TMI Blog2024 (5) TMI 432X X X X Extracts X X X X X X X X Extracts X X X X ..... ses in the ordinary course of business and the same would otherwise be allowable as business loss. The remaining balance represent amount due to SMO division by SFCL, Dubai. However, that entity has refused payment of the same and accordingly, the same was debited under the head project. In this year, this amount has been written-off and claimed as business expenditure. It is undisputed fact that the deduction of the same has not been claimed in any other year. This write-off represents business loss for the assessee and accordingly, the same would otherwise be allowed as business loss. The corresponding grounds stands partly allowed. Disallowance of Settlement Expenditure - assessee merely repaid the liability of PSL - assessee failed to prove that PSL offered this liability u/s 41(1) and the liability was on account of loan taken by PSL for acquiring chemical tanker which was a capital asset. Therefore, the loss so suffered by the assessee would be capital loss only - HELD THAT:- The liability has crystallized as well as attained finality. This payment could not be termed as capital expenditure since it is not towards acquisition of any capital asset but towards smooth running of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off the same. As this was incurred in the course of Assessee's business, the write off is allowable either as a bad debts or a business loss. 2.2. The Commissioner of lncome tax (Appeals) ought to have appreciated that Rs. 37,66,113/- represents amount receivable as reimbursement expenses incurred on behalf of M/s. Spic Fertilizers and Chemicals Ltd, Dubai, which has been written off as irrecoverable and hence the amount written off is allowable as bad debts. 2.3 The Commissioner of Income tax having held that Rs. 6,66,027/- represents expenditure incurred in the course of business and hence allowable as revenue expenditure. Alternatively, CIT(Appeals) having held that it is a capital loss, ought to have allowed it be carried forward. 3. The Commissioner of Income Tax (Appeals) erred in confirming the disallowance of the expenditure for settlement of ILFS Claims and payment made as per Memorandum of Compromise entered into with IL FS. 3.1 The Commissioner of Income tax (Appeals) ought to have appreciated that the Appellant had given guarantee to IL FS to secure and assure the availability of ships of M/s. Pearl Ships Limited for transportation for Assessee. As M/s. Pearl Ships ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee claimed write-off of bad debts for Rs. 153.74 Lacs. The Ld. AO disallowed the same on the ground that these parties were not debtors and the conditions of Sec. 36(2) were not fulfilled. 3.2 During appellate proceedings, the assessee explained each of the items. With respect to advance given to an employee in connection with expenditure incurred for purchase of land at Ramanathauram for laying Gas pipeline for Rs. 6.62 Lacs, it was submitted that the amount was given to employee for expenses relating to land purchase and therefore, the same would be allowable as business expenditure. The Ld. CIT(A) held that the same would be capital loss which could not be allowed u/s 37(1). Another write-off was for an amount of Rs. 109.42 Lacs which was receivable from another entity viz., SICAL. This entity was providing transport facility to the assessee for movement of fertilizers. However, there was stoppage of production and net amount of Rs. 109.42 Lacs was due from this entity. After reconciliation and confirmation, SICAL confirmed that no amount was payable to the assessee and accordingly, the same was written-off and claimed as business expenditure. The same being incurred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, the same would otherwise be allowed as business loss. The corresponding grounds stands partly allowed. 4. Disallowance of Settlement Expenditure 4.1 The assessee claimed amount of Rs. 750 Lacs towards claim of M/s IL FS. It transpired that the assessee sold three ships (MT SPIC Emerald-Chemical Tanker) to M/s IL FS on 30.03.1999 for consideration of Rs. 60 Crores and offered the same to tax. M/s IL FS entered into bareboat charter agreement with M/s Pearl Ships Ltd. (PSL) to provide these ships on lease finance. The assessee entered into tripartite agreement with IL FS and PSL for using the said vessel and extended guarantee to IL FS on behalf of PSL. The assessee had joint venture with Indo-Jordon Company LLC for import of phosphoric acid on a continuous and exclusive basis for uninterrupted production of Di-Ammonia phosphate chemical fertilizer for agriculture. The said ships could not be used for any other purposes other than importing of phosphoric acid. To avoid stoppage of production, the assessee provided guarantee for lease finance to IL FS and entered into tripartite agreement with IL FS and PSL to provide a deposit in the nature of guarantee to IL FS to the tu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uring appellate proceedings, it was reiterated that the assessee required basic raw material on regular basis throughout the year for running the continuous process plant for production of Di-ammonia phosphate fertilizer. The corporate guarantee was given for facilitating working capital loan for PSL and this was done as a measure of commercial expediency only. 4.6 The Ld. CIT(A) held that aforesaid claim was capital expenditure only. The similar claim made in AY 2007-08 was pending before appellate authorities. Therefore, the action of Ld. AO was upheld against with the assessee is in further appeal before us. 4.7 From the facts, it emerges that the assessee has sold three ships to another entity M/s IL FS during on 30.03.1999 which was offered to tax. M/s IL FS entered into bareboat charter agreement with M/s Pearl Ships Ltd. (PSL) to provide these ships on lease finance. These ships had specific usage and were to be used to import raw material on behalf of the assessee. Accordingly, the assessee hired these ships and entered into a tripartite agreement with IL FS and PSL for using the said vessel. As per the contractual terms, the assessee extended guarantee to IL FS on behalf o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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