TaxTMI 
TaxTMI 
2019 (5) TMI 10
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....disallowance on account of advances written off. 2. The Ld.CIT(A) has erred in law and facts in deleting the addition of Rs. 7,68,148/- being the disallowance on account of delay in payments made to employer as well as employee's contribution to provident fund. 3. The Id. CIT(A) has erred in law and in facts in deleting the addition of Rs. 7,23,110/- being the disallowance on account of investigation expenses paid by the bank. 4. The Ld.CIT(A) has erred in law and in facts in deleting the addition of Rs. 67,10,325/- being the difference in the amount with reference to the TDS certificate and that claimed as job work income. 5. That on the facts and in the circumstances of the case, the Id.CIT(A) ought to have upheld the order of the Assessing Officer. 6. It is therefore prayed that the order of the Ld.CIT(A) be set aside and that of the Assessing Officer be restored. 7. That the revenue craves leave to add, amend, alter or withdraw any | grounds of appeal. 3. The first issue raised by the Revenue is that ld. CIT-A erred in deleting the addition made by the AO on account of trading advances written off amounting to Rs. 2,0....
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....ess of the parties, it was not possible to establish the genuineness of the transactions with these parties. Thus the assessee has failed to prove that the advances were given in the course of business. In view of the above, the claim of the assessee for the business loss for Rs. 2,10,17,075/- was rejected and the same added to the total income of the assessee. 6. The aggrieved assessee preferred an appeal to the Ld.CIT (A) and submitted that the AO agreed that the advances to the parties were fully supported by promissory notes and agreement for the supply of the goods. The AO also agreed that these advances are old and there are opening balances with the parties. 7. The Ld.CIT (A) deleted the addition after having the reliance on the order of his predecessor in the own assessee case in the preceding assessment year. 8. Being aggrieved by the order of ld. CIT-A, the Revenue is in appeal before us. 9. The ld. DR before us submitted that the deduction claimed by the assessee for the advances written of does not represent the bona fide business transactions. It is because the assessee has not produced any documentary evidence of the parties to whom the advances were given....
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....rs for recovery of these amounts. However, all efforts failed flat. Therefore, during the year same were written off and claim was made of business loss as and when appellant was certain that such amounts are not recoverable. 7. In AY 2006-07 and 2007-08 the same issue was raised by the Learned AO and the claim of the assessee was disallowed by LD AO but the same was allowed by CIT(A) stating that loss arising to the appellant is in the ordinary course of business and incidental thereto and was therefore a trading loss allowable under section 28 itself. 8. Even during the earlier years say AY 2005-06, 06-07, 07-08 the case of appellant was selected for scrutiny u/s 143(3). In none of the earlier years has the assessing officer doubted on the advances given by appellant. All such advances have been accepted in past by the then assessing officer. However, it is only at the time this amount is written off has the assessing officer raised objection and has raised question on whether such advances are bonafide. 9. Appellant further relies on the judgement of:- i. CIT V Mysore Sugars Limited 46 ITR 649 ( Sc) ii. CIT v Abdul Razak & Co 136 ITR ....
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....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 appli cable 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 case comes under section 36 then the applicability of section 37 will be taken out but rather means that a case may come either under section 36 or section 37 and a compu tation may be made under either of the sections. It also appears that there is a clear distinction between a business expenditure and a business loss, the former is indicative of a volition but in loss it comes upon him so to speak as ab extra and I am also of opinion that non-capital expenditure incurred for the purpose of business would fall to be deducted under the omnibus residuary section 37 to which I will be now referring. Section 37(1) lays down as follows : 'Any expenditure (n....
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....de 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 (page 652) : "The tax under the head 'Business' is payable under section 10 of the Income-tax Act. That section provides by subsection (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 deduc tion of bad and doubtful business debts. It provides that when the assessee's accounts in respect of any part of his business are not kept on the cash basis, such sum, in respect of bad and doubtful debts, due to the assessee in respect of that part of his business is deductible but not exceeding the amount actually written off as irrecoverable in the books of the assessee. Clause (xv) allows any expenditure not included in clauses (i) to (xiv), which is not in the nature of capital expenditure or personal expenses of the assessee, to be deducted, if Page No: 0116 la....
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....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 nonrecovery of the huge amount from the Page No : 0117 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 liable to be outrightly rejected by the Department. When the assessee had written off the dues recoverable from the corporation and the same were accepted by the Department and it had also so written off, the advances made to M/s. Kanpur Boot House in its books of account, what else could proof with the assessee for its being unable to recover the same. The other reason for writing off was the demise of the proprietor, Bhag....
