Chaitanya Builders & Leasing (P) Ltd., CHENNAI V. ACIT, CHENNAI

ITA 1829/CHNY/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4568 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 06-03-2017
• Assessment Year: 2006-2007
• Appeal Filed On: 11-08-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: T N SEETHARAMAN
• Keywords: Business income; Business expenditure; Bad and doubtful debts; Commercial expediency

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: CHENNAI . . . , !.. $ , ) BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.1829/MDS/2015 * * /ASSESSMENT YEAR: 2006-07 M/S.CHAITANYA BUILDERS & LEASING (P) LTD., NO.15, 4 TH FLOOR, KAKANI TOWERS, KHADER NAWAZ KHAN ROAD, CHENNAI-600 006. VS. THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE-I(3), CHENNAI. [PAN: AAACC 1338 E ] ( - /APPELLANT) ( ./- /RESPONDENT) - 0 / APPELLANT BY : MR.T.N.SEETHARAMAN, ADV. ./- 0 /RESPONDENT BY : MR.A.V.SREEKANTH, JCIT 0 /DATE OF HEARING : 06.03.2017 0 /DATE OF PRONOUNCEMENT : 03.05.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 14.07.2015 OF COMMISSIONER OF INCOME TAX (APPEALS)- 1, CHENNAI, IN ITA NO.612/08-09/A-III (NEW NO.ITA69 /CIT(A)-1/2008-09) FOR THE AY 2006- 07. 2.0 ALL THE GROUNDS OF THE APPEAL ARE RELATED TO THE D ISALLOWANCE OF RS.37,73,145/- AS A BAD DEBT, WHICH WAS GIVEN AS AD VANCE TO ITA NO.1829/MDS/2015 :- 2 -: M/S.CASSEROLE FOODS PVT. LTD. DURING THE ASSESSMEN T PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS CLAIMED THE DEDUCTION O F BAD DEBT OF RS.37,73,145/- WHICH WAS RELATED TO THE ADVANCE GIV EN TO M/S.CASEROLLS PVT. LTD. AND THE SAME WAS DISALLOWED BY THE AO U/S .36(2)(I) OF INCOME TAX ACT. FOR READY REFERENCE, WE EXTRACT THE RELEVA NT PART OF THE ASSESSMENT ORDER AS UNDER: IT IS SEEN FROM THE DETAILS, THAT AN AMOUNT OF RS.3 7,73,155/- IS INCLUDED IN THE DETAILS. THIS AMOUNT REPRESENTS THE ADVANCE GIVEN TO ONE M/S. CAS SEROLE FOODS PVT. LTD. SINCE THIS COMPANY IS NOT FUNCTIONING, THE AMOUNT WAS OUTSTAND ING SINCE 2004. AS PER PROVISIONS OF SECTION 36(2)(I):- (2) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART T HEREOF, THE FOLLOWING PROVISIONS SHALL APPLY:- (I) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH D EBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF A N EARLIER PREVIOUS YEAR, OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS O F BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY THE ASSESSEE; IN THE INSTANT CASE, THE AMOUNT OF RS.37,73,155/- W AS NEVER ROUTED THROUGH P&L A/C. IN OTHER WORDS, THIS AMOUNT WAS NOT CONSIDERED AS INCO ME OF THE ASSESSEE IN THE EARLIER YEARS. IN VIEW OF THE ABOVE PROVISION, THE SAID AMO UNT OF RS.37,73,155/- IS DISALLOWED AND ADDED TO THE INCOME OF THE ASSESSEE. 