M/s Rukmani Finance Pvt Ltd , Bangalore V. The Deputy Commissioner of Income Tax Circle-5(1)(1), Bangalore

ITA 1430/BANG/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 9164 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 20-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 22

Judgement Text

ITA NO.1430/BANG/2017 M/S. RUKMANI FINANCE PVT. LTD., BENGALURU IN THE INCOME TAX APPELLATE TRIBUNAL CBENCH: BANGALORE BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO.1430/BANG/2017 ASSESSMENT YEAR : 2013-14 M/S. RUKMANI FINANCE PVT. LTD. T. SRINIVASA & CO. CHARTERED ACCOUNTANTS B-1, MANISH TOWER #84, J.C. ROAD BENGALURU 560 002 PAN NO :AAACR9552P VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-5(1)(1) BENGALURU APPELLANT RESPONDENT APPELLANT BY : SHRI T. SRINIVASA, A.R. RESPONDENT BY : SHRI PRADEEP KUMAR, D.R. DATE OF HEARING : 22.03.2021 DATE OF PRONOUNCEMENT : 22.03.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 30.3.2017 PASSED BY LD. CIT(A)-5, BENGALURU AND IT RELATES TO THE ASSESSMENT YEAR 2013-14. AT THE TIME OF HEARING, T HE ASSESSEE DID NOT PRESS GROUND NOS.1 & 2. THE REMAINING GROUNDS RELATE TO DISALLOWANCE OF CLAIM OF BAD DEBTS WRITTEN OFF AMOU NTING TO RS.8.39 CRORES. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVI DING FINANCE AND INVESTMENT SERVICES. THE RETURN OF INCOME FILE D BY THE ASSESSEE ITA NO.1430/BANG/2017 M/S. RUKMANI FINANCE PVT. LTD., BENGALURU PAGE 2 OF 6 FOR ASSESSMENT YEAR 2013-14 WAS TAKEN UP FOR SCRUTI NY. THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED BAD DEBTS WRI TTEN OFF AMOUNTING TO RS.8.39 CRORES. IN RESPONSE TO THE QU ERY RAISED WITH REGARD TO THE ABOVE SAID CLAIM, THE ASSESSEE SUBMIT TED THAT THE ABOVE SAID AMOUNT WAS GIVEN TO A COMPANY NAMED M/S. MARMAGOA STEEL LIMITED (MSL). IT WAS SUBMITTED THAT THE A SSESSEE WAS A CO- PROMOTER OF ABOVE SAID COMPANY UNDER A BIFR APPROVE D REHABILITATION PROGRAMME. SINCE THE ASSESSEE HELD MAJORITY STAKE IN MSL, THE ASSESSEE HAD ALSO EXTENDED SUPPORT IN T HE FORM OF UNSECURED LOANS. IT WAS SUBMITTED THAT ASSESSEE HA D RECEIVED INTEREST FROM MSL UP TO ASSESSMENT YEAR 2013-14. H OWEVER, THE NET WORTH OF THE MSL GOT ERODED AND PRODUCTION WAS STOPPED IN JUNE 2013. ACCORDINGLY, IT WAS SUBMITTED THAT THER E WAS NO VISIBLE SIGN OF REVIVAL OF THE OPERATION OF MSL. HENCE, TH E ASSESSEE SOLD ITS SHARES HELD IN MSL AND SIMULTANEOUSLY WROTE OFF THE LOAN GIVEN TO MSL AS IRRECOVERABLE. 