Rinder India Pvt. Ltd., Pune V. Assistant Commissioner of Income-tax,

ITA 1156/PUN/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 2851 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 30-05-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Depreciation; Business expenditure; Bad and doubtful debts; Revised return; Revenue expenditure; Capital expenditure
• Section: 143(3); 37(1); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI PRADIP KUMAR KEDIA , AM . / ITA NO. 1156 /PN/201 4 / ASSESSMENT YEAR : 20 1 0 - 1 1 RINDER INDIA PVT. LTD., GAT NO.148, MAHALUNGE INGALE, CHAKAN, TAL - KHED, PUNE 4 1 0501 . / APPELLANT PAN: AAAC H4211R VS. THE DY . COMMISSIONER OF INCOME TAX CIRC LE 1 0 , PUNE . / RESPONDENT / APPELLANT BY : SHRI SHARAD SHAH / RESPOND ENT BY : SHRI VIDYASAGAR R. PATIL / RESPOND ENT BY : SHRI VIDYASAGAR R. PATIL / DATE OF HEARING : 14 .0 1 .201 6 / DATE OF PRONOUNCEM ENT: 20 . 0 1 .201 6 / ORDER PER SUSHMA CHOWLA, J M : TH IS APPEAL FILED BY THE ASSESSEE IS AGAINST THE ORDER OF C IT (A) - V , PUNE, DATED 2 5 . 0 3 .201 4 RELATING TO ASSESSMENT YEAR 20 1 0 - 1 1 PASSED AGAINST ORDER U NDER SECTION 143(3) OF THE INCOME - TAX ACT , 196 1 (IN SHORT THE ACT) . 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: - 1.1) THE LEARNED A.O. ERRED IN (AND LEARNED CIT - A ERRED IN CONFIRMING) DISALLOWANCE OF THE LOSS ON ACCOUNT OF UNRECOVERABLE ADVANCE GIVEN IN THE COURSE OF BUSINESS U/S 2 8, 29 AND 37 . ITA NO. 1156 /PN/201 4 RINDER INDIA. PVT. LTD. 2 1.2) THE LEARNED A.O. ERRED IN (AND LEARNED CIT - A ERRED IN CONFIRMING) APPLYING THE PROVISIONS OF S.36 WHEN THE ASSESSEE HAD ALREADY POINTED OUT THAT THE DEDUCTION IS NOT U/S 36. 1.3) THE LEARNED CIT(A) ERRED IN DISALLOWING THE LOSS ON AC COUNT OF UNRECOVERABLE ADVANCE ON THE BASIS OF AN ERRONEOUS CONCLUSION THAT IT IS AN ASSESSEE'S FAULT WHEN FIRST ADVANCE IS OUTSTANDING (WHICH WAS GIVEN FOR AGAINST FIRST ORDER) AND STILL IT GAVE FURTHER ORDER AND ALSO PAID ADVANCE AGAINST SUCH ORDER. 2.1 ) THE LEARNED A.O. (AND LEARNED CIT - A ERRED IN CONFIRMING) ERRED IN NO T ACCEPTING THE INCOME AS PER THE REVISED RETURN OF INCOME THE ASSESSEE. 3 ) THE APPELLANT CRAVES ITS RIGHT TO ADD TO OR ALTER THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE COU RSE OF HEARING OF THE CASE. 3. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE AT THE OUTSET POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS IDENTICAL TO THE ISSUE RAISED BY THE ASSESSEE IN ASSESSMENT YEAR 2009 - 10, AND IS COVERED BY THE ORDER OF TRIBUNAL DATED 01.12.2015. IT WAS FURTHER POINTED OUT BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THAT THE ASSESSEE HAD BOOKED LOSS ON ACCOUNT OF UN - RECOVERABLE ADVANCE @ 30% IN ASSESSMENT YEAR 2009 - 10 AND 30% IN THE PRESENT ASSESSM ENT YEAR. 4. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW . 