TMI Blog2019 (5) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 36 (1)(vii) and 36(2). As established law that the advances given in the course of the business are eligible for deduction under section 37(1)/ 28. This fact has already been elaborated in detail in the preceding paragraphs. Thus we are of the view claim of the assessee cannot be just rejected merely on the ground that the deduction has been claimed under the wrong section. Assessee has written off such advances in its books of accounts when it finds that such advances are not recoverable. It is also important to note that there should not be any dictate/ direction from any superior authority for the writing off such advances. The decision of the assessee is in itself sufficient to claim the deduction for such advances by the writing off in the books of accounts subject to the conditions as specified u/s 37(1)/ 28. Thus we disagree with the contention of the learned CIT-A. Thus AO had emphasized on the fact that the assessee failed to produce the necessary details of the parties. Indeed such details of the parties were one of the corroborative factors which would eliminate the doubts, but in the absence of that agreement, the other circumstances ought to have been evalua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T:- We note that assessee has shown job work charges from IOPL in its books which was also confirmed by the party as evident from the details available on the paper book. We also note that the AO without finding out any defect in the reconciliation filed by the assessee has relied on form 16. AO action for the addition was based on the form 16A only which is not correct as per the provision of law. AO should have pointed out the specific defect in the submission of the assessee before making the disallowance. In view of the above, we do not find any infirmity in the order of learned CIT-A. Hence the ground of appeal of the revenue is dismissed. - ITA No.947/Rjt/2010 And ITA No.306/Rjt/2013 - - - Dated:- 5-3-2019 - SHRI MAHAVIR PRASAD, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER For The Revenue : Shri Praveen Verma, Sr.D.R And Shri Jitendrakumar, CIT, D.R For The Assessee : Shri Ankit Gokani, A.R ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned Cross appeals have been filed at the instance of the Revenue and Assessee against the order of the Comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the advance given by it to various fishers, fisheries for procurement of raw materials. As theses advance could not be recovered over a period of time, therefore, these were written off in the profit loss account. As such the advances written off are allowable as expenses or business loss. The assessee also claimed that its case falls under the provision of section 37/ 28 of the Act. The assessee also submitted that it is practice and business exigency to advance the money before the season commences to these persons for the procurement of the fishes. These advances have been given to various parties in period 1993-94 to 1997-98, but after that, the business of the assessee and most of these parties suffered badly due to Cyclone in 1998, and a subsequent massive earthquake. 5.1 Subsequently most of the persons to whom advances were given were not traceable. Shri babulal panjri who was looking after the main purchase passed away in 2002 and contact of the company with all these persons were also lost. 5.2 The assessee also claimed that it tried through various other brokers for recovery of these amounts but failed. Thus during the year the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of rupees. The learned DR vehemently supported the order of the AO. 10. On the contrary, the ld. AR before us filed a paper book running from pages 1 to 95 and submitted as under: 1. Appellant is in the business of seafood processing 2. Trade advances have been given to various fishermen for procurement of its raw material on account 3. Total trade advances written off during the year is ₹ 7,46,98,998/- most of which were very old and were given during the period 93-94 to 97-98. 4. Considering the length of time, the appellant has written off these advances in its books of accounts. Submission: 1. Appellant is a private limited company and gets its books of accounts audited every year wherein the trade advances have been disclosed on year to year basis. 2. Throughout the trade it is a practice and business exigency that before the season commences advances are given to such suppliers for acquisition of fish and hence giving advance is inevitable in business of sea food processing 3. At the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 6. The facts of Chenab Forest Co. v. CIT [1974] 96 ITR 568 (J K) are similar to the instant case. In this case, the assessee was engaged in exploitation of forests, i.e., felling of trees, cutting them into sizeable logs, etc. In that case, the assessee had to engage various sub-contractors, who were to be given advances before coming to the works. The advances as also the cost of rations supplied to them had to recouped from the subcontractors, earnings during the working season. Any balance left as debit or credit was being carried forwarded to the year following, when again some advances had to be made for the labour to come out to the works. The assessee for the assessment years 1964-65 filed its return claiming some amount to be deducted as bad debts. The Assessing Officer did not allow any deduction on account of the fact that the assessee had not taken any steps for realisation of those debts. The appellate authorities also agreed with the finding of the Assessing Officer. The Tribunal also did not agree with the