Asst. CIT, Circle-3(2), Hyderabad V. M/s. Sri Krishna Drugs Ltd., Hyderabad

ITA 1091/HYD/2012

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 66535 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 16-07-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIDISHA KALRA
• Assessee Lawyers: S RAMA RAO
• Keywords: Business income; Depreciation; Business expenditure; Scheme of amalgamation; Revenue expenditure; Capital expenditure
• Section: 143(3); 80IB; 37(1); 32; 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER ITA NO. 1091/HYD/2012 ASSESSMENT YEAR: 2009-10 ASST. COMMISSIONER OF INCOME-TAX, APPELLANT CIRCLE (3)2, HYDERABAD. VS. SRI KRISHNA DRUGS LTD., RESPONDENT HYDERABAD (PAN AADCS4050Q) ITA NO. 843/HYD/2012 ASSESSMENT YEAR: 2009-10 SRI KRISHNA DRUGS LTD., APPELLANT HYDERABAD (PAN AADCS4050Q) VS. ASST. COMMISSIONER OF INCOME-TAX, RESPON DENT CIRCLE (3)2, HYDERABAD. REVENUE BY : SMT. VIDISHA KALRA ASSESSEE BY : SHRI S. RAMA RAO DATE OF HEARING : 22/11/2012 DATE OF PRONOUNCEMENT : 27/11/ 2012 ORDER PER ASHA VIJAYARAGHAVAN, J.M.: BOTH THESE APPEALS PREFERRED BY THE REVENUE AS WELL AS ASSESSEE ARE CROSS APPEALS DIRECTED AGAINST THE OR DER OF THE ITA NO. 1091 /HYD/2012 & 843/HYD/12 M/S SRI KRISHNA DRUGS LTD. 2 CIT(A)-IV, HYDERABAD, DATED 30/04/2012 FOR THE ASSE SSMENT YEAR 2009-10. ITA NO. 1091/HYD/2011 REVENUES APPEAL 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE AO OB SERVED THAT THE ASSESSEE DEBITED AN AMOUNT OF RS. 5,79,238/- UNDER THE HEAD PAYMENTS TO EMPLOYEES. THE ASSESSEE SUBMITTED THE BREAK UP FOR THE SAID AMOUNT OF RS. 5,79,238/- AS UNDER: PREMIUM PAID TO LIC RS. 6,32,577 LESS: TRANSFERRED TO PREPAID ACCOUNT RS. 1,75,362 BALANCE RS. 4,57,215 ADD: GRATUITY PAID TO D. SURESH BABU RS. 1,22,023 AMOUNT DEBITED TO P&L A/C RS. 5,79,238 ======== 3. IT WAS EXPLAINED BEFORE THE AO DURING THE ASSESS MENT PROCEEDINGS THAT THE ASSESSEE HAD TAKEN GROUP GRATU ITY LIFE INSURANCE SCHEME IN 1982 AND THE SAID AMOUNT REPRES ENTED PREMIUM PAID TOWARDS THE SAME DURING THE YEAR. IN LINE WITH THE EARLIER YEARS, THE AO CONCLUDED THAT THE ASSESSEE H AD NOT TAKEN ANY APPROVAL FROM THE PRESCRIBED AUTHORITY I.E. COMMIS SIONER OF INCOME-TAX/CHIEF COMMISSIONER OF INCOME-TAX AS REQU IRED U/S 36(1)(V) OF THE IT ACT. HE, THEREFORE, FELT THAT TH E SAID PROVISION COULD NOT BE ALLOWED AS THE SAME WAS NOT TOWARDS AN Y APPROVED GRATUITY FUND. HE FURTHER FELT THAT THE SAME COULD NOT BE ALLOWABLE U/S 37 ALSO, AS THERE BEING A SPECIFIC PROVISION IN RESPECT OF THE SAID DEDUCTION, THE GENERAL PROVISION OF SECTION 37 COUL D NOT BE INVOKED. ITA NO. 1091 /HYD/2012 & 843/HYD/12 M/S SRI KRISHNA DRUGS LTD. 3 ACCORDINGLY, THE AO DISALLOWED THE CLAIM OF DEDUCTI ON OF THE ASSESSEE. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE US. 5. BEFORE THE CIT(A), THE AR OF THE ASSESSEE SUBMIT TED THAT THIS GROUND WAS ALLOWED BY THE CIT(A) FOR THE AY 2008-09 VIDE ORDER DT. 29/07/2011. HE FURTHER SUBMITTED THAT THE ORDER OF THE CIT(A) WAS UPHELD BY THE ITAT VIDE THEIR ORDER IN ITA NO. 1698 /H/11 DT. 25/01/2012. 6. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) HELD THAT A PERUSAL OF THE ABOVE REFERRED ORDER OF THE ITAT SHOWS THAT IN THE ORDER FOR THE AY 2002-03, WHICH WAS FOL LOWED IN THE SUBSEQUENT YEARS APPEALS, THE ITAT HAD OBSERVED TH AT IN VIEW OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COU RT IN THE CASE OF WARNER HINDUSTAN LTD. (151 ITR 701), WHEREIN THE JU DGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF TATA IRON AND STEEL CO LTD. S. ITO, 101 ITR 292 AND THAT OF THE HONBLE SU PREME COURT IN THE CASE OF METAL BOX CO. OF INDIA LTD. AND THEIR W ORKMEN, 73 ITR 53 WERE REFERRED TO, THE AMOUNT PAID TOWARDS AN UNA PPROVED GRATUITY FUND CAN BE DEDUCTED U/S 37 OF THE ACT, TH OUGH NOT UNDER SEC. 36(1)IV). CONSIDERING THE BINDING JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT, THE ITAT ALLOWED THE CLA IM OF DEDUCTION. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL ITAT, HYDERABAD, AS ALSO THE HONBLE JURISDICTIONAL HIGH COURT, THE CIT(A) DIRECTED THE AO TO ALLOW THE DEDUCTION OF RS . 4,57,215/- ON ACCOUNT OF PAYMENT OF GRATUITY PREMIUM TO THE LIC O F INDIA. ITA NO. 1091 /HYD/2012 & 843/HYD/12 M/S SRI KRISHNA DRUGS LTD. 4 7. AGGRIEVED BY THE ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE US RAISING A GROUND AS GROUND NO. 2, WHICH R EADS AS FOLLOWS: THE LEARNED CIT(A) ERRED IN HOLDING THAT UNRECOGNIZ ED GRATUITY FUND IS ALLOWABLE U/S 37(1), WHEN THE CASE IS HIT BY THE PROVISIONS OF SECTION 40A(9) AND ESPECIALLY WHE N THE ASSESSEE FAILED TO COMPLY WITH THE PROVISIONS OF SE CTION 36(1)(V) OF THE ACT. 8. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES, PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECI SION OF THE COORDINATE BENCH OF ITAT, HYDERABAD IN ASSESSEES O WN CASE FOR AY 2007-08 IN ITA NO. 2126/HYD/2001 VIDE ORDER DATED 1 1/04/2012 WHEREIN THE COORDINATE BENCH HELD AS UNDER: 4. AFTER HEARING BOTH THE SIDES, WE FIND THIS ISS UE IS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE I.T.A. NO. 198/HYD/2011 IN ASSESSEE'S OWN CASE FOR A.Y. 2006-07 ORDER DATED 16.12.2011 WHERE IN THIS TRIBUNAL HELD AS FOLLOWS: '3. AFTER HEARING BOTH THE PARTIES, WE ARE OF THE O PINION THAT SIMILAR ISSUE CAME UP FOR CONSIDERATIO N IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2002-03 IN I.T.A. NO. 349/HYD/2006. THE TRIBUNAL DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE VIDE ITS ORDER DAT ED 15.2.2008 BY HOLDING AS FOLLOWS: '4. WE HAVE CONSIDERED RIVAL SUBMISSIONS ON EITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON REC ORD. ADMITTEDLY, THE GROUP GRATUITY SCHEME WAS NOT RECOG NISED BY THE COMMISSIONER OF INCOME-TAX. THIS FACT IS NOT IN DISPUTE. WE HAVE CAREFULLY GONE THROUGH T HE PROVISIONS OF SEC. 36(1)(V) OF THE INCOME- TAX A CT. SEC. 36(1)(V) READS AS FOLLOWS: '36. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOW ING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATT ERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 .... (V) ANY SUM PAID BY THE ASSESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TOWARDS AN APPROVED GRATUITY F UND CREATED BY HIM FOR THE EXCLUSIVE BENEFIT OF HI S EMPLOYEES UNDER AN IRREVOCABLE TRUST.' WE HAVE ALSO CAREFULLY GONE THROUGH THE PROVISIONS OF SEC. 37 OF THE INCOME-TAX ACT. SEC. 37 PROVIDES FOR DEDUCTION OF EXPENDITURE NOT BEING IN THE NATURE DE SCRIBED IN SECTIONS 30 TO 36 AND NOT BEING IN THE N ATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENDITURE OF T HE ASSESSEE, BUT LAID OUT AND EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PRO FESSION, WHILE COMPUTING INCOME CHARGEABLE TO TAX. THE MAIN CONTENTION OF THE REVENUE IS THAT UNDER SEC. 3 6(1)(V), THE PAYMENT MADE BY THE ASSESSEE AS EMPLOY ER COULD BE ALLOWED ONLY IN RESPECT OF APPROVED GRATUI TY FUND. SINCE THE GROUP GRATUITY SCHEME IS NOT APPROVED BY THE CIT, ACCORDING TO THE REVENUE, IT C ANNOT BE ALLOWED. HOWEVER, THE CONTENTION OF THE ASSESSEE IS THAT IN VIEW OF THE JUDGEMENT OF THE MA DRAS HIGH COURT IN THE CASE OF PREMIER COTTON SPINN ING MILLS LTD. (SUPRA) AND THE JUDGEMENT OF THE JURISDI CTIONAL HIGH COURT IN 3 I.T.A. NO. 2126/HYD/2011 M/S . SRI KRISHNA DRUGS LTD. THE CASE OF WARNER HINDUSTA N LTD. (SUPRA), IT HAS TO BE ALLOWED. ITA NO. 1091 /HYD/2012 & 843/HYD/12 M/S SRI KRISHNA DRUGS LTD. 5 5. WE HAVE CAREFULLY GONE THROUGH THE JUDGEMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF WARNER HINDUSTAN LTD. (SUPRA). IN THE CASE BEFORE THE JURI SDICTIONAL HIGH COURT, THE PROVIDENT FUND WAS NOT APPROVED BY THE CIT. THE ANDHRA PRADESH HIGH COURT AFTER REFERRING TO THE JUDGEMENT OF THE BOMBAY HIGH COURT IN TATA IRON & STEEL CO. LTD. V. D.V. BAPAT, ITO (1975) 101 ITR 292, AND THE JUDGEMENT OF THE SUPREME COURT IN METAL BOX COMPANY OF INDIA LTD. VS. THE WORKMEN (1969) 73 ITR 53, HELD THAT THE AMOUNT PAID TOWARDS AN UNAPPROVED GRATUITY FUND CA N BE DEDUCTED UNDER SEC. 37 OF THE I.T. ACT, THOUGH NOT UNDER SEC. 36(1)(V). IN VIEW OF THIS JU DGEMENT OF THE JURISDICTIONAL HIGH COURT, IN OUR OPINION, EVEN IF ANY PAYMENT IS MADE TO AN UNAPPRO VED GRATUITY FUND, IT HAS TO BE ALLOWED UNDER SEC. 37. BY RESPECTFULLY FOLLOWING THE BINDING JUDGEMEN T OF ANDHRA PRADESH HIGH COURT IN THE CASE OF WARNER HINDUSTAN LTD. (SUPRA), WE UPHOLD THE ORDER OF THE CIT(A).' IN VIEW OF THE ABOVE DISCUSSION, WE DISMISS THE GR OUND TAKEN BY THE REVENUE.' 9. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICAL TO THAT OF THE CASE DECIDED BY THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2007-08, RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE CIT(A) IN DIRECTING THE AO TO ALLOW THE DEDUCTI ON OF RS. 4,57,215/- ON ACCOUNT OF PAYMENT OF GRATUITY PREMIU M TO THE LIC OF INDIA AND DISMISS THE GROUND OF APPEAL OF THE REVEN UE ON THIS ISSUE. 10. GROUND NO. 3 IS DIRECTED AGAINST THE ACTION OF THE CIT(A) IN ALLOWING DEPRECIATION ON INTANGIBLE ASSETS. 