Suryalatha Spinning Mills Ltd., Secunderabad V. DCIT, Hyderabad

ITA 590/HYD/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53696 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 5 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: T DEWAKAR PRASAD
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Revenue expenditure; Capital expenditure
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD A BENCH, HYDERABAD BEFORE SHRI CHANDRA POOJARI, AM AND SMT. ASHA VIJAYARAGHAVAN, JM ITA NO. 590/HYD/2010 ASSESSMENT YEAR 2006-07 M/S. SURYALATA SPINNING MILLS LTD., SECUNDERABAD PAN: AADCS0823M VS DY. COMMISSIONER OF I.T. CIRCLE-3(2) HYDERABAD APPELLANT RESPONDENT APPELLANT BY: SHRI V. SIVA KUMAR RESPONDENT BY: SHRI T. DEWAKAR PRASAD DATE OF HEARING: 29.9.2011 DATE OF PRONOUNCEMENT: 13.10.2011 ORDER PER ASHA VIJAYARAGHAVAN, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ORDER PASSED BY THE CIT(A)-IV, HYDERABAD DATED 15.02.2010 AND PERTAINS TO ASSESSMENT YEAR 2006-07. 2. THE ASSESSEE-COMPANY IS CARRYING ON THE BUSINESS OF MANUFACTURE OF YARN. THE CASE WAS TAKEN UP FOR SCR UTINY AND SUBSEQUENTLY THE ASSESSMENT WAS COMPLETED U/S. 143( 3) OF THE INCOME-TAX ACT, 1961 BY THE DCIT, CIRCLE 3(2), HYDE RABAD. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT, AMONG OTHER DISALLOWANCES, MADE DISALLOWANCE OF RS. 3,84,440 RE PRESENTING ADVANCES WRITTEN OFF BY THE ASSESSEE. AGGRIEVED TH E ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A) AND SUBMITTED THAT THE ASSESSEE HAS BEEN GIVING ADVANCES TO VARIOUS SUPPLIERS DURIN G THE COURSE OF ITS BUSINESS OUT OF WHICH BALANCES AMOUNTING TO RS. 3,8 4,440 REMAINED UNRECOVERED. IT WAS FURTHER SUBMITTED THAT THE AMO UNT WAS WRITTEN OFF SINCE THE SUPPLIERS DID NOT SUPPLY THE MATERIAL AND THE ASSESSEE SUBSTANTIATED THE REASONS FOR WRITE OFF OF VARIOUS AMOUNTS AND ITA NO. 590/HYD/2010 M/S. SURYALATA SPINNING MILLS LTD. ============================= 2 EXPLAINED THAT ALL THE ADVANCES WERE GIVEN FOR PROC URING MATERIAL, SPARES, STORES, ETC. THE LEARNED AR FURTHER CONTEN DED THAT EVEN THOUGH THEY WERE NOT OFFERED AS INCOME IN THE EARLI ER YEAR SUCH WRITE OFF WAS ALLOWABLE AS DEDUCTION U/S. 37(1) AS THE AD VANCES HAD BEEN GIVEN IN THE COURSE OF CARRYING ON THE BUSINESS. T HE ASSESSEE RELIED ON THE FOLLOWING DECISIONS: A) CIT VS. ANJANI KUMAR CO. LTD. (259 ITR 114) (RAJ ). B) SALORA INTERNATIONAL LTD. VS. ACIT (129 TAXMAN 6 8) (DEL) C) MINDA (HUF) LTD. VS. JCIT (101 ITD 191) (DEL). D) CIT VS. HONDA CL POWER PRODUCTS LTD. (300 ITR 56 ). 3. THE CIT(A) HELD THAT THE ASSESSING OFFICER IS CO RRECT IN HOLDING THAT WRITE OFF OF ADVANCES DOES NOT FALL WITHIN THE PURVIEW OF SECTION 36(1)(VII) OF THE ACT. THE CIT(A) FURTHER HELD THA T AS REGARDS THE SUBSEQUENT CLAIM OF THE ASSESSEE THAT SUCH WRITE OF F OF ADVANCES SHOULD BE ALLOWED U/S. 37(1) THE ASSESSEE HAS NOT E STABLISHED THAT SUCH EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVEL Y FOR THE PURPOSE OF BUSINESS AND THAT THE EXPENSES SO INCURRED WERE NOT OF PERSONAL OR CAPITAL IN NATURE. THE CIT(A), THEREFORE, WAS OF THE OPINION THAT THE ONUS FOR PROVING THE SAME WAS ON THE ASSESSEE ITSEL F AND HELD THAT THE ASSESSING OFFICER IS CORRECT IN MAKING THE DISALLOW ANCE OF RS. 3,84,440. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEF ORE US. 4. THE LEARNED DR SHRI T. DIWAKAR PRASAD RELIED ON THE ORDER OF THE ASSESSING OFFICER. THE LEARNED DR FURTHER POIN TED OUT THAT THE CIT(A) HAS CLEARLY HELD THAT THE ASSESSEE HAS NOT E STABLISHED THAT SUCH EXPENDITURE WAS INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THAT THE EXPENSES SO INCURRED WERE NOT OF PERSONAL OR CAPITAL NATURE. THE LEARNED DR RELIED ON THE DECIS IONS IN CIT VS. NAINITAL BANK LTD. (55 ITR 707) AND CIT VS. TEXTOOL CO. LTD. (135 ITR 200). 