Biological E Limited, Hyderabad V. Deputy Commissioner of Income Tax, Circle-1(3), Hyderabad

ITA 1879/Hyd/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 2314 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-10-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB-B
• Next Hearing Date: 05-10-2021
• Assessment Year: 2010-2011
• Appeal Filed On: 17-11-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: V SIVA KUMAR
• Keywords: Capital asset; Earning of tax free income; Bad and doubtful debts; Revised return; Rule 8D; Set aside
• Section: 143(3); 14A; 37(1); 143(1); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B: HYDERABAD (THROUGH VIRTUAL CONFERENCE) BEFORE SHRI SATBEER SINGH GODARA, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA NO. 1879/H/2017 ASSESSMENT YEAR: 2010 - 11 BIOLOGICAL E LTD., HYDERABAD. PAN AAACB7873P VS. DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(3), HYDERABAD. (APPELLANT) (RESPONDENT) ITA NO. 2070/H/2017 ASSESSMENT YEAR: 2010 - 11 DY. COMMISSIONER OF INCOME - TAX, CIRCLE 1(3), HYDERABAD. VS. BIOLOGICAL E LTD., HYDERABAD. PAN AAACB7873P (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI V. SIVA KUMAR REVENUE BY: SHRI ROHIT MUJUMDAR DATE OF HEARING: 05/10/2021 DATE OF PRONOUNCEMENT: 25 / 10/2021 O R D E R PER L.P. SAHU, A.M.: BOTH THESE APPEALS AR E CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS REVENUE DIRECTED AGAINST CIT(A) - 8, HYDERABADS ORDER DATED 19/09/2017 FOR AY 2010 - 11 2 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. INVO LVING PROCEEDINGS U/S 143(3) OF THE INCOME TAX ACT, 1961 ; IN SHORT THE ACT. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE ENGAGED IN THE MANUFACTURING AND SALE OF FORMULATIONS AN BULK DRUGS, FILED ITS RETURN OF INCOME ADMITTING TOTAL LOSS OF RS. 4,71,210/ - , WHICH WAS REVISED TO THE LOSS OF RS. 5,89,41,575/ - IN THE REVISED RETURN FILED ON 31/03/2013 UNDER THE NORMAL PROVISIONS AND INCOME OF RS. 17,00,61,779/ - UNDER THE PROVISIONS OF SECTION 115JB. THE SAID RETURNS WERE PROCESSED U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE WAS CONVERTED TO S CRUTINY THROUGH CASS AND ACCORDINGLY, STATUTORY NOTICES WERE ISSUED TO THE ASSESSEE, AGAINST WHICH, THE AR OF THE ASSESSEE FURNISHED THE REQUIRED INFORMATION. 2.1 THE AO COMPLETED THE ASSESSMENT U/S 143(3) OF THE ACT ON 28/03/2013 REVISING THE TOTAL LOSS OF RS. 2,06,23,441/ - AS AGAINST THE LOSS DECLARED BY THE ASSESSEE AT RS. 5,89,41,575/ - , BY MAKING FOLLOWING DISALLOWANCES: 1. DISALLOWANCE OF EXCESS CLAIM OF WEIGHTED DEDUCTION U/S 35(2AB) - RS. 1,40,14,670 2. DISALLOWANCE OF LONG TERM CAPITAL LOS S - RS. 24,76,342 3. DISALLOWANCE U/S 14A - RS. 12,83,188 4. DISALLOWANCE OF BAD DEBTS - RS. 1,87,97,676 5. DISALLOWANCE OF WEALTH TAX EXPENSE RS. 1,98,328 6. ON ACCOUNT OF SALE OF DEPRECIABLE ASSETS RS. 15,47,930 3 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. 