ITO WD 1(3) Nashik, Nashik V. Shri Subhash M Lunawat, Pandharpur

ITA 264/PUN/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67089 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 09-02-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANN KAPTHUAMA
• Keywords: Bad and doubtful debts; Revenue expenditure; Capital expenditure
• Section: 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA ACCOUNTANT MEMBER ITA NO. 264/PN/2012 (ASSESSMENT YEAR 2007-08) ITO, WARD-1(3), KENDRIYA RAJASWA BHAVAN, GADKARI CHOWK, NASHIK-422002 .. APPELLANT VS. SUBHASH M. LUNAWAT, 5/6, KIRAN APARTMENT, VISE MALA, COLLEGE ROAD, NASHIK PAN NO. AAMPL 9906E .. RESPONDENT APPELLANT BY : MS. ANN KAPTHUAMA RESPONDENT BY : SHRI NIKHIL PATHAK DATE OF HEARING : 27-06-2013 DATE OF PRONOUNCEMENT : 28 -06-2013 ORDER PER R.K. PANDA, AM : THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER DATED 25-11-2011 OF THE CIT(A)-II, NASHIK RELATING TO ASSESSMENT YEAR 2007-08. 2. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESS EE, AN INDIVIDUAL, IS ENGAGED IN THE BUSINESS OF TRADING IN ONION. HE FI LED HIS RETURN OF INCOME ON 31-10-2007 DECLARING TOTAL INCOME OF RS.1 3,11,980/-. IN THIS CASE, A SURVEY U/S.133A OF THE I.T. ACT WAS CONDUCT ED ON 07-03-2007 AND THE ASSESSEE HAD ADMITTED AN AMOUNT OF RS.10,06 ,200/- AS HIS ADDITIONAL UNDISCLOSED INCOME FOR A.Y. 2007-08 WHIC H HAS BEEN OFFERED BY THE ASSESSEE BY INCREASING HIS GROSS PROFIT. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED FROM THE PROFIT AND 2 LOSS ACCOUNT THAT ASSESSEE HAS CLAIMED LOSS OF RS.1 3,61,710/- ON ACCOUNT OF BAD DEBTS. 2.1 ON BEING QUESTIONED BY THE ASSESSING OFFICER I T WAS SUBMITTED THAT THE SAME IS IN RESPECT OF A PARTY NAMED M/S. M AHAVIR TRADERS, WAMBORI SINCE 2002-03. IT WAS SUBMITTED THAT THE A SSESSEE HAS PAID SOME MONEY TO THIS PARTY WHICH HAS NOT BEEN RETURNE D BY HIM. IT WAS FURTHER SUBMITTED THAT AN AMOUNT OF RS.16 LAKHS HAD BEEN PAID TO M/S. MAHAVIR TRADERS ON 20-02-2000 AS ADVANCE OR LOAN ON THE HOPE THAT THE SAID PARTY WILL PROCURE 500 TONS OF ONION FROM MARK ETING FEDERATION FOR ASSESSEE SINCE THE SAID PARTY WAS IN POSSESSION OF PERMISSION FOR PROCUREMENT FROM MARKETING FEDERATION. LATER ON, D ISPUTE CREPT IN BETWEEN THE CONCERNED PARTY AND MARKETING FEDERATIO N AND PROCUREMENT WAS NOT EFFECTED. IT WAS FURTHER SUBMITTED THAT DU E TO DEFECTIVE QUALITY OF ONION, PROCUREMENT WAS NOT EFFECTED BY HIM. THE REFORE, THE ASSESSING OFFICER CAME TO THE CONCLUSION THAT THE N ATURE OF THE TRANSACTION IS MERELY AN ADVANCE. IT WAS SUBMITTED BY THE ASSESSEE THAT HE HAD CONTACTED THE SAID PARTY NUMBER OF TIMES FOR REPAYMENT OF THE ADVANCE BUT IN VAIN EXCEPT THAT THE