Wallace Sports and Research Foundation, CHENNAI V. ACIT, CHENNAI

ITA 1304/CHNY/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 5951 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 08-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 11-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASISH TRIPATHI
• Assessee Lawyers: T BANUSEKAR
• Keywords: Business expenditure; Bonafide belief; Question of law; Non-deduction of tax; Bad and doubtful debts
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! ' . #$ , % & BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A.NOS. 1304/MDS/2016 ( / ASSESSMENT YEAR: 2012-13) M/S. WALLACE SPORTS AND RESEARCH FOUNDATION, 713, MOUNT ROAD, CHENNAI 600 006. VS THE ACIT, NON-CORPORATE CIRCLE-3, CHENNAI -34. PAN: AAAFW0805F ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI T. BANUSEKAR, CA /RESPONDENT BY : SHRI ASISH TRIPATHI, JCIT /DATE OF HEARING : 29.08.2017 ! /DATE OF PRONOUNCEMENT : 16.10.2017 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-4, CHENNAI DATED 01.02.2016 IN ITA NO.112 /2014- 15/A.Y.2012-13/CIT(A)-4 FOR THE ASSESSMENT YEAR 201 2-13 PASSED U/S.250(6) R.W.S. 143(3) OF THE ACT. 2 ITA NO. 1304/MDS/201 6 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS APPEAL. FOR THE SAKE OF CONVENIENCE THE CONCISE GROUNDS ARE STATED HEREIN BELOW FOR ADJUDICATION: (I) THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ORDER OF THE LD.AO FOR DISALLOWING THE CLAIM OF BAD DEBT OF RS.5 CRORES. (II) THE LD.CIT(A) HAS ERRED IN CONFIRMING THE ORDE R OF THE LD.AO WHO HAD INVOKED THE PROVISIONS OF SECTION 40( A)(IA) OF THE ACT AND THEREBY MADE DISALLOWANCE OF RS.27,8 7,184/- 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A FIRM ENGAGED IN THE BUSINESS OF MOTOR RACING, RALLYING A ND REAL ESTATE BUSINESS, FILED ITS RETURN OF INCOME FOR THE ASSESS MENT YEAR 2012- 13 ELECTRONICALLY ON 30.09.2012 ADMITTING TOTAL INC OME OF RS.27,37,490/-. INITIALLY THE RETURN WAS PROCESSED U/S.143(1) OF THE ACT. SUBSEQUENTLY THE CASE WAS SELECTED FOR SC RUTINY AND THE FINALLY THE ASSESSMENT WAS COMPLETED U/S.143(3) OF THE ACT ON 24.02.2015, WHEREIN THE LD.AO MADE THE ABOVE MENTIO NED DISALLOWANCES. 3 ITA NO. 1304/MDS/201 6 4. GROUND NO.2(I): DISALLOWING THE CLAIM OF BAD DEBTS OF RS.5 CRORES:- DURING THE COURSE OF SCRUTINY PROCEEDINGS IT WAS NO TICED BY THE LD.AO THAT THE ASSESSEE HAD CLAIMED DEDUCTION O F RS.5 CRORES UNDER THE HEAD BAD DEBTS WRITTEN OFF IN THE BOOKS OF ACCOUNTS. ON QUERY IT WAS SUBMITTED THAT THE AMOUN T OF RS.5 CRORES WAS ADVANCE GIVEN TO MRS. SANDHYA MULCHANDAN I DURING THE FINANCIAL YEAR 2009-10 ONWARDS ON VARIOUS DATES AS DETAILED HEREIN BELLOW:- S.NO. DATE CHEQUE NO. AMOUNT 1. 17.08.2009 909341 3,00,00,000/- 2. 19.08.2009 909346 50,00,000/- 3. 