9911796707
TMI Blog2016 (2) TMI 876X X X X Extracts X X X X X X X X Extracts X X X X ..... The assessee has raised the following grounds of appeal:- 1.1) The learned A.O. erred in (and learned CIT-A erred in confirming) disallowance of the loss on account of unrecoverable advance given in the course of business u/s 28, 29 and 37. 1.2) The learned A.O. erred in (and learned CIT-A erred in confirming) applying the provisions of S.36 when the assessee had already pointed out that the deduction is not u/s 36. 1.3) The learned CIT(A) erred in disallowing the loss on account of unrecoverable advance on the basis of an erroneous conclusion that it is an assessee's fault when first advance is outstanding (which was given for against first Order) and still it gave further order and also paid advance against such order. 2.1) The learned A.O. (and learned CIT-A erred in confirming) erred in not accepting the Income as per the revised Return of Income the assessee. 3) The appellant craves its right to add to or alter the Grounds of Appeal at any time before or during the course of hearing of the case. 3. The learned Authorized Representative for the assessee at the outset pointed out that the issue raised in the present appeal is identical to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7; 55.50 lakhs was advanced. The assessee thereafter, came to know that the said Italian company had filed Insolvency Petition and there was no possibility of getting the machinery from the said company. The assessee was also not sure of recovery of the advance payment made by it. Therefore, provision of ₹ 43,34,640/- towards non-recovery of the said amount being 30% of the entire amount, was made in the books of account. The plea of the assessee before the Assessing Officer was that the said amount was not a bad debt as referred to in section 36 of the Act, since the same was not in respect of debtors for sales of goods or services. However, the loss was in the course of carrying on of the business and hence, was eligible under sections 28, 29 and / or 37 of the Act. Reliance was placed on the ratio laid down by the Hon ble Rajasthan High Court in CIT Vs. Anjani Kumar Co. Ltd. (2003) 259 ITR 114 (Raj). The Assessing Officer in this regard issued show cause notice to the assessee stating that the said expenditure was not deductible as bad debt under section 36(1)(vii) of the Act and / or also was not covered under sections 28, 29 and/or 37 of the Act. The assessee, in turn ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vacuum Systems was well known for the said equipment and hence, the advance paid to the said concern for purchasing the equipments. The purchase order of the first equipment is placed at pages 1 to 5 of the Index, under which both the payments and delivery terms have been provided. The technical specifications of the equipment are part of the contract entered into by the assessee with M/s. Galileo Vacuum Systems, which agreed to supply to the assessee at its Chakan plant the equipment and services of Galileo Vacuum Batch Coaters, Model V201 VZ. It was agreed that one technician from M/s. Galileo Vacuum System would be in assessee s plant for installation and training of the operator. It was also agreed that during the installation and commissioning of the Chakan unit, the assessee was to bear round air tickets, boarding and lodging charges of the said persons. Out of the total price for the equipment, 20% was to be paid as down payment and further 20% within two months after the down payment. The equipment was to be delivered at Mumbai on or before 24.10.2008. Further, the assessee on 12.08.2006 and M/s. Galileo Vacuum System had entered into another contract for the supply of Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has to be seen from the angle of the provisions of section 37(1) of the Act, wherein it is provided that all expenditure relating to carrying on of the business is to be allowed as deduction while computing the income chargeable under the head profit from business or profession, where the expenditure is not in the nature described in sections 30 to 36 of the Act and not being in the nature of capital expenditure. The provision made by the assessee in its books of account on account of non-recovery of advance made for the purchase of machinery cannot be said to be a provision made on account of bad debts and hence, the provisions of section 36(1)(vii) of the Act are not attracted. The said advance though was for the purchase of a capital asset, but since the capital asset never came into existence, the bar envisaged in section 37(1) of the Act do not apply. The expenditure claimed by the assessee is not covered by any of the provisions of sections 30 to 36 of the Act and being not a capital expenditure and having been incurred for the purpose of carrying on of the business, is eligible for deduction under section 37(1) of the Act. The advance made by the assessee for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e machinery was not supplied, and hence the assessee written off the said advances treating the same as a revenue expenditure u/s. 37(1). 9. In the case of Anjanikumar Co. Ltd. (supra), the appellant had written off the advances made to the agriculturists for purchase of the agricultural land and the land was to be acquired to set up a factory but ultimately that was not materialized and the agriculturists to whom the advance was given also refused to give the amount. On the above facts, their Lordships held that the same has to be treated as a revenue expenditure. We, accordingly, following the principles laid down in the case of Anjanikumar Co. Ltd. (supra) allow the ground taken by the assessee and delete the addition of ₹ 2,96,135/- treating the same as a revenue expenditure u/s. 37(1) of the Act as admittedly, no capital asset came into existence. 13. The Mumbai Bench of Tribunal in DCIT Vs. Edelweiss Capital Ltd. (supra) further held as under:- 8. On merits, the judgment of the Rajasthan High Court in the case of CIT Vs. Anjani Kumar Co. Ltd. (supra) supports the assessee s plea. In this case the assessee intended to acquire agricultural land to set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra). The Hon ble Supreme Court held as under:- 8 It is clear from the findings recorded by the Tribunal and the High Court that the assessee s business is manufacture and sale of tea and is not engaged in cotton manufacturing business at all; that while it intended to enter into cotton manufacturing purposes did not set up a cotton mill, but obtained operating rights from another company under the leave and licence agreement for the purpose of acquiring the profit-making apparatus for a duration of three years or a little more; that the business of running a cotton mill was not its own, but was only operating the said mill under leave and licence agreement; that the amount of advance in a sum of Rs. twenty lakhs was given not for its own purpose by way of business expenditure for modernizing the mill, but as capital to the lessor who in turn had to modernize the mill. In the resolutions made by the board of directors, it was clear that the transaction entered into was not in the nature of a loan transaction or a money lending transaction and thus the loss suffered by the assessee was a capital loss and hence, the amount could not be deducted from the assessee s income as bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecognized the said expenditure in the year under consideration. However, the learned Departmental Representative for the Revenue and even the CIT(A) observed that claim of deduction of the said advance was premature and also it was an unascertained loss. Reliance placed upon by the learned Authorized Representative for the assessee before the CIT(A) on the decision of Hon ble Bombay High Court in CIT Gwalior Rayong Silk Mfg. (WVG) Co. Ltd. (1999) 237 ITR 253 (Bom) was not applied since the said decision dealt with the year of write off and not with the deductibility of the amount. The learned Authorized Representative for the assessee before us has clarified that reliance was placed on the said decision of Hon ble Bombay High Court vis- -vis year of allowability and not the question of deductibility. In view thereof, we find no merit in the order of CIT(A) in this regard. 18. The CIT(A) further placed reliance on certain case laws for deciding the question of deductibility under section 37(1) of the Act. In view thereof, where facts of the cases relied upon by the CIT(A) are at variance to the facts of the issue before us and the facts and issue are squarely covered by the ra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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