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TMI Blog2019 (11) TMI 865X X X X Extracts X X X X X X X X Extracts X X X X ..... case are certainly of a type which are within the contemplation of the words laid out or expended wholly and exclusively for the purposes of the business and allowable under Section 37(1). The ratio of the decision of the Hon ble Supreme Court in the case of Southern Technologies Ltd. (supra) cannot be applied in the facts of the instant case. Accordingly, we set aside the finding of the Learned CIT(A) on the issue in dispute and allow the ground of the appeal of the assessee. Addition being legal and professional charges - HELD THAT:- Disallowance on the ground that the assessee failed to provide any evidence of rendering services by Sh. Amreek Singh. The onus was on the assessee to establish that Sh. Amreek Singh, rendered legal and professional services in addition to employment with the assessee. As assessee has failed to produce any evidences before the Ld. CIT(A) as well as before us, we do not find any error in the order of the CIT(A) on the issue in dispute and accordingly, we uphold the same. The ground of the appeal of the assessee is dismissed. Short-term capital loss - HELD THAT:- Documents are in relation to lawsuit filed by the vendor against assessee, howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.3 On facts and under the circumstances of the case, the Id. CIT(A) was unjustified in not appreciating and ignoring the fact that the management of the appellant company had decided to close down the business activities and the financial statements were prepared on the basis that the fundamental accounting assumption of going concern was no longer appropriate. 1.4 On facts and under the circumstances of the case, the Id. CIT(A) was unjustified in confirming the addition / disallowance made and has failed to appreciate the submissions of the appellant and has ignored various decisions in judicial discipline affirming the allowance of expenditure on the principle of commercial expediency. 1.5 On facts and under the circumstances of the case, the Id. CIT(A) has erred in confirming the addition u/s 36 of the Income Tax Act, 1961 whereas the appellant has claimed the expenditure u/s 37 of the Act and not under any of the provisions of section 36 of the Income Tax Act, 1961. Aggrieved with this confirmation of addition by the Id. CIT(A), the appellant prays that the addition of ₹ 5,62,876/- in respect of writing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Id. CIT(A) was unjustified in confirming the disallowance and has failed to appreciate the fact that the assets were not recoverable and the assessee had no option but to write them off in accordance with principle of commercial expediency as the assessee had decided to close down the business operations. The appellant craves leave to add, amend, alter, vary and/or withdraw any or all of the above grounds of appeal at any stage of the appellate proceedings and to make appropriate legal submissions during oral arguments. AGGRIEVED with the order framed by Id. CIT(A), the appellant has preferred this appeal before the tribunal having the appropriate jurisdiction to entertain and decide this appeal and prays that the additions and dis-allowances be deleted. 3. The grounds raised in the appeal of the Revenue are reproduced as under: 1. On the facts and in the circumstances of the case, the learned CIT(A) has erred in deleting disallowance of ₹ 45,00,000/- on a/c of loss on revaluation of foreign exchange on account of advance received. 2. The appellant craves leave for res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e traced. Thus amount not recoverable written off. Dharma Dev Texi Service ₹ 3,543/- Pending advance given to Taxi Vendor not Recoverable. Hence written off. Total (B) ₹ 2,76,819/- Total (A + B) ₹ 5,62,876/- 5.2 It was claimed by the assessee that all the advances were paid to vendor/employee in the ordinary course of the business operation to avail services from them and hence, their nonrecovery is duly allowable deduction of business expenses under section 37 of the Act and not under section 36 of the Act. According to the Assessing Officer, there is a specific provision of section 36 for allowing advances written off and therefore, same cannot be allowed under section 37 of the Act in view of the decision of the Hon ble Supreme Court in the case of Southern Technologies Ltd. Vs. JCIT (2010) 320 ITR 577 (SC), wherein it is held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.4 With respect to the advance written off amounting to ₹ 2,76,819/-, the LAO has failed to appreciate the fact that these advances were for the expenses in the ordinary course of business and are covered u/s 37(1) of the income tax act 1961. As well as the aforesaid expenses are held allowable u/s 37(1) of the IT A 1961 in various judgments provided by the High Court, one of the whom is mainly [CIT vlnden Bislers(1990) 181 ITR 69(Mad)]. 