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2021 (5) TMI 677 - AT - Income TaxBusiness loss u/s 28/37(1) - write off/bad debt - advances /bad debt written off in respect of 22 parties - As 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 - HELD THAT:- We find in the case of Kalpataru Power Transmission Ltd.. [2016 (8) TMI 209 - ITAT AHMEDABAD] has held that irrecoverable advances given to job work contractors for supply of material and labour in regular course of business would be a business loss and, therefore, amount written off would be allowable as business expenditure. Rajkot Bench of the Tribunal in the case of Hiravati Marine Products (P) Ltd. [2019 (5) TMI 10 - ITAT RAJKOT] while deciding an identical issue noted that the assessee company was engaged in the business of processing and exports of marine products, claimed deduction of certain amount which represented advances written off. In view of fact that advances given by assessee were duly disclosed in financial statements and, moreover, it was also undisputed that there was downfall in business of fishermen to whom advances were made due to cyclone and earthquake, assessee's claim for deduction was held to be allowed. In the case of Dr. T.A. Qureshi, [2006 (12) TMI 91 - SUPREME COURT] held that the Explanation to section 37 has really nothing to do with the instant case as it was not a case of a business expenditure, but of business loss. Business losses are allowable on ordinary commercial principles in computing profits. Once it was found that the heroin seized formed part of the stock-in-trade of the assessee, it followed that the seizure and confiscation of such stock-in-trade had to be allowed as a business loss. Loss of stock-in-trade has to be considered as a trading loss. The Delhi Bench of the Tribunal in the case of Swastik Pipes Ltd. [2018 (4) TMI 985 - ITAT DELHI] 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. 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). We are of the considered opinion that the claim of the assessee has to be allowed as business loss u/s 28/37(1) of the IT Act. We, therefore, set aside the order of the CIT(A) and the grounds raised by the assessee are allowed.
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