TaxTMI 
TaxTMI 
TaxTMI 
2021 (5) TMI 677
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....unt and names of such parties for the last three years. He also asked the assessee to file: (a) copy of bank statement when payment of advances written off were made; (b) Complete name, address, PAN and contact details of the parties including current address, if any; and (c) Copy of correspondence made in connection with recovery of loan/advances written off. 3. After considering the details and explanation given by the assessee and observing that the assessee could not give justification for the write off and that the genuineness of the transaction and nature of advance is not clear, the AO disallowed an amount of Rs. 1,45,21,079/- in respect of the following parties:- a. M/s Mahima Trading & Investment Pvt. Ltd. Rs. 15,66,848 b. M/s Adani Exports Ltd. Rs. 2,50,961 c. Shri. Rajeev Chopra Rs. 4,12,786 d. M/s Ankita Imports & Exports Rs. 10,00,000 e. Mr. Surjeet Singh Rs. 3,20,000 f. Mr. Deepak Bharadwaj Rs. 14,75,992 g. Mr. S.S.Jain Rs. 2,50,000 h. Mr. Mayank Jian Rs. 2,50,000 i. M/s Choudhary Consultants Rs. 5,00,000 j. Shri Satya Karan Punia Rs. 25,03,750 k. Shri. Bharat Bhushan Rs. 8,43,750 1. M/s Elite Manufactur....
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....e by Ld AO in respect of amount written off of Rs. 1,45,21,079/- and not allowing the same as business expenditure U/s 37(1) of the Income Tax Act'1961 being trade advance by stating that "As the expenses do not relate to the year in question they cannot be allowed U/s 37" which is based on surmises and conjectures, contrary to facts borne on record and provisions of law, as such the disallowances so made needs to be deleted. 4. That appellant craves right to amend, add, delete or withdraw any of the ground of appeal either before or at the time of hearing of this appeal." 6. The ld. Counsel for the assessee, at the outset, submitted that although the assessee has challenged the order of the CIT(A) in confirming the addition/disallowance made by the AO OF Rs. 1,45,21,079, however, the same should be read as Rs. 1,40,55,117/- since he has already given a relief of Rs. 4,65,962/- being excess disallowed by the AO. The ld. Counsel filed the following chart giving partywise explanation regarding the amount of advances which were written off during the year:- M/S LUCKY EXPORTS INC. A.Y 2008-09 DETAILS OF ADVANCES WRITTEN OFF AS TRADE ADVANCE Note (1) : Page 37 & 48 (CIT(A) Order) ....
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....us of payment not proved. Since payment towards consultancy charges, thus it ws not a trade debt. 1. Arm's Length Party. 2. Payment by Account Payee Cheque. 3. Assessment U/s 143(3) Party & Transaction found genuine. 4. Balance consistently appearing in Audited Balance Sheet as Advances. 5. Balance found genuine as Advances by Assessing Officer consistently U/s 143(3). 6. Copy of Agreement with service provider (Clause 4, Page 128 provides for advance). 7. No evidence that amount paid by Cheque received back as in cash. 8. Assessee claimed write off as Trading Loss U/s 28(1)/37(1) & CIT(A) disallowed claim U/s 36(1)(vii) as Bad Debts (Page 37 CIT(A) Order). 4 Adani Exports Limited 2,50,961 1998- 99, 2002- 03 Advance given for procurement of Export Supplies of Rice. In Export Contracts time is the essence of supplies as if supply is not received in time, danger of cancellation of LC or loss of export order. But no supply received and party not refunded the advance Genuineness of Transaction and Efforts to recover the amount not proved. Based on AO 1. Arm's Length Party. 2. Payment by Account Payee Cheque. 3. Assessment U/s 143(3) Party & Transaction found ....
