Irrecoverable Loss due to Technical Snags and Bad Weather Conditions: ITAT

The Income Tax Appellate Tribunal (ITAT), Pune bench, while granting relief to the assessee, held that deduction shall be allowable for revenue loss due to technical snags and bad weather conditions.

Facts of the case:-

The assessee is an export house dealing in Mango Pulp etc. during the relevant assessment year, the assessee claimed a business loss of Rs.1,43,94,062/-. It was explained before the authorities that the assessee decided to run Alliance Agro, Nagpur (hitherto a sick company) along with two more companies for processing Mango pulp and pumped in funds to kick-start the factory. Certain expenses were incurred for the operations of Alliance Agro. Unfortunately, due to the severe heatwave in Nagpur, fruits were overripe and the plant could not start in time. However, the Assessing Officer rejected the explanation and disallowed the expenses treating the same as a capital loss.

ITAT Vice-President R S Syal and Judicial Member Partha Sarathi Chaudhary noted that in order to accelerate its business, the assessee entered into an understanding with the company for pumping in funds so that the Mango pulp produced there could be used in its business.


“Due to weather conditions and other factors beyond control, the assessee’s effort could not fructify and the amount invested in the company for purchases and meeting other expenses became irrecoverable which the assessee wrote off. A director of Alliance Agro furnished a letter dated 15-11-2016 addressed to the assessee in which the genuineness of the transactions has been admitted in an elaborate manner. Alliance Agro also confirmed in that letter that it jointly decided with the assessee to process Mango pulp at its factory premises and in the absence of working capital finance, the assessee agreed to finance the entire operations and functioning of the factory. Due to technical snags developing in the factory, the production could not be commenced in time and further due to unprecedented heatwave, the Mango purchased by the Alliance Agro got overripe and most of that was rendered useless for production,” the Tribunal said.

“The further fact that the business of Alliance Agro could not take off properly due to technical snags and the bad weather conditions reinforces the assessee’s claim of having genuinely incurred loss of Rs.1.43 core for its business purpose which became an irrecoverable loss. As the loss is only in the revenue field, we are satisfied that the ld. CIT(A) took an unexceptionable view on this issue by allowing the deduction. We, therefore, affirm the impugned order,” the Tribunal added.

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