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAD CLAIMED D EDUCTION IN RESPECT OF UNRECOVERABLE ADVANCES FOR PURCHASE OF MACHINERY TO THE TUNE OF RS.43,34,640/ - . THE SAID DEDUCTION WAS CLAIMED BY THE ASSESSEE IN RESPECT OF AN ADVANCE MADE FOR PURCHASE OF MACHINERY AND SINCE THE MACHINERY WAS NOT DELIVERED BY THE SAID PARTY NOR THE ADVANCE COULD BE RECOVERED, THE ASSESSEE CLAIMED DEDUCTION ON ACCOUNT OF THE SAID UNRECOVERABLE ADVANCE TO THE EXTENT OF 30% IN ASSESSMENT YEAR 2009 - 10, 30% IN ASSESSMENT YEAR 2010 - 11 AND 40% IN ASSESSMENT YEAR 2011 - 12 . THE FIRST YEAR I N WHICH THE SAID CLAIM MADE WAS ASSESSMENT YEAR 2009 - 10. THE TRIBUNAL WHILE DECIDING ITA NO. 1156 /PN/201 4 RINDER INDIA. PVT. LTD. 3 THE APPEAL OF THE ASSESSEE RELATING TO ASSESSMENT YEAR 2009 - 10 IN ITA NO. 608/PN/2013, VIDE ORDER DATED 01.12.2015 CONSIDERED THE FACTS OF THE CASE VIDE PARA 4, WHICH READ S AS UNDER: - 4. BRIEFLY, IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE WAS A COMPANY ENGAGED IN THE MANUFACTURING OF AUTO LIGHTING SYSTEM INCLUDING SIGNALING LIGHTS . FOR THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAD FURNISHED ORIGINAL RETURN OF INCOME DECLARING TOTAL INCOME OF RS.16,41,26,880/ - ON 27.09.2009. THEREAFTER, THE ASSESSEE FILED REVISED RETURN OF INCOME DECLARING NET INCOME OF RS.15,97,92,940/ - ON 09.06.2010 . THE REDUCTION IN THE INCOME WAS ON ACCOUNT OF CLAIM OF DEDUCTION IN RESPECT OF UNR ECOVERABLE ADVANCE FOR PURCHASE OF MACHINERY. THE ASSESSEE HAD PAID AN ADVANCE OF EURO 238,400 EQUIVALENT TO RS. 1,44,48,798/ - TO M/S. GALILEO VACUUM SYSTEMS, A COMPANY IN ITALY, FOR PURCHASE OF MACHINERY. THE SAID SUM WAS ADVANCED BY WAY OF TWO ORDERS I. E. FIRST ORDER DATED 12.08.2006, AGAINST WHICH ADVANCE OF EURO 158,400 EQUIVALENT TO RS.90.50 LAKHS, WAS MADE. THE ASSESSEE FURTHER PLACED AN ORDER FOR PURCHASE OF EQUIPMENT VIDE ORDER DATED 16.06.2008 AND ADVANCE OF EURO 80,000 EQUIVALENT TO RS.55.50 LAK HS WAS ADVANCED. THE ASSESSEE THEREAFTER, CAME TO KNOW THAT THE SAID ITALIAN COMPANY HAD FILED INSOLVENCY PETITION AND THERE WAS NO POSSIBILITY OF GETTING THE MACHINERY FROM THE SAID COMPANY. THE ASSESSEE WAS ALSO NOT SURE OF RECOVERY OF THE ADVANCE PAYM ENT MADE BY IT. THEREFORE, PROVISION OF RS.43,34,640/ - TOWARDS NON - RECOVERY OF THE SAID AMOUNT BEING 30% OF THE ENTIRE AMOUNT, WAS MADE IN THE BOOKS OF ACCOUNT. THE PLEA OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT THE SAID AMOUNT WAS NOT A BAD DEBT AS REFERRED TO IN SECTION 36 OF THE ACT, SINCE THE SAME WAS NOT IN RESPECT OF DEBTORS FOR SALES OF GOODS OR SERVICES. HOWEVER, THE LOSS WAS IN THE COURSE OF CARRYING ON OF THE BUSINESS AND HENCE, WAS ELIGIBLE UNDER SECTIONS 28, 29 AND / OR 37 OF THE ACT. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HONBLE RAJASTHAN HIGH COURT IN CIT VS. ANJANI KUMAR CO. LTD. (2003) 259 ITR 114 (RAJ) . THE ASSESSING OFFICER IN VS. ANJANI KUMAR CO. LTD. (2003) 259 ITR 114 (RAJ) . THE ASSESSING OFFICER IN THIS REGARD ISSUED SHOW CAUSE NOTICE TO THE ASSESSEE STATING THAT THE SAID EXPENDITURE WAS NOT DEDUCTIBLE AS BAD DEBT UNDER SECTION 36(1)(VII) OF THE ACT AND / OR ALSO WAS NOT COVERED UNDER SECTIONS 28, 29 AND/OR 37 OF THE ACT. THE ASSESSEE, IN TURN EXPLAINED THE FACTUAL ASPECT AND POINTED OUT THAT THE DEDUCTION CLAIMED WAS NOT BAD DEBT RE FERRED TO IN SECTION 36 OF THE ACT, BUT WAS LOSS INCURRED IN THE COURSE OF CARRYING ON OF THE BUSINESS AND THE SAME SHOULD BE ALLOWED AS DEDUCTION, UNLESS THERE WAS PRO HIBITION FOR THE SAID ALLOWANCE. RELIANCE WAS PLACED ON SERIES OF DECISIONS OF HONBLE SUPREME COURT IN THIS REGARD, WHICH ARE PART OF REPLY GIVEN BY THE ASSESSEE BEFORE THE ASSESSING OFFICER, WHICH IN TURN, ARE