2015 (10) TMI 1450 - AT - Income Tax

Disallowance of Sundry Balances written off - Held that - We find that the disputed amount was paid to EIPL as an advance for purchasing the raw material; that the assessee did not honour the transaction; that the EIPL refused to return the money. In the circumstances, it cannot be said that it was a bad debt actually it was not a debt at all. It was an advance only, so the assessee cannot get the benefit of Section 36 of the Act. However, the claim made by the assessee about business loss has to be considered because the genuineness of the payment and its relation with the business of the assessee is not denied by any of the authorities. We find that the EIPL had confirmed the order of the AO as he was of the opinion that amount was not written off during the year under appeal. From the paper book filed by the assessee, it is find the amount has been written off in the year under consideration. In these circumstances, we are of the opinion, that in the interest of justice, matter should be restored back to the file of FAA to decide the issue afresh after affording reasonable opportunity of hearing of the assessee. Decided in favour of assessee by way of remand.

Summary

Issues:
1. Disallowance of sum under "Sundry Balances written off"
2. Allowance of additional ground for appeal

Issue 1 - Disallowance of sum under "Sundry Balances written off":
The assessee-company, engaged in manufacturing and trading, filed its income tax return showing total income. The Assessing Officer (AO) completed the assessment and found that the assessee debited an amount under "Sundry Balances Written Off." The AO directed the assessee to justify the claim. Upon examination, the AO found that a significant amount related to an advance made to a Singapore-based company against the purchase of raw material. The AO disallowed a portion of the claimed amount, stating that it was not actually written off during the period. The First Appellate Authority (FAA) also dismissed the appeal, as the assessee failed to prove that efforts were made for recovery and that there was no reasonable expectation for recovery of the advance made. The Appellate Tribunal noted that the disputed amount was an advance and not a bad debt, thus not eligible for deduction under Section 36 of the Income Tax Act. However, the Tribunal found the claim of business loss valid and restored the matter back to the FAA for a fresh decision, allowing the appeal in part.

Issue 2 - Allowance of additional ground for appeal:
The appellant sought to raise additional grounds during the appeal. The Tribunal considered the arguments presented by both the Authorized Representative (AR) of the assessee and the Departmental Representative (DR) of the Revenue. After reviewing the material, the Tribunal found that the claim of business loss was valid and related to the business of the assessee. The Tribunal allowed the effective grounds of appeal in favor of the assessee in part, ultimately partly allowing the appeal filed by the assessee.

In conclusion, the Appellate Tribunal ITAT Guwahati partially allowed the appeal filed by the assessee, emphasizing the distinction between a bad debt and an advance, and directing a fresh decision on the claim of business loss.