MEASAGE F.C SONDHI AND COMPANY (INDIA) PRIVATE LIMITED,JALANDHAR vs. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-1, JALNDHAR

Brief fact is that the assessee filed its return u/s 139(1). The return was processed u/s 143(1) dated 03.02.2009 for assessment year 2017-18. In the return, the assessee had written off the capital advance an amount of Rs.13,02,000/- and accordingly debited in its profit and loss account. The amount was mentioned in F.C. Sondhi and Co. (India) Pvt. Ltd. v. DCIT the ITR. During processing of the ITR, the amount was disallowed and added back with the total income of the assessee. The assessee paid some advance amount of Rs.13,02,000/- to M/s Puri Sons Builders for execution of construction work. The said contractor had not executed the work. Accordingly, the contract was terminated and the advance had been written off in the books of the assessee.

The issue was raised before the ld. CIT(A) but the ld. CIT(A) did not allow this expenses Rs.13,02,000/- & passed the order against the assessee. After receiving the order of the ld. CIT(A) the appeal was filed before us.

During the hearing the counsel of the assessee mentioned that the return of advance is a legible expenses u/s 37 of the Act. The counsel also mentioned the order of the ITAT Delhi Bench in the case of M/s JBM MA Automotive v. Dy. CIT in assessment year 2012-13 dated 23.01.2018.

The DR vehemently argued and relied on the order of the ld. CIT(A).

We have heard both the parties. There is reasonable cause for return of the advance payment by the assessee. The documents were produced before the ld. CIT(A) by the assessee himself. Also the assessee filed a paper book on dated 23.02.2022 which is kept in record. The Hon’ble Rajasthan High Court in the case of Commissioner of Income Tax v. Anjani Kumar Co. Ltd. (supra) and held that where the assessee had written off advances made to agriculturists for purchase of agricultural land was to be acquired to set up a factory but ultimately did not materialize and the agriculturists to whom the advances were given also refused to return the amount, the same had to be treated as revenue expenditure. The same view was taken by ITAT Mumbai Bench in the case of M/s Pik Pen Private Ltd. v. ITO in vide order dated 28.01.2010. Here, the assessee paid the advance for civil construction of factory. Later the agreement was F.C. Sondhi and Co. (India) Pvt. Ltd. v. DCIT cancelled & the said contractor refused to return the amount. The said amount was rightly written off from the books of the assessee by debiting profit & loss account. So, the addition was made by the ld. AO should be deleted. In this case, the ground of appeal of the assessee is allowed.

In the result, the appeal of the assessee is allowed.