ACIT, CHENNAI V. M/s. Yubo Investment Co.Pvt.Ltd., CHENNAI

ITA 807/CHNY/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61331 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-07-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 12-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VI KRAMADITYA
• Assessee Lawyers: M KARUNAKARAN
• Keywords: Bad and doubtful debts; Capital expenditure
• Section: 143(3); 37; 28

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL B BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 807/MDS/2012 ASSESSMENT YEAR : 2005 - 06 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE, III(3), CHENNAI 600 034. VS. M/S. YUBO INVESTMENT CO. PVT. LTD., FLAT D, ABM MANOR, 3 RD FLOOR, NO. 66, OLD NO. 12, ARCH BISHOP MATHIAS AVENUE, CHENNAI 28. [PAN: AAACY0158L] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIKRAMADITYA, JCIT, SR. DR RESPONDENT BY : SHRI M. KARUNAKARAN, ADVOCATE DATE OF HEARING : 20.06.2012 DATE OF PRONOUNCEMENT : 20.07.2012 ORDER PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) III, CHENNAI I N ITA NO. 489/07- 08/A.III FOR THE ASSESSMENT YEAR 2005-06. SHRI VIKR AMADITYA, JCIT SR. DR REPRESENTED ON BEHALF OF THE REVENUE AND SHRI M. KA RUNAKARAN, ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE. 2. THE ONLY ISSUE IN THE GROUNDS OF APPEAL OF THE REVENUE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE DISALLOWANCE OF TRADE ADVANCE WRITTEN OFF. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.807 807807 807/M/ /M/ /M/ /M/12 1212 12 2 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF DEVELOPMENT OF PROPERTY. FOR THE AS SESSMENT YEAR 2005-06, THE ASSESSEE FILED ITS RETURN OF INCOME ON 12.10.20 05 DECLARING INCOME OF ` .8,00,467/-. THE ASSESSMENT WAS COMPLETED UNDER SEC TION 143(3) OF THE ACT ON 25.12.2007 DETERMINING THE TOTAL INCOME AT ` .62,90,650/-. WHILE DOING SO, THE ASSESSING OFFICER MADE AN ADDITION OF ` . 54,90,185/- REPRESENTING THE TRADE ADVANCES WRITTEN OFF ON THE GROUND THAT THE A SSESSEE HAS NOT TAKEN STEPS TO RECOVER THE MONEY WRITTEN OFF AND THE SAID ADVANCE WAS NOT CONSIDERED AS INCOME BY THE ASSESSEE EARLIER. 4. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEA LS) DELETED THE ADDITION HOLDING THAT THE WRITE OFF IS ALLOWABLE AS BUSINESS LOSS UNDER SECTION 28(1) BEING A GENUINE BUSINESS LOSS. WHILE COMING T O THIS CONCLUSION, THE COMMISSIONER OF INCOME TAX (APPEALS) TOOK INTO CONS IDERATION VARIOUS DECISIONS OF THE HONBLE SUPREME COURT AND THE HIGH COURTS AND HELD AS UNDER: 4.2 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS OF THE LD. AR. I HAVE ALSO GONE THROUGH THE DECISIONS RELIED ON BY THE LD. AR. THE APPELLANT IS ENGAGED IN THE BUSINESS OF PROPERTY DE