2022 (3) TMI 719 - AT - Income Tax

Disallowance in respect of the advances written off - HELD THAT - Assessee has placed on record the purchase orders on four vendors referred to in para 6.2 of order of Ld. FAA advances shown non recoverable to whom were disallowed. They mentions that under the head project Shadara Kempinki Hotel the orders were placed. The project being abandoned led to non-return of the money nor supplying of the articles as they were actually no more required. That is how justification to treat the advances as non-returnable is claimed. The Bench is of considered view that when advance is paid to prospective vendors and the same is forfeited due to discharge of the contract, on account of failure of the assessee himself to honour the contract, there can be no reason to expect the assessee to pursue any remedy or recourse under law to either get the article delivered or the amounts refunded. There was no other recourse to the assessee then to consider the advances as non-recoverable and treat them as expenses while writing them off. In the light of aforesaid discussion of facts and circumstances and relying on the judgment in T.R.F. Ltd. Case 2010 (2) TMI 211 - SUPREME COURT as there is no necessity to establish that the debt has in fact become irrecoverable, the findings of ld. First Appellate Authority cannot be sustained. Appeal of assessee allowed.

Summary

Issues:
1. Disallowance of advances written off
2. Disallowance of TDS credit
3. Appeal against order under section 250(6) of the Income Tax Act, 1961

Issue 1: Disallowance of advances written off
The assessee filed its return declaring income and claiming a refund. The assessing officer passed an order assessing the income higher, making disallowances for advances written off and TDS credit. The CIT(A) confirmed the disallowance of advances but allowed the TDS credit. The Tribunal analyzed the grounds of appeal raised by the assessee, arguing that advances were written off due to project abandonment and non-repayment by vendors. The assessee cited relevant case law to support the treatment of advances as a business expense under Section 37(1) of the Act. The revenue contended that lower authorities' orders were correct. The Tribunal noted that the advances were non-recoverable due to project abandonment, and as per the Supreme Court judgment in T.R.F. Ltd. Case, there was no need to prove irrecoverability. Thus, the Tribunal allowed the appeal, setting aside the disallowance of advances written off.

Issue 2: Disallowance of TDS credit
The CIT(A) confirmed the disallowance of TDS credit, but the Tribunal's focus was primarily on the advances written off. As per the Tribunal's analysis, the disallowance of TDS credit was not a significant point of contention in the appeal, and the decision primarily revolved around the treatment of advances written off as a business expense. Therefore, the Tribunal's decision to set aside the disallowance of advances written off implicitly addressed the issue of TDS credit disallowance as well.

Issue 3: Appeal against order under section 250(6) of the Income Tax Act, 1961
The appeal was filed against the order under section 250(6) of the Income Tax Act, 1961, passed by the Commissioner of Income Tax (Appeals). The Tribunal reviewed the arguments presented by both the assessee and the revenue, focusing on the disallowance of advances written off. The Tribunal's decision to allow the appeal and set aside the disallowance of advances written off effectively addressed the concerns raised in the appeal against the order under section 250(6) of the Act. The Tribunal's detailed analysis and reliance on relevant case law supported its decision to overturn the disallowance, providing a comprehensive resolution to the issues raised in the appeal.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved, the arguments presented by both parties, and the Tribunal's decision and reasoning in addressing each issue raised in the appeal.