PARTY HAD PAID RS.2,50,000/- BY CHEQUE ON 15-03-2007, RS.1,50,000/- ON 28-03-2007 A ND RS.2 LAKHS ON 17-09-2007. INTEREST WAS CHARGED BY THE ASSESSEE A T THE BANK RATES FROM THE SAID PARTY AND WAS CREDITED TO HIS INCOME REGUL ARLY. IT WAS SUBMITTED THAT TOTAL INTEREST AMOUNT CREDITED BY THE ASSESSEE WAS RS.1,70,880/- FOR A.Y. 2001-02, RS.1,90,830/- FOR A.Y. 2002-03, RS.2, 35,405/- FOR A.Y. 2003-04. INTEREST AMOUNT OF RS.2,35,405/- FOR A.Y. 2003-04 WAS REVERSED ON 01-04-2006. THE ASSESSING OFFICER NOTE D THAT THE MONEY RECEIVED BY THE ASSESSEE AMOUNTING TO RS.1,50,000/- AND RS.2 LAKHS IN 3 CONCERNED FINANCIAL YEARS HAS NOT BEEN OFFERED BY T HE ASSESSEE. CONSIDERING THE AMOUNT RECEIVED BACK TILL 31-03-200 7 THE ASSESSEE DEBITED AN AMOUNT OF RS.13,61,710/- AS BAD DEBT WHI CH INCLUDES INTEREST AMOUNT CREDITED BY THE ASSESSEE AS INCOME FOR A.Y. 2001-02 AND 2002- 03. 2.2 THE ASSESSING OFFICER ANALYSED THE PROVISIONS O F SECTION 36(1)(VII) AND NOTED THAT THE ASSESSEE DOES NOT FUL FIL THE CONDITIONS LAID DOWN IN THAT SECTION FOR CLAIMING THE BAD DEBT. HE OBSERVED THAT THE ASSESSEE IS NOT IN THE BUSINESS OF MONEY LENDING NO R WAS MONEY ADVANCED FORMED HIS STOCK IN TRADE, THEREFORE, EVEN IF THE ASSESSEE HAS WRITTEN OFF THE AMOUNT CLAIMED AS BAD DEBT AND THE DEBTS HAVE BECOME REALLY BAD IT IS CERTAIN THAT THE DEBTS ARE NOT OF REVENUE NATURE. THEREFORE, THE ASSESSEE HAS NOT FULFILLED THE MOST IMPORTANT REQUIREMENT FOR ALLOWABILITY OF DEDUCTION ON ACCOUNT OF BAD DEB TS. REJECTING THE VARIOUS EXPLANATIONS GIVEN BY THE ASSESSEE AND CONS IDERING THE FACT THAT OUT OF AMOUNT OF RS.13,61,710/- AN AMOUNT OF RS.3,6 1,710/- IN TOTO HAS BEEN INCLUDED BY THE ASSESSEE AS HIS INCOME FOR A.Y . 2001-02 AND 2002- 03 FOR WHICH THE ASSESSEE IS ELIGIBLE FOR DEDUCTION , ASSESSING OFFICER ALLOWED BAD DEBT TO THIS EXTENT AND DISALLOWED THE BAD DEBT FOR THE REMAINING AMOUNT OF RS.10 LAKHS. 3. IN APPEAL THE LD. CIT(A) DELETED THE DISALLOWANC E OF RS.10 LAKHS MADE BY THE ASSESSING OFFICER ON ACCOUNT OF BAD DEB T. WHILE DOING SO, HE HELD THAT THE AMOUNT RELATES TO ADVANCE TO M/S. MAHAVIR TRADING COMPANY FOR PURCHASE OF ONION FROM NAFED. THE SAID ADVANCES ARE DULY SHOWN AND RECORDED BY THE ASSESSEE IN THE PROF IT AND LOSS ACCOUNT. 4 THE GENUINENESS OF THE ADVANCE HAS NOT BEEN DISPUTE D BY THE ASSESSING OFFICER. THE STAND OF THE ASSESSEE THAT ADVANCE TO THE EXTENT OF RS.10 LAKHS HAD BECOME IRRECOVERABLE WAS ALSO NOT DISPUTE D BY THE ASSESSING OFFICER. HOWEVER, THE ASSESSING OFFICER TREATED TH E SAME AS BAD DEBT AND DISALLOWED THE SAME U/S.36(1)(VII) OF THE ACT. RELYING ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE O F CIT VS. INDEN BISELERS REPORTED IN 181 