DCIT, Cir-12, Kolkata, Kolkata V. M/s Linde India Ltd., Kolkata

ITA 323/KOL/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1798 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 15-02-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 21-02-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SITAL CHANDRA DAS J
• Assessee Lawyers: K R VASUDEVAN
• Keywords: Business expenditure; Revenue expenditure
• Section: 143(3); 37(1); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI N.V.VASUDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 323 / KOL / 2014 ASSESSMENT YEAR :2006-07 DCIT, CIRCLE-12, P-7, CHOWRINGHEE SQURE, AAYAKAR BHAWAN, 7 TH FLOOR, KOLKATA-69 V/S . M/S LINDE INDIA LTD. ( M/S BOC INDIA LTD ), OXYGEN HOUSE, P-43, TARATALA ROAD, KOLKATA-700 088 [ PAN NO.AAACB 2528 H ] /APPELLANT .. / RESPONDENT /BY APPELLANT SHRI SITAL CHANDRA DAS, JCIT-DR /BY RESPONDENT SHRI K. R. VASUDEVAN, AR /DATE OF HEARING 15-02-2017 /DATE OF PRONOUNCEMENT 03-05-2017 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-XII, KOLKATA D ATED 18.11.2013. ASSESSMENT WAS FRAMED BY ACIT, RANGE-12, KOLKATA U/ S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS T HE ACT) VIDE HIS ORDER DATED 31.12.2009 FOR ASSESSMENT YEAR 2006-07. SHRI SITAL CHANDRA DAS, LD. DEPARTMENTAL REPRESENTA TIVE REPRESENTED ON BEHALF OF REVENUE AND SHRI K.R. VASUDEVAN, LD. AUTH ORIZED REPRESENTATIVE APPEARED ON BEHALF OF ASSESSEE. ITA NO.323/KOL/2014 A.Y. 2006-07 DCIT CIR-12, KOL. VS. M/S LINDE INDIA LTD. PAGE 2 2. FIRST ISSUE RAISED BY REVENUE IN THIS APPEAL IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION ON ACCOUNT OF SETTLEMENT COM PENSATION FOR CLOSED UNITS OF 4,77,420/-. 3. THE BRIEFLY STATED FACTS AS CULLED OUT FROM THE ORDER OF LOWER AUTHORITIES AND OTHER DOCUMENTS ARE THAT THE ASSESSEE IS A LIMI TED COMPANY AND ENGAGED IN THE MANUFACTURING BUSINESS OF VARIOUS INDUSTRIAL AND MEDICAL GASES. THE ASSESSEE WAS HAVING SEVERAL MANUFACTURING UNITS. HO WEVER, A FEW OF THEM WERE CLOSED DOWN IN THE EARLIER YEARS BUT A MANUFAC TURING UNIT LOCATED AT CHENNAI WAS CLOSED IN THE YEAR UNDER CONSIDERATION VIDE MEMORANDUM OF SETTLEMENT DATED 30 TH SEPTEMBER 2005 BETWEEN THE ASSESSEE AND ITS UNION OF EMPLOYEES. OTHER MANUFACTURING UNITS OF THE ASSESSE E WERE CONTINUING. THE REASON FOR THE CLOSING DOWN THE UNIT WAS THE CONTIN UOUS LOSSES INCURRED BY THE ASSESSEE AND THERE WAS NO POSSIBILITY FOR MAKING TH E PROFIT IN THE FUTURE. AS A RESULT OF CLOSURE OF THE UNIT VRS AMOUNT WAS DETERM INED AT RS.1,28,89,938/- WHICH WAS CLAIMED BY THE ASSESSEE IN TERMS OF THE P ROVISIONS OF SECTION 35 DDA OF THE ACT I.E. 1/5 OF THE TOTAL VOLUNTARY RETI REMENT SCHEME IN FIVE EQUAL INSTALLMENTS. 