M/S. TANECH AGRO CHEMICALS LTD.,CHENNAI vs. ACIT, CHENNAI

This appeal by the assessee is directed against the order passed by the learned Commissioner of Income Tax(Appeals)-11, Chennai, dated 23.10.2017 in for the assessment year 2012-13 passed U/s. 250(6) r.w.s. 143(3) of the Act.

The assessee has raised three grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in confirming the Ld.AO towards disallowance of bad debts against the advance given to General Manager (Operations) for medical treatment.

The brief facts of the case are that the assessee is a limited company filed its return of income for the assessment year 2012-13 on 27.09.2012 admitting ‘Nil’ income. Initially the return was processed U/s.143(1) of the Act and subsequently the case was selected for scrutiny and notice U/s.143(2) & 142(1) of the Act was issued on 06.08.2013 & 22.05.2014 respectively. Finally assessment order was passed U/s.143(3) of the Act on 11.03.2015 wherein the Ld.AO made addition of Rs.15,94,386/- towards disallowance of salary advance given for the treatment of the General Manager (Operations) which was treated as bad debts due to his demise.

The Ld.AO was of the view that salary advance is in the nature of capital expenditure and the same cannot be allowed as revenue expenditure. Thereafter the Ld.CIT(A) also confirmed the order of the Ld.AO agreeing with his view relying on few decisions of Hon’ble higher Judiciary.

After hearing both sides and perusing the materials on record, we find that the assessee company has been and being benefited by the sincere efforts of the General Manager (Operations). Keeping in view of his meritorious service which was eminently required for the existence and growth of the assessee company, the Board of Directors has granted salary advance for the treatment of its General Manager (Operations), on the hope that he will soon recover and be useful for the organization. Such nature of expense is nothing but expenditure incurred during the course of the business of the assessee. Considering these facts, we are of the view that the decision cited by the Ld.CIT(A) for upholding the order of the Ld.AO are not applicable to the facts of the case before us. Therefore we hereby direct the Ld.AO to delete the addition made for Rs.15,94,386/- by treating the irrecoverable salary advance as bad debts.

In the result the appeal of the assessee is allowed.