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2024 (5) TMI 432 - ITAT CHENNAIDisallowance of the claim for Bad Debts written off - AO disallowed the same on the ground that these parties were not debtors and the conditions of Sec. 36(2) were not fulfilled - HELD THAT:- We find that the said expenditure was in connection with land purchase and therefore, capital in nature. The loss of the same would be capital loss as rightly held by CIT(A). Therefore, the same could not be held to be deductible expenditure. So far as the amount of Rs. 109.42 Lacs is concerned, the same represent write-off of amount due against SICAL. This entity was providing transport facility to the assessee for movement of fertilizers. However, there was stoppage of production and net amount of Rs. 109.42 Lacs was due from this entity. After reconciliation and confirmation, SICAL confirmed that no amount was payable to the assessee and accordingly, the same was written-off and claimed as business expenditure. We are of the opinion that this loss arises in the ordinary course of business and the same would otherwise be allowable as business loss. The remaining balance represent amount due to SMO division by SFCL, Dubai. However, that entity has refused payment of the same and accordingly, the same was debited under the head project. In this year, this amount has been written-off and claimed as business expenditure. It is undisputed fact that the deduction of the same has not been claimed in any other year. This write-off represents business loss for the assessee and accordingly, the same would otherwise be allowed as business loss. The corresponding grounds stands partly allowed. Disallowance of Settlement Expenditure - assessee merely repaid the liability of PSL - assessee failed to prove that PSL offered this liability u/s 41(1) and the liability was on account of loan taken by PSL for acquiring chemical tanker which was a capital asset. Therefore, the loss so suffered by the assessee would be capital loss only - HELD THAT:- The liability has crystallized as well as attained finality. This payment could not be termed as capital expenditure since it is not towards acquisition of any capital asset but towards smooth running of assessee’s business operations. The claim represents corporate guarantee obligation incurred by the assessee which sprang out of normal business transactions during the course of and incidental to the business of the assessee. The decision in the case of ACIT vs. W.S. Industries (India) Ltd. [2009 (8) TMI 782 - ITAT, CHENNAI] clearly supports the case of the assessee. In this decision it was held that wherein the subsidiary company of the assessee was supplying materials which were important for the assessee's business, the action of the assessee in giving corporate guarantee as well as advances were incidental to the business of the company. When the transaction had been entered into in a commercially expedient manner, the resultant expense / loss would be allowable. Therefore, providing corporate guarantee was in the interest of the assessee-company and, hence, the commercially expedient decision. This decision also considers the decision of Hon’ble Supreme Court in the case of CIT vs. Amalgamation Pvt. Ltd. [1997 (4) TMI 8 - SUPREME COURT]. We would hold that the assessee would be entitled for full deduction in this year.
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