JET SPEED AUDIO P. LTD, MUMBAI V. ADDL CIT 11(1), MUMBAI

ITA 161/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71920 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Next Hearing Date: 05-11-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 07-01-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: B P K
• Keywords: Depreciation; Business expenditure; Bad and doubtful debts

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL J JJ J BENCH, BENCH, BENCH, BENCH, MUMBAI MUMBAI MUMBAI MUMBAI , . ! ! ! ! BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM VIJAY PAL RAO, JM & & & & SHRI SHRI SHRI SHRI RAJENDRA RAJENDRA RAJENDRA RAJENDRA, ,, , AM AM AM AM ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.1706/MU 1706/MU 1706/MU 1706/MUM/2009 M/2009 M/2009 M/2009 ( '# '# '# '# $ $ $ $ / ASSESSMENT YEAR :2005-06) ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.161/MUM/2011 161/MUM/2011 161/MUM/2011 161/MUM/2011 ( '# '# '# '# $ $ $ $ / ASSESSMENT YEAR :2006-07) ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO.4760/MUM/2010 4760/MUM/2010 4760/MUM/2010 4760/MUM/2010 ( '# '# '# '# $ $ $ $ / ASSESSMENT YEAR :2007-08) M/S JET SPEED AUDIO PVT. LTD., 48, PRAVASI INDL. ESTATE, 2 ND FLOOR, OPP. AAREY ROAD, GOREGAON EAST, MUMBAI # # # # / VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(1), 4 TH FLOOR, AAYAKAR BHAVAN, CHURCHGATE, MUMBAI-20 !% ./ & ./ PAN/GIR NO. :AAACJ0260A ( %' / AP APAP APPELLANT PELLANT PELLANT PELLANT) .. ( ()%' / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) '# '#'# '# *+ *+ *+ *+ - . - . - . - . /ASSESSEE BY : SHRI SATISH R. MODY ! ! ! ! - . - . - . - . / REVENUE BY : SHRI B. P. K. PANDA # # # # - -- - + + + + / DATE OF HEARING : 2 ND DECEMBER 2013 /0$ /0$ /0$ /0$ - -- -+ + + + /DATE OF PRONOUNCEMENT: 11 TH DECEMBER 2013 1 / O R D E R PER : , . . / VIJAY PAL RAO, JM THESE THREE APPEALS BY THE ASSESSEE ARE DIRECTED A GAINST THE RESPECTIVE ORDERS OF THE CIT(A) FOR THE ASSESSMENT YEARS 2005-06 TO 2007-08. 2. FIRST COMMON GROUND RAISED BY THE ASSESSEE IN AL L THESE THREE APPEALS EXCEPT THE AMOUNT INVOLVED IS AS UNDER: ITA NO.1706/M/2009, 161/M/2011 & 4760/M/2010 JET SPEED AUDIO PVT. LTD. 2 THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN UPHOLDING THE ASSESSING OFFICER ORDER OF DISALLOWIN G EDUCATION EXPENSES OF ` 29,05,488/- ON THE FACTS. 3. TWO DIRECTORS OF THE ASSESSEE COMPANY COMPLETED MBA COURSE ABROAD. THEIR EXPENSES HAVE BEEN CHARGED TO THE PRO FIT AND LOSS ACCOUNT. THE ASSESSEE CLAIMED THAT THE MBA DEGREE H AS HELPED THE DIRECTORS IN IMPROVING THE BUSINESS PROFILE OF THE ASSESSEE AND THEREFORE, THE EXPENDITURE INCURRED FOR ACQUIRING H IGHER PROFESSIONAL DEGREE IS AN ALLOWABLE BUSINESS EXPENDITURE. THE A. O DENIED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THESE TWO DIRECT ORS ARE SONS OF THE PROMOTER DIRECTORS OF THE ASSESSEE COMPANY AND HAVE BEEN ADMITTED AS DIRECTORS FOR THE SOLE PURPOSE OF DEBITING THEIR EDUCATION EXPENDITURE TO THE PROFIT AND LOSS ACCOUNT OF THE COMPANY. ON A PPEAL, THE CIT(A) HAS CONFIRMED THE DISALLOWANCE MADE BY THE A.O BY HOLDI NG THAT THE EXPENSES ARE PURELY PERSONAL AND UNDER NO CIRCUMSTA NCES CAN BE STATED TO BE COMMERCIAL IN NATURE OR BUSINESS PURPO SES OF THE ASSESSEE COMPANY. 