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Friday, April 26, 2013

Advances written off not allowable unless the same were for the purpose of business

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Mitsu Ltd.
Assistant Commissioner of Income-tax
IT Appeal Nos. 3088 & 3119 (Ahd.) of 2003
Date of Pronouncement- 23.01.2013
The AO has noted that during the course of assessment proceedings, the assessee-company had vide a letter dated 4/3/2002 voluntarily offered for taxation by disallowing a sum of Rs. 15,54,260/-. In view of the said voluntary offer, the impugned amount was added back to the income of the assessee. When the matter was carried before the first appellate authority, it was held that the impugned amount was offered for taxation and it was not a case of mistaken impression of law, therefore, in the absence of any other material, the action of the AO was upheld. The explanation of the assessee was that the said amount was paid for supply of materials/services. As per the said explanation, the assessee could not avail the services. The assessee was also not in a position to recover the advances. This explanation of the assessee was not supported by any cogent evidence. Merely writing of an amount do not by itself qualifies for deduction unless and until it is proved beyond doubt that the expenditure/claim wholly and exclusively for the purpose of the business. The case of CIT v. Abdul Razak & Co. [1981] 136 ITR 825 was decided by the Hon’ble Court on the facts of the case because in that case the assessee was engaged in the business of Commission Agency. The assessee has advanced the amount to the principle which was written off. On those facts, the Hon’ble Court has held that the written off of the amount was allowable as a business loss. On the contrary, the assessee has not placed any supporting evidence through which it could be established that the said write off was for the purpose of the business. Rather, assessee himself had offered the said amount for tax during the course of assessment proceeding, hence the view taken by the Revenue Authorities for this disallowance is hereby confirmed. This ground is dismissed.

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