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TMI Blog2024 (6) TMI 592X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2005-06 and could not be recovered till 31.03.2010 and therefore written off and claimed in the assessment year 2010-11. This amount deserves to be allowed as expense and the Learned Commissioner of Income Tax Appeals (XXVI), New Delhi has erred in confirming the addition made by the Assessing Officer." 3. Roop Kishore Madan had been in the business of purchase and sale of Cigarettes in a proprietary concern namely Rhea distribution company. M/s MSPV Trading PTY Limited, Stanhope Garden, NSW 2768, Australia, were engaged in introducing and identifying the manufacture of Cigarettes were contacted for purpose of indentifying for the supply for the supply of the cigarettes to the assessee. 4. The following sums were remitted to the said c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head "Trade Advance Irrecoverable/written off" in its profit and loss account as the assessee was unable to recover the amount of advance. Trade Advance was given to the M/s MSPV Trading Pty. Ltd. in the Financial Year 2005-06 for arranging and identifying the manufacturers in Australia who could supply cigarettes to the assessee. The company didn't supply any goods and neither returned the money back. Out of the Total Advance of Aus. $76,500, the assessee could recover only Aus. $ 10,000. The amount was shown by the appellant in the Financial Statement as Sundry Debtors/ Trade Advance in the Financial Year 200607, 2007-08 & 2008-09 and so was assessed by the AO in the block assessment of the said years. The business of sale of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & added to the Income of the assessee. The Assessing Officer made the addition on the basis of Section 36(2) of IT Act, however the "Advances Written Off' is allowable u/s 37 of the Income Tax Act 1961 as there is a direct nexus between the amount of advance given and business of the assessee, which has never been doubted by the assessing officer. 14. The impugned business advances, which were given to the company M/s MSPV Trading Pty Ltd., partake the character of advances for acquiring trading goods which were likely to be sold in the normal course of business of the assessee firm. The funds for acquiring trading goods in the form of advances to the relevant parties were given on the basis of negotiation and confirmations. 15. The ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utting and moving the trees. But the forest contract was not renewed. Accordingly, portion of the advances became irrecoverable. It was clear that to carry on the business, it was essential that advances should be made. Without these advances, the forest lessee might not be able to carry on the business. The advances during the ordinary course of business would have been adjusted and recouped if the lease were renewed. Since there was no renewal, the non- recoverability was a result of the circumstances. Therefore, it was that the assessee was entitled to deduction of irrecoverable advances under section 37. 18. In T. J. Lalvani vs. CIT, (1970) 781 ITR 176 (Bom.), it was held that the financing by the assessee of another person's busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he books of account and claimed deduction on the incurred amount as revenue loss. The Assessing Officer rejected his claim. According to the Assessing Officer when the amount was advanced for acquiring the capital asset, the written off amount could not be allowed as deduction in the income of the assessee. The High Court held that, in the instant case, the new project had never matured. The expenditure incurred by the assessee had, therefore, to be written off. The efforts to make a new project by the same management in relation to the same business would certainly come within the test of identity laid down by the Supreme Court and since no benefit of enduring nature resulted to the assessee, the expenditure in question could not be treate ..... X X X X Extracts X X X X X X X X Extracts X X X X
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