TaxTMI 
TaxTMI 
2026 (4) TMI 1394
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....2014. The case was selected for limited scrutiny in CASS. Accordingly, statutory notice u/s 143(2) of the I.T. Act, 1961, was issued on 01.09.2015 and served upon the assessee company. Questionnaire dated 30.08.2016 u/s 142(1) of the Income Tax Act, 1961 was sent to the assessee company calling for details, submissions and explanations as mentioned in them. The AO further noted that after the approval of PCIT-9, the case was taken up for complete scrutiny which was duly informed to the assessee during the course of the discussion. In response to the notices issued, Sh. Rajesh Rustagi and Ms. Shivangi Gupta, CA/Authorized Representative appeared on behalf of the assessee company, attended assessment proceedings from time to time and filed submissions and necessary details as requisitioned and discussed the case. 2.1 Disallowance on advances written off: The AO on perusal of Note 27 'Operating and general expenses" noted that the assessee had debited an amount of Rs. 4,90,65,185/- as advance written off in the P&L A/c. Vide order sheet entry dated 16.12.2016, the assessee was asked by the AO to justify the claim of advances written off along with the details. Vide reply dated ....
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....ebts account made under that clause. (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply- (i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or money-lending which is carried on by the assessee;" 2.3 The AO further noted that the plain reading of S.36 and settled law on the subject shows that the pre-requisites for claim of bad debt are as follows: "1. It must be a debt. 2. Such debt must be revenue in nature as held in 77 ITR 751(SC) and 321 ITR 43 (Bom). 3. Such debt must be incidental to the business or profession of the assessee. 4. Such debt must have been taken into account in computing the income of the assessee in the earlier years." 2.4 The AO further noted that during the year the assessee company was running a 5- star hotel by the name of 'The Grand' and it was not in the business of ....
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....being the amount of advance written off, by treating such advance as capital expenditure and also ignoring the submissions and evidences placed on record by assessee, ignoring the fact that the amount was given by assessee, engaged in the business of running a hotel, to M/s Gomiti Food and Spices Pvt. Ltd. for taking on rent a property for the purpose of running a restaurant, is advance given wholly and exclusively for the purpose of hotel business carried on by the assessee, and therefore, non-recovery of the same is a trading loss allowable to the assessee. Thus, the addition so made is illegal and unjustified and should be deleted. 6. That the addition/disallowance of Rs. 1,50,00,000 being the amount of interest bearing advance written off whose interest was duly offered to tax in ITR, by treating such advance as not incidental to the business carried on by the assessee and also ignoring the submissions and evidences placed on record by assessee, ignoring the fact that the amount was given by assessee, engaged in the business of running a hotel, to Mr. O.P. Parasrampuria for securing timely delivery of fabric for various uses in its hotel business, is advance given whol....
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....during benefit to the appellant. Secondly, even if the argument of the appellant is accepted that the advance was given for the renovation and re-development of the property of Gomti Foods & Spices Pvt. Ltd. for the purpose of a fine dining restaurant on a long term lease of 20 years, on revenue sharing basis is considered, it would still fall within the ambit of capital expenditure as this would have led to long term rights for use of the property with enduring benefits. M/s. Gomti Foods & Spices Pvt. Ltd. had granted the appellant exclusive rights to renovate and re-develop the property for use as a fine dining restaurant and Gomti Foods & Spices Pvt. Ltd. and had agreed to transfer rights to use of property to appellant for 20 years in exchange of 4 crores as refundable deposit and a monthly rental of 1% of the monthly gross sales from the restaurant. Further, considering the facts of the case and the evidences on record, along with the judgment of the Supreme Court in the above mentioned case law as discussed above, Assam Bengal Cement Co. Ltd. vs. Commissioner of Income Tax, West Bengal, (1955) 27 ITR 34 (SC), Pingle Industries Ltd. vs. Commissioner ....
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....rty at 4 Regal Building, Parliament Street, New Delhi, as a restaurant; (iv) The development was to be completed by the assessee within a period of 1 year from the date of signing of this agreement and will be put to use as a restaurant by 31/ 12/ 2008.In case the assessee would be unable to complete the same and put to use as stipulated within 1 the period of 1 year', the agreement was to be considered as dismissed and Gomti foods had the power to forfeit the deposit of Rs. 4,00,00,000. - Subsequently, the major fire, which broke out in the basement kitchen of the Grand hotel on 26.01.2008, which quickly spread to other floors, which required 40 fire tenders and three hours to control it. [Refer: Media Report published in Times of India P.B. Page 43-45 & Fire Report in Delhi Fire Services, Govt. of NCT, Delhi @ Page 46] - Thus, the assessee was unable to fulfil the conditions stipulated in the aforesaid agreement. In these circumstances, the assessee repeatedly requested Gomti foods for refund of the deposit of Rs. 4,00,00,000/-. - The following table demonstrates the number of communications with Gomti foods: S.No. Letter Dated Ref....