VELOPMENT. IT HAD ADVANCED ` .50,00,000/- AND ` .4,60,000/- ON 24.04.1995 AND 18.07.1995 RESPECTIVELY TO M/S. MANTRI HOUSING & CONSTRUCTIONS CO. P. LTD. FOR CARRYING OUT A JOINT VENTURE PROJECT AT PUNE. HENCE, THE ADV ANCE MADE BY THE APPELLANT RELATES TO THE BUSINESS OF THE APPELLANT. IT HAS NOT BEEN ABLE TO RECOVER THE ADVANCE EVEN AFTER NEARLY 10 YEARS. M/S . MANTRI HOUSING & CONSTRUCTION CO. P. LTD. HAS ALSO MADE REFERENCE TO BIFR UNDER UNDER SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT AND T HE CASE HAS BEEN REGISTERED IN 2004. HENCE, THE WRITE OFF IS ALLOWAB LE AS BUSINESS LOSS U/S 28(1) BEING A GENUINE BUSINESS LOSS. THE HONBLE SU PREME COURT IN THE CASE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.807 807807 807/M/ /M/ /M/ /M/12 1212 12 3 OF CIT V. WOOD WARD GOVERNORS INDIA PVT. LTD. 179 T AXMAN 326 (SC) HELD THAT THE EXPRESSION EXPENDITURE AS USED IN SEC.37 MAY, IN CIRCUMSTANCES OF PARTICULARS CASE, COVER AN AMOUNT WHICH IS REALLY A LOSS, EVEN THOUGH SAID AMOUNT HAS NOT GONE OUT FROM POCKET OF THE ASSESSEE . THE HONBLE SUPREME COURT IN THE CASE OF BADRIDAS DAGA V. CIT (34 ITR 1 0) CALCUTTA CO. LTD. V. CIT (37 ITR 1) HAS HELD THAT THE PROFIT TO BE A SS E SSE D A R E TH E R E A L P R O FI T S A ND T H EY MUST B E AS C ERTAIN E D ON O RD I N A RY P R IN C IP L E S O F COMMERC I AL TR A DING AND COM M E R C IAL A C C O UN T ING . TH E P R O FIT S H O ULD B E CO M P UT E D AF T ER D EDU C T I NG LO S S ES A N D E XP E NDITU RE INCU R R E D F O R THE PU R P O SE S O F BU S INE SS U N L ES S SU CH LOS S E S O R E X P E NDI T U R E ARE EX PRES S L Y , O R B Y N ECES SA R Y IMP L I C AT I ON , DI S ALL OW E D B Y THE A CT. TH E I D.AR H AS A L SO R E LI E D ON TH E D ECIS I ON O F TH E H O N'BL E S UPR E M E CO URT IN TH E C A S E O F T R F LT D (S UPR A) W H E R E IT WAS H E L D TH AT D E BT N EED NOT B E PR OV E D T O B E I RRECO VE RAB L E AN D I T I S S U F FI C I EN T IF TH EY AR E W R I TT EN O FF . THE D E C I S I ON RE L I E D O N B Y T H E APPELLANT IN THE CASE OF MOHAN MEAKIN LTD. (SUPRA) AND SRI T. PITAMBER (SUPRA) ALSO SUPPORT THE CLAIM OF THE APPELLANT. IN VIEW OF THE ABOVE FACTS AND PRECEDENTS, THE ADDITION IS DELETED AND THE GROUND IS ALLOWED. 5. AGAINST THIS ORDER OF THE COMMISSIONER OF INCOM E TAX (APPEALS), THE REVENUE IS IN APPEAL BEFORE US. 6. THE COUNSEL FOR THE REVENUE SUBMITS THAT THE ASS ESSEE ADVANCED ` .54.67 LAKHS TO MANTRI HOUSING CONSTRUCTIONS CO. LT D. DURING THE ASSESSMENT YEAR 1995-96 FOR UNDERTAKING A CONSTRUCT ION PROJECT AND THIS AMOUNT IS WRITTEN OFF IN THE ASSESSMENT YEAR 2005-0 6 WITHOUT TAKING ANY STEPS FOR RECOVERY. COUNSEL SUBMITS THAT THIS AMOUN T WAS ALSO NOT OFFERED AS INCOME IN ANY OF THE EARLIER YEARS AND THEREFORE, I T CANNOT BE ALLOWED AS DEDUCTION UNDER SECTION 36 AS BAD DEBTS. THEREFORE, HE SUPPORTED THE ORDER OF THE ASSESSING OFFICER IN DISALLOWING THE CLAIM O F THE ASSESSEE. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.807 807807 807/M/ /M/ /M/ /M/12 1212 12 4 7. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT A SUM OF ` .54.67 LAKHS WAS ADVANCED TO MANTRI HOUSING CONSTRUCTION CO. LTD. DU RING THE YEAR 1995-96 FOR UNDERTAKING A CONSTRUCTION PROJECT IN PUNE CANT ONMENT ROAD, BUT IN OCTOBER, 1997, THE ASSESSEE CAME TO KNOW THAT ON AC COUNT OF SEVERAL PROBLEMS LIKE ECONOMIC RECESSION, ADVERSE MARKET CO NDITIONS, PROBLEMS IN EVICTING THE TENANTS, ETC., THE PROJECT COULD NOT T AKE OFF AND WAS ULTIMATELY GIVEN UP. SINCE THEN, THE ASSESSEE HAS BEEN TAKING EFFORTS FOR RECOVERING THE ADVANCES FROM MANTRI HOUSING CONSTRUCTION CO. LTD., BUT FAILED. THEREAFTER, IN THE YEAR 2003-04, THE ASSESSEE CAME TO KNOW THAT MANTRI HOUSING CORPORATION CO. LTD HAD VANISHED AND ITS DIRECTORS WERE NOT TRACEABLE. IN SUCH CIRCUMSTANCES, THE ASSESSEE HAD TO DECIDE TO W RITE OFF THE AMOUNT AS IRRECOVERABLE AND THEREFORE IN THE ASSESSMENT YEAR 2005-06, THE ASSESSEE HAD WRITTEN OFF THE SAID ADVANCE OF ` .54.67 LAKHS AS IRRECOVERABLE IN ITS BOOKS OF ACCOUNT AND CLAIMED AS DEDUCTION. THE ASSE SSEES COUNSEL SUBMITS THAT THE SAID ADVANCE WAS GIVEN IN THE COUR SE OF ITS BUSINESS OF DEVELOPMENT OF PROPERTIES AND THE SAID ADVANCE WAS WRITTEN OFF AS BUSINESS LOSS SINCE IT COULD NOT RECOVER THE SAID ADVANCE. T HE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE TRADE ADVANCE GIVEN, WHIC H WAS WRITTEN OFF AS IRRECOVERABLE CANNOT BE DISALLOWED SIMPLY BECAUSE T HE ASSESSEE HAD NOT TAKEN LEGAL STEPS FOR RECOVERY OF SUCH AMOUNT. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT WHEN THE COMPANY HAD VANISHED AND THE DIRECTORS ARE NOT TRACEABLE, THE ASSESSEE CANNOT SPEND GOOD MONEY FOR RECOVERING THE BAD I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.807 807807 807/M/ /M/ /M/ /M/12 1212 12 5 MONEY, WHICH WAS ALREADY LOST. THE COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ADVANCES WRITTEN OFF AS IRRECOVERABLE SHOULD BE ALLOWED AS DEDUCTION UNDER SECTION 28 READ WITH SECTION 37 OF THE ACT. T HE COUNSEL FOR THE ASSESSEE RELIED ON THE DECISION IN THE CASE OF MOHA N MEAKIN LTD. VS. CIT IN ITA NO. 405/2007 DATED 11.05.2011 AND THE DECISION OF MUMBAI BENCH OF ITAT IN THE CASE OF DCIT VS. SHRI T. PITHAMBAR, PRO PRIETOR IN ITA NOS. 868 AND 869/MUM./2010 DATED 22.07.2011 IN SUPPORT OF TH E ABOVE CONTENTION. 8. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD, ORDERS OF LOWER AUTHORITIES AND CASE LAW RELIED ON BY THE ASSESSEE. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAS ADVANCED THE SAID AMOUNT OF ` .54.67 LAKHS TO MANTRI HOUSING CONSTRUCTION CO. LTD. IN THE COUR SE OF ITS BUSINESS AND IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE HAD WRITTEN O FF THE SAID AMOUNT IN ITS BOOKS OF ACCOUNT. THE ONLY OBJECTION OF THE ASSESSI NG OFFICER FOR NOT ALLOWING THE ADVANCES WRITTEN OFF WAS THE ASSESSEE HAS NOT TAKEN ANY LEGAL STEPS FOR RECOVERING THE AMOUNT AND NOT CONSIDERED AS INCOME BY THE ASSESSEE AND THE DEBTS IS NOT IN THE NATURE OF REVE NUE. IN OUR VIEW, IF THERE IS NO DISPUTE WITH REGARD TO WRITE OFF OF TRADE ADV ANCES IN THE BOOKS OF ACCOUNT, THE SAME CANNOT BE DISALLOWED ON THE GROUN D THAT LEGAL STEPS WERE NOT INITIATED FOR RECOVERY OF SUCH ADVANCES. FURTHE R, THE ASSESSEE IS NOT CLAIMING THE SAID ADVANCE WRITTEN OFF AS BAD DEBT. THEREFORE, SATISFYING THE CONDITION OF OFFERING SUCH ADVANCE AS INCOME IN EAR LIER YEARS WILL NOT ARISE. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.807 807807 807/M/ /M/ /M/ /M/12 1212 12 6 THE MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF DC IT VS. SHRI T. PITAMBER, PROPRIETOR IN ITA NOS. 868 & 869/MUM./2010 DATED 22 .07.2011, CONSIDERED AN IDENTICAL ISSUE AND HELD AS UNDER: 10. RIVAL CONTENTIONS HEARD. ON A CAREFUL CONSIDE RATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD, AS WELL AS THE CASE LAWS CITED BEFORE US, WE HOLD AS FOLLOWS:- I) THE POINTS HAVE BEEN SUMMARISED AT PAGE-8 OF THE COMMISSIONER (APPEALS)S ORDER, WHICH ARE EXTRACTED BELOW FOR RE ADY REFERENCE:- I) THE ADVANCES ARE MADE IN HIS EARLIER ASSESSMEN T YEARS, TOWARDS PURCHASE OF MATERIAL, AEPC QUOTA, ADVANCE GIVEN TO HIS EMPLOYER, EXPENDITURE INCURRED TOWARDS TECHNOLOGY UP-GRADATIO N AND PROCESSING OF FABRICS FOR EXPORTS, ETC. II) THE EXPENSES OR ADVANCES GIVEN IN HIS EARLIER YEARS ARE DULY DISCLOSED IN HIS RESPECTIVE RETURNS OF INCOME FILED . III) THERE IS DIRECT AND PROXIMATE NEXUS BETWEEN T HE BUSINESS OPERATION AND THE LOSS OR IN OTHER WORDS, THE LOSS CLAIMED IS DIRECTLY INCIDENTAL TO HIS BUSINESS OPERATIONS, AND (IV) LOSS CLAIMED IS ON ACCOUNT OF WRITE-OFF OF ADV ANCES MADE AS DISCUSSED ABOVE, IN HIS BOOKS OF ACCOUNT FOR THE RE LEVANT ASSESSMENT YEAR. II) THE COMMISSIONER (APPEALS) HAS GIVEN A FACTUAL FINDING THAT THE LOSS IN QUESTION DIRECTLY RELATES TO THE BUSINESS OPERAT IONS. HE OBSERVED THAT REIMBURSEMENT OF EXPENDITURE INCURRED AT BANGALORE IN CONNECTION WITH PURCHASE OF TECHNOLOGY FROM SUNSOFT TECHNOLOGIES P. LTD. IS DIRECTLY CONNECTED TO PURCHASE OF MATERIAL OR FOR PROCESSING OF MATERIAL REQUIRED FOR EXPORT BUSINESS AND IS IN REVENUE FIELD AS NO CAPIT AL ASSET WAS ACQUIRED. AT PARA-4.3.4, THE COMMISSIONER (APPEALS) HELD AS FOLL OWS:- 4.3.4 THEREFORE, DUE TO THE AFORESAID DISCUSSIO N AND PARTICULARLY IN VIEW OF THE FACT THAT LOSS INCURRED IS DIRECTLY REL ATED TO HIS BUSINESS OPERATION, I FIND THAT EXCEPT IN CASE OF LOSS INCUR RED DUE TO LOAN GIVEN TO HIS EMPLOYEE OF ` . 