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2018 (1) TMI 1239 - AT - Income TaxDisallowance of provision/write off of advances - assessee made the advance for purchase of machinery and lease advance, which became irrecoverable - Held that - As the advance paid for the purpose of expansion, will fall within the ambit of section 37 of the Act. With regard to the argument of the ld. DR that expenditure must be expended in the same year to get the deduction as observed by the AO, in our considered view, it is for the expansion of the business and incurred during the earlier years, as and when the assessee realises that this cannot be recovered, this can be written off in the year in which it is determined that it cannot be recovered. This right can be exercised by the assessee with the proper documentation on record. Therefore, the contention of ld. DR/AO on this aspect is not acceptable. Therefore, we are inclined to allow the ground raised by the assessee. Disallowance made towards amount paid to APGENCO for upgradation, operation and maintenance of fly ash extraction - AR has submitted that assessee has made the investment in order to get the benefit of procuring the fly Ash at a concessional rate - Held that - When the Bench asked to substantiate the submission, ld. AR brought on record the various purchase statements, which are part of record. In order to verify the claim of the assessee and for proper justice, we are inclined to refer this matter back to file of AO with limited purpose to verify the submission of the assessee, whether assessee has procured the fly ash on concession, which supports the investment decision. In case, it is found that assessee has purchased the fly ash at concessional rate ( less by ₹ 40/- per tonne) then the AO may allow the claim of the assessee, otherwise, addition may be sustained. Therefore, ground raised by revenue is allowed for statistical purposes.
Issues Involved:
1. Disallowance of provision/write-off of advances. 2. Disallowance of bad debts. 3. Disallowance of claim under section 80IB. 4. Disallowance of expenditure incurred towards payment to APGENCO. Issue-wise Detailed Analysis: 1. Disallowance of Provision/Write-off of Advances: The assessee claimed a write-off of advances totaling ?4,49,45,842, which included amounts paid for land acquisition and machinery purchase for business expansion. The Assessing Officer (AO) disallowed these claims, considering them capital in nature and not incurred during the year. The CIT(A) sustained the disallowance of ?2,26,16,000 and ?1,64,00,000 related to advances for land and machinery, respectively, but allowed the amounts paid to APGENCO for fly ash supply. The Tribunal analyzed the case law and concluded that the advances for business expansion fall within the ambit of section 37 of the Income Tax Act, 1961, as they were incurred wholly and exclusively for the purpose of business. Therefore, the Tribunal allowed the assessee's appeal on this ground. 2. Disallowance of Bad Debts: The assessee did not press the ground related to the disallowance of bad debts amounting to ?66,84,484. Consequently, the CIT(A) dismissed this ground as not pressed. 3. Disallowance of Claim under Section 80IB: The CIT(A) allowed the assessee's claim of ?5,48,659 under section 80IB. The Tribunal did not find any contention from the revenue on this issue, and thus, the CIT(A)'s decision to allow the claim was upheld. 4. Disallowance of Expenditure Incurred towards Payment to APGENCO: The AO disallowed the expenditure of ?59.25 lakhs paid to APGENCO for upgradation, operation, and maintenance of the fly ash extraction system, considering it capital in nature and not incurred during the relevant year. The CIT(A), however, allowed the claim, stating that the investment was for obtaining raw material at a concessional rate, thus qualifying as revenue expenditure. The Tribunal remanded this issue to the AO for verification of whether the assessee procured fly ash at a concessional rate. If verified, the AO was directed to allow the claim; otherwise, the addition would be sustained. Conclusion: The Tribunal allowed the assessee's appeal regarding the write-off of advances for business expansion and remanded the issue of expenditure towards APGENCO back to the AO for verification. The appeal of the revenue was allowed for statistical purposes, and the assessee's claim under section 80IB was upheld. The disallowance of bad debts was dismissed as not pressed.
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