3.0 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE THE LD.CIT(A) AND THE LD.CIT(A) HAS DISMISSE D THE APPEAL OF THE ASSESSEE HOLDING THAT THE ADVANCES WRITTEN OFF BY T HE ASSESSEE WAS NEITHER BUSINESS LOSS NOR BUSINESS EXPENDITURE. FOR READY REFERENCE, WE EXTRACT THE RELEVANT PARAGRAPH NO.5 OF LD.CIT(A)S ORDER: 5. I HAVE CAREFULLY CONSIDERED THE FACTS IN ISSUE, THE VIEW TAKEN BY THE AO, THE ARGUMENTS ADVANCED BY THE APPELLANT AND MATERIALS ON RECORD. IN THE CASE OF VIJAYAKUMAR MILLS LTD V. CIT 247 ITR 176, THE JURISDICTIONAL COURT HELD ON F ACTS OBTAINING IN THAT CASE THAT THE ASSESSEES FUNDS WERE DIVERTED FOR THE PERSONAL BEN EFIT OF THE MANAGING DIRECTOR OF THE MANAGEMENT AND THE AMOUNTS WERE NOT UTILIZED FOR BU SINESS PURPOSES. THEREBY CONFIRMING THE TRIBUNALS CONCLUSION IN HOLDING THAT THE AMOUN TS WERE NOT LIABLE TO BE DEDUCTED AS BUSINESS DEBTS OR TRADING LOSS. IN THIS CASE, THE A SSESSEE HAD CLAIMED A SUM OF RS.1,37,760/- REPRESENTING ADVANCES MADE TO PARTIES AND CLAIMED IT ON THE GROUND THAT THEY REPRESENTED BUSINESS DEBT WHILE THE SAME WERE IN FACT DIVERTED FOR PERSONAL BENEFIT OF THE MANAGING DIRECTOR OF THE MANAGEMENT. IN GREAVES LTD V. CIT, 251 ITR 190 (BOM), WHILE CONSIDERING WRITE OFFS IN RESPECT OF BAD DEBT S, THE HONBLE COURT FOUND THAT THE SAME DID NOT CONSTITUTE DEBTS BUT WERE OF LOSS ON SALE O F ASSESSEES RIGHTS. THERE WAS NO BASIS TO SHOW AS TO HOW THE LOANS AND ADVANCES CONSTITUTED T RADING LOSS. IN THIS CASE, THE ASSESSEE ITA NO.1829/MDS/2015 :- 3 -: WAS A TRADER IN GOODS AND THERE WAS NOTHING TO INDI CATE THAT IT USED TO LEND MONIES IN THE COURSE OF ITS BUSINESS. IN WEST BENGAL FINANCIAL CO RPORATION AND ANOTHER V. DCLT, 263 ITR 332 (CAL), IT WAS HELD ON THE FACTS OBTAINING IN TH AT CASE THAT THE SHARES WERE NOT TREATED AS STOCK-IN-TRADE BY THE ASSESSEE BUT AS INVESTMENT S AND THEREFORE WRITING OFF MADE BY THE ASSESSEE OF THE SAME AS BAD DEBTS COULD NOT BE SUST AINED. IN CIT V. EPSILON ADVISERS (P) LTD [2012] 22 TAXMANN.COM 284 (KAR), THE COURT WAS C EASED WITH THE MATTER WHERE THE ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF PROVIDI NG CONSULTANCY SERVICES IN ELECTRONIC AND TELECOMMUNICATIONS LENT RS.5.34 CRORES TO A COM PANY, A SISTER CONCERN AND LATER ON BEING IRRECOVERABLE CLAIMED DEDUCTION AS BAD DEBT U /S.36(1)(VII). REFERRING TO PROVISIONS OF S.36(I)(VII), IT WAS HELD THAT FOR AN AMOUNT TO QUAL IFY UNDER THIS PROVISION IT SHOULD NOT ONLY BE A DEBT INCURRED IN NORMAL COURSE OF THE BUSINESS BUT IT SHOULD ALSO BECOME IRRECOVERABLE WITHIN THE MEANING OF S.36(2). THE COURT TOOK THE VI EW THAT IT WAS NOT PART OF THE ASSESSEES BUSINESS ACTIVITIES OF MONEY LENDING IN THE COURSE OF ITS BUSINESS AND HENCE THE WRITE OFF COULD NOT BE ALLOWED. IT WAS FURTHER UNDE RSCORED, THE