19.08.2009 909347 50,00,000/- 4. 05.10.2009 172471 30,00,000/- 5. 06.10.2009 172477 25,00,000/- 6. 04.11.2009 909396 25,00,000/- 7. 04.11.2009 909397 5,00,000/- 8. 04.11.2009 909400 5,00,000/- 9. 27.11.2009 909423 5,00,000/- 10. 27.11.2009 909424 5,00,000/- TOTAL 5,00,00,000/- IT WAS FURTHER REVEALED THAT THE ASSESSEE HAS EXTEN DED THE AFORESAID LOAN TO MRS. SANDHYA MULCHANDANI AS INTER EST FREE LOAN 4 ITA NO. 1304/MDS/201 6 FOR PURCHASE OF RESIDENTIAL PROPERTY IN NEW DELHI I N GOOD FAITH. SINCE THE ASSESSEES BUSINESS WAS PRIMARILY TO PROM OTE AND ENCOURAGE MOTOR SPORTS AMONGST AMATEURS AND PROFESS IONALS, COMPETE IN SUCH EVENTS AND NOT IN THE BUSINESS OF M ONEY LENDING, THE LD.AO DISALLOWED THE CLAIM OF BAD DEBTS. SUBSEQ UENTLY THE ASSESSEE CHANGED ITS STAND BY STATING THAT THE AMOU NT OF RS.5 CRORE WAS SHORT-TERM ADVANCE PAID TO M/S. SANDHYA M ULCHANDANI BECAUSE SHE IS THEIR COMMISSION AGENT AND REAL ESTA TE BROKER. HOWEVER, THE ASSESSEE COULD NOT PRODUCE ANY EVIDENC E TO SUGGEST THAT MS. SANDHYA MULCHANDANI WAS ACTING AS COMMISSION AGENT AND REAL ESTATE BROKER. FURTHER TH E LD.AO OPINED THAT BAD DEBTS U/S.36(1)(VII) OF THE ACT CAN BE CLAIMED ONLY IF SUCH AMOUNT WAS OFFERED AS INCOME OF THE ASSESSE E IN THE EARLIER YEARS. IN THE CASE OF THE ASSESSEE THE ASS ESSEE HAD NOT OFFERED THIS AMOUNT AS ITS INCOME IN ANY OF THE EAR LIER YEARS. THEREFORE THE LD.A.O OPINED THAT IT WAS MERELY AN A DVANCE GIVEN IN GOOD FAITH TO THIRD PARTY. HENCE THE LD.AO DISAL LOWED THE CLAIM OF DEDUCTION OF RS.5 CRORE UNDER THE HEAD BAD DEBTS . WHILE DOING SO THE LD. A.O RELIED ON THE FOLLOWING LETTERS:- 5 ITA NO. 1304/MDS/201 6 1. LETTER WRITTEN BY SANDHYA MULCHANDANI TO MR. VIC KY CHANDHOK JULY 29, 2009 MR. VICKY CHANDHOK, WALLACE SPORTS & RESEARCH FOUNDATION, 713, (NEW #244), MOUNT ROAD, CHENNAI 600 006. DEAR VICKY, THIS IS IN REFERENCE TO OUR DISCUSSION WITH YOU REG ARDING PROVIDING FINANCE AS UNSECURED INTEREST FREE LOAN FOR A SUM OF RS.5,0 0,00,000/- (RUPEES FIVE CRORE ONLY) FROM YOUR COMPANY. THE SUM IS REQUIRED FOR THE PURCHASE OF RESIDENTIAL PROPERTY IN NEW DELHI. THE LOAN AGREEMENT WILL BE SENT TO YOU SHORTLY. KINDLY GET APPROVAL FROM YOUR BOARD AND INFORM US. YOURS TRULY, SANDHYA MULCHANDANI 2 . LETTER WRITTEN BY SANDHYA MULCHANDANI TO SHRI M. KARTHIK MANICKAM, ASST. COMMISSIONER OF INCOME TAX. SANDHYA MUCHANDANI NO.8, FRIENDS COLONY (WEST) NEW DELHI 110065 FEBRUARY 24, 2014 PH.# 26329205/9810081835 M. KARTHIK MANICKAM ASSISTANT COMMISSIONER OF INCOME TAX, BUSINESS CIRCLE XV, CHENNAI. ROOM NO.623-A, VI FLOOR, WANAPARTHY BLOCK (NEW BLOC K), AAYAKAR BHAWAN, NO.121, NUNGAMBAKKAM HIGH ROAD, CHENNAI 600 034. E-MAIL: [e-mail] PH.044-28338636 IN THE MATTER OF WALLACE SPORTS AND RESEARCH FOUNDA TIONS. 