TaxTMI 
TaxTMI 
2021 (5) TMI 677
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....s written off and to produce the copy of account 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. ....
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....992 p. M/s Shivalik Promoters Builders Pvt Ltd Rs. 7,00,000 q. M/s Golf Management Groups Rs. 80,000 Rs. 1,45,21,079 3. That the Ld CIT(A) is not justified in confirming the disallowance made 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 ....
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....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). 3 Unique Associates 2,50,000 2001- 02 Advance for Providing Services to Arrange Duty Drawback & DEPB License as per Agreement. Business Nexus 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 su....
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....tently 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). 7 Satya Karam Punia 25,03,750 2001- 02 Advance given for procurement of Export 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 T....
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....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. No benefit of enduring nature resulted to assessee. 9. Loss was incidental to business of assessee. 11 Choudhary Consultan-ts 5,00,000 1999- 00 Advance for Providing Services to Arrange Duty Drawback & DEPB License as per Agreement. 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(....
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....ngth 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 Invoices. 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). 9. No benefit of enduring nature resulted to assessee. 10. Loss was incidental to business of assessee. 15 Golf Management Group 80,000 1997- 98 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'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....
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.... 7. He submitted that all those advances were shown in the balance sheet of the assessee company in the past years and the assessments have been completed u/s 143(3). The AO, after verification of the books of account has accepted such advances. Therefore, when these advances were written off during the impugned assessment year by passing a resolution by the partners, copy of which is placed at page 101 and 102 of the paper book, the AO should not have been disallowed the same and the ld.CIT(A) should not have confirmed the action of the AO. 7.1. Referring to the order of the AO as well as the ld.CIT(A), the ld. Counsel submitted that both the lower authorities have disallowed the claim of the assessee on the ground that the same was claimed as bad debt whereas the claim of 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 th....
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....,974/-. The CIT(A), on the basis of the remand report and on the basis of the fact stated by the assessee that they had given advances of Rs. 66,68,000/- to 'D' for supply of packaging material and there were other small amounts/petty balances payable by other third parties deleted the addition of Rs. 66,68,000/-. On appeal by the Revenue, the Tribunal dismissed the appeal. On further appeal by the Revenue, the Hon'ble High Court dismissed the appeal filed by the Revenue holding that the claim of the assessee was to be allowed u/s 37(1) r.w. section 28(1) instead of section 36(1)(vii). 9.2 Referring to the decision of the Hon'ble Delhi High Court in the case of Mohan Meakin Ltd. (2011) 11 taxmann.com 141, he submitted that the Hon'ble High Court in the said decision has held that non-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....
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....rs of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the AO, in the instant case, disallowed an amount of Rs. 1,45,21,079/- out of the claim of Rs. 1,61,37,879/- under the head 'write off/bad debt.' While doing so, the AO held that the assessee could not explain the genuineness of the transaction and the nature of advances is not clear. Further, the assessee had not filed any document proving that efforts were made to recover the amount in case of certain parties. We find, the ld.CIT(A) upheld the action of the AO in disallowing the claim of the assessee. However, he gave relief of Rs. 4,65,962/- being excess disallowed by the AO in case of three parties due to some computational error. It is the submission 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 ....
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....ances were found genuine as advances by the AO consistently in the orders passed u/s 143(3) of the Act. Further, the assessee, during the course of original assessment proceedings in those years had filed the relevant details which were accepted after due verification and no adverse view has been taken. We find, the Hon'ble Delhi High Court in the case of ACIT vs. Jay Engineering Works Ltd. (supra) has held that income-tax authorities could rely on the report of the auditors if detailed information of the claims were not available. Since, in the instant case, the assessments in the past were completed u/s 143(3) and such advances were being shown in the balance sheet, therefore, the AO should not have doubted the genuineness of the advances which were given in the past and consistently appearing in the audited 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....
