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2021 (12) TMI 760 - AT - Income TaxDisallowing the business advances written off - Trading loss u/s 28 - claim of assessee to be considered u/s. 28 or section 37 - HELD THAT - Admittedly the money advanced by assessee to Golden Gate was for the purposes of business - AO rightly rejected the claim of assessee u/s 36(2) as assessee had never taken into account the said advance in computing the income of assessee in any of the previous year which is the necessary condition laid down in section 36(2)(i) - AO did not verify the claim as a trading loss u/s. 28 - CIT(A) admitted to the fact that assessee took steps to recover the money from Golden Gate. However, upheld the addition by holding that for year under consideration assessee did not file any case related to bouncing of remaining cheques. In the present facts of the case, there is no dispute that the advances were given by the assessee in the normal course of its business and when a loss arises due to non-recovery of such advances and when the same is irrecoverable and written off as such, the same should be allowed as a business loss while computing the profit and gains of business. As relying in SUMANGAL OVERSEAS LTD. 2011 (11) TMI 45 - DELHI HIGH COURT we hold that the amount that could not be recovered is to be treated as trading loss. Accordingly, the grounds raised by assessee stands allowed.
Issues Involved:
1. Disallowance of business advances written off. 2. Levy of interest under sections 234B and 234D. Detailed Analysis: 1. Disallowance of Business Advances Written Off: The primary issue revolves around the disallowance of ?1,47,81,233 written off by the assessee as business advances. The AO disallowed this amount, concluding that it was a capital loss and not allowable as business expenditure under section 37 or as a trading loss under section 28 of the Income Tax Act, 1961. The AO also noted that the assessee was still attempting to recover the money from Golden Gate Corporate Services India Pvt. Ltd., thus the amount could not be considered irrecoverable. The CIT(A) upheld the AO's decision, emphasizing that the amount had not become irrecoverable during the year under consideration. The assessee argued that the advances were made in the normal course of business and that the company to which advances were made had been struck off by the Ministry of Corporate Affairs. The assessee claimed that the write-off satisfies the conditions under sections 37 and 28 of the Act. Despite efforts to recover the amount, including legal action under section 138 of the N.I. Act and filing a criminal complaint, the money remained unrecovered. The Tribunal observed that the advances were given for business purposes and the assessee had taken necessary steps to recover the amount. The Tribunal noted that the AO rightly rejected the claim under section 36(2) but failed to verify the claim as a trading loss under section 28. The Tribunal held that the loss arising from non-recovery of such advances, when written off as irrecoverable, should be allowed as a business loss. The Tribunal cited various judicial precedents supporting the claim that a trading loss has a wider connotation than a bad debt and should be allowed if incurred in the normal course of business. 2. Levy of Interest under Sections 234B and 234D: The assessee contested the levy of interest under sections 234B and 234D amounting to ?5,70,207 and ?3,03,850, respectively. The Tribunal did not provide a detailed analysis of this issue, as the primary focus was on the disallowance of the business advances written off. However, the Tribunal's decision to allow the appeal on the alternate claim implies that the interest levied under these sections would also be reconsidered in light of the allowed business loss. Conclusion: The Tribunal allowed the appeal filed by the assessee, holding that the amount written off as business advances should be treated as a trading loss and allowed as a business expenditure under section 28. The appeal was allowed on the alternate claim, and the Tribunal emphasized that the real profit chargeable to tax cannot be arrived at without setting off legitimate trading losses. The order pronounced on 30th November 2021 concluded the matter in favor of the assessee.
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