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2016 (1) TMI 246 - ITAT KOLKATA

2016 (1) TMI 246 - ITAT KOLKATA - TMI - Disallowance of Bad Advances written off - Held that:- We are satisfied that on the facts as pleaded by the Assessee before the AO which were not controverted by the AO/CIT(A), the loss in question was incidental to the business of the Assessee. The reason assigned by the AO was that there was negligence on the part of the Assessee in not keeping proper records and this fact influenced his decision in not allowing the claim of the Assessee. In our view onc .....

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ccounting adjustments of these advances was no longer possible due to lack of information and non-availability of old records in the year 2000 itself but waited for 4 years before writing off the loss in the year 2004-05. We are of the view in the given facts and circumstances of the case, the deduction claimed ought to have been allowed. - Decided in favour of assessee

Addition on excess provision - CIT(A) deleted the addition - Held that:- Law is well settled that under the mercanti .....

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was only ₹ 10,29,375. Therefore in its books of accounts for the previous year, the Assessee ought to have reversed the excess provision for liability made. In other words the actual liability at ₹ 80,09,822 crystalized during the previous year relevant to AY 04-05 itself and the Assessee therefore could not have claimed over and above this sum as deduction in computing its income from business. It is a different issue that the Assessee offered to tax the sum of ₹ 10,29,375 in .....

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sold the property at Ghatkopar to Kalapataru Homes Ltd. It is clear from the reading of those agreements and schedule or property transferred referred to in those agreements that what was sold was land and there was neither any plant, machinery, furniture & fixtures etc. There was neither building in existence at the time when the land was sold by the Assessee. The evidence on record clearly shows that ₹ 54,80,769/- was received from M/s. Asiad Trading & Mfg. Co. Towards sale of old scrapp .....

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) was justified in his conclusions - Decided in favour of assessee - ITA Nos.131/Kol/2010 - Dated:- 16-10-2015 - Hon ble Shri N.V.Vasudevan, JM & Shri M.Balaganesh, AM For The Assessee : Shri K.R.Vasudevan., Advocate For The Respondent : Shri Rajat Subhra Biswas CIT DR and Shri Pinaki Mukherjee, JCIT Sr.DR. ORDER PER N.V.VASUDEVAN, JM: ITA No.131/Kol/2010 is an appeal by the Assessee while ITA No.372/Kol/2010 is an appeal by the Revenue. Both these appeals are directed against the order date .....

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al. 2. That on the facts and in the circumstances of the case, the learned CIT(A) erred in upholding the action of the Assessing Officer in disallowing the appellant s claim for deduction of a sum of ₹ 2,73,866 being bad Other Current Assets written off in its profit & loss A/c for the year under consideration. 3. That on the facts and in the circumstances of the case, the learned CIT(Appeals) erred in not appreciating that the aforesaid amounts of ₹ 4,15,63,688 and ₹ 2,73, .....

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dustrial and medical gases. The Assessee claimed deduction of a sum of ₹ 4,15,63,688 on account of bad advances written off and another sum of ₹ 2,73,866 on account of Bad other current assets written off. The Assessee explained the nature of the aforesaid sums written off in the books of accounts and claimed as a deduction as comprising of the following: - Advances to vendors for various enclosed viz., Enclosure 27, that the amounts written & upkeep of the plant & machinery; .....

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ecoverable from the insurer; - Advances to transporters, insurer, etc.; - Unreconciled balance in Head office/Branch reconciliation account relating to revenue expenses incurred by HO/Branch or vice versa pending charging off in the HO/Unit s books. - Security deposits given for electricity, telephone connections, etc. The Assessee submitted that due to lack of proper information trail, all the aforesaid amounts that were of revenue nature were lying unadjusted for a long period and had accumula .....

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ion so made in the books of accounts, a sum of ₹ 41,837,554/- was written off in the accounts during the year ended 31/3/2004 towards bad advances and bad other current assets out of the bulk provision made in the year 2000 (with corresponding write-back of equivalent amount of ₹ 41,837,554/- from the provision made earlier - netted against fresh provisions during the year in the accounts). It was submitted that such write off of amounts towards bad advances and bad other current ass .....

