ITO, Ward - 12(2), Kolkata, Kolkata V. M/s. Peerless Developers Ltd., Kolkata

ITA 602/KOL/2010

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 5708 (ITAT-KOLKATA)
• Duration Of Justice: 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2010
• Appeal Filed By: Department
• Bench Allotted: B
• Assessment Year: 2004-2005
• Appeal Filed On: 25-03-2010
• Court: TRIBUNAL
• Department Lawyers: JYOTI KUMARI
• Assessee Lawyers: S K TULSIYAN; SUBRATA DE
• Keywords: Bad and doubtful debts; Revenue expenditure; Capital expenditure; Set aside
• Section: 143(3)

Judgement Text

1 , B , , IN THE INCOME TAX APPELLATE TRIBUNAL, BENCH- B , KO LKATA [ . . . . . . . . , ,, , . .. . . .. . , , , , !' ] BEFORE SHRI B.R.MITTAL, JUDICIAL MEMBER & SRI C.D. RAO, ACCOUNTANT MEMBER # # # # / ITA NO. 602 (KOL) OF 2010 $%& '( / ASSESSMENT YEAR 2004-05 INCOME-TAX OFFICER, WARD-12(2), KOLKATA. M/S. PEERLESS DEVELOPERS LTD., KOLKATA. (PAN-AABCP5070B) (+, / APPELLANT ) - % - - VERSUS -. (/0+,/ RESPONDENT ) +, 1 2 !/ FOR THE APPELLANT: / SMT. JYOTI KUMARI /0+, 1 2 ! / FOR THE RESPONDENT: / S / SRI S.K.TULSIYAN & SUBRATA DE !3 / ORDER ( . .. . . .. . ), !' (C.D. RAO), ACCOUNTANT MEMBER : THE DEPARTMENT HAS FILED THIS APPEAL AGAINST THE ORDER DATED 02.12.2009 OF LD. C.I.T.(A)-XII, KOLKATA PERTAINING TO ASSESSMENT YEA R 2004-05. THE ONLY ISSUE RAISED IN THIS APPEAL BY THE DEPARTMENT IS AGAINST ALLOWANCE OF ASSESSEES CLAIM OF WRITE OFF OF ADVANCES/BAD DEBT BY THE LD. C.I.T.(A). 2. THE FACTS OF THE CASE, IN BRIEF, ARE THAT THE A SSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF TRADING IN CONSUMER DURABLE AND SALE OF REAL ESTATE. IN THIS CASE, THE ASSESSMENT U/S. 143(3) WAS COMPLETED ON A TOTAL LOSS OF RS.3,1 6,11,739/- MAKING THEREBY SEVERAL DISALLOWANCES/ADDITIONS, AS AGAINST RETURNED BY THE ASSESSEE OF RS.5,89,78,148/-. BEING AGGRIEVED, THE ASSESSEE WENT IN APPEAL BEFORE THE L D. C.I.T.(A) ON SEVERAL GROUNDS, WHO ALLOWED CERTAIN RELIEF TO THE ASSESSEE VIDE ORDER D ATED 12.12.2007. THE GROUNDS RAISED BEFORE THE FIRST APPELLATE AUTHORITY, INTER ALIA, I NCLUDED SUMS OF RS.44,65,538/- ON ACCOUNT OF ADVANCES GIVEN BY THE ASSESSEE AND RS.7,86,800/- ON ACCOUNT OF IRRECOVERABLE SECURITY DEPOSIT IN THE COURSE OF BUSINESS ACTIVITIES, CLAIM ED BY THE ASSESSEE AS TRADING LOSS. BEING AGGRIEVED, THE REVENUE AS WELL AS THE ASSESSEE CAME IN APPEAL BEFORE THE TRIBUNAL. WHILE DEALING WITH THE REVENUES APPEAL IN ITA NO. 279 (K OL)/2008, IN PARTICULAR GROUND NO.2 IN RESPECT OF THE AFORESAID TWO SUMS, THE TRIBUNAL FOU ND THAT THE LD. C.I.T.