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.... Since no physical possession was received by the assessee, the property proposed to be purchased by the assessee were not shown as stock in trade in the books of assessee as per the normal accounting practice. The assessee had debited the amount of Rs. 44,28,000/- in the books of accounts and shown under the head "loans and advances". Thereafter, in the year 2003-04, M/s. Gulmohar Estage Ltd. locked their offices and it was found that the property purchased by the assessee were fraudulently sold to some other people also. District town and Country Planner, Haryana gave a public notice canceling the licnece of Garden Estate of M/s. Gulmohar Estate Ltd. The assessee, therefore, taken a decision to write off the entire amount as business loss. It is also an admitted position that the possession of the fats agreed to be purchased by 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 presu....
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.... From the said observation of the ld.CIT(A), we find that the Id. CIT(A) was of the view the assessee failed to produce any evidence that the advance was made for the purpose of stock in trade or the amount was advanced in the ordinary course of business, which in our considered opinion, is not correct in the light of the submissions of the assessee made before the Id. CIT(A), which has been reproduced by the Id. CIT(A) in his order at para 5 of his order. In the aforesaid submission made before the Id. C1T(A), the assessee categorically stated that the assessee was a construction and real estate company promoted by Shri Ram Prasad Ji in 1968, and the assessee is promoter and developer of New Delhi House and Mercantile house at New Delhi and Heritage City at Gurgaon. The details about the agreement made during 1990-91 were also given to the Id. CIT(A). The Id. CIT(A) has not stated anything adverse 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 ....
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....venue." 18. We find, the Hon'ble Rajasthan High Court in the case of CIT vs. Anjani Kumar Co. Ltd. (supra) has allowed the claim of write off of advances as business loss by observing as under:- "During the assessment year 1979-80, 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 materialise. The agriculturist refused to refund the amount. The asses-see filed a civil 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 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. ....
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....l. No interference is called for. 6. In the result, we answer the question in the affirmative, i.e., in favour of the assessee and against the Revenue." 19. In the case of EKL Appliances Ltd. (supra) the assessee had made an entry of Rs. 66,86,974 in its books of account towards doubtful debts/advances - Assessing Officer held that claim of assessee could not be allowed as no details regarding these expenses had been filed, i.e., whether these were actually trade debts incurred in course of business, and what steps were taken to recover amount and why these had been written off - Hence amount of Rs. 66,86,974 was disallowed and added to income of assessee - On appeal, Commissioner (Appeals) had asked for a remand report in view of facts stated by assessee that they had given advance of Rs. 66,68,000 to 'D' for supply of packaging material and there were other small amounts/petty balances payable by other third parties Commissioner (Appeals) after examining facts and material 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 he....
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....s deduction under section 28(i) and section 37(1) - Held, yes 21. In the case of Minda (HUF) Ltd. (supra) the coordinate Bench of the Tribunal noted that during course of its business, assessee gave advances to vendors for supply of raw materials, etc. Said advances became irrecoverable due to either material was not supplied or defective material was supplied. Assessee wrote off said amount as advance irrecoverable and claimed deduction thereof. It was held that assessee's claim of deduction was allowable as trading loss under section 37(1). 22. We find, the Mumbai Bench of the Tribunal in the case of Jackie Shroff (supra) while deciding the allowability of business loss noted that the assessee was a professional actor. Assessee advanced certain amount of sum to a production house, run by his wife, 'AS' in order to produce films in which assessee acted as hero so as to boost his career. Film produced by 'AS' was not successful at box office and she suffered huge losses and could not repay 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....
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....s a business loss. Loss of stock-in-trade has to be considered as a trading loss. [Para 17j 26. The Delhi Bench of the Tribunal in the case of Swastik Pipes Ltd. (supra) while deciding the identical issue had noted that the assessee paid advance to one, SG for acquisition of a capital asset. SG did not carry out his obligation. Thus, assessee written off amount paid to SG as bad debt. Assessing Officer disallowed same. Commissioner (Appeals) noted that amount did not qualify as bad debt because it was an advance paid for acquisition of capital asset. However, amount was a loss to assessee and would be an allowable expenditure under section 37(1). The Tribunal held that since it was clear that loss was incidental to business of assessee which were written off in books of account as irrecoverable, it was correctly allowed as business loss by Commissioner (Appeals). 27. We find that the decision of Hon'ble Bombay High Court in the case of Harshad J. Choksi vs CIT reported in (2012) 25 taxmann.com 567 (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:- "Q....