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D.C.I.T., Circle-5, Jaipur Versus M/s S.N. Kapoor Exports and M/s S.N. Kapoor Exports Versus A.C.I.T., Circle-5, Jaipur

2016 (5) TMI 241 - ITAT JAIPUR

Addition on account of bad debts - Held that:- CIT(A) has decided this case on bad debt written off itself. No opinion has been expressed by the ld CIT(A) on business loss. We find that the assessee has advanced this money for the business purposes but this amount has not been accounted for in previous year as income. Therefore, order of the ld CIT(A) is not justified allowing the bad debt U/s 36(1)(vii) of the Act, but it is business loss as amounts were advanced for business purposes.

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accounted for in the previous years. Therefore, we upheld the order of the ld CIT(A) for business loss to the tune of ₹ 1.45 crores and confirmed the addition of ₹ 2,87,930/- as advanced to Shri Mohiuddin and claimed as bad debt. - Decided partly in favour of assessee

Disallowance under the head various expenses - CIT(A) restricted the addition @ 10% as against 15% done by AO - Held that:- It is difficult to get bill of each and every expenditure incurred by the assessee .....

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ppeal as well as C.O. are as under:- Grounds in Revenue Appeal. On the facts and in the circumstances of the case and in law the ld CIT(A) has erred in: (i) Deleting the addition of ₹ 1,45,00,000/- on account of bad debts as against the addition made by A.O. of ₹ 1,47,87,930/- Grounds in Cross Objection (i) On the facts and in the circumstances of the case the Ld. CIT (A) II was fully justified in deleting the addition of ₹ 1,45,000,00/- made by the AO on account of bad debts / .....

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the disallowance to 10% against 15% made by the AO out of the various expenses amounting to ₹ 6,16,855/- 2. The C.O. of the assessee was filed on 07/1/2016, is delayed by 934 days. In this regard, the ld AR of the assessee has filed an affidavit for condonation of delay on the basis of order of the ld CIT(A). It was submitted that the assessee has filed 154 application against the order of the ld CIT(A) but till date, it has not been decided. Whereas the revenue on this issue has filed app .....

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same may be dismissed. After considering both sides, we have formed an opinion that the delay was due to non passing the order U/s 154 of the Income Tax Act, 1961 (in short the Act) by the ld CIT(A) and whereas on same issue, the revenue has filed appeal before us. Therefore, we condone the delay in filing the C.O. by the assessee. 3. The sole ground of the revenue s appeal and grounds No. 1 to 3 of the assessee s C.O. are against deleting the addition of ₹ 1.45 crores. The assessee firm i .....

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d 13/12/2011, which has been reproduced by the Assessing Officer on pages 2 to 5 of the assessment order, which are reproduced as under:- 1. That the assessee is in the business of carpet manufacturing and export since last 60 years and enjoys a premier position and incredible business reputation in the field. The assessee is known for its unique design and technology innovations all over the world. Mr. S N Kapoor has realtions with carpet buyers all over the world and all the goods manufactured .....

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entered into an agreement with M/s Saraswati Exports. 4. The agreement was of manufacturing of the carpets by M/s Saraswati Exports for which the assessee was supposed to give design and necessary technical know how. The exports were to be done by M/s Saraswati Exports to the customer identified by the assessee. In turn the assessee was supposed to get commission on sales on terms mentioned in the agreement. 5. M/s. Saraswati Exports requested assessee that he was short of capital and required f .....

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sponding party M/s Saraswati Exports fails to fulfill its obligation and therefore assessee lodged the cheques for recovering the advance given by us. The cheques were dishonoured and therefore criminal suit was filed u/s 138 of The Negotiable Instrument Act, 1881 for bouncing of cheques for recovery of amount. The assessee also filed a civil suit for recovery of the financial assistance of INR 1.45 Crores. 7. In the financial year 2006-07 corresponding to assessment year 2007-08 the assessee lo .....

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ount in books taking it as no more recoverable. 10. Since the amount was given for business purpose and assessee is deriving business income from the same business assessee claimed the write off as business expenditure in it financial statement for the year 2008-09 corresponding to assessment year 2009-10. 11. That an advance was extended to Mr. Mohinuddin who was a designer at the designing department of the assesses and the same was duly deducted in installments from his remuneration. He sudde .....

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remanded back to the tribunal. The relevant para is quoted as under : " In the circumstances, we feel that proper course would be to set aside the order of the Tribunal in this regard and direct the Tribunal to consider the claim of the assessee in respect of sum of ₹ 4,75,307/- a to whether the said claim can be considered as a trading loss in the light of the decisions of the Apex Court as well as this Court as referred to above." (Copy of the decision herewith enclosed) 14. S .....

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d. Vs. CIT (225 ITR 802). 16. Sir, apart from these decisions there are several decision in which the view has been affirmed by the courts that if any claim is incidental to business and is being done on the ground of ordinary commercial practice of the trade than it should be allowed and finally it should be allowed under sec. 28(i). 17. In the matter of CIT Vs. Inden Biselers (47 Taxmann 225) it has been held that " We fell that it is not necessary to go into that contention to answer the .....