INCORPORATED AT PAGES 3 TO 5 OF THE ASSESSMENT ORDER. FURTHER, RELIANCE WAS PLACED ON THE DECISION OF HONBLE HIGH COURT OF RAJAST HAN IN CIT VS. ANJANI KUMAR CO. LTD. (SUPRA) AND PIK PEN PRIVATE LIMITED VS. ITO IN ITA NO.684 7 /MUM/2008, ORDER DATED 28.01.2010. THE ASSESSING OFFICER THEREAFTER, INDIVIDUALLY CONSIDERED THE RELIANCE PLACED UPON BY THE LEARNED AUTHORIZED REPRESENTATIVE F OR THE ASSESSEE ON VARIOUS DECISIONS AND WAS OF THE VIEW THAT IN VIEW OF THE RATIO LAID DOWN BY THE APEX COURT IN HASIMARA INDUSTRIES LTD. VS. CIT (1998) 231 ITR 842 (SC), THE LOSS SUFFERED HAD TO BE TREATED AS CAPITA LOSS. CONSEQUENTLY, THE CLAIM OF THE ASSESSEE VIS - - VIS DEDUCTION OF RS.43,34,640/ - WAS TREATED AS CAPITAL LOSS AND ADDED TO THE INCOME OF THE ASSESSEE. 6. AFTER TAKING NOTE OF THE ORDER OF CIT(A) AND THE SUBMISSIONS MADE BY BOTH THE AUT HORIZED REPRESENTATIVES, THE TRIBUNAL HELD AS UNDER: - 10. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF AUTOMOBILES, SIGNALING LIGHTS AND OTHER ELECTRIC ITEMS. ORIGINALLY, THE RETURN OF INCOME FILED BY THE ASSESSEE ON ITA NO. 1156 /PN/201 4 RINDER INDIA. PVT. LTD. 4 27.09.2009 WAS RS.16.41 CRORES. THEREAFTER, THE REVISED RETURN OF INCOME WAS FILED BY THE ASSESSEE ON 09.06.2010 DECLARING TOTAL INCOME OF RS.15.97 CRORES. IN THE SAID REVISED RETURN OF INCOME, THE ASSESSEE CLAIMED AN EXPENDITURE OF RS.43.35 LAKHS. THE ASSESSEE FOR THE NEEDS OF ITS B USINESS, HAD ORDERED TWO EQUIPMENTS FOR ITS PRODUCTION PLANT FROM M/S. GALILEO VACUUM SYSTEMS , SPA, AN ITALIAN COMPANY. THE FIRST ORDER WAS PLACED BY THE ASSESSEE VIDE ORDER NO. 04947/C, DATED 12.08.2006 AND ADVANCE OF EURO 1,58,400 EQUIVALENT TO RS.90.50 LAKHS WAS PAID BY THE ASSESSEE. FURTHER, AN ORDER FOR PURCHASE OF ANOTHER EQUIPMENT WAS PLACED VIDE ORDER NO. 09135, DATED 16.06.2008 AND ADVANCE OF EURO 80,000 EQUIVALENT TO RS.55.50 LAKHS WAS PAID BY THE ASSESSEE. THE COMPANY GALIL E O VACUUM SYSTEMS WAS WELL KNOWN FOR THE SAID EQUIPMENT AND HENCE, THE ADVANCE PAID TO THE SAID CONCERN FOR PURCHASING THE EQUIPMENTS. THE PURCHASE ORDER OF THE FIRST EQUIPMENT IS PLACED AT PAGES 1 TO 5 OF THE INDEX, UNDER WHICH BOTH THE PAYMENTS AND DELIVERY TERMS HAVE BEEN P ROVIDED. THE TECHNICAL SPECIFICATIONS OF THE EQUIPMENT ARE PART OF THE CONTRACT ENTERED INTO BY THE ASSESSEE WITH M/S. GALILEO VACUUM SYSTEM S , WHICH AGREED TO SUPPLY TO THE ASSESSEE AT ITS CHAKAN PLANT THE EQUIPMENT AND SERVICES OF GALILEO VA CUUM BATCH CO ATERS, MODEL V2 01 VZ. IT WAS AGREED THAT ONE TECHNICIAN FROM M/S. GALILEO VACUUM SYSTEM WOULD BE IN ASSESSEES PLANT FOR INSTALLATION AND TRAINING OF THE OPERATOR . IT WAS ALSO AGREED THAT DURING THE INSTALLATION AND COMMISSIONING OF THE CHAKAN UNIT , THE ASSESSEE WAS TO BEAR ROUND AIR TICKETS, BOARDING AND LODGING CHARGES OF THE SAID PERSONS. OUT OF THE TOTAL PRICE FOR THE EQUIPMENT, 20% WAS TO BE PAID AS DOWN PAYMENT AND FURTHER 20% WITHIN TWO MONTHS AFTER THE DOWN PAYMENT. THE EQUIPMENT WAS TO BE DELIV ERED AT MUM B AI ON OR BEFORE 24.10.2008. FURTHER, THE ASSESSEE ON 12.08.2006 AND M/S. GALILEO VACUUM SYSTEM HAD ENTERED INTO ANOTHER CONTRACT FOR THE SUPPLY OF HIGH VACUUM BATCH METALLIZING MACHINE MODEL V201VZ/99 . THE TERMS OF THE AGREEMENT WERE SLIGHTLY AT VARIANCE I.E. THERE WERE MORE SPECIFICATIONS OF