(A) TOOK INTO 2 CONSIDERATION CERTAIN DOCUMENTS PRODUCED BEFORE HIM IN VIOLATION OF RULE 46A(3). THE TRIBUNAL, THEREFORE, SET ASIDE THE ISSUE TO THE FIL E OF LD. C.I.T.(A) TO ADJUDICATE THE SAME AFTER OBTAINING THE REMAND REPORT FROM THE A.O. IN THIS REGARD. THE LD. C.I.T.(A) IN SET ASIDE PROCEEDINGS FORWARDED THE WRITTEN SUBMISSIONS ALONG WITH DOCUMENTS ENCLOSED THEREWITH TO THE A.O. FOR A REMAND REPORT. THE REMAND REPORT SU BMITTED BY THE A.O. WAS THEREAFTER FORWARDED TO THE ASSESSEE, WHO FILED ITS REPLY BEFO RE THE LD. C.I.T.(A). 3. IN THE IMPUGNED ORDER DATED 02.12.2009, THE LD. C.I.T.(A) FOUND THAT THE ASSESSEE CLAIMED DEDUCTION UNDER THE HEAD ADVANCE GENERAL AMOUNTING TO RS.44,65,538/- AS TRADING LOSS, WHICH INCLUDED ADVANCES GIVEN TO (I) TELERAMA INDIA LTD. (TIL) OF RS.18,23,750/-; (II) CICICO OF RS.22,77,120/-; AND (III) OTHER SMALL PARTIES TOTALLING TO RS.3,64,668/-. THE A.O. TREATED THE SAID LOSS AS B AD DEBT U/S. 36(1)(VII) R.W.S. 36(2) OF THE ACT AND DISALLOWED THE SAME. IN THE SET ASIDE PROCE EDINGS, THE LD. C.I.T.(A) OBTAINED REMAND REPORT ON THIS ISSUE FROM THE A.O. AND AFTER CONSIDERING THE REMAND REPORT, ASSESSEES SUBMISSIONS AND EVIDENCE ON RECORD, HE A LLOWED THE ASSESSEES CLAIM IN RESPECT OF THE SUMS OF RS.18,23,750/- AND RS.22,77,120/-, W HICH COULD NOT BE RECOVERED FROM TIL AND CICICO RESPECTIVELY. THE BALANCE CLAIM OF ADVAN CE PAID TO SMALL PARTIES TOTALLING TO RS.3,64,668/- WAS REJECTED AS THE ASSESSEE FAILED T O FURNISH DOCUMENTS EVIDENCING ADVANCES MADE BY THE ASSESSEE TO THESE PARTIES. THE RELEVANT PORTION OF OBSERVATION OF LD. C.I.T.(A) ON THIS ISSUE READS AS UNDER :- 4.2. I HAVE CAREFULLY CONSIDERED THE APPELLANTS S UBMISSIONS AND DOCUMENTS FURNISHED. IT IS A FACT THE AFORESAID AMOUNTS WERE ADVANCED BY THE APPELLANT TO TIL AND CICICO IN CONNECTION WITH ITS BUSINESS AND IT C OULD NOT BE RECOVERED AND WAS WRITTEN OFF DURING THE ASST. YEAR 2004-05. I AM TH EREFORE, INCLINED TO CONCUR WITH THE DECISION OF MY LD. PREDECESSOR AND DIRECT THE A .O. TO ALLOW THE APPELLANTS CLAIM IN RESPECT OF THE AMOUNTS ADVANCED TO M/S. TE LERAMA INDIA LTD. AND M/S. CICICO. THE APPELLANTS CLAIM FOR THE BALANCE AMOU NT ADVANCED TO SMALL PARTIES IS REJECTED AS THE APPELLANT FAILED TO FURNISH RELATED DOCUMENTS EVIDENCING THE TRANSACTIONS (ADVANCES) DONE WITH THESE PARTIES. T HE APPELLANTS GROUND IS PARTLY ALLOWED ON THE ISSUE OF CLAIM OF WRITE OFF OF ADVA NCE GENERAL. 