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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM & HON’BLE SHRI MANOMOHAN DAS
आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2017-18 arises out of the order of learned Commissioner of Income Tax (Appeals)-18, Chennai [CIT(A)] dated 25-03-2022 in the matter of an assessment framed by Ld. Assessing Officer [AO] u/s.143(3) of the Act on 27-12-2019. The grounds raised
by the assessee read as under:
1. The Ld. CIT(A) has erred in the facts and circumstances of the case.
2. The Ld.CIT(A) erred in confirming the addition made by the Assessing Officer without considering the submissions and documentary evidences placed on record.
3. The Ld. Assessing Officer erred in disallowing the advance written off, amounting to Rs.2,01,33,749/-, being advance money given by the appellant company to M/s. Maison Restaurants Private Limited for Restaurant and Hospitality business.
4. The Assessing Officer failed to consider the fact that the advance was given for furtherance of the business of the appellant and the nature of business is very much enshrined in the object clause of appellant's Memorandum of Association. 5. The Ld. Assessing Officer failed to consider the fact that the said business did not take-off and the advance was long outstanding, warranting write off by the management. 6. For the above reasons and other reasons that may be adduced' at the time of hearing, the addition made by the Assessing Officer may kindly be deleted and justice be rendered.
As is evident, the solitary issue in the appeal is disallowance of Rs.201.33 Lacs as sustained by first appellate authority in the impugned order. Having heard rival submissions, the impugned issue is adjudicated as under. The assessee being resident corporate assessee is stated to be engaged in construction business.
The impugned addition stem from the fact that the assessee wrote-off the impugned amount and claimed the deduction of the same in the Profit & Loss Account as business loss u/s 37(1). It was submitted that the sum was paid as an advance to venture into hospitality and restaurant business and the impugned sum was paid to another corporate entity i.e., M/s. Maison Restaurants Pvt. Ltd. The assessee submitted that the said amounts were remitted since its main objects include venturing into hospitality and restaurants business. The sum so lost would qualify for deduction u/s. 37(1) of the Act. However, Ld. AO denied the deduction on the ground that the assessee did not furnish any evidence that the said amount became irrecoverable.
The Ld. CIT(A) confirmed the impugned addition by observing as under:
6.4 I have considered the submissions of the AR. The appellant has not established with any evidence that the advance was made to M/s Maison Restaurant P Ltd to show that it was in the course of its normal business. No agreement between the parties was furnished nor the terms and conditions for which the advance given was stated. What was the project and why it did not take off are not known. The appellant had also not proved that the advance has become irrecoverable by showing any steps taken by the appellant to recover the amounts. Even if the objects contained in clause 4 and 5, it seems that the advance given for food venture would not fall under the said clauses since they deal with undertaking repairs, demolition and construction work or in the absence of the reason for the to purchase or to take on lease etc. advance, no inference could be drawn. All things considered, the appellant was not able to prove that the advances given to M/s Maison Restaurant P. Ltd. was in the course of business and it has become bad and has not discharged its burden of proving that the expenditure was incurred wholly and exclusively for its business purpose. Suppression of facts and non- furnishing of evidence for its claim goes against the assessee as per section 114(g) of Evidence Act, as assessee is with the complete knowledge of the transaction, yet chooses to withhold information for its own ends. As the assessee has not given the crucial evidence, there is a legal presumption that had the assessee submitted the copy of the agreement with M/s Maison Restaurant P Ltd, details of the project, why it has not taken off and how the said advance has become irrecoverable, it would go against the assessee, and that's why it suppresses the crucial evidences not only before the AO, but before this appellate authority also, While it is in realty business, the assessee has not established as to how it could be a revenue expenditure when the advance was claimed to have been made to venture into the new Hospitality and Restaurant business, as it could only be considered as capital loss. Without coming out clean with all the basic facts of the issue, assessee jumps 'into the court decisions. It cited the case of CIT v Sree Ganesh Stores [2004] 266 ITR 595 which held losses would be deductible from business profits as long as the relevant payment was connected with and made in the course of assessee's business activities. The capital advance made is neither connected with the assessee's realty business nor made in the course of assessee's realty business activities and hence the cited decision is not applicable to assessee's case. Assessee relied on the decision of Hon'ble Madras High Court in the case of Tamilnadu Magnesite Ltd v ACIT in T.C.(Appeal) Nos.907 and 908 of 2007 dated 5.6.2018. In that case, the fact is: Govt of Tamilnadu had ordered the closure of the implementation of the Chemical Benefaction Project vide G.O.No.140 and consequent to it, the expenditure on the project was claimed by that assessee. It can be seen clearly that in that case, the project was connected to the business of the assessee and why the project has come to an end is clear. In the instant assessee's case, it is not in the course of assessee's realty business and why and how the project has come to an end has not at all been disclosed by the assessee. With these distinguishing facts, it is clear as to why this decision is not applicable to the, assessee. Assessee again relied on the decision of CIT v Mysore Sugar Co Ltd |1962] 46 ITR 649 which held that business advances, which are written off in the books can be claimed as revenue expenses u/s 37. In the instant case, the advance is not relating to the revenue account of the realty business of the assessee; it is capital advance for altogether new Restaurant and Hospitality business. In view of the distinguishing facts, the decision cited by the assessee is not applicable. Assessee stated that it need not establish the irrecoverability of the advance paid, quoting TRP Ltd v CIT (2010) 323 ITR 397 (SC), which held that it is not necessary for the assessee to establish that his debt has become bad and writing off in the book would be sufficient. Yes, it may be true that the assessee need not establish that the debt has become bad,
4 - but the assessee cannot suppress the basic fact as to how and why the advance paid has become bad. Further, the said decision is not applicable to capital advance made to altogether a new business venture. Considered all in totality, I have no other alternative except to confirm the disallowance made by the AO. I therefore sustain the disallowance of Rs.2,01,33,749/- made in the assessment and confirm the disallowance. The grounds are thus dismissed.
Aggrieved as aforesaid, the assessee is in further appeal before us.
We find that there is no material change in the factual matrix before us. Except for financial statements of M/s Maison Restaurant P. Ltd., there is no other document to substantiate the claim made by the assessee. It may be true that the assessee was engaged in certain line of business, however, the purpose for which loan was granted, is not, at all, clear from the material on record. There is no document or agreement between the assessee and the other party which would throw any light on the nature of transaction. Therefore, it could not be said that the advance was given in the normal course of business. In fact, M/s Maison Restaurants P. Ltd. has classified the advances as unsecured loans only. The advance is stated to have been written-off merely on the advice of the Auditor that the net worth of the borrower was eroded fully. However, the said fact alone, would not qualify the assessee to claim the deduction of the same unless it was shown that the loss was in the course of business and the same constituted capital loss for the assessee. In the absence of any such evidences forthcoming from the assessee either before lower authorities or before us, no interference is called for in the impugned order.
5 - 5. In the result, the appeal stands dismissed. Order pronounced on 26th April, 2023.