2014 (2) TMI 513 - AT - Income Tax

Deletion made on account of unadjusted balance of advances written off as business loss. Held that - The assessee had written off the amount - There is no evidence on record to suggest that the amounts were recoverable even when relevant details were available - In the absence of any contrary evidence we have no alternative but to presume that the amount became irrecoverable when the assessee wrote it off in its books of account - The decision inCIT vs. Abdul Razak and Co. 1981 (2) TMI 27 - GUJARAT High Court followed - there was no evidence to suggest that any partner of the debtor firm was related to the partner of the assessee firm held that the loss should be allowed as deduction u/s. 28 of the Act - every loss is not so deductible unless it is incurred in carrying out the operation of the business - the amounts written off were advanced during the course of carrying on of business and sprang directly from the business, the amounts forgone are business loss and are allowable Decided against Revenue.

Summary

Issues:
- Appeal filed by Revenue against CIT(A) order for A.Y. 2007-08
- Addition of Rs. 46,75,000/- as unadjusted balance of advances written off as business loss

Analysis:
1. The appeal was filed by the Revenue against the CIT(A) order for the assessment year 2007-08. The main issue revolved around the addition of Rs. 46,75,000/- as an unadjusted balance of advances written off as a business loss by the Assessee.

2. The Assessee, a company engaged in various business activities, including providing services, filed its return declaring total income. During scrutiny, the Assessing Officer (A.O.) observed the writing off of Rs. 46.75 lakhs as an unadjusted balance of advance against Business Development Expenditure. The Assessee justified this action by explaining the nature of advances given to agents for business development purposes. However, the A.O. disallowed this claim, stating that the advances were not offered to tax in earlier years and did not fulfill the conditions under relevant sections of the Income Tax Act.

3. The CIT(A), considering the Assessee's explanation and relying on the Tribunal's decision in the Assessee's own case for A.Y. 05-06, deleted the addition. The Revenue, aggrieved by this decision, appealed before the ITAT. The ITAT noted that the facts were similar to the preceding year's case and referred to the Tribunal's earlier decision to dismiss the Revenue's appeal. The ITAT found that the written-off amount was directly related to the Assessee's business activities and therefore constituted a business loss.

4. By analyzing the previous Tribunal decisions and considering the nexus between the advances written off and the Assessee's business operations, the ITAT concluded that the amount of Rs. 46.75 lakhs written off as a balance of advance against Business Development Expenditure was a business loss and allowable. The ITAT dismissed the Revenue's appeal, emphasizing the consistency in facts and circumstances with earlier cases.

5. In light of the above analysis, the ITAT upheld the CIT(A)'s decision to delete the addition of Rs. 46,75,000/- as a business loss written off by the Assessee. The appeal filed by the Revenue was dismissed, and the order was pronounced in open court on 07-02-2014.