Principal Amount Received Mistakenly and Not as an Advance to be Allowed as an Expenditure u/s 37 of Income Tax act along with the Interest: ITAT [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal (ITAT), held that Authorities have failed to appreciate that the amount was in fact not an advance but was received mistakenly and which under a Court decree had to be returned with interest and thus principal amount and interest is allowable as expenditure under Section 37 of Income Tax Act, 1961.

The assessee M/s. GNG Ltd. has received a sum of Rs. 7,81,481/-  from M/s. Hughes Communications Ltd which had made a wrong payment and the appellant considered the credit in the bank account as its income and raised an invoice.

However Hughes Communications Ltd. filed a Civil Suit and in settlement of said Civil Suit a sum of Rs. 9,00,000/- was paid by the appellant and this repayment included an interest amount of Rs. 2,28,583/-.The Assessing Officer (AO) had disallowed the expenditure on the ground that the said payment cannot be claimed as bad debts under Section 36(1)(vii) of Income Tax Act. 

Aggrieved by the order the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [CIT(A)],which partly confirmed the disallowance on the ground of refund of capital is not allowable as deduction of bad debt, however interest payment was allowed under Section 37 of Income Tax Act.

Further aggrieved the assessee filed an appeal before the Tribunal and the Authorized Representative on behalf of assessee Ankur Goel, submitted the balance Rs. 6,71,417/- also relates to the initial receipt from Hughes Communications which was wrongly offered to tax. It was submitted that further this payment was made pursuant to a civil suit order from Court and it was incurred wholly and exclusively for the purpose of business.

Ajay Kumar appeared as Departmental Representative.

The Bench comprising of N. K. Billaiya, Accountant Member and Anubhav Sharma, Judicial Member observed that CIT (A) has considered the amount of Rs. 7,81,481/- as an advance received by the appellant and accordingly the interest was allowed under Section 37 of Income Tax Act. The Tax Authorities have failed to appreciate that the amount was in fact not an advance but was received mistakenly and which under a Court decree had to be returned with interest.

Further the Tribunal stated that if interest was allowable under Section 37 of Income Tax Act, then the principal amount returned by virtue of order of the Court was also allowable, as both formed the composite money decree.

Hence AO shall allow the whole of the amount as allowable deduction under Section 37 of Income Tax Act and the appeal of the assessee was allowed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates