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I.T.O Ward 1 (1) , Kolkata Versus M/s. Shree Gouri Shankar Jute Mills Ltd

2015 (11) TMI 1203 - ITAT KOLKATA

Addition towards advance given to Mr. R.K Jalan was for purchase of jute - miscellaneous expenses written off - CIT(A) deleted the addition - Held that:- As could be evident from the paper book filed by the Learned AR before us, it is not in dispute that the advance was made for purchase of Jute during the course of business of the assessee. Since the supplies could not materialize, the assessee to protect its money started charging interest and was able to recover a sum of ₹ 23 lacs towar .....

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the course of its business by the assessee, any loss on account of recoverability would automatically fall under the category of trade debt and hence is allowable as business loss.

We find that the assessee had duly offered the interest income on advance receivable from Shri.R.K.Jalan as business income in the earlier years and the same has been accepted as such by the revenue and hence the ground raised by the revenue is dismissed. Similarly we also hold that no additional evidences .....

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ceivable portion of ₹ 66,46,543/- in its books by treating the same as irrecoverable and due to the death of the concerned party. It is also not in dispute that the corresponding credit is given to the concerned party account in the books of accounts. We are in agreement with the arguments of the Learned AR that even otherwise the entire write off if not allowable in terms of section 36(1)(vii) read with section 36(2) of the Act is allowable as deduction as a regular trading loss u/s 28 of .....

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.A No. 1185/Kol/2012 - Dated:- 8-10-2015 - Shri M. Balaganesh, Accountant Member, and Shri S.S. Viswanethra Ravi, Judicial Member For The Appellant : Shri Pinaki Mukherjee, JCIT, ld.DR For The Respondent : Shri Subash Agarwal, Advocate, ld.AR ORDER SHRI M.BALAGANESH, AM This appeal of the revenue arises out of the order of the Learned CIT(A) in Appeal No. 375/CIT/(A)-I/Wd-1(1)/10-11 dated 01-05-2012 for the Asst Year 2008-09 passed against the order of assessment framed by the Learned AO u/s 143 .....

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acts of this issue is that the assessee is engaged in the business of manufacture of Jute and in the course of its business had paid advance for purchase of jute to Shri.R.K.Jalan in the early 1990s amounting to ₹ 70,02,013/-. The said party Shri.R.K.Jalan did not supply the Jute to the assessee and accordingly the same was converted into loan transaction by the assessee commencing from Asst Year 1991-92 onwards and interest was charged thereon. The assessee had duly offered the interest i .....

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ards. The assessee stopped charging interest on the aforesaid advance from Asst Year 1998- 99 onwards as it found that the recovery of principal amount of advance itself is doubtful of recovery. 4.1. On knowing the information about the death of the concerned party Shri.R.K.Jalan, the assessee thought it fit during the Asst Year 2008-09 to write off the entire trade advance of ₹ 1,13,48,556/- represented by principal portion thereon amounting to ₹ 47,02,013 and interest receivable th .....

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uch advance is not the business of the assessee. The Learned AO also gave a finding in the assessment order vide para 2.4 page 3 that the interest income offered on such advance in the earlier assessment years were not offered as business income of the assessee. On first appeal, the Learned CITA deleted the addition by accepting to the contentions of the assessee. Aggrieved, the revenue is in appeal before us on the following grounds:- 1. Ld. CIT(A)-1 Kolkata has erred in deleting the additions .....

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business income whereas records shows it has been assessed as income from other source. 4. Ld. CIT(A)-1, Kolkata has erred in accepting the fresh ground, in violation of Rule 46A without calling for remand report, that payment made to R.K Jalan was a trade advance whereas at assessment stage it was shown as loan. 4.2. The Learned DR argued that the assessee had not offered the income towards the principal portion and hence what is allowable as bad debt could only be that which is offered to tax .....

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ect mentioned interest income has been accepted as business income by the Learned AO in section 143(3) proceedings and hence ground no. 3 raised by the revenue deserves to be dismissed. He further argued that the said advance was paid for purchase of jute to Shri.R.K.Jalan which has to be construed only as a trade advance. He argued that no fresh evidences were filed before the Learned CITA in this regard and hence ground no. 4 raised by the assessee is factually incorrect and deserves to be dis .....

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had also died and hence the write off made in Asst Year 2008-09 and accordingly prayed that the same shall be duly allowed as a deduction. 4.3. We have heard the rival submissions and perused the materials available on record. We find that the nature and character of advance paid to Shri.R.K.Jalan had not changed. As could be evident from the paper book filed by the Learned AR before us, it is not in dispute that the advance was made for purchase of Jute during the course of business of the ass .....

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sment orders of earlier years itself would stand testimony to the contentions of the assessee. Even otherwise, we find that since the trade advance was made during the course of its business by the assessee, any loss on account of recoverability would automatically fall under the category of trade debt and hence is allowable as business loss. Reliance in this regard is placed on the decision of the Hon ble Supreme Court in the case of CIT vs Mysore Sugar Co. Ltd reported in (1962) 46 ITR 649 (SC .....

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sively to the assessee at current market rates and to have the advances adjusted towards the price of sugarcane, agreeing to pay interest in the meantime. For this purpose, an account of each sugarcane growers was opened by the assessee-company. A crop of sugarcane took about 18 months to mature, and these agreements took place at the harvest season each year, in preparation for the next crop. In the year 1948-49, due to drought, the assessee company could not work its sugar mills and the sugarc .....

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in respect of ₹ 2,87,422. The company claimed this as a deduction under section 10(2)(xv) of 1922 Act. The ITO declined to make the deduction, because, in his opinion, this was neither a trade debt nor even a bad debt but an ex gratia payment almost like a gift. An appeal to the AAC also failed. The Appellate Tribunal upheld the disallowance. On reference the High Court held that the expenditure was not in the nature of a capital expenditure, and was deductible as a revenue expenditure. H .....

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et of an enduring nature for the benefit of the business, or was it an outgoing in the doing of the business? If money be lost in the first circumstances, it is a loss of capital, but if lost in the second circumstance, it is a revenue loss. In the first, it bears the character of an investment, but in the second, to use a commonly understood phrase, it bears the character of current expenses. In instant case the amount was an advance against price of one crop. The Oppigedars were to get the ass .....

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forward arrangement for the next year s crop and paying an amount in advance out of the price, so that the growing of the crop might not suffer due to want of funds in the hands of the growers. There was hardly any element of investment which contemplated more than payment of advance price. The resulting loss to the assessee-company was just as much a loss on the revenue side as would have been, if it had paid for the ready crop which was not delivered. Hence, the decision of the High Court was .....

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ablished in the earlier years scrutiny orders placed on record by the Learned AO. Hence the ground no.4 raised by the revenue that there is violation of Rule 46A of Income Tax Rules by the Learned CITA is dismissed. 4.5. It is not in dispute that the assessee had indeed written off the balance principal portion of ₹ 47,02,013/- and interest receivable portion of ₹ 66,46,543/- in its books by treating the same as irrecoverable and due to the death of the concerned party. It is also no .....

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5 taxmann.com 567 (Bom), wherein the question raised before the Hon ble Bombay High Court and the decision rendered thereon is reproduced below:- Questions: Whether if an amount is held to be not deductible as a bad debt in view of non-compliance of the condition precedent as provided under section 36(2), could the same be considered as an allowable business loss? Whether, therefore, the amount of ₹ 44.98 lakhs could be considered as an allowable business loss? Held: Section 28 imposes a c .....

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ld that in assessing the amount of profits and gains liable to tax, one must necessarily have regard to the accepted commercial practice that deduction of such expenses and losses is to be allowed, if it arises in carrying on business and is incidental to it. [Para 10] • On the basis of the aforesaid decision, it can be concluded that even if the deduction is not allowable as bad debts, the Tribunal ought to have considered the assessee's claim for deduction as business loss. This is pa .....

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lowed on general principles governing computation of profits under section 10 of the Indian Income-tax Act, 1922, which is similar/identical to section 28 of the 1961 Act. The revenue in that case urged that the assessee having claimed deduction as a bad debt the benefit of the general principle of law that all expenditure incurred in carrying on the business must be deducted to arrive at a profit cannot be extended. This submission was negatived by the Court and it was held that even where the .....

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