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TMI Blog2021 (12) TMI 760X X X X Extracts X X X X X X X X Extracts X X X X ..... owed as a business loss while computing the profit and gains of business. As relying in SUMANGAL OVERSEAS LTD. [ 2011 (11) TMI 45 - DELHI HIGH COURT] we hold that the amount that could not be recovered is to be treated as trading loss. Accordingly, the grounds raised by assessee stands allowed. - ITA. No. 2217/Bang/2019 - - - Dated:- 30-11-2021 - SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND SMT BEENA PILLAI, JUDICIAL MEMBER Assessee by : Shri Padamchand Khincha, CA Revenue by : Shri Priyadarshi Mishra, Addl. CIT (DR) ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeal is filed by assessee against order dated 20/08/2019 passed by the Ld.CIT(A)-3, Bangalore for Assessment Year 2016-17 on the following grounds. 1. General ground: 1.1 The learned Income Tax Officer , Ward 3(1)(1), Bengaluru (hereinafter referred to as AO') has erred in passing the assessment order in the manner passed by him and the learned Commissioner of Income tax(Appeals)-3, Bengaluru [ CIT(A) ] has erred in sustaining the disallowance made by the learned AO. The order passed by the CIT(A) is bad in law and liable to be quashed. 2. Grounds relating to write off of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 234D are not leviable. The appellant denies its liability to pay the interest under sections 234B and 234D, 4. Prayer: 4.1 In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order passed by the learned CIT(A) be quashed or in the alternative (a) Claim of business advances written off amounting to ₹ 1,47,81,233 be accepted as claimed in the return of income and the disallowance be deleted and (b) Interest under section 234B amounting to ₹ 5,70,207 be deleted; (c) Interest under section 234D amounting to ₹ 3,03,850 be deleted. 2. Brief facts of the case are as under: 2.1 Foretell Business Solutions Pvt. Ltd. ( the assessee ) filed return of income for the A.Y 2016-17 on 17/09/2016 with a returned loss of ₹ 22,02,848/ . The Ld. AO passed the order u/s. 143(3) by disallowing the trading loss writing off amounting to ₹ 1,47,81,233/- by assessee as bad and doubtful advance made in the course of the business of the assessee. The assessee is engaged in agri-business and commodity research. It serves its clients through organizing seminars and conferences, providi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal complaint was filed before The Court of Additional Chief Metropolitan Magistrate, Bengaluru. It is submitted that Golden Gate was struck off from the list of companies by the Ministry of Corporate Services, a copy of the printout from the website of the said ministry is placed in the paperbook at pg 203 and its Directors were not traceable and absconding. It is submitted that left with no alternative, the assessee wrote off the entire advance of ₹ 1,47,81,233/- (net) in the statement of profit and loss for the year ending 31/03/2016. 2.5 It is submitted that the assessee during the course of scrutiny assessment appraised these facts along with all necessary supporting documents to support the stand that the trade advance become bad and was irrecoverable. The Ld. AO during the course of assessment u/s 143(3) held as under: a. The assessee has changed its claim from being a bad debt written off as claimed in the return of income to a business expenditure u/s37 of IT Act,1961 and finally to a trading loss u/s 28 of IT Act,1961. b. The amount of ₹ 1,47,81,233/ was advance only and which was never taken into account in computing the income of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the assessee's submission it is seen that the assessee is still trying to recover the money from Golden Gate Corporate Services India and it cannot be said that the money is irrecoverable to the assessee. Based on the above discussion, the amount of ₹ 1,47,81,233/- claimed under the head of Bad Debts written off is disallowed and added back to the income of the assessee. Aggrieved by the order of Ld.AO, assessee filed appeal before Ld.CIT(A). Ld.CIT(A) upheld the action of the Ld.AO by observing as under: 4.3 The submission of the appellant have duly been considered. A perusal of the details filed by the appellant shows that case under Negotiable Instruments Act was first filed by the appellant on 28.01.2016 in relation to cheque of ₹ 61,68,069/-, which had bounced during year under consideration in Nov 2015. Thereafter during the court proceedings summons were issued in the subsequent months. In response to the same the MD appeared before the court. So as such there is nothing on record to suggest that the amount had become irrecoverable during the year under consideration itself. The issue of non-cooperation on part of the MD arose much later a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he remark of the Ld. AO that the assessee initially claimed the loss as bad debt and subsequently having regard to the fact that the loss is on account of non-recoverability of advance made in the course of the business as trading loss, which is allowable u/s. 37(1) of the Act or alternatively is a trading loss and to be allowed for the purpose of determination of the income. 4.2 Further this legal position is reiterated by the Hon'ble High Court of Delhi, in the case of Mohan Meakin Limited vs Commissioner of Income Tax, (2012)348ITR 0109 in para 12 of the order, stated that merely because the claim was not made under one particular provision of the Act, but was so made under another provision of law, one fails to understand as to how the assessee could be debarred to raise such, legal question. Having regard to all this, it was legally permissible to raise question of deduction u/s. 37 even if it was not raised before the authorities below . In the said case it was held that claim of deduction of non-recovery of trade advances was allowable on the facts of the case; merely because the bad debts claim was not made out under one particular provision of law, assessee can ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04/2015. In the balance sheet as on 31st March 2015, the same is shown as advance and in FY 2015-16 the same is debited to profit and loss account as bad debt/advance written off. If the advance was spent for the purpose for which it is made it would have been accounted as seminar expenses in FY 2015-16 and not as a fixed / capital asset. As the amount became irrecoverable and bad in FY 2015-16 the same was debited to profit and loss account as bad debt written off. 4.7 In the instant case, the amount expended is on account of trading loss incurred in the course of the business of the assessee. The amount is paid for booking a hotel for conducting the seminar which is the major income generating activity of the assessee company. Thus, the amount paid as trade advance which became bad is an allowable expense u/s 37(1) of the Income Tax Act. 4. In support, he placed reliance on following decisions: K. Raheja Development Corporation v. ACIT [2005] 2 SOT 744 (BANG.) ITO vs. A.G. Gas Agency [1991] 38 ITD 589 (AHD.) Maheshwari co. v. ITO [1984] 18 TTJ 326 (DEL.) Jethabhai Hirji and Jethabhai Ramdas v. CIT [1979] 120 ITR 792 (BOM.) ACIT v. OSN Infra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en by assessee for recovery of money advanced. Hon'ble Supreme Court in the case of CIT v. Mysore Sugar Company Limited [46 ITR 649(SC)] and by the Hon'ble Madras High Court in the case of Devi Films Private Limited v. CIT [75 ITR 301 (Mad.). Reliance was placed on the judgment of the Hon'ble Supreme Court in the case of CIT v. Abdullabhai Abdulkadar reported in 41 ITR 545. Reliance was also placed on the decision of the Kolkata Bench of this Tribunal in case of DCIT v. ITC Limited in ITA No. 157/KOL/1996, order dated 30.04.2001. 6.4 In the present facts of the case, there is no dispute that the advances were given by the assessee in the normal course of its business and when a loss arises due to non-recovery of such advances and when the same is irrecoverable and written off as such, the same should be allowed as a business loss while computing the profit and gains of business. The Hon'ble Delhi High Court in the case of CIT v. Sumangal Overseas Limited [I.T.A. No. 174 of 2011(Del)] held as follws: A trading loss has a wider connotation than a bad debt. A bad debt may also be a trading loss. But a trading loss need not necessarily be a bad debt. There. may ..... X X X X Extracts X X X X X X X X Extracts X X X X
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