TMI Blog2017 (5) TMI 1731X X X X Extracts X X X X X X X X Extracts X X X X ..... - CIT-A delete the addition - HELD THAT:- From the details furnished by the assessee in the paper book it is found that the assessee had given full details of each item of the advances. The amounts represented advances given to the parties for the purchase of raw materials, advance to employees, security deposited with the landlord, electricity and telephones etc. The advances were given during the course of business. The amount became irrecoverable from the parties to whom the advances were made. Thus, the advances were totally connected with the business activities of the assessee. The learned CIT (Appeals) was justified in observing that the amount of advance was a trading loss. After seeing the details of amounts, it is observed that the assessee was not required to take a lengthy litigation for recovering the small amounts. In our opinion, therefore, the approach of the learned CIT (Appeals) is justified. claim of deduction is allowable as trading loss u/s 37 of the Act. AO is directed accordingly. Ground taken by the Revenue is, therefore, dismissed. - ITA No.323/Kol/2014 - - - Dated:- 3-5-2017 - Shri N.V.Vasudevan, Judicial Member and Shri Waseem Ahmed, Accountant Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remaining amount of ₹ 44,77,400/- was disallowed and added to the total income of the assessee. 4. Aggrieved assessee preferred an appeal to ld CIT(A). The assessee before the ld CIT(A) submitted that the provisions of section 35DDA speaks for the payments made to the employees in the nature of voluntary retirement scheme. Thus any payment which is over and above the voluntary retirement scheme is not covered under the provisions of section 35DDA of the Act. It was also submitted that the assessee is running various other manufacturing units even after the closure Chennai unit. The aforesaid settlement compensation was paid to resolve the labour disputes amicably which was very much incurred in connection with the business of the assessee as a whole. The ld. CIT(A) after considering the submission of the assessee has deleted the addition made by the AO by observing as under:- 5.1.4 decision:- I have carefully considered the facts of the assessee, the material placed on record and submissions of the appellant company. I have also gone through the relevant provisions as also the principles of law laid down in the cases relied upon on behalf of the appellant. In this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne-fifth and disallowing expending to the extent of ₹ 44,77,420/-. Thus, the addition made by him is hereby deleted and this ground of appeal is allowed. The Revenue, being aggrieved, is in appeal before us. 5. The ld DR vehemently supported the order of AO whereas the ld. AR before us filed a paper book which is running from pages 1 to 123 and reiterated the submission as made before the learned CIT(A). The ld AR relied on the order of Ld. CIT(A). 6. We have heard rival contentions of both the parties and perused the materials available on record. From the foregoing discussion, we find that AO has treated the payment made to the employees of Chennai unit in addition to the payment of VRS in the nature of VRS. Therefore the AO applied the provisions of section 35DDA and accordingly allowed 1/5th of such expenses and remaining expenses were disallowed. However the ld. CIT-A deleted the addition made by the AO by observing that the additional payment is not covered under section 35DDA of the Act. On perusal of the Memorandum of Settlement dated 30.09.2005 which is placed on pages 52 to 60 of the paper book and we also find that the impugned payment was paid over ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses in its wisdom the assessee might carry on all the units as one business. As soon as it was found that there was unity of control and management the inter-connection and inter-lacing is to be presumed and would be apparent. The very finding, that even after the closure of the Allahabad unit the business was carried on by the assessee, was itself a pointer to the oneness of the business. When the unit was under the control of one management, the inter-connection, inter-lacing and inter-dependence is a fait accompli. The payment was made for the purpose of closing down the losing unit so as to run the business profitably bona fide even though ultimately the approval was denied and the assessee could not get the denial reversed in Courts where the assessee took the proceedings. Therefore, the expenditure was bona fide and eligible to be construed to have been made for the purpose of the business.-Sree Meenakshi Mills Ltd. vs. CIT (1967) 63 ITR 207 (SC) relied on. The ratios laid down by the Hon ble Courts in the above cases are applicable to the facts of the case in hand. In the instant case the assessee was having several units and few of them were close down. All the units of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period, either because the advances could not be recovered on subsequent follow-ups or because of non-adjustments of accounting entries thereof in the books. From the facts, it is apparent that the Assessing Officer has not appreciated the facts in its entirety. The forfeiture of security deposit of ₹ 20,36,160/- given to National Fertilizers Limited is clearly a trading loss in view of the explanation offered. Similarly, most of the advances to suppliers, employees, security deposits for electricity and telephones, etc. Related to the closed business units. In the case of Travancore Tea Estates Co. Ltd. V. CIT [19792] 197 ITR 528 (Ker), it has been held that under sec. 28, a bad debt which cannot be written off may be allowed as a trading loss, provided the loss is incurred wholly and exclusively for the purpose of the business of the assessee. In the case of CIT v. Inden Biselers [1989] 47 Taxman 225 [1990] 181 ITR 69 (Mad), it has been held that even though the expenditure is not admissible for the computation of the total income either as a bad debt or as an expenditure wholly incurred for the purpose of business, still, it can be allowed as an expenditure as a trading ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was incidental to the business of the Assessee. The reason assigned by the AO was that there was negligence on the part of the Assessee in not keeping proper records and this fact influenced his decision in not allowing the claim of the Assessee. In our view once the fact that the loss is incidental to Assessee's business is accepted than the strict evidence of irrecoverability of the losses in uestion cannot be insisted upon. The circumstances of the case show that the Assessee made a provision in the books of accounts in the year 2000 and claimed the loss only in the year 2004. The company after review of the books of accounts and after due diligence and discussion with the statutory auditors came to the conclusion that detailed reconciliation and accounting adjustments of these advances was no longer possible due to lack of information and nonavailability of old records in the year 2000 itself but waited for 4 years before writing off the loss in the year 2004-05. We are of the view in the given facts and circumstances of the case, the deduction claimed ought to have been allowed. We hold and direct accordingly. The grounds raised by the Assessee are accordingly accepted. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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