6 ITA NO. 1304/MDS/201 6 DEAR SIR, IN REFERENCE TO ABOVE, I HEREBY GIVE THE REQUESTED DETAILS: 1.WHETHER YOU HAVE TAKEN THE AMOUNT OF RS.5,00,00,0 00/- FROM M/S. WALLACE SPORTS AND RESEARCH FOUNDATIONS? IF SO, PL EASE PROVIDE DATE AND MODE OF RECEIPT OF THE SAME? YES. DATE AND MODE IS GIVEN BELOW A) 17.08.2009 CHQ. NO.909341 DRAWN ON HDFC BANK LTD., CHENNAI : RS.3,00,00,000 B) 19.08.2009 CHQ. NO.909346 DRAWN ON HDFC BANK LTD., CHENNAI : RS. 50,00,000 C) 19.08.2009 CHQ. NO.909347 DRAWN ON HDFC BANK LTD., CHENNAI : RS. 50,00,000 D) 05.10.2009 CHQ. NO.172471 DRAWN ON HDFC BANK LTD., CHENNAI : RS. 30,00,000 E) 06.10.2009 CHQ. NO.172477 DRAWN ON HDFC BANK LTD., CHENNAI : RS. 25,00,000 F) 04.11.2009 CHQ. NO.909396 DRAWN ON HDFC BANK LTD., CHENNAI : RS. 25,00,000 G) 04.11.2009 CHQ. NO.909397 DRAWN ON HDFC BANK LTD., CHENNAI : RS. 5,00,000 H) 04.11.2009 CHQ. NO.909400 DRAWN ON HDFC BANK LTD., CHENNAI : RS. 5,00,000 I) 27.11.2009 CHQ. NO.909423 DRAWN ON HDFC BANK LTD., CHENNAI : RS. 5,00,000 J) 27.11.2009 CHQ. NO.909424 DRAWN ON HDFC BANK LTD., CHENNAI : RS. 5,00,000 ============ TOTAL RS.5,00,00,000 ============ 2. WHAT IS THE PURPOSE OF RECEIPT OF ABOVE MENTIONE D RS.5,00,00,000/-? I HAD TAKEN IT AS A LONG TO BY A RESIDENTIAL PROPER TY. THE LOAN IS GRANTED INTEREST FREE. 3. HAVE YOU REPAID THE ABOVE MENTIONED AMOUNT OF RS .5,00,00,000/- TO M/S. WALLACE SPORTS AND RESEARCH FOUNDATIONS AS ON DATE? IF NOT ARE YOU GOING TO PAY THE SAME IN FUTURE? NO, I HAVE NOT REPAID IT AS ON DATE AND WILL RETURN IT. THANKING YOU, YOURS TRULY, SANDHYA MULCHANDANI 4.2 THE LD.CIT(A) UPHELD THE VIEW OF THE LD.AO BY O BSERVING AS UNDER:- 7 ITA NO. 1304/MDS/201 6 ON THE FIRST ASPECT OF CLAIM OF BAD DEBTS OF RS. 5 ,00,00,000/-, AT THE FIRST PLACE, THE CLAIM OF THE APPELLANT THAT IT IS A BUSINESS DEBT IS UNACCEPTABLE. SMT. SANDHYA MULCHANDHANI HAS CLEARLY, IN A LETTER DATED 03/02/2015 HAS EXPRESSED THAT THE AMOUNT IS AN INTEREST FREE LOAN TAKEN FROM WSRF TO PURCHASE A RESIDENTIAL PROPERTY. THE APPELLANT FIRM IS NOT ENG AGED IN THE BUSINESS OF MONEY LENDING AND HENCE THE AMOUNT LENT TO SMT.SANDHYA MULCHANDANI TO HELP HER ACQUIRE A RESID ENTIAL PROPERTY CANNOT, BY ANY STRETCH OF IMAGINATION BE T ERMED AS A BUSINESS TRANSACTION UNDERTAKEN IN THE REAL ESTATE BUSINESS OF THE APPELLANT. IF IT WERE A REAL ESTATE TRANSACTION , THE FIRM WOULD HAVE ISSUED A CHEQUE IN FAVOUR OF THE OWNER O F THE HOUSE PROPERTY AND NOT TO MRS. SANDHYA MULCHANDHANI. THE CONTENTS OF THE ASSESSMENT ORDER HAVE INCORPORATED TWO OTHER LETTERS DATED 29/07/2009 AND 24/02/2014 ADDRESSED TO THE AS SESSING OFFICER BY MRS. SANDHYA MULCHANDHANI HAVE ALSO EMPH ASIZED THAT THE AMOUNT IS LENT AS AN INTEREST FREE LOAN TO HELP HER ACQUIRE HER PROPERTY. WHEN THE TRANSACTION IS A LOA N SIMPLICITOR AND NOT AN AMOUNT ADVANCED IN THE COURS E OF BUSINESS TRANSACTION OF THE APPELLANT FIRM, THE VAR IOUS CASE LAWS RELIED UPON BY THE APPELLANT BEING CIT V. GIRI SH BHAGWAT PRASAD 265 ITR 772 (GUJ.), TRF LTD. 230 CTR 14 (SE) , ETC. DO NOT COME TO THE RESCUE OF THE APPELLANT. 