4. BEFORE US THE LD. A.R OF THE ASSESSEE HAS SUBMIT TED THAT MR. KEYUR SHAH AND MR. VARUN MAKHIJA WERE EMPLOYEE AS D IRECTORS OF THE ASSESSEE COMPANY IN THE PRIOR YEARS AND NOT IN THE YEAR WHEN THE EXPENDITURE ON EDUCATION WAS INCURRED AND CLAIMED O F THE ASSESSEE. HE HAS FURTHER CONTENDED THAT THESE TWO DIRECTORS HAD ALREADY COMPLETED THEIR BASIC EDUCATION PRIOR TO EMPLOYED IN THE ASSE SSEE COMPANY. THE EDUCATION OF MBA COURSE WAS NOT IN GENERAL BUT WAS VERY SPECIFIC COURSE OF MARKETING & FINANCE IN CASE OF MR. KEYUR SHAH AND SIMILARLY ITA NO.1706/M/2009, 161/M/2011 & 4760/M/2010 JET SPEED AUDIO PVT. LTD. 3 THE TECHNICAL COURSE FOR MR. VARUN MAKHIJA IS ALSO FOR GETTING DIRECT BENEFIT BY THE ASSESSEE COMPANY. AFTER ACQUIRING HI GHER EDUCATION IN THE SPECIFIC FIELD AND PROFESSION THE DIRECTORS WOU LD BE ABLE TO MANAGE THE AFFAIRS OF THE ASSESSEE MORE COMPETITIVELY AND TECHNICALLY BETTER IN THE FAST CHANGING AND STIFF COMPETITIVE SCENARIO IN THE BUSINESS OF THE ASSESSEE COMPANY. HE HAS FURTHER SUBMITTED THAT THE RE ARE AGREEMENTS BETWEEN THE ASSESSEE COMPANY AND THESE DIRECTORS WH EREBY THE DIRECTORS GAVE PRIOR UNDERTAKING TO JOIN BACK THE A SSESSEE AFTER COMPLETING THE COURSES AND THEREFORE THE HIGHER EDU CATION WOULD BENEFIT THE COMPANIES BUSINESS. HE HAS RELIED UPON THE DECISION OF HONBLE JURISDICTION HIGH COURT IN CASE OF SAKAL PA PER PVT. LTD. VS CIT 114 ITR 256 AND SUBMITTED THAT THE HONBLE JURISDIC TION HIGH COURT HAS HELD THAT THE HUSBAND AND WIFE AS SHAREHOLDERS AND DIRECTORS OF THE COMPANY RUNNING MARATHI PAPER INCURRED EXPENDITURE FOR OBTAINING PRACTICAL TRAINING OF THEIR DAUGHTER WHO WAS WORKIN G IN THE EDITORIAL DEPARTMENT OF THE COMPANY WAS HELD TO BE REVENUE EX PENSES. HE HAS ALSO RELIED UPON THE FOLLOWING DECISION: CIT VS DR. M. S. SHROFF 80 ITR 687 (DEL) M/S J. B. ADVANI & COMPANY PVT. LTD. 92 TTJ 175 APURVA PATEL 7 SOT 755 5. THE LD. A.R HAS FURTHER POINTED OUT THAT FOR THE ASSESSMENT YEAR 2006-07 AND 2007-08 THE ASSESSEE HAS PAID FRINGE BE NEFIT TAX (FBT) ON THESE EXPENSES WHICH HAVE BEEN ACCEPTED BY THE A.O AFTER VERIFICATION. THEREFORE, IN VIEW OF CBDT CIRCULAR NO. 8/2005 DATE D 29.8.2005 THE ITA NO.1706/M/2009, 161/M/2011 & 4760/M/2010 JET SPEED AUDIO PVT. LTD. 4 EXPENDITURE ON EDUCATION OF THE EMPLOYEE IS AN ALLO WABLE BUSINESS EXPENSES. IN SUPPORT OF HIS CONTENTION HE HAS RELIE D THE DECISION OF THIS TRIBUNAL DATED 16.9.2011 IN CASE OF HANSRAJ MATHURA DAS VS ITO IN ITA NO. 2397/M/2010. 