3. THE A.O. NOTICED THAT THE SHARES SOLD BY THE ASS ESSEE WAS PURCHASED BY A PERSON NAMED SHRI ANIL KUMAR MITTAL, WHO IS THE COMMON DIRECTOR IN THE ASSESSEE COMPANY AND MSL. F URTHER, THE SHARES HAVE BEEN SOLD AT A PREMIUM. THE A.O. ALSO NOTICED THAT MSL HAD ASSETS WORTH RS.51 CRORES IN THE FORM OF LA ND AND BUILDINGS ARE TANGIBLE ASSETS AS AT 31.3.2015. HE ALSO NOTICED THAT MSL HAS WRITTEN OFF THE LIABILITY PAYABLE TO THE AS SESSEE COMPANY AS NOT PAYABLE, ONLY IN THE FINANCIAL YEAR ENDING 31 .3.2015. UNDER THESE SET OF FACTS, THE A.O. TOOK THE VIEW THAT THE CREDENTIALS OF WRITING OFF OF LOAN WERE NOT SUPPORTED BY THE FACTS AND CIRCUMSTANCES OF THE CASE. ACCORDINGLY, HE HELD TH AT WRITING OFF OF ADVANCE WAS NOT ALLOWABLE DURING THE YEAR UNDER CON SIDERATION. THE AO ALSO NOTICED THAT THE ASSESSEE HAS NOT REGIS TERED WITH RBI FOR CARRYING ON NBFC ACTIVITIES. ACCORDINGLY, THE A.O. THE OOK THE ITA NO.1430/BANG/2017 M/S. RUKMANI FINANCE PVT. LTD., BENGALURU PAGE 3 OF 6 VIEW THAT LOAN GIVEN TO MSL DOES NOT FALL UNDER MON EY LENDING ACTIVITY, BUT IS ONLY AN INVESTMENT ACTIVITY. ACCO RDINGLY, THE AO DISALLOWED THE CLAIM OF BAD DEBTS AND THE SAME WAS CONFIRMED BY LD. CIT(A). 4. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED T HE RECORD. THE LD. A.R. SUBMITTED THAT THE OPERATIONS OF M/S. MSL WERE STOPPED IN JUNE, 2013. THE LD. A.R. SUBMITTED THAT FACTUM OF STOPPAGE OF PRODUCTION FOR MSL CAME TO THE KNOWLEDG E OF THE ASSESSEE BEFORE FINALIZATION OF THE ACCOUNTS FOR TH E YEAR ENDING 31.3.2013. HENCE, THE ASSESSEE CHOSE TO WRITE OFF THE AMOUNT RECEIVABLE FROM MSL. HE FURTHER SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF GIVING FINANCE AND INVES TMENT SERVICES. THE ASSESSEE HAS GIVEN THE LOAN TO MSL IN THE COURS E OF ITS BUSINESS AND HENCE THE WRITING OFF OF THE SAME IS A LLOWABLE U/S 36(1)(VII) OF THE ACT. 5. IT WAS POINTED OUT TO LD A.R THAT THE ACCOUNTI NG STANDARD-4 ISSUED BY ICAI RELATING TO CONTINGENCIES AND EVENTS OCCURRING AFTER THE BALANCE SHEET DATE, WOULD APPLY ONLY TO LIABILI TIES OR COMMITMENTS AND OBLIGATIONS OUTSTANDING AS ON THE B ALANCE SHEET DATE, BUT THE SUBSEQUENT EVENTS HAS IMPOSED A LIABI LITY UPON THE ASSESSEE. IN THE INSTANT CASE, IT IS NOT A CASE OF A LIABILITY TO THE ASSESSEE, BUT IT WAS A CASE OF WRITING OFF OF AN AS SET. HENCE THE ASSESSEE COULD NOT HAVE WRITTEN OFF THE AMOUNT IN A Y 2013-14, SINCE THE MSL HAS PAID INTEREST TO THE ASSESSEE UPT O THE ASSESSMENT YEAR 2013-14 AND FURTHER THE PRODUCTION WAS STOPPED BY MSL ONLY IN THE SUBSEQUENT YEAR. IT WAS ALSO PO INTED OUT THAT MSL HAS WRITTEN BACK THE LOAN RECEIVED BY IT FROM T HE ASSESSEE ONLY IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR 2015-16 . BOTH THE ITA NO.1430/BANG/2017 M/S. RUKMANI FINANCE PVT. LTD., BENGALURU