Irrecoverable loss incurred due to bad weather and technical snags would be considered as Revenue Loss

The Income Tax Appellate Tribunal (ITAT) in Pune has ruled that losses incurred due to adverse weather conditions and technical problems in a related business venture can be treated as a revenue loss for tax deduction purposes. The case involved Roj Enterprises Pvt. Ltd., which invested in another company to secure its own supply chain. Despite the initial disallowance by the Income Tax Officer, the ITAT found that the losses were indeed incurred for the purpose of the assessee's business and therefore should be allowed as a deduction.

The Hon'ble Income Tax Appellate Tribunal, Pune ("the ITAT Pune") in the case of Income Tax Officer, Pune v. Roj Enterprises Pvt. Ltd. [ITA No.1292/PUN/2018 decided on October 8, 2021] has held that loss made by the Assessee due to bad weather and technical snags in regard to the money he put in another business in order to further his own business shall be considered as a Revenue Loss under the Income Tax Act, 1961 ("the IT Act").

The present appeal was filed by the Income Tax Officer, Pune ("the Appellant") against the order of the Commissioner of Income Tax (Appeals), Pune made in favor of Roj Enterprises Pvt. Ltd. ("the Respondent"). The Respondent is an export house dealing in Mango Pulp. During the course of assessment proceedings for 2004-05, the Appellant observed that the Respondent claimed deduction of Rs.1,43,94,062/- which was declared a business loss. The Appellant had sought an explanation from the Respondent for the said declaration.

The Respondent submitted that it decided to run Alliance Agro, Nagpur along with two more companies for processing Mango pulp and pumped in funds as Alliance Agro did not have any working capital finance. The Respondent had an agreement with Alliance Agro for obtaining the supply of the said processed Mango pulp. Certain expenses were incurred for the operations of Alliance Agro. Unfortunately, due to severe heat wave in Nagpur and technical snags, fruits got overripe and additionally, the plant of Alliance Agro could not start in time. The Respondent submitted that the amount incurred by it for operations of Alliance Agro were in pursuance of its business and resulted in to the aforementioned loss.

Not convinced, the Appellant disallowed the deduction of loss of Rs. 1,43,94,061/- in his assessment order. The Commissioner of Income Tax (Appeals), Pune overturned the said assessment order of the Appellant. Aggrieved thereby, the present appeal came up before the Tribunal.

The Hon'ble ITAT, Pune accepted the submissions of the Respondent and observed that the Respondent's loss was incurred for its business purpose whereby the loss is of a revenue nature. Hence, the Hon'ble ITAT Pune held that the said loss of Rs. 1,43,94,061/- shall be allowed as a deduction on account of it being a Revenue Loss to the Respondent.