Case Law Details
Two appeals were filed before the ITAT. One by the Revenue and another by the assessee related to A.Y. 2002-03 and A.Y. 2006-07 respectively. Details as under:-
Brief facts of the cases
The assessee company was engaged in the business of manufacturing and sale of Beer as mentioned in the MOA of the company. The assessee company proposes to purchase brewery equipment worth Rs.5.5 crore from M/s Alfa Laval (India) Ltd (‘supplier’), and accordingly a letter of intent (LOI) was issued in May, 1989 between the two parties. As per the terms of LOI, an advance of Rs.1.6 crore, being 30% of equipment value was also paid by the assessee company. Later, assessee-company decided to purchase equipment worth of Rs.3.3 crore only as against the LOI of Rs.5.5 crore. The assessee company asked supplier of Machinery to appropriate the shortfall of Rs.2.5 crore towards M/s Vindale Distilleries Ltd, one sister concern of the assessee company, who was also considering the proposal for purchase of equipment from the same supplier but due to its adverse financial position, facing the difficulties in securing the acceptance of its intent to purchase the machinery on its terms. Supplier of Machinery accepted the proposal put forth by the assessee company on the condition of making good the default, if any, by the assessee company on the part of its sister concern. Subsequently, sister concern of the assessee-company was declared as a sick unit by the BIFR.
The representatives of the assessee company, Vindale and Alfa Laval organized a meeting wherein, it was agreed that the assessee company shall pay part of the outstanding amount payable by Vindale to M/s Alfa Laval and shall co-accept with Vindale, hundis for the final settlement in favour of Alfa Laval (India) Ltd. However unfortunately the bankers of Vindale dishonored the hundis issued in favour of Alfa Laval (I) Ltd. The payment made by the assessee company to M/s Alfa Laval (I) Ltd. on behalf of Vindale against the transaction aggregating to Rs. 1,63,50,000/- was forfeited by M/s Alfa Laval (I) Ltd which is claimed by the assessee as business loss but the Assessing officer disallowed the same observing it as capital loss.
Before CIT(A), It was contended that losses incurred by the assessee company on standing surety for another company in the course of mutually beneficial business transaction arise or spring out from the business and hence the same are allowable u/s. 28 r.w.s. 29 of the Act being incidental to the business, which is accepted by CIT(A). Aggrieved revenue file the appeal before the ITAT and the tribunal vide its order dated 19-06-2009 observed that initially the assessee before the A.O. claimed the deduction as Bad debts written off which was changed before CIT(A) and sought to claim the same as deduction u/s 28 read with 29 of the Act as Business loss. The Tribunal further observed that CIT(A) ought to have given opportunity to the A.O. to examine the alternative claim made by the assessee-company and restored the matter back to CIT(A) for deciding the same a fresh by way of well discussed and well reasoned order.
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