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....al. 12. Merely because the claim was not made out under one particular provision of the Act, but was so made out under another provision of law, we failed to understand as to how the assessee could be debarred to raise such legal question. Having regard to all this, we are of the considered view that it was legally permissible to raise question of deduction under section 37 of the Act even if it was not raised before the authorities below. 13. In view of our discussion as made above, we answer the question in the affirmative and allow the appeal." 11. Recently Hon. Tribunal has allowed expenses as business loss in case of trade advance written off:- i. DCIT Vs. Kalpataru Power Transmission Ltd. (82 taxmann.com 340) (2017)(Ahmedabad Trib.) ii. DCIT Vs. J Thomas & co. P Ltd. (87 taxmann.com 250) (2017) (Kolkata Trib.) iii.ACIT vs. M/s OSN Infrastructure (ITA No. 346/Del/2015) (Date of order 20.4.2018) (Delhi Trib.) iv. Today Homes & Infrastructure (P) Ltd. vs DCIT (88 taxmann.com 391) (2017) (Delhi Trib.) v. Smita Conductors Ltd. vs DCIT (41 taxmann.com 514)(2014) (Mumbai Trib.) 12. Further regarding Hon. CIT (A)....
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....foresaid decision, it can be concluded that even if the deduction is not allowable as bad debts, the Tribunal ought to have considered the assessee's claim for deduction as business loss. This is particularly so, as there is no bar in claiming a loss as a business loss, if the same is incidental to carrying on of a business. The fact that condition of bad debts were not satisfied by the assessee would not prevent him from claiming deduction as a business loss incurred in the course of carrying on business as share broker. [Para 11] * In fact, the Bombay High Court in the case of CIT v. R.B. Rungta 85 Co. [1963] 50 ITR 233 upheld the finding of the Tribunal that the loss could be allowed on general principles governing computation of profits under section 10 of the Indian Income-tax Act, 1922, which is similar/identical to section 28 of the 1961 Act. The revenue in that case urged that the assessee having claimed deduction as a bad debt the benefit of the general principle of law that all expenditure incurred in carrying on the business must be deducted to arrive at a profit cannot be extended. This submission was negatived by the Court and it was held that even where t....
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....he orders passed by this court and all the assets of the company were purchased by a wholly owned company of the Government of West Bengal for a sum of Rs. 74,00,000 and the entire amount went to the secured creditor with the result that undoubtedly the assessee had no chance of recovering the amount in question from the aforesaid subsidiary." When this court while considering the possibility for recovery of loan in case of unsecured creditors found that the entire amount went to the secured creditors and nothing remains to be paid for unsecured creditors, there is no justification to deny the claim of the assessee. Therefore, following the aforesaid finding of this court regarding possibility of the recovery of loan of unsecured creditors when there is no chance the assessee has rightly written off that debt treating it as a bad debt. In view of the aforesaid finding, the Tribunal has committed an error. In the result, we answer question No. 1 in the negative, i.e., in favour of the assessee and against the Revenue." In view of the above submission, it is submitted that issue is squarely covered in favour of the assessee and appellant requests before you....
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....e to get the assistance not as an investment by the assesseecompany in its agriculture, but only as an advance payment of price. The amount, so far as the assessee-company was concerned, represented the current expenditure towards the purchase of sugarcane, and it made no difference that the sugarcane thus purchased was grown by the Oppigedars with the seedlings, fertiliser and money taken on account from the assesseecompany. In so far as the assessee-company was concerned, it was doing no more than making a forward arrangement for the next year's crop and paying an amount in advance out of the price, so that the growing of the crop might not suffer due to want of funds in the hands of the growers. There was hardly any element of investment which contemplated more than payment of advance price. The resulting loss to the assessee-company was just as much a loss on the revenue side as would have been, if it had paid for the ready crop which was not delivered." 11.4 After considering the facts as discussed above, we are of the view that the claim of the assessee is eligible for deduction under section 37(1) or 28 of the Act, subject to the conditions specified therein. As per t....
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....(1) of the Act. However, we note certain undisputed facts which are crucial to adjudicate the issue on hand as enumerated below: i. These advances were made in the year 1993-94 to 1997-98 and shown in the financial statements. ii. The assessee is engaged in the business of fishing where the purchases are made mostly in cash being a disorganized sector. As such the fishermen go to the mid of the sea to catch the fish. Thus they always take some advance from the party before they go for fishing. Thus the nature of the business just cannot be brushed aside while adjudicating the issue on hand. iii. The books of accounts are statutory records, and therefore the entries shown therein cannot be just brushed aside, especially the entries which are more than 12 to 15 year old. iv. There were several agreements and promissory notes available in the paper book placed on pages 20 to 60. In many cases, the advances were claimed to have been paid through banking channels. v. There was no doubt raised on the genuineness of such advances by the AO in all the years though the scrutiny assessments were framed under section 143(3) of the Act. vi.....
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....o M/s. Deepak Choudhary HUF and M/s. P.S. Kalra, HUF are to be allowed. Accordingly, the Assessing Officer is directed to allow the same." The above finding has been affirmed by the Tribunal in appeal in the following words : "After hearing both the parties on this issue, we find that there is no infirmity in the finding of CIT (Appeals) as discussed above. The finding of CIT (Appeals) that both the parties were sharebrokers could not be controverted by the learned DR by filing any positive evidence, though the learned DR has commented that it seems that both the parties were not sharebrokers, however, no evidence whatsoever was filed before the Bench. Therefore, we confirm the finding of the CIT(A) by holding that this is customary in the trade of share transactions that one person buys shares on behalf of others, and as per the understanding the interest was paid and charged. As stated above, there is no dispute that interest amount was paid and there is also no dispute that both the parties have shown the interest income as their income. Therefore, in view of these facts and circumstances, and in view of the reasoning given by CIT (Appeals), we confirm his orde....