6. ON THE OTHER HAND, THE LD. D.R HAS RELIED UPON T HE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT WHEN BOTH THE DIRECTORS ARE SONS OF THE PROMOTER-DIRECTOR OF THE ASSESSEE COMPANY TH EN IT IS APPARENT THAT THEY WERE INDUCTED IN THE COMPANY WITH THE SOL E PURPOSE OF CLAIMING THE EDUCATION EXPENSES IN THE ACCOUNT OF T HE COMPANY. HE HAS FURTHER SUBMITTED THAT THE EXPENSES INCURRED ON EDU CATION OF THE SONS OF THE PROMOTER-DIRECTORS ARE A PERSONAL EXPENSE CA NNOT BE ALLOWED AS BUSINESS EXPENSES. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD THERE IS NO DISPUTE THAT THESE T WO DIRECTORS AFTER COMPLETING THEIR BASIC EDUCATION WERE EMPLOYED IN T HE ASSESSEE COMPANY IN THE EARLIER YEAR AND SUBSEQUENTLY THEY W ERE SENT FOR HIGHER EDUCATION OF MBA AND TECHNICAL COURSES TO FOREIGN C OUNTRIES. IT IS NOT DISPUTED BY THE A.O THAT THE ASSESSEE TOOK THE UNDE RTAKING/BOND FROM THESE TWO DIRECTORS FOR JOINING BACK TO THE ASSESSE E COMPANY AFTER COMPLETING THEIR RESPECTIVE HIGHER EDUCATION. AT TH E OUTSET WE NOTE THAT FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08 T HE ASSESSEE PAID THE FRINGE BENEFIT TAX ON THESE EDUCATION EXPENSES. THE ASSESSING OFFICER HAS CATEGORICALLY DEALT WITH THE PAYMENT OF VALUE AND CHARGEABILITY OF FRINGE BENEFIT TAX AS MENTIONED IN THE ASSESSMENT ITA NO.1706/M/2009, 161/M/2011 & 4760/M/2010 JET SPEED AUDIO PVT. LTD. 5 ORDER U/S 115 WE: AFTER VERIFICATION, THE VALUE OF FRINGE BENEFIT CHARGEABLE TO TAX IS ACCEPTED AT ` 12,91,235/-. TH US, IT IS CLEAR THAT THE FRINGE BENEFIT TAX PAID BY THE ASSESSEE HAS BEEN DU LY EXAMINED BY THE A.O AND THEN ACCEPTED. ONCE THE A.O HAS ACCEPTED TH E FBT PAID BY THE ASSESSEE THEN SUCH EXPENDITURE CANNOT BE DISALLOWED . THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN CASE OF HANSRAJ MATHURADA S VS ITO (SUPRA) HAS CONSIDERED AN IDENTICAL ISSUE IN PARA 17 AS UNDER: 17. WE HAVE HEARD THE ARGUMENTS OF BOTH THE SIDES AND ALSO PERUSED THE RELEVANT MATERIAL ON RECORD. THE LEARNE D COUNSEL FOR THE ASSESSEE HAS TAKEN US THROUGH THE CBDT CIRC ULAR NO. 8/2005 DATED 29-08-2005 GIVING EXPLANATORY NOTES ON THE PROVISIONS RELATING TO FRINGE BENEFIT TAX AS INTROD UCED BY THE FINANCE ACT, 2005 AND INVITED OUR ATTENTION TO THE RELEVANT PORTION THEREOF TO EXPLAIN THE OBJECT BEHIND LEVYIN G FRINGE BENEFIT TAX. AS INDICATED IN THE SAID CIRCULAR, THE FRINGE BENEFIT TAX HAS BEEN INTRODUCED AS A SURROGATE TAX ON EMPLO YER WITH THE OBJECTS OF RESOLVING THE PROBLEMS IN TAXING SOM E PERQUISITES/FRINGE BENEFITS IN THE HANDS OF THE EMP LOYEES IN TERMS OF SECTION 17. FURTHER, AS EXPLAINED IN PARA NO. 3.2 OF THE CIRCULAR, THE SCOPE OF THE TERM FRINGE BENEFIT S PROVIDED IS DEFINED IN SECTION 11 5WB (1) TO MEAN ANY CONSIDERA TION FOR EMPLOYMENT PROVIDED BY WAY OF ANY PRIVILEGE, SERVIC E FACILITY OR AMENITY, DIRECTLY OR INDIRECTLY, PROVIDED BY AN EMPLOYER, WHETHER BY WAY OF REIMBURSEMENT OR OTHERWISE, TO HI S EMPLOYEES. MOREOVER, AS CLARIFIED IN THE SAID CIRCU LAR WHILE ANSWERING FREQUENTLY ASKED QUESTION NO. 15, FRINGE BENEFIT IS DEEMED