21. ALTERNATIVELY, AND WITHOUT PREJUDICE TO THE OBS ERVATION IN THE PRECEDING PARAGRAPH, A LOAN SUM CAN BE TREATED AS BAD DEBT, IF IT WERE LENT BY A PERSON IN THE NORMAL COU RSE OF MONEY LENDING BUSINESS. BUT THE APPELLANT IS NOT A MONEY LENDER. IT DOES NOT POSSESS THE REQUISITE LICENSE TO LEND MONE Y AS BUSINESS. FURTHER, IF IT WERE A MONEY LENDING TRANS ACTION, THE APPELLANT HAVING FOLLOWED MERCANTILE SYSTEM OF ACCO UNTING, AS EXHIBITED IN COLUMN 11 (A) OF FORM NO.3CD-PART B, T HE INTEREST INCOME ACCRUED, EVEN IF NOT RECEIVED, SHOULD BE OFF ERED TO TAXATION. WHILE THE APPELLANT HAS FAILED TO UNDERTA KE THE SAME, THE TRANSACTION CANNOT BE TREATED AS A DEBT AT THE FIRST PLACE AND, HENCE, ITS WRITE-OFF DOES NOT FALL UNDER THE P URVIEW OF S.36(1 )(VII) READ WITH S.36(2)(II). THEREFORE, THE APPELLANT FAILS ON THIS COUNT, AS WELL. 8 ITA NO. 1304/MDS/201 6 4.3 THEREAFTER RELYING ON THE DECISION OF THE HONB LE HIGH COURT OF BOMBAY IN THE CASE OF SALEM MAGNESITE (P) LTD. VS CIT REPORTED IN 321 ITR 43, DECISIONS OF THE HONBLE SU PREME COURT IN THE CASE OF CIT,BOMBAY VS. ABDULLABHAI ABDULKADAR R EPORTED IN 41 ITR 545 (SC) AND BADRIDAS DAGA VS. CIT (1958) RE PORTED IN 34 ITR 10 (SC), THE LD.CIT(A) CONFIRMED THE ORDER OF THE LD.AO BY HOLDING AS UNDER:- THE LENDING OF RS.5 CRORES TO MRS SANDHYA MULCHAND ANI MAY HAVE SOME CONNECTION WITH THE BUSINESS OF THE APPEL LANT, BUT WHILE THE SAME AS SUBSTANTIATED EARLIER, DOES NOT S PRING DIRECTLY FROM THE BUSINESS OF THE APPELLANT. THE A O HAS DISCUSSED THE CASE IN GREAT LENGTH AND HAS RIGHTLY AND APPROPRIATELY DISMISSED THE CONTENTIONS OF THE ASSE SSEE. I DO NOT FIND ANY INFIRMITY IN THE FINDINGS OF THE AO. T HEREFORE, I AM OF THE CONSIDERED VIEW THAT THE CLAIM OF BAD DEBT W RITTEN OFF BY THE APPELLANT AS BUSINESS EXPENDITURE IS INCONGRUOU S, AND HENCE, THE GROUNDS OF APPEAL ON THIS ISSUE IS DISMI SSED. 4.4 BEFORE US, THE LD.AR VEHEMENTLY ARGUED BY STATI NG THAT THE ASSESSEE WAS NOT ONLY ENGAGED IN MOTOR RACING ACTIV ITIES BUT ALSO INVOLVED IN REAL ESTATE BUSINESS. HE FURTHER SUBMI TTED THAT IN ORDER TO TAKE ADVANTAGE OF THE REAL ESTATE BOOM IN DELHI, THE ASSESSEE HAD ADVANCED RS.5 CRORES TO MS. SANDHYA MU LCHANDANI TO PURCHASE RESIDENTIAL HOUSE PROPERTY. HOWEVER, T ILL DATE NEITHER SHE HAS PURCHASED THE HOUSE ON BEHALF OF THE ASSESS EE NOR 9 ITA NO. 1304/MDS/201 6 RETURNED THE ADVANCE GIVEN TO HER. THE CHANCE OF R ECOVERING THE AMOUNT IS ALSO BLEAK BECAUSE THERE WAS NO PROPER AG REEMENT IN WRITING BETWEEN THEM TO TAKE UP LEGAL