Unison Hotels Pvt. Ltd. Vs ACIT (ITAT Delhi)
In this appeal, the Tribunal examined whether advances written off by a hotel company were allowable as deductions, either as bad debts under section 36(1)(vii) or as business losses under sections 28 and 37(1) of the Income Tax Act. The assessee had written off three advances: ₹3.27 crore paid as security deposit for acquiring rights to renovate and operate a restaurant property, ₹1.50 crore advanced to an individual allegedly to secure fabric supply for hotel operations, and ₹11.06 lakh paid as earnest money deposit in a joint bid for natural gas supply.
On the ₹3.27 crore deposit, the Tribunal accepted that the amount was paid in the ordinary course of business to secure a 20-year right to renovate and operate a restaurant property connected with hotel operations. Due to a major fire at the hotel premises in 2008, the assessee could not fulfill the agreement terms, repeatedly sought refund, and eventually recovered only ₹72.50 lakh, writing off the balance. The Tribunal held that although the claim did not satisfy bad debt conditions under section 36, the unrecovered deposit constituted a business loss in the revenue field arising from commercial expediency and was allowable under sections 28 and 37(1). The disallowance was deleted.
