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TMI Blog2019 (5) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... . 2. The Ld.CIT(A) has erred in law and facts in deleting the addition of Rs. 7,68,148/- being the disallowance on account of delay in payments made to employer as well as employee's contribution to provident fund. 3. The Id. CIT(A) has erred in law and in facts in deleting the addition of Rs. 7,23,110/- being the disallowance on account of investigation expenses paid by the bank. 4. The Ld.CIT(A) has erred in law and in facts in deleting the addition of Rs. 67,10,325/- being the difference in the amount with reference to the TDS certificate and that claimed as job work income. 5. That on the facts and in the circumstances of the case, the Id.CIT(A) ought to have upheld the order of the Assessing Officer. 6. It is therefore prayed that the order of the Ld.CIT(A) be set aside and that of the Assessing Officer be restored. 7. That the revenue craves leave to add, amend, alter or withdraw any | grounds of appeal. 3. The first issue raised by the Revenue is that ld. CIT-A erred in deleting the addition made by the AO on account of trading advances written off amounting to Rs. 2,08,47,623.00 4. The facts of the case are that the assessee is a company and engage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with these parties. Thus the assessee has failed to prove that the advances were given in the course of business. In view of the above, the claim of the assessee for the business loss for Rs. 2,10,17,075/- was rejected and the same added to the total income of the assessee. 6. The aggrieved assessee preferred an appeal to the Ld.CIT (A) and submitted that the AO agreed that the advances to the parties were fully supported by promissory notes and agreement for the supply of the goods. The AO also agreed that these advances are old and there are opening balances with the parties. 7. The Ld.CIT (A) deleted the addition after having the reliance on the order of his predecessor in the own assessee case in the preceding assessment year. 8. Being aggrieved by the order of ld. CIT-A, the Revenue is in appeal before us. 9. The ld. DR before us submitted that the deduction claimed by the assessee for the advances written of does not represent the bona fide business transactions. It is because the assessee has not produced any documentary evidence of the parties to whom the advances were given by it. The opening balance and the closing balance shown in the ledger copies of the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and when appellant was certain that such amounts are not recoverable. 7. In AY 2006-07 and 2007-08 the same issue was raised by the Learned AO and the claim of the assessee was disallowed by LD AO but the same was allowed by CIT(A) stating that loss arising to the appellant is in the ordinary course of business and incidental thereto and was therefore a trading loss allowable under section 28 itself. 8. Even during the earlier years say AY 2005-06, 06-07, 07-08 the case of appellant was selected for scrutiny u/s 143(3). In none of the earlier years has the assessing officer doubted on the advances given by appellant. All such advances have been accepted in past by the then assessing officer. However, it is only at the time this amount is written off has the assessing officer raised objection and has raised question on whether such advances are bonafide. 9. Appellant further relies on the judgement of:- i. CIT V Mysore Sugars Limited 46 ITR 649 ( Sc) ii. CIT v Abdul Razak & Co 136 ITR 825 ( Gui) 10. Further the facts of the case are identical to the case of Mohan Meakin Ltd. reported in 348 ITR 109 (Delhi) wherein Hon. High Court has held as under:- 6. The fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions 30 to 43 the only sections which can be made appli cable are either section 36 or 37. I have already stated above that the assessee-company's learned counsel is not relying on section 36 but is relying on section 37 and to me it appears that sections 28 and 29 read together do not show that if a case comes under section 36 then the applicability of section 37 will be taken out but rather means that a case may come either under section 36 or section 37 and a compu tation may be made under either of the sections. It also appears that there is a clear distinction between a business expenditure and a business loss, the former is indicative of a volition but in loss it comes upon him so to speak as ab extra and I am also of opinion that non-capital expenditure incurred for the purpose of business would fall to be deducted under the omnibus residuary section 37 to which I will be now referring. Section 37(1) lays down as follows : 'Any expenditure (not being expenditure of the nature described in sections 30 to 36 and not being in the nature of capital expenditure or personal expenses of the assessee), laid out or expended wholly and exclusively for the purposes of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section provides by subsection (1) that the tax shall be payable by an assessee under the head 'Profits and gains of business, etc.' in respect of the profits or gains of any business, etc., carried on by him. Under sub-section (2), these profits or gains are computed after making certain allowances. Clause (xi) allows deduc tion of bad and doubtful business debts. It provides that when the assessee's accounts in respect of any part of his business are not kept on the cash basis, such sum, in respect of bad and doubtful debts, due to the assessee in respect of that part of his business is deductible but not exceeding the amount actually written off as irrecoverable in the books of the assessee. Clause (xv) allows any expenditure not included in clauses (i) to (xiv), which is not in the nature of capital expenditure or personal expenses of the assessee, to be deducted, if 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 ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was only on account of nonrecovery of the huge amount from the Page No : 0117 corporation that the work had to be cancelled and the supplies had to be abruptly stopped by the assessee and consequently production was necessarily required to be stopped. It is known practice that usually manufacturer gives advances to the workers which are adjusted or carried forward in the coming times against the works done by them. This was not an unusual practice which was liable to be outrightly rejected by the Department. When the assessee had written off the dues recoverable from the corporation and the same were accepted by the Department and it had also so written off, the advances made to M/s. Kanpur Boot House in its books of account, what else could proof with the assessee for its being unable to recover 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 amo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... missible to raise question of deduction under section 37 of the Act even if it was not raised before the authorities below. 