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....t Supplies of Medicine. In Export Contracts time is the essence of supplies as if supply is not received in time, danger of cancellation of LC or loss of export order. But no supply received and party not refunded the advance No documenttary evidence for Idenitity & Business relation. Appellant not able to prove that it is debt and trade debt. 1. Arm's Length Party. 2. Payment by Account Payee Cheque. 3. Assessment U/s 143(3) Party & Transaction found genuine. 4. Balance consistently appearing in Audited Balance Sheet as Advances. 5. Balance found genuine as Advances by Assessing Officer consistently U/s 143(3). 6. No evidence that amount paid by Cheque received back as in cash. 7. Assessee claimed write off as Trading Loss U/s 28(1)/37(1) & CIT(A) disallowed claim U/s 36(1)(vii) as Bad Debts (Page 37 CIT(A) Order). 8 Ankita Imports & Exports 10,00,000 1992- 93 Advance given for procurement of Export Supplies. In Export Contracts time is the essence of supplies as if supply is not received in time danger of cancellation of LC or loss of export order. But no supply received and party not refunded the advance. Genuineness of Parties, Transaction and Payments not pr....
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....reement. Business Nexus of payment not proved. Since payment towards consultancy charges, thus it was not a trade debt. 1. Arm's Length Party. 2. Payment by Account Payee Cheque. 3. Assessment U/s 143(3) Party & Transaction found genuine. 4. Balance consistently appearing in Audited Balance Sheet as Advances. 5. Balance found genuine as Advances by Assessing Officer consistently U/s 143(3). 6. Copy of Agreement with service provider. 7. No evidence that amount paid by Cheque received back as in cash. 8. Assessee claimed write off as Trading Loss U/s 28(1)/37(1) & CIT(A) disallowed claim U/s 36(1)(vii) as Bad Debts (Page 37 CIT(A) Order). 12 Surjeet Singh 3,20,000 1992- 93 Advance given for procurement of Export Supplies. In Export Contracts time is the essence of supplies as if supply is not received in time danger of cancellation of LC or loss of export order. But no supply received and party not refunded the advance Genuinen ess of Transactio n and Nature of Advance Not Clear Genuineness of Transaction and Nature of Advance Not Proved and cannot be allowed as Bad Debt. 1. Arm's Length Party. 2. Payment by Account Payee Cheque. 3. Assessment U/s 143(3) ....
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....e for Construction of Guest House for Stay of Foreign Buyers on Land not owned by firm but by the partners Expenditure being Capital in Nature cannot be written off as Revenue Expenditure. Expense in not trading liability as such expense is capital in nature. 1. Arm's Length Party. 2. Payment by Account Payee Cheque. 3. Assessment U/s 143(3) Party & Transaction found genuine. 4. Balance consistently appearing in Audited Balance Sheet as Advances. 5. Balance found genuine as Advances by Assessing Officer consistently U/s 143(3). 6. No evidence that amount paid by Cheque received back as in cash. 7. Assessee claimed write off as Trading Loss U/s 28(1)/37(1) & CIT(A) disallowed claim U/s 36(1)(vii) as Bad Debts (Page 37 CIT(A) Order). 8. No benefit of enduring nature resulted to assessee. 9. Loss was incidental to business of assessee. 16 Shivalik Promoters & Builders Pvt Ltd 7,00,000 1999- 00 Advance for Construction of Guest House for Stay of Foreign Buyers on Land not owned by firm but by the partners Expenditure being Capital in Nature cannot be written off as Revenue Expenditure. Expense in not trading liability as such expense is capital in nature. 1. Arm&....
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.... the assessee was always of write off of a trade loss u/s 28(1)/37(1). Referring to the decision of the Hon'ble Supreme Court in the case of Radhasoami Satsang, 193 ITR 321 (SC), he submitted that the Hon'ble Supreme Court in the said decision has held that where a fundamental aspect permeating through the different assessment years has been found as a fact, one way or the other and the parties have allowed that position to be sustained by not challenging the order, it would not at all be appropriate to allow the position to be changed in a subsequent year. 8. Referring to the decision of the Hon'ble Delhi High Court in the case of ACIT vs. Jay Engineering Works Ltd., 113 ITR 389, he submitted that the Hon'ble Delhi High Court in the said decision has held that income-tax authorities could rely on the report of the auditors if detailed information of the claims were not available. He submitted that the AO rejected the claim of the assessee on the ground that the genuineness of the transaction and nature of advances is not clear. However, the AO never bothered to go through the past assessment records of the assessee wherein those advances were continuously shown in the audited ba....
