TMI Blog2010 (11) TMI 960X X X X Extracts X X X X X X X X Extracts X X X X ..... order of the CIT (A) is in accordance with law and no interference is called for. The Hon ble Supreme Court in HASIMARA INDUSTRIES LTD.[ 1998 (5) TMI 7 - SUPREME COURT] held that assessee s business was of manufacture and sale of tea and it was not engaged in cotton manufacturing business at all; that while it intended to enter into cotton manufacturing business it 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 3 years or a little more; that the amount of advance in a sum of ₹ 20 lakhs was given not for its own purpose by way of business expenditure for modernizing the mill, but as capital to the lessor who in turn had to modernize the mill. In the resolutions made by the board of directors it was clear that the transaction entered into was not in the nature of a loan transaction or money-lending transaction and thus the loss suffered by the assessee was a capital loss and hence, the amount could not be deducted from the assessee s income as business loss (decision thus relied on by the learned DR is distinguishable on the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) The learned CIT (A) has erred in deleting the disallowance of bonus paid to shareholders against the provisions of section 36 (1) (ii) of the Act. 3. The first and the second ground referred to above, relates to the issue of disallowance made by the Assessing Officer towards bad debts/irrecoverable balance written off. 3.1 The brief facts of the case are as follows:- The Assessing Officer, in the course of scrutiny assessment, was of the view that out of bad debts of ₹ 13,21,949 claimed by the assessee, only a sum of ₹ 1,19,210 was allowable as deduction. Of the remaining, a sum of ₹ 4,26,739 represented advances paid for the purchase of audio sets, locks and mopeds, which are stock-in-trade, while ₹ 7,76,000 was an advance paid for capital expenditure. The Assessing Officer disallowed the amount of ₹ 12,02,739 (Rs. 4,26,739 + ₹ 7,76,000) . 3.2 Before the CIT (A), it was contended that these are expenses incurred in the normal course of business and the same is allowable as bad debts or alternatively, as business expenditure. It was submitted that these were written off, as there was no chance of recovery and since these amounts d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the assessee had written off the same under section 28 of the Act. 3.10 Further, the assessee had paid a security deposit of ₹ 1,25,000 to Scooters India Ltd., Kanpur, on their appointment as authorized dealers for South Kanara, Kodagu, Shimoga and Hassan Districts. As the business of the Scooters India Ltd. failed to sustain the competition, the company closed shutters. The assessee had to written off the same, as there was no chance of recovery. 3.11 All the above payments are made in the ordinary course of its business. Normal business of the assessee involves many such risks and expenditure which are unavoidable and has to be incurred by all businessmen in their business. All such expenditure is allowable under section 28 (i) of the IT Act. 3.12 Section 28 of the IT Act reads as under:- Section 28 - The following income shall be chargeable to Income-tax under the head Profit and gains of business or profession . (i) the profits and gains of any business or profession which was carried on by the assessee at any time during the previous year; (ii) any compensation............ From the reading of the above provisions, it is very clear tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any sum paid to an employee as bonus or commission for services rendered, where such sum would not have been payable to him as profits or dividend, if it had not been paid as bonus or commission. 4.1 Before the first appellate authority, it was submitted that bonus was paid to services rendered by the working Directors, who happened to hold a few shares in the company. It is submitted that to invoke the provisions of section 36 (1) (ii), the bonus paid had to be payable in its entirety as dividends or profits. The CIT (A) allowed the appeal of the assessee by observing thus:- I find that the Assessing Officer has not discussed the nature of payment in sufficient detail, to establish that the amount of bonus paid was otherwise payable to the employees as profits or dividend. In the absence of a categorical finding of fact to that effect, the provision of section 36 (1) (ii) cannot be invoked, because section 36 deals with deductions that shall be allowed to assessee, in contrast to section 40, which deals with amounts not deductible . The Hon ble High Court of Bombay has held in the case of Sesa Goa Ltd. v. CIT (2009) 316 ITR 399 that bonus paid by an assessee which was i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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