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.... a massive fire at its premises i.e. at Grand Hotel in the year 2008, the assessee was unable to fulfil the conditions stipulated in the said agreement with M/s Gomti Food Spices Ltd. and repeatedly requested M/s Gomti Food Spices Ltd for the refund of Rs. 4 crores. In this regard, the assessee has submitted necessary documents in its support placed at page no. 48-55 of the paper book to show that the assessee made all efforts to get the securities deposits refunded but was able to receive a refund of Rs. 72.50 lakhs. Further, it is submitted that realizing the bleak chances of recovery, the management vide resolution dated 24.04.2014 decided to write of the balance of Rs. 3.27 crores in its books of accounts. On similar facts, the Coordinate Bench of the Tribunal, in the case of DCIT vs. Ebony Retail Holding Pvt. Ltd. (supra) allowed a similar claim of the assessee. The relevant extract of the said order is reproduced as under: "7. Before us, the ld. AR vehemently stated that the said amount was given as security deposit towards rented premises. It is the say of the ld. AR that since the premises was destroyed in fire and the assessee had to vacate the said premises, he r....
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.... which is currently a debt written nonperforming assets with Bank/Fl's on 1996 and the mutual discussion was carrying on even for providing the agricultural land in remote village in setting of the ICD. But the same has also not materialized." The Assessing Officer in the assessment order has stated that the appellant was in business of running a five star hotel and not in the money lending business. Therefore, the same has been disallowed by the AO. The appellant during the appellate proceedings has made submissions which have been discussed in Para C above. The relevant extract of the submission is reproduced as below: O.P. Parasrampuria 1. Insofar as advance of Rs. 1.50 Crore written off during the year under consideration and claimed as deduction is concerned, briefly, relevant facts are that the assessee had given interest bearing loan of Rs. 2.70 Crore to Mr. O.P. Parasrampuria, Chairman of Parasrampuria Group in FY. 1995-96, carrying interest ranging from 18-24% in 3 tranches of Rs. 1 Crore on 15/11/1995 Rs. 1 Crore on 04/01/1996 and Rs. 70 Lakh on 31/01/1996, out of which Mr. O.P Parasrampuria returned Rs. 1.20 Crore in FY. 1996-97, r....
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....not appear to be justified. a) The advance has not been made to the Parasrampuria Group but to its Chairman O.P. Parasrampuria. Such advance of interest bearing loan that too at exorbitant interest rates of 18 to 24% appear to be clearly in a personal capacity. The loans were neither incidental to the business of the appellant nor related to its principal business activity The appellant is not in the money lending business but in the hotel industry. If it was to be a business transaction, the advance so made, should have been provided to the company of the Parasrampuria Group, if it was for the purpose of providing fabrics for five star hotels as has been claimed by the appellant. b) Secondly, it is not the case of the appellant that from the year F.Y. 1995-96, to the F.Y. 2013-14, in which the advance was written off, the Parasrampuria Group companies had provided any fabric to the appellant on priority basis or on discounted prices. In fact, there is no evidence submitted that any delivery of fabric had been made by the Parasrampuria Group companies, for allegedly which these advances had been given. The very fact that Shri O.P. Parasrampuria had return....
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....any did not spring directly from business of assessee-company and was not incidental to it, amount written off by assessee could be allowed as a deduction under section 28." Held that the same was not incidental and could not be allowed as a deduction. In view of the above discussion, facts of the case and following the decision of the High Court as discussed above, it is held that the advance of Rs. 1.5 crores written off during the year is not an allowable deduction and therefore, the AO was justified in making the addition on this account. Hence the ground of appeal of the appellant in this regard is dismissed." (emphasis supplied by us) 7.2 In this regard, the specific ground being ground no. 6 of this appeal is reproduced as under: "That the addition/disallowance of Rs. 1,50,00,000, being the amount of interest bearing advance written off whose interest was duly offered to tax in ITR, by treating such advance as not incidental to the business carried on by the assessee and also ignoring the submissions and evidences placed on record by assessee, ignoring the fact that the amount was given by assessee, engaged in the business of running a hotel, to Mr. O....
