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TMI Blog2022 (12) TMI 676X X X X Extracts X X X X X X X X Extracts X X X X ..... count that the assessee company had claimed an expenditure of Rs. 36,46,500/- towards 'bad debts written off' under the head 'other expenses'. From the ledger extracts and supporting documents of bad debts written off submitted by the assessee, the AO noted that the assessee had given advances to the following three parties: i. Mr. Prabir Ghosh-Rs.84,30,000/- out of which Rs.29,30,000/- was written off ii.M/s.Neo Mining & Minerals Pvt.Ltd. Rs.3,00,000/- out of which Rs.3,00,000/- was written off and iii. M/s. Uni Sai Minerals-Rs.4,16,000/- out of which Rs.4,16,000/- was written off. The AO noted that out of the three advances, the advance given to Mr. Prbir Ghosh is a capital advance and the remaining two advances pertain to trade advances/material advances. Since the expenditure claimed with respect to bad debts written-off were not offered as income in the previous years, the Assessing Officer asked the assessee to show cause as to why the same should not be disallowed. 3.1 In response, the assessee submitted that the bad debts written off of Rs.36,46,500/- are allowable as they pertain to business activity and in support of its contention, the assessee relied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was subsequently cancelled and the assessee did not receive any rights in china clay mine as envisaged in the Agreement. Since advances were paid to the lessor and the assessee did not have any lease rights on the mine, the assessee filed an Arbitration petition against the lessor under the Arbitration and Conciliation Act. 1996. The Arbitrator awarded a compensation of Rs,55,00,000/- in favour of the assessee. The above compensation was awarded to the assessee after considering deduction towards the cost of China clay extracted and cost of use of plant machinery of the lessor by the assessee at the clay mine amounting to Rs.29,30,000/-. Considering the fact that the above difference between the advances given to Mr. Prabhir Ghosh and the award granted by the Arbitrator represents the cost of materials extracted by the assessee and such materials do not accrue any enduring benefit to the Appellant, the same was charged to the Profit and loss account for the concerned year. It was submitted that in anticipation of getting the china clay mine as per the agreement with Mr. Prabir Ghosh, no cost of purchases were booked by the assessee in its books of accounts. It was argued that when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant have been carefully considered. The Assessing Officer has disallowed advances given to Mr. Prabir Ghosh under bad debts for an amount of Rs.29,30,000/- since the debt is capital in nature. Before me, the appellant submitted copy of a) The General Agreement dated 18.06.2006 between Mr.Prabir Ghosh and M/s. RAK Minerals(sister company of the appellant) b) copy of Arbitration judgment between M/s.Ceramin India Pvt.Ltd and Mr.Prabir Ghosh dated 18.05.2015 As per the agreement M/s.RAK Minerals had taken 20 years lease from Mr.Prabir Ghosh for china clay. The arbitration judgment refers that "In token of part performance of the transaction, substantial amount out of the consideration was paid by the Claimant to the Respondent. The said agreement, according to the claimant, remained unperformed as the Respondent was not willing to perform his part of the contract and adopted dilatory attitude for reason best known to him and subsequently cancelled the Agreement as well other documents on flimsy grounds." In pursuant to the agreement, appellant company has paid Rs.85,00,000 and Rs.75,00,000/- for this mine. The total transfer of lease to the appellant company was made at Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter considering deduction towards the cost of china clay extracted and cost of use of plant and machinery of the lessor by the appellant which amounting to Rs.29,30,000/-. The appellant had paid Mr.Prabir Ghosh an advance of Rs.84,30,000/- as consideration in different instalments for the china clay mine. On cancellation of the agreement an amount of Rs.55,00,000/- was awarded to the appellant in the arbitration. Though the compensation was claimed for Rs.84,30,000/- towards total advance given to the lessor, the arbitrator has deducted Rs.29,30,000/- and awarded balance compensation of Rs.55,00,000/-. As per the award of the arbitrator, the aforesaid amount of Rs.29,30,000/- was adjusted for the following reasons: *Cost of 8000 Metric Ton ("MT") of china clay lifted at the rate of Rs.300 per MT amounting to Rs.24,00,000/- *Balance towards wear and tear of machinery used for extraction of clay for the period 2007 to 2009 5.9 the submissions of the appellant is not accepted for the following reasons: a) Appellant company is not party to the said agreement: The question arises as to whether the appellant company did pay advance to Mr.Prabir Ghosh by agreement dated 18.06.2006 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abad ('Ld AO') erred in holding the assessment order passed by the Deputy Commissioner of Income Tax ('Learned AO') under Section 143(3) of the Income-tax Act, 1961 ('Act'). 2. On the facts and in the circumstances of the case and in law, the Learned AO / CIT(A) has erred in disallowing the claim of bad debts written off amounting to Rs.29,30,000 considering the same as capital in nature. 3. On the facts and in the circumstances of the case and in law, CIT(A) has erred in either stating that the appellant was not a party to contract for lease of china clay mine or that the Appellant has not paid any advance to obtain the lease, ignoring the fact that the appellant was earlier known as RAK Minerals Private Limited. 4. On the facts and in the circumstances of the case and in law, CIT(A) has erred in holding the contention that Appellant has taken expenses pertaining to amount of clay extracted from mine and the wear and tear of equipment used in earlier years and thereby, no loss arises in instant case. 9. The assessee also filed the following additional grounds: 5. Without prejudice, the claim of advance written off amounting to INR 29,30,000 is allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness loss. Referring to page.45 of the paper book, the ld. counsel for the assessee drew the attention of the Bench to the "other notes forming part of accounts" and submitted that as per clause d (ii) of item no.25, "The company has paid a sum of Rs. 84.30 lakhs as advanced to Mr. Prabir Gosh for acquiring china clay mines during earlier years. The said mine is yet to be transferred in the name of the company. As on date, yet to recover Rs. 55 lakhs from Mr. Prabir Ghosh as per AWARD given by Court". He submitted when out of the advance of Rs.36,46,500/- an amount of Rs.29,30,000/- was pertaining to advances given to Mr. Prabir Gosh to lease a china clay and when the arbitrator in his Arbitration Award has adjusted the amount of Rs.29,30,000/- towards lifting of china clay and wear and tear of machinery used for extraction of the clay, the same should have been allowed as a business loss. So far as the direction of the ld.CIT(A) to bring to tax the amount of Rs. 55 lakhs is concerned, he submitted that the same is shown in the balance sheet as receivable, therefore, once the amount is received, it cannot be brought to tax and therefore, the order of the ld.CIT(A) without issuin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be claimed by the assessee in the year of incurring of the expenditure and not as per his sweet will. In this view of the matter, the order of the ld.CIT(A) sustaining the addition of Rs.29,30,000/- is upheld and the grounds raised by the assessee on this issue are dismissed. 16. So far as the second issue is concerned that is the direction of the ld.CIT(A) to bring to tax the amount of Rs. 55 lakhs to be received by the assessee on the basis of the award by the Arbitration Court is concerned, we find first of all the same is not emanating from the assessment order. Further, the ld. DR could not bring on record any evidence to show that the ld.CIT(A) has given any enhancement notice, which is required as per law to be issued to the assessee before making an enhancement. Thirdly, the amount was already shown by the assessee in the balance sheet as receivable from Mr.Prabir Ghose and therefore, once the arbitrator gives the award for refund of this Rs.55 lakhs, the same cannot be brought to tax in the hands of the assessee. We, therefore, set aside the order of the ld.CIT(A) on this issue and the grounds raised by the assessee on the second issue are allowed. 17. In the result, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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