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TMI Blog2015 (11) TMI 1203X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the revenue in section 143(3) proceedings. During the period from Asst Years 1991-92 to 1995-96, the assessee was also in receipt of certain principal dues from the said party Shri.R.K.Jalan to the extent of ₹ 23,00,000/- and the balance of advance receivable from Shri.R.K.Jalan was ₹ 47,02,013/- from Asst Year 1995-96 onwards. The assessee stopped charging interest on the aforesaid advance from Asst Year 1998- 99 onwards as it found that the recovery of principal amount of advance itself is doubtful of recovery. 4.1. On knowing the information about the death of the concerned party Shri.R.K.Jalan, the assessee thought it fit during the Asst Year 2008-09 to write off the entire trade advance of ₹ 1,13,48,556/- represented by principal portion thereon amounting to ₹ 47,02,013 and interest receivable thereon amounting to ₹ 66,46,543/-. This was duly written off by debiting Miscellaneous expenses written off by corresponding credit to the party account (Shri.R.K.Jalan) by the assessee in Asst Year 2008-09 and deduction was claimed accordingly in the return of income as bad debts. The Learned AO disallowed the same on the ground that the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid for purchase of jute to Shri.R.K.Jalan which has to be construed only as a trade advance. He argued that no fresh evidences were filed before the Learned CITA in this regard and hence ground no. 4 raised by the assessee is factually incorrect and deserves to be dismissed. On merits, the Learned AR argued that the assessee treated the advance only as a trade advance and since no supplies of Jute were made by Shri.R.K.Jalan, the assessee sought to charge interest on the said advance and had accordingly offered interest income upto Asst Year 1997-98 under the head income from business . He further argued that in any case , the entire dues representing principal and interest thereon were duly written off as irrecoverable and the concerned party Shri.R.K.Jalan had also died and hence the write off made in Asst Year 2008-09 and accordingly prayed that the same shall be duly allowed as a deduction. 4.3. We have heard the rival submissions and perused the materials available on record. We find that the nature and character of advance paid to Shri.R.K.Jalan had not changed. As could be evident from the paper book filed by the Learned AR before us, it is not in dispute that the adva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd recommendations. The Committee recommended that the assessee-company should ex gratia forgo some of its dues, and in the year of account ending 30-6-1952, the company waived its rights in respect of ₹ 2,87,422. The company claimed this as a deduction under section 10(2)(xv) of 1922 Act. The ITO declined to make the deduction, because, in his opinion, this was neither a trade debt nor even a bad debt but an ex gratia payment almost like a gift. An appeal to the AAC also failed. The Appellate Tribunal upheld the disallowance. On reference the High Court held that the expenditure was not in the nature of a capital expenditure, and was deductible as a revenue expenditure. Held: To find out whether an expenditure is on the capital account or on revenue, one must consider the expenditure in relation to the business. Since all payments reduce capital in the ultimate analysis, one is opt to consider a loss as amounting to a loss of business. But this is not true of all losses, because losses in the running of the business cannot be said to be of capital. The questions to consider in this connection are: for what purpose was the money laid out? Was it to acquire an asset of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,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. Reliance in this regard is placed on the decision of Hon ble Bombay High Court in the case of Harshad J. Choksi vs CIT reported in (2012) 25 taxmann.com 567 (Bom), wherein the question raised before the Hon ble Bombay High Court and the decision rendered thereon is reproduced below:- Questions: Whether if an amount is held to be not deductible as a bad debt in view of non-compliance of the condition precedent as provided under section 36(2), could the same be considered as an allowable business loss? Whether, therefore, the amount of ₹ 44.98 lakhs could be considered as an allowable business loss? Held: Section 28 imposes a charge on the profits or gains of business or profession. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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