Income Tax Appellate Tribunal - Ahmedabad
Shree Krishnakeshav Laboratories ... vs Assessee on 13 May, 2010
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD BENCH "A"
BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND
SHRI MAHAVIR SINGH, JUDICIAL MEMBER
Date of hearing: 13.5.10 Drafted on:13.05.2010
ITA No.1980/AHD/2006
Assessment Year : 2003-2004
Shree Krishanakeshav Vs.
Asst. Commissioner of
Laboratories Ltd. Income Tax, Circle-8,
"Devashish", 3 r d Floor, 4 t h Floor, Ajanta
C.G.Road, Navrangpura, Commercial Centre,
Ahmedabad. "A" Wing, Ashram Road,
Ahmedabad-38 009
PAN/GIR No. : AADCS 0519G
(APPELLANT) .. (RESPONDENT)
Appellant by : Shri J.P.Shah Ad.
Respondent by: Shri Rajeev Agarwal CIT D.R.
ORDER
PER N.S.SAINI , ACCOUNTANT MEMBER :-
This is an appeal filed by the assessee against the order of the ld.CIT(Appeals)-XIV, Ahmedabad dated 04.08.2006.
2. Ground No.1 of the appeal reads as under:-
"1. The order passed by the learned CIT (Appeals) is bad in law and on facts hence it is requested the same be cancelled and be suitably modified."
3. This ground of appeal is general in nature and requires no adjudication by us.
-2-4. Ground Nos.2 and 3 of the appeal reads as under:
"2. The learned CIT (Appeals) has erred in confirming disallowance on account of advances written off that were given to various parties amounting to Rs. 1,33,35,818/-.
3. The said advances has been given in the ordinary course of business and hence when written off the same be allowed. It is submitted that the same be granted accordingly."
5. The Learned Commissioner of Income Tax (Appeals) has decided these grounds as under:-
"4. Ground No.2 is against the disallowance of claim of Rs.1,33,35,818/- on account of advance:; written off during the year.
4.1 The appellant claimed the amount written off as bad debt in respect of following items:
S.N. Name of Party Amt. Written
off
1 Indian Hospital Supply Pvt . Ltd. 5231091
2 Shree Healthcare Pvt. Ltd. 334735
3 Shree Biogaurd Laboratories 3195961
4 Jaiwanti Chemicals Ltd. 153992
5 Elexir Pharmaceutical s 3459684
6 Chandra Agro Pvt. Ltd. 885355
7 UP Housing & Dev. Comm.Fin. 75000
Scheme, 1987
Total 13335818
4.2. The A.O. found that these advances were given to various companies for setting up of the new plant for I.V. Sets, but the setting up of the new plant was not materialized. The advances of Rs.52,31,091/- given to the Indian Hospital Supply Pvt. Ltd. for setting up of new plant at Lucknow and for procurement of land and building. Advances of Rs.31,95,961/- were given to Shree Bioguard Laboratories in connection with setting up of a new Unit in U. P. Advances -3- of Rs.34,59,684/- were given to Elexir Pharmaceuticals for machinery, raw materials, packing materials, etc. to set up the new Unit. Advances of Rs.8,85,355/- were given to Chadra Agro Pvt. Ltd. for setting up a manufacturing unit, which did not materialised. Similarly other advances were made acquiring capital assets and new units of plant. The assessee claimed it as bad debts, the A.O. has disallowed on the ground that these amounts of advances were never included at any point of time in the income by the assessee. Hence, the claim is not admissible u/s.36 of the I.T. Act and these advances were of capital nature. Hence, this became a capital loss and does not partake character of bad debt. Even the Auditor has categorised the transaction as a capital nature, in Column No.7 (a) of the Audit Report in Form No.3CB. The appellant submitted that writing up these advances should be allowed as bad debt. Alternatively, it was submitted that they should be allowed as business loss u/s.28 of the I.T. Act. The appellant has also relied on the decision of CIT V/s.Abdul & Co. 136 ITR 825 (Guj.).
4.3 I have carefully considered the facts of the case, submission and case laws made by the appellant and I do not agree with the appellant's view. Advances were given for setting up of new business and for purchase of plant & machinery and land. Hence, this cannot be claimed as bad debt u/s.36 of the I.T. Act as the conditions prescribed is not made. Further these cannot be claimed as business loss u/s.28/37 of the I.T. Act, as these were for the purchase of capital assets and these should be treated as capital loss. The case laws relied upon by the appellant CIT Vs. Abdul Razak & Co. (supra) is not applicable to the facts of the case. In that case the question involved was for recovery of advance by the assessee. He was doing the business of commission agency. Here, the advance was for purchase of capital assets. Hence, the facts are entirely different and the ratio of the case is not applicable. Therefore, it is held that action of the A.O. is justified and accordingly, this addition is confirmed."
