9911796707
TMI Blog2012 (12) TMI 633X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessment was completed under section 143(3) of the Act on 25.12.2007 determining the total income at Rs..62,90,650/-. While doing so, the Assessing officer made an addition of Rs.. 54,90,185/- representing the trade advances written off on the ground that the assessee has not taken steps to recover the money written off and the said advance was not considered as income by the assessee earlier. 4. On appeal, the Commissioner of Income Tax (Appeals) deleted the addition holding that the write off is allowable as business loss under section 28(1) being a genuine business loss. While coming to this conclusion, the Commissioner of Income Tax (Appeals) took into consideration various decisions of the Hon'ble Supreme Court and the High Courts and held as under: "4.2 I have carefully considered the facts of the case and the submissions of the ld. AR. I have also gone through the decisions relied on by the ld. AR. The appellant is engaged in the business of property development. It had advanced Rs..50,00,000/- and Rs..4,60,000/- on 24.04.1995 and 18.07.1995 respectively to M/s. Mantri Housing & Constructions Co. P. Ltd. for carrying out a joint venture project at Pune. Hence, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a sum of Rs..54.67 lakhs was advanced to Mantri Housing Construction Co. Ltd. during the year 1995-96 for undertaking a construction project in Pune Cantonment Road, but in October, 1997, the assessee came to know that on account of several problems like economic recession, adverse market conditions, problems in evicting the tenants, etc., the project could not take off and was ultimately given up. Since then, the assessee has been taking efforts for recovering the advances from Mantri Housing Construction Co. Ltd., but failed. Thereafter, in the year 2003-04, the assessee came to know that Mantri Housing Corporation Co. Ltd had vanished and its directors were not traceable. In such circumstances, the assessee had to decide to write off the amount as irrecoverable and therefore in the assessment year 2005-06, the assessee had written off the said advance of Rs..54.67 lakhs as irrecoverable in its books of account and claimed as deduction. The assessee's counsel submits that the said advance was given in the course of its business of development of properties and the said advance was written off as business loss since it could not recover the said advance. The counsel for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are extracted below for ready reference:- "i) the advances are made in his earlier assessment years, towards purchase of material, AEPC quota, advance given to his employer, expenditure incurred towards technology up-gradation and processing of fabrics for exports, etc. ii) the expenses or advances given in his earlier years are duly disclosed in his respective returns of income filed. iii) there is direct and proximate nexus between the business operation and the loss or in other words, the loss claimed is directly incidental to his business operations, and (iv) loss claimed is on account of write-off of advances made as discussed above, in his books of account for the relevant assessment year." ii) The Commissioner (Appeals) has given a factual finding that the loss in question directly relates to the business operations. He observed that reimbursement of expenditure incurred at Bangalore in connection with purchase of technology from Sunsoft Technologies P. Ltd. is directly connected to purchase of material or for processing of material required for export business and is in revenue field as no capital asset was acquired. At Para-4.3.4, the Commissioner (Appeals) held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness loss, we hold that there is no such requirement. Hon'ble Calcutta High Court in A.W. Figgis & Co. (supra) held that if the assessee knew that filing a suit would not help recovery of an amount but only adds to the financial expenditure to the assessee, it would not be necessary to file a civil suit to enable allowability of claim under business loss. It is also well settled that the Revenue cannot insist on demonstrative proof of the fact which must satisfy the test of infallibility. The honest judgment on the part of the assessee at the time of making write-off should be given due weightage. Hon'ble Jurisdictional High Court in Jethabhai Hirji & Jethabhai Ramdas (supra) referred to another judgment of Division Bench of Hon'ble Jurisdictional High Court, wherein it was held as follows:- "When a businessman writes off an amount, there is prima facie evidence that that amount is irrecoverable. Undoubtedly, the Department can rebut the prima facie inference by drawing attention to circumstances or by leading some evidence to suggest that the position taken up by the assessee was not correct. In this case, there is no evidence whatsoever on the record except the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The other reason for writing off was the demise of the proprietor, Bhagwan Das, of M/s.Kanpur Boot House and the assessee in its wisdom did not choose to take the matter to the court apprehending counter claim and this decision of the assessee seems to be well reasoned. In any case, the Revenue could not compel the assessee to have recourse to litigation to recover the amount against dead person or his legal heirs when in the given circumstances, the same may not be recoverable. The CIT(A) rightly recorded that the debt had become bad and not recoverable and it would be a futile exercise to take any action against the legal heirs of the deceased. In view of the discussion as made by the Division Bench of J&K High Court and the Hon ble Supreme Court, as quoted above, that the advances made by the assessee in the case were certainly of a type which would be within the contemplation of the words "laid out or expended wholly and exclusively for the purposes of the business". As no portion of the said advances could be stated to be loss of capital expenditure, but it being a plain case of business loss, it would certainly be allowable to be deducted under the provisions of Section 37 of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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