3.1 THE ASSESSEE BESIDES THE VRS HAS ALSO INCURRED AN AMOUNT OF RS. 55,96,775/- REPRESENTING EX-GRATIA / ADDITIONAL SET TLEMENT PAYMENTS TO THE EMPLOYEES OF CHENNAI UNIT WHICH WAS CLAIMED AS DEDU CTION U/S 37(1) OF THE ACT. HOWEVER, THE AO OBSERVED THAT THAT THE AFORESA ID ADDITIONAL PAYMENTS MADE TO THE EMPLOYEES OF CHENNAI UNITS IS NOTHING B UT REPRESENTING THE PAYMENT IN CONNECTION WITH THE VRS AND THEREFORE IT IS ELIGIBLE FOR DEDUCTION IN PURSUANCE TO THE PROVISIONS OF SECTION 35DDA OF THE ACT. ACCORDINGLY THE AO ALLOWED 1/5 OF RS. 55,96,775/- I.E. RS.11,19,355/- AND REMAINING AMOUNT OF RS.44,77,400/- WAS DISALLOWED AND ADDED TO THE TOTA L INCOME OF THE ASSESSEE. 4. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO LD CIT (A). THE ASSESSEE BEFORE THE LD CIT(A) SUBMITTED THAT THE PROVISIONS OF SECTION 35DDA SPEAKS FOR THE PAYMENTS MADE TO THE EMPLOYEES IN THE NATUR E OF VOLUNTARY RETIREMENT SCHEME. THUS ANY PAYMENT WHICH IS OVER AND ABOVE TH E VOLUNTARY RETIREMENT ITA NO.323/KOL/2014 A.Y. 2006-07 DCIT CIR-12, KOL. VS. M/S LINDE INDIA LTD. PAGE 3 SCHEME IS NOT COVERED UNDER THE PROVISIONS OF SECTI ON 35DDA OF THE ACT. IT WAS ALSO SUBMITTED THAT THE ASSESSEE IS RUNNING VAR IOUS OTHER MANUFACTURING UNITS EVEN AFTER THE CLOSURE CHENNAI UNIT. THE AFOR ESAID SETTLEMENT COMPENSATION WAS PAID TO RESOLVE THE LABOUR DISPUTE S AMICABLY WHICH WAS VERY MUCH INCURRED IN CONNECTION WITH THE BUSINESS OF THE ASSESSEE AS A WHOLE. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISS ION OF THE ASSESSEE HAS DELETED THE ADDITION MADE BY THE AO BY OBSERVING AS UNDER:- 5.1.4 DECISION:- I HAVE CAREFULLY CONSIDERED THE FACTS OF THE ASSESS EE, THE MATERIAL PLACED ON RECORD AND SUBMISSIONS OF THE APPELLANT C OMPANY. I HAVE ALSO GONE THROUGH THE RELEVANT PROVISIONS AS ALSO T HE PRINCIPLES OF LAW LAID DOWN IN THE CASES RELIED UPON ON BEHALF OF THE APPELLANT. IN THIS CASE, THE FACTS CLEARLY SHOW THAT THE EX-GRATIA/ADD ITIONAL COMPENSATION HAS BEEN PAID NOT UNDER THE SCHEME OF VRS, BUT UNDE R FULL AND FINAL SETTLEMENT REACHED UNDER THE PROVISIONS OF THE INDU STRIAL DISPUTES ACT. IN MY VIEW THE FACTS OF THE CASE OF K. RAVINDRANATH AN NAIR V. CIT [2001] 247 ITR 178 (SC) RELIED UPON BY THE APPELLANT ARE S IMILAR TO THOSE OF THE APPELLANTS CASE. IN THAT CASE, WHERE THE ASSESSEE, PROCESSING CASHEWNATS IN TEN UNITS, CLOSED SOME OF THE UNITS I N THE WAKE OF LABOUR DISPUTES, AND CARRIED ON THE