ITR 69 AND THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. SUMANGAL OVERSEAS LTD. THE LD. CIT(A) HELD THAT THE ASSESSING OFFICER WAS NOT JUST IFIED IN TREATING THE IRRECOVERABLE ADVANCE AS BAD DEBT AND DISALLOWING T HE SAME U/S.36(1)(VII) OF THE I.T. ACT. RELYING ON THE DEC ISION OF HONBLE DELHI HIGH COURT IN THE CASE OF MOHAN MEAKIN LTD. VS. CIT HE HELD THAT THE IRRECOVERABLE ADVANCE OF RS.10 LAKHS COULD HAVE BEE N ALLOWED TO BE WRITTEN OFF AS BUSINESS ADVANCE U/S.29 R.W.S. 37(1) OF THE I.T. ACT. 4. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CA SE THE HONORABLE CIT(A)-II, NASIK ERRED BY HOLDING THAT TH E EXPENSE CLAIMED OF RS.10,00,000/- UNDER THE HEAD BAD DEBTS IS ALLOWABLE AS AN EXPENSE UNDER SECTION 37 OF THE INCOME-TAX AC T, 1961. 2. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CAS E THE HONORABLE CIT(A)-II FAILED TO APPRECIATE THE FACT T HAT ASSESSEE, NEITHER DURING THE COURSE OF ASSESSMENT PROCEEDING NOR DURING THE COURSE OF APPELLATE PROCEEDING, FILED ANY EVIDENCE TO SUPPORT HIS CLAIMS THAT , THE ADVANCE WAS PAID FOR BIDDING FOR PURCHASE OF ONION FROM NAFED (BY M/S MAHAVIR TRADERS ON BEHALF OF THE SYNDICATE), THAT NAFED HAD DELIVERED INFERIOR QUALI TY OF ONION, AND THAT THERE WAS DISPUTE WITH NAFED REGARDING THE QUALITY OF ONION SUPPLIED. 3. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CAS E THE HONORABLE CIT(A)-II FAILED TO APPRECIATE THE FACT T HAT, ON THE BASIS OF INFORMATION PROVIDED BY THE ASSESSEE, THE AMOUNT OF 5 RS.16 LAKHS INITIALLY GIVEN TO M/S MAHAVIR TRADERS APPEARS TO BE CAPITAL CONTRIBUTION OF ASSESSEE TO START ANOTHER B USINESS ACTIVITY ALONGWITH THE SYNDICATE MEMBERS, THEREFORE, THE AMO UNT WAS A CAPITAL EXPENDITURE AND PART OF THIS AMOUNT WRITTEN OFF CANNOT BE ALLOWED AS A DEDUCTION UNDER SECTION 37 OF THE INCO ME-TAX ACT, 1961. 4. ON THE FACTS AND IN THE CIRCUMSTANCE OF THE CAS E IT IS THEREFORE REQUESTED TO CANCEL THE ORDER OF THE HONO RABLE CIT(A)- II AND RESTORE THE ORDER OF THE ASSESSING OFFICER. 5. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIF Y THE GROUNDS OF APPEAL, IF CONSIDERED NECESSARY SUBSEQUE NTLY. 5. THE LD. DEPARTMENTAL REPRESENTATIVE HEAVILY RELI ED ON THE ORDER OF THE ASSESSING OFFICER. SHE SUBMITTED THAT THE A SSESSEE HAS STATED THAT HE ALONG WITH FEW OTHER TRADERS HAD FORMED A SYNDIC ATE IN THE F.Y. 1999- 2000 TO TAKE PART IN TENDER ISSUED BY NAFED FOR PUR CHASE OF ONION IN HUGE QUANTITY. IT WAS DECIDED THAT M/S. MAHAVIR TR ADERS, WAMBORI SHALL FILE TENDER IN ITS NAME ON BEHALF OF THE SYNDICATE AND ALL THE ONION TRADERS INCLUDING THE ASSESSEE SHALL CONTRIBUTE FOR PURCHAS E OF ONION. THE ONION SO PURCHASED FROM NAFED THROUGH TENDER SHALL