TaxTMI 
TaxTMI 
2018 (4) TMI 1125
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....9,33,613/- and has claimed the same as deductible revenue expenditure :- S.No. Name of the Party Amount (Rs.) 1. M/s Salasar Corporation 4,49,33,613/- 2. M/s Sumit Trading Co. 5,00,00,000/- 3. Shree Ganpati trading Co. 5,00,00,000/- Total 14,49,33,613/- 4. On being confronted, the assessee explained that the said amounts have been written off as the same has become irrecoverable. It was further explained that the assessee company given advance amounting to Rs. 21.40 crores to the parties out of which only a sum of Rs. 6,90,66,387/- could be agreed to be recovered. The said funds were given by the assessee company to the various parties in order to buy land, being its stock-in-trade. However, the said parties failed to provide the requisite land and even denied refunding the amounts given to them by the assessee company. Despite prolonged persuasion and efforts to recover the same by the assessee company, no significant results could be achieved and out of the total amount given to said parties aggregating to Rs. 21,40,00,000/- only a sum of Rs. 6,90,66,387/- could be recovered. Copies of the correspondence exchanged by the assessee company al....
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.... that sense that from a commercial standard such a loss is considered to be a trading one and becomes deductible from the total income, although, in terms neither in the 1922 Act nor in the 1961Act .... " In the case of CIT v. Mysore Sugar Co. Ltd., (1962) 46 ITR 649 (SC), the assessee was a manufacturer of sugar and used to advance seedlings, fertilizers and money to sugarcane growers under an agreement by which the growers agreed to sell the next crop of the sugarcane grown by them exclusively to the assessee at current market rates and to have the advances adjusted towards the price of the sugarcane to be delivered to the company. In the year under consideration owing to drought, the sugarcane growers could not grow sugarcane and the advances remained unrecovered. A Government Committee recommended that the assessee should ex gratia forego some of its dues. The assessee, accordingly, waived its rights in respect of Rs. 2,87,422/- and claimed the said amount as a deduction under section 10(2)(xi) and 10(2)(xv) of the Indian I T. Act 1922. The question was whether the said amount which was given up represented a loss of capital or was revenue expenditure. The Supreme Court held ....
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....hen the financial position of the company became unsatisfactory and the cinema house was never built, the assessee wrote off the amount and claimed it as a bad debt. The sum appeared to have been paid as an advance payment of rent under the lease which was to come into existence. The amount was, therefore, held as allowable as a deduction. In case of CIT v. Anjani Kumar Co. Ltd., (2003) 259 ITR 114 (Raj) the Assessing Officer noticed that a sum of Rs. 52,489 was written off on account of advance made to the agriculturist for purchase of agricultural land. The intention of the assessee, of course, was to acquire the land to set up a boiler factory, but ultimately that did not materialize. The agriculturist refused to refund the amount. The assessee filed a civil a suit in the court, where the assessee lost its claim. Then the assessee had written off that amount in the books of account and claimed deduction on the incurred amount as revenue loss. The Assessing Officer rejected his claim. According to the Assessing Officer when the amount was advanced for acquiring the capital asset, the written off amount could not be allowed as deduction in the income of the assessee. The High Co....
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....ngs in para 6.1 to 8 of the order are reproduced as under:- 6.1. "I have considered the assessment order, the submissions made, the documents filed and also the assessment records (called from the AO). The relevant documents filed before me were also filed before the AO. Facts are that the appellant company is involved in the business of land acquisition and consolidation on behalf of, and also undertaking construction activities, mainly for its principal M/s Educomp Infrastructure and School Management Ltd. (EISM) of the Educomp group. During the year and a year earlier, the appellant company also helped M/s Edusmart Services Pvt. Ltd. (ESS), another company of the Educomp group, in recovery of debt from various trade debtors through the process of debt syndication involving 6 intermediary parties/agents. During the search and surveys conducted on the Educomp group, in which the appellant was also covered, evidence was gathered that the appellant was involved in generation of cash through over-invoicing of works /purchases, as also generation of unaccounted income from the loan syndication business conducted for and on behalf of the Educomp group. When confronted with the eviden....
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....p; M/s Shri Ganpati Trading Company, Sirsa PAYMENTS RECEIPTS Date Amount (Rs.) Date Amount (Rs.) 09.09.2010 50000000 TOTAL 50000000 TOTAL 0 Balance written off 50000000 M/s Sumit Trading, PAYMENTS RECEIPTS Date Amount (Rs.) Date Amount (Rs.) 21.09.2010 25000000 22.11.2010 25000000 TOTAL 50000000 TOTAL 0 Balance written off 50000000 6.3 The amounts were paid to the three parties from the HDFC Bank account of the appellant and amounts returned by M/s Salasar Corporation was from its Axis Bank account. I find that the appellant made these payments from an amount of Rs. 50 crore received from EISM on 06.09.2010 and also appellant's own funds and amounts realized on sale of Birla Sun Life Mutual Funds owned by the appellant. The land acquisition account of EISM has been squared up in the books of the appellant by adjustment of Rs. 42,50,00,000/- and Rs. 50,92,84,600/- (totaling Rs. 93,42,84,600/-) transferred by journal entry and debited on 30.03.2011 in the name of one 'Babu Lal', and also against payments for construction activities and servi....
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....ccordance with the law. In case it is found that this money was transferred back by these parties to the appellant or its principals in any form, the amounts so transferred shall be taxable as income of the appellant company or its principals, as the case may be. I also direct the AO to examine the matter relating to adjustment of Rs. 93,42,84,600/- by way journal entry on 30.03.2011 debited to Babu Lal during the assessment proceedings for the next A Y 20l3-14. 6.6. I also find that the initial submissions of the appellant based on the assumption that the amount written off was against monies advanced for acquiring land as stock-in-trade is incorrect to the extent that the appellant is not involved in the business of purchase and sale of land but only acquired and consolidates land on behalf of its principals in the Educomp group. 7. In view of the above, I the addition I disallowance of Rs. 14,49,33,613/- is deleted, and the AO is directed to comply with directions contained in Para-6.4 above. 8. The appeal is allowed." 9. Ld.DR relied upon the order of the AO. Ld. DR submitted that these parties are not existing and are not genuine. The identity of the parties has not bee....
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....he assessee. The remaining amount have been written off in the books of accounts as irrecoverable being business loss. The assessee produced sufficient evidences before the AO in support of the claim of business loss which have not been rebutted by the AO in any manner. Hon'ble Delhi High Court in the case of CIT vs Rose Services Apartment (India) Pvt.Ltd. (supra) held as under:- "dismissing the appeal, (i) that the assessee was carrying on the business of real estate in view of the fact that purchased land and flat had been shown as stock-in-trade since the year of purchase. Furthermore, income had been assessed as profits from business. The Tribunal noted that not only expenses but also brought forward business losses had been allowed by the Assessing Officer. (ii) That the Tribunal had correctly appreciated the issue with respect to loss incurred by the assessee on account of refund of advance by V as being in the nature of business loss. Since the entire facts, in respect of transactions were on record, the Tribunal was empowered to deal with the issue and determine whether the assessee was entitled to claim a loss, if at all, under one section or the other." 11. ITAT, Del....