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....e of business of the assessee which is mainly based on cash purchases especially from the fishermen and without involving any middleman. iv. The downfall in the business due to the cyclone and the earthquake. v. The banking facility of the assessee has become NPA. vi. The death of the main person who was looking after the purchases of the company. vii. The advances are vey old but duly disclosed in all the years in the audited financial statements. 11.8 In the subsequent year also, i.e. 2008-09, we note that the addition was made on account of writing off such advances which was subsequently confirmed by the ld. CIT-A for the following reasons: i. The trading advances do not qualify the test for the deduction under the provisions of section 36(1)(vii) and 36(2) of the Act. ii. No details of the parties to whom the assessee gave the advances. iii. The impugned advances written off in the year under consideration represents the prior period expenses which cannot be allowed in the year under consideration. 11.9 It is an undisputed fact the advances written off by the assessee as discussed above cannot be categorized ....
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....ior authority for the writing off such advances. The decision of the assessee is in itself sufficient to claim the deduction for such advances by the writing off in the books of accounts subject to the conditions as specified under section 37(1)/ 28 of the Act. Thus we disagree with the contention of the learned CIT-A. 12.1 Thus after considering the facts in totality, we are of the view that The Assessing Officer had emphasized on the fact that the assessee failed to produce the necessary details of the parties. Indeed such details of the parties were one of the corroborative factors which would eliminate the doubts, but in the absence of that agreement, the other circumstances ought to have been evaluated, which could lead the adjudicating authority towards a firm conclusion. In view of the above and after considering the facts in totality, we hold that no disallowance is warranted for advances written off as bad debts. Thus Considering the circumstantial evidence, the conclusions drawn by the Commissioner (Appeals) were to be upheld. Hence the ground of appeal of the Revenue is dismissed. 13. The second issue raised by the Revenue is that ''Ld.CIT(A) erred in law a....
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....It is the admitted and undisputed position between the rival parties that there was delay in deposit of employee's contribution to PF authorities by the assessee which was not paid within the due date prescribed by PF authorities but were paid within grace period allowed by PF statute and in any case, the same were paid prior to the due date of filing of return of income as prescribed under section 139(1) with the revenue. The issue is decided in favour of the assessee and no disallowance under section 43B, read with sections 2(24)(x) and 36(1)(va), is warranted in the instant case in view of the afore-stated decisions, as the assessee in the instant case paid the employees contribution towards PF within grace period as allowed by PF statute and in any case the employee contribution to PF was deposited with PF authorities before the due date prescribed under section 139(1) for filing of the return of income with the revenue" 20. Regarding the employer's contribution towards the provident fund, we note that the employer deposited the same before the due date of filing the income tax return as specified under section 139(1) of the Act. Thus, we are of the view that the assesse....
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....the firm of chartered accountant appointed by the bank. But the assessee failed to make the payment to the CA firm. Therefore, the banker has made the payment to the CA Firm on behalf of the assessee which was recovered by the bank from the assessee by debiting its accounts in its books of accounts. Now the issue arises whether the payment by the assessee to the bank is not subject to TDS under section 194A read with section 2(28A) or 194C/194J of the Act. 27.1 In this regard, we note that the primary liability of the assessee was to make the payment to the chartered accountant firm. Thus merely the payment was made by the bank on behalf of the assessee does not mean that the transaction is covered under the provisions of section 194A read with section 2(28A) of the Act. As such the assessee is liable to deduct the TDS under section 194J of the Act. Thus in our considered view the assessee is not eligible for deduction for the expenses due to non-deduction of TDS under section 194J read with section 40a(ia) of the Act. 27.2 However, as per the 2nd proviso to the section 40a(ia) of the Act, the expenses on account of non-deduction of TDS will not be disallowed if the recipient....
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....n. The total of these three entries is Rs. 1,53,073.62 which is Rs. 1,29,756.56 being freight paid by Indepesca on behalf of appellant, minor difference of Rs. 0.06 and Rs. 23,317/- on account of excess DEPB sales credit given to that partly by the appellant. In view of contra confirmation with reconciliation of the accounts of the appellant with the principal there is no reason that addition to the income of the appellant is made based on TDS certificate when M/s Indespecsa Overseas is the only party whose job work is done by the appellant. Hence I delete the addition of Rs. 67,10, 325/- on account of difference of job work income as per TDS certificate and gross amount paid/payable as per TDS certificates.'' 32. Being aggrieved by the order of ld. CIT-A the Revenue is in appeal before us. 33. Both the parties before us relied on the order of authorities below as favorable to them. f34. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the difference observed by the AO between the income shown by the assessee in its books of accounts viz a viz income shown in form 16A issued by IPOL. Therefore, the ....