BE SHA RED ACCORDING TO CONTRIBUTIONS MADE BY EACH ONION TRADER. THE ASSES SEE ACCORDINGLY CONTRIBUTED HIS SHARE OF RS.16 LAKHS ON 20-02-2000. UNFORTUNATELY, THE QUALITY OF ONION SUPPLIED BY NAFED WAS BAD AND HENC E MOST OF THE ONION TRADERS IN THE SYNDICATE INCLUDING THE ASSESS EE HAS NOT TAKEN DELIVERY OF THE ONION. M/S. MAHAVIR TRADERS HAS TH EREFORE LITIGATED THE MATTER ABOUT INFERIOR QUALITY OF THE ONION WITH NAF ED. IN THIS DEAL M/S. MAHAVIR TRADERS, WAMBORI HAS INCURRED SUBSTANTIAL L OSSES AND HENCE HAS REFUNDED ONLY RS.6 LAKHS IN F.Y. 2006-07 AND EXPRES SED HIS INABILITY TO PAY BALANCE AMOUNT OF RS.10 LAKHS (WHICH IS WRITTEN OFF). 6 5.1 THE ABOVE SUBMISSION OF THE ASSESSEE BEFORE THE LD.CIT(A) ITSELF CONTAINS CONTRADICTING FACTS. ON ONE HAND IT IS BE ING CLAIMED THAT A SYNDICATE WAS FORMED TO PURCHASE ONION FROM NAFED A ND MONEY WAS CONTRIBUTED FOR THE PURCHASE. THE BID FOR THE TEND ER WAS TO BE PLACED BY M/S. MAHAVIR TRADERS ON BEHALF OF THE SYNDICATE. T HUS, ANY LOSS IN THE TENDER TRANSACTION WILL BE THAT OF THE SYNDICATE. HOWEVER, ASSESSEE STATED THAT M/S. MAHAVIR TRADERS INCURRED HEAVY LOSS IN TH E TENDER TRANSACTION DUE TO RECEIPT OF INFERIOR QUALITY OF ONION. ASSES SEE THUS APPEARS TO BE NOT FILING THE CORRECT FACTS OF THE TRANSACTION WIT H M/S. MAHAVIR TRADER. 5.2 SHE SUBMITTED THAT THE ASSESSEE HAS NOT FILED C OPY OF THE FINANCIAL STATEMENT OF M/S. MAHAVIR TRADERS EITHER DURING THE COURSE OF ASSESSMENT PROCEEDINGS OR DURING THE APPELLATE PROC EEDING. NO EVIDENCE WAS FILED REGARDING THE INFERIOR QUALITY OF ONION C LAIMED TO BE SUPPLIED BY NAFED AND LITIGATION OF M/S. MAHAVIR TRADERS WIT H NAFED. DETAILS OF OTHER SYNDICATE MEMBERS AND THEIR CONTRI BUTION ALSO HAS NOT BEEN FILED. UNDER THESE CIRCUMSTANCES, THE LD.CIT( A) WAS NOT JUSTIFIED IN DELETING THE AMOUNT AS BAD DEBT DISALLOWED BY TH E AO ESPECIALLY WHEN THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO SUPPORT HIS CLAIM THAT THE AMOUNT OF RS.16,00,000/- WAS GIVEN AS ADV ANCE FOR PURCHASE OF ONION. SHE SUBMITTED THAT THE ASSESSEE HAD CONTRIB UTED CAPITAL TO BID FOR THE TENDER OF NAFED AND THEREFORE WRITING OFF THIS CAPITAL CANNOT BE ALLOWED AS DEDUCTION U/S.36(1)(VII) OR SECTION 37. SHE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD.CIT(A) BE REVERS ED AND THAT THE ASSESSING OFFICER BE RESTORED. 7 6. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND HEAVILY RELIED ON THE ORDER OF THE CIT(A). HE SUBMITTED THAT THER E IS NO DISPUTE TO THE FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS O F TRADING IN ONION. REFERRING TO THE COPY OF THE ASSESSMENT ORDER HE DR EW THE ATTENTION OF THE BENCH TO PARA 4 OF THE ASSESSMENT ORDER WHEREIN IT WAS STATED THAT THE AMOUNT WAS GIVEN TO M/S. MAHAVIR TRADERS AS ADVANCE OR LOAN FOR PROCUREMENT OF 500 TONS OF ONION FROM MARKETING FED ERATION FOR ASSESSEE SINCE THE ABOVE PARTY WAS IN POSSESSION OF PERMISSI ON FOR PROCUREMENT FROM MARKETING FEDERATION. THIS FACT IS NOT DISPUT ED BY THE ASSESSING OFFICER . REFERRING TO THE DECISION OF HONBLE DEL HI HIGH COURT IN THE CASE OF MOHAN MEAKIN LTD (SUPRA) HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAID DECISION HAS HELD THAT CLAIM FOR DEDUCTION OF NON- RECOVERY OF TRADE ADVANCES WAS ALLOWABLE. 6.1 REFERRING TO THE DECISION OF HONBLE BOMBAY HIG H COURT IN THE CASE OF IBM WORLD TRADE CORPORATION VS. CIT REPORTE D IN 186 ITR 412 HE SUBMITTED THAT THE HONBLE HIGH COURT IN THE SAI D DECISION HAS ALLOWED THE LOSS CLAIMED BY THE ASSESSEE WHEREIN AM OUNT WAS ADVANCED BY THE ASSESSEE TO LANDLORD FOR CONSTRUCTION OF FAC TORY SHED AND THE LANDLORD LEASED THE SAME TO THE ASSESSEE. AS THE L ANDLORD BECAME INSOLVENT, THE AMOUNT ADVANCED WITH INTEREST WAS WR ITTEN OFF BY THE ASSESSEE COMPANY. THE ASSESSEE CLAIMED THE SAME AS BUSINESS LOSS WHICH WAS DISALLOWED BY THE ASSESSING OFFICER AND T HE TRIBUNAL HELD THAT LOSS WAS NOT DEDUCTIBLE U/S.36 AND SECTION 37. ON FURTHER APPEAL, THE HONBLE HIGH COURT ALLOWED THE CLAIM OF THE ASSESSE E BY HOLDING THAT THE AMOUNTS WERE ADVANCED BY THE ASSESSEE IN CONNECTION WITH THE ACQUISITION OF PREMISES LEASED. SINCE THE EXPENDIT URE INCURRED FOR 8 ACQUIRING THE PREMISES ON LEASE IS ALLOWABLE AS REV ENUE EXPENDITURE, THE AMOUNTS ADVANCED WERE FOR BUSINESS PURPOSES. WHEN THE ADVANCE MADE PROVED IRRECOVERABLE, THE CONSEQUENT LOSS WAS A BUS INESS LOSS AND NOT A CAPITAL LOSS. IT WAS ACCORDINGLY ALLOWED AS DEDUCT ION. HE ACCORDINGLY SUBMITTED THAT THE ORDER OF THE LD.CIT(A) BEING IN CONSONANCE WITH THE DECISION OF THE HONBLE DELHI HIGH COURT AND HONBL E MUMBAI HIGH COURT, THEREFORE, THE SAME SHOULD BE UPHELD AND THE GROUNDS RAISED BY THE REVENUE SHOULD BE DISMISSED. 7. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAV E ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DIS PUTE TO THE FACT THAT THE ASSESSEE IS IN THE BUSINESS OF ONION TRADING AND HA D GIVEN AN AMOUNT OF RS.16 LAKHS TO M/S. MAHAVIR TRADERS DURING F.Y. 199 9-2000 FOR PURCHASING ONION FOR THE ASSESSEE FROM NAFED. DUE TO DISPUTE BETWEEN M/S. MAHAVIR TRADERS AND THE MARKETING FEDERATION T HE PROCUREMENT WAS NOT EFFECTED AND DUE TO NON REPAYMENT OF THE AM OUNT OF RS.10 LAKHS BY THE SAID PARTY THE ASSESSEE CLAIMED THE SAME AS BAD DEBT. IT IS THE CASE OF THE REVENUE THAT THE AMOUNT GIVEN TO M/S. M AHAVIR TRADERS IS CONTRIBUTION TOWARDS CAPITAL TO BID FOR THE TENDER OF NAFED. WRITING OFF THIS CAPITAL, THEREFORE, CANNOT BE ALLOWED AS DEDUC TION U/S.36(1)(VII) OR SECTION 37. IT IS THE CASE OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE SAME IS A TRADE ADVANCE AND NON-RECOVERY OF THE SAM E HAS TO BE ALLOWED EITHER AS BAD DEBT U/S.36(1)(VII) OR BUSINESS LOSS U/S.37. 