DCIT, Circle-3(2), Hyderabad V. M/s Sri KSSV Finevest Private Limited, Hyderabad

ITA 1439/HYD/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 98660 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 21-10-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 01-09-2014
• Court: TRIBUNAL
• Department Lawyers: B KURMI NAIDU
• Assessee Lawyers: V RAGHAVENDRA RAO
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B, HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER I.T.A. NO. 1439/HYD/2014 ASSESSMENT YEAR: 2005-06 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3(2), HYDERABAD VS M/S. SRI KSSV FINVEST PVT LTD., HYDERABAD [PAN: AAACK9655Q] (APPELLANT) (RESPONDENT) FOR REVENUE : S HRI B. KU R MI NAIDU, DR FOR ASSESSEE : SHRI V. RAGHAVENDRA RAO, AR DATE OF HEARING : 2 1 - 1 0 - 201 5 DATE OF PRONOUNCEMENT : 13 - 1 1 - 2015 O R D E R PER SMT. P. MADHAVI DEVI, JM : THIS IS REVENUES APPEAL FOR THE AY. 2005-06 AGAIN ST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I V, HYDERABAD DATED 13-06-2014. REVENUE IS AGGRIEVED BY THE ORDE R OF CIT(A) IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER (AO) OF THE LOAN AMOUNT ADVANCED BY THE ASSESSEE TO M/S. SPECTRA AGR OCHEM LTD., CONSEQUENT TO DISALLOWANCE OF THE CLAIM OF THE ASSE SSEE AS A BAD DEBT WRITTEN OFF THOUGH IT WAS NOT A COMMERCIAL TRA NSACTION NOR WAS IT A MONEY LENDING DEBT, AS THE ASSESSEE WAS NO T AN NBFC REGISTERED WITH RBI AT THE TIME OF ADVANCE MADE. 2. BRIEF FACTS OF THE CASE ARE THAT, THE ASSESSEE C OMPANY WHICH IS AN INVESTMENT COMPANY, FILED ITS RETURN OF INCOM E FOR THE AY. I.T.A. NO. 1439/HYD/2014 M/S. SRI KSSV FINVEST PVT LTD., :- 2 -: 2005-06 DECLARING LOSS OF RS. 15,83,010/-. DURING T HE ASSESSMENT PROCEEDINGS U/S. 143(3) OF THE INCOME TAX ACT [ACT] , THE AO DISALLOWED THE CLAIM OF EXPENDITURE TO THE EXTENT O F 75% ON THE GROUND THAT ASSESSEES INCOME WAS MOSTLY CONSISTING OF DIVIDEND INCOME WHICH WAS EXEMPTED FROM TAX AND THEREFORE EX PENDITURE RELATABLE TO SUCH INCOME WAS TO BE DISALLOWED. HE ACCORDINGLY MADE THE DISALLOWANCE U/S. 37(1) OF THE ACT. HE AL SO DISALLOWED SHORT TERM LOSS OF RS. 3,34,000/- BY APPLYING THE PROVISIONS OF SECTION 94(7) OF THE ACT. 3. FURTHER, AO OBSERVED FROM THE P&L A/C OF THE ASS ESSEE THAT ASSESSEE HAS CLAIMED BAD DEBT OF RS. 30 LAKHS BY WR ITING OFF THE SAME AGAINST THE PROVISION WITH THE NARRATION PROVISION NO LONGER REQUIRED OF NPA-WRITTEN BACK . HE OBSERVED THAT IN THE COMPUTATION STATEMENT, THE ASSESSEE CLAIMED NPA PROVISION ON BA D DEBTS WRITTEN BACK OF RS. 30 LAKHS AND THUS LOSS ALLOWED IS INCREASED TO THAT EXTENT. THEREFORE, ASSESSEE WAS ASKED TO FURN ISH A DETAILED NOTE WITH REGARD TO THE SAID