RECOURSE AND THEREFORE THE ASSESSEE HAD NO OTHER OPTION BUT WRITE IT OFF AS BA D DEBTS. THE LD.AR FURTHER ARGUED BY STATING THAT EVEN THOUGH TH E LOSS SUFFERED BY THE ASSESSEE MAY NOT BE ALLOWABLE AS DEDUCTION U /S.36(1)(VII) OF THE ACT TOWARDS BAD DEBTS, IT IS A LOSS SUFFERED BY THE ASSESSEE DURING THE COURSE OF ITS BUSINESS AND HENCE IT SHOU LD BE ALLOWABLE AS DEDUCTION U/S.28 OF THE ACT. THE LD.AR FURTHER EXPLAINED THAT THOUGH MS. SANDHYA MULCHANDANI HAS ACKNOWLEDGED THE LOAN BEFORE THE REVENUE, SHE HAS NO INTENTION TO REPAY T HE SAME AND SINCE THERE WERE NO PROPER AGREEMENTS BETWEEN THE P ARTIES LEGAL ENFORCEMENT WAS DIFFICULT. IT WAS THEREFORE PLEADED THAT THE LOSS SUFFERED BY THE ASSESSEE SHOULD BE EXCLUDED FROM TH E PROFIT EARNED BY THE ASSESSEE. THE LD.DR ON THE OTHER HAN D RELIED ON THE ORDERS OF THE LD.REVENUE AUTHORITIES AND PLEADE D FOR CONFIRMING THE SAME. 4.5 WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. THERE IS NO DOUB T THAT THE ASSESSEE IS ENGAGED IN REAL ESTATE BUSINESS OTHER T HAN MOTOR 10 ITA NO. 1304/MDS/20 16 RACING, ETC., BECAUSE THE LD.AO HIMSELF IN HIS ORDE R DATED 24.02.2015 HAS SPECIFICALLY MENTIONED IN THE TITLE OF THE ORDER ITEM NO.10 MOTOR RACING AND RALLYING, REAL ESTATE . THEREFORE IT IS CRYSTAL CLEAR THAT ONE OF THE ACTIVITIES OF THE ASS ESSEE FIRM IS REAL ESTATE BUSINESS. FROM THE FACTS OF THE CASE AND THE LETTER ADDRESSED TO THE ASSESSEE AND THE ASSISTANT COMMISS IONER OF TAX BY MS.SANDHYA MULCHANDANI SUPRA, IT IS EVIDENT THAT THE AMOUNT WAS ADVANCED INTEREST FREE BY THE ASSESSEE T O MS. SANDHYA MULCHANDANI FOR PURCHASE OF RESIDENTIAL HOU SE PROPERTY IN DELHI. FURTHER IN THE LETTER ADDRESSED BY MS. SA NDHYA MULCHANDANI TO THE ASSESSEE DATED 29 TH JULY 2009, IT IS NOT MENTIONED WHETHER THE IMMOVABLE PROPERTY IS TO BE P URCHASED IN THE NAME OF THE ASSESSEE OR MS. SANDHYA MULCHANDANI . IT IS PERTINENT TO MENTION THAT NO BUSINESS HOUSE WILL GI VE INTEREST FREE LOAN TO THIRD PARTY WITHOUT ANY QUIT-PRO-QUO. THEREFORE THERE IS AN IMPLIED INFERENCE THAT THE ASSESSEES EXPECTATION I S TO PARTICIPATE IN THE GAIN ARISING OUT OF THE PURCHASE AND SALE OF THE IMMOVABLE PROPERTY. FROM THE FACTS OF THE CASE IT ALSO APPEAR S THAT THE JOB OF PURCHASING THE PROPERTY WAS VESTED WITH MS. SANDHYA MULCHANDANI. MOREOVER ANY PERSON CAN PERFORM AS A REAL ESTATE AGENT BECAUSE THERE IS NO PRESCRIBED QUALIFICATION FOR INDULGING IN 11 ITA NO. 1304/MDS/20 16 SUCH ACTIVITY. THUS ACCORDING TO THE ASSESSEE, IN T HE TRANSACTION, THE AMOUNT ADVANCED HAS BECOME IRRECOVERABLE, THERE BY THE ASSESSEE HAS SUFFERED LOSS OF RS.5 CRORE AND THE SA ME CANNOT BE BRUSHED ASIDE. THE REVENUE HAS ALSO NOT BROUGHT OUT ANY MATERIALS TO SUGGEST THAT THE ASSESSEE HAS NOT SUFF ERED ANY LOSS OTHER THAN THE LETTER