5,000, AND REIMBURSEMENT OF EXPENSES CLAIMED FOR ` .42,894, REST OF THE LOSS IS ALLOWABLE AS DEDUCTION UNDER SECTION 28(1) OF THE ACT BEING A GENUINE BUSINESS LOSS. IN THE CASE OF A.W. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.807 807807 807/M/ /M/ /M/ /M/12 1212 12 7 FIGGIS & CO. LTD. V/S CIT, 254 ITR 63 (CAL.), THE H ONBLE CALCUTTA HIGH COURT HAS HELD THAT AMOUNT ADVANCED IN THE COU RSE OF BUSINESS IF NOT RECOVERABLE DUE TO BREACH OF AGREEMENT BY THE D EBTOR AND THE LOAN ADVANCED WAS NOT LIKELY TO BE RECOVERED IN SPITE OF FILING OF A CIVIL SUIT, IS ALLOWABLE AS BAD DEBT. THE HON'BLE SUPREME COURT IN THE CASE OF CIT V/S NAINITAL BANK LTD., 55 ITR 707 (SC) HAS HEL D THAT UNDER SECTION 28, THE TRADING LOSS OF A BUSINESS IS DEDUC TIBLE IN COMPUTING THE PROFITS EARNED BY A BUSINESS. HOWEVER, EVERY LO SS IS NOT DEDUCTIBLE UNLESS IT IS INCURRED IN CARRYING OUT THE OPERATIO N OF THE BUSINESS AND IS INCIDENTAL TO THE OPERATION. WHETHER LOSS IS INCIDENTAL TO THE OPERATION OF A BUSINESS OR NOT, IS A QUESTION OF FA CT TO BE DECIDED ON FACTS OF EACH CASE, HAVING REGARD TO THE NATURE OF THE OPERATION CARRIED ON AND THE NATURE OF RISK INVOLVED IN CARRY ING THEM OUT. THE DEGREE OF THE RISK OR ITS FREQUENCY IS NOT MUCH REL EVANT BUT ITS NEXUS TO THE NATURE OF THE BUSINESS IS MATERIAL. AGAIN, THE HONBLE APEX COURT IN THE CASE OF RAMCHANDER SHIV NARAYAN V/S CIT, 111 ITR 263 (SC) HAS HELD THAT LOSS IS DEDUCTIBLE WHERE THERE IS A D IRECT AND PROXIMATE NEXUS BETWEEN THE OPERATION AND THE LOSS OR WHERE T HE LOSS IS INCIDENTAL TO IT, AS, WITHOUT THE BUSINESS OPERATIO N AND DOING ALL THAT IS INCIDENTAL TO IT, NO PROFIT CAN BE EARNED. III) WE DO NOT FIND ANY INFIRMITY IN THE AFORESAID FINDINGS OF THE COMMISSIONER (APPEALS). HON'BLE JURISDICTIONAL HIGH COURT IN I.B.M. WORLD TRADE CORPORATION (SUPRA) HELD THAT WHERE THE ASSES SEE ADVANCED MONEY TO A LANDLORD FOR CONSTRUCTION OF FACTORY SHED AS WELL A S THE RESIDENTIAL PLANT, FOR LEASING THEM TO THE ASSESSEE AND THE LANDLORD BECAM E INSOLVENT MAKING THE AMOUNTS IRRECOVERABLE, IT WAS HELD THAT THE ASSESSE E WAS ENTITLED TO A DEDUCTION BY WAY OF BUSINESS LOSS. ON THE ASSUMPTIO N OF THE ASSESSING OFFICER THAT LEGAL PROCEEDINGS SHOULD BE LAUNCHED FOR RECOV ERY OF ADVANCE SO AS TO CLAIM BUSINESS LOSS, WE HOLD THAT THERE IS NO SUCH REQUIREMENT. HONBLE CALCUTTA HIGH COURT IN A.W. FIGGIS & CO. (SUPRA) HE LD THAT IF THE ASSESSEE KNEW THAT FILING A SUIT WOULD NOT HELP RECOVERY OF AN AMOUNT BUT ONLY ADDS TO THE FINANCIAL EXPENDITURE TO THE ASSESSEE, IT WOULD NOT BE NECESSARY TO