Contact us   Feedback   Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (12) TMI 560 - ITAT PUNE

2015 (12) TMI 560 - ITAT PUNE - TMI - Loss while carrying on of the business activities - whether allowable under sections 28 and 29 and / or 37 of the Act - whether 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? - Held that:- The claim of the assessee has to be seen from the angle of the provisions of section 37(1) of the Act, wherein it is provided that all expendit .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nce, the provisions of section 36(1)(vii) of the Act are not attracted. The said advance though was for the purchase of a capital 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 u .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 considered at this juncture that in the original return of income, the assessee had not made any claim of deduction on account of write off of the advance paid to Itali .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he assessment order itself reflects that the working of income is, as per the revised return of income, ₹ 15.97 crores and in these circumstances, there is no merit in rejecting the revised return of income filed by the assessee. - ITA No.608/PN/2013 - Dated:- 1-12-2015 - MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA, AM For the Petitioner : Shri Sharad Shah For the Respondent : Shri Dheeraj Kumar Jain ORDER PER SUSHMA CHOWLA, JM: This appeal filed by the assessee is against the order .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assessee had already pointed out that the deduction is not u/s 36. 1.3) The learned A.O. erred in (and learned CIT-A erred in confirming) not allowing the loss on account of unrecoverable advance given in the course of business u/s.28, 29 and sec 37. 1.4) The learned CIT(A) erred in disallowing the loss on account of unrecoverable advance on the basis of an erroneous conclusion that it is an assessee's fault when first advance is outstanding (which was given for against first Order) and sti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

; 16,41,26,880/- on 27.09.2009. Thereafter, the assessee filed revised return of income declaring net income of ₹ 15,97,92,940/- on 09.06.2010. The reduction in the income was on account of claim of deduction in respect of unrecoverable advance for purchase of machinery. The assessee had paid an advance of Euro 238,400 equivalent to ₹ 1,44,48,798/- to M/s. Galileo Vacuum Systems, a company in Italy, for purchase of machinery. The said sum was advanced by way of two orders i.e. first .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

vance payment made by it. Therefore, provision of ₹ 43,34,640/- towards non-recovery of the said amount being 30% of the entire amount, was made in the books of account. The plea of the assessee before the Assessing Officer was that the said amount was not a bad debt as referred to in section 36 of the Act, since the same was not in respect of debtors for sales of goods or services. However, the loss was in the course of carrying on of the business and hence, was eligible under sections 28 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ction claimed was not bad debt referred to in section 36 of the Act, but was loss incurred in the course of carrying on of the business and the same should be allowed as deduction, unless there was prohibition for the said allowance. Reliance 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 t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

reated as capita loss. Consequently, the claim of the assessee vis-à-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 of the view that the claim of the assessee regarding .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sections 28 and 29 of the Act. With regard to the admissibility of the said claim of expenditure under section 37 of the Act, reliance was placed on the decision of CIT Vs. Indian Molases Co. (P) Ltd. (1970) 78 ITR 474 (SC) and other decisions. The CIT(A) was of the view that the capital expenditure is not allowable under section 37(1) of the Act. Further, the CIT(A) upheld the order of Assessing Officer in turn, relying on the ratio laid down by the Hon ble Supreme Court in Hasimara Industries .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

section 36 of the Act as claimed by the assessee. With regard to the issue of Assessing Officer in not accepting the revised return of income, the CIT(A) held that since the issue has been decided on merits, there was no need to repeat the issue again. Further, it was held that the revised return of income could be filed under circumstances, where the assessee discovered any omission or when the assessee discovers any wrong statement. However, the revised claim on the basis of provision for 30% .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y, which was a capital asset. However, because the company to whom the said advance had been given had filed a petition for bankruptcy, the assessee claimed the same as deduction being business loss under sections 28, 29 and / or 37 of the Act. Reliance in this regard was placed on the ratio laid down in CIT Vs. Anjani Kumar Co. Ltd. (supra), Pik Pen Private Limited Vs. ITO (supra), DCIT Vs. Edelweiss Capital Ltd. in ITA No.3971/MUM/2009, order dated 15.02.2011 and Nimbus Communication Ltd. Vs. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