3.1. IN REGARD TO OTHER ISSUE, VIZ., SECURITY DEPO SIT WITH PARTY OF RS.7,86,800/-, THE DETAILS OF SECURITY DEPOSIT ARE AS UNDER :- 1. DEBASHREE EXPORT & HOLDING RS.1,50,000 2. LILY BISCUIT CO. LTD. RS.5,00,000 3. G. KHANAN (GODOWN AT MADRAS) RS.1,36,800 RS.7,86,800/- 3 COPY OF THE ASSESSEES WRITTEN SUBMISSIONS AND ENCL OSURES THEREOF IN REGARD TO THE ABOVE ISSUE WERE ALSO FORWARDED TO THE A.O. AND AFTER CON SIDERING THE REMAND REPORT, ASSESSEES SUBMISSIONS AND EVIDENCE ON RECORD, THE LD. C.I.T.( A) DIRECTED THE A.O. TO ALLOW THE UNREALIZED BUSINESS ADVANCE OF RS.5,00,000/- PAID T O LILY BISCUIT CO. LTD. TOGETHER WITH THE ACCRUED INTEREST OF RS.50,000/- AS BUSINESS LOSS AN D THE REMAINING OTHER TWO ADVANCES WERE NOT ALLOWED. THE FINDINGS OF THE LD. C.I.T.(A) ON T HE ABOVE ISSUE ARE AS UNDER :- 5.2. I HAVE CONSIDERED THE APPELLANTS SUBMIS SIONS WITH REFERENCE TO THE FACTS. IN THE ASSESSMENT ORDER, THE A.O. DISALLOWED THE APPEL LANTS CLAIM ON THE GROUND THAT SINCE THIS AMOUNT WAS NOT TAKEN INTO ACCOUNT FOR CO MPUTING TOTAL INCOME OF EARLIER YEARS, THE SAME WAS DISALLOWED AS THE CONDITIONS LA ID DOWN IN SEC. 36(2) WERE NOT SATISFIED. SEC. 36(2) REFERRED TO BY THE A.O. IN T HE ASSTT. ORDER RELATES TO LOANS GIVEN BY THE ASSESSEE. BUT IN THIS CASE THE ADVANCES OF RS.5,00,000 WAS GIVEN TO M/S. LILY BISCUIT CO. LTD. IN CONNECTION WITH THE BUSINESS AC TIVITIES OF THE ASSESSEE. CONSEQUENTLY, THIS UNREALIZED BUSINESS ADVANCE OF R S.5,00,000 TOGETHER WITH THE ACCRUED INTEREST OF RS.50,000 HAS TO BE ALLOWED AS BUSINESS LOSS. THE CLAIM OF THE ASSESSEE IS THEREFORE ALLOWED. AS REGARDS THE OTHE R TWO ADVANCES VIZ. RS.1,50,000/- TO M/S. DEBASHREE EXPORTS AND RS.1,36,800/- TO M/S. G. KHANAN, THE APPELLANT HAS FAILED TO FURNISH ANY EXPLANATION OR EVIDENCE IN SU PPORT OF THE CLAIM. HENCE THE CLAIM IN THIS REGARD IS NOT ALLOWED. IN THE RESULT , THE APPELLANT GETS A PARTIAL RELIEF ON THIS COUNT. 4. BEING AGGRIEVED, THE REVENUE IS IN APPEAL BEFOR E THE TRIBUNAL WITH THE FOLLOWING GROUNDS :- 1. UNDER THE FACTS AND IN THE CIRCUMSTANCE S OF THE CASE, THE AMOUNTS ADVANCED BY THE ASSESSEE TO TELERAMA INDIA LTD., CICICO, AIC NEPAL AND SECURITY DEPOSIT WITH LILY BISCUITS CO. LTD. AND WITH GOVT. AUTHORITY CANNOT B E ALLOWED AS BAD DEBTS AS THEY DO NOT SATISFY THE CONDITIONS LAID DOWN IN SECTION 36( 2)(I). 2. UNDER THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE, THE AMOUNTS MENTIONED IN GROUND NO.1 CANNOT BE ALLOWED AS A BUSINESS LOSS AS THESE LOSSES WERE NOT INCURRED DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2004-05. 5. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSE SSEE POINTED OUT THAT THE TRIBUNAL IN ITS ORDER DATED 31/7/2008 HAS OBSERVED THAT THE LD. C.I.T.(A) HAS VIOLATED RULE 46A(3) BY ACCEPTING ASSESSEES LETTER DATED 07/7/2006 ADDR ESSED TO THE PRINCIPAL SECRETARY, GOVT. OF WEST BENGAL, WHICH WAS NOT AVAILABLE TO TH E A.O. AND, THEREFORE, THE MATTER FOR ADJUDICATION WAS LIMITED TO THAT LETTER ONLY AND NO T THE ENTIRE ISSUE. SUBJECT TO THE ABOVE, THE LEARNED COUNSEL SUPPORTED THE ORDER OF LD. C.I. T.(A). THE LD. DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, RELIED ON THE OR DER OF THE A.O. SHE ALSO PLACED 4 RELIANCE ON THE DECISIONS IN THE CASE OF TRAVANCORE TEA ESTATES CO. LTD. VS. CIT [197 ITR 528 (KER) AND C.I.T. VS. UNITED BREWERIES LTD. [321 ITR 546 (KARN)]. 6. WE HAVE HEARD THE PARTIES AND PERUSED THE MATE RIAL PLACED ON RECORD. WE DECLINE TO ACCEPT THE LEARNED COUNSELS SUBMISSION THAT THE TRIBUNAL SET ASIDE THE ORDER OF LD. C.I.T.(A) ONLY ON THE LIMITED ISSUE OF ASSES SEES LETTER DATED 07/7/2006 ADDRESSED TO THE PRINCIPAL SECRETARY, GOVT. OF WEST BENGAL. T HE TRIBUNAL VIDE PARA-18 OF THE ORDER DATED 31/7/2008 HAS SET ASIDE THE ENTIRE ISSUE AGIT ATED IN GROUND NO.2 OF THE REVENUES APPEAL TO THE FILE OF LD. C.I.T.(A) FOR FRESH ADJUD ICATION AFTER OBTAINING THE REMAND REPORT FROM THE A.O. THEREFORE, IN OUR CONSIDERED OPINION , THE LD. C.I.T.(A) WAS JUSTIFIED IN CONSIDERING AFRESH THE ENTIRE ISSUE RAISED IN GROUN D NO.2 OF THE REVENUES APPEAL. 7. NOW COMING TO THE MERIT OF THE CASE, THE FACTS AS FOUND FROM THE RECORDS ARE THAT THE ASSESSEE ENTERED INTO AN AGREEMENT WITH TIL AND PAID AN ADVANCE OF RS.18,23,750/- FOR ASSEMBLING AND MARKETING OF ELECTRONIC CHRONOME TERS WHICH WERE IMPORTED. TIL ALSO MADE ANOTHER AGREEMENT WITH ONE TOTAL CIRCUIT TECHNOLOGY P. LTD., BANGALORE FOR ASSEMBLING THE SAME. BECAUSE OF THE FAILURE OF THE BANGALORE COMPANY, TIL ALSO FAILED TO KEEP THE COMMITMENT AS PER THE AGREEMENT. THERE AFTER TIL HAD GONE INTO LIQUIDATION AND, ACCORDING TO THE ASSESSEE, AS THERE WAS NO SCO PE OF RECOVERY OF THE AMOUNT, IT WROTE OFF THE SAID ADVANCE AND CLAIMED THE SAME AS TRADI NG LOSS. AS REGARDS THE ADVANCE TO CICICO LTD., THE FACTS ARE THAT AN AMOUNT OF RS.22, 77,120/- WAS ADVANCED TO CICICO LTD. FOR SUPPLY OF DIFFERENT STATIONERY/GRANITE ITE MS, WHICH WERE NOT SUPPLIED BY THIS COMPANY. ALTHOUGH RECOVERY PROCEEDING WAS STARTED, BUT THE AMOUNT ADVANCED COULD NOT BE RECOVERED AS THE SAID COMPANY BECAME SICK AN D FINALLY WENT INTO LIQUIDATION. ACCORDINGLY, THE ASSESSEE WROTE OFF THE SAID AMOUNT AS TRADING LOSS. THE A.O. DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE SAME DID NOT COMPLY WITH THE PROVISIONS OF SEC. 36(2) OF THE ACT. THE LD. C .I.T.