11. THE AO NOTICED THAT THE ASSESSEE HAD INTRODUCED THE INTANGIBLE ASSET OF RS. 2,35,14,531/- IN THE FY 2005-06 RELEVA NT TO AY 2006- 07. ON BEING ASKED TO FURNISH THE DETAILS OF DEPREC IATION SO CLAIMED, THE ASSESSEE SUBMITTED THAT DURING THE AY 2006-07, M/S ARANDI LABORATORIES LTD. HAD AMALGAMATED WITH THE ASSESSEE COMPANY, VIDE ORDER NO. CP NO. 84 OF 2005 DATED 31 ST MARCH, 2006 OF AP HIGH COURT. IT WAS EXPLAINED THAT THE ASSESSEE HAD PURCH ASED 3,13,119 SHARES OF M/S ARANDI LABORATORIES DIRECTLY FROM THE SHARE HOLDERS @ RS. 464.74 PER SHARE, FOR A TOTAL COST OF RS. 14,55 ,21,444/- AND AFTER ACQUISITION OF THE SAID SHARES, HOWEVER, THEY OPINED THAT AN AMALGAMATION WOULD RESULT IN BETTER AND EFFICIENT U TILIZATION OF RESOURCES. THEREFORE, THE SCHEME OF AMALGAMATION WA S FRAMED. IT WAS FURTHER EXPLAINED THAT AFTER APPROVAL OF SUCH A MALGAMATION BY ITA NO. 1091 /HYD/2012 & 843/HYD/12 M/S SRI KRISHNA DRUGS LTD. 6 THE HONBLE HIGH COURT, THE INVESTMENT OF RS. 14,55 ,21,444/- IN THE SHARES OF M/S ARANDI LABORATORIES HAS BEEN CONSIDER ED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT BY APPROPRIATING T HE VALUE TO THE RESPECTIVE HEADS OF ASSETS/LIABILITIES. THE ASSESSE E CONTENDED THAT IN CASE OF AMALGAMATION, AS PER ACCOUNTING STANDARD OF THE ICAI, IN PREPARING TRANSFEREE COMPANYS FINANCIAL STATEMENTS , THE ASSETS AND LIABILITIES OF THE TRANSFEROR COMPANY SHOULD BE INCORPORATED AT THEIR EXISTING CARRYING AMOUNTS, OR ALTERNATIVELY, THE CONSIDERATION SHOULD BE ALLOCATED TO THE INDIVIDUAL IDENTIFIABLE ASSETS AND LIABILITIES ON THE BASIS OF THEIR FAIR VALUES ON TH E DATE OF AMALGAMATION. IT WAS FURTHER EXPLAINED THAT DIFFER ENTIAL AMOUNT OF RS. 5,57,38,146/- CONSISTING OF THE VALUE OF TECHNI CAL KNOWHOW OF ALL BULK DRUGS, VALUE OF LICENSES, SALE AGREEMENTS WITH MNCS HELD BY THE COMPANY AND OTHER BUSINESS AND COMMERCIAL RIGHT S AS ON THE DATE OF AMALGAMATION (APART FROM PROVIDING TRAINED TECHNICAL WORK FORCE) WAS CONSIDERED AS INTANGIBLE ASSETS AND TH E SAME WAS SHOWN IN THE DEPRECIATION SCHEDULE AS PE THE IT ACT UNDER THE HEAD INTANGIBLE ASSETS AND DEPRECIATION U/S 32 AS PER AS-14 WAS CLAIMED, SHOWING THE SAME AS GOODWILL AND AMORTIZ ING IT OVER A PERIOD OF 5 YEARS IN THE BOOKS OF ACCOUNT. IT WAS C ONTENDED THAT THE ABOVE AMOUNT IS THE VALUE OF INTANGIBLE ASSETS AN D NOT THE VALUE OF GOODWILL AS SHOWN IN THE BOOKS OF ACCOUNTS. 12. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE AO HELD THAT THE ADDITIONAL AMOUNT HAD BEEN PAID ONLY COMPE NSATE THE SHARE HOLDERS OF THE AMALGAMATING COMPANY AND NOT F OR ATTRIBUTION OF ANY INTANGIBLE ASSETS. HE, THEREFORE, HELD THA T THE AMOUNT OF RS. 4,18,03,610/- PAID BY THE ASSESSEE COULD NOT BE SAI D AS INCURRED FOR BRINGING INTO EXISTENCE AN INTANGIBLE ASSET ELIGI BLE FOR DEPRECIATION, ITA NO. 1091 /HYD/2012 & 843/HYD/12 M/S SRI KRISHNA DRUGS LTD. 7 THE CLAIM OF DEPRECIATION ON INTANGIBLE ASSETS OF R S. 58,78,633/- WAS DENIED. 13. ON APPEAL, BEFORE THE CIT(A) THE AR OF THE ASSE SSEE SUBMITTED THAT AN IDENTICAL ISSUE WAS DECIDED BY THE CIT(A)-I V, HYDERABAD IN THE ASSESSEES OWN CASE VIDE ORDER DATED 29/07/2011 FOR THE AY 2008-09. HE FURTHER SUBMITTED THAT WHILE THE CIT(A) HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, HIS VIEWS WERE FURTHER UPHELD BY THE ITAT ALSO IN THEIR ORDER IN ITA NO. ITA NO. 169 8/H/11, DT. 25/01/2012. 14. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) DISCUSSED THE ISSUE ELABORATELY AND ANALYSED WITH V ARIOUS CASE LAWS AND HELD THAT ON PERUSAL OF THE ORDER OF THE ITAT, IT IS SEEN THAT THE ITAT IN LINE WITH THEIR EARLIER VIEW IN THE CASE OF AP PAPER MILLS VS. ACIT OPINED THAT THE ASSESSEE WOULD BE ELIGIBLE FOR DEPRECIATION ON INTANGIBLE ASSETS AND THEY ALSO MADE A REFERENCE TO THE DECISION OF THE CHANDIGARH BENCH OF THE ITAT IN THE CASE OF MIC RO INSTRUMENTS CO LTD. VS. ITO, 12 DTR 501 TO PUT FORTH THAT THERE HAS TO BE JUSTIFICATION FOR DEPARTURE FROM THE EARLIER ACCEPT ED POSITION WHEREBY SIMILAR CLAIM WAS ACCEPTED IN THE PAST. THE CIT(A) THEREFORE FOLLOWING THE SAID DECISIONS HELD THAT TH E CLAIM OF THE ASSESSEE REGARDING DEPRECIATION ON INTANGIBLE ASSE TS IS TO BE ALLOWED. 15. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 16. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PERUSED THE RECORD. WE FIND THAT THE ISSUE IS SQUARELY COVE RED BY THE DECISION OF THE COORDINATE BENCH OF ITAT, HYDERABAD IN ASSESSEES ITA NO. 1091 /HYD/2012 & 843/HYD/12 M/S SRI KRISHNA DRUGS LTD. 8 OWN CASE FOR AY 2008-09 IN ITA NO. 1698/HYD/2011 VI DE ORDER DATED 25/01/2012, WHEREIN THE COORDINATE BENCH HELD AS UNDER: GROUND NO. 4 RAISED BY THE REVENUE IS AS FOLLOWS : 'THE LEARNED CIT(A) ERRED IN ALLOWING DEPRECIATIO N ON INTANGIBLE ASSETS.' 10. WITH REFERENCE TO THE ABOVE GROUND, THE LEARNED DR RELIED ON THE ORDER OF THE TRIBUNAL IN THE CASE OF R.G. KESWANI VS. ACIT (120 TTJ 1081)(MUM) AND REQUE STED THE BENCH TO REFER THE CASE TO SPECIAL BENCH. HOWEVER, IN VIEW OF THE ORDER OF THE TRIBUNAL IN AS SESSEE'S OWN CASE CITED SUPRA, WE ARE INCLINED TO D ECIDE THE ISSUE IN FAVOUR OF THE ASSESSEE RATHER THAN REF ERRING THE SAME TO SPECIAL BENCH. FURTHER, WE FEEL IT APPROPRIATE TO MENTION HEREIN THAT THE ORDER OF THE CO-ORDINATE BENCH IN THE CASE OF MICRO INSTRUMENTS CO. LTD. VS. ITO (12 DTR 501) THE TRIBUNAL BENCH OF CHA NDIGARH HELD AS FOLLOWS: 'THE ASSESSEE INITIALLY CLAIMED DEDUCTION UNDER S. 80IB FOR THE IMPUGNED UNIT IN THE ASST. YR. 2001-02 AND THE SAME WAS ALLOWED. IN THIS ASSESSMENT YEAR, I.E. , 2003- 04 THE CLAIM OF THE ASSESSEE WAS IN CONTINU ATION OF THE CLAIMS MADE IN THE EARLIER ASSESSMENT YEARS FOR THE IMPUGNED ASSESSMENT YEAR FALLS WITHIN THE NUMBER OF ASSESSMENT YEARS AS SPECIFIED IN THE SECT ION IN WHICH THE CLAIM IS ELIGIBLE. IT IS ALSO A PE RTINENT FACT POSITION THAT THE CLAIM ALLOWED TO THE ASSESSE E IN THE INITIAL ASSESSMENT YEAR OF 2001-02 AND THE REAFTER IN THE ASST. YR. 2002-03 HAS NOT BEEN WITHDRAWN. TH ERE IS NO CONTRAVENTION FROM THE REVENUE EITHER AT THE STAGE OF THE PROCEEDINGS BEFORE THE LOWER AUTHORITI ES OR EVEN BEFORE THE TRIBUNAL. THUS, FACTUALLY SPE AKING THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER S. 80 IB STANDS ADMITTED IN THE INITIAL ASSESSMENT YEAR A ND ALSO THEREAFTER UP TO THE ASSESSMENT YEAR PRIOR TO THE YEAR UNDER CONSIDERATION. ON THE FACTUAL MATRI X, THERE IS NO JUSTIFICATION FOR THE AO TO DENY THE CL AIM OF THE ASSESSEE FOR DEDUCTION UNDER S. 80IB. TH E IMPLICATION OF THE EARLIER ASSESSMENT MADE FOR THE INITIAL ASSESSMENT YEAR UNDER S. 143(3) IS THAT THE ASSESSEE HAS FULFILLED THE CONDITIONS PRESCRIBED I N THE SAID SECTION. THEREAFTER, IT IS NOT OPEN FOR THE AO TO RE- EXAMINE THE ISSUE ALL OVER AGAIN AND COME TO A DIFFERENT CONCLUSION IN A SUBSEQUENT YEAR WITHOUT JUSTIFYING SUCH DEPARTURE. IN THE ASSESSMENT ORDER , THERE IS NO DISCUSSION BY THE ASSESSING OFFICER O N THIS ASPECT IN SPITE OF THE FACT THAT THE HAD TAKEN A SPECIFIC POSITION BASED ON THE RELIEF ALLOWED IN TH E PAST. FURTHER, THE CLAIM ACCEPTED BY THE AO IN THE ASST. YR. 2001-02 AND THEREAFTER IN 2002-03 HAS NOT BEEN DISTURBED. CLEARLY, IN A SUCH A SITUATION, THE ONU S WHICH WAS ON THE REVENUE HAS NOT BEEN DISCHARGED. INSOFAR AS THE JUSTIFICATION FOR THE CLAIMS OF EXE MPTION/TAX RELIEFS ARE CONCERNED THE ONUS IS ON THE ASSESSEE TO ESTABLISH AND JUSTIFY THE CLAIMS. SO, H OWEVER, IN A SITUATION LIKE THE PRESENT SITUATION, THE AO OUGHT TO HAVE JUSTIFIED THIS DEPARTURE FROM THE EAR LIER ACCEPTED POSITION WHEREBY SIMILAR CLAIM HAS BE EN ACCEPTED IN THE PAST. IT IS IN THE BACKGROUND THE O NUS WAS ON THE AO TO JUSTIFY THE DENIAL OF DEDUCTIO N UNDER S. 80IB IN VIEW OF THE PAST HISTORY. THEREFORE, IN THIS BACKGROUND THERE IS NO JUSTIFICATION TO UPHOL D THE STAND OF THE IT AUTHORITIES TO DENY THE CLAIM OF TH E ASSESSEE FOR DEDUCTION UNDER S. 80IB IN RELATION TO THE PROFITS AND GAINS. - SAURASHTRA CEMENT & CHEMICAL I NDUSTRIES LTD. VS. CIT (1979) 11 CTR (GUJ) 139; (19 80) 123 ITR 669 (GUJ) AND CIT VS. PAUL BROTHERS (1995) 216 ITR 548 (BOM) RELIED ON.' 11. IN VIEW OF THE ABOVE DECISION OF THE TRIBUNAL, THIS GROUND OF THE REVENUE IS DISMISSED. 17. SINCE THE ISSUE UNDER CONSIDERATION IS IDENTICA L TO THAT OF THE CASE DECIDED BY THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2008-09, RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF THE CIT(A) IN ALLOWING THE DEPRECIATION CLAIM OF RS . 58,78,633/- ON INTANGIBLE ASSETS AND DISMISS THE GROUND OF APPEAL OF THE ASSESSEE. 18. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ITA NO. 1091 /HYD/2012 & 843/HYD/12 M/S SRI KRISHNA DRUGS LTD. 9 ITA NO. 843/HYD/2012 APPEAL BY THE ASSESSEE 19. THE SUBSTANTIVE GROUND RAISED BY THE ASSESSEE IN THIS APPEAL IS AS FOLLOWS: THE LEARNED CIT(A) ERRED IN CONFIRMING THE ACTION O F THE AO IN DISALLOWING THE LOAN AMOUNT WRITTEN OFF OF RS. 2,27 ,52,698/- DEBITED TO PROFIT & LOSS ACCOUNT. THE LEARNED CIT(A ) OUGHT TO HAVE CONSIDERED THE FACT THAT THE SAID AMOUNT IS AL LOWABLE AS A DEDUCTION EITHER AS A BAD DEBT U/S 36(1)(VII) OR AS A DEDUCTION U/S 37 OF THE ACT. 20. IT WAS EXPLAINED BEFORE THE AO THAT DURING THE FY 2000-01, WIT A VIEW TO HAVE SECOND LINE OF BUSINESS, THE ASSESSE E HAD INVESTED RS. 1,95,00,000/- AND RS. 56,35,000/- IN THE FY 200 1-02, IN THE SHARE CAPITAL OF M/S SUVISION INFOTECH LTD. AND ACQ UIRED SUBSTANTIAL CONTROL OVER THE SUBSIDIARY COMPANY. THE ASSESSEE H AD ALSO ADVANCED LOAN OF RS. 2,31,02,698/- DURING THE FYS 2 001-02 TO 2007- 08 TO SUPPORT THE SUBSIDIARY COMPANY IN ITS BUSINES S. HOWEVER, THE SUBSIDIARY COMPANY SUFFERED HUGE LOSSES AND ITS NET WORTH GOT COMPLETED ERODED. AT THAT STAGE, SHARES WERE SOLD D URING THE FY 2008-09. IT WAS SUBMITTED THAT SINCE THERE WAS NO P OSSIBILITY OF RECOVERING THE LOAN, THE AMOUNT OF RS. 2,27,52,698/ - WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT AFTER THE APPROVAL OF T HE BOARD OF DIRECTORS. IT WAS FURTHER SUBMITTED THAT SINCE THE SAID AMOUNT WAS ADVANCED IN THE ORDINARY COURSE OF ACTIVITY OF LEND ING TO SUBSIDIARY, THE SAME IS ALLOWABLE AS BAD DEBT U/S 36(1)(VII) R. W.S. 36(2) OF THE ACT. IT WAS CLAIMED THAT THE EXPENDITURE BE CONSIDE RED U/S 37 R.W.S. 28 OF THE ACT, ALTERNATIVELY. 21. ON A CONSIDERATION OF THE FACTS, HOWEVER, THE A O OPINED THAT THE CLAIM OF BAD DEBT U/S 36(1)(VII) WAS NOT ADMISS IBLE AS IN ORDER TO BE CONSIDERED AS BAD DEBT, THE DEBT SHOULD BE IN RESPECT OF THE ITA NO. 1091 /HYD/2012 & 843/HYD/12 M/S SRI KRISHNA DRUGS LTD. 10 BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE IN THE RELEVANT ASSESSMENT YEAR AND SHOULD REPRESENT MONEY LENT IN ORDINARY COURSE OF ITS BUSINESS. THE AO HELD THAT THE ASSES SEE HAD TREATED THE DEBT IN THE CAPITAL FIELD AS TRADE DEBT, WHEREA S THERE IS NO CREDITOR AND DEBTOR RELATIONSHIP, SINCE THE DATE OF LENDING THE MONEY TILL THE WRITE OFF THEREOF. THEREFORE, HE CON CLUDED THAT THE CLAIM OF THE ASSESSEE COULD NOT BE ALLOWED AS A REV ENUE DEDUCTION. 22. AS REGARDS THE ALLOWABILITY OF THE EXPENDITURE U/S 37 OF THE ACT, THE AO HELD THAT THE ASSESSEE IS NEITHER A BAN KER NOR A MONEY LENDER AND THE ADVANCE MADE BY IT AS AN INVESTMENT COULD NOT BE SAID TO BE INCIDENTAL TO THE PHARMACEUTICAL MANUFAC TURING AND TRADING ACTIVITY OF THE ASSESSEE. RELYING ON CASE L AWS, THE AO HELD THAT LOAN TO SUBSIDIARY COMPANY ON WRITE OFF COULD NOT BE ALLOWED AS A REVENUE EXPENDITURE AS THE SAME IS A CAPITAL LOSS . 23. ON APPEAL, BEFORE THE CIT(A) THE AR OF THE ASSE SSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AO. IT WAS ADDED TH AT IN THE AY 2010-11, RS. 2,70,000/- WAS RECOVERED AND OFFERED F OR ASSESSMENT. HE ARGUED THAT THE AMOUNT WAS ADVANCED IN THE PROCE SS OF THE ASSESSEES BUSINESS ACTIVITY FROM OUT OF ITS OWN FU NDS AND THE AO FAILED TO SEE THAT THE ASSESSEE WAS IN THE PROCESS OF DIVERSIFICATION OF ITS BUSINESS ACTIVITIES. CONTENDING THAT THE DEC ISIONS CITED BY THE AO ARE HAVE NO APPLICATION, THE AR OF THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE MUMBAI ITAT IN THE CASE OF TAINWALA CHEMICALS AND PLASTICS INDIA LTD. VS. ACIT, 59 DTR 354 HOLDING THAT THE ACTIVITY OF MAKING DEPOSIT FROM OUT OF SURPLUS FUNDS IN THE INTER CORPORATE DEPOSITS IS TO BE CONSIDERED AS BUSINESS ACTIVITY AND IF SUCH DEBT IS WRITTEN OFF, THE SAME IS ALLOWABLE AS DEDUCTION. ITA NO. 1091 /HYD/2012 & 843/HYD/12 M/S SRI KRISHNA DRUGS LTD. 11 24. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESS EE, THE CIT(A) AFTER APPROVING THE FINDINGS OF THE AO AND CASE LAW S RELIED UPON BY HIM INCLUDING THE CASE OF VST INDUSTRIES LTD. VS. A CIT IN ITA NO. 691/HYD/2005, DT 23/07/2010 AND REJECTING THE CASE RELIED UPON BY THE ASSESSEE IN THE CASE OF TAINWALA CHEMICALS AND PLASTICS INDIA LTD VS. ACIT (SUPRA), HELD THAT THERE WAS NO REGULA R DEPLOYMENT OF SURPLUS FUNDS IN ICDS OR LOANS, BUT ADMITTEDLY TH E ASSESSEE COMPANY HAD MADE AN INVESTMENT IN THE SUBSIDIARY CO MPANY. THEREFORE, HE CONFIRMED THE ACTION OF THE AO ON THE GROUND THAT THERE IS NO INFIRMITY IN THE ACTION OF THE AO IN DI SALLOWING THE CLAIM OF WRITE OFF OF RS. 2,27,52,698/-. 25. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 26. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE SHRI S. RAMA RAO SUBMITTED THAT THE AMOUNT WAS GIVEN IN THE COUR SE OF BUSINESS ACTIVITY AND, THEREFORE, THE DECISION OF HONBLE BO MBAY HIGH COURT IN THE CASE OF TAINWALA CHEMICALS AND PLASTICS INDI A LTD VS. ACIT (SUPRA), SQUARELY APPLIES TO THE FACTS OF THE CASE OF THE ASSESSEE. ON POINTING OUT BY THE SUBMISSION OF THE LEARNED DR THAT INTEREST WAS OFFERED AS BUSINESS INCOME IN THE CASE OF TAINW ALA CHEMICALS AND PLASTICS INDIA LTD. (SUPRA) WHEREAS IT IS NO SO , IN THE PRESENT CASE, HENCE, THE DECISION OF VST INDUSTRIES (SUPRA) IS APPLICABLE TO THE FACTS OF THE CASE OF THE ASSESSEE, THE LEARNED COUNSEL FOR THE ASSESSEE PLACING RELIANCE ON THE DECISIONS IN THE C ASES 339 ITR 91 AND 326 ITR 15 SUBMITTED THAT THE AMOUNT WAS ALLOWA BLE AS BAD DEBT. HOWEVER, THE LEARNED COUNSEL FOR THE ASSESSE E ARGUED THAT THOUGH NET INTEREST HAS BEEN CHARGED EVEN IN A CASE IT IS CHARGEABLE ITA NO. 1091 /HYD/2012 & 843/HYD/12 M/S SRI KRISHNA DRUGS LTD. 12 AMOUNT HAS TO BE ALLOWED. THE LEARNED COUNSEL FOR T HE ASSESSEE FILED WRITTEN SUBMISSIONS AND STATED THAT LEDGER EX TRACT OF INTEREST RECEIVED ACCOUNT FOR THE PERIOD ENDING ON 31/03/20 02 WHICH INCLUDES THE INTEREST RECEIVED FROM SUVISION INFOTE CH LTD., IN RESPECT OF THE LOAN PROVIDED BY THE ASSESSEE TO THE SAID CO MPANY (PAGE NO.1 OF THE ANNEXURE) IT WAS FURTHER STATED THAT TH E INTEREST DEBITED TO THE ACCOUNT OF SUVISION INFOTECH LTD. IS AT PAGE NO. 3 OF THE ANNEXURE. THE LEARNED COUNSEL ALSO ENCLOSED LEDGER EXTRACT OF THE LOAN ACCOUNT OF SUVISION INFOTECH LTD, WHEREIN THE INTEREST PAYMENT MADE TO THE ASSESSEE IS DEBITED. THE LEARNED COUNSE L SUBMITTED THAT SUCH INTEREST DEBITED IS AFTER REDUCING THE AMOUNT OF TDS AND IT CAN BE SEEN FROM THE LEDGER EXTRACT THAT THE COMPANY SU VISION INFOTECH LTD., PAID INTEREST TO THE ASSESSEE INITIALLY. 27. THE LEARNED DR OPPOSED THAT FOR THE FIRST TIME THE THE ARGUMENTS OF THE LEARNED COUNSEL FOR THE ASSESSEE O N THE GROUND THAT THE COUNSEL HAS PUT FORTH THE ARGUMENT THAT EV EN IN CASE INTEREST IS CHARGEABLE THE SAME IS ALLOWABLE. FURTH ER, THE LEARNED DR RETORTED THAT IN THE MERCANTILE SYSTEM OF ACCOUNTI NG, EVEN IF INTEREST IS CHARGEABLE IT WOULD NOT MAKE ANY DIFFE RENCE IN ACCOUNTING. 28. WE HAVE HEARD THE ARGUMENTS OF BOTH THE PARTIES , PERUSED THE RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DEC ISION OF THE COORDINATE BENCH OF HYDERABAD ITAT IN THE CASE OF V ST INDUSTRIES LTD. VS. ACIT IN ITA NO. 691/HYD/2005, DT 23/0-7/20 10, WHEREIN THE COORDINATE BENCH HELD AS UNDER: 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MAT ERIAL ON RECORD. TO CLAIM DEBT AS BAD DEBT AND AS A DEDUCTION, THE DEBT SHOULD BE IN RESPECT O F BUSINESS, WHICH IS CARRIED ON BY THE ASSESSEE IN THE ITA NO. 1091 /HYD/2012 & 843/HYD/12 M/S SRI KRISHNA DRUGS LTD. 13 RELEVANT ASSESSMENT YEAR, SHOULD HAVE BEEN TAKEN IN TO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE FOR THE ACCOUNTING YEAR OR SHOULD REPRESENT MONEY LENT IN ORDINARY COURSE OF ITS BUSINESS OF BANKING OR MO NEY LENDING. THE AMOUNT SHOULD BE WRITTEN OFF AS IRRECO VERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THAT ACCOUNTING YEAR IN WHICH THE CLAIM FOR DEDUCTION IS MADE FOR THE FIRST TIME. THE ASSESSEE CAN CLAIM DE BT AS BAD DEBT, IN RESPECT OF DEBT WHICH WOULD HAVE COME INTO THE BALANCE SHEET AS A TRADING DEBT. THE DEBT MEANS SOMETHING MORE THAN A MERE ADVANCE. IT MEANS SOMETHING WHICH IS RELATED TO BUSINESS OF THE ASSESSEE. THE AMOUNT IS GIVEN AS A TRADING DEBT SIN CE INCEPTION AND THE CHARACTER OF SUCH AMOUNT IS NO T CHANGED BY ANY ACT OF THE ASSESSEE OR BY OPERATION OF LAW, THEN SUCH LOAN CONSTITUTES AS A TRADE DEBT. IN OTHER WORDS, DEBT EMERGES OR SPRINGS FROM THE TRADI NG ACTIVITY IN THE COURSE OF ORDINARY BUSINESS OF T HE ASSESSEE, WHICH CAN BE CLAIMED AS BAD DEBT. THE DEB T ARISING OUT OF CAPITAL FIELD OR EMERGING FROM THE INVESTMENT ACTIVITY OF THE ASSESSEE IS NOT A TRADE DEBT. IN THE CAPITAL FIELD, IT CANNOT BE TREATED AS DEBT IN ORDINARY COURSE OF BUSINESS OR TRADING DEBT, EVEN B Y UNILATERAL ACTION, THE ASSESSEE TREATED THE DEBT IN THE CAPITAL FIELD AS TRADE DEBT. IN ORDER TO CLAIM THE ALLOWANCES AS BAD DEBT, THERE SHOULD BE RELATION BE TWEEN THE DEBTOR AND CREDITOR FROM THE DATE OF LENDING TH E MONEY TILL THE DATE OF WRITE-OFF OF DEBT AS BAD D EBT. THE DEBT ARISING OUT OF INVESTMENT ACTIVITY WHICH IS IN THE CAPITAL FIELD CANNOT BE ALLOWED AS BAD DEBT AS REVENUE DEDUCTION. TO CLAIM BAD DEBT THE BUSINESS I N RESPECT OF WHICH SUCH DEBT HAS BEEN GIVEN MUST CONTINUE TO EXIST IN THE YEAR FOR WHICH THE BAD DEB T IS CLAIMED. AS STATED EARLIER, TO CLAIM DEDUCTION AS A BAD DEBT, IT SHOULD NOT BE TOO REMOTE FROM THE BUSINESS CARRIED ON BY THE ASSESSEE AND IF THE DEBT OR GUAR ANTEE GIVEN BY THE COMPANY WHILE CARRYING ON THE BUSINESS OTHER THAN FINANCE TO THE SUBSIDIARY COMPANY, IT I S NOT GIVEN IN THE COURSE OF ASSESSEE'S BUSINESS AS T HERE IS NO PRIVITY OF THE CONTRACT OR ANY LEGAL REL ATIONSHIP BETWEEN THE ASSESSEE AND SUCH SUBSIDIARY COMPANY AS TRADE DEBTOR AND CREDITOR. THERE IS NEITHER ANY CUSTOM NOR ANY STATUTORY PROVISION OR ANY CONTRACTU AL OBLIGATION UNDER WHICH THE ASSESSEE WAS BOUND TO ADVANCE LOAN TO THE SUBSIDIARY COMPANY. HENCE, THE AMOUNT THAT HAD TO BE LOST OR INCURRED ON ACCOUNT O F SUBSIDIARY COMPANY CANNOT BE CLAIMED AS BAD DEBT WH EN IT BECAME IRRECOVERABLE. IN ORDER TO BE DEDUCTIB LE AS A BUSINESS LOSS, IT MUST BE IN THE NATURE OF TRA DING LOSS, NOT AS CAPITAL LOSS SPRINGING DIRECTLY O UT OF TRADING ACTIVITY AND IT MUST BE INCIDENTAL TO THE B USINESS OF THE ASSESSEE AND IT IS NOT SUFFICIENT TH AT IT FALLS ON THE ASSESSEE IN SOME OTHER CAPACITY OR IS MERELY CONNECTED WITH ITS BUSINESS. BECAUSE THE ASSESSEE BORE THE LOSS OF THE SUBSIDIARY COMPANY ON ACCOUNT OF FA ILURE OF THE SUBSIDIARY COMPANY TO REPAY THE SAME, THAT ITSELF CANNOT BE THE REASON OF DEBT AS BAD DEBT. IN ORDER THAT A LOSS MIGHT BE DEDUCTIBLE IT MUST BE A LOSS IN THE BUSINESS OF THE ASSESSEE AND NOT A PAYMENT RELA TING TO THE BUSINESS OF SOMEBODY ELSE WHICH UNDER T HE PROVISIONS OF THE ACT WAS DEEMED TO BE AND BECAME T HE LIABILITY OF THE ASSESEE. LOSSES ALLOWABLE IF IT SPRANG DIRECTLY AND WAS INCIDENTAL TO BUSINESS OF THE ASSE SSEE, LOSS WHICH ASSESSEE HAD INCURRED WAS NOT IN I TS OWN BUSINESS AND IT CANNOT BE DEDUCTED IN RESPECT OF TH E BUSINESS OF THE ASSESSEE FROM ITS PROFITS. THE AM OUNT INCURRED BY THE ASSESSEE WHICH IS NOT IN THE ORDINA RY COURSE OF BUSINESS CANNOT BE ALLOWED AS A DEDUCT ION. FURTHER, A DEBT CAN BE INCIDENT TO BUSINESS ONLY IF IT ARISES OUT OF TRANSACTION, WHICH WAS NECESSARY IN FURTHERANCE OF THE BUSINESS AND WAS WITHIN THE RANG E OF BUSINESS ACTIVITY OF ASSESSEE. EVERYTHING ASSOCIATED OR CONNECTED WITH THE BUSINESS CANNOT BE SAID INCIDENTAL THERETO. NOT MERELY SHOULD THERE B E A CLOSE PROXIMITY TO THE BUSINESS, AS SUCH, BUT IT SH OULD ALSO BE AN INTEGRAL AD ESSENTIAL PART OF THE C ARRYING ON THE BUSINESS OF THE ASSESSEE. WE SHOULD SEE WHET HER THE TRANSACTION IS NECESSARY PART OF THE NORMAL COURSE OF BUSINESS AND ALSO IS CLOSELY INTERLINKED WITH THE ASSESSEE'S BUSINESS AS INCIDENTAL TO CARRY ING ON THE BUSINESS OF THE ASSESSEE. THE MERE OBJECT IN TH E MEMORANDUM OF ASSOCIATION OF THE COMPANY IS NOT CONCLUSIVE AS TO THE REAL NATURE OF A TRANSACTION A ND THAT NATURE NOT ONLY HAS TO BE DEDUCED FROM THE MEMORANDUM BUT ALSO FRO THE CIRCUMSTANCES IN WHICH THE TRANSACTION TOOK PLACE. IF THE AMOUNT WAS INCURRED FOR ENSURING ANY INVESTMENT WHICH IS VERY SOURCE OF ITS BUSINESS AND THAT ADVANCE IS NOT INCIDENTAL TO THE TRADING ACTIVITY OF THE ASSESSEE, THE SAME IS NOT ALLOWABLE AS DEDUCTION. THE ADVANC E IN THE FIELD OF INVESTMENT FOR THE PURPOSE OF SECURING SOU RCE OF INCOME AND NOT FOR THE PURPOSE OF EARNING IN COME DOES NOT QUALIFY FOR DEDUCTION AS BAD DEBT. IN ORDE R TO ENTITLE FOR DEDUCTION IT SHOULD HAVE BEEN INCU RRED IN THE COURSE OF CARRYING ON THE BUSINESS AND IT SHOUL D BE IN THE NATURE OF REVENUE. IN THE PRESENT CASE, DEBT CLAIMED AS BAD DEBT IS NOT A TRADING DEBT EMERGING FROM THE TRADING ACTIVITY OF THE ASSESSEE. THE DEBT ARISES OUT OF INVESTMENT ACTIVITIES OF THE ASSESSEE OR ASSOCIATED WITH THE CAPITAL FIELD, NOT ON ACCOU NT OF REVENUE CANNOT BE ALLOWED AS A BAD DEBT. THE ASSESS EE COMPANY NEITHER A BANKER NOR A MONEY LENDER, THE ADVANCE MADE BY THE ASSESSEE AS AN INVESTMENT NOT T O BE SAID TO BE INCIDENTAL TO THE TRADING ACTIVITY OF THE ASSESSEE AND MERELY MONEY HANDED OVER TO SOMEONE IN THE CAPITAL FIELD AND THAT PERSON FAILED TO RETURN THE SAME, THAT AMOUNT CANNOT BE CLAIMED AS DEDUCTION AS BAD DEBT. ACCORDINGLY, MONEY ADVANCED TO SUBSIDIARY COMPANY CANNOT BE ALLOWED AS DEDUCTION E ITHER U/S 36(2) OR U/S 37(1) ON WRITING OFF THE SAM E. THE HON'BLE SUPREME COURT IN THE CASE OF A.V. THOMA S & COMPANY LTD. VS. CIT 48 ITR 67) (SC) IT WAS HELD THAT WHEN THE ASSESSEE IS NEITHER A BANKER NOR A MONEY LENDER, THE ADVANCE MADE BY ASSESSEE TO A PRIVATE COMPANY TO PURCHASE A SHARE COULD NOT BE SA ID TO BE INCIDENTAL TO THE TRADING ACTIVITY OF THE ASSESSEE. IN THE CASE OF B.D. BHARUCHA VS. CIT (196 7) 65 ITR 403 (SC) IT WAS HELD THAT IF AN ADVANCE M ADE IN THE ORDINARY COURSE OF BUSINESS OF THE ASSESSEE