WRITTEN BY MS. SANDHYA MULCHA NDANI. FURTHER THERE IS NO DISPUTE THAT THE AMOUNT OF RS.5 CRORE I S SOURCED FROM THE TAX PAID RESOURCES OF THE ASSESSEE FIRM. THE AS SESSEES STAND IS THAT, IT IS UNDER THE BONAFIDE BELIEF, THE LOAN AMOUNT OF RS.5 CRORES HAS BECOME IRRECOVERABLE AND THEREFORE THE L OAN AMOUNT IS WRITTEN OFF AS BAD DEBTS. THOUGH IN STRICT PARLANCE THE LOSS SUFFERED BY THE ASSESSEE CANNOT BE CONSIDERED AS BA D DEBTS ARISING OUT OF TRADE DEBTS, IT IS CERTAINLY A LOSS SUFFERED BY THE ASSESSEE DURING THE COURSE OF ITS BUSINESS OF REAL ESTATE IF SUCH ADVANCE IS NOT RECOVERABLE. FURTHER THE ASSESSEE AL ONE CAN ACCESS WHETHER THE LOAN IS RECOVERABLE OR NOT, AND THE REVENUE CANNOT SIT ON JUDGMENT OF THE SAME. MOREOVER THE RE VENUE HAS RECOURSE U/S.41(1) OF THE ACT, IF THE ASSESSEE RECO VERS THE LOAN AMOUNT IN ANY OF THE SUBSEQUENT YEARS. FURTHER THE RE IS NO BAR ON THE REVENUE TO SCRUTINIZE THE CASE OF MS. SANDHYA M ULCHANDANI AND TO EXAMINE THE POSSIBILITY WHETHER THE LOAN AMO UNT OF RS.5 12 ITA NO. 1304/MDS/20 16 CRORE CAN BE TREATED AS INCOME IN HER HANDS BECAUSE THE ASSESSEE HAD WRITTEN OFF THE SAME IN ITS BOOKS OF A CCOUNTS. FURTHER IN COMMON BUSINESS PRACTICE EVERY TRANSACTI ON IS NOT NECESSARILY MADE BY ENTERING INTO WRITTEN AGREEMENT S. INFERENCE CAN BE ALSO DRAWN FROM THE CIRCUMSTANCES AND SITUAT IONS PERTAINING TO EVERY TRANSACTION. IN THE CASE OF TH E ASSESSEE, THE EXPLANATION OFFERED CANNOT BE SIMPLY OVERLOOKED WIT HOUT LOOKING INTO EACH AND EVERY EVENT OCCURRED BETWEEN BOTH THE PARTIES. THE ARGUMENT OF THE LD.AR THAT, WHEN THE ASSESSEE H AD SUFFERED LOSS DUE TO IRRECOVERABLE OF ADVANCES MADE DURING T HE COURSE OF ITS BUSINESS, THE SAME HAS TO BE ALLOWED AS DEDUCTI ON U/S.28 OF THE ACT HAS MERITS. SECTION 28(IV) OF THE ACT PROVI DES THAT THE VALUE OF ANY BENEFIT OR PERQUISITE, WHETHER CONVERT IBLE INTO MONEY OR NOT, ARISING FROM BUSINESS OR THE EXERCISE OF A PROFESSION; SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION . CONVERSELY THE LOSS ARISING FROM BUSINESS HAS ALSO TO BE SET OFF FROM THE PROFITS OF THE BUSINESS. FURTHER THE RATIO LAID DOWN IN THE CASE TRF LIMITED VS. CIT REPORTED IN 230 CTR 14 IS APPLICABLE IN THE CASE OF THE ASSESSEE. IN THE CASE TRF VS. CIT SUPRA, THE HONBLE APEX COU RT HAS HELD THAT AFTER 1 ST APRIL 1989, IT IS NOT NECESSARY TO ESTABLISH THAT THE 13 ITA NO. 1304/MDS/20 16 DEBT IN FACT HAS BECOME IRRECOVERABLE . THEREFORE CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE DECISIO N OF THE HONBLE APEX COURT WE ARE OF THE CONSIDERED VIEW TH AT THE LOSS WRITTEN OFF BY THE ASSESSEE IS GENUINE AND HAS TO B E SET OFF FROM THE PROFIT EARNED BY IT. FURTHER THE CASE CITED BY THE REVENUE HAS NO RELEVANCE CONSIDERING THE FACTS AND CIRCUMSTANCE OF THE ASSESSEES CASE BEFORE US. HENCE, WE HEREBY DIRECT THE LD.AO TO GRANT DEDUCTION OF RS.5 CRORES BEING THE LOSS SUFFE RED BY THE ASSESSEE AS IRRECOVERABLE ADVANCES WITH RESPECT TO REAL ESTATE BUSINESS AND THEREBY DELETE THE ADDITION. 