9 7.1 WE FIND THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF IBM WORLD TRADE CORPORATION HAS OBSERVED AS UNDER (SHOR T NOTES) : THE ASSESSEE, A NON-RESIDENT COMPANY, WAS ENGAGED IN THE MANUFACTURE OF ACCOUNTING AND COMPUTING MACHINES. IT ENTERED INTO AN AGREEMENT WITH S UNDER WHICH S UNDERTOOK TO CONSTRUCT A FACTORY AND LEASE IT TO THE ASSESSEE. IN ORDER TO FACILITATE THE SPEEDY CONSTRUCTION OF THE FACTORY, THE ASSESSEE AD VANCED NEARLY RS.1 LAKH TO THE LANDLORD. S. BECAME INSOLVENT AND THE ENTIRE AMOUNT OF RS.1,08,08/-8 INCLUSIVE OF THE INTEREST A ND THE PRINCIPAL AMOUNT ADVANCED BY THE ASSESSEE WAS WRITTEN OFF BY THE ASSESSEE. THE ASSESSEE CLAIMED IT AS A BUSINESS LOSS. THE IN COME-TAX OFFICER DISALLOWED IT AND THE TRIBUNAL HELD THAT THE LOSS W AS NOT DEDUCTIBLE UNDER SECTIONS 36 AND 37 OF THE INCOME-T AX ACT, 1961. ON A REFERENCE : HELD, THAT THE AMOUNTS WERE ADVANCED BY THE ASSESSE E IN CONNECTION WITH THE ACQUISITION OF PREMISES ON LEAS E. SINCE THE EXPENDITURE INCURRED FOR ACQUIRING PREMISES ON LEAS E IS ALLOWABLE AS REVENUE EXPENDITURE, THE AMOUNTS ADVANCED WERE F OR BUSINESS PURPOSES. WHEN THE ADVANCES MADE PROVED IRRECOVERA BLE, THE CONSEQUENT LOSS WAS A BUSINESS LOSS AND NOT A CAPIT AL LOSS. IT WAS DEDUCTIBLE AS SUCH. 7.2 WE FIND THE HONBLE DELHI HIGH COURT IN THE CAS E OF MOHAN MEAKIN LTD. HAS OBSERVED AS UNDER (SHORT NOTES) : IT WAS IN THE TOTALITY OF OVERALL SITUATION OF THE MATTER THAT THE ASSESSEE DECIDED TO WRITE OFF THE ADVANCES MADE TO KBH AS BAD DEBT. THE REASON AS GIVEN BY THE ASSESSEE WAS APPAR ENTLY WELL- FOUNDED AND WAS ABRUPTLY REJECTED BY THE AO AND THE TRIBUNAL. THEY DID NOT APPRECIATE THE FACT THAT THE CONTINUIT Y OF SUPPLY WAS ESSENTIAL TO HONOUR THE AGREEMENT WITH THE CORPORAT ION AND THAT IT WAS TO CONTINUE THE BUSINESS WITHOUT ANY BREAK THAT THE ADVANCES WERE MADE TO THE MANUFACTURER, KBH. IT WAS ONLY ON ACCOUNT OF NON-RECOVERY OF THE HUGE AMOUNT FROM THE CORPORATIO N THAT THE WORK HAD TO BE CANCELLED AND THE SUPPLIES HAD TO BE ABRUPTLY STOPPED BY THE ASSESSEE AND CONSEQUENTLY PRODUCTION WAS NECESSARILY REQUIRED TO BE STOPPED. IT IS KNOWN PRA CTICE THAT USUALLY MANUFACTURER GIVES ADVANCES TO THE WORKERS WHICH ARE ADJUSTED OR CARRIED FORWARD IN THE COMING TIMES AGA INST THE WORKS DONE BY THEM. THIS WAS NOT AN UNUSUAL PRACTICE WHIC H WAS LIABLE TO BE OUTRIGHTLY REJECTED BY THE DEPARTMENT. WHEN T HE ASSESSEE