TO HAVE BEEN PROVIDED IF THE EMPLOYER HAS IN CURRED EXPENSES FOR ANY OF THE PURPOSES REFERRED TO IN THE RELEVANT PROVISIONS AND THERE IS NO REQUIREMENT TO SEGRAGATE SUCH EXPENSES BETWEEN THOSE INCURRED FOR OFFICIAL PURPOS ES AND PERSONAL PURPOSES. IT WAS FURTHER CLARIFIED WHILE A NSWERING QUESTION NO. 81 THAT WHEN EXPENDITURE ON RUNNING AN D MAINTENANCE OF MOTOR CARS IS LIABLE TO FRINGE BENEF IT TAX, THE EMPLOYEES WILL NOT BE LIABLE TO INCOME TAX ON THE P ERQUISITE VALUE OF MOTOR CAR PROVIDED BY THE EMPLOYER. AS RIG HTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, CIRCULAR NO. 8/2005 DATED 29-08-2005 ISSUED BY THE BOARD EXP LAINING THE PROVISIONS RELATING TO FRINGE BENEFIT TAX THUS MAKES IT CLEAR THAT FRINGE BENEFIT TAX IS LEVIED ON THE EXPENSES I NCURRED BY THE EMPLOYER IRRESPECTIVE OF WHETHER THE SAME ARE I NCURRED FOR OFFICIAL OR PERSONAL PURPOSES. IN OUR OPINION, ONCE FRINGE ITA NO.1706/M/2009, 161/M/2011 & 4760/M/2010 JET SPEED AUDIO PVT. LTD. 6 BENEFIT TAX IS LEVIED ON SUCH EXPENSES AS HAS BEEN DONE IN THE PRESENT CASE, IT FOLLOWS THAT THE SAME ARE TREATED AS FRINGE BENEFITS PROVIDED BY THE ASSESSEE AS EMPLOYER TO IT S EMPLOYEES AND THE SAME HAVE TO BE APPROPRIATELY ALL OWED AS EXPENSES INCURRED WHOLLY AND EXCLUSIVELY INCURRED B Y THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS. IN THAT V IEW OF THE MATTER, WE DELETE THE DISALLOWANCE MADE BY THE A.O AND CONFIRMED BY THE LEARNED CIT(A) OUT OF CONVEYANCE A ND TELEPHONE EXPENSES AND ALLOW GROUND NO. 4 AND 5 OF THE ASSESSEES APPEAL. 8. APART FROM THE PAYMENT OF FRINGE BENEFIT TAX AND ACCEPTANCE OF THE SAME BY THE REVENUE WE FURTHER NOTE THAT THE EX PENDITURE IN QUESTION HAS BEEN INCURRED BY THE ASSESSEE FOR THE PROFESSIONAL HIGHER EDUCATION OF ITS EMPLOYEES (DIRECTORS) FOR REAPING THE BENEFIT OF THE SAID HIGHER EDUCATION AND ACCORDINGLY THE SAID EXPENDITU RE IS AN ALLOWABLE BUSINESS EXPENDITURE. THE HONBLE JURISDICTION HIGH COURT IN CASE OF SAKAL PAPERS PVT. LTD. VS CIT (SUPRA) HAS HELD AS U NDER: ON THESE FACTS, IT APPEARS TO US IMPOSSIBLE TO ACC EPT THE TRIBUNALS CONTENTION THAT MERELY BECAUSE THERE WAS NO COMMITMENT OR CONTRACT OR BOND TAKEN FROM THE TRAIN EE, THE EXPENDITURE, WHICH WAS OTHERWISE PROPER, SHOULD BE DISALLOWED TO THE COMPANY, PARTICULARLY WHEN AS A R ESULT OF THAT EXPENDITURE THE TRAINEE HAS SECURED BOTH A DEG REE AND TRAINING WHICH WILL BE OF ASSISTANCE TO THE ASSESSE E-COMPANY AND SHE HAS IN FACT SERVED THE ASSESSEE-COMPANY AFT ER HER RETURN TO INDIA. THE RELATIONSHIP BETWEEN THE DIREC TORS AND THE TRAINEE IS ALSO TO BE BORNE IN MIND. WITH THAT RELA TIONSHIP THE QUESTION IS WHETHER ANY FORMAL CONTRACT OR BOND IS REQUIRED. WE ARE OF THE OPINION, THAT THE FACTUM OF RELATIONS HIP ITSELF WILL CONFER ASSURANCE ON ANY SCRUTINISING MIND THAT AS F AR AS POSSIBLE THE RESULT OF THE TRAINING WILL BE UTILISE D FOR THE BENEFIT OF THE COMPANY. ON THE FACTS AS FOUND BY THE