6. We have heard the rival submissions and perused the materials available on record. The assessee has claimed as deduction on account of write off of following advances.
S.N. Name of Party Amt. Written
-4-
off
1 Indian Hospita] Supply Pvt . Ltd. 5231091
2 Shree Healthcare Pvt. Ltd. 334735
3 Shree Biogaurd Laboratories 3195961
4 Jaiwanti Chemicals Ltd. 153992
5 Elexir Pharmaceutical s 3459684
6 Chandra Agro Pvt. Ltd. 885355
7 UP Housing & Dev. Comm.Fin. 75000
Scheme, 1987
Total 13335818
The Learned Assessing Officer was of the view that as these advances do not satisfy the condition laid down in section 36, the same cannot be allowed as bad debt under section 36 of the Act. He therefore disallow the claim of the assessee.
7. On appeal, the Learned Commissioner of Income Tax(Appeals) upheld the above view of the Learned Assessing Officer and also observed that the same cannot also be allowed as a trading loss under section 28 or 37 of the Act as these advances were given for acquiring capital assets for new project and therefore, the loss was on capital field.
8. Before us, the Learned Authorised Representative of the assessee argued that as the advance did not result in acquisition of any capital asset of enduring nature and therefore, the same ought to have been allowed as revenue deduction to the assessee. For the above proposition, he relied upon the decision in the case of Patnaik & Co. Ltd. Vs. CIT [1986] 161 ITR 365 (SC), wherein it was held as under:
-5-"(i) that, since the question referred to the High Court was framed on the assumption that it had to be decided in the factual matrix delineated by the Tribunal, the High Court was wrong in re- appreciating the evidence: its finding had to be vacated;
(ii) that, on the facts, no enduring benefit was derived by the appellant by the investment;
(iii) that the Tribunal was right in its conclusion that the loss suffered by the appellant on the sale of the investment was a revenue loss.
Where Government bonds or securities are purchased by an assessee with a view to increasing his business with the Government or with the object of retaining the goodwill of the authorities for the purpose of his business, the loss incurred on the sale of such bonds or securities is allowable as a business loss."
9. Thus, from the above, it was observed that advance was given to boost up the existing business of the assessee and as such advance had not resulted in acquisition of asset of a capital nature, the loss suffered by the assessee was held allowable as a revenue loss by the Hon'ble Supreme Court. In the instant case, we find that the advances were given for setting up of new projects such as Rs. 31,95,961/- were given to Shri Bioguard Laboratories for setting up of a new unit in U.P., Rs. 34,59,684/- were given to Elexir Pharmaceuticals for machinery, raw materials, packing materials, etc. to set up the new unit, Rs.8,85,355/- were given to Chandra Agro Pvt. Ltd. for setting up a manufacturing unit, which did not materialise, similarly other advances were made for acquiring capital assets and new units of plants. No material was brought on record by either of the parties or the lower authorities to show that whether these projects were for the benefit of existing business or were for expansion of the existing business or was for commencement of a new and independent business. In our considered view, finding of the above fact is essential to adjudicate the issue under consideration in light of the above decision of the Hon'ble Supreme Court. Thus, we have no option but to restore the matter back to the file of the Learned Assessing Officer for proper -6- verification of the facts of the instant case and thereafter, deciding the issue afresh in light of the above decision of the Hon'ble Supreme Court. The Learned Authorised Representative of the assessee has also cited certain other decisions before us. As we have restored the issue back to the file of the Learned Assessing Officer for reconsidering his finding on the above relevant fact, we considered it fit that the other decision cited by the Learned Authorised Representative of the assessee is also to be considered by the Learned Assessing Officer. Therefore, the assessee shall be at liberty to make its entire submission before the Learned Assessing Officer who shall considered the same at the time of passing of fresh order. We order accordingly and it is needless to mention that the Learned Assessing Officer shall allow reasonable opportunity of hearing to the assessee before passing order afresh in light of the observations made hereinabove. Thus, the grounds of appeal of the assessee are allowed for statistical purposes.
10. Ground no.4 of the appeal reads as under:-
"4. The learned A.O has erred in disallowing loan to employees of Rs.1,46,345/- written off during the year under review. The said loans have been given in the ordinary course of business of the assessee company and the same are written off and the same are fully allowable. It is submitted that the same be granted accordingly."
11. The Learned Commissioner of Income Tax (Appeals) has decided these grounds as under:-
"5. Ground No.3 is again disallowance of Rs.1,46,345/- on account of loans written off.
