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2015 (11) TMI 1203 - AT - Income TaxAddition towards advance given to Mr. R.K Jalan was for purchase of jute - miscellaneous expenses written off - CIT(A) deleted the addition - Held that - As could be evident from the paper book filed by the Learned AR before us, it is not in dispute that the advance was made for purchase of Jute during the course of business of the assessee. Since the supplies could not materialize, the assessee to protect its money started charging interest and was able to recover a sum of ₹ 23 lacs towards principal portion. The interest income on such advances from Asst Years 1991-92 to 1997-98 have been duly offered to tax by the assessee as business income and assessed as such . Hence it will be factually incorrect to say that the nature of advance was not established by the assessee before the lower authorities. The scrutiny assessment orders of earlier years itself would stand testimony to the contentions of the assessee. Even otherwise, we find that since the trade advance was made during the course of its business by the assessee, any loss on account of recoverability would automatically fall under the category of trade debt and hence is allowable as business loss. We find that the assessee had duly offered the interest income on advance receivable from Shri.R.K.Jalan as business income in the earlier years and the same has been accepted as such by the revenue and hence the ground raised by the revenue is dismissed. Similarly we also hold that no additional evidences were filed by the assessee before the Learned CITA with regard to this issue as the fact of trade advance paid to Shri.R.K.Jalan stands clearly established in the earlier years scrutiny orders placed on record by the Learned AO. Hence the ground raised by the revenue that there is violation of Rule 46A of Income Tax Rules by the Learned CITA is dismissed. It is not in dispute that the assessee had indeed written off the balance principal portion of ₹ 47,02,013/- and interest receivable portion of ₹ 66,46,543/- in its books by treating the same as irrecoverable and due to the death of the concerned party. It is also not in dispute that the corresponding credit is given to the concerned party account in the books of accounts. We are in agreement with the arguments of the Learned AR that even otherwise the entire write off if not allowable in terms of section 36(1)(vii) read with section 36(2) of the Act is allowable as deduction as a regular trading loss u/s 28 of the Act. Interest payable by the assessee to ICICI Bank Ltd - whether ICICI Bank would fall under the category of a Scheduled Bank so as to fall within the ambit of section 43B? - Held that - We set aside this issue to the file of the Learned AO with a specific direction to give a finding as to whether ICICI Bank Ltd was a scheduled Bank during the relevant assessment year under appeal and if so, the provisions of section 43B of the Act would automatically apply to the assessee
Issues Involved:
1. Deletion of addition towards miscellaneous expenses written off. 2. Classification of advance given to Shri R.K. Jalan. 3. Nature of interest income on the advance. 4. Acceptance of fresh ground without remand report. 5. Applicability of section 43B to interest payable to ICICI Bank Ltd. Detailed Analysis: 1. Deletion of Addition Towards Miscellaneous Expenses Written Off: The primary issue was whether the CIT(A) was justified in deleting the addition of Rs. 1,13,48,556 towards miscellaneous expenses written off. The assessee, engaged in the jute manufacturing business, had advanced Rs. 70,02,013 to Shri R.K. Jalan for jute purchase in the early 1990s. Due to non-supply, the advance was converted into a loan, and interest was charged, which was offered as business income from AY 1991-92 to 1997-98. The principal amount recoverable from Shri R.K. Jalan was Rs. 47,02,013 from AY 1995-96 onwards. The assessee stopped charging interest from AY 1998-99 due to doubts about recovery. Upon Shri R.K. Jalan's death, the assessee wrote off the entire amount in AY 2008-09 and claimed it as a bad debt. The AO disallowed this, citing non-compliance with section 36(2) and stating it was not a business expenditure under section 37. The CIT(A) accepted the assessee's contention and deleted the addition. 2. Classification of Advance Given to Shri R.K. Jalan: The revenue argued that the advance was not related to the assessee's jute manufacturing business. However, the Tribunal found that the advance was indeed for jute purchase, a trade advance. The interest income from this advance was offered as business income in earlier years and accepted by the revenue. The Tribunal held that the nature of the advance remained unchanged and any loss on its recoverability fell under trade debt, thus allowable as a business loss, citing the Supreme Court's decision in CIT vs. Mysore Sugar Co. Ltd. 3. Nature of Interest Income on the Advance: The AO claimed that the interest income on the advance was assessed as income from other sources. However, the assessee provided scrutiny assessment orders showing it was accepted as business income. The Tribunal dismissed the revenue's ground, confirming the interest income was offered as business income. 4. Acceptance of Fresh Ground Without Remand Report: The revenue contended that the CIT(A) accepted a fresh ground without a remand report, violating Rule 46A. The Tribunal found no additional evidence was filed before the CIT(A) and the trade advance was established in earlier scrutiny orders. This ground was dismissed. 5. Applicability of Section 43B to Interest Payable to ICICI Bank Ltd: The Tribunal addressed whether ICICI Bank Ltd was a scheduled bank, affecting the applicability of section 43B. The issue was remanded to the AO to determine if ICICI Bank Ltd was a scheduled bank during the relevant assessment year. If so, section 43B would apply. Conclusion: The Tribunal upheld the CIT(A)'s deletion of the addition for miscellaneous expenses written off, confirming it as a business loss. The issue of interest payable to ICICI Bank Ltd was remanded for further verification. The appeal was partly allowed.
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