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TMI Blog2019 (12) TMI 1196X X X X Extracts X X X X X X X X Extracts X X X X ..... t is based on misconception of facts and provision of law and therefore untenable. 1.2 That furthermore, even the conclusion that appellant has not fulfilled the condition stated in the provisions of section u/s 36(l)(vii) read with section 36(2) of the Act is misconceived and untenable; apart from being vague and not appreciating the facts and evidence on record. 1.3 That even otherwise the learned Commissioner of Income Tax (Appeals) ought to held that provision for liquidated damages is an eligible expenditure incurred wholly and exclusively for the puipose of the business of the appellant company and therefore allowable as such. 1.4 That also the conclusion that the appellant had failed to demonstrate the liability pertains to the year under consideration is not based on correct appreciation of provisions of law and facts of the appellant company; in as much as the same represented debt receivable and written-off in the instant year and thus eligible for deduction u/s 36(1) read with section 36(2) of the Act. 2. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts in upholding the addition of Rs. 34,22,140/- being alleged deemed divid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l by way of filing the present appeal. 5. We have heard the ld. DR, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case. GROUND No. 1 6. First question raised by assessee is that Ld. CIT(A) has erred in confirming the disallowance of Rs. 27,99,953/- representing bad debts written off and debited under the head provision for liquidated damages in the financial statement of the year under assessment. 7. Undisputedly nature of the amount due which becomes unrecoverable from the customers against various jobs performed by the assessee in the course of business of the assessee is not in dispute. It is pleaded case of the assessee before the Ld. CIT(A) that amount of Rs. 6,32,230/- on account of liquidated damages was short paid by the Indian Oil Corporation in 2009 qua which dispute was raised with the customer and remained unrecoverable as the project was going on. In AY 2012-13, the year under assessment the assessee written off the sum being time barred. Similarly amount of Rs. 21,53,250/- was short paid by Oil Indian Ltd. and same was shown as unrecoverable in its books pending adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/pursuing litigation on the issue of allowability of bad debt that are written off as irrecoverable in the accounts of the assessee. The dispute relates to cases involving failure on the part of assessee to establish that the debt is irrecoverable. 2. Direct Tax Laws (Amendment) Act, 1987 amended the provisions of sections 36(l)(vii) and 36(2) of the Income Tax Act 1961, (hereafter referred to as the Act) to rationalize the provisions regarding allowability of bad debt with effect from the 1st April, 1989. 3. The legislative intention behind the amendment was to eliminate litigation on the issue of the allowability of the bad debt by doing away with the requirement for the assessee to establish that the debt, has in fact, become irrecoverable. However, despite the amendment, disputes on the issue of allowability continue, mostly for the reason that the debt has not been established to be irrecoverable. The Hon'ble Supreme Court in the case of TRF Ltd. In CA Nos. 5292 to 5294 of 2003 vide judgment dated 9-2-2010-, has stated that the position of law is well settled. "After 1- 4-1989, for allowing deduction for the amount of any bad debt or part thereof under section 36(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . vs. CIT 201 ITR 684 (SC) also decided the issue as to when the amount paid by assessee as interest or damages or penalty could be regarded as compensatory in character as would entitle such assessee to claim it as an allowable expenditure u/s 37(1) of the Act by returning following findings :- "The decision of this court in Mahalakshmi Sugar Mills Co. ( 1980 ) 123 Itr 429 and the decision of the Division Bench of the Andhra Pradesh High Court in Hyderabad Allwyn Metal Works Ltd. ( 1988 ) 172 Itr 113 with the views of which we are in complete agreement, are, in our opinion, decisions which settle the law on the question as to when an amount paid by an assessee as interest or damages or penalty could be regarded as compensatory (reparatory) in character as would entitle such assessee to claim it as an allowable expenditure under section 37(1) of the Income-tax Act. Therefore, whenever any statutory impost paid by an assessee by way of damages or penalty or interest is claimed as an allowable expenditure under section 37(1) of the Income-tax Act, the assessing authority is required to examine the scheme of the provisions of the relevant statute providing for payment of such impost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (e) of the Act which has been sustained by Ld. CIT(A). Undisputedly Shri Binoy Jacob was the common Director having substantial interest both in assessee company as well as in TPPL. The Ld. AR for the assessee contended that the amount of Rs. 34,22,140/- was paid to TPPL by the assessee company not as a loan but being the sale proceeds of plant and machinery sold by TPPL to the assessee company. Ld. AR for the assessee further contended that he has made due disclosure of this information in Clause (d) of point no. 37 under the head related party disclosure of the audited financial statement for the period 2011-12 which are available at page 19 to 20 of the paper book, which is extracted as under for ready perusal :- Sr. No. Particulars Amount Page no of paper book 1 Purchase of fixed asset from Triune Projects Pvt. Ltd. 36,12,751 20 2 Expenses incurred by Triune Projects Pvt. Ltd. on behalf of assessee 2,71,286 20 Total-(A) 38,84,037 3 Sale of fixed Assets to Triune Projects Pvt. Ltd. 4,39,967 20 4 Expenses incurred by assessee on behalf of Triune Projects Pvt. Ltd. 21,929 20 Total-(B) 4,61,896 Amount payable by assessee to Triune Projects (P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2(22) (e) of the Act. (CIT v. Creative Dyeing & Printing Pvt. Ltd.1, Delhi High Court), i) Advance was made by a company to its shareholder to install plant and machinery at the shareholder's premises to enable him to do job work for the company so that the company could fulfil an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act. ii) A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The company utilised gas available to it from GAIL to generate electricity and supplied it to the sister concern at concessional rates. It was held that the security deposit made by the company to its sister concern was a business transaction arising in the normal course of business between two concerns and the transaction did not attract section 2(22) (e) of the Act. (CIT, Agra v. Atul Engineering Udyog, Allahabad High Court) 3. In view of the above it is, a settled position that trade advances, which are in the nature of commercial transactions would not fall within the ambit of the word 'advance' in secti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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