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2021 (8) TMI 35 - AT - Income TaxAddition on account of cessation of Liability u/s 41(1)/28 - addition made on the ground that certain trade creditors/liabilities were appearing in the Balance Sheet for more than 3 years and have ceased to exist and represented remission of liability liable to be taxed u/s 41(1) - HELD THAT:- Admittedly, the liabilities/creditors continue to appear in the audited accounts of the assessee as on 31.03.2008 and assessee has not written back these amounts. Hon’ble Supreme Court in the case of CIT Vs. Singauli Sugar Works [1999 (2) TMI 5 - SUPREME COURT] have explained the provisions of section 41(1) and has held that so long liabilities are continuously shown and admitted in the audited accounts, the same do not cease to exist. CIT (A) has taken a correct legal view of the matter and has correctly deleted the addition. We uphold the action of CIT (A) on this issue and dismiss this ground of appeal of the department. Depreciation of account of computer peripherals such as printers and UPS etc. - HELD THAT:- Both the parties fairly agreed that this issue is now settled by the judgments of CIT v. BSES Yamuna Power Ltd. [2010 (8) TMI 58 - DELHI HIGH COURT] and in the case of Birla Soft Ltd. [2014 (2) TMI 1343 - SC ORDER] - Respectfully, following these judgments, it is held that CIT (A)’s order on this issue does not need any interference and is hereby upheld. The Ground No. 3 raised by the department is accordingly dismissed. Disallowance of Foreign Tour Expenses of wife of one of the Directors of the company - HELD THAT:- As decided in judgment of Hon’ble Gujarat High Court in the case of Sayaji Iron & Engineering Ltd. [2001 (7) TMI 70 - GUJARAT HIGH COURT] to claim that there cannot be any personal element in the hands of the corporate entity and disallowance made by the AO was wholly unjustified - Decided against revenue. Losses claimed in respect of Dwaraka Project - According to the Department, these losses had been worked out by the assessee on estimated basis and in an unscientific manner - main reason given by the Assessing Officer was that very small amount of expenditure had been incurred by the assessee on the project till Assessment Year 2008-09 and only 30% of the area in respect of that project had actually been booked by the assessee and necessary revenue had been recognized in respect of the same - HELD THAT:- Transaction between the related parties is genuine is not in dispute. The Ld. AO has also accepted this aspect and the only reason for restricting the cumulative loss of ₹ 44 Crores in A. Y. 2008- 09 and A. Y. 2009-10 as noted from assessment order for A. Y. 2009-10 is the reduction of discount actually allowed by assessee @ 31.5% to 5%. Therefore, so long as transactions between the transacting parties are genuine, no challenge can be thrown to the prices decided between the parties. The AO has subsequently in A. Y. 2010-11, 2011-12 and 2012-13 accepted both the cost of the project and the sales actually realized in line with the previous year’s estimation. A cumulative appreciation of all the facts and legal position as gathered and applicable to the facts of this case on this ground would lead to a natural conclusion that AO was not justified in disallowing losses in A. Y. 2008-09 and also in A. Y. 2009-10. Whether the order of Ld. CIT (A) requires any change visà- vis total losses of this project having been allocated in the manner indicated by him in his order? - Since the assessee as well as department has already acted upon the order of Ld. CIT (A) by filling appeals and cross-appeals and keeping in view the fact that tax rates in each of these years was the same as also admitted by the Ld. AR, we feel that no useful purpose will be served to accept this settled assessment history of the assessee. We, therefore, are of the view that allocation done by Ld. CIT(A) for the total losses of ₹ 45.72 Crores incurred by the assessee over the period of project running into 5 years started from A. Y. 2008-09 to A. Y. 2012-13, which allocation as already clarified has been acted upon both by the assessee as well by the department, there is no reason for us to give any directions on this submission of the assessee and action of Ld. CIT(A) on this issue of allocating the losses to various years is found justified and is hereby upheld. Accordingly, in view of our aforesaid reasoning, grounds of appeal raised by the department. Addition of sale promotion expenses - disallowance was made by the AO on the reasoning that directors of the company had incurred these expenses through their personal credit cards and the element of personal nature in such expenses cannot be ruled out - AO disallowed 20% of the total expenses debited under the head ‘Sale Promotion’ on that reasoning on an estimated and adhoc basis - HELD THAT:- CIT (A) correctly observed that company is an artificial legal entity and incapable of incurring any personal expenses. For this legal proposition, the Ld. CIT (A) followed the judgment of Hon’ble Gujarat high Court in the case of Sayaji Iron & Engineering Co. . [2001 (7) TMI 70 - GUJARAT HIGH COURT] - Decided against revenue. Addition of bad debts written off - AO disallowed on account of bad debts written off, which mainly represented the advances given to various parties who were suppliers of the assessee in the ordinary course of its business - AO disallowed this amount on the plea that the amount written off are not covered u/s 36(1)(vii) - CIT (A) deleted this disallowance by holding that if the advances given to the supplier and the expected goods and services are not received against such advances and become irrecoverable, the same represent business loss u/s 28 and are allowable u/s 37 even if the same are not allowable u/s 36(1)(vii) of the Income Tax Act - HELD THAT:- At the time of hearing both the parties fairly agreed that the order of CIT (A) does not need any inference. We also find support on this issue from the judgment of Hon’ble Supreme Court in the case of Badridas Daga [1958 (4) TMI 2 - SUPREME COURT] wherein it has been held that amounts advanced in the ordinary course of business which become irrecoverable are allowable as business losses. The order of Ld. CIT(A), therefore, on this issue is upheld and this ground of appeal of the department is dismissed. Disallowance of rent on lease hold properties to L& DO - according to the AO this amount is not allowable u/s 43B and shall be allowed only in the year in which this is actually paid by the assessee - HELD THAT:- The nature of such amount, i.e., amount payable towards misuse of premises and illegal construction was held to be in the nature of ground rent by following the judgment of Hon’ble Delhi High Court in the case of Gulab Singh & Sons (P) Ltd.[1973 (3) TMI 26 - DELHI HIGH COURT]. It was amongst others held that ground rent does not come under any items mentioned in the various clauses of section 43B. Although the main issue in that case was of allowability of such amount u/s 24 of the Income Tax Act but still the issue of allowability of ground rent from the perspective of section 43B was also considered and it was held that ground rent is not disallowable by applying the provision of section 43B. As relying on case of K. Narendra [2001 (4) TMI 185 - ITAT DELHI-D] we hold that the provision of section 43B are not applicable to the ground rent and disallowance made by the AO and upheld by Ld. CIT(A) is hereby directed to be deleted.
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