PURPOSE FOR WHICH THE AMOUNT WAS GIVEN, THE NATURE OF THE LENDING, NATURE OF THE ACTIVITY CARRIED ON BY THE ASSESSEE, WHICH CONSTITUTES BUSINESS ACTIVITY, OF T HE ASSESSEE, ARE ALL FACTORS WHICH ARE TO BE CONSIDERED IN DETERMINING AS TO WHETHER AN AMOUN T GIVEN BY THE ASSESSEE IS ONE WHICH QUALIFIES AS A DEBT. IN THIS CASE, THE ASSESSEE DI D NOT HOLD ANY PERMISSION OR LICENSEE OR WAS RECOGNIZED AS A MONEY LENDER NOR WAS IT RECOGNI ZED AS A FINANCIAL INSTITUTION, BANKING OR NON-BANKING WHICH HAS THE BUSINESS OF RECEIVING DEPOSITS., AND LENDING MONEY, BOTH FOR INTEREST. THE ASSESSEES MAIN BUSINESS, ON THE CONT RARY, WAS ONLY IN PROVIDING SERVICES IN TELECOMMUNICATION TECHNOLOGY AND NOT IN MONEY LENDI NG ACTIVITY. FINALLY, IN BHARTI TELEVENTURES LTD V. ADDL/JCIT [2013] 29 TAXRNANN.CO M 326 (DEL), THE COURT WAS CEASED WITH THE MATTER CONCERNING THE WRITE OFF OF RS.2,33 ,76,617/- AS BAD DEBTS ALTERNATIVELY AS BUSINESS LOSS AMONGST OTHERS. HERE IT WAS ARGUED TH AT THE ASSESSEE WAS ALSO ENGAGED IN THE BUSINESS OF MONEY LENDING THROUGH INTER CORPORA TE DEPOSITS IN THE COURSE OR SUCH BUSINESS WHICH GENERATED SUBSTANTIAL INTEREST. DURI NG THE ASSESSMENT YEARS CONCERNED CERTAIN AMOUNTS COULD NOT BE RECOVERED AND WERE TRE ATED AS BAD DEBT WHICH WAS CLAIMED AS SUCH. THE HONBLE COURT ADJUDICATING IN THE MATT ER SUPPORTED THE VIEW THAT THOUGH IT IS TRUE THAT MEMORANDUM AND ARTICLES OF ASSOCIATION OF THE COMPANY IS NOT CONCLUSIVE ON THE QUESTION WHETHER ACTIVITIES OF A COMPANY AMOUNTS TO CARRYING ON OF BUSINESS, BUT IT SHOWS SUFFICIENTLY THE INTENTION OF THE ASSESSEE TO PURSU E CERTAIN MAIN OBJECTS. THE FREQUENCY OF THE ACTIVITY IS SOUGHT TO BE HIGHLIGHTED AS GIVING RISE TO A CONTINUOUS AND ORGANIZED ACTIVITY. IT WAS FURTHER NOTICED THAT IT IS THE FIRST YEAR OF BUSINESS OPERATION OF THE COMPANY AND IT CANNOT BE SAID THAT IT WAS A CONTINUOUS ACTIVITY CA RRIED OUT IN A NORMAL ORGANIZED MANNER. AS HELD BY THE ASSESSING OFFICER THE MAIN ACTIVITY OF THE ASSESSEE COMPANY WAS THE BUSINESS OF PROMOTING, ESTABLISHING TELECOM SERVICE S. BY NO STRETCH OF IMAGINATION CAN IT BE SAID THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF MONEY LENDING. SINCE THE BUSINESS OF THE ASSESSEE WAS NOT THAT OF MONEY LENDING, IT C ANNOT BE SAID THAT THE SUM IN QUESTION REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF MONEY LENDING CARRIED ON BY THE ASSESSEE. THEREFORE, THE CLAIM OF THE ASSESS EE DID NOT FALL WITHIN THE PARAMETERS OF PROVISIONS OF SECTION 36(1)(VII) READ WITH SECTION 36 (2) OF THE ACT. THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT THE SUM IN QUESTION SHOULD BE ALL OWED AS A DEDUCTION AS A BUSINESS LOSS CANNOT ALSO BE ACCEPTED, SINCE THE SUM IN QUESTION WAS NOT INCURRED AS EXPENDITURE IN THE ORDINARY COURSE