TaxTMI 
TaxTMI 
2017 (11) TMI 382
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....wards advances written off in the sum of Rs. 82,34,907/- in the facts and circumstances of the case. 3. The brief facts of this issue is that the assessee is a company engaged in the business of tea/coffee auctioneering, financing and rubber handling. The Ld. AO observed in the course of assessment proceedings that the assessee had claimed deduction of Rs. 82,34,907/- as a trading loss. The Ld. AO further observed that the assessee had not filed any document regarding the 'Settlement' or 'Court Order'. He further observed that the minutes of the Board of Directors filed by the assessee did not make any mention about the settlement or court case or any other reason for writing off the debts. Accordingly, he concluded that the assessee had not established that the claim has become irrecoverable during the year under consideration and accordingly, disallowed the same. 4. The Ld. CIT(A) deleted the disallowance by observing as under: "6.2. I have carefully perused the contention of the AO and the submissions made by the appellant. It is brought to may notice that in the normal course of its business the appellant has made the advances to various tea companies. It is furt....
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....im, I find that the appellant has filed detailed documentary evidences to prove that the advances have been validly written off during the relevant Assessment Year. However, the AO has not considered the said submission containing the evidence while finalizing the Assessment Order. Accordingly, the disallowance made by the AO to the tune of Rs. 82,34,907/- in this regard is deleted." 5. We have heard the rival submissions. We find that the assessee had debited a sum of Rs. 1,35,32,503/- in its profit and loss account towards bad debts and advances written off under the head 'other expenses' in Schedule 12 of the Audited Accounts. Out of above, bad debts written off was amounting to Rs. 32,01,096/- and Rs. 1,03,31,407/- was for advances written off. The details of advance written off are as under: Name of Partner Amount Daloo Tea Company Pvt. Ltd. 71,27,069/- Navneed Tea Industries 11,96,236/- Manjamalai Tea Factory 20,08,102/- Total 1,03,31,407/- The above write off had been made in the books of accounts based on approval of the Board of Directors in the Board meeting held on 29.09.2010. We find that the assessee had during the course of assessme....
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....essee company, as a part of normal course of its business, made a refundable advance with interest to Navaneeth Tea Industries on a condition that the entire crop of the aforesaid company would be exclusively sold through the assessee. Thus, your kindself may kindly note that in order to secure the business of the assessee company, the advance was made to Navneeth Tea Industries. Due to dishonour of the cheque given by Navneeth Tea Industries, a criminal proceeding was started against the above firm and its partners under the provisions of section 138 of the Negotiable Instrument Act. A copy of the notice and a copy of the petition filed before the Hon'ble Judicial Magistrate of Coonoor are enclosed and collectively marked as Annexure 'H'. Subsequently, a settlement was entered into between the assessee and Navneeth Tea Industries to withdraw the case filed before the Hon'ble Judicial Magistrate of Coonoor by paying INR 5,00,0001- upfront. As the settlement was entered into by the assessee the balance outstanding was written off by the assessee in the books of accounts for the previous year relevant to the assessment year under consideration passing the Board Resolu....
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....round that the assessee could not establish as to the legal efforts taken to recover the debts and also on the ground that the assessee could not demonstrate that these amounts were taken as the income of the assessee in the earlier year. Before the Ld. CIT(Appeals), the Ld. Counsel for the assessee submitted that these were trade advances made to various tea companies, which were written off in the year under consideration It was submitted that the advances were made to M/s. All India Tea & Trading Co., Tonganagaon tea Co. Limited, Amritapur Tea Co. Limited during the normal course of business of the assessee at the interest rate of 21% per annum. On the condition mentioned in section 36(1)(vii) read with section 36(2) of the Act, he submitted that, when a loss arises out of non-recovery of such advances, the same should be allowed as a business loss while computing the profit and gains of business and as the monies were advanced for the purpose of its business. These three companies had financial and certain other difficulties and consequently the agreements could not be executed. Thereafter settlements were arrived between the assessee and these companies, wherein, certain dues ....
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..... Now let us come to Assessee's Appeal in I.T.A. No. 2071/Kol/2014 for Assessment Year 2010-11 7. The only issue to be decided in the appeal of the assessee is as to whether the Ld. CIT(A) was justified in upholding the disallowance of foreign travel expenditure incurred by the assessee to the tune of Rs. 27,73,244/-, the facts and circumstances of the case. 8. The brief facts of this issue is that during the previous year relevant to assessment year under consideration, the Chairman, Vice Chairman, Managing Director, Deputy Managing Director and Directors of the assessee had visited Australlia, New York, UK, Dubai and Bangkok for the purpose of the business of the assessee and had incurred a total expenses of Rs. 27,73,244/-. The assessee had claimed the said expenses as allowable business expenses in the return of income for the relevant year. In the assessment proceeding under section 143(3) of the Income Tax Act, 1961 had asked the assessee to provide the details of travelling expenses. It was further asked to provide the details of foreign travel expenses showing the names of visiting persons and the purpose of their visit abroad. The assessee vide its reply dated 04.....