FILE A CIVIL SUIT TO ENABLE ALLOWABILITY OF CLAIM UNDER BU SINESS LOSS. IT IS ALSO WELL SETTLED THAT THE REVENUE CANNOT INSIST ON DEMONSTRA TIVE PROOF OF THE FACT WHICH MUST SATISFY THE TEST OF INFALLIBILITY. THE H ONEST JUDGMENT ON THE PART OF THE ASSESSEE AT THE TIME OF MAKING WRITE-OFF SHOULD BE GIVEN DUE WEIGHTAGE. HON'BLE JURISDICTIONAL HIGH COURT IN JETHABHAI HIRJ I & JETHABHAI RAMDAS (SUPRA) REFERRED TO ANOTHER JUDGMENT OF DIVISION BE NCH OF HON'BLE JURISDICTIONAL HIGH COURT, WHEREIN IT WAS HELD AS F OLLOWS:- WHEN A BUSINESSMAN WRITES OFF AN AMOUNT, THERE IS PRIMA FACIE EVIDENCE THAT THAT AMOUNT IS IRRECOVERABLE. UNDOUBT EDLY, THE I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.807 807807 807/M/ /M/ /M/ /M/12 1212 12 8 DEPARTMENT CAN REBUT THE PRIMA FACIE INFERENCE BY D RAWING ATTENTION TO CIRCUMSTANCES OR BY LEADING SOME EVIDENCE TO SUG GEST THAT THE POSITION TAKEN UP BY THE ASSESSEE WAS NOT CORRECT. IN THIS CASE, THERE IS NO EVIDENCE WHATSOEVER ON THE RECORD EXCEPT THE FAC T THAT THE ASSESSEE WROTE OFF THIS AMOUNT IN THE YEAR OF ACCOUNT. IN TH E ABSENCE OF ANY EVIDENCE, WE ARE ENTITLED TO PRESUME THAT THE AMOUN T BECAME IRRECOVERABLE WHEN THE ASSESSEE WROTE IT OFF IN ITS BOOKS OF ACCOUNT. IV) THE TRADE ADVANCE IN QUESTION WAS GIVEN DURING THE COURSE OF BUSINESS AND THE ASSESSEE HAS WRITTEN-OFF THE SAME IN ITS BO OKS OF ACCOUNT DURING THE YEAR. SINCE THE ASSESSEE HAS FILED EVIDENCE BEFORE THE REVENUE AUTHORITIES TO DEMONSTRATE THE FACT THAT THESE ADVANCES HAVE, IN F ACT, BECOME BAD, CONSEQUENTLY, WE DECLINE TO INTERFERE WITH THE FIND INGS OF THE COMMISSIONER (APPEALS) AND HEREBY UPHOLD THE SAME. ACCORDINGLY, REVENUE FAILS ON THIS ISSUE FOR BOTH THE YEARS UNDER ASSESSMENT. 9. THE HONBLE DELHI HIGH COURT IN THE CASE OF MOH AN MEAKIN LTD. (SUPRA) HELD AS UNDER: 10. APPLYING THE PRINCIPLES OF LAW AS REGARD INTER PRETATION OF SECTIONS 28, 29, 36(1)(VII), 36(2) AND SECTION 37 OF THE ACT AS ENUNCIATED BY THE DIVISION BENCH OF J&K HIGH COURT AND THE APEX COURT IN THE A FORE-CITED CASES, WE ARE OF THE CONSIDERED VIEW THAT IT WAS IN THE TOTAL ITY OF OVERALL SITUATION OF THE MATTER THAT THE ASSESSEE DECIDED TO WRITE OFF THE A DVANCES MADE TO M/S.KANPUR BOOT HOUSE AS BAD DEBT. THE REASON AS GI VEN BY THE ASSESSEE WAS APPARENTLY WELL-FOUNDED AND WAS ABRUPTLY REJECT ED BY THE ASSESSING OFFICER AND THE TRIBUNAL. THEY DID NOT APPRECIATE T HE FACT THAT THE CONTINUITY OF SUPPLY WAS ESSENTIAL TO HONOUR THE AGREEMENT WIT H THE CORPORATION AND THAT IT WAS TO CONTINUE THE BUSINESS WITHOUT ANY BR EAK THAT THE ADVANCES WERE MADE TO THE MANUFACTURER, M/S.KANPUR BOOT HOUSE. 