OF BUSINESS OF THE ASSESSEE. THE SU M IN QUESTION HAS, THEREFORE, TO BE CONSIDERED AS A CAPITAL LOSS AND THE ASSESSEE WAS N OT ENTITLED TO CLAIM THE SAME AS DEDUCTION. IT MAY ALSO BE MENTIONED HERE THAT EVERY THING ASSOCIATED OR CONNECTED WITH THE BUSINESS CANNOT BE SAID TO BE INCIDENTAL THERETO. I T IS NOT ENOUGH IF THERE IS SOME CLOSE PROXIMITY OF THE DEPOSIT TO THE BUSINESS CARRIED ON BY THE ASSESSEE, AS SUCH BUT IT SHOULD ALSO BE AN INTEGRAL PART OF THE CARRYING ON OF THE BUSINESS. 5.1.1 IN THE CASE OF THE APPELLANT A DISALLOWANCE O F RS.37,73,155/- REPRESENTING ADVANCE TO M/S.CASSEROLE FOODS P LTD, A SISTER CONCERN WAS SOUG HT TO BE WRITTEN OFF AS BAD DEBT U/S.36(2)(I) WHICH WAS DENIED BY THE AO WHILE FINALIZ ING THE ASSESSMENT U/S.143(3). THE OBSERVATION MADE BY THE AO WAS THAT THE CLAIM WAS N OT ALLOWABLE AS THE IMPUGNED AMOUNT WAS NOT ROUTED THROUGH THE P & L A/C. AT THE APPEAL STAGE, IT WAS ARGUED THAT THE ADVANCE WAS MADE IN THE COURSE OF BUSINESS WHEREIN THE APPE LLANT COMPANY HAD PROMOTED A COMPANY STYLED M/S.CASSEROLE FOODS P LTD., WHICH WAS INCORPORATED ON 10 TH MARCH, 1998, DURING THE PERIOD PRIOR TO 2003, AND HAD ADVANCED A TOTAL SUM OF RS.37,73,155/- TO THE SAID ASSOCIATE COMPANY WHICH BECAME DORMANT ON ACCO UNT OF RECURRING LOSSES, IT WAS ARGUED FURTHER THAT CLAUSE 14 OF THE MEMORANDUM OF ASSOCIATION OF THE APPELLANT COMPANY EMPOWERS IT TO CARRY ON ITS BUSINESS AND ENTER INTO OTHER TRANSACTIONS TO BENEFIT THE ITA NO.1829/MDS/2015 :- 4 -: APPELLANT COMPANY IN PURSUANCE OF WHICH IT HAD PROM OTED AND FINANCIALLY SUPPORTED M/S.CASSEROLE FOODS P LTD., AS A PART OF ITS ACTIVIT Y. THAT THE AO HAD ERRED IN DISALLOWING THE CLAIM U/S.36(2)(I). THE APPELLANT HAD EXTRACTED TH E OBJECT CLAUSES OF THE MEMORANDUM OF ASSOCIATION AS ALSO OTHER OBJECTS TO DRIVE HOME THE POINT. TO SUPPORT ITS CLAIM THE JUDGMENT OF THE JURISDICTIONAL MADRAS HIGH COURT IN CIT V. V. RAMAKRISHNA & SONS LTD [2010] 326 ITR 315 WAS PRESSED INTO SERVICE. 5.1.2 I HAVE CAREFULLY PERUSED THE DECISION RELIED UPON AND FIND THAT IN THE FACTS OBTAINING IN THAT CASE THE ASSESSEE WAS CARRYING ON MONEY LEN DING BUSINESS AND HAD BEEN ADVANCING MONIES TO ITS SUBSIDIARY COMPANIES AND VARIOUS OTHE R CONCERNS AND CHARGED INTEREST ON THE AMOUNT ADVANCED TO ITS SUBSIDIARY COMPANY. THE INTE REST WAS OFFERED BY THE SUBSIDIARY COMPANY AND WAS ASSESSED AS BUSINESS INCOME IN ITS HANDS. THEREAFTER, DUE TO COMMERCIAL EXPEDIENCY, THE ASSESSEE DID NOT CHARGE INTEREST TO THE SUBSIDIARY ACCOUNT. THE SUBSIDIARY COMPANY BECAME WEAK AND IN ORDER TO PROP-UP THE FIN ANCIAL BUSINESS INTEREST THE ASSESSEE ADVANCED FURTHER AMOUNTS TO ITS SUBSIDIARY AND AS O N SEPTEMBER 30, 1988 A TOTAL SUM OF RS.26,07,278/- WAS DUE FROM WHICH AFTER COLLECTING A SUM OF