PAGE 4 OF 6 ASSESSEES BEING PART OF SAME GROUP, BOTH COULD NOT HAVE TAKEN DIFFERENT STAND IN RESPECT OF THE VERY SAME TRANSAC TION. 6. THE LD A.R SUBMITTED THAT THE ASSESSEE HAS PROVI DED FOR KNOWN EXPENDITURE IN THE FINANCIAL YEAR 2012-13 REL EVANT TO AY 2013-14, SINCE THE BLEAK PROSPECTS OF THE LOAN GIVE N TO MSL CAME TO THE KNOWLEDGE OF THE ASSESSEE BEFORE FINALIZATION O F ACCOUNTS OF THE YEAR ENDING ON 31.3.2013. HOWEVER, IN ORDER TO MAI NTAIN UNIFORMITY, THE LD A.R SUBMITTED THAT THE ASSESSEE IS AGREEING FOR DISALLOWANCE OF BAD DEBTS CLAIM IN THIS YEAR AND AC CORDINGLY A DIRECTION MAY BE ISSUED BY THE TRIBUNAL TO THE A.O. TO ALLOW THE CLAIM OF BAD DEBTS IN ASSESSMENT YEAR 2015-16. 7. THE LD. D.R. SUPPORTED THE ORDER PASSED BY THE T AX AUTHORITIES. 8. HAVING CONSIDERED THE FACTS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE DISALLOWANCE OF BAD DEBTS CLAIMED BY THE ASSESSEE IN ASSESSMENT YEAR 2013-14 WAS JUSTIFIED AS THE ASSESS EE COULD NOT ESTABLISH THAT THERE EXISTED BUSINESS COMPULSION TO WRITE OFF THE LOAN AMOUNT GIVEN TO MSL AS ON 31.3.2013. AT THE S AME TIME, IT IS AN ADMITTED FACT THAT THE LOAN GIVEN TO MSL HAS BEC OME BAD. IT IS ALSO CORROBORATED BY THE FACT THAT MSL HAS ALSO WRI TTEN OFF THE AMOUNT PAYABLE TO THE ASSESSEE IN A.Y. 2015-16. IN VIEW OF THE ABOVE, WE ARE ALSO OF THE VIEW THAT THE BAD DEBTS C LAIM OF THE ASSESSEE SHOULD BE EXAMINED ONLY IN ASSESSMENT YEAR 2015-16. 9. SINCE WE HAVE GIVEN A SPECIFIC FINDING THAT T HE ABOVE SAID CLAIM IS REQUIRED TO BE EXAMINED IN ASSESSMENT YEAR 2015- 16, THE ASSESSEE MAY MOVE APPROPRIATE PETITION BEFORE THE A .O. FOR MAKING ITS CLAIM FOR BAD DEBTS IN ASSESSMENT YEAR 2015-16 BEFORE THE A.O. ITA NO.1430/BANG/2017 M/S. RUKMANI FINANCE PVT. LTD., BENGALURU PAGE 5 OF 6 IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT IT WO ULD NOT BE APPROPRIATE TO ADJUDICATE THE QUESTION AS TO WHETHE R THE AMOUNT OF RS.8.39 CRORES GIVEN TO MSL BY THE ASSESSEE IS LOAN OR INVESTMENT, WHICH MAY BE EXAMINED BY THE AO AFRESH WHILE DISPOS ING THE PETITION OF THE ASSESSEE. 10. IN VIEW OF THE FOREGOING DISCUSSIONS, WE CONFIR M THE ORDER PASSED BY LD. CIT(A) ON THIS ISSUE SUBJECT TO THE D IRECTION GIVEN TO THE A.O. IN THE PRECEDING PARAGRAPH. 11. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS TREATED AS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND MAR, 2021 SD/- (BEENA PILLAI) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 22 ND MAR, 2021. VG/SPS ITA NO.1430/BANG/2017 M/S. RUKMANI FINANCE PVT. LTD., BENGALURU PAGE 6 OF 6 COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.