Delhi HC upholds Disallowance of Business Loss in absence of Necessary Documents [Read Order]

The Delhi High Court upheld the disallowance of Business Loss in the absence of necessary documents.

The appellant/assessee, Samtel Glass Limited, is aggrieved on account of the fact that the Income Tax Appellate Tribunal [ITAT], has sustained an addition of Rs.8,55,17,103/- by disallowing what, according to it, was a genuine business loss.

The appellant/assessee had entered into an agreement with a company which is presently known as Samtel Avionics Ltd. [“SAL”]. Under the said agreement, the appellant/assessee was required to supply specialized glass used in the avionics industry. SAL conducted inspections in March-April 2010 which revealed defects in the product manufactured by the appellant/assessee and forfeited the security deposit which was made over by the appellant/assessee, on account of failure on its part to the supply the product, the amount which was forfeited was Rs.6,95,80,595/-.

A Division Bench of Justices Rajiv Shakdher and Anish Dayal observed that “Having perused the record, it is quite clear that this is a case involving appreciation of the circumstances surrounding the working of the aforementioned agreement and the material placed on record by the appellant/assessee.”

“While we agree with Mr Jain that the Tribunal could not have made an observation to the effect that, since better technology was available, they ought not to have entered into an arrangement with SAL, what has persuaded us to uphold the impugned order is that no material that was produced by the appellant/assessee to establish the transaction in issue was genuine” the Court noted.

The Court noted that the appellant/assessee failed to produce the original agreement and the amount which was forfeited towards security deposit was an odd amount. As noticed above the amount in issue is Rs.6,95,80,595/-. The forfeiture notice was issued only on 22.02.2015, when, even according to the appellant/assessee, SAL had discovered that product was not of requisite quality, much earlier.

Lastly, it was observed that the write off of Rs.1,59,36,508/- was carried out by SAL only in Financial Year (FY) 2014-15 [AY 2015-16], although, according to the appellant/revenue, the defect in the product and its usefulness was discovered way back in March-April 2010.

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