5.1 The appellant has advanced loan to it's employees, which was not materilised and claimed it was a bad debt. The A.O. has not allowed this claim and saying that it is not allowable as bad debt for the Auditor has also mentioned in his report in From No.3CD that this was of capital nature. The -7- appellant has submitted that this should be allowed as bad debt, alternatively, it should be allowed as business loss u/s. 28 and also relied case laws in the case of Mahendra Agency Vs. ITO 11 TTJ (And).
5.2 I have carefully considered the facts of the case and submission and case laws made by the appellant and I do not agree with the appellant's view. The appellant is not in the business of giving loan and advances and hence the advances given unrealised, cannot be claimed as bad debt u/s. 36 of the I.T. Act. Further, it cannot be allowed, as business loss as advances were not given during the course of business for business purpose. The case law relied by the appellant Mahendra Agency Vs. ITO (supra), is not applicable here. In that case, it was held that customary loan to an employee, who left the service was allowable as business loss and there sum amount was Rs.1,938/- advance as customary loans and the ITAT held that in the normal course of business, some small amounts are given to the employee as advances. Here, the money given to an office staff is Rs.1,46,345/- and it is not a common practice to give such amount of loan to any staff as customary advance to all person. Hence, it is held that A.O. was justified in disa1lowing the claim of bad debt and accordingly, this ground of appeal is confirmed."
12. We have heard the rival submissions and perused the materials available on record. The assessee claimed deduction of Rs.1,46,345/- in respect of write off of staff advance on the ground that the advance given to the staff were during the course of the business and the same has become irrecoverable. The Learned Assessing Officer disallowed the above claim by observing that the Tax Auditor of the assessee has held the amount as capital loss and moreover as the amount was not included in the income of the assessee the same cannot be allowed as bad debt under section 36 of the Act.
13. The Learned Commissioner of Income Tax(Appeals) confirmed the disallowance by observing the assessee was not engaged in the business of advancing loan and therefore, the amount in question cannot be -8- allowed as bad debt under section 36 of the Act and in respect of the alternate claim of the assessee as regarding allowance of the same as trading loss, the Learned Commissioner of Income Tax(Appeals) observed that the advances were given to the office staff and such advance of Rs.1,46,345/- was not customary in the business of the assessee as was not given to all other staff and was not in the course of business of the assessee for the purpose of its business.
14. We find that it is not in dispute that the advance was given to office staff of the assessee of Rs.146,345/- and which has become irrecoverable and therefore, written off by the assessee in its books of account. In our considered view, a loss arising out of normal transaction and if the same is not allowable under any specific provision of section 36 and 37 of the Act, then the same can be allowed as trading loss under section 28 of the Act unless the loss is in the capital field. In the instant case, the Learned Commissioner of Income Tax(Appeals) disallowed the same under section 28 on the ground that the advance to staff was not made during the course of business and for the purpose of business. Thus, it is observed that it is not the case of the revenue that the loss in question was in a capital field. Further, it is not in dispute that the office staff was engaged for the purposes of business of the assessee and during the course of its business. Further, no material was brought on record to show that the advance was given for some consideration other than the business consideration by the assessee. No relation between the staff and the management of the company was brought on record other than the business relation. In the above circumstances, in our considered view, the contention of the assessee that the advance was given to office staff out of commercial expediency cannot be ruled out. Therefore, in our considered view, the disallowance of such irrecoverable advance as trading loss was -9- not warranted. We therefore, delete the disallowance of RS.1,46,345/- and allow this ground of appeal of the assessee.
15. In the result, the appeal of the assessee is partly allowed.
Order signed, dated and pronounced in the Court on this 21st day of May, 2010 Sd/- Sd/-
( MAHAVIR SINGH) ( N.S. SAINI )
JUDICIAL MEMBER ACCOUNTANT MEMBER
st
Ahmedabad; On this 21 day of May 2010.
Paras
Copy of the Order forwarded to :
1. The Appellant
2. The Respondent
3. The CIT Concerned
4. The ld. CIT(Appeals)-XIX, Ahmedabad.
5. The DR, Ahmedabad Bench
6. The Guard File.
BY ORDER,
स᭜यािपत ᮧित //True Copy//
(Dy./Asstt.Registrar), ITAT, Ahmedabad
Date Initials
1. Draft dictated on 13.05.2010 -------------------
2. Draft Placed before authority 17.05.2010 -------------------
3. Draft proposed & placed 17.05.2010 ------------------- JM
Before the Second Member
4. Draft discussed/approved 17.05.2010 ------------------- JM
By Second Member
5. Approved Draft comes to P.S 18.05.2010 --------------------
6. Kept for pronouncement on 21.05.2010 --------------------
7. File sent to the Bench Clerk 21.05.2010 --------------------
8. Date on which file goes to the ---------------- --------------------
9. Date of dispatch of Order ---------------- ---------------------