BUSINESS IN THE REMAIN ING UNITS, THE EXPENDITURE INCURRED UNDER A SETTLEMENT WITH THE TR ADE UNION REPRESENTING THE WORKERS WAS ALLOWABLE AS BUSINESS EXPENDITURE, SINCE IT WAS INCURRED IN CONNECTION WITH THE INDUSTRIAL H EALTH OF THE BUSINESS AS A WHOLE. IN THE CASE OF CIT V. JAI PARABOLIC SPR INGS LTD (200080 172 TAXMAN 258/306 ITR 42(DELHI), THE HON'BLE DELHI HIG H COURT HAS HELD THAT THE REVENUE EXPENDITURE WHICH IS INCURRED WHOL LY AND EXCLUSIVELY FOR PURPOSE OF BUSINESS M9UST BE ALLOWED IN ITS ENT IRELY IN YEAR IN WHICH IT IS INCURRED; IT CANNOT BE SPREAD OVER A NUMBER O F YEARS EVEN IF ASSESSEE HAS WRITTEN IT OFF IN ITS BOOKS OVER A PER IOD OF NUMBER OF YEARS. IN THE CASE OF CIT V. BUDHRAJA & CO. (1993) 204 ITR 656 (ORI), IT HAS BEEN HELD THAT PAYMENT OF ACCRUED LIABILITY TO PAY RETRENCHMENT COMPENSATION UNDER SECTION 25F OF INDUSTRIAL DISPUT ES ACT IS AN ALLOWABLE DEDUCTION AS BUSINESS EXPENDITURE CIT V . J.C. BUDHARAJ & CO. (1993) 204 ITR 656 (ORI), - WHERE SERVICES ARE TERMINATED BY PAYMENT OF COMPENSATION WITH THE RESULT THAT A RECU RRING LIABILITY IS GOT RID OF, THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF LIFE INSURANCE CORPORATION OF INDIA V. CIT [1979] 119 ITR 900 (BOM ) HELD THAT THE AMOUNT PAID BY WAY OF COMPENSATION IS IN THE NATURE OF REVENUE EXPENDITURE. THE RATIO LAID DOWN IN THE CASES CITED HERE ARE, IN MY VIEW, APPLICABLE TO THE FACTS OF THE CASE. FURTHER, THE F OREMOST CONDITION THAT IN ORDER TO SUSTAIN A CLAIM FOR DEDUCTION BY WAY OF BUSINESS EXPENDITURE UNDER SEC. 37(1) OF THE ACT, THE EXPENDITURE MUST H AVE BEEN INCURRED FOR THE PURPOSE OF A BUSINESS WHICH WAS IN EXISTENC E IN THE YEAR OF ITA NO.323/KOL/2014 A.Y. 2006-07 DCIT CIR-12, KOL. VS. M/S LINDE INDIA LTD. PAGE 4 ACCOUNT, THE PROFITS OF WHICH ARE UNDER AM, IS FULF ILLED IN THE APPELLANTS CASE. HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, IT IS HELD THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED I N RESTRICTING THE CLAIM OF EXPENDITURE TO ONE-FIFTH AND DISALLOWING EXPENDI NG TO THE EXTENT OF RS.44,77,420/-. THUS, THE ADDITION MADE BY HIM IS H EREBY DELETED AND THIS GROUND OF APPEAL IS ALLOWED. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S. 5. THE LD DR VEHEMENTLY SUPPORTED THE ORDER OF AO W HEREAS THE LD. AR BEFORE US FILED A PAPER BOOK WHICH IS RUNNING FROM PAGES 1 TO 123 AND REITERATED THE SUBMISSION AS MADE BEFORE THE LEARNE D CIT(A). THE LD AR RELIED ON THE ORDER OF LD. CIT(A). 6. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FOREGOING D ISCUSSION, WE FIND THAT AO HAS TREATED THE PAYMENT MADE TO THE EMPLOYEES OF CH ENNAI UNIT IN ADDITION TO THE PAYMENT OF VRS IN THE NATURE OF VRS. THEREFORE THE AO APPLIED THE PROVISIONS OF SECTION 35DDA AND ACCORDINGLY ALLOWED 1/5 TH OF SUCH EXPENSES AND REMAINING EXPENSES WERE DISALLOWED. HOWEVER THE LD. CIT-A DELETED THE ADDITION MADE BY THE AO BY OBSERVING THAT THE ADDIT IONAL PAYMENT IS NOT COVERED UNDER SECTION 35DDA OF THE ACT. ON PERUSAL OF THE MEMORANDUM OF SETTLEMENT DATED 30 .09.2005 WHICH IS PLACED ON PAGES 52 TO 60 OF THE PAPER BOOK AND WE A LSO FIND THAT THE IMPUGNED PAYMENT WAS PAID OVER & ABOVE THE VRS PAYM ENT. THUS, IT CANNOT BE COVERED UNDER SECTION 35DDA OF THE ACT. THE RELE VANT EXTRACT OF THE SETTLEMENT DEED READS AS UNDER:- 6. ADDL. VR EXGRATIA EMPLOYEES WHO HAVE 60 MONTHS OR LESS SERVICE LEFT FOR ATTAINING SUPERANNUATION AGO (I.E. 60 YEARS) ON THE DATE OF OPTING FOR VOLUNTARY RETIREMENT, WILL BE PAID AN ADDITIONAL VR EX-GRATIA AMOUNT OF 25% (TWENTY FIVE PERCENT) OF THE RESPECTI VE VOLUNTARY RETIREMENT COMPENSATION AMOUNT PAYABLE AS PER CLAUS E 5 ABOVE, SUBJECT TO THE TOTAL AMOUNT CONSISTING OF VOLUNTARY RETIREMENT COMPENSATION AND ADDITIONAL VR EX-GRATIA, IN NO CAS E, EXCEEDING THE OVERALL LIMIT OF RS.5 LAKHS (RUPEES FIVE LAKHS ONLY ). ITA NO.323/KOL/2014 A.Y. 2006-07 DCIT CIR-12, KOL. VS. M/S LINDE INDIA LTD. PAGE 5 IN THE SIMILAR FACTS & CIRCUMSTANCES THE COURTS HAV E DECIDED THE ISSUE IN FAVOUR OF ASSESSEE AS DETAILED UNDER. THE HONBLE SUPREME COURT IN THE CASE OF K. RAVINDRANTHAN NAIR VS. CIT REPORTED IN 114 TAXMAN 53 HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. THE RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED BELO W : THE TRIBUNAL WENT ON TO HOLD THAT THE FACTS WERE S UFFICIENT TO ESTABLISH A NEXUS BETWEEN THE PAYMENT AND THE BUSINESS. THE TRI BUNAL NOTED, CORRECTLY, THAT IT WAS FOR THE ASSESSEE TO DECIDE H OW HE WOULD CONDUCT HIS BUSINESS. FOR THE PURPOSES OF CONTINUING HIS BU SINESS, HE HAD TO REDUCE THE NUMBER OF UNITS FROM TEN TO SIX. ANY INC IDENTAL EXPENSES IN REDUCING THOSE UNITS WAS AN EXPENDITURE INCURRED IN THE COURSE OF CONDUCTING THE BUSINESS AND ALLOWABLE UNDER S. 37. SIMILARLY WE ALSO FIND SUPPORT & GUIDANCE FROM THE JUDGMENT OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF JAYSHREE TEA & INDUSTRIES LIMITED VS. CIT REPORTED IN 143 TAXMAN 143 HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE. THE RELEVANT EXTRACT OF THE JUDGMENT IS REPRODUCED BELO W : THE ASSESSEE WAS CARRYING ON BUSINESS THROUGH 21 U NITS. SUCH BUSINESS CONSISTED OF DIFFERENT KINDS OF BUSINESS B UT ALL