5. THE LEARNED COUNSEL FOR THE ASSESSEE, SHRI V. SI VA KUMAR, RELIED ON THE ORDER OF THE ITAT HYDERABAD BENCH IN THE CASE OF M/S. REGENCY CERAMICS LTD. ITA NO. 801/HYD/07 AND ITA NO . 899/HYD/06 ORDER DATED 25 TH NOVEMBER, 2009. THE ASSESSEE ALSO RELIED ON THE ITA NO. 590/HYD/2010 M/S. SURYALATA SPINNING MILLS LTD. ============================= 3 ITAT DECISION OF DELHI 'A' BENCH IN THE CASE OF MIN DA (HUF) LTD. (SUPRA) WHEREIN IT HAS BEEN HELD AS UNDER: 'FROM THE DETAILS FURNISHED BY THE ASSESSEE, IT WAS FOUND THAT THE ASSESSEE HAD GIVEN FULL DETAILS OF EACH IT EM. THE AMOUNTS REPRESENTED ADVANCES GIVEN TO THE PARTIES. THE ADVANCES WERE GIVEN DURING THE COURSE OF BUSINESS F OR SUPPLY OF RAW-MATERIAL, ETC. EITHER THE MATERIAL W AS NOT SUPPLIED OR DEFECTIVE MATERIAL WAS SUPPLIED. THE A MOUNT BECAME UNRECOVERABLE FROM THE PARTIES TO WHOM THE ADVANCES WERE MADE. THUS, THE ADVANCES WERE TOTALL Y CONNECTED WITH THE BUSINESS ACTIVITIES OF THE ASSES SEE. THE COMMISSIONER (APPEALS) WAS NOT JUSTIFIED IN OBSERVING THAT THE AMOUNT OF ADVANCE WAS NOT A TRAD ING LOSS. THE ASSESSEE WAS NOT REQUIRED TO MAKE A LENG THY LITIGATION FOR RECOVERING THE SMALL AMOUNTS. THERE FORE, THE APPROACH OF THE COMMISSIONER (APPEALS) WAS NOT JUSTIFIED. (PARA 7). THE CLAIM OF DEDUCTION WAS ALLOWABLE AS TRADING LOS S UNDER SECTION 37. (PARA 8). IN THE RESULT, ASSESSEE'S APPEAL WAS ALLOWED (PARA 9).' 6. SIMILARLY, IN THE ITAT DELHI 'B' BENCH IN THE CA SE OF SALORA INTERNATIONAL LTD. VS. JCIT (129 TAXMAN 68) HELD AS FOLLOWS: 'IT WAS FOUND THAT THE ADVANCES WERE GIVEN BY THE ASSESSEE FOR SUPPLY OF CERTAIN GOODS. THUS, ADMITT EDLY THESE ADVANCES WERE MADE DURING THE COURSE OF CARRY ING ON THE BUSINESS ACTIVITIES. IF THE ASSESSEE COULD NOT RECEIVE THE GOODS IN EXCHANGE OF SUCH ADVANCES, THE AMOUNT HAD TO BE TREATED AS A BUSINESS LOSS. THERE FORE, THE ASSESSING OFFICER WAS DIRECTED TO ALLOW THE AMO UNT CLAIMED BY THE ASSESSEE AS BUSINESS LOSS.' 7. WE HAVE HEARD BOTH THE PARTIES. WE FIND THAT IN THE CASE OF CIT VS. ABDUL RAZAK & CO. (136ITR 825) (GUJ) AND THE AL LAHABAD HIGH COURT IN THE CASE OF CIT VS. JWALA PRASAD RADHA KIS HAN (107 ITR 540) ALLOWED THE CLAIM OF THE ASSESSEE U/S. 37 BY TREATI NG THE NON-RECOVERY OF THE ADVANCES AS BUSINESS LOSS. IN THE CASE OF C ALCUTTA CO. LTD. VS. CIT (37 ITR 1) (SC) IT WAS HELD THAT EVEN THOUGH TH E AMOUNT MAY NOT BE ALLOWABLE AS A DEDUCTION U/S. 36(1)(VII) BUT THE SAME BEING IN THE NATURE OF TRADING LOSS INCURRED IN CARRYING ON THE BUSINESS AND BEING INCIDENTAL TO THE OPERATION OF THE BUSINESS IS ALLO WABLE U/S. 37 OF THE ITA NO. 590/HYD/2010 M/S. SURYALATA SPINNING MILLS LTD. ============================= 4 ACT. THE RATIO LAID DOWN IN THE ABOVE REFERRED DEC ISIONS IS ALSO APPLICABLE IN THE FACTS OF THE PRESENT CASE. HOWEV ER, IN VIEW OF THE FACT THAT THE ASSESSEE HAS NOT ESTABLISHED THAT THE EXPE NDITURE HAS BEEN A REVENUE EXPENDITURE, CAPITAL EXPENDITURE AND NOT PE RSONAL IN NATURE, WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE SAME AND DECIDE THE ISSUE IN THE LIGHT OF THE DECIS ION IN THE CASE OF CALCUTTA CO. LTD. VS. CIT (37 ITR 1) (SC) AFTER PRO VIDING A REASONABLE OPPORTUNITY TO THE ASSESSEE TO PRESENT ITS CASE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES ONLY. ORDER PRONOUNCED IN THE OPEN COURT 13 TH OCTOBER, 2011 SD/- (CHANDRA POOJARI) SD/- (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER HYDERABAD, DATED THE 13 TH OCTOBER, 2011 COPY FORWARDED TO: 1. M/S. SURYALATHA SPINNING MILLS LTD., 105, SURYA TOWERS, S.P. ROAD, SECUNDERABAD. 2. DY. COMMISSIONER OF INCOME-TAX, CIRCLE-3(2), HYD ERABAD. 3. THE CIT(A)-IV, HYDERABAD. 4. THE CIT-III, HYDERABAD 5. THE DR, A BENCH, ITAT, HYDERABAD TPRAO