TaxTMI 
TaxTMI 
2019 (11) TMI 865
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....that these write offs are not covered under section 37(1) and classifying the same under section 36(2) read with section 36(l)(vii) of Income Tax Act, 1961. 1.3 On facts and under the circumstances of the case, the Id. CIT(A) was unjustified in not appreciating and ignoring the fact that the management of the appellant company had decided to close down the business activities and the financial statements were prepared on the basis that the fundamental accounting assumption of going concern was no longer appropriate. 1.4 On facts and under the circumstances of the case, the Id. CIT(A) was unjustified in confirming the addition / disallowance made and has failed to appreciate the submissions of the appellant and has ignored various decisions in judicial discipline affirming the allowance of expenditure on the principle of commercial expediency. 1.5 On facts and under the circumstances of the case, the Id. CIT(A) has erred in confirming the addition u/s 36 of the Income Tax Act, 1961 whereas the appellant has claimed the expenditure u/s 37 of the Act and not under any of the provisions of section 36 of the Income Tax Act, 1961. Aggrieved with this c....
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.... CIT(A) was unjustified in confirming the disallowance and has failed to appreciate the fact that the assets were not recoverable and the assessee had no option but to write them off in accordance with principle of commercial expediency as the assessee had decided to close down the business operations. The appellant craves leave to add, amend, alter, vary and/or withdraw any or all of the above grounds of appeal at any stage of the appellate proceedings and to make appropriate legal submissions during oral arguments. AGGRIEVED with the order framed by Id. CIT(A), the appellant has preferred this appeal before the tribunal having the appropriate jurisdiction to entertain and decide this appeal and prays that the additions and dis-allowances be deleted." 3. The grounds raised in the appeal of the Revenue are reproduced as under: 1. On the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting disallowance of Rs. 45,00,000/- on a/c of loss on revaluation of foreign exchange on account of advance received. 2. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of app....
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.... allowing advances written off and therefore, same cannot be allowed under section 37 of the Act in view of the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. Vs. JCIT (2010) 320 ITR 577 (SC), wherein it is held that if a provision for doubtful debt is expressly excluded from section 36(1)(vii) of the Act, then such provision cannot be claimed as deduction under section 37, even on the basis of 'real income theory'. 5.3 Regarding the claim of deposits written off of Rs. 2,86,057/- the submission of the assessee has been reproduced by the learned CIT(A), which is extracted as under : "1.3 The following submission of the plaintiff before the LAO on 20.11.2014 has been erroneously ignored by the Lao in framing the assessment. "Forfeiture of security deposit of Rs. 10,40,179 and Rs. 446,249 totaling to Rs. 14,86,428: A security deposit of Rs. 14,86,428 was paid as per clause 12 of the lease agreement for office premises leased by the company FF-06, 4th Floor, Corporate Sewa Park, Gurgaon. A copy of the lease deed as already been submitted. The lease agreement had a lock in period of 3 years and if premises were vacated before 3 year....
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....d on ordinary commercial principles. This is definitely established by the Privy Council case, CIT v Chitnavis,(59 IA 290,297,6ITC 453) where a bad debt was held to be an admissible deduction, though there was no special allowance for bad debts in the 1922 Act as it then stood. Lord Russell, delivering the judgment of the board, said: "Although the Act nowhere in terms authorizes the deduction of bad debts of a business, such a deduction is necessarily allowable. What are chargeable to income tax in respect of a business are the profits and gains of a year; and in assessing the amount of the profits and gains of a year account must necessarily be taken of all losses incurred, otherwise you would not arrive at the true profits and gains." In Badridas Daga v CIT(34, ITR 10,15) and Calcutta Co Ltd V CIT,(37 ITR 1,9)the Supreme Court quoted the observation of Lord Russell with approval and held that an item of loss or expenditure not falling within any of the express deductions may be allowed if it is deductible on ordinary principles of commercial accounting. The scheme of these sections is that profits and gains must be computed subject to certain express a....