WERE BEING ASSESSED AT THE HANDS OF THE ASSESSEE AS ONE BUSINE SS OR IN OTHER WORDS THE ASSESSEE WAS BEING ASSESSED FOR THE INCOM E OF ALL THE DIFFERENT UNITS TOGETHER AT THE HANDS OF THE ASSESS EE AS OF ONE ASSESSEE THOUGH THE ACCOUNTS MAY BE KEPT SEPARATELY FOR EACH UNIT. ADMITTEDLY, IN THE BUSINESS EXPEDIENCY ACCOUNTS ARE KEPT FOR EA CH UNIT SEPARATELY SO AS TO ENABLE THE ASSESSEE TO FIND OUT OR KEEP TR ACK OF THE FACT AS TO WHETHER THE PARTICULAR UNIT WAS RUNNING AT A LOSS O R PROFIT; AND INSTEAD OF CONSTITUTING SEPARATE BUSINESSES IN ITS WISDOM THE ASSESSEE MIGHT CARRY ON ALL THE UNITS AS ONE BUSINESS. AS SOON AS IT WAS FOUND THAT THERE WAS UNITY OF CONTROL AND MANAGEMENT THE INTER-CONNECTIO N AND INTER-LACING IS TO BE PRESUMED AND WOULD BE APPARENT. THE VERY FIND ING, THAT EVEN AFTER THE CLOSURE OF THE ALLAHABAD UNIT THE BUSINES S WAS CARRIED ON BY THE ASSESSEE, WAS ITSELF A POINTER TO THE ONENESS O F THE BUSINESS. WHEN THE UNIT WAS UNDER THE CONTROL OF ONE MANAGEMENT, T HE INTER-CONNECTION, INTER-LACING AND INTER-DEPENDENCE IS A FAIT ACCOMPL I. THE PAYMENT WAS MADE FOR THE PURPOSE OF CLOSING DOWN THE LOSING UNI T SO AS TO RUN THE BUSINESS PROFITABLY BONA FIDE EVEN THOUGH ULTIMATEL Y THE APPROVAL WAS DENIED AND THE ASSESSEE COULD NOT GET THE DENIAL RE VERSED IN COURTS WHERE THE ASSESSEE TOOK THE PROCEEDINGS. THEREFORE, THE EXPENDITURE WAS BONA FIDE AND ELIGIBLE TO BE CONSTRUED TO HAVE BEEN MADE FOR THE PURPOSE OF THE BUSINESS. SREE MEENAKSHI MILLS LTD. VS. CIT (1967) 63 ITR 207 (SC) RELIED ON. ITA NO.323/KOL/2014 A.Y. 2006-07 DCIT CIR-12, KOL. VS. M/S LINDE INDIA LTD. PAGE 6 THE RATIOS LAID DOWN BY THE HONBLE COURTS IN THE A BOVE CASES ARE APPLICABLE TO THE FACTS OF THE CASE IN HAND. IN THE INSTANT CA SE THE ASSESSEE WAS HAVING SEVERAL UNITS AND FEW OF THEM WERE CLOSE DOWN. ALL THE UNITS OF THE ASSESSEE CONSTITUTE A SINGLE BUSINESS. IN CONSEQUENCE TO THE CLOSURE OF THE UNITS BASED IN THE CHENNAI, THE ASSESSEE HAD TO PAY CERTAIN COM PENSATION OVER AND ABOVE THE VRS TO THE EMPLOYEES, THEREFORE IN OUR CO NSIDERED VIEW THE EXTRA PAYMENT IS ELIGIBLE FOR DEDUCTION UNDER SECTION 37( 1) OF THE ACT. IN VIEW OF ABOVE WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LD CIT(A). WE HOLD ACCORDINGLY AND THIS GROUND OF APPEAL OF THE REVENU E IS DISMISSED. 7. NEXT ISSUE RAISED BY REVENUE IN THIS APPEAL IS T HAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO FOR 36.99 ON ACCOUNT OF ADVANCE WRITTEN OFF. 8. THE ASSESSEE, IN THE YEAR UNDER CONSIDERATION HA S WRITTEN OFF ADVANCE FOR 95,76,604/- IN ITS PROFIT AND LOSS A/C. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO OBSERVED THAT OUT OF THE SAID ADVAN CE A SUM OF 36.99 LACS CONSIST OF SMALL AMOUNT WHICH WERE PROVIDED AS ADVA NCE TO THE SUPPLIERS, EMPLOYEES, SECURITY DEPOSITS ETC. IT WAS ALSO OBSER VED THAT THESE ADVANCES WERE WRITTEN OFF ON THE GROUND THAT THE RECOVERIES OR ADJUSTMENT WERE NOT MADE DUE TO LACK OF INFORMATION. THUS THE AO FOUND THAT THESE WERE WRITTEN OFF DUE TO NEGLIGENCE OF THE ASSESSEE AND THEY DID NOT BECOME IRRECOVERABLE IN A NORMAL COURSE OF BUSINESS. THEREFORE, THE AO DISALL OWED A SUM OF 36.99 LAKH AND ADDED TO THE TOTAL INCOME OF ASSESSEE. 9. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE L D . CIT(A). THE ASSESSEE BEFORE LD. CIT(A) SUBMITTED THAT ALL THE I TEMS OF ADVANCE WERE DIRECTLY CONNECTED WITH THE BUSINESS OPERATION AND THEREFORE THEY WERE INCIDENTAL TO THE BUSINESS. LD. CIT(A) AFTER CONSID ERING THE SUBMISSION OF ASSESSEE DELETED THE ADDITION MADE BY AO BY OBSERVI NG AS UNDER:- 5.2.4 DECISION: ITA NO.323/KOL/2014 A.Y. 2006-07 DCIT CIR-12, KOL. VS. M/S LINDE INDIA LTD. PAGE 7 NOW, THE CASE OF THE ASSESSING OFFICER IS THAT THE FIRST ITEM IS ONLY TRADE ADVANCE, WHEREAS THE BALANCE REPRESENTED BY SMALL I TEMS WHICH WERE WRITTEN OFF BECAUSE COLLECTION OR ADJUSTMENT COULD NOT BE MADE DUE TO LACK OF INFORMATION/PERSUASION, AND, THEREFORE, THE SAME WERE NOT ALLOWABLE AS BUSINESS LOSS. THE CASE OF THE APPELLA NT. ON THE OTHER HAND IS THAT THE FIRST ITEM WAS BUSINESS LOSS BECAU SE THE BANK GUARANTEE PROVIDED AS SECURITY WAS EN-CASHED BY THE SELLER, WHEREAS THE SECOND ITEM REPRESENTED BY ADVANCES OF SMALLER AMOUNTS ALL THE ADVANCES GIVEN WERE OF REVENUE NATURE AND WERE LYIN G UNADJUSTED IN THE BOOKS OF ACCOUNT FOR A REASONABLY LONG PERIOD, EITHER BECAUSE THE ADVANCES COULD NOT BE RECOVERED ON SUBSEQUENT FOLLO W-UPS OR BECAUSE OF NON-ADJUSTMENTS OF ACCOUNTING ENTRIES THEREOF IN THE BOOKS. FROM THE FACTS, IT IS APPARENT THAT THE ASSESSING OFFICER HA S NOT APPRECIATED THE FACTS IN ITS ENTIRETY. THE FORFEITURE OF SECURITY D EPOSIT OF RS.20,36,160/- GIVEN TO NATIONAL FERTILIZERS LIMITED IS CLEARLY A TRADING LOSS IN VIEW OF THE EXPLANATION OFFERED. SIMILARLY, MOST OF THE ADV ANCES TO SUPPLIERS, EMPLOYEES, SECURITY DEPOSITS FOR ELECTRICITY AND TE LEPHONES, ETC. RELATED TO THE CLOSED BUSINESS UNITS. IN THE CASE OF TRAVA NCORE TEA ESTATES CO. LTD. V. CIT [19792] 197 ITR 528 (KER), IT HAS BEEN HELD THAT UNDER SEC. 28, A BAD DEBT WHICH CANNOT BE WRITTEN OFF MAY BE A LLOWED AS A TRADING LOSS, PROVIDED THE LOSS IS INCURRED WHOLLY AND