High Court in the case of CIT vs. Abdul Razak & Co, reported in (1982) 136 ITR 825. The relevant portion of the said judgement is reproduced as under:- "The assessee firm carried on business as commission agents. The I.T.O. found that in the course of its business as commission agents, the assessee advanced money to the constituents who were required to pay interest on such advances. The assessee was engaged by M/s. M.P. as commission agents for purchase of goods. One set of books in the trading books of the assessee comprised of this commission agency business for purchase of goods on behalf of M/s. M. P. The second was a sar....