2018 (12) TMI 637 - AT - Income Tax

Disallowing amounts written off as business loss - Held that - No agreement of settlement of dispute in respect of the amount involved between the assessee and the producers has been filed by the assessee. The Ld. counsel has reiterated that business of agriculture trade is highly fragile and risky and the assessee company was helping in the growth of the agriculture economy, but mentioning those general trend of the business and economy may not be sufficient to discharge onus of the assessee that it was a business loss. The assessee was required to show the correspondence between the assessee and the producers regarding damage of the particular crops along with quantity, evidence in support of the claim of inability of the farmers in providing the agriculture produces, but no such evidences have been furnished by the assessee either before the lower authorities or before us. For claiming any expenses as deduction under section 37(1) it is incumbent upon the assessee to substantiate that those expenses are being incurred wholly and exclusively for the purpose of the business. In our opinion, the assessee has failed to discharge his onus in substantiating that the advances written off were made wholly and exclusively for the purpose of the business. The finding of the Ld. CIT(A) on the issue in dispute that write off cannot be considered as allowable expenditure under section 37 of the Act, are well reasoned and we do not find any error in the same. We accordingly uphold the same and dismiss the appeal of the assessee.

Summary

Issues:
1. Disallowance of business loss under Section 37 of the Income Tax Act, 1961.

Analysis:
The case involved an appeal by the assessee against the order of the Ld. Commissioner of Income-tax (Appeals) for the assessment year 2007-08. The dispute centered around the disallowance of "amounts written off" as business loss totaling ?3,20,34,757. The assessee company, engaged in exporting agriculture produce, had claimed expenses towards advances written off, which were related to non-recoverable amounts given to parties under sourcing agreements. The Assessing Officer disallowed the claim, stating that the write-off was a unilateral decision without exploring legal recourse or providing documentary proof. The Ld. CIT(A) partly allowed the appeal, leading to the assessee appealing before the Tribunal on the issue of disallowance of business loss.

The Tribunal considered the admission of additional evidence, an arbitration award related to advances recoverable from a party. The document was admitted under Rule 29 of the ITAT Rules, as it was not available during proceedings before lower authorities. The Tribunal then analyzed the nature of the business and the agreements with companies for procuring agriculture produce. The assessee had advanced money to these companies, subsequently writing off the advances as business loss. The contention was that the write-off was due to damaged quality of the agriculture produce and was approved by the audit committee and board of directors.

However, the Assessing Officer and the Ld. CIT(A) rejected the claim, emphasizing that the write-off was a unilateral decision without exploring legal recourse or providing sufficient evidence. The Tribunal noted that the assessee failed to provide details of quality damage or correspondence with the producer companies regarding the write-off. Although an arbitration award was admitted as additional evidence, it did not directly relate to the amount claimed as written off. The Tribunal highlighted the lack of evidence supporting the claim that the advances were incurred wholly and exclusively for business purposes. The Ld. counsel's reliance on decisions was deemed insufficient without concrete documentary evidence.

Ultimately, the Tribunal upheld the finding that the write-off could not be considered an allowable expenditure under Section 37 of the Income Tax Act, 1961. The appeal of the assessee was dismissed, affirming the decision of the Ld. CIT(A).

In conclusion, the judgment delved into the intricacies of disallowing business loss under relevant tax provisions, emphasizing the necessity of substantiating expenses for business purposes with concrete evidence and legal compliance.