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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 22.07.2016 passed by the Commissioner of Income Tax (Appeals) -3, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2012- 13.
The assessee has raised the following grounds: - “
1 On the facts and in the circumstances of the case the learned Commissioner of Income tax (Appeals) 3, Mumbai, erred in confirming the order of the Assessing Officer in respect of disallowance of Rs. A.Y.2012-13 15,97,433/- and Rs.4.00,000/-, being business advances written off, under section 28 of the Act.
2. On the facts and in the circumstances of the case the learned Commissioner of Income tax has also erred in confirming the disallowance of Rs.15,97,433/-, business advance written off by the appellant, which was given by the appellant to develop the business of the appellant viz plastic containers to M/s Charaniya Electronics Pvt. Ltd., who was manufacturing plastic containers. However, due to its weak financial condition it could not help the appellant to develop the business. Hence, the appellant has written off the same.
3. The appellant had advanced Rs. 4,00.000/- vide demand draft no. 433196 dated January 15.2011 to finance Mr. Salim Shaikh, on his claim, that he can manufacture non-fuel based two wheelers. However, the said project could not have materialized. Therefore, the said advance was written off under section 28 of the Act.”
3. The brief facts of the case are that the assessee filed its return of income for the A.Y. 2012-13 on 24.09.2012 declaring total income to the tune of Rs. Nil. The assessee declared book profit of Rs.1,13,91,173/- u/s 115JB of the Act. The return was processed u/s 143(1) of the I.T. Act. Notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee is engaged in the business of Investment, Financials, Developments & Consultants Services. The notice was issued to the assessee. On verification, the AO arrived at this conclusion that bad debts were not related to the business, therefore, the claim of the assessee in connection with bad debts in sum of Rs.19,97,433/- was disallowed u/s 37(1) of the Act and added to the income of the assessee. Feeling aggrieved, the assessee filed an appeal before the CIT(A) who confirmed the addition, therefore, the assessee has filed the present appeal before us.
ISSUE Nos. 1 to 3 2 A.Y.2012-13
All the issues are in connection with the non-allowance of return of business advances in sum of Rs.15,97,433/-. The Ld. Representative of the assessee has argued that the assessee paid the advance in sum of Rs.15,97,433/- to M/s. Charaniya Electronics Pvt. Ltd. who was the manufacturing plastic containers but fail to comply the order. It is also argued that the assessee has paid in sum of Rs.4,00,000/- to Mr. Salim Shaikh who come up with the idea of manufacture of non-fuel based two wheelers. The said project could not be materialized and the advance become irrecoverable so the same was set-off but the AO has wrongly disallowed the claim of the assessee, therefore, the finding of the CIT(A) is not justifiable, hence, is liable to be set aside and the claim of the assessee in sum of Rs.19,97,433/- is liable to be allowed in the interest of justice. However, on the other hand, the Ld. Representative of the Department has strongly relied upon the order passed by the CIT(A) in question. The AO declined the claim of the assessee on the basis of this fact that the advance was not for the business activity which became bad debts. Moreover, it is on record that it is not the bad debts rather advance paid to the other party for some specific purpose which is not clear on record. The assessee’s memorandum of Association and balance-sheet and copy of ledger account of Charanya Pvt. Ltd for the period of w.e.f. 1st April, 2004 to March 31, 2012. Confirmed that the advances has been paid to Charanya Pvt. Ltd. and Salim Shaikh Bike Project. There is no evidence on record to which it can be assumed that the same was for business purpose. There is no iota of evidence on record to which it can be assumed that the advance was paid for business purpose. Memorandum of Association is on the file but there should be some agreement between the parties to which it can be assumed 3 A.Y.2012-13