AS A PART OF THE BUSINESS ACTIVITY THAT DEBT EMERGE S FROM THAT ACTIVITY CAN BE ALLOWED AS A BAD DEBT AND TREA TED AS A REVENUE LOSS. IF THE AMOUNT WAS INCURRED F OR ENSURING ANY INVESTMENT WHICH IS VERY SOURCE OF HIS BUSINESS AND THAT ADVANCE IS NOT INCIDENTAL TO THE TRADING ACTIVITY OF THE ASSESSEE. THE ADVANCE IN TH E FIELD OF INVESTMENT MADE FOR THE PURPOSE OF SECUR ING ITA NO. 1091 /HYD/2012 & 843/HYD/12 M/S SRI KRISHNA DRUGS LTD. 14 SOURCE OF INCOME AND NOT FOR THE PURPOSE OF EARNING INCOME IS NOT ENTITLED FOR ANY DEDUCTION. IN OTHER WORDS, THE SOURCE OF INCOME IS NOT SYNONYMOUS TO TH E INCOME. IN ORDER TO ENTITLE DEDUCTION IT SHOULD H AVE BEEN INCURRED IN THE COURSE OF CARRYING ON THE BUSI NESS AND IT SHOULD BE IN THE NATURE OF REVENUE LOSS . IN THE PRESENT CASE, DEBT CLAIMED AS BAD DEBT IS NOT A TRA DING DEBT EMERGED FROM THE TRADING ACTIVITY OF THE ASSESSEE. THE DEBT ARISES OUT OF INVESTMENT ACTIVIT IES OF THE ASSESSEE AND THAT IS IN THE CAPITAL FIEL D, NOT ON ACCOUNT OF REVENUE, CANNOT BE ALLOWED AS A BAD DEBT . RELIANCE ALSO PLACED ON THE JUDGEMENT OF SUPREME COURT IN THE CASE OF ALUMINIUM COMPANY LTD. VS. CIT (1971) (79 ITR 514) (SC), CIT VS. ABDULLABHAI ABDULKADAR (1961) (41 ITR 545 ) (SC). IN VIEW OF TH ESE JUDGEMENTS OF THE SUPREME COURT, WE HAVE NOT CONSIDERED THE VARIOUS JUDGEMENTS CITED BY THE ASSE SSEE'S COUNSEL. 12. REGARDING WRITE OFF OF THE SECONDMENT CHARGES AND OTHER EXPENSES, THIS AMOUNT IS ADVANCED TO THE SUBSIDIARY COMPANY FOR MAKING EXPENSES LIKE SALARY AND SECONDMENT CHARGES, EXPENSES INCURRED ON BEHALF OF THE SUBSIDIARY COMPANY AND OTHER EXPENSES. THESE AMOUNTS ARE ADVANCED TO SUBSIDIARY COMPANY FOR THE PURPOSE OF INCURRING THE BUSINESS EXPENSES OF THE S UBSIDIARY COMPANIES AND THE CONSIDERATION FOR THE S ALE OF THE SUBSIDIARY COMPANY IS WORKED OUT AFTER CONSI DERING THE AMOUNT RECEIVABLES. HENCE IT IS PRESUMED THAT THE AMOUNTS DUE WERE ALREADY CONSIDERED WHILE ARRIVING AT THE SALE PRICE OF THE SUBSIDIARY COMPAN Y REPRESENTS AN ADVANCE MADE TO THE SUBSIDIARY COMPAN Y AND NOT AN EXPENDITURE. THEREFORE THE AMOUNT CANNOT BE ALLOWED U/S 36(2) OR 37(1) AS DISCUSSED I N EARLIER PARA. 13. REGARDING IRRECOVERABLE AMOUNT SPENT ON AGRONO MY AND MARKETING RIGHTS, THE ASSESSEE CLAIMED TO HAVE INCURRED THESE EXPENDITURE IN DEVELOPING CE RTAIN VARIETIES OF SPICES AND VEGETABLES FOR EXPORT S ON BEHALF OF SUBSIDIARY COMPANY. IT IS STATED THAT EXP ENDITURE IS ALSO INCURRED FOR DEVELOPING INFRASTRUC TURE AND KNOW HOW. THE EXPENDITURE INCURRED IS VALUED AT RS.6.50 CRORES AS RELATABLE TO AGRONOMY AND MARKETING RIGHTS. THIS AMOUNT IS CLAIMED AS RECOVER ABLE FROM THE SUBSIDIARY COMPANY. THE ASSESSEE COMPANY COMPUTED LONG TERM CAPITAL GAIN CONSIDERING THIS AMOUNT OF RS.6.50 CRORES AS THE SALE CONSIDERATION RECEIVABLE ON THE TRANSFER OF AGRONOM Y AND MARKETING RIGHTS. SINCE THE SUBSIDIARY COMPAN Y IS SOLD, THIS AMOUNT WHICH IS NOT REALIZABLE, IS CL AIMED AS EXPENDITURE. THE ASSESSEE COMPANY IS MAKIN G A CLAIM U/S 37(1) AS EXPENDITURE OR U/S 36(2) AS A BA D DEBT. THIS EXPENDITURE CANNOT BE ALLOWABLE UNDER THIS PROVISION WHERE THIS EXPENDITURE IS NOT AN EXPENDIT URE INCURRED FOR THE PURPOSE OF ASSESSEE'S OWN BUSI NESS AND ALSO THIS IS LOSS OF CAPITAL AND CANNOT BE ALLO WED AS A BAD DEBT AS DISCUSSED IN EARLIER PARAS. ACCORDINGLY, THESE GROUNDS OF THE APPEAL ARE DISMIS SED. 29. SINCE THE ISSUE IS MATERIALLY IDENTICAL TO THE ONE DECIDED BY THE COORDINATE BENCH IN THE CASE OF VST INDUSTRIES LTD. (SUPRA), RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDE R OF THE CIT(A) IN CONFIRMING THE ACTION OF THE AO IN DISALLOWING T HE CLAIM OF WRITE OFF OF RS. 2,27,52,698 AS BAD DEBT OR AS EXPENDI TURE AND DISMISS THE GROUND OF APPEAL RAISED BY THE ASSESSEE IN THIS REGARD. 30. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMIS SED. ITA NO. 1091 /HYD/2012 & 843/HYD/12 M/S SRI KRISHNA DRUGS LTD. 15 31. TO SUM UP, BOTH THE APPEALS OF THE REVENUE AS W ELL AS ASSESSEE ARE DISMISSED. PRONOUNCED IN THE OPEN COURT ON 27/11/2012. SD/- SD/- (CHANDRA POOJARI) (ASHA VIJAYARAGH AVAN) ACCOUNTANT MEMBER JUDICIAL MEMBE R HYDERABAD, DATED: 27 TH NOVEMBER, 2012. KV COPY TO:- 1) ACIT, CIRCLE 3(2), HYDERABAD. 2) SRI KRISHNA DRUGS LTD., C/O SRI S. RAMA RAO, ADVOCA TE, FLAT NO. 102, SHRIYAS ELEGANCE, H.NO. 3-6-643, ST. NO. 9, HIMAYATNAGAR, HYDERABAD 500 029. 3) THE CIT (A)-IV, HYDERABAD 4) THE CIT-III, HYDERABAD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD.