TaxTMI 
TaxTMI 
2018 (1) TMI 1239
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....,276/-. The case was selected for scrutiny under CASS and accordingly, notices u/s 143(2) were issued. AO completed the assessment u/s 143(3) of the Act by making the following disallowances as under: 1. Disallowance of provision/write off of advances Rs. 4,49,45,842/-: 2. Disallowance of bad debts of Rs. 66,84,484/- 3. Disallowance of claim of Rs. 5,48,659/- u/s 80IB. 3. Aggrieved by the order of AO, the assessee preferred an Appeal before the CIT(A). 4. As regards the disallowance of provision/write off of advances of Rs. 4,49,45,842/-, the CIT(A) sustained the disallowance of Rs. 2,26,16,000/- and Rs. 1,64,00,000 on account of textile division (impairment loss) and deleted the disallowance of Rs. 19,46,573/-, Rs. 23,19,006/- and Rs. 16,64,262/-, which were paid to APGENCO for fly ash supply. 5. As regards the disallowance of bad debts of Rs. 66,84,484/-, since the assessee was not pressed this ground, the CIT(A) dismissed the same as not pressed. 6. As regards disallowance of claim of Rs. 5,48,659/- u/s 80IB, the CIT(A) allowed the claim of the assesse. 7. Aggrieved by the order of CIT(A), the assessee is in appeal before us against the ....
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....of land at SEZ, Chennai to M/s. Mahindra Industrial Park Limited for the purpose of starting apparel business. Similarly, the amount of Rs. 1,64,00,000/- paid to M/s. Lakshmi Machine Works was also in connection with purchase of textile machinery for expansion of its textile segment. As per the submissions of the assessee, the project could not take off and it had to drop its idea of expansion in the textile segment owing to sluggish market conditions and that it could not recover the monies paid to M/s.Mahindra Industrial Park Limited and M/s. Lakshmi Machine Works. The assessee submitted that it had to forfeit the amounts on the ground of breach of contract on its part and the expenditure incurred being incidental to business of assessee, the same can be regarded as a trading loss and shall be allowed as deduction u/s.37(1) of the 1. T. Act. 9.2 The AO observed that in order to claim a deduction u/s.37(1), the assessee should have incurred the expenditure during the year or relating to the year. If no expenditure is incurred, deduction cannot be allowed. Further, he observed that as per the assessee's own submissions, the expenditure incurred is in connection with acquisit....
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....textile machinery work for expansion of its textile business and that the assessee could not eventually go for expansion due to sluggish market and had to forfeit the deposit amount. The AR submitted that as the loss was incurred for the purpose of and during the course of business, it should be allowed as a trading loss u/s. 37(1) of the Income tax Act. 11. The CIT(A) after considering the submissions of the assessee as well as analysing the issue with various case law, held that in assessee's case both the assets land and the machinery were assets of enduring benefit to the assessee and the expenditure incurred for the purpose of acquiring these assets necessarily needs to be characterised as capital and their loss as capital loss. He, therefore, confirmed the action of the AO. 12. Ld. AR reiterated the submissions as made before the CIT(A). 13. Ld. DR relied on the orders of lower authorities and relied on the following case laws: 1. DCIT Vs. Tata Honeywell Ltd., [2005] 93 ITD 507 (Pune) 2. Swadeshi Cotton Mills Co. Ltd. Vs. CIT, [1967] 63 ITR 65 3. Kanoria Chemicals & Industries Ltd. Vs. CIT, [1995] 78 Taxman 455 (Cal.) 4. Enterprisi....
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....chinery, therefore, it is treated as capital asset and the expenditure as capital expenditure. In the case before us, there is no renewal clause and it is for fixed period of 99 years. Since the assessee failed to perform its part of duty, it has last the advance payment. The assessee has not enjoyed the benefit. Therefore, it cannot be treated as any asset. 3. R.G. Scientific Enterprises (P) Ltd. (supra): In this case, assessee paid advance for purchase of premises. Due to some reasons, purchase could not be completed and seller refused to return the money. Assessee claimed this as revenue expenditure. It was held that it was advanced for purchase of a capital asset therefore it is capital loss. This transaction is not the regular business transaction of the assessee, it is independent transaction for purchase of capital asset unconnected to the business carried on by the assessee. Therefore, this issue cannot be considered in the present case on hand as the assesse wanted to expand the existing business in the textile. 4. EID Parry (India) Ltd. (supra): In this case also, assessee incurred expenditure for the purpose of setting up a new project. This project was....
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....e of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee can claim deduction under s. 10(2)(xv) of the Act even though there was no compelling necessity to incur such expenditure. It is relevant to refer at this stage to the legislative history of s. 37 of the IT Act, 1961, which corresponds to s. 10(2)(xv) of the Act. An attempt was made in the IT Bill of 1961 to lay down the "necessity" of the expenditure as a condition for claiming deduction under s. 37. Sec. 37(1) in the Bill read "any expenditure.....laid out or expended wholly, necessarily and exclusively for the purposes of the business or profession shall be allowed...." The introduction of the word "necessarily" in the above section resulted in public protest. Consequently, when s. 37 was finally enacted into law, the word "necessarily" came to be dropped. The fact that somebody other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under s. 10(2)(xv) of the Act if it satisfies otherwise the tests laid down by law. Thi....
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....have sustained the disallowance made towards amount paid to APGENCO for upgradation, operation and maintenance of fly ash extraction. (iii) Any other ground(s) that may be urged at the time of hearing." 16. The AO observed that the assessee claimed to have been incurred an amount of Rs. 59.25 lakhs towards payment made to APGENCO for upgradation, operation and maintenance of fly ash extraction system at Vijayawada Thermal power Station Unit - 3, the expenditure, by no stretch of imagination partakes the character of 'revenue' in nature for allowance u/s. 37(1) of the Act. Further, the impugned expenditure has also not been incurred during the previous year relevant to the assessment year under consideration. The assessee also furnished no evidence to substantiate its claim of arrangement between the assessee company and M/s. APGENCO to make home its point that it had to incur the expenditure for drawing fly ash at concessional price. In the absence of any evidence substantiating such an arrangement between the assessee company and M/s. APGENCO, the claim of expenditure was disallowed and added to the total income by the AO. 17. Before the CIT(A), the AR submi....