(A) IN SET ASIDE PROCEEDINGS ALLOWED THE CLAIM OF THE ASSESSEE AND THE RELEVANT PORTION OF HIS OBSERVATION HAS BEEN REPRODUCED IN PARA-3 ABOVE. 7.1. AS STATED ABOVE, THE MATTER WAS ORIGINALLY SE T ASIDE TO THE FILE OF LD. C.I.T.(A) BY THE TRIBUNAL TO ADJUDICATE THE SAME AFTER OBTAINING THE REMAND REPORT FROM THE A.O. 5 ACCORDINGLY, THE LD. C.I.T.(A) CALLED FOR REMAND RE PORT FROM THE A.O. THE A.O. IN HIS REMAND REPORT HAS STATED AS UNDER :- (A) AGAINST TELERAMA INDIA LTD . : THE ADVANCES WRITTEN OFF BY THE ASSESSEE COMPA NY FROM THE ACCOUNT OF THIS COMPANY IS TO THE TUNE OF RS. 18,23,750/-. AS PER THE SUBMITTED PAPERS/DOCUMENTS PRODUCED BEFORE ME IT IS SEEN THAT TELERAMA INDIA LTD. WENT INTO LIQUIDATION. THE OFFICIAL LIQUIDATOR, KOL KATA HAS ALSO REFERRED THE CASE TO DEBT RECOVERY TRIBUNAL, KOLKATA. FROM THE PETITION OF THE OFFICIAL LIQUIDATOR, KOLKATA IT IS SEEN THAT DEBTS OF ONLY TWO SECURED C REDITORS, BANKERS AND WORKERS OF THE LIQUIDATED COMPANY ARE RECORDED IN THE RECORDS OF THE OFFICIAL LIQUIDATOR. ASSESSEE COMPANY BEING UNSECURED CREDITOR COULD NOT FIND ANY PLACE IN THE RECORDS OF THE OFFICIAL LIQUIDATOR SO FAR AS THEIR DEBT IS CON CERNED. XEROX COPY OF PETITION FILED BY THE OFFICIAL LIQUIDATOR BEFORE THE HONBLE DEBT RECOVERY TRIBUNAL/KOLKATA IN THE CASE T.A. NO. 86 OF 2001 IS ENCLOSED FOR YOUR KIND PERUSAL PLEASE. (B) AGAINST CICICO (CONTINENTAL COMMERCIAL CO. LTD. : THE ASSESSEE COMPANY WRITTEN OF A SUM OF RS. 22,77,120/- FROM THE ACCOUN T OF THIS COMPANY. SHRI DUTTA PRODUCED A XEROX COPY OF LETTER BEARING NO. 1534/1B /525/G DATED 20 APR 06 OF OFFICIAL LIQUIDATOR. FROM THIS LETTER IT TRANSPIRES THAT THE ABOVE NAMED COMPANY WENT INTO LIQUIDATION. XEROX COPY OF THE ABOVE LETTER OF THE O.L./KOLKATA IS ENCLOSED FOR YOUR KIND PERUSAL PLEASE . FROM THE ABOVE REPORT OF THE A.O., IT IS SEEN THAT THE A.O. HIMSELF HAS ADMITTED THAT THE AFORESAID TWO COMPANIES, TO WHOM THE ASSESSEE MADE ADVANCES, HAD GONE INTO LIQUIDATION AND FURTHER IN THE RECORDS OF THE OFFICIAL LIQUIDAT OR IN THE CASE OF TIL, ASSESSEE-COMPANY BEING UNSECURED CREDITOR COULD NOT FIND ANY PLACE F OR REPAYMENT OF ITS DEBT. IN VIEW OF THE ABOVE, IN OUR CONSIDERED OPINION, ONCE THERE IS NO DISPUTE ABOUT THE STATUS OF THE COMPANIES WHO BEING SICK COMPANIES HAVE GONE INTO LIQUIDATION AND THE ASSESSEE ADMITTEDLY COULD NOT REALIZE ITS ADVANCES MADE TO THEM FOR PERFORMING IT S BUSINESS ACTIVITIES, NO DISALLOWANCE OF SUCH LOSS IS WARRANTED. WE, THEREFORE, UPHOLD THE O RDER OF THE LD. C.I.T.