TRIBUNAL, WHICH HAVE BEEN INDICATED AND SUMMARIZED ABOVE, IS APPEARS TO US TH AT THE REASON GIVEN BY THE TRIBUNAL FOR THE DISALLOWANCE I N THE FACTS AND CIRCUMSTANCES OF THIS CASE AND PARTICULARLY BEA RING IN MIND THE CLOSE RELATIONSHIP OF THE TWO DIRECTORS AN D THE TRAINEE IS CLEARLY UNSUSTAINABLE; AND IF THAT BE THE ONLY R EASON WHICH HAS WEIGHED WITH THE TRIBUNAL, WE MUST ANSWER THE Q UESTION ITA NO.1706/M/2009, 161/M/2011 & 4760/M/2010 JET SPEED AUDIO PVT. LTD. 7 REFERRED TO US IN FAVOUR OF THE ASSESSEE SINCE THE VIEW WE HAVE TAKEN IS THAT THE REASON GIVEN BY THE TRIBUNAL IS N OT A GOOD REASON. 9. THE ABOVE DECISION OF THE HONBLE JURISDICTION H IGH COURT IS APPLICABLE IN THE FACTS OF THE CASE IN HAND. ACCORD INGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN VIEW OF THE ABOVE DISCUSSION WE DELETE THE ADDITION MADE BY THE A.O ON THIS ACCOUNT AND DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE. THE DECISION RELIE D UPON BY THE A.O ARE CLEARLY DISTINGUISHABLE ON THE FACTS AND THEREFORE WOULD NOT HELP THE CASE OF THE REVENUE. FOR THE ASSESSMENT YEAR 2005 FOR THE ASSESSMENT YEAR 2005 FOR THE ASSESSMENT YEAR 2005 FOR THE ASSESSMENT YEAR 2005- -- -06 0606 06 10. THE ASSESSEE HAS RAISED ANOTHER GROUND AS UNDER : THE COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN U PHOLDING THE ASSESSING OFFICER ORDER OF AD-HOC DISALLOWANCE OF VEHICLE EXPENSES & DEPRECIATION ON VEHICLE TOTALLING TO ` 4 8,138/- ON THE FACTS. 11. WE HAVE HEARD THE LD. A.R AS WELL AS LD. D.R AN D CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE A.O HAS DISALLOWED 20% OF THE VEHICLE EXPENSES ON THE GROUND OF PERSONAL ELEMENT IN PARA 4 AS UNDER: 4. ASSESSEE HAS DEBITED VEHICLE EXPENSES OF ` 2,21 ,330/- IN THE PROFIT & LOSS A/C FILED. SIMILARLY, ASSESSEE HA S CLAIMED THE DEPRECIATION OF ` 19,359/- ON ACCOUNT OF VEHICLE OW NED. CONSIDERING THE PERSONAL ELEMENT INVOLVED, 1/5 TH OF THE TOTAL EXPENSES AMOUNTING TO ` 48,138/- IS HEREBY DISALLOW ED AND ADDED BACK TO THE INCOME RETURNED TO THE ASSESSEE. 12. IT IS CLEAR FROM THE ASSESSMENT ORDER THAT THE A.O HAS NOT POINTED OUT ANY FACT OR CIRCUMSTANCES INDICATE THE PERSONAL USE OF THE VEHICLES AND FURTHER NO BASIS HAS BEEN GIVEN FOR AD-HOC DISA LLOWANCE OF 20% ON ITA NO.1706/M/2009, 161/M/2011 & 4760/M/2010 JET SPEED AUDIO PVT. LTD. 8 THIS ACCOUNT. THE CIT(A) HAS ALSO NOT DISCUSSED ANY FACT OR CIRCUMSTANCES BUT JUST CONFIRM THE DISALLOWANCE MAD E BY THE A.O IN PARA 3.2 AS UNDER: 3.2 I HAVE CONSIDERED THE RIVAL SUBMISSIONS AND TH E MATERIALS ON RECORD. PERSONAL ELEMENT IN SUCH EXPENSES CANNOT BE RULED OUT. IN MY OPINION, DISALLOWANCE @ 20% IS QUITE JUS TIFIABLE. THIS GROUND ALSO DESERVES TO BE REJECTED. 