CLAIM OF BAD DEBT TO T HE EXTENT OF RS. 30 LAKHS WRITTEN OFF IN THE ACCOUNT OF M/S. SPECTRA AGROCHEM LTD., A SISTER CONCERN OF THE ASSESSEE. IN REPLY THERETO , THE ASSESSEE SUBMITTED THAT ASSESSEE HAD GIVEN A LOAN OF RS. 30 LAKHS TO THE SAID COMPANY ON 19-07-1998 AND THAT THE ASSETS AND LIABILITIES OF THE COMPANY WERE TAKEN OVER BY COCOCOLA WHICH PAID A NON- COMPETE FEE TO THE ASSESSEE OF RS. 30 LAKHS. IT WA S SUBMITTED THAT THEREAFTER, ASSESSEE-COMPANY BECAME AN INVESTMENT C OMPANY AND WAS REGISTERED AS NON-BANKING FINANCE COMPANY BY RB I ON 03-01- 2001 AND THEREAFTER, THE DEBTOR COMPANY M/S. SPECTR A AGROCHEM LTD., BECAME A SICK COMPANY AND WENT BEFORE BIFR IN 2000-01 AND WAS SUBSEQUENTLY WOUND UP. THEREFORE, ASSESSEE CLAIMED THAT AS DEBTOR COMPANY WAS IN BIFR, ASSESSEE WROTE OFF T HE OUTSTANDING I.T.A. NO. 1439/HYD/2014 M/S. SRI KSSV FINVEST PVT LTD., :- 3 -: DEMAND CLAIMING THE SAME AS NON-REALISABLE ONE. AO WAS HOWEVER, NOT CONVINCED WITH THE CONTENTIONS OF ASSE SSEE AND HOLDING THAT THE ASSESSEE DID NOT INCUR THE DEBT AS A COMMERCIAL TRANSACTION AND THAT THE PERSON WHO RECEIVED THE DE BT WAS NOT A DEBTOR IN THE BUSINESS, IT IS NOT ALLOWABLE AS A BA D DEBT. HE ACCORDINGLY, DISALLOWED THE SAME AND BROUGHT IT TO TAX. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), WHO ALLOWED THE SAME AGAINST WHICH THE REVENUE IS IN APPEAL BEFORE US. THE LD. DR SUPPORTED THE ORDER OF AO WHILE LD. COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF THE CIT(A) AND ALSO THE DE CISION OF ITAT IN THE CASE OF SISTER CONCERN OF ASSESSEE I.E., SPECTR A SHARES & SCRIPS PVT. LTD., IN WHOSE CASE, ITAT HAD HELD THAT IT WAS ALLOWABLE U/S. 36(1)(VII) OF THE ACT. HE HAS ALSO DRAWN OUR ATTEN TION TO THE DECISION OF SMC-B BENCH OF THE TRIBUNAL IN THE CA SE OF ANOTHER SISTER CONCERN OF ASSESSEE I.E., M/S. SRI KSN FINCA P PVT LTD., IN ITA NO. 1440/HYD/2014 DT. 17-07-2015, WHEREIN BY FOLLOW ING THE DECISION OF THE TRIBUNAL IN THE CASE OF SPECTRA SHA RES & SCRIPS PVT. LTD., (SUPRA), ANOTHER GROUP CONCERN OF THE ASSESSE E HAS UPHELD THE ORDER OF THE CIT(A). COPIES OF THE ORDERS OF T HE TRIBUNAL ARE FILED BEFORE US. 4. HAVING REGARD TO THE RIVAL CONTENTIONS AND THE M ATERIAL ON RECORD, WE FIND THAT ASSESSEE AS WELL AS THE SISTER CONCERN OF THE ASSESSEE IN THE CASE REFERRED TO ABOVE HAVE ADVANCE D LOANS TO ANOTHER SISTER CONCERN I.E., M/S. SPECTRA AGROCHEM LTD., WHICH SUBSEQUENTLY BECAME A SICK COMPANY AND WAS ULTIMATE LY WOUND UP. TAKING NOTE OF THE FACT THAT SISTER CONCERN HA S BEEN WOUND UP AND THE DEBT IS NOT REALISABLE, THE WRITING OFF OF THE DEBT HAS BEEN ALLOWED BY ITAT IN THE CASE OF SISTER CONCERN. ON GOING THROUGH THE ORDER OF THE