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 ST OPPED BY THE ASSESSEE AND CONSEQUENTLY PRODUCTION WAS NECESSARILY REQUIRED TO BE STOPPED. IT IS KNOWN PRACTICE THAT USUALLY MANUFACTURER GIVES ADVANCES T O 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 WHICH WAS LI ABLE TO BE OUTRIGHTLY REJECTED BY THE DEPARTMENT. WHEN THE ASSESSEE HAD W RITTEN OFF THE DUES RECOVERABLE FROM THE CORPORATION AND THE SAME WERE ACCEPTED BY THE DEPARTMENT AND IT HAD ALSO SO WRITTEN OFF, THE ADVA NCES MADE TO M/S.KANPUR BOOT HOUSE IN ITS BOOKS OF ACCOUNTS, WHAT ELSE COUL D BE THE PROOF WITH THE ASSESSEE FOR ITS BEING UNABLE TO RECOVER THE SAME. THE OTHER REASON FOR I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.807 807807 807/M/ /M/ /M/ /M/12 1212 12 9 WRITING OFF WAS THE DEMISE OF THE PROPRIETOR, BHAGW AN DAS, OF M/S.KANPUR BOOT HOUSE AND THE ASSESSEE IN ITS WISDOM DID NOT C HOOSE TO TAKE THE MATTER TO THE COURT APPREHENDING COUNTER CLAIM AND THIS DE CISION OF THE ASSESSEE SEEMS TO BE WELL REASONED. IN ANY CASE, THE REVENUE COULD NOT COMPEL THE ASSESSEE TO HAVE RECOURSE TO LITIGATION TO RECOVER THE AMOUNT AGAINST DEAD PERSON OR HIS LEGAL HEIRS WHEN IN THE GIVEN CIRCUMS TANCES, THE SAME MAY NOT BE RECOVERABLE. THE CIT(A) RIGHTLY RECORDED THAT TH E DEBT HAD BECOME BAD AND NOT RECOVERABLE AND IT WOULD BE A FUTILE EXERCI SE TO TAKE ANY ACTION AGAINST THE LEGAL HEIRS OF THE DECEASED. IN VIEW OF THE DISCUSSION AS MADE BY THE DIVISION BENCH OF J&K HIGH COURT AND THE HON BLE SUPREME COURT, AS QUOTED ABOVE, THAT THE ADVANCES MADE BY THE ASSESSE E IN THE CASE WERE CERTAINLY OF A TYPE WHICH WOULD BE WITHIN THE CONTE MPLATION OF THE WORDS 'LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR TH E 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 THE PRO VISIONS OF SECTION 37 OF THE ACT. 10. THE HONBLE SUPREME COURT IN THE CASE OF CIT V . CIT V. WOODWARD GOVERNOR INDIA P. LTD. [312 ITR 254] HELD THAT THE EXPRESSION ANY EXPENDITURE USED IN SECTION 37 OF THE ACT IS TO CO VER BOTH EXPENSES INCURRED AS WELL AS AN AMOUNT, WHICH IS REALLY A LOSS, EVEN THOUGH SUCH AMOUNT HAS NOT GONE OUT FROM THE POCKET OF THE ASSE SSEE. 11. IN VIEW OF THE ABOVE, WE HOLD THAT THE ADVANCE WRITTEN OFF BY THE ASSESSEE AS IRRECOVERABLE IS ALLOWABLE AS BUSINESS LOSS UNDER SECTION 28 OF THE ACT. THUS, WE SUSTAIN THE ORDER OF THE COMMISSI ONER OF INCOME TAX (APPEALS) IN ALLOWING THE CLAIM OF THE ASSESSEE AND REJECT THE GROUNDS OF APPEAL OF THE REVENUE. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.807 807807 807/M/ /M/ /M/ /M/12 1212 12 10 12 IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED ON FRIDAY, THE 20 TH OF JULY, 2012 AT CHENNAI. SD/ - SD/ - (N.S. SAINI) ACCOUNTANT MEMBER (CHALLA NAGENDRA PRASAD) JUDICIAL MEMBER CHENNAI, DATED, THE 20.07.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.