alternate plea of the assessee that if its case was not covered under section 36, the same could be allowed under section 37. In that case als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diture or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head Profits and gains of business or profession .' The essential ingredients of the section are, therefore : ( i) that it should be an expenditure of the nature not described in sections 30 to 36 ; ( ii) it should not be in the nature of capital expenditure or personal expenses of the assessee ; ( iii) that it should be laid out or expended wholly and exclusively for the purposes of the business, etc. No : 0115 The facts and the circumstances which I have stated above would in my opinion clearly show that the advances which had been made by the assessee in the present case were certainly of a type which would be within the contemplation of the^words laid out or expended wholly and exclusively for the purposes of the business'. Now, with regard to the contention whether section 37 would be applicable when section 36 is applicable in the present case, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Page No: 0116 laid out or expanded wholly and exclusively for the purpose of such business, etc. The clauses expressly provide what can be deducted ; but the general scheme of the section is that profits or gains must be calculated after deducting outgoings reasonably attributable as busi ness expenditure but so as not to deduct any portion of an expenditure of a capital nature. If an expenditure comes within any of the enumerated classes of allowances, the case can be considered under the appropriate class ; but there may be an expenditure which, though not exactly covered by any of the enumerated classes, may have to be considered in finding out the true assessable profits or gains. This was laid down by the Privy Council in CIT v. Sir S. M. Chitnavis [1932] 2 Comp Cas 464 (PC) ; [1932] LR 59 IA 290 (PC) and has been accepted by this court. In other words, section 10(2) does not deal exhaustively with the deductions, which must be made to arrive at the true profits and gains. 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 reduc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the same. The other reason for writing off was the demise of the proprietor, Bhagwan Das, of M/s. Kanpur Boot House and the assessee in its wisdom did not choose to take the matter to the court apprehending counter-claim and this decision of the assessee seems to be well reasoned. In any case, the Revenue could not compel the assessee to have recourse to litigation to recover the amount against the dead person or his legal heirs when in the given circumstances, the same may not be recoverable. The Commissioner of Income-tax (Appeals) rightly recorded that the debt had become bad and not recoverable and it would be a futile exercise to take any action against the legal heirs of the deceased. In view of the discussion as made by the Division Bench of the J K High Court and the hon'ble Supreme Court, as quoted above, that the advances made by the assessee in the case were certainly of a type which would be within the contemplation of the words laid out or expended wholly and exclusively for the purposes of the business . As no portion of the said advances could be stated to be loss of capital expenditure, but it being a plain case of business loss, it would certainly be allowa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Infrastructure (P) Ltd. vs DCIT (88 taxmann.com 391) (2017) (Delhi Trib.) v. Smita Conductors Ltd. vs DCIT (41 taxmann.com 514)(2014) (Mumbai Trib.) 12. Further regarding Hon. CIT (A)'s contention that the expenditure is prior period we rely on the judgement of Hon. Cochin Tribunal in case of Harrison Malayalam Ltd. vs ACIT (2008) (19 SOT 363) wherein it was held that :- The opinion of the Commissioner (Appeals) was that the expenditure could not be allowed in this year as the advances were made in the earlier year. The nature of the claim of the assessee was to be considered that there was non-supply of seeds by the farmers, and that could be ascertained by the assessee only in the previous year relevant to the assessment year 1998-99. As otherwise the facts were not disputed, the entire claim of loss towards the advances to the farmers and distributors for procuring seeds, was an allowable expenditure in the assessment year 1998-99. Therefore, the order of the Commissioner (Appeals) on this issue was to be set aside and the Assessing Officer was directed to allow the loss claimed by the assessee. 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar/identical to section 28 of the 1961 Act. The revenue in that case urged that the assessee having claimed deduction as a bad debt the benefit of the general principle of law that all expenditure incurred in carrying on the business must be deducted to arrive at a profit cannot be extended. This submission was negatived by the Court and it was held that even where the debt is not held to be allowable as bad debts yet the same would be allowable as 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] 14. We further rely on the decision of Hon Kolkata High court in case of Ashoka Marketing co P Ltd V CIT 253 ITR 460 where in during the course of assessment for the assessment year 1981-82, the Assessing Officer noticed that a sum of ₹ 2,42,006 was due from a company S and the assessee had written off that amount and claimed it as a bad debt in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility of the recovery of loan of unsecured creditors when there is no chance the assessee has rightly written off that debt treating it as a bad debt. In view of the aforesaid finding, the Tribunal has committed an error. In the result, we answer question No. 1 in the negative, i.e., in favour of the assessee and against the Revenue. In view of the above submission, it is submitted that issue is squarely covered in favour of the assessee and appellant requests before your honour to delete the addition made by learned Assessing Office and confirmed by the dl CIT (A). 