THE ITEMS TO BE SUPPLIED AND THE SCOPE OF WORK AND TECHNICAL SPECIFICATIONS. THE TERMS OF PAYMENT WERE 10% AFTER PO ACCEPTANCE AND 30% FOUR MONTHS BEFORE THE SHIPMENT OF THE MACHINE. THE DELIVERY DATE A S PER THE AGREEMENT WAS NOT TO BE LATER THAN 31.12.2007. THE PURCHASE ORDER IS PLACED AT PAGES 7 WAS NOT TO BE LATER THAN 31.12.2007. THE PURCHASE ORDER IS PLACED AT PAGES 7 TO 12 OF THE PAPER BOOK I. THE DELIVERY OF THE EQUIPMENT S W ERE DELAYED AND THE ASSESSEE DEPUTED ITS ENGINEERS TO VISIT ITALY, WHO IN TURN REPORTED THAT THE CONCERN M/S. GALILEO VACUUM SYSTEM HAD FILED INSOLVENCY AND LIQUIDATION PETITION. THE ASSESSEE, IN TURN TOOK LEGAL RECOURSE AND FILED BANKRUPTCY C LAIM OF THE SAID CONCERN BEFORE THE PRATO . THE COPY OF THE INSOLVENCY PETITION FILED BY THE ASSESSEE ON GAL ILEO VACUUM SYSTEM IN SPA, IS PLACED AT PAGES 4 TO 6 WITH ITS ENGLISH TRANSLATION AT PAGES 1 TO 3 OF THE PAPER BOOK II. THE ASSESSEE, IN VIEW OF THE SAID SCENARIO MADE PROVISIONS OF 30% OF THE ADVANCE RECOVERABLE AS DOUBTFUL TOTALING RS.43,35,000/ - IN T HE ORIGINAL RETURN OF INCOME . N O CLAIM OF DEDUCTION WAS MADE IN THE ORIGINAL RETURN OF INCOME ON ACCOUNT OF THE SAID PROVISION FOR DOUBTFUL ADVANCE. HOWEVER, SUBSEQUENTLY, THE ASSESSEE FURNISHED REVISED RETURN OF INCOME CLAIMING THE SAID DEDUCTION OF WRI TE OFF OF RS.43.35 LAKHS AS BUSINESS LOSS. THE PRESENT APPEAL FILED BY THE ASSESSEE IS AGAINST THE NON - ALLOWANCE OF THE AFORESAID BUSINESS LOSS. 11. THE CLAIM OF THE ASSESSEE BEFORE US IS TWO - FOLD THAT FIRST IT WA S A LOSS WHILE CARRYING ON OF THE BUSINES S ACTIVITIES AND HENCE, ALLOWABLE UNDER SECTIONS 28 AND 29 AND / OR 37 OF THE ACT . THE SECOND CLAIM OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW AND BEFORE US IS THAT THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT ARE NOT APPLICABLE SINCE IT IS NOT THE C LAIM OF BAD DEBTS I.E. WRITE OFF OF ANY DEBTORS ON ACCOUNT OF RAW MATERIAL OR MACHINERY. THE ASSESSEE HAD GIVEN ONLY AN ADVANCE FOR PURCHASE OF MACHINERY, WHICH ADMITTEDLY, WA S A CAPITAL ASSET, BUT SINCE THE SAID CAPITAL ASSET HAD NOT COME INTO EXISTENCE I.E. NO MACHINERY / EQUIPMENT WAS DELIVERED TO THE ASSESSEE, THEN THE ISSUE TO BE DECIDED A S WHETHER THE ADVANCE PAID FOR THE ACQUISITION OF CAPITAL ASSET CAN BE ALLOWED AS DEDUCTION , W HERE THE MACHINERY HAS NOT BEEN DELIVERED TO THE ASSESSEE . THE CLAIM O F THE ASSESSEE HAS TO BE SEEN FROM THE ANGLE OF THE PROVISIONS OF SECTION 37(1) OF THE ACT, WHEREIN IT IS ITA NO. 1156 /PN/201 4 RINDER INDIA. PVT. LTD. 5 PROVIDED THAT ALL EXPENDITURE RELATING TO CARRYING ON OF THE BUSINESS IS TO BE ALLOWED AS DEDUCTION WHILE COMPUTING THE INCOME CHARGEABLE UNDER THE HE AD PROFIT FROM BUSINESS OR PROFESSION , W HERE THE EXPENDITURE IS NOT IN THE NATURE DESCRIBED IN SECTIONS 30 TO 36 OF THE ACT AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE . T HE PROVISION MADE BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT ON ACCOUNT OF NON - RE COVERY OF ADVANCE MADE FOR THE PURCHASE OF MACHINERY CANNOT BE SAID TO BE A PROVISION MADE ON ACCOUNT OF BAD DEBTS AND HENCE, THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT ARE NOT ATTRACTED. THE SAID ADVANCE THOUGH WAS FOR THE PURCHASE OF A CAPITAL ASSE T, BUT SINCE THE CAPITAL ASSET NEVER CAME INTO