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....company to the managing agents, which had become irrecoverable, is deductible as a loss incidental to the managed company's business. Loans advanced in the course of or incidental to business are allowable, apart from s36(1)(vii),when they become irrecoverable, but not if they are on capital accounts various case laws are Lalvani V CIT 78 ITR 176;CIT v Jwalaprasad 107ITR 540;CIT v Jeya 164 ITR 318;CIT v Inden Bislers 181 ITR 69. In view of the above submissions the plaintiff prays for the deletion of the above addition....................." 5.6 After considering the submission of the assessee, the l.d CIT(A), following the decision of the Hon'ble Supreme Court in the case of Southern Technologies Ltd. (supra) upheld the finding of the Assessing Officer. 5.7 Before us, the Ld. counsel of the assessee filed a paper-book containing pages 1 to 190. The learned counsel of the assessee referred to the pages 80 to 101 and submitted that advances of salary were made in the regular course of the business and therefore lost due to non-recovery of the said advances, is in the nature of business expenditure and allowable to the assessee. Regarding the deposit written off, he ....
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....s only to items which do not fall in sections 30 to 36; if a provision for doubtful debt is expressly excluded from section 36(1)(vii), then such a provision cannot be claimed as a deduction under section 37 even on basis of 'real income theory' - Held, yes." 5.10 However, we find that the claim of bad debt written off under section 36(1)(vii) of the Act is allowable if such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year. In the instant case, the claim of advances and deposit have not been considered for income in the year under consideration or in the earlier year(s), such advances or deposit written off are not eligible for deduction under section 36(1)(vii) of the Act. An assessee is entitled for claim under Section 36(1)(vii) , where by reason of the inability or insolvency of the debtor to pay, the money is unable to be recovered. In all other cases, the claim for allowance should have to be sustained under Section 37(1) which requires that the expenditure (not being of a capital nature) should have been wholly and exc....
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....ion of the parties and perused the relevant material on record. We find that the learned CIT(A) has sustained the disallowance observing as under: "Decision I have considered the submission of the appellant and the observation of the AO made in the assessment order. It is seen that the appellant has claimed expenses of Rs. 6,42,365/- as paid to consultant to Shri Amrik Singh, Mr. Syed Nadeem Zaidi and Ms. Chandrika. These persons were hired for various projects sites. On verifications of the bills it was observed by the AO that Shri Amrik Singh has been paid salary of Rs. 7,02,420/- on which tax of Rs. 1,05,330/- has been deducted. Over and above he has been paid consultant charges for which bills were raised on 31.08.2012, 30.09.2012, 31.10.2012 and 30.11.2012. It was observed by the AO that these expenses were not pertaining to the year under considerations and same have been pertaining to the subsequent years. During the course of assessment proceedings revised bills were submitted before AO on the ground that there was a mistake in preparing the bills, however, AO observed that this mistake can happen in one or two bills but it cannot be repeated in all the bi....
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....ages 167 to 178, which are copies of letters issued by the attorney of assessee confirming status of the cases filed by the customer against assessee. According to the assessee, these law suits filed by the customer are evidences that assets lying at the customer site were not recoverable and the assessee had no option but to write off after taking into consideration commercial expediency. 7.3 The Ld. DR, on the other hand, relied on the order of the lower authorities. 7.4 We have heard rival submission of the parties and perused the relevant material on record. We find that the learned CIT(A) confirmed the addition observing as under: "Decision I have considered the submission of the appellant and the observation of the AO made in the assessment order. It is seen that the appellant has claimed short term capital loss of Rs. 7,44,245/- on account of loss of assets which could not be recovered from the different sites. The AO has given a chart of the assets which could not be recovered by the appellant from the client's site and loss occurred on account of such loss of assets has been claimed as short term capital loss by the appellant by writing off such ass....