11. We have heard the rival contentions and perused the materials available on record. The assessee in the instant case has written off the advances of ₹ 2,10,17,075/-only. As per the assessee, the amount of advances was given to various parties in the course of the business. Accordingly, it was claimed as a deduction under section 37(1) or 28 of the Act. However, the AO rejected the claim of the assessee by observing that there was no evidence that the advances were given in the course of the business. 11.1 However, the Ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... advance out of the price, so that the growing of the crop might not suffer due to want of funds in the hands of the growers. There was hardly any element of investment which 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. 11.4 After considering the facts as discussed above, we are of the view that the claim of the assessee is eligible for deduction under section 37(1) or 28 of the Act, subject to the conditions specified therein. As per the provisions of section 37(1) of the Act, among other things, mandates that any expenditure incurred wholly and exclusively for the business is eligible for deduction. The primary onus under section 37(1) of the Act is on the assessee to establish the fact that the expenditures were incurred wholly and exclusively for the business. In this regard, we find support and guidance from the judgment of the High Court of Bombay in the case of Umakant B Agarwal Vs. DCIT reported in 369 ITR 220 wherein it was held as under: The app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s they always take some advance from the party before they go for fishing. Thus the nature of the business just cannot be brushed aside while adjudicating the issue on hand. iii. The books of accounts are statutory records, and therefore the entries shown therein cannot be just brushed aside, especially the entries which are more than 12 to 15 year old. iv. There were several agreements and promissory notes available in the paper book placed on pages 20 to 60. In many cases, the advances were claimed to have been paid through banking channels. v. There was no doubt raised on the genuineness of such advances by the AO in all the years though the scrutiny assessments were framed under section 143(3) of the Act. vi. There is also no allegation of the Revenue that the assessee has created a loss in its books to set off against the income. vii. The Revenue has not doubted on the advance payment made by the assessee which proves that the fund has gone from the company. Now the question arises if the fund has gone from the company other than the advances to the parties as discussed above, then such f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es on this issue, we find that there is no infirmity in the finding of CIT (Appeals) as discussed above. The finding of CIT (Appeals) that both the parties were sharebrokers could not be controverted by the learned DR by filing any positive evidence, though the learned DR has commented that it seems that both the parties were not sharebrokers, however, no evidence whatsoever was filed before the Bench. Therefore, we confirm the finding of the CIT(A) by holding that this is customary in the trade of share transactions that one person buys shares on behalf of others, and as per the understanding the interest was paid and charged. As stated above, there is no dispute that interest amount was paid and there is also no dispute that both the parties have shown the interest income as their income. Therefore, in view of these facts and circumstances, and in view of the reasoning given by CIT (Appeals), we confirm his order on this point. 2. In the light of the above concurrent finding of fact that purchase of shares by M/s. Deepak Choudhary and M/s. P.S. Kalra, HUF was for and on behalf of the assessee and that the assessee had paid interest to the said pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ddleman. iv. The downfall in the business due to the cyclone and the earthquake. v. The banking facility of the assessee has become NPA. vi. The death of the main person who was looking after the purchases of the company. vii. The advances are vey old but duly disclosed in all the years in the audited financial statements. 11.8 In the subsequent year also, i.e. 2008-09, we note that the addition was made on account of writing off such advances which was subsequently confirmed by the ld. CIT-A for the following reasons: i. The trading advances do not qualify the test for the deduction under the provisions of section 36(1)(vii) and 36(2) of the Act. ii. No details of the parties to whom the assessee gave the advances. iii. The impugned advances written off in the year under consideration represents the prior period expenses which cannot be allowed in the year under consideration. 