The Commissioner Of Income Tax-18 v. Smd Travel Corporation

IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. INCOME TAX APPEAL (LODG.) NO.2883 OF 2009 The Commissioner of Income Tax-18Vs.SMD Travel Corporation Mr. A.S. Shivsharan for the Appellant.None for the Respondent. .... ..... ..Appellant. ..Respondent. CORAM : DR.D.Y.CHANDRACHUD & J.P.DEVADHAR, JJ. P.C. : 27[th] January, 2010. 1.The office objections are waived and the appeal is by consent taken up for admission. 2.The following question of law is raised in the appeal by the revenue against the judgment of the Income Tax Appellate Tribunal dated 16[th ] July, 2009 pertaining to assessment Year 2003-04 : “Whether on the facts and circumstances of the case and in law,Hon ble Tribunal was right in upholding the order of the CIT’appeal holding that the amount of Rs.1.75 Crores being the amount written off by the assessee is a business loss allowable u/s 37(1) of the I.T. Act, 1961 without appreciating the fact that the deposit appears to be capital in nature and not a debt as provided in Section 36(1)(vii)?” By an agreement dated 1[st] September, 1993 the assessee was appointed as a General Sales Agent for Modiluft Airlines in the territory of –Mumbai Greater Mumbai. The assessee had furnished a refundable securitydeposit of Rs.1.75 Crores. The assessee carried on business as GSA for some time until Modiluft stopped its business operations in 1999. Modiluft failed to return the deposit following which it appears that the assessee instituted a petition for winding up before the Delhi High Court. The CIT (A) during the course of the proceedings called for a remand report. The assessing officer in his remand report stated that the security deposit was paid for the purpose of business and would constitute a business loss allowable under Section 37(1) of the Income Tax Act, 1961. The assessing officer stated that the case of the assessee was covered by the judgment of the Allahabad High Court in the case of Jwala Prasad Radha Kishen (1979 ITR 530) where a security deposit for carrying on business was held not to be a capital expenditure and hence, allowable as a business expenditure. The remand report also noted that the assessee had not recovered any amount from Modiluft and had therefore written off the amount in its Profit and Loss Account and claimed it as a business loss. The CIT (A) allowed the claim of the assessee based on the remand report of the assessing officer. On the facts of the case, the Tribunal was justified in confirming the order of the CIT (A). The finding of fact is that the amount of Rs.1.75 Crores was a trade deposit in the nature of an advance commensurate with the quantum of ticket sales for one month. The Deposit was paid for carrying on business in terms of the agreement. The amount has become irrecoverable despite legal proceedings initiated by the assessee. In this view of the matter, no substantial question of law is raised. The appeal is dismissed. (Dr. D.Y. Chandrachud, J.) (J.P. Devadhar, J.)