SMC-B BENCH OF THE TRIBUNAL IN THE CASE OF M/S. I.T.A. NO. 1439/HYD/2014 M/S. SRI KSSV FINVEST PVT LTD., :- 4 -: SRI KSN FINCAP PVT LTD., IN ITA NO. 1440/HYD/2014 ( SUPRA), WE FIND THAT THE TRIBUNAL HAS CONSIDERED THE DECISION OF ITAT IN THE CASE OF SPECTRA SHARES & SCRIPS PVT. LTD., (SUPRA), TO HOLD AS UNDER: 2. LD.CIT(A) AFTER CONSIDERING ASSESSEE'S SUBMISSIO NS AND NOTICING THAT UNDER SIMILAR CIRCUMSTANCES, ITAT HAS ALLOWED THE CLAIM IN THE CASE OF SPECTRA SHARES & SCRIPS PVT. LTD., HYDERABAD IN ITA NO. 408/HYD/2008, DT. 27 TH JUNE, 2008, ALLOWED THE SAME. LD. CIT(A)'S ORDER IN PARA 6.3 AND 6.4 IS AS UNDER: '6.3 I HAVE PERUSED THE ORDER OF THE ITAT. IT IS S EEN THAT M/S. SPECTRA SHARES & SCRIPS PVT LTD HAS ADVANCED A SUM OF RS. 95,00,000 TO M/S. SPECTRA AGROCHEM LTD DURING THE A.Y. 1997-98 AND SINCE THE DEBTOR HAD NOT PAID EVEN THE INTERES T SINCE 1997-98 ITSELF, THE ASSESSEE HAD WRITTEN OFF THE AMOUNT AS BAD DEBT. THE ITAT HELD THAT THE ADVANCE HAD BEEN MADE IN THE OR DINARY COURSE OF BUSINESS AND ALSO NOTED THAT THE ASSESSEE WAS AN N BFC. THE ITAT HELD THAT ONCE THE AMOUNT HAD BEEN WRITTEN OFF AS BAD DEBT, IT WAS ALLOWABLE U/S. 36(1)(VII). 6.4 SINCE THE FACTS AND CIRCUMSTANCES IN WHICH TH E LOAN WAS GIVEN AND SUBSEQUENTLY WRITTEN OFF BY THE APPELLAN T ARE IDENTICAL TO THOSE OF M/S. SPECTRA SHARES & SCRIPS PVT LTD, THE DISALLOWANCE OF BAD DEBT IS DIRECTED TO BE DELETED FOLLOWING THE O RDER OF THE ITAT IN THE CASE OF M/S. SPECTRA SHARES & SCRIPS PVT LTD. THE FOURTH GROUND OF APPEAL IS ALLOWED'. 3. AFTER CONSIDERING THE RIVAL CONTENTIONS, PERUSIN G THE PAPER BOOK ALONG WITH THE ORDER OF ITAT( SUPRA), I DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDER OF CIT(A). IT IS TO BE NOTED THAT ASSESSEE A DVANCED THE MONEY IN THE COURSE OF ITS BUSINESS AND PART OF THE AMOUNT WAS INTEREST BEARING ALSO. EVEN AO ACKNOWLEDGES THAT INTEREST WAS CHARGED AND SUBSEQUE NTLY WRITTEN OFF. SINCE THE FACTS IN THE PRESENT CASE ARE EXACTLY SIMILAR TO TH E FACTS WHICH WERE DECIDED BY THE CO- ORDINATE BENCH IN THE CASE OF SPECTRA SHARES & SCRI PS PVT. LTD., (SUPRA), THE SAME IS TO BE FOLLOWED. THE DETAILED ORDER OF THE ITAT IN THE ABOVE SAID CASE IN PARA 4 IS AS UNDER: '4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON E ITHER SIDE AND ALSO PERUSED THE MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE MADE AN ADVANCE OF RS.95 ,00,000 DURING THE YEAR 1997-98. THE ASSESSEE ALSO OFFERED INTERE ST ON ACCRUAL BASIS FOR THE ASST. YEARS 1997-98 AND 1998-99. SIN CE THE ASSESSEE HAS NOT RECEIVED ANY INTEREST CONTINUOUSLY FOR THE THIRD YEAR, THE INTEREST WAS NOT OFFERED FOR TAXATION. THESE FACTS ARE NOT IN DISPUTE. THE ASSESSEE CLAIMED