11.9 It is an undisputed fact the advances written off by the assessee as discussed above cannot be categorized as bad-debts under the provisions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority for the writing off such advances. The decision of the assessee is in itself sufficient to claim the deduction for such advances by the writing off in the books of accounts subject to the conditions as specified under section 37(1)/ 28 of the Act. Thus we disagree with the contention of the learned CIT-A. 12.1 Thus after considering the facts in totality, we are of the view that The Assessing Officer had emphasized on the fact that the assessee failed to produce the necessary details of the parties. Indeed such details of the parties were one of the corroborative factors which would eliminate the doubts, but in the absence of that agreement, the other circumstances ought to have been evaluated, which could lead the adjudicating authority towards a firm conclusion. In view of the above and after considering the facts in totality, we hold that no disallowance is warranted for advances written off as bad debts. Thus Considering the circumstantial evidence, the conclusions drawn by the Commissioner (Appeals) were to be upheld. Hence the ground of appeal of the Revenue is dismissed. 13. The second issue raised by the Revenue is that '' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce on the order of ITAT Mumbai Bench in case of DCIT Vs. Saraswat co-operative bank Ltd reported in 79 taxmann.com 305 wherein it was held as under: It is the admitted and undisputed position between the rival parties that there was delay in deposit of employee's contribution to PF authorities by the assessee which was not paid within the due date prescribed by PF authorities but were paid within grace period allowed by PF statute and in any case, the same were paid prior to the due date of filing of return of income as prescribed under section 139(1) with the revenue. The issue is decided in favour of the assessee and no disallowance under section 43B, read with sections 2(24)(x) and 36(1)(va), is warranted in the instant case in view of the afore-stated decisions, as the assessee in the instant case paid the employees contribution towards PF within grace period as allowed by PF statute and in any case the employee contribution to PF was deposited with PF authorities before the due date prescribed under section 139(1) for filing of the return of income with the revenue 20. Regarding the employer s contributi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of ld. CIT-A Revenue is in appeal before us. Both the parties before us relied on the order of authorities below as favorable to them. 27. We have heard the rival contentions and perused the materials available on record. There is no dispute that the assessee was under the obligation to make the payment of the investigation charges carried out by the firm of chartered accountant appointed by the bank. But the assessee failed to make the payment to the CA firm. Therefore, the banker has made the payment to the CA Firm on behalf of the assessee which was recovered by the bank from the assessee by debiting its accounts in its books of accounts. Now the issue arises whether the payment by the assessee to the bank is not subject to TDS under section 194A read with section 2(28A) or 194C/194J of the Act. 27.1 In this regard, we note that the primary liability of the assessee was to make the payment to the chartered accountant firm. Thus merely the payment was made by the bank on behalf of the assessee does not mean that the transaction is covered under the provisions of section 194A read with section 2(28A) of the Act. As such the assessee is lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt. Appellant stated that there is no mistake in accounting but it is because of double deduction of tax at sources once at the time of payments of money and another at the time of booking of the bills by the principal. In support of his claim he submitted that full reconciliation of account of the appellant was submitted that with M/s Indepesca Overseas Private Limited from 1-4-2006 to 31-3-2007 where on page no. 327 of the paper book only three Indepesca Overseas Private limited are seen. The total of these three entries is ₹ 1,53,073.62 which is ₹ 1,29,756.56 being freight paid by Indepesca on behalf of appellant, minor difference of ₹ 0.06 and ₹ 23,317/- on account of excess DEPB sales credit given to that partly by the appellant. In view of contra confirmation with reconciliation of the accounts of the appellant with the principal there is no reason that addition to the income of the appellant is made based on TDS certificate when M/s Indespecsa Overseas is the only party whose job work is done by the appellant. Hence I delete the addition of ₹ 67,10, 325/- on account of difference of job work income as per TDS certificate and gross amount paid/pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovision of law. The AO should have pointed out the specific defect in the submission of the assessee before making the disallowance. In view of the above, we do not find any infirmity in the order of learned CIT-A. Hence the ground of appeal of the revenue is dismissed. 34.4 In the result, the appeal of the revenue is partly allowed for statistical purposes. 35. Coming to the assessee appeal in ITA bearing no. 306/RJT/2013 for A.Y. 2008-09. 36. The assessee has raised the following grounds of appeal: 1. Learned AO erred in law and well as on facts in making disallowance of ₹ 7,46,98,998/- being amount of bad debt written off u/s28 and Hon ble CIT(A) erred in confirming the same. 37. At the outset, we note that the issue raised by the assessee is identical to the issue raised by the Revenue in ITA number 947/RJT/2010 which has been decided by us in favor of the assessee and against the Revenue vide paragraph number 8 of this order. Therefore, respectfully following the same, we reverse the order of authorities below. Hence the ground of appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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