where the advance had been for the purchase of capital asset, writing off of such advance was not allowable in view of the specific provisions of section 37(1) of the Act. No such allowance of capital nature could be made under sections 28 and 29 of the Act. The learned Departmental Representative for the Revenue stressed that the intention of the assessee was to purchase capital asset and hence, the said advance. He further pointed out that the ratio laid down by the Apex Court in Hasimara Ind .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e said loss was an unascertained loss and even otherwise, the claim of deduction @ 30% of the total advance was on an adhoc bais. Since the amount not received by the assessee, was not trading loss, the same could not be allowed under sections 28 and 29 of the Act. Further, it was stressed by the learned Departmental Representative for the Revenue that the assessee had made a provision in the books of account and had not written off the said amount in the books of account. 9. The learned Authori .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mpany Galileo Vacuum Systems was well known for the said equipment and hence, the advance paid to the said concern for purchasing the equipments. The purchase order of the first equipment is placed at pages 1 to 5 of the Index, under which both the payments and delivery terms have been provided. The technical specifications of the equipment are part of the contract entered into by the assessee with M/s. Galileo Vacuum Systems, which agreed to supply to the assessee at its Chakan plant the equipm .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ter the down payment. The equipment was to be delivered at Mumbai on or before 24.10.2008. Further, the assessee on 12.08.2006 and M/s. Galileo Vacuum System had entered into another contract for the supply of High Vacuum Batch Metallizing Machine Model V201VZ/99. The terms of the agreement were slightly at variance i.e. there were more specifications of the items to be supplied and the scope of work and technical specifications. The terms of payment were 10% after PO acceptance and 30% four mon .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

O. The copy of the Insolvency petition 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, t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 purchase of machinery, which admittedly, was a capital asset, but since the said capital asset had not come into existence i.e. no machinery / equipment was delivered to the assessee, then the issue to be decided as whether the advance paid for the acquisition of capital .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

in the nature of capital expenditure. The provision made by the assessee in its books of account on account of non-recovery of advance made for the purchase of machinery cannot be said to be a provision made on account of bad debts and hence, the provisions of section 36(1)(vii) of the Act are not attracted. The said advance though was for the purchase of a capital asset, but since the capital asset never came into existence, the bar envisaged in section 37(1) of the Act do not apply. The expend .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e 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. We find support from the ratio laid down by the Hon ble High Court of Rajasthan in CIT Vs. Anjani Kumar Co. Ltd. (supra), wherein, it was held as under:- 5. The admitted facts are that the advance was paid for acquiring the agricultural land to set up a factory, but when the agricultur .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

may be directed to allow the carry forward loss as per provisions of law. We have heard the Ld D.R. The facts are not in dispute that the advances were made for purchase of machinery but as the machinery was not supplied, and hence the assessee written off the said advances treating the same as a revenue expenditure u/s. 37(1). 9. In the case of Anjanikumar Co. Ltd. (supra), the appellant had written off the advances made to the agriculturists for purchase of the agricultural land and the land w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the Act as admittedly, no capital asset came into existence. 13. The Mumbai Bench of Tribunal in DCIT Vs. Edelweiss Capital Ltd. (supra) further held as under:- 8. On merits, the judgment of the Rajasthan High Court in the case of CIT Vs. Anjani Kumar Co. Ltd. (supra) supports the assessee s plea. In this case the assessee intended to acquire agricultural land to set up a boiler factory and made advances to the agriculturists for purchase of the land. The project did not materialize. The agric .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e case of M/s. Pik Pen Private Limited vs. ITO. There advances were made for the purchase of machinery, which was not supplied. The assessee wrote off the advances and claimed deduction as revenue expenditure, 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

; 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 decision of the CIT(A) is upheld, though not as a valid claim of bad debt but on grounds of business lo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at all; that while it intended to enter into cotton manufacturing purposes did not set up a cotton mill, but obtained operating rights from another company under the leave and licence agreement for the purpose of acquiring the profit-making apparatus for a duration of three years or a little more; that the business of running a cotton mill was not its own, but was only operating the said mill under leave and licence agreement; that the amount of advance in a sum of Rs. twenty lakhs was given no .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

before the Apex Court reflects that the assessee was engaged in the business of manufacture and sale of tea. The advance was given in line with leave and licence agreement entered into with another concern for running of cotton mill. The said advance of ₹ 20 lakhs was not given for own purpose by way of business expenditure, but as capital to the lessor, who had to modernize the mill, was the finding of the Tribunal, which was considered by the Apex Court and it was held that the loss suff .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ersonnel 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 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

over the decision taken by the businessman while carrying on its business. We find no merit in the above said stand of the Assessing Officer and CIT(A) and dismissing the same, we direct the Assessing Officer to allow the claim of the assessee. 17. Another aspect of the issue is the year of allowability of expenditure. The assessee had recognized the said expenditure in the year under consideration. However, the learned Departmental Representative for the Revenue and even the CIT(A) observed tha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ified that reliance was placed on the said decision of Hon ble Bombay High Court vis-à-vis year of allowability and not the question of deductibility. In view thereof, we find no merit in the order of CIT(A) in this regard. 18. The CIT(A) further placed reliance on certain case laws for deciding the question of deductibility under section 37(1) of the Act. In view thereof, where facts of the cases relied upon by the CIT(A) are at variance to the facts of the issue before us and the facts .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version