HAD WRITTEN OFF THE DUES RECOVERABLE FROM THE CORPO RATION AND THE SAME WERE ACCEPTED BY THE DEPARTMENT AND IT HAD ALS O SO WRITTEN OFF THE ADVANCES MADE TO KBH IN ITS BOOKS OF ACCOUN TS, WHAT ELSE COULD BE THE PROOF WITH THE ASSESSEE FOR ITS BEING UNABLE TO 10 RECOVER THE SAME. THE OTHER REASON FOR WRITING OFF WAS THE DEMISE OF THE PROPRIETOR, BD OF KBH AND THE ASSESSEE IN IT S WISDOM DID NOT CHOOSE TO TAKE THE MATTER TO THE COURT APPREHEN DING COUNTER CLAIM AND THIS DECISION OF THE ASSESSEE SEEMS TO BE WELL REASONED. IN ANY CASE, THE REVENUE COULD NOT COMPEL THE ASSES SEE TO HAVE RECOURSE TO LITIGATION TO RECOVER THE AMOUNT AGAINS T DEAD PERSON OR HIS LEGAL HEIRS WHEN IN THE GIVEN CIRCUMSTANCES, THE SAME MAY NOT BE RECOVERABLE. THE CIT(A) RIGHTLY RECORDED THA T THE DEBT HAD BECOME BAD AND NOT RECOVERABLE AND IT WOULD BE A FU TILE EXERCISE TO TAKE ANY ACTION AGAINST THE LEGAL HEIRS OF THE D ECEASED. THE ADVANCES MADE BY THE ASSESSEE IN THE CASE WERE CERT AINLY OF A TYPE WHICH WOULD BE WITHIN THE CONTEMPLATION OF THE WORD S 'LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS'. AS NO PORTION OF THE SAID ADVANCES COULD BE STATED TO BE LOSS OF CAPITAL EXPENDITURE, BUT IT BEING A PLAIN CASE OF B USINESS LOSS, IT WOULD CERTAINLY BE ALLOWABLE TO BE DEDUCTED UNDER T HE PROVISIONS OF S. 37.CHENAB FOREST CO. VS. CIT (1974) 96 ITR 5 68 (J&K) CONCURRED WITH; CIT VS. MYSORE SUGAR CO. LTD. (1962) 46 ITR 649 (SC) AND CIT VS. MAHALAKSHMI TEXTILE MILLS LTD. (1967) 66 ITR 710 (SC) APPLIED. MERELY BECAUSE THE CLAIM WAS' NOT MADE OUT UNDER ON E PARTICULAR PROVISION OF THE ACT, BUT WAS SO MADE OUT UNDER ANO THER PROVISION OF LAW, ONE FAILS TO UNDERSTAND AS TO HOW THE ASSES SEE COULD BE DEBARRED TO RAISE SUCH LEGAL QUESTION. HAVING REGAR D TO ALL THIS, IT WAS LEGALLY PERMISSIBLE TO RAISE, QUESTION OF DEDUC TION UNDER S. 37 EVEN IF IT WAS NOT RAISED BEFORE THE AUTHORITIES BE LOW. 7.3 RESPECTFULLY FOLLOWING THE ABOVE DECISIONS AND IN VIEW OF THE DETAILED ORDER BY THE LD. CIT(A) ON THIS ISSUE WE C ONCUR WITH THE FINDINGS GIVEN BY THE LD.CIT(A) THAT THE ADVANCE FO R PURCHASE OF ONION FOR RS.10 LAKHS WRITTEN OFF BY THE ASSESSEE AS THE SAME BECAME IRRECOVERABLE IS AN ALLOWABLE EXPENDITURE. THE GRO UNDS RAISED BY THE REVENUE ARE ACCORDINGLY DISMISSED. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS THE 28 TH DAY OF JUNE 2013 SD/- SD/- (R.S.PADVEKAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE DATED: 28 TH JUNE 2013 SATISH 11 COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. DEPARTMENT 3. CIT(A)-II, NASHIK 4 CIT-II, NASHIK 5. THE D.R, A PUNE BENCH 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY ITAT, PUNE BENCHES, PUNE