TaxTMI 
TaxTMI 
2022 (7) TMI 1604
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....ven to associate companies and non recoverable interest receivable from associate companies of the appellant. Appellant submits that the order passed by learned Commissioner of Income Tax (Appeal) - 4, Vadodara is against the principles of natural justice as no opportunity for hearing is allowed to the appellant." 3. The ld. counsel for the assessee pointed out that the same relates to irrecoverable advances and loans as also interest on the same which were claimed as written off by the assessee, amounting in all to Rs.10,05,27,013/-. It was pointed out that these loans & advances and interest pertained to those given by the assessee in the preceding years to its overseas associate concerns in Australia, Africa and China, the details of which are reproduced at para-10 of the CIT(A)'s order as under: Particulars Elecon Australia Elecon Africa Elecon China Total Loan given during F.Y.2003- 04 to F.Y.2008- 09 2,58,53,304 5,41,72,350 23,34,500 8,23,60,154 Accumulated interest thereon from FY 2005-06 to F.Y.2010-11 60,98,162 1,16,73,901 3,94,796 1,81,66,859 Total 3,19,51,466 6,58,46,251 27,29,296 10,05,27,013 4. He pointe....
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....distinguishable on the facts and circumstances of the case. There are certain conditions for allowance of bad debts. The amount of debt should have been taken into account in computation income of the assessee of the relevant previous year. There must be existence of debt, it must not have been liquidated earlier under some agreement. The debt must be incidental to the business. The amount of debt must have been included in the income computation i.e. the amount of debt must have been considered in computation related to business. In the case of the assessee it has given the deposits and the advancing of the deposits is not incidental to the trade of the assessee. Therefore, it cannot be categorized as trade debt. Further, the debt has not been spring directly from carrying on the business and should be incidental to it and it cannot be just any loss sustained by it even if it has some connection with his business. In view of the above, the claim of the assessee is not allowable and hence the amount of Rs 10,05,27,013/- is disallowed and added to the total income of the assessee." He pointed out that before the ld. CIT(A) the assessee had contended that these loans & ad....
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....e advancement of loan to these concerns can be said as "commercially expedient". 5. Before us, his contention was that vis-à-vis the interest components in the amounts written off, the same were allowable since the assessee had demonstrated to the authorities below that they had been treated as income of the assessee on accrual basis in earlier years, and since had become irrecoverable now therefore were being written off. Vis-à-vis the loan components in the same, the contentions of the ld. counsel for the assessee was that the assessee had established commercial expediency for granting these loans, and therefore, the write off of the same was allowable. 6. The ld. DR on the other hand, relied on the order of the CIT(A) and submitted that the assessee had failed to establish commercial expediency of the loans and advances granted. 7. We have heard contentions of both the parties. The issue before us relates to claim of write off of loans & advances and interest given to associate concerns of the assessee amounting in all to Rs.10,71,30,020/-. The fact that this amount included two components - loans & interest, is an admitted fact,the break up of which is re....
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.... 141,906 18,166,859 8. The ld. DR was unable to controvert the above contentions of the assessee. In view of the same, we agree with the ld. counsel for the that the interest component in the loans and advances written off of Rs.1,81,66,859/-,having been earlier returned to tax on accrual basis, the same tantamounted to debts which on being written off in the books were allowable as per the provisions of section 36(1)(vii) of the Act as Bad Debts written off. The claim of the assessee therefore to write off of interest amounting to Rs.1,81,66,859/- is accordingly allowed. 9. Now coming to the portion of the loans & advances written off relating to the principal portion amounting to Rs.8,23,60,154/-, the contention of the Ld. Counsel for the assessee was that he had consistently and emphatically pleaded that these advances were given for commercially expedient purpose of the business of the assessee; that the commercial expediency of giving loans was also demonstrated to the ld. CIT(A) by pointing out that the three associate concerns to whom the advances were given were promoted by the as....
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.... entities in the preceding year placed before us at PB Page No.91 as under: 12. The ld. counsel therefore stated that it was clearly stated and demonstrated before the ld. CIT(A) that loans & advances were given for the purpose of advancement of its own business in other countries, and therefore, the write off the same on account non recoverability was allowable. He stated that the Ld. CIT(A) however had ignored all the above and denied the claim of write off recording an incorrect finding that the assessee was unable to establish the commercial expediency of these loans. Ld. DR however relied on the order of the Ld. CIT(A) at para as under: "... However, the appellant has not been able to demonstrate with even single document as to how the business was undertaken between the assessee and these associate concerns. How the advancement of loan to these concerns can be said as "commercial expedient". 4.5. In the case of Crescent Films (Supra) a film distributor had paid certain amount to the producer for distribution rights for a film under production. The producer having run into difficulty and finding himself unable to complete the film, approached the assessee ....