EXISTENCE, THE B AR ENVISAGED IN SECTION 37(1) OF THE ACT DO NOT APPLY. THE EXPENDITURE CLAIMED BY THE ASSESSEE IS NOT COVERED BY ANY OF THE PROVISIONS OF SECTIONS 30 TO 36 OF THE ACT AND BEING NOT A CAPITAL E XPENDITURE AND HAVING BEEN INCURRED FOR THE PURPOSE OF CARRYING ON OF THE BUSINESS, IS ELIGIBLE FOR DEDUCTION UNDER SECTION 37(1) OF THE ACT. THE ADVANCE MADE BY THE ASSESSEE FOR THE PURCHASE OF EQUIPMENTS, WHICH IN TURN, WAS TO BE USED IN THE LINE OF BUS INESS CARRIED ON BY THE ASSESSEE AND IN THE ABSENCE OF MACHINERY HAVING BEEN DELIVERED TO THE ASSESSEE AND ALSO BECAUSE OF INSOLVENCY PROCEEDINGS FILED, WHERE THERE IS NO CHANCE OF RECOVERY OF ADVANCE MADE BY THE ASSESSEE, WE FIND MERIT IN THE CLAIM OF THE ASSESSEE IN WRITING OFF OF THE SAID ADVANCE AS BUSINESS LOSS IN ITS HANDS. WE FIND SUPPORT FROM THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF RAJASTHAN IN CIT VS. ANJANI KUMAR CO. LTD. (SUPRA) , WHEREIN, IT WAS HELD AS UNDER: - 5. THE ADMITTED FACTS A RE THAT THE ADVANCE WAS PAID FOR ACQUIRING THE AGRICULTURAL LAND TO SET UP A FACTORY, BUT WHEN THE AGRICULTURAL LAND WAS NOT ACQUIRED, NO CAPITAL ASSET CAME INTO EXISTENCE, THEREFORE, THERE IS NO QUESTION OF ALLOWING DEPRECIATION ON SUCH ASSET. IF ANY ASS ET IS REQUIRED AND IF IT IS A BENEFIT OF ENDURING NATURE, THEN OF COURSE ASSESSEE CANNOT GET THE DEDUCTION OF AMOUNT FOR ACQUISITION OF LAND AS REVENUE EXPENDITURE. WHEN LAND WAS NOT ACQUIRED, NO CAPITAL ASSET HAS BEEN ACQUIRED, THEREFORE, THE PAYMENT OF RS.50,489/ - IS TO BE ALLOWED AS BUSINESS LOSS 12. FURTHER, MUMBAI BENCH OF TRIBUNAL IN PIK PEN PRIVATE LIMITED VS. ITO 12. FURTHER, MUMBAI BENCH OF TRIBUNAL IN PIK PEN PRIVATE LIMITED VS. ITO (SUPRA) HAD HELD AS UNDER: - 8. WE HAVE HEARD THE PARTIES. THE ASSESSEE HAS DEBITED TO THE PROFIT & LOSS A/C. AN AMOUNT OF RS.2,96,13 5/ - ON ACCOUNT OF BAD DEBTS/BALANCE WRITTEN OFF. THE ASSESSEE EXPLAINED THAT THE SAID AMOUNT REPRESENTED THE AMOUNT ADVANCED TO BALAJI PENS PVT. LTD., FOR MACHINERY AND AS THE MACHINERY WAS NOT SUPPLIED, AND HENCE, THE UN - RECOVERED AMOUNT WAS WRITTEN OF T REATING THE SAME AS AN EXPENDITURE FOR THE PURPOSE OF BUSINESS U/S. 37(1) OF THE ACT. THE A.O REJECTED THE CLAIM OF THE ASSESSEE ON THE REASON THAT THE AMOUNT WAS PAID FOR PURCHASE OF THE MACHINERY AND THEREFORE, ANY LOSS INCURRED ON A/C OF SAME IS A CAPI TAL LOSS. THE LD CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE A.O. ON THIS ISSUE. THE LD COUNSEL RELIED ON THE DECISION OF THE HONBLE HIGH COURT OF RAJASTHAN IN THE CASE OF CIT V/S. ANJANIKUMAR CO. LTD., 259 ITR 114 (RAJ.). HE ALTERNATIVELY PLEADED TH AT IF THE LOSS IS NOT ALLOWED AS A BUSINESS EXPENDITURE, THEN THE A.O. MAY BE DIRECTED TO ALLOW THE CARRY FORWARD LOSS AS PER PROVISIONS OF LAW. WE HAVE HEARD THE LD D.R. THE FACTS ARE NOT IN DISPUTE THAT THE ADVANCES WERE MADE FOR PURCHASE OF MACHINERY BUT AS THE MACHINERY WAS NOT SUPPLIED, AND HENCE THE ASSESSEE WRITTEN OFF THE SAID ADVANCES TREATING THE SAME AS A REVENUE EXPENDITURE U/S. 37(1). 