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May 24, 2023

Unrecoverable advances made to the corporation that are considered business losses may be written off

Unrecoverable advances made to the corporation that are considered business losses may be written off

Fact and issue of the case

This appeal filed by the revenue is directed against the order passed by the learned Commissioner of Income Tax (Appeals)-14, Chennai, dated 26.06.2018 and pertains to assessment year 2012-13

The revenue has raised the following grounds of appeal

The order of the learned CIT(A) is contrary to facts and circumstances of the case

The learned CIT(A) erred in deleting the addition made towards claim of advance written off to the extent of Rs.6.32 Crores

The learned CIT(A) ought to have appreciated the fact the amount was shown in the books of account of the lender and borrower as unsecured loan only

The learned CIT(A) ought to have considered that the amount advanced falls under the capital field only since the amount advanced got no connection with the expansion or advancement of assessee’s business

The learned CIT(A) ought to have appreciated the fact the assessee failed to adduce any evidence before the assessing officer that the amount advanced got proximate nexus with the business of the assessee by producing document evidence to the above effect

For these and other grounds that may be adduced at the time of hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored

Observation of the court

We have heard both the parties, perused materials available on record and gone through orders of the authorities below. The facts borne out from record indicates that the assessee had given loan and advance of Rs. 7.5 crores to M/s. Samjass IT Services India Ltd, a company in which the assessee was one of the director and shareholder. It is also a matter on record that the company was engaged in the business of software development and IT related services. The evidences filed by the assessee and appraised by the ld. CIT(A) clearly shows that the assessee has lent money in the ordinary course of its business for development of software for his proprietary concern Vkrish Business Services. Further, when the business of the assessee was failed due to various reasons, the assessee was forced to take over assets and liabilities of the company and in this process, he had incurred a loss of Rs. 6.32 crores on account of advances given to said company. Since, there was an inextricable link between advances given to the company and business of the assessee, and further, the assessee has derived business advantage by lending money to said company, in our considered view, written off of irrecoverable advances given to said company partakes the nature of business loss which can be allowed as deduction. The ld. CIT(A), after considering relevant facts has rightly held that the assessee has filed all evidences to prove that how advances given to company is in the nature of revenue loss. Therefore, we are of the considered view that there is no error in the reasons given by the ld. CIT(A) to delete additions made towards disallowance of written off of advances and thus, we are inclined to uphold the findings of the ld. CIT(A) and dismiss appeal filed by the revenue

In the result, appeal filed by the revenue is dismissed

Order pronounced in the court on 04th May, 2023 at Chennai


In the result, appeal of the assessee is allowed and ruled in favour of the assessee

Read the full order from here


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