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TaxTMI 
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TaxTMI 
2015 (6) TMI 1239
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....er account copies filed reveals that, (a) The amount receivable by the assessee as on 01.04.2000 was Rs. 41,29,127/-. (b) The assessee charged an amount of Rs. 4,12,913/- on 31.03.2001 towards interest, holding that the entire amount receivable as on 01.04.2000 was a loan. (c) Even after holding the amount receivable as on 01.04.2000 as a loan, the assessee advanced certain amounts, from time to time, but no material/stock was received from Century Wood Limited after charging interest treating the amount outstanding as a loan. (d) A sum of Rs. 35,000/- paid by Shriram Properties Private Limited was taken into the books of the assessee. (e) The assessee has not received any material on or after 01.04.2000. (f) The assessee had paid certain amounts from time to time latest being on 31.03.2003 through Shriram Properties Private Limited. In view of the above, the Assessing Officer has issued notice to the assessee on 17.12.2012 informing that the claim of the assessee cannot be treated as debt arose during the regular course of business and the same cannot be allowed for deduction under section 36(1)(vii) of the Act. In response to the above notice, the assessee filed expl....
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....loan on 31.03.2001, there was only one transaction with Century Wood Limited i.e. on 31.03.2003, according to which the amount of Rs. 35,000/- paid by Shriram Properties Private Limited to Century Wood Limited, was taken into the books of the assessee. This clearly shows that even the amounts paid by third parties were taken over by the assessee. Hence, the status of the account remained as 'Loan account' thereafter i.e., after charging interest. 5. The Assessing Officer has also noticed that the assessee stated that they have given a temporary loan of Rs. 10 lakhs each on 23.04.1998 and 13.06.1998 and the same has been received back on 04.05.1998 and 24.06.1998 respectively, and wherever the payment represented loan, the same has been repaid and the remaining amount represented trade advances. This clearly shows that the ledger of Century Wood Limited in the books of the assessee reflects the loan transactions as well as supply of material transactions. The assessee categorised the amount receivable as on 01.04.2000 as loan receivable. Thereafter not even a single entry in the ledger account, reflecting the receipt of any material. The amounts advanced by the assessee aft....
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....Advances written off in respect of Century Wood Limited, an amount of Rs. 27,63,626/- only represents the advances given to, for the purchase of wood, qualifying for deduction under section 37 of the Act, and remaining amount represents the 'loan' given by the assessee. Since, the assessee's business is not money lending or advancing of loans, the claim of the assessee towards advances written off to the extent of Rs. 41,95,137 do not qualify for deduction under section 37 of the Act. Hence, the claim of the assessee against the trade advances written off to an extent of Rs. 41,95,137 was disallowed. 7. The assessee carried the matter in appeal before the ld. CIT(A) and reiterated the submissions as made before the Assessing Officer. The ld. CIT(A), after considering the submissions of the assessee, dismissed the appeal of the assessee by observing as under: "In the course of appellate proceedings, the AR of the appellant reiterated the submissions made before the AO vide his letter dated 27.12.2012. I have considered the findings of the AO, and also submissions made before the undersigned carefully. The AO elaborately discussed in the assessment order explaining how....
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....ny explanation as to how the provisions of sec. 28(1) are applicable to the claim of deductions either u/s 36 or 37 of the IT Act. The loss if any arises to the appellant on non recoverability of the amounts is clearly a capital loss which is not allowable as deduction under IT Act, 1961. Hence, all the grounds of appeal filed by the appellant on this issue are dismissed." 8. On being aggrieved, the assessee is in appeal before the Tribunal. 9. The ld. Counsel for the assessee has submitted that the Assessing Officer has not disputed the trade advance. Therefore, once the Assessing Officer has accepted the amount given by the assessee as trade advance and it had to be treated as a bad debt and it has to be covered under section 36(1)(vii) of the Act. Alternatively, he has submitted that it has to be treated as a business loss. He has also relied on the decision in the case of Commissioner Of Income-Tax v. Southern Polymers P. Ltd. [2011] 229 ITR 540 (Mad.). 10. On the other hand, the ld. DR strongly supported the orders of authorities below and submitted that it is a capital loss and not a business loss. He has also submitted that the appeal filed by the assessee may be dismisse....
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....nces of the case, we hold that the claim of the assessee cannot be allowed as trade advance and the same was rightly treated by the Assessing Officer as capital loss, which was confirmed by the ld. CIT(A). 12. So far as alternative ground raised by the assessee that under section 37 of the Act it is a business loss is concerned, we find that the assessee is not in the business of money lending. The assessee also not able to explain as to why it has advanced various amounts in different dates and it has not able to correlate the amount given and the material i.e. wood frame the assessee wanted to purchase from Century Wood Limited. Under these circumstances of the case, we are of the opinion that it is not relating to the business of the assessee and it is only a capital loss. Accordingly, the alternative ground raised by the assessee is rejected. 13. So far as case law relied on by the assessee in the case of CIT v. Integrated Finance Co. Ltd. [2011] 339 ITR 391/[2012] 20 taxmann.com 526 (Mad.) , the Hon'ble High Court has considered the facts that the assessee advanced money to the manufacturing company for the purchase of machinery. On the advance thus made, for the delay i....