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e business operations and incidental to the carrying on of the business of the Assessee. According to him such losses could be allowed only when the amounts written off as loss have become irrecoverable. He was of the view that the Assessee had written off these losses in the books of accounts only for the reason of lack of information and non-availability of old records and therefore the loss in question cannot be allowed. He was of the view that the loss in question had occasioned owing to neg .....

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arned counsel for the Assessee and the learned DR. The learned counsel for the Assessee reiterated submissions made before the AO/CIT(A). The learned DR relied on the order of the CIT(A). 7. We have considered the rival submissions. It is not in dispute that the sum of ₹ 4,18,37,554 (Rs.4,15,63,688 + ₹ 2,73,866) was part of a sum of ₹ 7,09,40,000 which was revenue expenditure which was lying unadjusted for a long period and had accumulated over many years. The company after rev .....

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e sums are allowable as deduction u/s.28 of the Act as loss incidental to the business of the Assessee is not disputed by the Revenue. The only grievance of the revenue is that the Assessee has not established that these outstanding were irrecoverable. It is no doubt true as a legal requirement that the Assessee in order to claim deduction of a sum as loss incidental to business has to prove that the losses were incidental to the business and connected with the carrying of business of the Assess .....

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deposits for electricity, telephone connection and others. The Assessee switched over in the year 1998 to new SAP System and these deposits were for period prior to 1998 which were omitted to be updated. Hence, the Assessee could not claim these deposits. 8. The learned counsel for the Assessee has also submitted before us in the course of hearing that the Ghatkopar unit of the Assessee was sold during the previous year due to several problems including labour problems and the advances and expe .....

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ur view once the fact that the loss is incidental to Assessee s business is accepted than the strict evidence of irrecoverability of the losses in question cannot be insisted upon. The circumstances of the case show that the Assessee made a provision in the books of accounts in the year 2000 and claimed the loss only in the year 2004. The company after review of the books of accounts and after due diligence and discussion with the statutory auditors came to the conclusion that detailed reconcili .....

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. 10. ITA No. 372/Kol/2010: Revenue s Appeal: The first ground of appeal of the Revenue reads as follows: 1. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in deleting the excess provision of ₹ 10,29,375/- though the assesee was following Mercantile system of accounting. 11. The Assessee during the previous year sold land at Ghatkopar, Mumbai during the previous year to one Kalpataru Homes Limited. Out of total consideration of ₹ 305,00,000/- towards sale of .....

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Assessee decided to encash the aforesaid receivables aggregating to ₹ 137,250,000/- with recourse at a discount & approached Citi Bank NA in this connection. For the purpose, an amount of ₹ 9,039,197/- was provided in the books on a mercantile basis towards discounting charges during the relevant year ended 31/3/2004, which was claimed by the Assessee as an allowable expenditure u/s 37(1) of the Income tax Act. In due course, the discounting was carried out with Citi Bank NA on 2 .....

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₹ 1,029,375/- in the subsequent financial year. 12. On the above facts, the question before the AO was as to whether the sum of ₹ 10,29,375 which was excess liability claimed in the present Assessment year can be allowed as a deduction. The AO was of the view that the amount of ₹ 10,29,375 was not a liability of the Assessee during the previous year relevant to AY 04-05 and therefore ought not to have been claimed as a deduction in AY 04-05. The discounting with Citi Bank NA t .....

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,29,375/- provided. I have also perused the assessment order of the subsequent assessment year, i.e. 2005-06 and found that the amount of ₹ 10,29,375/- has been offered to tax by the appellant in that assessment year. Since the assessee is following the mercantile system of accounting and the said amount of ₹ 10,29,375/- has been offered to tax in the subsequent assessment year, the A.O. is directed to allow the disallowance of ₹ 10,29,375/- made by him for the year under consi .....

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tile system of accounting it is only expenditure which has accrued to the Assessee during the previous year that can be allowed as a deduction. Originally the bill discounting charges were estimated at ₹ 90,39,137. On this basis the Assessee was justified in considering the expenditure on account of bill discounting charges at ₹ 90,39,137. However during the previous year relevant to AY 04-05 i.e., on 22.10.2003, it turned out that the actual liability towards bill discounting charge .....

