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Parag C. Boghani Versus Income-tax Officer, Wd-35 (1) , Kolkata

2016 (5) TMI 688 - ITAT KOLKATA

Disallowance towards bad debts and advances - Held that:- The claim of bad debts in respect of debts due from Bajaj Glass Centre amounting to ₹ 1,13,343/-, we find that assessee had actually sold materials worth ₹ 4,13,343/- vide Bill No. PE/0607/0032 dated 13.07.2006 and had received only ₹ 3 lacs against the same and the party had withheld the balance due to inferior quality of material supplied. Under these circumstances, the assessee chose to write off the balance sum of &# .....

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n 194C - Held that:- We find that from the perusal of the bills submitted by the assessee in his paper book and from the perusal of the orders of the lower authorities, there is no clear finding given with regard to the fact as to whether profit element has been loaded by C&F Agent in his bills seeking reimbursement of expenses. We find that this finding is very crucial to decide the impugned issue before us. We hold that no tax needs to be deducted u/s. 194C of the Act for the reimbursement por .....

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statistical purposes.

Disallowance of sales promotion expenses - Held that:- We find that incurrence of these expenses by the assessee are in the normal course of business and adequate evidences were also submitted in this regard. In any case, there cannot be any addition made by the lower authorities on estimated basis without bringing any material on record for justifying the said addition. - Decided in favour of assessee. - I.T.A No. 929/Kol/2013 - Dated:- 13-5-2016 - Shri N. V. Va .....

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d 27.12.2010. 2. The first issue to be decided in this appeal is as to whether the Ld. AO is justified in disallowing a sum of ₹ 4,89,356/- towards bad debts and advances in the facts and circumstances of the case. 3. Brief facts of this issue are that the assessee is engaged in the business of import of timber and PVC flex and selling them. The assessee made certain advance payments in the normal course of his business to various suppliers and C&F Agents and could not receive the mate .....

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ebts written off) ₹ 1,13,343/- Total : ₹ 4,89,356/- The Ld. AO observed that assessee could not establish as to how the aforesaid debts and advances had become bad. Hence, he proceeded to disallow the entire claim of ₹ 4,89,356/- in the assessment which was upheld by the ld. CIT(A) on first appeal. Aggrieved, assessee is in appeal before us on the following grounds: 1. For that the learned Commissioner of Income-tax (Appeals) erred in law in upholding the disallowance of bad de .....

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ut of such sum ought to have been allowed by the learned Commissioner of Income-tax (Appeals) in consideration of the arguments adduced to him. 4. We have heard rival submissions and perused the material available on record including the paper book filed by the assessee. We find that the breakup of the claim of bad debts and advances is enclosed in pages 27 and 28 of the paper book together with supporting evidences from pages 29 to 36 of the paper book. From the same it could be safely conclude .....

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no other option but to write off the same as bad advances in the return of income is to be accepted. We also place reliance on the following decisions in support of our conclusion: i) CIT Vs. Mysore Sugar Co. reported in (1962) 46 ITR 649 (SC) - In this case, the facts before the Hon ble Apex Court and decision rendered thereon is given below:- Facts: The assessee was a sugar company. The assessee purchased sugarcane from the sugarcane growers and crushed them in its factory to prepare sugar. A .....

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y. A crop of sugarcane took about 18 months to mature, and these agreements took place at the harvest season each year, in preparation for the next crop. In the year 1948-49, due to drought, the assessee company could not work its sugar mills and the sugarcane growers could not grow or deliver the sugarcane. The advances made in 1948-49 thus remained unrecovered, because they could only be recovered by the supply of sugarcane to the assessee-company. The Mysore Government realising the hardship .....

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ayment almost like a gift. An appeal to the AAC also failed. The Appellate Tribunal upheld the disallowance. On reference the High Court held that the expenditure was not in the nature of a capital expenditure, and was deductible as a revenue expenditure. Held: To find out whether an expenditure is on the capital account or on revenue, one must consider the expenditure in relation to the business. Since all payments reduce capital in the ultimate analysis, one is opt to consider a loss as amount .....