9. IN THE CASE OF ANJANIKUMAR CO. LTD. (SUPRA), THE APPELLANT HAD WRITTEN OFF THE ADVANCES MADE TO THE AGRIC ULTURISTS FOR PURCHASE OF THE AGRICULTURAL LAND AND THE LAND WAS TO BE ACQUIRED TO SET UP A FACTORY BUT ULTIMATELY THAT WAS NOT MATERIALIZED AND THE AGRICULTURISTS TO WHOM THE ADVANCE WAS GIVEN ALSO REFUSED TO GIVE THE AMOUNT. ON THE ABOVE FACTS, THEIR LO RDSHIPS HELD THAT THE SAME HAS TO BE TREATED AS A REVENUE EXPENDITURE. WE, ACCORDINGLY, FOLLOWING THE PRINCIPLES LAID ITA NO. 1156 /PN/201 4 RINDER INDIA. PVT. LTD. 6 DOWN IN THE CASE OF ANJANIKUMAR CO. LTD. (SUPRA) ALLOW THE GROUND TAKEN BY THE ASSESSEE AND DELETE THE ADDITION OF RS.2,96,135/ - TREATING THE SAME AS A REVENUE EXPENDITURE U/S. 37(1) OF THE ACT AS ADMITTEDLY, NO CAPITAL ASSET CAME INTO EXISTENCE. 13. THE MUMBAI BENCH OF TRIBUNAL IN DCIT VS. EDELWEISS CAPITAL LTD. (SUPRA) FURTHER HELD AS UNDER: - 8. ON MERITS, THE JUDGMENT OF THE RAJASTH AN HIGH COURT IN THE CASE OF CIT VS. ANJANI KUMAR CO. LTD. (SUPRA) SUPPORTS THE ASSESSEES PLEA. IN THIS CASE THE ASSESSEE INTENDED TO ACQUIRE AGRICULTURAL LAND TO SET UP A BOILER FACTORY AND MADE ADVANCES TO THE AGRICULTURISTS FOR PURCHASE OF THE LAND. THE PROJECT DID NOT MATERIALIZE. THE AGRICULTURISTS HOWEVER REFUSED TO REFUND THE ADVANCES. THE ASSESSEE FILED THE SUIT BUT LOST IT. THE AMOUNTS WERE WRITTEN OFF IN ITS BOOKS OF ACCOUNT AND WERE CLAIMED AS REVENUE LOSS. THE RAJASTHAN HIGH COURT HELD TH AT IN THESE CIRCUMSTANCES NO CAPITAL ASSET HAS BEEN ACQUIRED AND, THEREFORE, IRRECOVERABLE ADVANCES WERE TO BE ALLOWED AS BUSINESS LOSS. THIS JUDGMENT OF THE HIGH COURT HAS BEEN APPLIED BY THE MUMBAI BENCH OF THE TRIBUNAL IN ITS ORDER DATED 28 TH JANUARY 2 010, IN ITA NO:6847/MUM/2008, IN THE CASE OF M/S. PIK PEN PRIVATE LIMITED VS. ITO. THERE ADVANCES WERE MADE FOR THE PURCHASE OF MACHINERY, WHICH WAS NOT SUPPLIED. THE ASSESSEE WROTE OFF THE ADVANCES AND CLAIMED DEDUCTION AS REVENUE EXPENDITURE, WHICH CLA IM WAS ALLOWED BY THE TRIBUNAL. IN THE PRESENT CASE, WE ARE OF THE OPINION THAT EVEN IF THE WEBSITES HAD MATERIALIZED, THE EXPENDITURE COULD NOT HAVE BEEN VIEWED AS CAPITAL EXPENDITURE BECAUSE THE WEBSITE IS PUT UP FOR THE PURPOSES OF DAY - TO - DAY RUNNING O F THE BUSINESS AND EVEN IF ONE WERE TO VIEW THAT SOME ENDURING BENEFIT IS OBTAINED BY THE ASSESSEE, THE BENEFIT CANNOT BE SAID TO ACCRUE TO THE ASSESSEE IN THE CAPITAL FIELD. A WEBSITE IS SOMETHING WHERE FULL INFORMATION ABOUT THE ASSESSEES BUSINESS IS G IVEN AND IT HELPS THE ASSESSEES CUSTOMERS IN DEALING WITH IT. A WEBSITE CONSTANTLY NEEDS UPDATING, OTHERWISE IT MAY BECOME OBSOLETE. IT HELPS IN THE SMOOTH AND EFFICIENT RUNNING OF THE DAY - TO - DAY OBSOLETE. IT HELPS IN THE SMOOTH AND EFFICIENT RUNNING OF THE DAY - TO - DAY BUSINESS. THE EXPENDITURE WOULD HAVE BEEN ALLOWABLE AS R EVENUE EXPENDITURE; AS A COROLLARY, WHEN THE WEBSITE DID NOT MATERIALIZE, THE AMOUNTS ADVANCED TO THE COMPANIES WHO WERE ENGAGED TO DEVELOP THE WEBSITES, WHEN THEY BECAME IRRECOVERABLE, CAN BE WRITTEN OFF AND CLAIMED AS LOSS INCIDENTAL TO THE BUSINESS. TH E LOSS IS THUS ALLOWABLE AS BUSINESS LOSS IN TERMS OF SECTION 28 OF THE ACT. WE ACCORDINGLY UPHOLD THE ASSESSEES ALTERNATIVE PLEA. IN THE RESULT, THE ULTIMATE DECISION OF THE CIT(A) IS UPHELD, THOUGH NOT AS A VALID CLAIM OF BAD DEBT BUT ON GROUNDS OF BU SINESS LOSS. THE APPEAL OF THE DEPARTMENT IS ACCORDINGLY DISMISSED. 14. BOTH THE AUTHORITIES BELOW AND ALSO THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE BEFORE US HAD PLACED RELIANCE ON THE RATIO LAID DOWN BY THE APEX COURT IN HASIMARA INDUST RIES LTD. VS. CIT (SUPRA) . THE HONBLE SUPREME COURT HELD AS UNDER: - 8 IT IS CLEAR FROM THE FINDINGS RECORDED BY THE TRIBUNAL AND THE HIGH COURT THAT THE ASSESSEES BUSINESS IS MANUFACTURE AND SALE OF TEA AND IS NOT ENGAGED IN COTTON MANUFACTURING BUSIN ESS AT ALL; THAT WHILE IT INTENDED TO ENTER INTO COTTON MANUFACTURING PURPOSES DID NOT SET UP A COTTON MILL, BUT OBTAINED OPERATING RIGHTS FROM ANOTHER COMPANY UNDER THE LEAVE AND LICENCE AGREEMENT FOR THE PURPOSE OF ACQUIRING THE PRO F IT - MAKING APPARATUS F OR A DURATION OF THREE YEARS OR A LITTLE MORE; THAT THE BUSINESS OF RUNNING A COTTON MILL WAS NOT ITS OWN, BUT WAS ONLY OPERATING THE SAID MILL UNDER LEAVE AND LICENCE AGREEMENT; THAT THE AMOUNT OF ADVANCE IN A SUM OF RS. TWENTY LAKHS WAS GIVEN NOT FOR ITS OWN PURPOSE BY WAY OF BUSINESS EXPENDITURE FOR MODERNIZING THE MILL, BUT AS CAPITAL TO THE LESSOR WHO IN TURN HAD TO MODERNIZE THE MILL. IN THE RESOLUTIONS MADE BY THE BOARD OF DIRECTORS, ITA NO. 1156 /PN/201 4 RINDER INDIA. PVT. LTD. 7 IT WAS CLEAR THAT THE TRANSACTION ENTERED INTO WAS NOT IN THE NATU RE OF A LOAN TRANSACTION OR A MONEY LENDING TRANSACTION AND THUS THE LOSS SUFFERED BY THE ASSESSEE WAS A CAPITAL LOSS AND HENCE, THE AMOUNT COULD NOT BE DEDUCTED FROM THE ASSESSEES INCOME AS BUSINESS LOSS. 15. THE PERUSAL OF THE FACTS BEFORE THE APEX CO URT REFLECTS THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MANUFACTURE AND SALE OF TEA. THE ADVANCE WAS GIVEN IN LINE WITH LEAVE AND LICENCE AGREEMENT ENTERED INTO WITH ANOTHER CONCERN FOR RUNNING OF COTTON MILL. THE SAID ADVANCE OF RS.20 LAKHS WAS NO T GIVEN FOR OWN PURPOSE BY WAY OF BUSINESS EXPENDITURE, BUT AS CAPITAL TO THE LESSOR, WHO HAD TO MODERNIZE THE MILL , WAS THE FINDING OF THE TRIBUNAL, WHICH WAS CONSIDERED BY THE APEX COURT AND IT WAS HELD THAT THE LOSS SUFFERED BY THE ASSESSEE WAS A CAPITA L LOSS. HOWEVER, IN THE FACTS OF THE PRESENT CASE AS POINTED OUT BY US IN THE PARAS HEREINABOVE, THE ASSESSEE HAD MADE THE AFORESAID ADVANCE FOR PURCHASE OF EQUIPMENT / MACHINERY, WHICH IN TURN WAS TO BE UTILIZED BY THE ASSESSEE IN ITS CHAKAN PLANT. EVEN THE TERMS OF CONTRACT BETWEEN THE ASSESSEE AND THE ITALIAN COMPANY REFLECT THAT THE EQUIPMENT HAD TO B E INSTALLED AT THE CHAKAN PLANT, AGAINST WHICH IT WAS ALSO AGREED THAT M/S. GALILEO VACUUM SYSTEM WOULD SEND PERSONNEL FROM ITALY FOR ITS INSTALLATION AN D ALSO FOR START UP OF THE UNIT. THE FACTS OF THE PRESENT CASE BEFORE US ARE AT VARIANCE TO THE FACTS BEFORE THE APEX COURT AND CONSEQUENTLY, THE RATIO LAID DOWN BY THE HONBLE SUPREME COURT IS NOT APPLICABLE TO THE PRESENT CASE BEFORE US. HOWEVER, THE F ACTS BEFORE THE HONBLE HIGH COURT OF RAJASTHAN ARE IDENTICAL TO THE FACTS BEFORE US AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DEDUCTION ON ACCOUNT OF WRITE OFF OF THE ADVANCE PAID TO ITALIAN COMPANY AGAINST PURCHASE OF MACHINERY, WHICH WAS NEVER DELIVERED TO THE ASSESSEE. 16. ANOTHER OBJECTION RAISED BY THE ASSESSING OFFICER WAS THAT WHERE THE ORDER FOR FIRST MACHINERY WAS PLACED ON 12.08.2006 , WAS NOT DELIVERED TO THE ASSESSEE, THERE WAS NO REQUIREM ENT FOR PAYING ANOTHER ADVANCE ON 16.06.2008 . THE ASSESSEE IS THE BEST PERSON TO TAKE DECISION FOR RUNNING ITS BUSINESS AND IT IS TRITE LAW THAT THE REVENUE AUTHORITIES CANNOT SIT IN JUDGMENT BUSINESS AND IT IS TRITE LAW THAT THE REVENUE AUTHORITIES CANNOT SIT IN JUDGMENT OVER THE DECISION TAKEN BY THE BUSINESSMAN WHILE CARRYING ON IT S BUSINESS. WE FIND NO MERIT IN THE ABOVE SAID STAND OF THE ASSESSING OFFICER AND CIT(A) AND DISMISSING THE SAME , WE DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE. 17. ANOTHER ASPECT OF THE ISSUE IS THE YEAR OF ALLOWABILITY OF EXPENDITU RE. THE ASSESSEE HAD RECOGNIZED THE SAID EXPENDITURE IN THE YEAR UNDER CONSIDERATION. HOWEVER, THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE AND EVEN THE CIT(A) OBSERVED THAT CLAIM OF DEDUCTION OF THE SAID ADVANCE WAS PREMATURE AND ALSO IT WAS AN UNASCERTAINED LOSS. RELIANCE PLACED UPON BY THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE THE CIT(A) ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN CIT GWALIOR RAYONG SILK MFG. (WVG) CO. LTD. (1999) 237 ITR 253 (BOM) WAS NOT APPLIED SI NCE THE SAID DECISION DEALT WITH THE YEAR OF WRITE OFF AND NOT WITH THE DEDUCTIBILITY OF THE AMOUNT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US HAS CLARIFIED THAT RELIANCE WAS PLACED ON THE SAID DECISION OF HONBLE BOMBAY HIGH COURT VIS - - VIS YEAR OF ALLOWABILITY AND NOT THE QUESTION OF DEDUCTIBILITY. IN VIEW THEREOF, WE FIND NO MERIT IN THE ORDER OF CIT(A) IN THIS REGARD. 18. THE CIT(A) FURTHER PLACED RELIANCE ON CERTAIN CASE LAWS FOR DECIDING THE QUESTION OF DEDUCTIBILITY UNDER SE CTION 37(1) OF THE ACT. IN VIEW THEREOF, WHERE FACTS OF THE CASES RELIED UPON BY THE CIT(A) ARE AT VARIANCE TO THE FACTS OF THE ISSUE BEFORE US AND THE FACTS AND ISSUE ARE SQUARELY COVERED BY THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF RAJASTHAN, WHI CH IN TURN HAS BEEN APPLIED BY THE MUMBAI BENCH OF TRIBUNAL IN TWO DECISIONS REFERRED TO HEREINABOVE, ACCORDINGLY, WE FIND NO MERIT IN THE ORDER OF CIT(A) IN THIS REGARD. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMSTANCES, WE DIRECT THE ASSESSING O FFICER TO ALLOW THE CLAIM OF THE ASSESSEE. THE GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS THUS, ALLOWED. ITA NO. 1156 /PN/201 4 RINDER INDIA. PVT. LTD. 8 7. THE ISSUE ARISING BEFORE US IS IN RESPECT OF SECOND INSTALLMENT OF THE CLAIM MADE ON ACCOUNT OF UNRECOVERABLE ADVANCE TO THE EXTENT OF 30% OF THE TOTAL AMOUNT. THE FACTS AND ISSUES ARISING IN THE PRESENT CAPTIONED ASSESSMENT YEAR ARE IDENTICAL TO THE FACTS AND ISSUES IN ASSESSMENT YEAR 2009 - 10 AND FOLLOWING THE SAME PARITY OF REASONING, WE HOLD THAT THE ASSESSEE IS ENTITLED TO THE CLAIM OF DED UCTION OF RS. 43,34,640/ - , WRITTEN OFF ON ACCOUNT OF UNRECOVERABLE ADVANCE MADE FOR PURCHASE OF MACHINERY. CONSEQUENTLY, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 8 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER P RONOUNCED O N THIS 20 TH D AY OF JANUARY , 201 6 . SD/ - SD/ - (PRADIP KUMAR KEDIA) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 20 TH JANUARY , 201 6 . / PUNE ; DATED : 20 TH JANUARY , 201 6 . GCVSR / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APP ELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - V , PUNE ; 4. / THE CIT - V, PUNE ; 5. , , / DR A , ITAT, PUNE; 6. / GUARD FILE . / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE