TaxTMI 
TaxTMI 
2023 (4) TMI 234
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....ssee is a public company engaged in the manufacturing and selling of railway wagons, heavy earth moving and mining equipments etc. The primary business segment of the assessee includes wagons and coaches, steel casting. Assessee filed its return of income on 26.09.2013 reporting total income of Rs. 32,68,73,750/- and a book profit of Rs. 37,34,25,665/- u/s. 115JB of the Act. Case was selected for scrutiny for which statutory notices were issued and served on the assessee and were duly complied with. In the course of assessment, Ld. AO enquired about the details of bad debts claimed by the assessee in the return for the year. Assessee made its detailed submission vide letter dated 24.02.2016 placed in the paper book at page 86 along with the relevant documentary evidences. Considering the submissions made by the assessee, Ld. AO accepted the claim in respect of bad debts actually written off during the year though certain additions and disallowances were made by the Ld. AO in respect of other transactions. Subsequently, Ld. CIT (LTU) from the perusal of assessment records, observed that assessee has debited an amount of Rs. 3,77,66,000/- towards irrecoverable debts/advances written ....
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.... 4. At the time of scrutiny assessment Assessing Officer allowed this sum of Rs. 3,24,45,459/- (Three Crores Twenty Four Lakh Forty Five Thousand and Four Hundred Fifty Nine) as deduction from the income as claimed by the assessee. The assessee has claimed the deduction of Rs. 3,24,45,459/- u/s. 36 of Income Tax Act, 1961. ..... 6. These [(i) to (xiii)] were some of the important issues required to be examined before allowing the writing off debt and specially looking into the close association between the parties involving a huge amount paid as advance to a known person and being claimed as bad debt. Furthermore, it was required to examine the legality of the allowance of this loss being capital in nature and being not a loan given in the ordinary course of business by the assessee or to purchase raw material required on day to day basis. It was not a routine revenue expenditure of the assessee being claimed as deduction out of business profit." 3.2. In response to the show cause notice, assessee furnished its reply which is reproduced in the impugned order. The reply of the assessee contains threefold contentions, challenging the revisionary proceedings....
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....quipments in earlier years. The said company was manufacturing such components and which was being used in the final product manufactured by the assessee company. The advance was given to such company was adjusted towards supply made by said company to the assessee company. Since April 2010, manufacturing activity in the said associated company has been haulted due to operational difficulties and other reasons and it had shut down its manufacturing activity since such time. As such, the amount of Rs. 344.45 lakh is the unadjusted advance remaining since such period. Your goodself may kindly appreciate that the advance was given in the course of business and the said associated company was unable to return the same to the assessee company the assessee company has treated the same as business loss and the provision in such respect was debited in the P/L A/C and has been claimed as such in the computation of income. In such respect, your goodself may kindly appreciate that since the advance was given in the course of business, the assessee company unable to recover/adjust the same and it has claimed as business loss and the same is allowable. In such respect your attention is drawn to....
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....& Co (firm). On failure to supply by Greysham & Co. the assessee wrote off such sum and the claim was allowed by AO accordingly. The assessee had made tripartite agreement for takeover of business of Greysham & C. (firm) by Greysham Pvt. Ltd. for which separate agreement were made and for which separate advances were given. 4.1. In this respect, attention was drawn to the notes on account of Greysham & Co. Pvt. Ltd. (for year ended 31.3.2010) which is reproduced hereunder: "M/s. Greysham Pvt. Ltd. entered into a Business Transfer Agreement in September, 2008 with M/s. Greysham & Co. a partnership firm engaged in the manufacture and sale of certain critical components e.g. Air Brake, lack Adjuster, etc. which are used in the manufacture of wagons by (TWL), the holding company. In terms of the said agreement the business and liabilities, rights, permission, privileges, etc. pertaining to the said firm would be transferred to the company on fulfilment of the terms and in the agreement. Pending this, the firm would continue to supply the components required by TWL directly. With a view to carry on the business and meet the working capital requirements, the firm has requeste....
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....uch sum of Rs. 3,44,45,000/- in the year in which such sum has been written off and it may kindly be held accordingly The impugned matter has been dealt with by the Ld. AO as follows: B. Provision for Doubtful Advances:- (i) The assessee has debited an amount of Rs. 34445 lakh in scheduled-20 of its P & L A/C on account of 'Provision for doubtful advances' for the assessment year under consideration. (ii) In this regard, the assessee was asked to furnish the details of doubtful advance vide notice u/s. 142(1) of the IT Act dated 07.01.2014. It is found from the submission of the assessee that the assessee had given advances to its associated company, M/s. Greysham & Co. (P) Ltd. In earlier years for supply of raw materials and other components such slack adjuster and air break equipment. (iii) The assessee was further asked to explain why provision for doubtful advances of Rs. 344.4S lakh will not be disallowed for want of substantial evidences. (iv) In reply the A/R of the assessee submitted a written submission which is reproduced as under:- "Your good self has mentioned that the provision for advances debited....
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....6. During the course of the appeal, it was submitted by the appellant that it does not wish to press for adjudication on these grounds. 17. FINDINGS & DECISION: [Grounds 9 & 10] 1. In view of this appellant's submissions that it does not wish to press these grounds, the same stand dismissed. The action of the Ld. AO in making the addition of Rs. 344.45 lakhs on the account of doubtful advances stands confirmed. 2. The grounds 9 & 10 stand dismissed. 4.3. To this effect, Ld. Counsel also placed on record an affidavit dated 20.02.2023 from Shri Saurav Singhania, a director of the assessee wherein these facts have been affirmed. The relevant contents of the said affidavit are as under: "1. That, the Authorised signatory has been duly authorized by the Board of Directors of the company and as such is competent to file this affidavit. 2. That, the captioned appeal has been filed by the appellant against the order of CIT(LTU) (order dt. 28.3.2018) 3. That, the subject matter in the aforesaid order u/s. 263 pertains to write off of bad debt of Rs. 3,24,45,459/- (Rs. 3,44,45,000/- Less: Rs. 19,99,541/-). 4. That, the afo....
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....ed submission to demonstrate that it is distinguishable in the present set of facts for its applicability. He submitted that the said decision of the Hon'ble Supreme Court does not apply to the facts of the assessee in view of the following: "a) Advance given was for supply of slack adjuster which was required for finished products and as such in nature of raw material and was very much in course of business of appellant. b) Advance was not capital asset, since said advance for Rs. 35,00,000/- is a separate transaction and has not written off and is outstanding. c) Such write off was claimed u/s. 28(i) as 'BUSINESS LOSS' and not u/s. 36(1)(vii) r.w. 36(2)." 4.6. He further submitted that in the said decision, according to the Hon'ble Supreme Court, it is mandatory for the assessee to prove that the advance against which claim of bad debt is made is "in its ordinary course of business". In the present case, according to the Ld. Counsel, the advance in question was wholly and exclusively for the purpose of business of the assessee since assessee is in the business of manufacturing of railway wagons and the claim is in respect of advance g....
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....the relevant disclosures were made in the audited financial statements of the assessee for AY 2011-12, placed on record. We also take note of the fact that assessee had given advance in earlier years for supply of raw material to Greysham Co. Pvt. Ltd. Supplies were made to the assessee in the earlier years. Subsequently, dispute arose between the assessee and the supplier company resulting in the claim of bad debts by the assessee towards the balance advance lying with the supplier. The said advance against the supply of raw material is claimed by the assessee as a business loss and is allowable in computing the income of the assessee under the Act. From the above noted facts and observations, we find that the revisionary proceeding invoked by Ld. CIT did not meet the twin criterion enunciated in section 263 of the Act. 7. For this, let us take the guidance of judicial precedence laid down by the Hon'ble Apex Court in the case of Malabar Industries Ltd. vs. CIT [2000] 243 ITR 83 (SC) wherein their Lordships have held that twin conditions need to be satisfied before exercising revisional jurisdiction u/s. 263 of the Act by the CIT. The twin conditions are that the order of t....
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....=== Document 1 Details of Irrecoverable debts written off Low No Dove Party Name Narration Amount Remarks Journal Date 31-Mar-13 reyshan and Company Private Limited Greycham and Company Private latic 32,445.459 Refer Note 1 Advance against supply of labour Eastern Guard Care 7130076 29 Sep 12 Put. Ltd. TIN OU 31-Mar-13 Zonal Railways T] 47733 21--13 DLW TWIN 1237 31-May-12 Zonal Hailways TI 33329 10-Sep-12 JR Enterprise T (1130 TWIN, 1143 30-6p-12 Comet Technocom 20-May-12 Zonal Railways 1125328 22-Aug-12 Zonal Railways 7152037 2 Fel 13 Zonal Railways HasterCard Care Pty. Ltd - Balance Written Of Being provision made for La and ed diff to be deduct by railway un 12 ce-en haie sophied in march, payment of which yet to receive Being amat delect towards difference of excise duty liy DW transfer to sundr balance written of account Being amount outstanding against bil na 108,1117 and 1154 tranfer to sundry balance written off and prevision of Id account leing the annuam pail to JR Enterprise against their old dues which was earlier written ....