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....-recovery of trade advances amounted to business loss and were to be allowed as deduction u/s 28(1) and 37(1). 10. Referring to the decision of the co-ordinate Bench of the Tribunal in the case of Minda (HUF) Ltd. (2006) 101 ITD 191, he submitted that in that case, the assessee, during the course of its business gave advances to vendors for supply of raw materials, etc., which became irrecoverable due to either material was not supplied or defective material was supplied. The assessee wrote off the said amount as advance irrecoverable and claimed deduction thereof. The Tribunal allowed the claim of the assessee as deduction allowable as trade loss u/s 37(1). 10.1 Relying on various other decisions, the ld. Counsel submitted that when certain advances become irrecoverable and the assessee writes of the same, the claim of the assessee as business loss has been allowed. For the above proposition, he relied on the decision of the Mumbai Bench of the Tribunal in Jackie Shroff (2019) 101 taxmann.com 455, the decision of the Ahmedabad Bench of the Tribunal in the case of Kalpataru Power Transmission Ltd. (2017) 82 taxmann.com 340, the decision of the Rajkot Bench of the Tribunal in the ....
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....mission of the ld. Counsel that all those advances were consistently shown in the balance sheets of the assessee company in the past years and the assessments have been completed u/s 143(3) of the Act after due verification by the AO. The AO had accepted such advances shown in the balance sheet after due verification of full details filed during the course of assessment proceedings and no adverse view was taken. Since it was felt that those advances were not recoverable, the assessee passed a resolution for writing off of those advances and, therefore, the same should be allowed as business loss. It is also his submission that the lower authorities have basically disallowed the claim of the assessee treating the same as bad debt written off whereas the claim of the assessee before the AO as well as the CIT(A) was always of writing off of the same as business loss u/s 28/37(1). 13. We find sufficient force in the arguments advanced by the assessee. A perusal of the assessment order as well as the order of the CIT(A) shows that the claim of the assessee was basically rejected on the ground that the assessee has claimed the same as bad debt. A perusal of pages 48 and 49 of the order ....
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....balance sheets. 15. We find merit in the argument of the ld. Counsel that there is no evidence on record that the amounts paid by the assessee through banking channels had, at any point of time, come back to the assessee. Under these circumstances, when the assessee consciously decided to write off such advances as irrecoverable by passing a resolution for writing off such advances, the same, in our opinion, has to be allowed as business loss u/s 28/37(1) of the IT Act. 16. We find, the Hon'ble Delhi High Court in the case of CIT vs. New Delhi Hospitals Ltd., vide ITA 1258/2010, has allowed the claim of bad debt of Rs. 44,28,000/- as business loss which was held by the AO as capital loss. We find, the following substantial question of law was admitted before the Hon'ble High Court:- "Whether in the facts and circumstances of the present case, the ITAT is justified to hold the assessee's claim of deduction as bad debt of Rs. 44,28,000/- being allowable as business loss instead of holding by Assessing Officer as capital loss?" 17. In that case, the respondent-assessee is a company and the assessment year in question is 2004-05. In the said year, the assessce had declared inc....
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....y the assessee was not given to the assessee and, thus, the transfer of flats within the meaning of Income Tax Act was not completed. Therefore, it is a case where amount was paid in advance for purchase of property. The assessee is in the line of business or real estate as discussed above. It can, therefore, be reasonably be presumed or a reasonable inference can be drawn that the assessee intended to purchase the properly in the course of original business carried on by it or at best it can be said that the assessee purchased the property for residences of its employees including directors. Even if it is presumed that the assessee intended to purchase the three flats of use of its employees and directors, the amount so advanced to M/s. Gulmohar Estate Pvt. Ltd would be considered to be made as incidental to the business carried on by the assessee." 5. Learned counsel for the Revenue has submitted that in the end of paragraph 18 the tribunal has drawn an assumption without any basis that the intended purchase was in the course of business or at best the purchase was for a residence of its employees, including directors. We are not impressed by the aforesaid contention. The t....
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....verse to the assessee's contention to the fact that the assessee is promoter and developer of New Delhi House and Mercantile House of New Delhi and Heritage City at Gurgaon. The assessee also explained before the Id. CIT(A) that since the possession of the proposed property was not given to the assessee, the property could not be shown under the head "stock in trade" but the amount advanced had to be shown under the head "loans and advances". 20. One more reason given by the A.O. as well as by the Id. CIT(A) to reject the assessee's claim that from the assessment order, it was observed that the assessee made investment in property and has shown long term capital gain on such property. However, the answer to question whether any property purchased by the assesse, who is also in the business of construction and sale of flats/properties/housing complex, is on investment account or on trading account is to determined in the light of the intention of the assessee to be decided upon on facts and surrounding circumstances relating to the given property in question No uniform or abstract test can be applied to all the transactions carried on by any assessee. It depends on facts....
