Case Law Details
Xchanging Solutions Limited Vs DCIT (ITAT Bangalore)
Claim of non-recovery of advances to employees/vendors as business loss was remanded back to AO
Conclusion: Giving advance to the employees as well as vendors were essential and wholly and exclusively linked to the business of the assessee. Since AO had not examined the claim of deduction u/s 37(1) r.w.s. 28, it was deemed appropriate to restore the issue to the files of AO for de novo consideration.
Held: Assessee had given advances to the employees against their salary for meeting expenses on food and travel while working on clients deliverables / projects. Further, some advances were also given to various vendors / service providers for carrying out various services in connection with the operations of assessee. Certain advances could not be recovered from the employees who had left the services of assessee and also from the vendors due to various reasons. The advances which could not be recovered had been written of to the profit and loss account of assessee for the relevant assessment year and claimed as allowable expenses / business loss in terms of section 37(1) r.w.s. 28. The advances given by assessee was disallowed by AO for the reason that it was not for the purpose of business and the claim of bad debt was not permissible as the same had not been offered as income in the previous year. It was held that the claim made by assessee was not towards bad debt u/s 36(1)(vii), but under the provisions of section 28 as business or trade loss. Giving advance to the employees as well as vendors were essential and wholly and exclusively linked to the business of the assessee. The loss if any is an incidental business loss. Further, the advances given to the vendors, which was non-recoverable, was also allowable as business loss. Since AO had not examined the claim of deduction u/s 37(1) r.w.s. 28, it was deemed appropriate to restore the issue to the files of AO for de novo consideration.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
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