13. In view of our discussion as made above, we answer the question in the affirmative and allow the appeal." 11. Recently Hon. Tribunal has allowed expenses as business loss in case of trade advance written off:- i. DCIT Vs. Kalpataru Power Transmission Ltd. (82 taxmann.com 340) (2017)(Ahmedabad Trib.) ii. DCIT Vs. J Thomas & co. P Ltd. (87 taxmann.com 250) (2017) (Kolkata Trib.) iii.ACIT vs. M/s OSN Infrastructure (ITA No. 346/Del/2015) (Date of order 20.4.2018) (Delhi Trib.) iv. Today Homes & 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 clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 85 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 the Indian Income-tax Act, 1922, which is 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 Rs. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editors found that the entire amount went to the secured creditors and nothing remains to be paid for unsecured creditors, there is no justification to deny the claim of the assessee. Therefore, following the aforesaid finding of this court regarding possibility 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 Rs. 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cerned, it was doing no more than making a forward arrangement for the next year's crop and paying an amount in 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 repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 fact should be brought on record. But the Revenue failed to bring anything on record contrary to the argument of the assessee. viii. The death of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 purchasers who were working as sharebrokers, the Commissioner as also the Tribunal were justified in directing the allowance of the amount paid as an allowable expenditure. No substantial question of law arises for consideration in this appeal which fails and is hereby dismissed." 11.6 We also draw support from the order of ITAT Mumbai (T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... firmed 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 of section 36 (1)(vii) and 36(2) of the Act. However, it is established law that the advances given in the course of the business are eligible for deduction under section 37(1)/ 28 of the Act. 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. 11.10 We also note that the assessee has failed grossly to provide the direct pieces of evidence in support of his contention that the amount written off represents the advances in the course of the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt, 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 ''Ld.CIT(A) erred in law and in facts in deleting the addition of Rs. 7,68,148/- being the disallowance on account of delay in payments made to the employer as well as employee's contribution to provident fund. 13.1 The assessee in the year under consideration has claimed a deduction for the employees and employer contribution to provident fund amounting to Rs. 3,72,841/- and Rs. 3,95,307/- only which was paid after the due date prescribed under the relevant Act. Therefore, the same was disallowed by the AO and added to the total income of the assessee. 14. Aggrieved assessee preferred an appeal to the Ld.CIT (A) who has deleted the addition made by the AO. 15. Being aggrieve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mployees 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 contribution towards the provident fund, we note that the employer deposited the same before the due date of filing the income tax return as specified under section 139(1) of the Act. Thus, we are of the view that the assessee has complied with the provision of section 43B of the Act. Accordingly, we do not find any reason to interfere in the order of the Ld.CIT (A). 20.1 In view of the above, the ground of appeal of the Revenue is partly allowed. 21. The third Issue relates to the non-deduction of TDS on the payment made for investigation expenses of Rs. 7,23,110/-. 22. During the year under consideration, the assessee has made payment of Rs. 7,23,110/- to M/s Nissom & co. for the investigation expenses without the deduction of TDS thereon. On a question, the assessee admitted its mistake for non-deduction of TDS. However, the assessee further submitted that the bank paid the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction is covered under the provisions of section 194A read with section 2(28A) of the Act. As such the assessee is liable to deduct the TDS under section 194J of the Act. Thus in our considered view the assessee is not eligible for deduction for the expenses due to non-deduction of TDS under section 194J read with section 40a(ia) of the Act. 27.2 However, as per the 2nd proviso to the section 40a(ia) of the Act, the expenses on account of non-deduction of TDS will not be disallowed if the recipient has included such receipts in its books of accounts and offered the same to tax. Therefore, in the interest of justice and fair play, we are inclined to set aside the issue to the file of AO for fresh adjudication as per the provisions of law. The AO will verify whether the recipient has included the receipt from the assessee in its books of accounts, if yes, then there will not be any disallowance on account of non-deduction of TDS under section 194J of the Act. Hence, the ground of appeal of the Revenue is allowed for statistical purposes. 28. The fourth ground raised by the Revenue is in relation to the difference in income declared in return and shown in form 16A. 29. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DS certificates.'' 32. Being aggrieved by the order of ld. CIT-A the Revenue is in appeal before us. 33. Both the parties before us relied on the order of authorities below as favorable to them. f34. We have heard the rival contentions and perused the materials available on record. The issue in the instant case relates to the difference observed by the AO between the income shown by the assessee in its books of accounts viz a viz income shown in form 16A issued by IPOL. Therefore, the addition was made by the AO on account of such difference amounting to Rs. 67,10,325/-. However, the ld.CIT (A) deleted the addition made by the AO by observing that IPOL has deducted the TDS twice on the advance money given to the assessee as well as on the actual bill of the assessee. 34.2 However, we note that assessee has shown job work charges from IOPL in its books for Rs. 7,86,46,817.00 which was also confirmed by the party as evident from the details available on the paper book. 34.3 We also note that the AO without finding out any defect in the reconciliation filed by the assessee has relied on form 16 by observing as under: ''9. The assessee has actually claimed the TDS 8,53,57, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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