Writing off of advances and inventory arising out of a contract with a related party (AE) - Allowability thereof

Facts:

Additions were made to the tune of Rs. 6.95 and Rs. 1.59 crores which were claimed as impairment losses in the books of the assessee company. It was explained by the assessee that a security deposit was given to its related party AE entity for manufacturing avionic glasses and since the said glasses were not manufactured the said deposit and the related inventory purchases to the said contract were written off by the assessee. This was allegedly to be a sham transaction as no underlying contract and further evidences were produced by the assessee to substantiate the write offs. On appeal CIT(A) upheld the disallowances. On further appeal -

Held against the assessee that since no evidences could be adduced for the genuineness of the claim, the additions were sustained. 

Ed. Note: The modus operandi adopted is to be noted.

Case: Samtel Glass Ltd. v. DCIT 2023 TaxPub(DT) 2556 (Del-Trib)