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....nd/or amend, alter, modify or rescind the grounds hereinabove before or at the time of hearing of the appeal. 10. We have heard the rival submissions. We find that the Ld. AR argued that the Senior Officials of the assessee viz. Chairman, Vice Chairman, Managing Director and Directors had visited foreign countries during the relevant year for the purpose of collecting information regarding exact requirement of imports of tea by foreign parties. The said information is subsequently passed on to the clients of the assessee who have export license. The clients of the assessee are gainfully utilizing the said information. Based on the said information and on the basis of overseas requirement of tea, they are purchasing tea through tea auctions conducted by the assessee. On such sale of tea through auction, revenue is generated to the assessee in the form of brokerage and it is a major source of revenue of the assessee. 10.1. The Ld. AR argued that the assessee earns brokerage income when various parties purchase/sell tea through tea auctions , the said brokerage is computed on the basis of value of tea auctioned by the assessee. The parties who participate in auction are mainly t....
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....see and accordingly the same is allowable u/s 37(1) of the Act. It was also pleaded by the Ld. AR that the Vice Chairman, Managing Director, Deputy Managing Director and Directors of the assessee have specialized knowledge and experience in the area of tea manufacturing and export, and so they can convince the potential importer of various countries to import good quality tea in substantial quantity from India. After coming back from the foreign countries, they pass on the information regarding requirements of importers to the clients of the assessee who have the license for exports. Thus, functions performed by the Chairman, Vice Chairman, Managing Director, Deputy Managing Director and Director of the assessee are summarized as under: * To explore import potentiality; * To get acquainted with the buyers (importers); * To study gradation (quality) demand for improvement in quality produce; * To show cause Indian produce to other countries; and * To explore new markets for Indian tea. Thus, it is submitted that with the knowledge and experience of the above senior employee of the assessee in the areas of tea manufacturing and marketin....
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....ment has not directed us to undertake this enquiry. There are no words in sec. 10(2) to that effect. On the other hand, indications are to the contrary in section 10(2)(xv) of the Income Tax Act, 1961, what Parliament requires to be ascertained is whether the expenditure has been laid out or expended wholly and exclusively for the purpose of the business. The legislature stops short at directing that it be ascertained what was the purpose of the expenditure. If the answer is that it is for the purpose or will produce taxable income. Secondly, the reason may well be that Parliament assumes that most types of expenditure which are laid out wholly and exclusively for the purpose of business would directly or indirectly produce taxable income, and it is not worth the administrative effort involved to go further and trace the expenditure to some taxable income." 10.4. In response to all these arguments, the Ld. DR vehemently relied on the orders of the lower authorities. We find that the Hon'ble Gauhati High Court in the case of CIT vs. Williamson Tea Assam Ltd. reported in 38 Taxmann.com 154(Gau) in the context of foreign travel expenses vis-à-vis Section 37 of the Act had he....
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..... It is already well settled that it is irrelevant if a third party is benefitted by incurrence of a particular expenditure by an assessee. What is to be seen is only whether the expenditure was incurred out of commercial expediency and once the same is proved, then it would be allowed as deduction. It is also well settled that the businessman knows his interest best. The conditions for allowability of an expenditure u/s 37(1) of the Act is : (i) It should not be capital in nature. (ii) It should not be personal in nature. (iii) It should be incurred wholly and exclusively for the purpose of business of the assessee. Admittedly, the foreign travel expenditure is neither capital nor personal in nature. So the only point is to be decided is whether the same is incurred wholly and exclusively for the purpose of business of the assessee. In this regard, we would like to place reliance on the decision of the Hon'ble Supreme Court in the case of Sassoon J. David & Co. Pvt. Ltd vs CIT reported in 118 ITR 261 (SC) wherein it was held : "It has to be observed here that the expression 'wholly' and 'exclusively' used in section 10(2)(xv) of the Act does not mean 'necessarily'. Ordina....
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....om the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits." We also find that the Hon'ble Apex Court in the case of Eastern Investment Ltd. vs. CIT reported in 20 ITR 1 (SC) had laid down the following principles for allowing business expenses: "(a) though the question must be decided on the facts of each case, the final conclusion is one of law. (b) it is not necessary to show that the expenditure was a profitable one or that in fact any profit was earned. (c) It is enough to show that the money was expended 'not a necessity and with a view to a direct and immediate benefit to the trade, but voluntarily and on the ground of commercial expediency, and in order indirectly to facilitate the carrying on of the business'; (d) beyond that, no hard and fast rule can be laid down to explain what is meant by the word 'solely'. Further, in the case of Williamson Tea (Assam) Ltd. (2013) 38 Taxmann.com 154 (Gau), the Hon'ble High Court allowed foreign travel expense relying on the decision of the Apex Court in the case of Shri Venkata Satyanarayana Rice Mill Contractors Co. Vs. CIT....