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n AY 05-06. We therefore restore the order of the AO in this regard. We however direct that the sum of ₹ 10,29,375 should be excluded from the taxable income of AY 05- 06, as not doing so would amount to double taxation of same income, which is impermissible in law. We hold and direct accordingly and allow ground no.1 raised by the Revenue. 15. As far as ground no.2 raised by the revenue is concerned, the same reads as follows: 2. That on the facts and circumstances of the case, Ld. CIT(A) .....

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red into an Agreement for Development dated 31st October 2003 whereby the land at Ghatkopar was transferred to Kalpataru Homes Limited for a total consideration of ₹ 305,000,000/- (Rupees Thirty crores fifty lacs only). No other assets or liabilities of the erstwhile Ghatkopar factory were transferred to them. The old scrqapped and junded plant & machinery, furniture & fixtures & stores items lying in the said Ghatkopar property were removed & disposed off for a considerati .....

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ereon new buildings & structures, with a covenant for ultimate transfer thereof, in favour of nominees of the developers (refer para E of the Agreement for Development dated 31/10/2003). Hence, no consideration for buildings was realised from the buyer. The existing buildings & structures were of no use to the buyer, who were to develop the land for making new constructions on the land. Although an amount of ₹ 7,189,140/- was appearing in the books as net book value in regard to bu .....

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the Act. The AO accordingly computed capital gain at ₹ 28,89,06,665 u/s.50B of the Act, as against the claim of Assessee that the capital gain in question was a long term capital gain computed by the Assessee at ₹ 13,44,33,876. 18. There is a difference in computation of capital gain u/s.45 r.w.s.48 of the Act and the computation of capital gain in the case of slum sale. In the case of slump sale computation of capital gain has to be done in accordance with Sec.50B(2) of the Act. The .....

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gned to it in Explanation 1 to clause (19AA). Explanation 2 : For the removal of doubts, it is hereby declared that the determination of the value of an asset or liability for the sole purpose of payment of stamp duty, registration fees or other similar taxes or fees shall not be regarded as assignment of values to individual assets or liabilities. 50B: Special provision for computation of capital gains in case of slump sale. (1) Any profits or gains arising from the slump sale effected in the p .....

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ising from the transfer of short-term capital assets. (2) In relation to capital assets being an undertaking or division transferred by way of such sale, the "net worth" of the undertaking or the division, as the case may be, shall be deemed to be the cost of acquisition and the cost of improvement for the purposes of sections 48 and 49 and no regard shall be given to the provisions contained in the second proviso to section 48. (3) Every assessee, in the case of slump sale, shall furn .....

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aggregate value of total assets of the undertaking or division as reduced by the value of liabilities of such undertaking or division as appearing in its books of account : Provided that any change in the value of assets on account of revaluation of assets shall be ignored for the purposes of computing the net worth. Explanation 2 : For computing the net worth, the aggregate value of total assets shall be,- (a) in the case of depreciable assets, the written down value of the block of assets det .....

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on this issue held as follows: I have gone through the rival contentions. The basic test which one must apply to ascertain whether there existed a slump sale or not is the continuity of business. The question to be asked is whether there was transfer of business as a whole. Whether there was a transfer of land, building, plant and machinery as a whole or whether there was a transfer of land, building or plant and machinery separately and individually? For that purpose, one has to read the terms .....

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s items of the erstwhile Ghatkopar unit were sold to a third party and not to Kalpataru Homes Limited. Accordingly, the consideration of ₹ 30,50,00,000 does not include amount of ₹ 54,80,769/- received from M/s. Asiad Trading & Mfg. Co. Towards sale of old scrapped & junked items of plant & machinery, furniture & fixtures and stores items, as held by A.O. The action of the appellant in not reducing such sale proceeds of ₹ 54,80,769/- from the W.D.V. of the block .....

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& circumstances of the appellant s case, the A.O. was not correct in considering the sale of Land to Kalpataru Homes Limited, as per the Agreement dated 31/10/2003, as a slump sale u/s 50B of the Income Tax Act. The treatment effected by the appellant in regard to the taxability of capital gains from sale of land located at Ghatkopar is in accordance with the provisions of the Income-tax Act. Thus, the ground is allowed and the A.O. is directed to allow relief to the appellant by considering .....

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