(A) ON THIS ISSUE. 7.2. IN REGARD TO THE OTHER DISALLOWANCE MADE BY T HE A.O. ON ACCOUNT OF BUSINESS ADVANCE OF RS.5,00,000/- PAID TO LILY BISCUIT CO. L TD., THE LD. C.I.T.(A) CALLED FOR REMAND REPORT FROM THE A.O. AND THE A.O. REPORTED AS UNDER :- C. SECURITY DEPOSITS WITH PARTIES UNDER THIS HEAD THE ASSESSEE COMPANY WRITTEN OFF AN AMOUNT OF RS.7,86.800/- BEING PAID AS SECURITY DEPOSITS TO THE FOLLOWING PASTIES: (A) TO LILY BISCUITS CO. PVT. LTD. RS. 5,00,000 /- (B) TO DEBASHREE EXPORT & HOLDING PVT. LTD. RS. 1 ,50,000/- (C) TO G. KHANAN RS. 1,36,800 /- TOTAL RS. 7,86,800 /- 6 NO DOCUMENTARY EVIDENCES COULD HE FURNISHED BY THE ASSESSEE COMPANY IN CONNECTION WITH THEIR REALIZATION PROCEEDINGS IN RESPECT OF TH E PARTIES MENTIONED AT SL. (B) AND (C) ABOVE. SO FAR AS LILY BISCUITS CO. PVT. LTD. IS CON CERNED, SHRI DUTTA PRODUCED A LETTER WRITTEN BY THEM TO THE PRINCIPAL SECRETARY, GOVT. O F WEST BENGAL, DEPARTMENT OF PUBLIC ENTERPRISE & INDUSTRIAL RECONSTRUCTION DATED 07 JUL 06. XEROX COPY OF THIS LETTER IS ENCLOSED. IT TRANSPIRES FROM THIS LETTER THAT THE ASSESSEE COMPANY TILL 07 JUL 06 WAS NOT ABLE TO COLLECT SECURITY DEPOSIT OF RS. 5.0 0 LAKH THOUGH THE SAME WAS WRITTEN OFF IN THE F.Y. 2003-04. FROM THE ABOVE REMAND REPORT, IT IS EVIDENT THAT AS INTIMATED BY THE PRINCIPAL SECRETARY, GOVT. OF WEST BENGAL, DEPARTMENT OF PUBLIC ENTERPRI SE &. INDUSTRIAL RECONSTRUCTION DATED 07/06/2006, THE ASSESSEE COMPANY WAS NOT ABLE TO RE ALIZE THE ADVANCE PAID TO LILY BISCUIT CO. LTD. TILL 07/7/2006 AND THE SAID ADVANCE WAS WR ITTEN OFF IN THE FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. THEREFORE, IT IS ESTABLISHED THAT THE ASSESSEE COULD NOT REALIZE THE SECURITY ADVANCE OF RS. 5 LAKHS PAID TO M/S. LILY BISCUIT CO. LTD. FOR THE SALE OF THEIR PRODUCTS AND IN THIS VIEW OF THE MATTER, WE F IND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. C.I.T.(A) IN ALLOWING THE TRADING LOSS CLAI MED BY THE ASSESSEE IN THIS RESPECT. THE ORDER OF THE LD. C.I.T.(A) ON THIS ISSUE IS ALSO UP HELD. 8. BEFORE PARTING, IT IS PERTINENT TO MENTION HERE THAT THE DEPARTMENT IN ITS FIRST GROUND OF APPEAL HAS STATED THAT THE ADVANCES TO PARTIES C ANNOT BE ALLOWED AS BAD DEBT U/S. 36(2)((I). HOWEVER, IN THE SECOND GROUND THE DEPARTMENT HAS OB JECTED TO THE SAME AMOUNT OF DEDUCTION AS BUSINESS LOSS. HOWEVER, UPON CONSIDER ING THE FACTS AND CIRCUMSTANCES OF THE CASE, GROUNDS RAISED BY THE ASSESSEE BEFORE THE FIR ST APPELLATE AUTHORITY, ORDER OF LD. C.I.T.