13. IT IS CLEAR FROM THE FINDINGS OF THE AUTHORITIE S BELOW THAT NO SPECIFIC AVERMENT OR INCIDENT HAS BEEN BROUGHT ON R ECORD TO INDICATE THAT THE VEHICLE HAS BEEN USED OTHER THEN THE BUSIN ESS PURPOSES. EVEN OTHERWISE IN THE CASE OF COMPANY IF IT IS FOUND THA T THE VEHICLE HAS BEEN USED FOR PERSONAL PURPOSE THEN IT CAN BE CONSIDERED AS PERQUISITES IN THE HANDS OF THE USER EMPLOYEE. ACCORDINGLY, IN THE FACTS AND CIRCUMSTANCES OF THE CASE WE DO NOT FIND ANY JUSTIF ICATION ON AD-HOC DISALLOWANCE OF 20% ON THIS ACCOUNT. HENCE THE SAME IS DELETED. FOR THE ASSESSMENT YEAR 2006 FOR THE ASSESSMENT YEAR 2006 FOR THE ASSESSMENT YEAR 2006 FOR THE ASSESSMENT YEAR 2006- -- -07 0707 07 14. THE ASSESSEE HAS RAISED THE SECOND GROUND AS UN DER: THE COMMISSIONER OF INCOME TAX(APPEALS) ERRED, IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, UPHOLDING THE ASSESSING OFFICER ORDER OF DISALLOWING THE CLAIM OF BAD DEBTS OF ` 33,445/- 15. THE ASSESSEE HAS CLAIMED AN AMOUNT OF ` 33,445/ - AS A PART OF BAD DEBTS. THIS AMOUNT HAVE BEEN ADVANCED TO AN OLD EMPLOYEE NAMELY SHRI VIJAY JADHAV AND HAD NOT BEEN RECOVERED BY THE ASSESSEE. THE A.O DISALLOWED THE SAID CLAIM AT THE GROUND THA T THIS AMOUNT IS NOT A BAD DEBTS AND THE ASSESSEE IS NOT ELIGIBLE TO CLA IM EXPENDITURE OF THE ITA NO.1706/M/2009, 161/M/2011 & 4760/M/2010 JET SPEED AUDIO PVT. LTD. 9 SAME AS BAD DEBTS. ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE A.O. 16. BEFORE US THE LD. A.R HAS SUBMITTED THAT AN ADV ANCE OF ` 50,000/- WAS GIVEN TO AN EMPLOYEE WHO SUBSEQUENTLY LEFT THE SERVICE OF THE ASSESSEE AND ACCORDINGLY A SUM OF ` 33,445/- REMAIN ED OUTSTANDING. THE LD. A.R HAS SUBMITTED THAT SINCE THE EMPLOYEE H AD ALREADY LEFT THE SERVICE OF THE ASSESSEE IT WAS NOT POSSIBLE TO RECO VER THE ASSESSEE AMOUNT THEREFORE THE SAME MAY BE ALLOWED AS BUSINES S LOSS IF NOT AS BAD DEBTS. ON THE OTHER HAND, THE LD. D.R HAS RELIE D UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE LOAN G IVEN BY THE ASSESSEE DOES NOT QUALIFIED AS ALLOWABLE CLAIM OF EXPENDITUR E THEREFORE, SAME CANNOT BE ALLOWED EVEN AS BUSINESS LOSS. 17. HAVING CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD WE ARE OF THE VIEW THAT THE ASSE SSEE HAS FAILED TO ESTABLISH THAT THE AMOUNT PAID TO THE EMPLOYEE WAS FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. ADVANCING LOAN WHICH IS NOT THE BUSINESS ACTIVITY OF THE ASSESSEE AND FURTHER HAVING NO NEXU S WITH THE BUSINESS OF THE ASSESSEE CANNOT BE ALLOWED AS BAD DEBTS OR B USINESS LOSS, IF THE ASSESSEE IS NOT ABLE TO RECOVER THE SAME. ACCORDING LY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDERS OF THE AUTHOR ITIES BELOW QUA THIS ISSUE. 18. IN THE RESULT, THE APPEALS OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2005-06 AND 2007-08 ARE ALLOWED AND ASSESSMEN T YEAR 2006-07 IS PARTLY ALLOWED. ITA NO.1706/M/2009, 161/M/2011 & 4760/M/2010 JET SPEED AUDIO PVT. LTD. 10 ORDER PRONOUNCED IN THE OPEN COURT ON THIS 11 TH DAY OF DECEMBER 2013 SD/- SD/- ( ) ! (RAJENDRA) ACCOUNTANT MEMBER ( ) ' ! (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 11 TH DECEMBER 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI