Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding


  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

TMI Blog

Home

2015 (12) TMI 560

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... asset, but since the capital asset never came into existence, the bar envisaged in section 37(1) of the Act do not apply. The expenditure claimed by the assessee is not covered by any of the provisions of sections 30 to 36 of the Act and being not a capital expenditure and having been incurred for the purpose of carrying on of the business, is eligible for deduction under section 37(1) of the Act. The advance made by the assessee for the purchase of equipments, which in turn, was to be used in the line of business carried on by the assessee and in the absence of machinery having been delivered to the assessee and also because of Insolvency proceedings filed, where there is no chance of recovery of advance made by the assessee, we find merit in the claim of the assessee in writing off of the said advance as business loss in its hands. Non-claiming of a loss in original Return of Income - whether is not an omission or wrong statement which entitles an assessee to file a Revised Return of Income? - Held that:- The CIT(A) was of the view that the revised return of income filed by the assessee does not fulfill the conditions laid down under section 139(5) of the Act. It may be consi .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... ring statement in the original Return of Income. 2.2) The learned CIT-A erred in concluding that non-claiming of a loss in original Return of Income is not an omission or wrong statement which entitles an assessee to file a Revised Return of Income. 3) The learned A.O. (and learned CIT-A erred in confirming) erred in not accepting the Income as per the revised Return of Income the assessee. 4) The appellant craves its right to add to or alter the Grounds of Appeal at any time before or during the course of hearing of the case. 3. The issue raised vide ground of appeal No.1 is against the disallowance of loss on account of unrecoverable advance totaling ₹ 43.35 lakhs. The assessee by way of ground of appeal No.2 is aggrieved by the order of CIT(A) in holding that the revised return of income was filed when there was no omission or wrong statement in the revised return of income. The issue vide ground of appeal No.3 is against the order of authorities below in not accepting the income as per revised return of income filed by the assessee. 4. Briefly, in the facts of the present case, the assessee was a company engaged in the manufacturing of Auto light .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... was placed on series of decisions of Hon ble Supreme Court in this regard, which are part of reply given by the assessee before the Assessing Officer, which in turn, are incorporated at pages 3 to 5 of the assessment order. Further, reliance was placed on the decision of Hon ble High Court of Rajasthan in CIT Vs. Anjani Kumar Co. Ltd. (supra) and Pik Pen Private Limited Vs. ITO in ITA No.684 7/Mum/2008, order dated 28.01.2010. The Assessing Officer thereafter, individually considered the reliance placed upon by the learned Authorized Representative for the assessee on various decisions and was of the view that in view of the ratio laid down by the Apex Court in Hasimara Industries Ltd. Vs. CIT (1998) 231 ITR 842 (SC), the loss suffered had to be treated as capita loss. Consequently, the claim of the assessee vis- -vis deduction of ₹ 43,34,640/- was treated as capital loss and added to the income of the assessee. 5. The CIT(A) was of the view that where the first machinery for which advance was given by the assessee was not delivered, then the said advance should have been adjusted against advance for second machinery and no need of separate payment. The CIT(A) further was .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... st both the findings of CIT(A). 7. After taking us through the factual aspects of the case, the learned Authorized Representative for the assessee pointed out that the provision for writing off of the said advance to the extent of 30% was made in the original return of income, but no deduction was claimed on account of said provision. However, on a later date, the assessee furnished revised return of income after recognizing omission made in the original return of income and wrote off sum of ₹ 43,34,640/-, which was duly allowable in the hands of the assessee. He further pointed out that the Assessing Officer while computing the income in the hands of assessee, had computed the same on the basis of revised return of income. However, the CIT(A) rejected the same. The case of the assessee before us was that omission of not claiming the said claim in the original return of income was a bonafide interpretation of law, which was corrected in the revised return of income and hence, merits to be accepted. The learned Authorized Representative for the assessee further pointed out that admittedly, the advance was given for buying the machinery, which was a capital asset. However, b .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... the said amount in the books of account. 9. The learned Authorized Representative for the assessee in rejoinder pointed out that the advance paid for purchase of machinery in the year 2006 and 2008 did not materialize in the delivery of the machinery, which were technical machines and were the requirement of business of the assessee company. Since the Italian company had gone into liquidation, the assessee company took a decision to write off part of the amount as unrecoverable and the business loss was to be allowed in the year when it was claimed. 10. We have heard the rival contentions and perused the record. The assessee was engaged in the business of automobiles, signaling lights and other electric items. Originally, the return of income filed by the assessee on 27.09.2009 was ₹ 16.41 crores. Thereafter, the revised return of income was filed by the assessee on 09.06.2010 declaring total income of ₹ 15.97 crores. In the said revised return of income, the assessee claimed an expenditure of ₹ 43.35 lakhs. The assessee for the needs of its business, had ordered two equipments for its production plant from M/s. Galileo Vacuum Systems, SPA, an Italian compan .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... etition filed by the assessee on Galileo Vacuum System in SPA, is placed at pages 4 to 6 with its English translation at pages 1 to 3 of the Paper Book II. The assessee, in view of the said scenario made provisions of 30% of the advance recoverable as doubtful totaling ₹ 43,35,000/- in the original return of income. No claim of deduction was made in the original return of income on account of the said provision for doubtful advance. However, subsequently, the asses see furnished revised return of income claiming the said deduction of write off of ₹ 43.35 lakhs as business loss. The present appeal filed by the assessee is against the non-allowance of the aforesaid business loss. 11. The claim of the assessee before us is two-fold that first it was a loss while carrying on of the business activities and hence, allowable under sections 28 and 29 and / or 37 of the Act. The second claim of the assessee before the authorities below and before us is that the provisions of section 36(1)(vii) of the Act are not applicable since it is not the claim of bad debts i.e. write off of any debtors on account of raw material or machinery. The assessee had given only an advance for .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... such asset. If any asset is required and if it is a benefit of enduring nature, then of course assessee cannot get the deduction of amount for acquisition of land as revenue expenditure. When land was not acquired, no capital asset has been acquired, therefore, the payment of ₹ 50,489/- is to be allowed as business loss 12. Further, Mumbai Bench of Tribunal in Pik Pen Private Limited Vs. ITO (supra) had held as under:- 8. We have heard the parties. The assessee has debited to the Profit Loss A/c. an amount of ₹ 2,96,135/- on account of bad debts/balance written off. The assessee explained that the said amount represented the amount advanced to Balaji Pens Pvt. Ltd., for machinery and as the machinery was not supplied, and hence, the un-recovered amount was written of treating the same as an expenditure for the purpose of business u/s. 37(1) of the Act. The A.O rejected the claim of the assessee on the reason that the amount was paid for purchase of the machinery and therefore, any loss incurred on a/c of same is a capital loss. The Ld CIT(A) confirmed the disallowance made by the A.O. on this issue. The Ld Counsel relied on the decision of the Hon ble High .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... penditure, which claim was allowed by the Tribunal. In the present case, we are of the opinion that even if the websites had materialized, the expenditure could not have been viewed as capital expenditure because the website is put up for the purposes of day-to-day running of the business and even if one were to view that some enduring benefit is obtained by the assessee, the benefit cannot be said to accrue to the assessee in the capital field. A website is something where full information about the assessee s business is given and it helps the assessee s customers in dealing with it. A website constantly needs updating, otherwise it may become obsolete. It helps in the smooth and efficient running of the day-to-day business. The expenditure would have been allowable as revenue expenditure; as a corollary, when the website did not materialize, the amounts advanced to the companies who were engaged to develop the websites, when they became irrecoverable, can be written off and claimed as loss incidental to the business. The loss is thus allowable as business loss in terms of section 28 of the Act. We accordingly uphold the assessee s alternative plea. In the result, the ultimate de .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... Even the terms of contract between the assessee and the Italian company reflect that the equipment had to be installed at the Chakan Plant, against which it was also agreed that M/s. Galileo Vacuum System would send personnel from Italy for its installation and also for start up of the unit. The facts of the present case before us are at variance to the facts before the Apex Court and consequently, the ratio laid down by the Hon ble Supreme Court is not applicable to the present case before us. However, the facts before the Hon ble High Court of Rajasthan are identical to the facts before us and following the same parity of reasoning, we hold that the assessee is entitled to the claim of deduction on account of write off of the advance paid to Italian company against purchase of machinery, which was never delivered to the assessee. 16. Another objection raised by the Assessing Officer was that where the order for first machinery was placed on 12.08.2006, was not delivered to the assessee, there was no requirement for paying another advance on 16.06.2008. The assessee is the best person to take decision for running its business and it is trite law that the revenue authorities ca .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

Quick Updates:Latest Updates