5.5 The further legal submission made by the assessee in support of the claim of the above advances and deposits written off, as reproduced by the Ld. CIT(A), is extracted as under: 1.8 That the LAO in making the all the additions/disallowances while framing the impugned assessment, has also erred in law by ignoring the principal established through various judicial pronouncements that: The list of allowances enumerated in section 30-37 of ITA 1961 is not exhaustive; an item of loss or expenditure incidental to business may be deducted in computing profits and gains properly so called and computed on ordinary commercial principles. This is definitely established by the Privy Coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits, provided (i) the losses are of a non-capital nature and (ii) they are not merely connected with the trade but are incidental to trade itself. These principles were affirmed by the Supreme Court in Badridas Daga v CIT (34, ITR 10,15), CIT v National bank ltd 55 ITR 707 and Ramchandar Shivnarayan v CIT. 1.10 That there are numerous judgment in the order of judicial discipline wherein such deductions have been allowed. Deduction should be allowed under this section in respect of a loss arising from forfeiture of security deposit as a result of non performance of a trading contract. Various case laws are Narandas v CIT 35ITR 461; CIT v Inden 91 ITR 427; CIT v Sugar dealers 100 ITR 424; Thackers v CIT134 ITR 21. Forfeiture of security deposit-lt covers forfeiture of deposits given as security for the business purposes. Forfeiture of security deposited under a contract is Thackers H.P. Co . Vs CIT 134 ITR 21. Losses arising from payments made in advance to employees or agents would form a proper deduction if the advance payment was made with reasonable business prudence. The money lent by the managed company to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of the Act in view of the decision of the Hon ble Supreme Court in the case of Southern Technologies Ltd. (supra), wherein the Hon ble Supreme Court, held as under: Section 36(1)(vii) of the Income-tax Act, 1961, read with the NBFCs Prudential Norms (Reserve Bank) Directions, 1998 - Bad debts - Whether 1998 Directions deal only with presentation of NPA provisions in balance sheet of a NBFC and they have nothing to do with computation or taxability of provisions for NPAs under Incometax Act - Held, yes - Whether provision for NPAs in terms of 1998 Directions constitutes expense on basis of which deduction can be claimed by NBFCs under section 36(1)(vii) - Held, no - Whether even applying theory of real income, a debit, which is expressly disallowed by Explanation to section 36(1)(vii), if claimed, has got to be added back to total income of assessee, because Act seeks to tax real income which is income computed according to ordinary commercial principles but subject to provisions of Act - Held, yes Section 36(1)(vii), read with section 43D, of the Income-tax Act, 1961 - Bad debts - Whether sections 36(1)(vii) and 43D are violative of articles 14 and 19 of Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) cannot be applied in the facts of the instant case. Accordingly, we set aside the finding of the Learned CIT(A) on the issue in dispute and allow the ground of the appeal of the assessee. 6. In ground No.2, the assessee has challenged addition of ₹6,42,365/-being legal and professional charges. 6.1 The Assessing Officer observed that out of the total legal and professional expenses of ₹ 52,71,892/-, amount of ₹ 6,42, 365/- was paid to one Sh Amreek Singh. The Assessing Officer found that copies of the bills of Sh. Amreek Singh had been raised almost a year after rendering professional services and he also happened to be an employee of the assessee company. According to the Assessing Officer, there can be error of the date in the single bill but it cannot be in all the bills. He rejected the contention of the assessee that the tax was deducted at source on such payment which makes expenses as genuine. The CIT (A) also upheld the disallowance. 6.2 Before us, the learned counsel of the assessee referred pages 186 to 190 of the paper book, which are copies of amended bills of Amreek Sin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Sh. Amreek Singh, rendered legal and professional services in addition to employment with the assessee. As assessee has failed to produce any evidences before the Ld. CIT(A) as well as before us, we do not find any error in the order of the learned CIT(A) on the issue in dispute and accordingly, we uphold the same. The ground of the appeal of the assessee is dismissed. 7. In Ground No. 3, the addition of ₹ 7,44,245/- for shortterm capital loss has been challenged by the assessee. 7.1 It was claimed by the assessee that as part of the business operation of the assessee, certain assets were provided at construction sites for ongoing projects which were for tenure of 3- 5 years. It was submitted by the assessee that during the year, when the management of the company decided to close down business operations suddenly by terminating employees and project contracts, it could not get support from ex-employees and clients to trace various assets provided at the client sites and thus loss was booked on these assets, which was claimed as short-term capital loss under the provisions of the Act. The assessee provided a list of item ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of his order and has given status of the assets and disallowance of such claim of the short term capital loss. I fully agree with the justification given by the AO and the disallowance of the short term capital loss is upheld. 7.5 We have also perused documents filed in the paper book from page 167 to 178. These documents are in relation to lawsuit filed by the vendor against assessee, however, in these letters of attorney of the assessee there is no mention of any fact that asset of the assessee were lying at those customer sites, with the assessee has claimed as not recoverable. No other evidence from the client/customer of the assessee to substantiate that assets were lying at their sites, has been furnished by the assessee either before the lower authorities or before us. In the facts and circumstances of the case, we do not find any error in the order of the learned CIT(A) and accordingly, we uphold the same. Ground of the appeal of the assessee is accordingly dismissed. 8. As far as appeal of the Revenue is concerned, we find that the tax effect involved in the issue agitated before the Tribunal, is less than ₹ 50 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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