RS.10,000/- THE BALANCE WAS WRITTEN OFF AS BAD DEBT. AS MAY BE SEEN THIS CASE R ELATED TO AN ASSESSEE WHICH WAS CARRYING ON MONEY LENDING BUSINESS AND THEREFORE TH E ADVANCES WERE MADE DURING THE COURSE OF BUSINESS AND THE SAME BEING IRRECOVERABLE QUALIFIED TO BE WRITTEN OFF U/S 36(1)(VII). THE ACTS AS EXEMPLIFIED IN THE FOREGOING PARAGRAPHS RELATING TO THE APPELLANT ARE ON A DIFFERENT FOOTING. THE APPELLANT IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND SALE OF RESIDENTIAL FLATS OVER YEARS AND WAS NOT REMOTELY E NGAGED IN THE BUSINESS OF MONEY LENDING ETC. THIS BEING TRANSACTION RELATING TO AN ISOLATED CASE DOES NOT PARTAKE THE NATURE OF REGULAR BUSINESS OF ADVANCING LOANS. THEREFORE, THE RATIO OF THE CASE RELIED UPON WOULD NOT APPLY TO THE FACTS OBTAINING IN THE CASE OF THE APP ELLANT. FOR A DEBT TO BE WRITTEN OFF TWO NECESSARY INGREDIENTS HAVE TO BE PRESENT VIZ., IT S HOULD HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE PREVIOUS YEAR IN WHICH A PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR OR REPRESENTS MONEY LEN T IN THE ORDINARY COURSE OF THE, BUSINESS OF BANKING OR MONEY LENDING WHICH IS CARRIED ON BY THE ASSESSEE [SECTION 36(2)(I)]. I AM, THEREFORE, OF THE CONSIDERED VIEW THAT THE CLAIM MA DE BY THE APPELLANT DOES NOT QUALIFY TO BE WRITTEN OFF AS BAD DEBT U/S.36(1)(VII) R.W.S.36(2). FURTHER THE SAME DOES NOT ALSO QUALIFY TO BE WRITTEN OFF AS A TRADING / BUSINESS LOSS AS I T DOES NOT FLOW FROM THE BUSINESS OF THE APPELLANT. THE LOSS IS A CAPITAL LOSS OR LOSS OF CA PITAL, NOT ELIGIBLE TO BE CONSIDERED FOR SET OFF UNDER THE INCOME-TAX ACT. THE GROUNDS RAISED IN APP EAL ON THE ISSUE ARE DISPOSED OFF ACCORDINGLY. THE ORDER OF THE AO IS UPHELD. THE GRO UND NOS.2 TO 6 ARE DISMISSED. 4.0 APPEARING FOR THE ASSESSEE, THE LD.AR ARGUED THAT M/S.CASSEROLE FOODS PVT. LTD. IS AN ASSOCIATE OF THE ASSESSEE COM PANY WITH SONS OF THE DIRECTORS OF THE ASSESSEE COMPANY AS DIRECTORS IN M /S.CASSEROLE FOODS PVT. LTD. THEREFORE, THE COMPANY HAS ADVANCED A SU M OF RS.37,73,155/-, SINCE THERE WAS NO POSSIBILITY OF RECOVERING THE DE BT THE SAME WAS WRITTEN OFF AND CLAIMED AS A BAD DEBT, IN THE BOOKS OF TH E ASSESSEE. ALTERNATIVELY, THE ASSESSEE CLAIMED IT AS A BUSINES S LOSS. THE ASSESSEE ALSO RELIED ON THE DECISION OF CIT VS. GILANDERS AR BUTHNOT & CO. LTD. (1982) 138 ITR 0763 (CAL) AND JURISDICTIONAL THE H ONBLE HIGH COURT IN THE CASE OF CIT RAMAKRISHNA AND SONS LTD. THE LD.A R ARGUED THAT THE ITA NO.1829/MDS/2015 :- 5 -: ADVANCE GIVEN TO M/S.CASSEROLE FOODS PVT. LTD., SHO ULD BE CONSIDERED AS BUSINESS EXPENDITURE AND THE DEDUCTION SHOULD BE AL LOWED AS BUSINESS LOSS. 5.