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....procuring fabric such as curtains and bed sheets for use hotel business. Further, it is also well settled, write off of advances given in the course of business for procuring material is a revenue loss, allowable under section 37(1) of the Act. Reliance, in this regard, is placed on the following decisions: * Roop Kishore Madan vs. ACIT [2024] 162 taxmann.com 473 (Delhi - Trib.) [Para 11-23] * DCIT vs. Friends Shoe Company: 74 taxmann.com 100 (Visakhapatnam - Trib.) [Para 9-11] * CIT vs. Appollo Tyres Ltd. [2013] 33 taxmann.com 575 (Cochin - Trib.) [Para 20- 24] * Mahakoshal Refractories (P.) Ltd. vs. ITO: 175 taxmann.com 673 (Mumbai - Trib.) [Para 4-7] In view of the above, it is respectfully submitted that the write off of advance is allowed 1as deduction under section 37(1) of the Act, and the same needs to be deleted." 7.4 The Sr. DR supported the orders of the authorities below. 7.5 We have heard both the parties and perused the material available on record. We agree with the findings of the AO, that the assessee was not in the money lending business. This advance of Rs. 1.5 crores paid to Shri O.P. Parasramp....
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.... assessee and the gain in the form of receipt of gas for hotel business at discounted price, leading to huge profit to the assessee viz-a-viz likely loss of Rs. 10 Lakh (2 FDRs of Rs. 5 lakh each) plus interest thereon till the date of award, the assessee decided to agree with the proposal submitted by M/s Sankalp Oil and Natural Resources Pvt. Ltd. Resultantly, assessee submitted 2 FDRs of Rs. 10 Lakh to the Ministry of Petroleum and Natural Gas for its participation in the bidding. Unfortunately, the tender was not awarded to the assessee and M/s Sankalp Oil and Natural Resources Pvt. Ltd. Consequentially, the Ministry of Petroleum and Natural Gas did not refund the FDR. It resulted into loss to the assessee of Rs. 10 Lakh plus interest thereon of Rs. 1,06,860/- which had accrued till the date of forfeiture of FDR by the Ministry of Petroleum and Natural Gas and had been recorded as income by the assessee by way of interest on FDR till that date. Hence, assessee wrote off the amount of Rs. 11,06,860/- in the year under consideration under authorization of board resolution dt. 24/03/2014 passed by the Board of Directors. ii) It is clear from the facts of the case that the....
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....incurred for purpose or should be incidental to business of assessee was not fulfilled in instant case." Held, yes - Thus, the Hon'ble High Court held the answer to be in the affirmative. Further, since when money was paid to PCL auction had not been held, assessee, who was in business of sale and purchase of flats, could not have incurred said expense for its own business as there was no commercial space acquired by PCL which it could sell to assessee - Held, yes Whether, therefore, Tribunal had rightly disallowed loss claimed by assessee as trading loss - Held, yes iii) From the facts and evidences on record, it is seen that the amount of Rs. 11.06 lakhs which has been written off, was not in the nature of expenses incidental to the business of the appellant and hence is not allowable as per the provisions of section 37 of the I. T. Act. The petroleum and natural gas business is not a principal business of the appellant, who is in the hotel business. Thus, when the amount of Rs. 11.06 lakhs was forfeited by the Ministry of petroleum and natural gas, it could not have been said to be an expenditure incidental to the business of the appellant. ....
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....agement vide resolution dated 24.03.2014 decided to write off the balance of Rs. 11,06,860 in the books of account. [Refer: P.B. Page 85]. - It would be appreciated that the intention of the assessee while participating in the joint bidding process was to precure natural gas for running of the core hotel business of the assessee and loss / expenditure incurred on that count is an allowable deduction under section 37(1) of the Act as being incurred wholly and exclusively for the purpose of business. - It has been consistently held by this Hon'ble Tribunal that write off of EMD/advances given to third party for obtaining tenders, subsequently written of in the course of business for procuring material is a revenue loss, allowable under section 37(1) of the Act. - Reliance, in this regard, is placed on the decision of this Hon'ble Tribunal in the following cases: * T.K. Elevators India (P.) Ltd. vs. DCIT: [2025] 172 taxmann.com 547 (Delhi - Trib.) [Refer Para 13] * Pyoginam vs Addl. CIT: 130 TTJ 7 (Delhi- Trib.) [Refer Para 4 to 7] It is respectfully submitted that in the present case write off of EMD/advances was given to third pa....