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y course of business, the expenses was allowed. 18. Sir, I would also like to submit the law laid down by hon'ble Apex Court in the matter of Dr. T. A. Quereshi Vs CIT, Bhopal (157 Taxmann 514). Sir, in this case the assessee was engaged in 'heroin drugs' and some stock was seized. The assessee claimed the seizure of that loss as business loss and that was allowed by the Hon'ble Court. The court has mentioned that section 37 has really nothing to do with the present case as it is .....

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mission we would humbly submit that advance given to the Saraswati Exports was a trading advance in ordinary course of business and therefore loss should be allowed under the provision of the Act. 20 Without prejudice to the above submission we would further like to submit that the said advance which has been written off in the assessment year 2009-10 has been recovered in financial year 2010-11 corresponding to assessment year 2011-12 and the same has been incorporated as income in the books of .....

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in the case of Hasimara Indistries Ltd. Vs CIT 231 ITR 842 and Hon'ble Delhi High Court decision in the case of M/s Pragati Construction Co. Vs. DCIT (2011-TIOL-344-HC-DEL-IT). The assessee has failed to prove that amount claimed as bad debt has been accounted for in its income in any previous year. Alternate claim of the assessee is also not found tenable to the Assessing Officer on the ground that the assessee had given this amount to M/s Saraswati Exports as a financial assistance to cove .....

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es. Clause- 5,6,7,12,19, and 28 of the agreement reproduced by the ld CIT(A) in her order. After considering the terms and conditions of the agreement, it has been held that M/s Saraswati Exports had agreed to pay commission to the appellant because the appellant had agreed to help and assist M/s Saraswati Exports regarding production, designing, colouring, dyeing and finishing of carpet as per international market requirements. As per amended agreement dated 01/4/2003, fixed commission per mont .....

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assessee, which was also received back in A.Y. 2010-11. The ld CIT(A) has verified the P&L account of the assessee for A.Y. 2011-12 wherein amount received back of ₹ 1.45 crores has been credited. She held that these advances for business purposes as the assessee also had shown advances in the balance sheet for A.Y. 2002-03, the receipts from the advances also has been shown in fork of commission in the income of the assessee. It is further held that cantankerous litigation was going .....

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ough if the bad debt is written off as irrecoverable in the accounts of the assessee. The advance to M/s Saraswati Exports is appearing in the list of loan and advances given in Schedule-F of the balance sheet of the appellant right from A.Y. 2002-03 till A.Y. 2008-09 and in this A.Y. it has been written off in accounts. She also considered the bifurcation of bad debt written off, which was found to be in the name of M/s Saraswati Exports at ₹ 1.45 crores and Shri Mohiuddin at ₹ 2,87 .....

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) of the Act as the assessee gave advances to M/s Saraswati Exports, which has not been accounted for in any earlier year in the income of the assessee. Therefore, it is not covered in bad debt. 6. At the outset, the ld AR of the assessee has argued that these advances were given for business purposes. The assessee has shown commission income received from the export business, which was exported through M/s Saraswati Exports. The ld CIT(A) had examined thoroughly this issue and he has drawn our .....

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and also sought remedy from the court and assessee received back this amount in A.Y. 2011-12, which has been shown as income of that year. Therefore, he prayed to allow the bad debt in A.Y. 2009-10, otherwise it is business loss of the assessee U/s 28 of the Act. He further argued that if this loss/bad debt is not allowed by the Hon ble Bench, it tantamounts to double taxation of same amount. The ld CIT(A) has also not allowed bad debt/business loss claimed in the name of Shri Mohiuddin at ͅ .....

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M/s Saraswati Exports has also in the carpet business, it has expertise in design and technology and knows how in the carpet line of business. The business between both the parties was going smoothly as the partners of the firm has shown commission income substantially from this business as mentioned by the ld CIT(A), which has not been controverted by the ld DR. The response to M/s Saraswati Exports was not according to business terms and conditions, thereafter the assessee firm deposited the .....

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ot allowable U/s 36(1)(vii) of the Act, it may be allowed as a business loss in the hands of assessee. Both the grounds also taken before the ld CIT(A). However, the ld CIT(A) has decided this case on bad debt written off itself. No opinion has been expressed by the ld CIT(A) on business loss. We find that the assessee has advanced this money for the business purposes but this amount has not been accounted for in previous year as income. Therefore, order of the ld CIT(A) is not justified allowin .....

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yment and has expertise in designing carpet and also worked with the assessee. No income from this advance has been accounted for in the previous years. Therefore, we upheld the order of the ld CIT(A) for business loss to the tune of ₹ 1.45 crores and confirmed the addition of ₹ 2,87,930/- as advanced to Shri Mohiuddin and claimed as bad debt. Accordingly, revenue s appeal is dismissed on the sole ground and assessee s C.O. is partly allowed on the grounds discussed above. 8. The 4th .....

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