I.T.O Vs. M/s. Shree Gouri Shankar Jute Mills Ltd (ITAT Kolkata)-It is not in dispute that the advance was made for purchase of Jute during the course of business of the assessee. Since the supplies could not materialize, the assessee to protect its money started charging interest and was able to recover a sum of Rs. 23 lacs towards principal portion. The interest income on such advances from Asst Years 1991-92 to 1997-98 have been duly offered to tax by the assessee as business income and assessed as such . Hence it will be factually incorrect to say that the nature of advance was not established by the assessee before the lower authorities. The scrutiny assessment orders of earlier years itself would stand testimony to the contentions of the assessee. Even otherwise, we find that since the trade advance was made during the course of its business by the assessee, any loss on account of recoverability would automatically fall under the category of trade debt and hence is allowable as business loss. Reliance in this regard is placed on the decision of the Hon’ble Supreme Court in the case of CIT vs Mysore Sugar Co. Ltd reported in (1962) 46 ITR 649 (SC) .
INCOME TAX APPELLATE TRIBUNAL, “C” BENCH, KOLKATA
Before : Shri M. Balaganesh, Accountant Member, and
Shri S.S. Viswanethra Ravi, Judicial Member
I.T.A No. 1185/Kol/2012 A.Y. 2008-09
I.T.O Vs. M/s. Shree Gouri Shankar Jute Mills Ltd
For the Appellant/department: Shri Pinaki Mukherjee, JCIT, ld.DR
For the Respondent/assessee : Shri Subash Agarwal, Advocate, ld.AR
Date of Hearing: 01-10-2015
Date of Pronouncement: 8-10-2015
ORDER
SHRI M.BALAGANESH, AM
This appeal of the revenue arises out of the order of the Learned CIT(A) in Appeal No. 375/CIT/(A)-I/Wd-1(1)/10-11 dated 01-05-2012 for the Asst Year 2008-09 passed against the order of assessment framed by the Learned AO u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
2. Pinaki Mukherjee, JCIT, the Learned DR argued on behalf of the revenue and Shri. Subhash Agarwal, Advocate, the Learned AR argued on behalf of the assessee.
3. The first issue to be decided in this appeal is as to whether the Learned CIT(A) is justified in deleting the addition made in the sum of Rs. 1,13,48,556/- towards miscellaneous expenses written off in the facts and circumstances of the case.
4. The brief facts of this issue is that the assessee is engaged in the business of manufacture of Jute and in the course of its business had paid advance for purchase of jute to Shri.R.K.Jalan in the early 1990s amounting to Rs. 70,02,013/-. The said party Shri.R.K.Jalan did not supply the Jute to the assessee and accordingly the same was converted into loan transaction by the assessee commencing from Asst Year 199 1-92 onwards and interest was charged thereon. The assessee had duly offered the interest income derived thereon from Asst Years 1991-92 to 1997-98 amounting to Rs. 66,46,543/- in total under the head “income from business” and the same was accepted by the revenue in section 143(3) proceedings. During the period from Asst Years 1991-92 to 1995-96, the assessee was also in receipt of certain principal dues from the said party Shri.R.K.Jalan to the extent of Rs. 23,00,000/- and the balance of advance receivable from Shri.R.K.Jalan was Rs. 47,02,013/- from Asst Year 1995-96 onwards. The assessee stopped charging interest on the aforesaid advance from Asst Year 1998- 99 onwards as it found that the recovery of principal amount of advance itself is doubtful of recovery.
4.1. On knowing the information about the death of the concerned party Shri.R.K.Jalan, the assessee thought it fit during the Asst Year 2008-09 to write off the entire trade advance of Rs. 1,13,48,556/- represented by principal portion thereon amounting to Rs. 47,02,013 and interest receivable thereon amounting to Rs. 66,46,543/-. This was duly written off by debiting Miscellaneous expenses written off by corresponding credit to the party account (Shri.R.K.Jalan) by the assessee in Asst Year 2008-09 and deduction was claimed accordingly in the return of income as bad debts. The Learned AO disallowed the same on the ground that the provisions of section 36(2) were not satisfied by the assessee and moreover, it is not an allowable expenditure under section 37 of the Act since giving such advance is not the business of the assessee. The Learned AO also gave a finding in the assessment order vide para 2.4 page 3 that the interest income offered on such advance in the earlier assessment years were not offered as business income of the assessee. On first appeal, the Learned CITA deleted the addition by accepting to the contentions of the assessee. Aggrieved, the revenue is in appeal before us on the following grounds:-