EXCL USIVELY FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE. IN THE CASE OF CIT V. INDEN BISELERS [1989] 47 TAXMAN 225 [1990] 181 ITR 69 (MAD), IT HA S BEEN HELD THAT EVEN THOUGH THE EXPENDITURE IS NOT ADMISSIBLE FOR THE COMPUTATION OF THE TOTAL INCOME EITHER AS A BAD DEBT OR AS AN EXPE NDITURE WHOLLY INCURRED FOR THE PURPOSE OF BUSINESS, STILL, IT CAN BE ALLOWED AS AN EXPENDITURE AS A TRADING LOSS IF IT ARISES DIRECTLY FROM CARRYING ON THE BUSINESS AND IS INCIDENTAL TO THE BUSINESS. THE FAC TS OF THE REPORTED CASES ARE SIMILAR TO THOSE OF THE APPELLANTS CASE. THEREFORE, I AM OF THE VIEW THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED I N DISALLOWING THE CLAIM OF LOSS OF BAD ADVANCES WRITTEN OFF AS A TRADING LO SS. THEREFORE, THE ADDITION OF RS.36,99,359/- IS DELETED. THE REVENUE, BEING AGGRIEVED, IS IN APPEAL BEFORE U S ON THE FOLLOWING GROUND:- 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND AS PER LAW LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY THE AO AMOUNTING RS.36,99,359/- ON ACCOUNT OF BAD ADVANCE. 10. BEFORE US BOTH THE PARTIES RELIED ON THE ORDER OF AUTHORITIES BELOW AS FAVORABLE TO THEM. ITA NO.323/KOL/2014 A.Y. 2006-07 DCIT CIR-12, KOL. VS. M/S LINDE INDIA LTD. PAGE 8 11. WE HAVE CAREFULLY CONSIDERED THE ENTIRE MATERIA L ON RECORD AND THE RIVAL SUBMISSIONS. FROM THE DETAILS FURNISHED BY THE ASSE SSEE IN THE PAPER BOOK IT IS FOUND THAT THE ASSESSEE HAD GIVEN FULL DETAILS O F EACH ITEM OF THE ADVANCES. THE AMOUNTS REPRESENTED ADVANCES GIVEN TO THE PARTI ES FOR THE PURCHASE OF RAW MATERIALS, ADVANCE TO EMPLOYEES, SECURITY DEPOS ITED WITH THE LANDLORD, ELECTRICITY AND TELEPHONES ETC. THE ADVANCES WERE G IVEN DURING THE COURSE OF BUSINESS. THE AMOUNT BECAME IRRECOVERABLE FROM THE PARTIES TO WHOM THE ADVANCES WERE MADE. THUS, THE ADVANCES WERE TOTALLY CONNECTED WITH THE BUSINESS ACTIVITIES OF THE ASSESSEE. THE LEARNED CI T (APPEALS) WAS JUSTIFIED IN OBSERVING THAT THE AMOUNT OF ADVANCE WAS A TRADING LOSS. AFTER SEEING THE DETAILS OF AMOUNTS, IT IS OBSERVED THAT THE ASSESSE E WAS NOT REQUIRED TO TAKE A LENGTHY LITIGATION FOR RECOVERING THE SMALL AMOUNTS . IN OUR OPINION, THEREFORE, THE APPROACH OF THE LEARNED CIT (APPEALS) IS JUSTIF IED. IN THIS CONNECTION WE ALSO RELY IN THE ORDER OF ASSESSEES OWN CASE IN ITA NO. 131/KOL/2010 FOR A.Y. 2004-05 DATED 16.10.2015 WHEREIN THE RELEVANT EXTRA CT IS REPRODUCED BELOW:- 8. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO SU BMITTED BEFORE US IN THE COURSE OF HEARING THAT THE GHATKOPAR UNIT OF THE AS SESSEE WAS SOLD DURING THE PREVIOUS YEAR DUE TO SEVERAL PROBLEMS INCLUDING LAB OUR PROBLEMS AND THE ADVANCES AND EXPENSES WRITTEN OIL RELATED TO THIS U NIT AND THIS UNIT REMAINED CLOSED FOR A LONG TIME PRIOR TO ITS CLOSURE. WE ARE SATISFIED THAT ON THE FANS AS PLEADED BY THE ASSESSEE BEFORE THE AO WHICH WERE NO T CONTROVERTED BY THE AOICIT(A), THE LOSS IN QUESTION WAS INCIDENTAL TO T HE BUSINESS OF THE ASSESSEE. THE REASON ASSIGNED BY THE AO WAS THAT TH ERE WAS NEGLIGENCE ON THE PART OF THE ASSESSEE IN NOT KEEPING PROPER RECO RDS AND THIS FACT INFLUENCED HIS DECISION IN NOT ALLOWING THE CLAIM OF THE ASSES SEE. IN OUR VIEW ONCE THE FACT THAT THE LOSS IS INCIDENTAL TO ASSESSEE'S BUSI NESS IS ACCEPTED THAN THE STRICT EVIDENCE OF IRRECOVERABILITY OF THE LOSSES I N UESTION CANNOT BE INSISTED UPON. THE CIRCUMSTANCES OF THE CASE SHOW THAT THE A SSESSEE MADE A PROVISION IN THE BOOKS OF ACCOUNTS IN THE YEAR 2000 AND CLAIMED THE LOSS ONLY IN THE YEAR 2004. THE COMPANY AFTER REVIEW OF THE B OOKS OF ACCOUNTS AND AFTER DUE DILIGENCE AND DISCUSSION WITH THE STATUTORY AUD ITORS CAME TO THE CONCLUSION THAT DETAILED RECONCILIATION AND ACCOUNT ING ADJUSTMENTS OF THESE ADVANCES WAS NO LONGER POSSIBLE DUE TO LACK OF INFO RMATION AND NON- AVAILABILITY OF OLD RECORDS IN THE YEAR 2000 ITSELF BUT WAITED FOR 4 YEARS BEFORE WRITING OFF THE LOSS IN THE YEAR 2004-05. WE ARE OF THE VIEW IN THE GIVEN FACTS AND CIRCUMSTANCES OF THE CASE, THE DEDUCTION CLAIME D OUGHT TO HAVE BEEN ALLOWED. WE HOLD AND DIRECT ACCORDINGLY. THE GROUND S RAISED BY THE ASSESSEE ARE ACCORDINGLY ACCEPTED. ITA NO.323/KOL/2014 A.Y. 2006-07 DCIT CIR-12, KOL. VS. M/S LINDE INDIA LTD. PAGE 9 IN VIEW OF THE ABOVE PROPOSITION, WE ARE CONCUR WIT H THE VIEW THE LD CIT(A) AND THEREFORE SET ASIDE THE ORDER OF AO. IN OUR CON SIDERED OPINION, THE CLAIM OF DEDUCTION IS ALLOWABLE AS TRADING LOSS U/S 37 OF THE ACT. AO IS DIRECTED ACCORDINGLY. GROUND TAKEN BY THE REVENUE IS, THEREF ORE, DISMISSED. 12. IN THE RESULT, REVENUES APPEAL STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 03/ 05/2017 SD/- SD/- ( !') ( !') (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP, SR.P.S $!% &- 03 / 05 /201 7 / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-DCIT,CIRCLE-12, P-7, CHOWRINGHEE SQ., AA YAKAR BHAWAN, 7 TH FL, KOL-69 2. /RESPONDENT-M/S LINDE INDIA LTD (M/S BOC INDIA LTD) OXYGEN HOUSE, P-43, TARATALA ROA D, KOLKATA-700 088 3. %.%/0 1 1 2 / CONCERNED CIT KOLKATA 4. 1 1 2- / CIT (A) KOLKATA 5. 567 /0, 1 /0 , / DR, ITAT, KOLKATA 6. 7:; <= / GUARD FILE. BY ORDER/ 1! , /TRUE COPY/ / % 1 /0 ,