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2016 (5) TMI 341 - ITAT AHMEDABAD

2016 (5) TMI 341 - ITAT AHMEDABAD - TMI - Disallowance of trading loss consisting of advance - Held that:- As decided in CIT V Versus Abdul Razak And Co. [1981 (2) TMI 27 - GUJARAT High Court ] any debt which arose during the course of normal business activity and which becomes bad or irrecoverable, the same has to be allowed as trading loss under section 28(1). Considering the facts and circumstances of the case on hand, in our opinion, the Assessing Officer was not justified in making the disa .....

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e : Shri R.I Patel, CIT-DR ORDER PER SHAILENDRA K. YADAV, JUDICIAL MEMBER: This appeal by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-II, Ahmedabad dated 19.09.2011 for Assessment Year 2009-10. 2. The concise ground of appeal raised by the assessee reads as under:- The C.I.T. (Appeals) erred in upholding the disallowance of trading loss of ₹ 27,55,547/- consisting of advance of ₹ 23,61,396/- to Rayees Readymade and ₹ 3,94,151/- to Deng .....

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er dated 08.11.2010 made written submission and after considering the same, the Assessing Officer made disallowance of ₹ 27,55,547/-, which was confirmed by the CIT(A) in appeal. 3.1 Before us, the ld. Authorized Representative submitted that the Assessing Officer has made the disallowance on the assumption that the assessee has made bad debts u/s. 36(1)(vii) on the ground that the assessee s claim did not fulfill the conditions stipulated in the said provision. He further submitted that w .....

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Readymade Garments. He further submitted that the debit balance in the accounts of the two parties in question had remained after taking into account debits in respect of payments for job work charges and advances made to the parties from time to time and the credits for fabrication charges payable to them for job works carried out for the assessee and that it was indisputable that those debit balances had arisen in the course of the assessee s business in readymade garments. The Authorized Repr .....

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, hence provision of Section 36(1)(iii) cannot be applied in the case of assessee. Thus, he supported the order of the lower authorities and pleaded that the order of the Revenue Authorities may be upheld. 4. After going through the rival contentions and material available on record, we find that the only issue before us is regarding the disallowance of deduction of ₹ 27,55,547/- claimed by the assesseecompany by writing off certain trade debts. The Assessing Officer in the assessment orde .....

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nces to these parties, i.e., Rayees Raadymades and Denguz Apparels, for the purchases of fabric as well as towards running and maintenance of their units for manufacturing readymade garments to be supplied to the assesseecompany. It was claimed by the assessee-company that subsequently, due to adverse market conditions, the business of readymade garments had to be discontinued and the assessee-company made all efforts to recover the aforesaid debts but failed; and therefore, debts became irrecov .....

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ncome filed with the return of income and the written reply filed before the Assessing Officer dated 10.09.2010. To be precise, the assessee-company, during the year under consideration, has written off certain advances irrecoverable from the vendors and claimed deduction thereof on the ground that the vendors neither supplied the material for which the advances were made nor returned the money back to the assessee-company. The details of advances made by the assessee-company for purchase of mat .....

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ff these advances as irrecoverable and hence the said advances represented expenditure wholly and exclusively laid out for the purpose of its business, since the amount had factually became unrealizable during the assessment year under consideration. The copy of the Board's resolution approving write off of the said advances has also been placed on record. In this regard, we find that the amount which is written off in the books of account was in the nature of a trading loss incurred while c .....

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is required to be allowed under the said section. The condition prescribed under Section 37(1) is as under: (a) the expenditure should be covered under specific section i.e. 30 to 36; (b) the expenditure should not be of a capital nature; (c) the expenditure should have been during the previous year; (d) the expenditure should not be of a personal nature; . (e) the expenditure should have been incurred wholly and exclusively for its business or profession; 4.2 Without prejudice to the above, the .....

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CIT vs. Dayachand Hardilal, reported in 177 ITR 461, wherein the assesseefirm, which acted as selling agents of D , sold goods on credit to one H . According to the copy of the account of H in the books of the assessee-firm filed before the Income-tax Officer at the end of the accounting year on 10.06.1972, there was a debit balance of ₹ 51,186/- and on 30.06.1975, the debit balance stood at ₹ 38,686/-. The assessee claimed this amount as a bad debt for the Assessment Year 1976-77. T .....

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Tribunal was right in holding that the sum of ₹ 38,686/- debited to the assessee s account in the books of D during the relevant period, on account of the amount not being paid by one of its customers, H , was an admissible deduction from the business income of the assessee. 4.3 Similar question arose before the Hon ble Gujarat High Court in the case of CIT vs. Abdul Razak & Co, reported in (1982) 136 ITR 825. The relevant portion of the said judgement is reproduced as under:- "Th .....

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is account the assessee made advances on behalf of M/s. M. P. For the Assessment Year 1967-68, the assessee claimed ₹ 78,824/- in respect of the amount due from M/s. M.P. as a bad debt in the course of these advances. The I. T. O. rejected the claim and, on appeal, the Tribunal held that the advances could not be said to be made in the ordinary course of business of money-lending and, therefore, the assessee's claim for writing off the bad debt arising out of the money-lending business .....

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