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.... computation income of the assessee of the relevant previous year. Therefore, I upheld the order of the Assessing Officer and confirm addition of Rs.10,05,27,013/-. This ground of appeal is dismissed." 13. We have gone through the orders of the authorities below,have carefully heard both the parties and also the documents and submissions to which our attention was drawn. We have noted that the assessee had contended that its business was closely linked with that of its associate concerns to whom the amounts written off of Rs.8,23,60,154/- were advanced as loans. The assessee 's claim to close connection of its business with the associate concerns is on account of the said concerns being promoted by it for selling its products both directly and indirectly by way of procuring orders for the assesses products. The assesee had even submitted a detail pointing out the direct and indirect sales of its products made through these concerns. The assessee had also contended that the amounts were advanced to the concerns during their normal business operations to tide over their cash crises. None of these averments of the assessee have been controverted by the Revenue authorities either be....
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....loyee in a business is admissible as a deduction under s. 10(1) what has to be considered is whether it arises out of the carrying on of the business and is incidental to it. Viewing the question as a businessman would, it seems difficult to maintain that it does not. A business especially such as is calculated to yield taxable profits has to be carried on through agents, cashiers, clerk and peons. Salary and remuneration paid to them are admissible under s. 10(2)(xv) as expenses incurred for the purpose of the business. If employment of agents is incidental to the carrying on of business, it must logically follow that losses which are incidental to such employment are also incidental to the carrying on of the business. Human nature being what it is, it is impossible to rule out the possibility of an employee taking advantage of his position as such employee and misappropriating the funds of his employer, and the loss arising from such misappropriation must be held to arise out of the carrying on of business and to be incidental to it. And that is how it would be dealt with according to ordinary commercial principles of trading. 8. At the same time, it should be emphasised....
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....of the Act. In CIT vs. Nainital Bank Ltd. (1965) 55 ITR 707 (SC) : TC14R.285 the Supreme Court observed : "Under s. 10(1) of the Indian IT Act, 1922, the trading loss of a business is deductible in computing the profit earned by the business. But every loss is not so deductible unless it is incurred in carrying out the operation of the business and is incidental to the operation. Whether loss is incidental to the operation of a business is a question of fact to be decided on the facts of each case, having regard to the nature of the operations carried on and the nature of the risk involved in carrying them out. The degree of the risk or its frequency is not of much relevance but its nexus to the nature of the business is material." Similarly irrecoverable advances made to sole sellimg agents were also allowed as business losses by the Hon'ble Allahabad High Court in the case of CIT vs Jwala Prasad Radha Kishan (1977) 107 ITR 540. In view of the above We hold that the assessees claim of irrecoverable loans and advances of Rs.8,23,60,154/- was allowable as business loss since they were incidental to the business of the assessee. Ground No.1 raised by the assessee is ac....
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....rate sheet forms part of this order:" 9.2. The Ld. Authorized Representative has made written submission as under:- "7. Ground No. 7: Excess interest charged u/s. 234D: AO has erred in charging excess amount of interest u/s. 234D to the extent of Rs. 2,29,844/- on the appellant. AO has charged interest u/s. 234D of Rs. 7,46,993/-as against Rs. 5,17,149/-chargeable to the appellant As per the impugned order AO has made addition to the total income which has resulted in raising demand. Therefore AO has charged interest u/s. 234D on the amount of refund paid earlier to the appellant as per intimation u/s. 143(1). Appellant submits that as per intimation u/s. 143(1) refund of Rs.1,14,92,196/- determined. The intimation is dated 26-03-2014 and received by appellant on 22- 07-2014. It is mentioned in the intimation u/s. 143(1) that Rs.33,25,450/- has been adjusted from the refund. Balance amount of refund of Rs.81,66,750/- (Rs. It14,92,196/- less Rs.33,25,450/-) is received on 10-07-2014 through a cheque dated 05-07-2014 issued by SBI, Mumbai. A copy of the intimation u/s. 143(1) and refund cheque received from SBI, Mumbai are attached and marked Annexure -14. ....
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....the normal procedure and when an easy remedy lies with the appellant, he is duty bound to seek relief from the concerned authority instead of increasing litigation by filing of appeal. Accordingly, this ground of appeal is dismissed. The appellant is directed to file rectification application before the Assessing officer in accordance with the procedure." 18. The ld. counsel for the assessee contended that his limited prayer was that the issue be restored back to the file of the Ld. CIT(A) for adjudication. 19. We have heard both the parties and we agree with the ld. counsel for the assessee that any grievance raised by him needed to be addressed and adjudicated and not dismissed merely for the reason that there were alternative remedies available with the assessee which he ought to have pursued. The assessee is well within his right to contest / challenge the order of the AO on any grounds which are to its prejudice. The fact that alternative remedies are available to the assessee is for the benefit of the assessee and cannot be exercised by adjudicating authorities for refusing to adjudicate the issue on the ground that the assessee ought to have pursued alternative remedy.....