Case Law Details

Case Name : ITO Vs Roj Enterprises Pvt. Ltd. (ITAT Pune)
Appeal Number : ITA No.1292/PUN/2018
Date of Judgement/Order : 08/10/2021
Related Assessment Year : 2004-05

ITO Vs Roj Enterprises Pvt. Ltd. (ITAT Pune)

ITAT has held that loss made by the Assessee due to bad weather and technical snags in regard to the money he put in another business in order to further his own business shall be considered as a Revenue Loss under the Income Tax Act, 1961 (the IT Act).

The present appeal was filed by the Income Tax Officer, Pune (“the Appellant”) against the order of the Commissioner of Income Tax (Appeals), Pune made in favor of Roj Enterprises Pvt. Ltd. (“the Respondent”). The Respondent is an export house dealing in Mango Pulp. During the course of assessment proceedings for 2004-05, the Appellant observed that the Respondent claimed deduction of Rs.1,43,94,062/- which was declared a business loss. The Appellant had sought an explanation from the Respondent for the said declaration.

The Respondent submitted that it decided to run Alliance Agro, Nagpur along with two more companies for processing Mango pulp and pumped in funds as Alliance Agro did not have any working capital finance. The Respondent had an agreement with Alliance Agro for obtaining the supply of the said processed Mango pulp. Certain expenses were incurred for the operations of Alliance Agro. Unfortunately, due to severe heat wave in Nagpur and technical snags, fruits got overripe and additionally, the plant of Alliance Agro could not start in time. The Respondent submitted that the amount incurred by it for operations of Alliance Agro were in pursuance of its business and resulted in to the aforementioned loss.

Not convinced, the Appellant disallowed the deduction of loss of Rs. 1,43,94,061/- in his assessment order. The Commissioner of Income Tax (Appeals), Pune overturned the said assessment order of the Appellant. Aggrieved thereby, the present appeal came up before the Tribunal.

The Hon’ble ITAT, Pune accepted the submissions of the Respondent and observed that the Respondent’s loss was incurred for its business purpose whereby the loss is of a revenue nature. Hence, the Hon’ble ITAT Pune held that the said loss of Rs. 1,43,94,061/- shall be allowed as a deduction on account of it being a Revenue Loss to the Respondent.

FULL TEXT OF THE ORDER OF ITAT PUNE

This appeal by the Revenue arises out of the order passed by the CIT(A)-13, Pune on 25-04-2018 in relation to the assessment year 2004-05.

2. It is a recalled matter inasmuch as the earlier order passed by the Tribunal on 29-08-2019 came to be recalled vide its latter order dated 19-03-2021.

3. The only issue involved in this appeal, through various grounds, is against granting deduction of Rs.1,43,94,061/-.

4. Briefly stated, the facts of the case are that the assessee is an export house dealing in Mango Pulp etc. A return of income was filed declaring loss of Rs.2,50,01,337/-. The assessee company, in an earlier year, took over a business concern, namely, M/s. Roj Enterprises from its sole proprietor Mr. R.N. Kulkarni. During the course of assessment proceedings, the AO observed that the assessee claimed deduction, inter alia, of Rs.1,43,94,062/- which was declared as an item of extraordinary loss. On being called upon to explain the nature of the deduction, the assessee submitted that it was a business loss. It was further explained that it decided to run Alliance Agro, Nagpur (hitherto a sick company) along with two more companies for processing Mango pulp and pumped in funds to kick-start the factory. Certain expenses were incurred for the operations of Alliance Agro. Unfortunately, due to severe heat wave in Nagpur, fruits were overripe and the plant could not start in time. The assessee also gave a bifurcation of the loss of Rs.1.43 crore, being, expenses at Alliance Factory (as reduced by stock salvaged and purchased) amounting to Rs.1,12,84,898/- and opening stock of Alliance puffed due to excessive heat (607 bags of 250 kg each) amounting to Rs.39,01,163/-. In support of the total amount of loss incurred of Rs.1.43 crore, the assessee submitted that it agreed to work with Alliance Agro for conversion of Mango pulp at their facility. It agreed to make payments on their behalf with an understanding that it will purchase Mango pulp at basic cost plus Rs.4500 PMT on converted product. Since Alliance Agro, a sick company, did not have any working capital finance, the assessee agreed to put in the money for purchase of Mango pulp. The amount incurred by the assessee company for operations of Alliance Agro, which was a part of its business, resulted in to the above loss. In support of this contention, the assessee also furnished other collateral details. The AO called upon the assessee to produce representatives of Alliance Agro, to which the assessee submitted that it was beyond its control as the representatives from Alliance Agro were not putting in appearance before the AO and the necessary action may be taken at the end of the Revenue. Not convinced, the AO disallowed the loss of Rs.1,43,94,061/-. The ld. CIT(A) overturned the assessment order on the point and deleted the addition. Aggrieved thereby, the Revenue has come up in appeal before the Tribunal.

5. We have heard both the sides and gone through the relevant material on record. It is an admitted position that the Alliance Agro is unrelated to the assessee and stands at an arm’s length. The Government of Maharashtra was a stakeholder in this company, which had turned sick. In order to accelerate its business, the assessee entered into an understanding with the company for pumping in funds so that the Mango pulp produced there could be used in its business. Due to weather conditions and other factors beyond control, the assessee’s effort could not fructify and the amount invested in the company for purchases and meeting other expenses became irrecoverable which the assessee wrote off. A director of Alliance Agro furnished a letter dated 15-11-2016 addressed to the assessee in which the genuineness of the transactions has been admitted in an elaborate manner. Alliance Agro also confirmed in that letter that it jointly decided with the assessee to process Mango pulp at its factory premises and in the absence of working capital finance, the assessee agreed to finance the entire operations and functioning of the factory. Due to technical snags developing in the factory, the production could not be commenced in time and further due to unprecedented heat wave, the Mango purchased by the Alliance Agro got overripe and most of that was rendered useless for production. A copy of this letter has been reproduced in the impugned order. The fact that the assessee put in money for operationalising Alliance Agro’s business, which was, in turn, meant for facilitating its own business, is not disputed. A copy of the ledger account of Alliance Agro in the books of assessee has been placed on record, which clearly depicts various payments over the period. The further fact that the business of Alliance Agro could not take off properly due to technical snags and the bad weather conditions reinforces the assessee’s claim of having genuinely incurred loss of Rs.1.43 core for its business purpose which became irrecoverable loss. As the loss is only in the revenue field, we are satisfied that the ld. CIT(A) took an unexceptionable view on this issue by allowing deduction. We, therefore, affirm the impugned order.

6. In the result, the appeal is dismissed.

Order pronounced in the Open Court on 08th October, 2021.

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