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n the first, it bears the character of an investment, but in the second, to use a commonly understood phrase, it bears the character of current expenses. In instant case the amount was an advance against price of one crop. The Oppigedars were to get the assistance not as an investment by the assessee-company in its agriculture, but only as an advance payment of price. The amount, so far as the assessee-company was concerned, represented the current expenditure towards the purchase of sugarcane, .....

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contemplated more than payment of advance price. The resulting loss to the assessee-company was just as much a loss on the revenue side as would have been, if it had paid for the ready crop which was not delivered. Hence, the decision of the High Court was right. The appeal was dismissed . ii) Decision of Hon ble Bombay High Court in the case of Harshad J. Choksi Vs. CIT reported in (2012) 25 Taxman.com 567 (Bom) - In this case the question raised before the Hon ble Bombay High Court and the dec .....

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its and gains of business or profession' is to be understood in its ordinary commercial meaning and the same does not mean total receipts. What has to brought to tax is the net amount earned by carrying on a profession or a business which necessarily requires deducting expenses and losses incurred in carrying on business or profession. The Supreme Court in the case of Badridas Daga v. CIT [1958] 34 ITR 10 has held that in assessing the amount of profits and gains liable to tax, one must nece .....

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ame is incidental to carrying on of a business. The fact that condition of bad debts were not satisfied by the assessee would not prevent him from claiming deduction as a business loss incurred in the course of carrying on business as share broker. [Para 11] • In fact, the Bombay High Court in the case of CIT v. R.B. Rungta & Co. [1963] 50 ITR 233 upheld the finding of the Tribunal that the loss could be allowed on general principles governing computation of profits under section 10 of .....

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a deduction as a revenue loss in computing profits of the business under section 10(1) of the Indian Income-tax Act, 1922. [Para 12] • Therefore, the amount of ₹ 44.98 lakhs, which was held to be not deductible as bad debts in view of the provisions of section 36(2), could be considered as an allowable business loss. [Para 13] Respectfully following the aforesaid decision and in view of the aforesaid findings, we have no hesitation in directing the Ld. AO to allow the claim of deducti .....

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ite off the balance sum of ₹ 1,13,343/- in his books as irrecoverable and claimed the same as bad debt in the return of income. It is not in dispute that the assessee had duly offered the sale made to said party as income in the return of income of earlier year. We find that assessee is duly entitled for the same as deduction u/s. 36(1)(vii) of the Act read with section 36(2) of the Act. Accordingly, ground nos. 1 and 2 raised by assessee are allowed. 6. The next issue to be decided in thi .....

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said C&F Agent incurred expenses on behalf of the assessee while clearing the goods for which bills were raised on the assessee and the said C&F Agent also raised separate bills for his service charges on the assessee. The Ld. AO observed that since both the services were rendered by the same party tax has to be deducted u/s. 194C of the Act on the gross amount paid to the said C&F Agent by the assessee. Accordingly, he observed that the assessee has to deduct tax at source even on t .....

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of sections 40(a)(ia) and 194C of the said Act wrongfully and incorrectly. 8. We have heard rival submissions and perused the material available on record. We find that the Ld. AR drew our attention to page 37 of the paper book, which contains the details of entire reimbursement of expenses together with its supporting bills placed at paged 38 to 83 of the paper book. The Ld. DR argued that it is not clear from the bills as to what is the element of service charges raised by the C&F Agent an .....

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ol/2010 dated 19.10.2012. We find that from the perusal of the bills submitted by the assessee in his paper book and from the perusal of the orders of the lower authorities, there is no clear finding given with regard to the fact as to whether profit element has been loaded by C&F Agent in his bills seeking reimbursement of expenses. We find that this finding is very crucial to decide the impugned issue before us. We hold that no tax needs to be deducted u/s. 194C of the Act for the reimburs .....

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3 raised by assessee is allowed for statistical purposes. 9. The next ground to be decided in this appeal is as to whether disallowance of sales promotion expenses in the sum of ₹ 2,86,466/- could be made in the facts and circumstances of the case. During the course of assessment proceedings, the Ld. AO called for the details of sales promotion expenses and in response to that the assessee produced purchase bills of material purchased which were distributed to various customers for the pu .....

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