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED ON RECORD. M/S.CASSEROLE FOODS PVT. LTD. WAS IN CORPORATED ON 10 TH MARCH, 1988 BY SHRI ARUN REDDY AND SHRI SUMAN REDDY SONS OF SHR I VASANT KUMAR REDDY, DIRECTOR OF THE ASSESSEE COMPANY AND SHRI MA NU REDDY IS A SON OF SHRI RAMESH KUMAR REDDY WHO IS ANOTHER DIRECTOR OF THE ASSESSEE COMPANY. FROM THE ABOVE FACTS, IT IS EVIDENT THAT M/S.CASSEROLE FOODS PVT. LTD. IS A COMPANY FLOATED BY THE SONS OF THE D IRECTORS OF THE ASSESSEE COMPANY. THE ASSESSEE COMPANY IS NEITHER A SHAREHO LDER OF M/S.CASSEROLE FOODS PVT. LTD., IS NOR THE SUBSIDIAR Y COMPANY OF THE ASSESSEE. BOTH THE COMPANIES ARE INDEPENDENT COMPA NIES CARRIED ON THEIR BUSINESS ACTIVITY INDEPENDENTLY AND SEPARATEL Y. THERE WAS NO BUSINESS INTEREST OF THE ASSESSEE COMPANY WITH M/S. CASEROLLS PVT. LTD. THE ASSESSEE COMPANY HAS ADVANCED SUMS TO M/S.CASER OLLS PVT. LTD. AS AND WHEN REQUIRED. THE AMOUNTS ADVANCED ARE NEITHER THE INTEREST BEARING ADVANCES NOR THE INVESTMENTS MADE BY THE AS SESSEE COMPANY. BOTH THE COMPANIES ARE INDEPENDENT, COMPANIES RUN B Y THE DIFFERENT DIRECTORS INDEPENDENTLY AS TWO SEPARATE ENTITIES, A ND THE ASSESSEE FAILED TO DEMONSTRATE THE BUSINESS CONNECTION OR BUSINESS EXPEDIENCY OF THE ASSESSEE WITH M/S.CASEROLLS PVT. LTD. THE ASSESSEE COMPANY HAS NOT ITA NO.1829/MDS/2015 :- 6 -: MADE ANY INVESTMENT IN M/S.CASEROLLS PVT. LTD., AND THE AMOUNT OF ADVANCE NEVER TRAVELLED THROUGH PROFIT & LOSS A/C. THE ASSESSEE IS NOT IN THE MONEY LENDING ACTIVITY AND THEREFORE THE ADVANC E IS NOT COVERED U/S 36(2) OF IT ACT AND THE SAME WAS NOT ADMITTED AS IN COME IN THE EARLIER YEARS AND ACCORDINGLY NOT ALLOWABLE U/S 36(1)(VII) OF IT ACT AND WE HOLD THAT THE LD.CIT(A) HAS RIGHTLY UPHELD THE ORDER OF THE AO HOLDING THAT THE AMOUNT WRITTEN OFF OF WAS NEITHER A TRADING LOSS N OR A BUSINESS LOSS. 6.0 THE ASSESSEE RELIED ON THE DECISION OF CIT VS. GILANDERS ARBUTHNOT & CO. LTD. (1982) 138 ITR 0763 (CAL). THE DECISION O F THE HONBLE HIGH COURT WHICH IS RELATED TO THE AMOUNT DUE FROM SUBSI DIARY COMPANY. IN THE CASE OF GILANDER ARBUTHNOT & CO IT HAD MANY SUB SIDIARIES TO WHICH IT HAD ADVANCED LOANS. THE SUBSIDIARIES WERE CONTROLLE D BY THE ASSESSEE COMPANY AND SOME OF THEM WERE APPOINTED THE ASSESSE E COMPANY AS THEIR MANAGING AGENTS. THE COMPANY BOUGHT UP THE SH ARE CAPITAL AND ADVANCED UNSECURED LOANS TO IT. THERE WAS A RUNNIG ACCOUNT BETWEEN THE ASSESSEE COMPANY AND THE SUBSIDIARY ON ACCOUNT OF W HICH THERE WAS A DEBIT BALANCE OF RS.87,546/-WHICH WAS WRITTEN OFF B Y THE ASSESSEE DURING THE RELEVANT YEAR AND WAS CLAIMED AS BAD DEBT. TH E LOANS ADVANCED WAS NOT AN ISOLATED TRANSACTION AND THERE WAS AN INTIMA TE CONNECTION BETWEEN THE BUSINESS INTERESTS OF THE ASSESSEE AND THE SUBS IDIARIES. IN THE INSTANT CASE, M/S.CASEROLLS PVT. LTD. WAS NOT A SUBSIDIARY COMPANY OF THE ASSESSEE COMPANY AND THERE WAS NO CONTROL OF