THE ADVANCE AS BAD DEBT FOR T HE ASST. YEAR 2004-05. WHEN THE ASSESSEE COULD NOT EVEN RECOVER INTEREST, IN OUR OPINION, THERE WAS A DOUBT WHETHER THE ASSESSEE CO ULD RECOVER THE I.T.A. NO. 1439/HYD/2014 M/S. SRI KSSV FINVEST PVT LTD., :- 5 -: PRINCIPAL AMOUNT ADVANCED TO SPECTRA AGROCHEM LTD. MERELY BECAUSE THERE WAS NO WRITTEN AGREEMENT, THE GENUIN ENESS OF THE TRANSACTION CANNOT BE DOUBTED. SINCE THE FACT THAT THE ADVANCE OF RS.95,00,000 WAS MADE IS NOT IN DOUBT, IN OUR OPIN ION, THERE IS NO REASON TO DOUBT THE TRANSACTION ITSELF. IN OUR OPI NION, THE FACTS AVAILABLE ON RECORD CLEARLY SUGGEST THAT THE ADVAN CE OF RS.95,00,000 WAS MADE IN THE ORDINARY COURSE OF BU SINESS. IT IS ALSO NOT IN DISPUTE THAT THE ASSESSEE IS A NON-BAN KING FINANCE COMPANY. IF THE ASSESSEE COULD NOT RECOVER INTERES T CONTINUOUSLY FOR THREE YEARS, THEN THE JUDGMENT OF THE APEX COURT I N THE CASE OF UCO BANK (SUPRA) WOULD BE APPLICABLE. THEREFORE, THE A SSESSEE HAS NOT OFFERED INTEREST ON RECEIPT BASIS EVEN THOUGH IN E ARLIER YEARS IT WAS OFFERED ON ACCRUAL BASIS. DURING THE ASST. YEAR UN DER CONSIDERATION, THE ASSESSEE HAS ADMITTEDLY WRITTEN OFF THE OUTSTA NDING AMOUNT IN THE PROFIT AND LOSS ACCOUNT. ONCE IT WAS WRITTEN O FF AS BAD DEBT, IT HAS TO BE ALLOWED WHILE COMPUTING THE TOTAL INCOME , UNDER SEC. 36(1)(VII) OF THE INCOME-TAX ACT. WE FIND THAT TH E DELHI HIGH COURT IN THE CASE OF CIT V. AUTO METERS LTD. (2008) 292 ITR 345, HAS TAKEN A SIMILAR VIEW. BY RESPECTFULLY FOLLOWING THE JUDGM ENT OF THE DELHI HIGH COURT IN THE CASE OF AUTO METERS LTD (SUPRA), WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND DIRECT THE ASS ESSING OFFICER TO DELETE THE ADDITION OF RS. 94,14,176/-'. RESPECTFULLY FOLLOWING THE ABOVE, I UPHOLD THE ORDE R OF CIT(A) AND DISMISS REVENUE'S GROUNDS. 4. IN THE RESULT, REVENUE'S APPEAL IS DISMISSED. 5. AS THE FACTS AND CIRCUMSTANCES BEFORE US ARE SIM ILAR AND THE LOAN ADVANCED BY THE ASSESSEE IS ALSO TO THE SAME C OMPANY UNDER SIMILAR CIRCUMSTANCES, WE SEE NO REASON TO INTERFER E WITH THE ORDER OF CIT(A), WHO HAS FOLLOWED THE PRECEDENT ON THE IS SUE. 6. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 TH NOVEMBER, 2015 SD/- SD/- (B. RAMAKOTAIAH) (P. MADHAVI DEVI) ACCOUNTANT MEMBER J UDICIAL MEMBER HYDERABAD, DATED 13 TH NOVEMBER, 2015 TNMM I.T.A. NO. 1439/HYD/2014 M/S. SRI KSSV FINVEST PVT LTD., :- 6 -: COPY TO : 1. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-3( 2), 7 TH FLOOR, B BLOCK, IT TOWERS, AC GUARDS, HYDERABAD. 2. M/S. SRI KSSV FINVEST PVT LTD., 104/105, PANCOM BUSINESS CENTRE, AMEER PET, HYDERABAD. 3. CIT (APPEALS)-IV, HYDERABAD. 4. CIT - I I I , HYDERABAD. 5 . D.R. ITAT, HYDERABAD. 6. GUARD FILE.