2015 (10) TMI 2719 - AT - Income Tax

Disallowance being deposits written off - busniss loss or capital l0ss - Held that - Hon ble Supreme Court in the case of CIT Vs Mysore Sugar Co. Ltd 1962 (5) TMI 3 - SUPREME Court for what was the money laid out? Was it to acquire an asset of an enduring nature for the benefit of the business, or was it an outgoing in the doing of the business? If money be lost in the first circumstance, it is a loss of capital, but if lost in the second circumstance, it is a revenue loss. In the first, it bears the character of an investment, but in the second, to use a commonly understood phrase, it bears the character of current expenses. Also in the case of I.B. M World Trade Corpn.(1988 (12) TMI 23 - BOMBAY High Court) that the moneys advanced by the assessee in pursuance of these agreements to the landlord for the purposes of and in connection with the acquisition of the premises on lease were for the purpose of business. Naturally, therefore, when such advances are lost to the assessee, the loss would be a business loss and not a capital loss - Decided against revenue

Summary

Issues: Disallowance of deposits written off

The judgment pertains to an appeal by the Revenue against the order of the Ld. CIT(A)-18, Mumbai for the Assessment year 2009-10. The main issue revolves around the disallowance of Rs. 93,62,085/- being deposits written off by the assessee. The Assessing Officer believed that the loss incurred on non-recovery of deposits given by the assessee for obtaining premises is capital in nature and added back the amount to the total income of the assessee. However, the Ld. CIT(A) allowed the write-off of deposits as a business loss, citing precedents like the decision of the Hon'ble Jammu & Kashmir High Court and the Hon'ble High Court of Bombay. The Revenue, aggrieved by this decision, approached the Appellate Tribunal for relief.

The Appellate Tribunal, after considering the submissions and precedents, noted that the deposits were given during the course of the business and became irrecoverable, leading to their write-off. Referring to the observations of the Hon'ble Supreme Court and the Hon'ble High Court of Bombay in relevant cases, the Tribunal determined that the loss incurred in the ordinary course of business is a revenue loss, not a capital loss. Therefore, the Tribunal confirmed the Ld. CIT(A)'s decision to delete the addition made by the Assessing Officer. The Tribunal dismissed the appeal filed by the Revenue, upholding the allowance of the write-off of deposits as a business loss.