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2016 (2) TMI 876 - ITAT PUNE

2016 (2) TMI 876 - ITAT PUNE - TMI - Claim of deduction written off on account of unrecoverable advance made for purchase of machinery - Held that:- As second installment of the claim made on account of unrecoverable advance to the extent of 30% of the total amount. The facts and issues arising in the present captioned assessment year are identical to the facts and issues in assessment year 2009-10 and following the same parity of reasoning, we hold that the assessee is entitled to the claim of .....

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der under section 143(3) of the Income-tax Act, 1961 (in short the Act ). 2. The assessee has raised the following grounds of appeal:- 1.1) The learned A.O. erred in (and learned CIT-A erred in confirming) disallowance of the loss on account of unrecoverable advance given in the course of business u/s 28, 29 and 37. 1.2) The learned A.O. erred in (and learned CIT-A erred in confirming) applying the provisions of S.36 when the assessee had already pointed out that the deduction is not u/s 36. 1.3 .....

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o or alter the Grounds of Appeal at any time before or during the course of hearing of the case. 3. The learned Authorized Representative for the assessee at the outset pointed out that the issue raised in the present appeal is identical to the issue raised by the assessee in assessment year 2009-10, and is covered by the order of Tribunal dated 01.12.2015. It was further pointed out by the learned Authorized Representative for the assessee that the assessee had booked loss on account of un-reco .....

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f an advance made for purchase of machinery and since the machinery was not delivered by the said party nor the advance could be recovered, the assessee claimed deduction on account of the said unrecoverable advance to the extent of 30% in assessment year 2009-10, 30% in assessment year 2010-11 and 40% in assessment year 2011-12. The first year in which the said claim made was assessment year 2009-10. The Tribunal while deciding the appeal of the assessee relating to assessment year 2009-10 in I .....

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₹ 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 order dated 12.08.2006, against which advance of Euro 158,400 equivalent to ₹ 90.50 lakhs, was made. The .....

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eing 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, 29 and / or 37 of the Act. Reliance was placed on the ratio laid down by the Hon ble Rajasthan High Court in .....

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rying 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 the decision of Hon ble High Court of Rajasthan in CIT Vs. Anjani Kumar Co. Ltd. (supra) and Pik Pen Private Lim .....

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- was treated as capital loss and added to the income of the assessee. 6. After taking note of the order of CIT(A) and the submissions made by both the Authorized Representatives, the Tribunal held as under:- 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 o .....

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paid by the assessee. Further, an order for purchase of another equipment was placed vide order No.09135, dated 16.06.2008 and advance of Euro 80,000 equivalent to ₹ 55.50 lakhs was paid by the assessee. The company 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 be .....

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an unit, the assessee was to bear round air tickets, boarding and lodging charges of the said persons. Out of the total price for the equipment, 20% was to be paid as down payment and further 20% within two months after 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 ag .....

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who in turn reported that the concern M/s. Galileo Vacuum System had filed Insolvency and liquidation petition. The assessee, in turn took legal recourse and filed bankruptcy claim of the said concern before the PRATO. 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 .....

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hat 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 purchase of machinery, which admittedly, was a capital as .....

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to be allowed as deduction while computing the income chargeable under the head profit from business or profession, where the expenditure is not in the nature described in sections 30 to 36 of the Act and not being 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 th .....

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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. We find support from the ratio laid down by the Hon ble High Court of R .....

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d 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 adv .....

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e decision of the Hon ble High Court of Rajasthan in the case of CIT v/s. Anjanikumar Co. Ltd., 259 ITR 114 (Raj.). He alternatively pleaded that if the loss is not allowed as a business expenditure, then the A.O. 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 th .....

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wing the principles laid down in the case of Anjanikumar Co. Ltd. (supra) allow the ground taken by the assessee and delete the addition of ₹ 2,96,135/- treating the same as a revenue expenditure u/s. 37(1) of 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 as .....

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irrecoverable advances were to be allowed as business loss. This judgment of the High Court has been applied by the Mumbai Bench of the Tribunal in its order dated 28th January 2010, in ITA No:6847/Mum/2008, in the 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 .....

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h 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 term .....

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reme Court held as under:- 8 It is clear from the findings recorded by the Tribunal and the High Court that the assessee s business is manufacture and sale of tea and is not engaged in cotton manufacturing business 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 .....

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on or a 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. 15. The perusal of the facts 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 f .....

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n 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. How .....

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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 cannot sit in judgment 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 ye .....

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