M/S.CA SEROLLS PVT. LTD. BY THE ASSESSEE COMPANY. THE ASSESSEE HAS FAILED TO ES TABLISH THE BUSINESS ITA NO.1829/MDS/2015 :- 7 -: INTEREST OF THE ASSESSEE IN THE M/S.CASEROLLS PVT. LTD. THEREFORE, CASE LAW RELIED UPON BY THE ASSESSEE IS OF NO HELP. 7.0 IN THE CASE OF THE HONBLE JURISDICTIONAL HIG H COURT JUDGMENT IN 326 ITR 315, THE ASSESSEE WAS CARRYING ON MONEY LEN DING BUSINESS AND THE ASSESSEE COMPANY HAD ADVANCED THE MONEYS TO SUB SIDIARY COMPANIES AND VARIOUS OTHER CONCERNS AND CHARGED THE INTEREST ON AMOUNTS ADVANCED TO ITS SUBSIDIARY COMPANY FROM THE A.Y 197 0-71 TO 1977-78. THE INTEREST WAS OFFERED BY THE ASSESSEE COMPANY AS INCOME IN ITS HAND. THE AMOUNTS WERE ADVANCED IN THE ORDINARY COURSE OF BUSINESS. IN INSTANT CASE, THE ASSESSEE IS NOT ENGAGED IN THE MONEY LEND ING BUSINESS AND THE AMOUNTS WERE NOT ADVANCED IN THE ORDINARY COURSE OF BUSINESS. THEREFORE, THE HONBLE JURISDICTIONAL HIGH COURTS DECISION IN THE CASE OF CIT V. RAMAKRISHNAN IS NOT APPLICABLE IN THE ASSESS EES CASE. THE LD.DR RELIED ON THE DECISION OF APEX COURT IN THE CASE OF CIT VS. ABDULLABHAI ABDULKADAR AND CATCH NONE OF THE ABOVE DECISION IS RE-PRODUCED AS UNDER: SECTION 36(1)(VII) OF THE INCOME TAX ACT, 1961 [CORRE SPONDING TO SECTION 10(2)(XI) OF INDIAN INCOME TAX ACT, 1922] BAD DEBTS ASSESSMEN T YEAR 1553-54 WHETHER U/S.10(2)(XI) A DEBT IS ONLY ALLOWABLE WHEN IT IS A DE BT AND ARISES OUT OF AND AS AN INCIDENT TO TRADE CARRIED ON BY ASSESSEE HELD, YES. SINCE THE DEBT IN THE CASE OF THE ASSESSEE WAS NOT RESULTED AS AN INCIDENT OF TRADE THE HONBLE APEX COURTS DECISION ALSO NOT APPLICABLE TO THE ASSESSEE. ITA NO.1829/MDS/2015 :- 8 -: 8.0 THE LD.DR RELIED ON THE DECISION OF THE HONBLE MA DRAS HIGH COURT IN THE VIJAY KUMAR MILLS LTD. V. CIT WHEREIN THE HONB LE JURISDICTIONAL HIGH COURT HELD AS UNDER: THEREFORE, WE ARE OF THE OPINION THAT THE TRIBUNAL HAS COME TO THE CORRECT CONCLUSION IN HOLDING THAT THE AMOUNTS ARE NOT LIABLE TO BE DEDUC TED AS BUSINESS DEBTS EITHER AS BAD DEBTS OR TRADING LOSSES AS THE ADVANCES WERE NOT MA DE FOR THE BUSINESS PURPOSES OF THE ASSESSEE. 9.0 THE ASSESSEES CASE HAS SQUARELY COVERED BY THE DE CISION RELIED UPON BY THE LD.DR. FROM THE DISCUSSION IN THE FORE GOING PARAGRAPHS THE ASSESSEE COMPANY DIVERTED ITS FUNDS TO OTHER COMPA NIES AND NO BUSINESS INTEREST OR BUSINESS EXPEDIENCY HAS BEEN ESTABLISHE D. THEREFORE, WE UPHOLD THE ORDER OF THE LD.CIT(A) AND DISMISS THE A PPEAL OF THE ASSESSEE. 10.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD MAY, 2017, AT CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ! . . $ ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 3 RD MAY, 2017. TLN 0 .$6 76 /COPY TO: 1. - /APPELLANT 4. 8 /CIT 2. ./- /RESPONDENT 5. 6 . /DR 3. 8 ( ) /CIT(A) 6. * /GF