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TMI Blog2019 (12) TMI 1196X X X X Extracts X X X X X X X X Extracts X X X X ..... im it as an allowable expenditure u/s 37(1) We are of the considered view that when the damages paid by the assessee are business expenditure incurred on account of contractual liability the same cannot be treated as penal liability as has been held by Ld. CIT(A). Moreover, once it has come on record that the amount in question is irrecoverable from the customer and has been written off in the books of accounts during the year under assessment the amount is eligible for deduction u/s 36(1)(vii) of the Act as claimed by the assessee. - Decided in favour of assessee. Addition of deemed dividend u/s 2(22)(e) - HELD THAT:- Amount paid by assessee company to TPPL was on account of sale of plant and machinery and not on account of loan and in view of CBDT Circular No. 19/2017 of 12.06.2017 the same is a commercial transactions and provisions contained u/s 2(22)(e) are not attracted. So, we are of the considered view that tax, if any, is to be paid on this amount by the shareholder as the amount is not advance but a business transaction being sale proceeds of the sale of plant and machinery by TPPL to the assessee company. - Decided in favour of assessee. - ITA No.95/Del./ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 34,22,140/- being alleged deemed dividend brought to tax by invoking section 2(22)(e) of the Act. 2.1 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that statutory pre-conditions provided in section 2(22)(e) of the Act were not satisfied and therefore addition made and upheld is illegal and untenable. 2.2 That the learned Commissioner of Income Tax (Appeals) has failed to appreciate that sale of plant and machinery for consideration on deferred basis does not constitute 'loan' or 'advance' and as such section 2(22)(e) was perse wholly inapplicable. 2.3 That even otherwise since there is no actual payment, section 2(22)(e) was inapplicable and therefore invocation of section 2(22)(e) is wholly misconceived. 2.4 That furthermore the learned Commissioner of Income Tax (Appeals) has failed to appreciate that even otherwise without prejudice, no addition was warranted in the hand of the appellant on account of alleged deemed dividend u/s 2(22)(e) of the Act and as such addition sustained is perse misplaced and untenable. It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r and remained unrecoverable as the project was going on. In AY 2012-13, the year under assessment the assessee written off the sum being time barred. Similarly amount of ₹ 21,53,250/- was short paid by Oil Indian Ltd. and same was shown as unrecoverable in its books pending adjudication by the committee set up to examine the same. On pronouncement the decision of the committee in 2012-13 rejecting the assessee s claim, the amount of ₹ 21,53,250/- was written off as irrecoverable. Similarly amount of ₹ 14,500/- was written off by the assessee on account of short payment by HPCL during the year under assessment as same was irrecoverable and as no ongoing project could be used to recover the amount. 8. The Ld. AR for the assessee contended that the Ld. CIT(A) has not examined aforesaid facts rather rejecting the claim on the grounds inter alia that claim of bad debts u/s 36(1)(vii) and 36(2) of the Act is an afterthought as no such claim was made before the Assessing Officer; that the claim of the assessee qua payment of liquidated damages is the nature of penalty which is not allowable expenses and the assessee has not fulfilled the condition laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er, despite the amendment, disputes on the issue of allowability continue, mostly for the reason that the debt has not been established to be irrecoverable. The Hon'ble Supreme Court in the case of TRF Ltd. In CA Nos. 5292 to 5294 of 2003 vide judgment dated 9-2-2010-, has stated that the position of law is well settled. After 1- 4-1989, for allowing deduction for the amount of any bad debt or part thereof under section 36(1) (vii) of the Act, it is not necessary for assessee to establish that the debt, in fact has become irrecoverable; it is enough if bad debt is written off as irrecoverable in the books of account of assessee. 4. In view of the above, claim for any debt or part thereof in any previous year, shall be admissible under section 36(l)(vii) of the Act, if it is written off as irrecoverable in the books of account of the assessee for that previous year and it fulfills the conditions stipulated in sub-section (2) of sub-section 36(2) of the Act. 5. Accordingly, no appeals may henceforth be filed on this ground and appeals already filed, if any, on this issue before various Courts/Tribunals may be withd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ttle the law on the question as to when an amount paid by an assessee as interest or damages or penalty could be regarded as compensatory (reparatory) in character as would entitle such assessee to claim it as an allowable expenditure under section 37(1) of the Income-tax Act. Therefore, whenever any statutory impost paid by an assessee by way of damages or penalty or interest is claimed as an allowable expenditure under section 37(1) of the Income-tax Act, the assessing authority is required to examine the scheme of the provisions of the relevant statute providing for payment of such impost notwithstanding the nomenclature of the impost as given by the statute, to find whether it is compensatory or penal in nature. The authority has to allow deduction under section 37(1) of the Income-tax Act, wherever such examination reveals the concerned impost to be purely compensatory in nature. Wherever such impost is found to be of a composite nature, that is, partly of compensatory nature and partly of penal nature, the authorities are obligated to bifurcate the two components of the impost and give deduction to that component which is compensatory in nature and refuse to give deduction to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under the head related party disclosure of the audited financial statement for the period 2011-12 which are available at page 19 to 20 of the paper book, which is extracted as under for ready perusal :- Sr. No. Particulars Amount Page no of paper book 1 Purchase of fixed asset from Triune Projects Pvt. Ltd. 36,12,751 20 2 Expenses incurred by Triune Projects Pvt. Ltd. on behalf of assessee 2,71,286 20 Total-(A) 38,84,037 3 Sale of fixed Assets to Triune Projects Pvt. Ltd. 4,39,967 20 4 Expenses incurred by assessee on behalf of Triune Projects Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .1 Some illustrations/examples of trade advances/commercial transactions held to be not covered under section 2(22) (e) of the Act are as follows: i. Advances were made by a company to a sister concern and adjusted against the dues for job work done by the sister concern. It was held that , amounts advanced for business transactions do not to fall within the definition of deemed dividend under section 2(22) (e) of the Act. (CIT v. Creative Dyeing Printing Pvt. Ltd.1, Delhi High Court), i) Advance was made by a company to its shareholder to install plant and machinery at the shareholder s premises to enable him to do job work for the company so that the company could fulfil an export order. It was held that as the assessee proved business expediency, the advance was not covered by section 2(22)(e) of the Act. ii) A floating security deposit was given by a company to its sister concern against the use of electricity generators belonging to the sister concern. The company utilised gas available to it from GAIL to generate electricity and supplied it to the sister concern at concessional rates. It was held that the securi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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