(A) AND SUBMISSIONS MADE ON BEHALF OF THE ASS ESSEE, IT IS FOUND THAT THE DISPUTE CENTRES AROUND ABOUT ALLOWABILITY OF TRADING LOSS C LAIMED TO HAVE BEEN INCURRED BY THE ASSESSEE DURING ITS BUSINESS ACTIVITIES, WHICH WE H AVE DEALT WITH ABOVE. THE LD. DEPARTMENTAL REPRESENTATIVE HAS CITED TWO DECISIONS , REFERRED TO ABOVE, WHICH ARE IN RELATION TO BAD DEBT. EVEN OTHERWISE ALSO, THE CAS E LAWS CITED BY THE LD. D.R. WILL NOT SUPPORT HER STAND. IN THE CASE OF TRANVANCORE TEA E STATES CO. LTD. VS. CIT (SUPRA), IT HAS BEEN HELD THAT THE DEBT MAY BECOME BAD WHEN IT IS PROVED TO BE IRR ECOVERABLE ON ACCOUNT OF THE FACT THAT THE DEBTOR IS IN A BAD FINANCIAL P OSITION OR THAT IT HAD BECOME IRRECOVERABLE. IN THE CASE OF THE ASSESSEE, IT IS PROVED BY THE REMAND REPORT OF THE A.O. THAT M/S. TIL AND M/S. CICICO BECAME SICK AND THUS WENT INTO LIQUIDATION, RESULTING IN NON-RECOVERY OF THE ADVANCES MADE BY THE ASSESSEE A ND SECURITY ADVANCE MADE TO M/S. LILY BISCUIT CO. LTD. ALSO COULD NOT BE REALIZED BY THE ASSESSEE TILL 7 TH JULY, 2006 THOUGH THE 7 SAME WAS WRITTEN OFF IN THE YEAR UNDER CONSIDERATIO N. THE OTHER CASE RELIED UPON BY THE LD. D.R. WAS CIT VS. UNITED BREWERIES LTD. (SUPRA), WHI CH ALSO DEALS WITH NON-RECOVERY OF AMOUNTS PAID AS GUARANTOR OF LOANS TO SUBSIDIARY OF THE ASSESSEE AND LOSS OF AMOUNTS ADVANCED FOR PURCHASE OF SHARES, WHEREIN IT HAS BEE N HELD AS UNDER :- THE ABSENCE OF ANY EVIDENCE TO SHOW THAT THE ASSESS EE HAD INCURRED A DEBT IN MAKING ADVANCES TO ITS BUSINESS ASSOCIATES OR THAT THE AMOUNTS HAD BECOME IRRECOVERABLE FOR ANY REASON IN SPITE OF THE EFFORT S PUT IN BY THE ASSESSEE FOR RECOVERY THEREOF, CLAIM FOR WRITE OFF OF THE SAID A MOUNTS IN TERMS OF S. 36(1)(VII) IS NOT ALLOWABLE; AMOUNT ADVANCED TOWARDS ISSUE OF SHA RES IN FUTURE, IS A CAPITAL EXPENDITURE AND NOT REVENUE EXPENDITURE AND, THEREF ORE, THE SAME AMOUNT, EVEN IF IRRECOVERABLE, IS NOT ALLOWABLE AS DEDUCTION EITHER UNDER S. 36(1)(VI) OR S. 37. IN THE CASE OF THE ASSESSEE, THE ADVANCES, WHICH RE MAINED UNREALIZED, WERE NOT IN THE NATURE OF CAPITAL EXPENDITURE FOR ACQUIRING ANY ASSET. THE REFORE, THE ABOVE DECISION IS DISTINGUISHABLE TO THE FACTS OF THE ASSESSEES CASE . 9. IT IS FURTHER OBSERVED THAT THE LD. C.I.T.(A) H AS RIGHTLY ALLOWED THE DEDUCTION OF TRADING/BUSINESS LOSS CLAIMED BY THE ASSESSEE, WHIC H IS IN THE LIGHT OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RAMCHANDAR SHI VANARAYAN VS. CIT [111 ITR 263 (SC)], WHEREIN THEIR LORDSHIPS OF HONBLE SUPREME C OURT HAVE HELD AS UNDER :- IN TERMS NO SPECIFIC PROVISION IS TO BE FOUND IN EI THER OF THE TWO ACTS FOR ALLOWING DEDUCTION OF A TRADING LOSS OF THE KIND DEALT WITH IN THIS CASE. BUT IT HAS BEEN UNIFORMLY LAID DOWN THAT A TRADING LOSS NOT BEING A CAPITAL L OSS HAS GOT TO BE TAKEN INTO ACCOUNT WHILE ARRIVING AT THE TRUE FIGURES OF THE ASSESSEE S INCOME IN THE COMMERCIAL SENSE. THE LIST OF PERMISSIBLE DEDUCTIONS IN EITHER OF THE ACT S IS NOT EXHAUSTIVE. THE CASES HAVE LAID DOWN THAT BY THEFT OR DACOITY A LOSS IS A TRADING L OSS IN THE COMMERCIAL SENSE AND HAS GOT TO BE TAKEN INTO ACCOUNT FOR ASCERTAINMENT OF T RUE TAXABLE PROFITS. IF THERE IS A DIRECT AND PROXIMATE NEXUS BETWEEN THE BUSINESS OPERATION AND THE LOSS OR IT IS INCIDENTAL TO IT, THEN THE LOSS IS DEDUCTIBLE, AS, WITHOUT THE BUSINE SS OPERATION AND DOING ALL THAT IS INCIDENTAL TO IT, NO PROFIT CAN BE EARNED. IT IS IN THAT SENSE THAT FROM A COMMERCIAL STANDARD SUCH A LOSS IS CONSIDERED TO BE A TRADING ONE AND BECOMES DEDUCTIBLE FROM THE TOTAL INCOME ALTHOUGH, IN TERMS NEITHER IN THE 1922 ACT NOR IN THE 1961 ACT, THERE IS A PROVISION. THE DIRECT AND PROXIMATE CONNECTION AND NEXUS MUST BE BETWEEN THE BUSINESS OPERATION AND THE LOSS . [EMPHASIS SUPPLIED] AS STATED ABOVE, THE ADVANCES MADE BY THE ASSESSEE WERE IN CONNECTION WITH ITS BUSINESS ACTIVITIES AND, THEREFORE, THERE WAS A DIRECT AND P ROXIMATE NEXUS BETWEEN THE BUSINESS OPERATION AND THE LOSS INCURRED FOR NON-REALIZATION OF THE SAID ADVANCES. THE LOSS, THEREFORE, 8 BEING INCIDENTAL TO ASSESSEES BUSINESS, IS THUS RE QUIRED TO BE TAKEN INTO CONSIDERATION WHILE COMPUTING THE TRUE FIGURES OF THE ASSESSEES INCOME IN COMMERCIAL SENSE. 10. IN THE RESULT, THE REVENUES APPEAL IS DISMISS ED. 4 !3 '5! 6 5% 7 48 THIS ORDER IS PRONOUNCED IN OPEN COURT ON 27.08.2010. SD/- SD/- ( . . . . . . . . ) ( . .. . . .. . ) !' (B.R.MITTAL) , JUDICIAL MEMBER (C.D.RAO) , ACCOUNTANT MEMBER ( (( ( ' ' ' ') )) ) DATE: 27-08-2010 !3 1 /$$9 :!9';- COPY OF THE ORDER FORWARDED TO : 1. +, / THE APPELLANT : I.T.O., WARD-12(2), KOLKATA. 2 /0+, / THE RESPONDENT : M/S. PEERLESS DEVELOPERS LTD., 9/3 , EKDALIA PLACE, KOL-19 3. $3% () : THE CIT(A)-XII, KOLKATA. 4. $3%/ THE CIT, KOL- 4. @$7 /$% / DR, ITAT, KOLKATA BENCHES, KOLKATA 5. GUARD FILE . 09 /$/ TRUE COPY, !3%5/ BY ORDER, (DKP) B C / DEPUTY REGISTRAR .