5. GROUND NO.2(II): DISALLOWANCE OF INTEREST PAID TO M/S. RELIGARE FINVEST LIMITED BY INVOKING SECTION 40(A)( IA) OF THE ACT AMOUNTING TO RS.27,87,184/-:- DURING THE COURSE OF SCRUTINY ASSESSMENT, IT WAS FOUND THAT THE ASSESSEE HAD CLAIMED EXPENDITURE OF RS.27,87,18 4/- ON ACCOUNT OF INTEREST PAID TO M/S. RELIGARE FINVEST L IMITED. IT WAS ALSO REVEALED THAT THE ASSESSEE HAD NOT DEDUCTED T AX AT SOURCE ON THE INTEREST PAID TO M/S. RELIGARE FINVEST LIMIT ED. THEREFORE THE LD.AO INVOKED THE PROVISIONS OF SECTION 40(A)(I A) OF THE ACT AND DISALLOWED THE INTEREST EXPENDITURE OF RS.27,87 ,184/-. ON 14 ITA NO. 1304/MDS/20 16 APPEAL, THE LD.CIT(A) UPHELD THE ORDER OF THE LD.AO BY OBSERVING AS UNDER:- AS HELD BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER, REGARDING THE FIRST ARGUMENT OF THE APPELLANT, IT I S TO BE MENTIONED THAT THE SECOND PROVISO IN SECTION 40(IA) WAS INSERTED BY THE FINANCE ACT 2012 W.E.F. FIRST OF AP RIL 2013 HAVING A PROSPECTIVE EFFECT AND NOT TO BE APPLICABL E PROSPECTIVELY. REGARDING THE SECOND ARGUMENT OF TH E ASSESSEE THAT THE ASSESSEE DOES NOT HAVE ANY AMOUNT PAYABLE TO M/S. RELIGARE AS ON 31/3/2012. THEREFORE, IN VIEW OF THE JUDICIAL PRONOUNCEMENTS, CITED BY THE ASSESSEE, THE TDS WAS NOT DEDUCTIBLE BY IT. IN THIS REGARD, IT IS PERTINENT TO MENTION HERE THAT IN THE CASE OF DCIT VS. ASHIKA STOCK BROKING L TD. REPORTED IN 44 SOT 556 THE HONBLE KOLKATTA ITAT HA S DECIDED THE MATTER IN FAVOUR OF THE REVENUE AND AFT ER FOLLOWING ITS DECISION DATED 15.01.2010 IN THE CASE OF PODDAR SONS EXL P LTD VS. ITO IN ITA NO.1418(KOL.)/09 HAS HELD THAT PROVISIONS OF SECTION 40(1)8IA) OF THE ACT ARE APPL ICABLE TO EVEN SUMS PAID DURING THE YEAR. IN THE RECENTLY DE CIDED CASE OF M/S. P.M.S DIESELS, THE HONOURABLE PUNJAB AND HA RYANA HIGH COURT HAS HELD THAT THE CONSEQUENCES U/S 40(A) (IA) WOULD OPERATE ON ACCOUNT OF FAILURE TO DEDUCT TAX WHERE T HE TAX WAS LIABLE TO BE DEDUCTED UNDER CHAPTER XVII OF THE ACT AND THE TERM PAYABLE HAS BEEN USED IN THAT SENSE. THE HI GH COURT IN THE PRESENT CASE, DID NOT AGREE WITH THE DECISION O F THE ALLAHABAD HIGH COURT IN THE CASE OF VECTOR SHIPPING SERVICES (P) LTD. WHEREIN THE HIGH COURT HAD HELD THAT WHEN EXPENDITURE IS INCURRED BY THE TAXPAYER WERE TOTALL Y PAID AND DID NOT REMAIN PAYABLE AT THE END OF THE RELEVANT A CCOUNTING PERIOD, THE PROVISIONS OF SECTION 40(A)(IA) ARE NOT APPLICABLE. THEREFORE, RELYING ON THE DECISION OF THE HONOURABL E PUNJAB AND HARYANA HIGH COURT, IN THE ABOVE CASE, AND ALSO REFERRING TO THE CBDT CIRCULAR NO.10/DV/2013 DATED 16.12.2013, I DISMISS THE CONTENTIONS OF THE APPELL ANT AND 15 ITA NO. 1304/MDS/20 16 CONFIRM THE ADDITION OF RS.27,87,184/- MADE UNDER S ECTION 40(A)(IA) BY THE AO. 5.1 AT THE OUTSET, WE FIND THE ISSUE TO BE COVERED BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE M/S. PALAM GAS SERVICE VS. COMMISSIONER OF INCOME TAX, CIVIL APPEA L NO.5512 OF 2017 VIDE ORDER DATED 03.05.2017 WHEREIN WITH RESPE CT TO THE QUESTION OF LAW WHETHER THE PROVISIONS OF SECTION 40(A)(IA) SHALL B E ATTRACTED WHEN THE AMOUNT IS NOT 'PAYABLE' TO A CON TRACTOR OR SUB-CONTRACTOR BUT HAS BEEN ACTUALLY PAID?' THE HONBLE APEX COURT HELD AS FOLLOWS: IN VIEW OF THE AFORESAID DISCUSSION, WE HOLD THAT THE VIEW TAKEN BY THE HIGH COURTS OF PUNJAB & HARYANA, MADRA S AND CALCUTTA IS THE CORRECT VIEW AND THE JUDGMENT OF TH E ALLAHABAD HIGH COURT IN CIT V. VECTOR SHIPPING SERVICES (P) LTD., (2013) 357 ITR 642DID NOT DECIDE THE QUESTION OF LA W CORRECTLY. THUS, INSOFAR AS THE JUDGMENT OF THE ALL AHABAD HIGH COURT IS CONCERNED, WE OVERRULE THE SAME. CONSEQUEN CES OF THE AFORESAID DISCUSSION WILL BE TO ANSWER THE QUES TION AGAINST THE APPELLANT/ASSESSEE THEREBY APPROVING THE VIEW T AKEN BY THE HIGH COURT. THEREFORE FOLLOWING THE DECISION OF THE HO NBLE APEX COURT, WE HEREBY HOLD THE ISSUE IN FAVOUR OF LD.REVENUE. HOWEVER THE THIRD PROVISO OF SECTION 40(A)(IA) OF THE ACT STATE S AS UNDER:- PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO D EDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII-B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN 16 ITA NO. 1304/MDS/20 16 ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB- SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB-CLAU SE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INC OME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO. [INSERTED BY FINANCE ACT, 2012, W.E.F. 1-4-2013] FROM THE ABOVE IT IS CLEAR THAT, IF THE A SSESSEE IN NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB-SECTION(1) OF SECTION 201, THEN, SECTION 40(A)( IA) OF THE ACT WILL NOT BE ATTRACTED W.E.F. 1-4-2013 I.E., FROM TH E ASSESSMENT YEAR 2012-13. HENCE WE HEREBY REMIT THE MATTER TO THE FI LE OF THE LD.AO TO EXAMINE THE ISSUE WITH RESPECT TO THE APPL ICABILITY OF THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT IN TOTAL ITY AND THEREAFTER DECIDE THIS ISSUE AFRESH IN ACCORDANCE WITH LAW AND MERITS. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON THE 16 TH OCTOBER, 2017 AT CHENNAI. SD/- SD/- ( ! ' . #$ ) ( . ) (DUVVURU RL REDDY) (A. MOHAN ALANKAMONY ) ' #$ /JUDICIAL MEMBER #$ / ACCOUNTANT MEMBER 17 ITA NO. 1304/MDS/20 16 %' /CHENNAI, &# /DATED 16 TH OCTOBER, 2017 RSR # () *) /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. - ( )/CIT(A) 4. - /CIT 5. )./ 0 /DR 6. /1 /GF