Commissioner of Income Tax vs Gujarat Mineral Development Corporation Ltd.

The following questions are proposed for admission of this appeal:

(i) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in holding that the amount given to the Gujarat Maritime Board for construction of jetty and platform being written off as bad debts was allowable expenditure being a trading loss ?

(ii) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in allowing the deduction u/s 80-I of the Income Tax Act, 1961, on the extraction and selling of lignite?

So far as the first question is concerned, admittedly the amount was given by the assessee to the Gujarat Maritime Board for construction of jetty and platform and ultimately when the construction has not been made and the amount has not been returned, can it be said that it is a trading loss. The Tribunal has considered this aspect in para 12 of its order, which is reproduced below:

We have heard the learned representatives of the parties, perused the record and gone through decisions cited. The decisions cited by the learned Departmental representative are distinguishable on facts. In both the cases of Commissioner of Income Tax Vs. Ambica Mills Ltd., and Commissioner of Income Tax Vs. Shri Digvijay Cement Company Ltd., the facts were related to feasibility report for a new project and not for the existing business. In the case under consideration, the assessee advanced Rs. 35 lakhs to the Gujarat Maritime Board for development of Koteswar port for transport of lignite by sea route in place of road transportation. The port was not completed. The assessee could not get the money back. We find that there is a direct and prominent nexus between the business operation and the loss or it is incidental to it. Under the circumstances and that from commercial standard, such loss is considered to be a trading loss and become deductible from the total income. The risk is inherent in the carrying on the business and is either directly connected with it or incidental to it, loss is allowable. We accordingly allow the claim of the assessee and delete the impugned addition. However, it is pertinent to mention that if any amount received subsequently it is subject to tax as per law. The Assessing Officer is directed accordingly.

Therefore, the first question cannot be said as substantial question of law.

The appeal is admitted only in respect of question No. 2.

Issue notice to the other side. Paper book be filed within three months.

List the appeal for final hearing after three months.