TMI Blog2012 (12) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... - I.T.A. No. 807/Mds/2012 - - - Dated:- 20-7-2012 - Shri N.S. Saini Shri Challa Nagendra Prasad, JJ. Appellant by : Shri Vikramaditya, JCIT, Sr. DR Respondent by : Shri M. Karunakaran, Advocate ORDER PER Challa Nagendra Prasad, Judicial Member This is an appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) III, Chennai in ITA No. 489/07- 08/A.III for the assessment year 2005-06. Shri Vikramaditya, JCIT Sr. DR represented on behalf of the Revenue and Shri M. Karunakaran, Advocate represented on behalf of the assessee. 2. The only issue in the grounds of appeal of the Revenue is that the Commissioner of Income Tax (Appeals) erred in deleting the disallowance of trade advance written off. 3. The facts of the case are that the assessee is a company engaged in the business of development of property. For the assessment year 2005-06, the assessee filed its return of income on 12.10.2005 declaring income of Rs..8,00,467/-. The assessment was completed under section 143(3) of the Act on 25.12.2007 determining the total income at Rs..62,90,650/-. While doing so, the Assessing officer made an addition of Rs.. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is sufficient if they are written off. The decision relied on by the appellant in the case of Mohan Meakin Ltd. (supra) and Sri T. Pitamber (supra) also support the claim of the appellant. In view of the above facts and precedents, the addition is deleted and the ground is allowed. 5. Against this order of the Commissioner of Income Tax (Appeals), the Revenue is in appeal before us. 6. The counsel for the Revenue submits that the assessee advanced Rs..54.67 lakhs to Mantri Housing Constructions Co. Ltd. during the assessment year 1995-96 for undertaking a construction project and this amount is written off in the assessment year 2005-06 without taking any steps for recovery. Counsel submits that this amount was also not offered as income in any of the earlier years and therefore, it cannot be allowed as deduction under section 36 as bad debts. Therefore, he supported the order of the Assessing Officer in disallowing the claim of the assessee. 7. The counsel for the assessee submits that a sum of Rs..54.67 lakhs was advanced to Mantri Housing Construction Co. Ltd. during the year 1995-96 for undertaking a construction project in Pune Cantonment Road, but in October, 1997, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egal steps for recovering the amount and not considered as income by the assessee and the debts is not in the nature of revenue. In our view, if there is no dispute with regard to write off of trade advances in the books of account, the same cannot be disallowed on the ground that legal steps were not initiated for recovery of such advances. Further, the assessee is not claiming the said advance written off as bad debt. Therefore, satisfying the condition of offering such advance as income in earlier years will not arise. The Mumbai Bench of this Tribunal in the case of DCIT vs. Shri T. Pitamber, Proprietor in ITA Nos. 868 869/Mum./2010 dated 22.07.2011, considered an identical issue and held as under: 10. Rival contentions heard. On a careful consideration of the facts and circumstances of the case and on perusal of the papers on record, as well as the case laws cited before us, we hold as follows:- i) The points have been summarised at Page-8 of the Commissioner (Appeals) s order, which are extracted below for ready reference:- i) the advances are made in his earlier assessment years, towards purchase of material, AEPC quota, advance given to his employer, expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant but its nexus to the nature of the business is material. Again, the Hon ble Apex Court in the case of Ramchander Shiv Narayan v/s CIT, 111 ITR 263 (SC) has held that loss is deductible where there is a direct and proximate nexus between the operation and the loss or where the loss is incidental to it, as, without the business operation and doing all that is incidental to it, no profit can be earned. iii) We do not find any infirmity in the aforesaid findings of the Commissioner (Appeals). Hon'ble Jurisdictional High Court in I.B.M. World Trade Corporation (supra) held that where the assessee advanced money to a landlord for construction of factory shed as well as the residential plant, for leasing them to the assessee and the landlord became insolvent making the amounts irrecoverable, it was held that the assessee was entitled to a deduction by way of business loss. On the assumption of the Assessing Officer that legal proceedings should be launched for recovery of advance so as to claim business loss, we hold that there is no such requirement. Hon ble Calcutta High Court in A.W. Figgis Co. (supra) held that if the assessee knew that filing a suit would not help reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inuity of supply was essential to honour the agreement with the Corporation and that it was to continue the business without any break that the advances were made to the manufacturer, M/s.Kanpur Boot House. It was only on account of non recovery of the huge amount from the Corporation that the work had to be cancelled and the supplies had to be abruptly stopped by the Assessee and consequently production was necessarily required to be stopped. It is known practice that usually manufacturer gives advances to the workers which are adjusted or carried forward in the coming times against the works done by them. This was not an unusual practice which was liable to be outrightly rejected by the department. When the assessee had written off the dues recoverable from the Corporation and the same were accepted by the Department and it had also so written off, the advances made to M/s.Kanpur Boot House in its books of accounts, what else could be the proof with the assessee for its being unable to recover the same. The other reason for writing off was the demise of the proprietor, Bhagwan Das, of M/s.Kanpur Boot House and the assessee in its wisdom did not choose to take the matter to the co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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