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....tten off amount cannot be allowed as deduction in the income of the assessee. 3. In appeal before the Commissioner of Income-tax (Appeals), the Commissioner of Income-tax (Appeals) also confirmed the view taken by the Income-tax Officer. 4. In appeal before the Tribunal, the Tribunal allowed the claim of the assessee. In para. 6 of its order, the Tribunal observed as under : "After carefully considering all the facts and circumstances of the case, we are inclined to uphold the assessee's contention. So far as the identity of the business is concerned, it is not the nature of the item manufactured but the test for the identity of the business is that there should be a single trading and profit and loss account and the transaction as well as the business should have been done by a common organisation. In these circumstances, the assessee would be entitled to the unabsorbed loss in the shape of shares against the income. This was so held by the Supreme Court in Standard Refinery and Distillety Ltd. v. CIT [1971] 79 ITR 589 and again in Produce Exchange Corporation Ltd. v. CIT [1970] 77 ITR 739 (SC). So far as the authorities relied upon by the Revenue are concerned, in all....
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....brought on record deleted addition of Rs. 66,68,000. He, however, confirmed balance addition of Rs. 18,974 for lack of evidence. Tribunal dismissed appeal of revenue against said deletion. It was held that looking to factual background of case though lower authorities rightly allowed claim of assessee but said claim was to be allowed under section 37(1) read with section 28(i) instead of section 36(l)(vii). 20. In the case of Mohan Meakin Ltd. (supra), decided by the Hon'ble Delhi High Court, the assessee established an export division for export of various items including leather products - After exploring markets abroad, they established business contacts with a Commercial Corporation of USA - They obtained huge orders from them and had exported goods of aggregate value of Rs. 63.15 lakhs to said corporation - To maintain their commitment for supply of hand-made leather shoes, they entered into an agreement with a boot house (sole proprietorship firm of 'B') for carrying out necessary manufacturing of handmade leather shoes - As quantity and value involved in transaction was substantial and to ensure regular supplies, assessee had to advance from time to time different a....
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....ay money advanced to her by assessee. Assessee claimed advances given to his wife as business loss and suo-moto written off money given as bad advances. Assessing Officer rejected claim of assessee holding that assessee was only a professional actor and he was not in business of giving loans or advances and, further, money advanced by assessee to his wife was exclusively personal in nature. Commissioner (Appeals) held that monies advanced by assessee were in nature of business advances. However, he sustained disallowance only for reason that assessee had suo moto written off advances and such suo moto write off was not allowable as deduction under section 36(l)(vii)/37(l). It was noted that impugned moneys were advanced by assessee so as to boost his career, thus, moneys were advanced as a measure of commercial expediency. It was held that advances given by assessee was to be allowed as deduction either under section 37(1) or under section 28(i) as business loss and deduction could not be denied merely because assessee had suo moto written off advances. 23. We find, the Ahmedabad Bench of the Tribunal in the case of Kalpataru Power Transmission Ltd. (supra) has held that irrecove....
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....(Bom) also supports the view of the assessee. The question raised before the Hon'ble Bombay High Court and the decision rendered thereon is reproduced below:- "Questions: * Whether if an amount is held to be not deductible as a bad debt in view of non-compliance of the condition precedent as provided under section 36(2), could the same be considered as an allowable business loss? * Whether, therefore, the amount of Rs. 44.98 lakhs could be considered as an allowable business loss? Held: * Section 28 imposes a charge on the profits or gains of business or profession. The expression 'Profits and gains of business or profession' is to be understood in its ordinary commercial meaning and the same does not mean total receipts. What has to brought to tax is the net amount earned by carrying on a profession or a business which necessarily requires deducting expenses and losses incurred in carrying on business or profession. The Supreme Court in the case of Badridas Daga v. CIT [1958] 34 ITR 10 has held that in assessing the amount of profits and gains liable to tax, one must necessarily have regard to the accepted commercial practice that deduction of such expenses and....