3. WHEN THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 4. AGAINST THE ORDE R OF CIT(A), BOTH THE ASSESSEE AND REVENUE ARE IN APPEAL BEFORE THE ITAT. 5. FIRST WE TAKE UP THE CASE OF THE ASSESSEE. ASSESSEE HAS RAISED 4 GROUNDS OF APPEAL, OUT OF WHICH GROUND NOS. 1 & 4 ARE GENERAL IN NATURE, HENCE, NEED NO ADJUDICATION. GROUND NO. 2 IS AGAINST THE ACTION OF CIT(A) IN SUSTAINING THE DISALLOWANCE OF LONG TERM CAPITAL LOSS OF RS. 24,76,342/ - . GROUND NO. 3 IS AGAINST THE ACTION OF CIT(A) IN SUSTAINING THE DISALLOWANCE OF RS. 77524/ - U/S 14A RWR 8D(2)(III) OF THE ACT. 6. AS REGARDS THE DISALLOWANCE OF LONG TERM CAPITAL LOSS OF RS. 24,76,342/ - , FROM THE COMPUTATION OF INCOME, THE AO OBSERVED THAT THE ASSESSEE HAD CLAIMED LONG TERM CAPITAL LOSS OF RS. 24,76,342/ - AND SET OFF OF IT AGAINST THE INCOME FROM BUSINESS AS PER THE DETAILS FURNISH ED BY THE ASSESSEE. FURTHER, HE OBSERVED THAT THE LAND WAS LOCATED AT AGRA AND THE SAME WAS ACQUIRED IN THE YEAR 1962. THE AO ASKED THE ASSESSEE TO PRODUCE SALE DEED IN RESPECT OF THE SAID PROPERTY AND IN RESPONSE, THE AR OF THE ASSESSEE FURNISHED SPECIAL POWER OF ATTORNEY DATED 10/08/2010 WHEREIN IT WAS MENTIONED THAT ADVANCE OF RS. 1.50 CRORES 4 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. WAS RECEIVED BY THE ASSESSEE COMPANY FROM THE PRO SPECTIVE BUYER ONE SHRI BHAGWANDASS AND POSSESSION OF THE LAND WAS GIVEN THROUGH SPA. THE AO, THEREFORE, OBSERVED THAT THE LAND TRANSFER DID NOT TAKE PLACE IN AY 2010 - 11 AND NO EVIDENCE WAS FILED BY AN AUTHORITY STATING THAT THE LAND WAS REALLY TRANSFERRED TO THE PROSPECTIVE BUYER EVEN AFTER THE DATE OF THE ASSESSMENT. HE, THEREFORE, HELD THAT THE ASSESSEE WAS NOT ELI GIBLE TO CLAIM LONG TERM CAPITAL LOSS IN AY 2010 - 11 AND ACCORDINGLY DISALLOWED ASSESSEE'S CLAIM OF LTCL OF RS. 24,76,342/ - . 6.1 THE CIT(A) CONFIRMED THE DISALLOWANCE MADE BY THE AO BY HOLDING THAT NO SALE DEED HAS BEEN PRODUCED EITHER BEFORE THE AO OR BEF ORE THE UNDERSIGNED THAT TRANSFER OF THE PROPERTY HAD INDEED TAKEN PLACED IN THE YEAR UNDER CONSIDERATION. 6.2 BEFORE US, THE LD. AR OF THE ASSESSEE SUBMITTED THAT SINCE THE PROPERTY WAS HANDED OVER AND FULL CONSIDERATION WAS RECEIVED BY THE ASSESSEE COMP ANY THE IMPUGNED PROPERTY SHALL BE CONSIDERED TO HAVE BEEN TRANSFERRED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 2(47) OF THE ACT. IN THIS CONNECTION, HE RELIED ON THE DECISION OF THE HON'BLE HIGH COURT OF BOMBAY IN THE CASE OF DR. JOAO SOUZA PROENCA VS . ITO, 90 TAXMANN.COM 63 TO SUBMIT THAT SINCE THE ASSESSEE RECEIVED ENTIRE CONSIDERATION AND ALSO HANDED OVER POSSESSION, TRANSFER U/S 2(47) SHOULD BE CONSIDERED TO 5 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. HAVE TAKEN PLACE. HE SUBMITTED THAT IN HIS DEED/ AFFIDAVIT DATED 31/03/2010, SHRI BHAGWANDAS HAS UNEQUIVOCALLY AFFIRMED THAT HE GOT POSSESSION OF THE IMPUGNED PROPERTY FROM THE ASSESSEE COMPANY AND WAS IN POSSESSION OF THE PROPERTY FROM 29/03/2010 AND ALSO THAT ENTIRE SALE CONSIDERATION OF RS. 1.50 CRORES WAS ALSO PAID TO THE ASSE SSEE COMPANY. 6.3 THE LD. DR, ON THE OTHER HAND, BESIDES RELYING ON THE ORDERS OF REVENUE AUTHORITIES SUBMITTED THAT NO SALE DEED HAS BEEN PRODUCED BY THE ASSESSEE BEFORE THE AUTHORITIES THAT THE TRANSFER OF THE PROPERTY HAD INDEED TAKEN PLACE IN THE YEA R UNDER CONSIDERATION FROM ANY AUTHORITIES I.E. SRO. THE ASSESSEE HAS NOT SATISFIED THE CONDITIONS AS PER THE DEFINITION OF TRANSFER AS CONTEMPLATED IN SECTION 2(47) OF THE INCOME TAX ACT. 1961. 6.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AS WELL AS GONE THROUGH THE ORDERS OF REVENUE AUTHORITIES. EVEN BEFORE US, THE ASSESSEE FAILED TO SUBMIT THE SALE DEED , IF ANY, ISSUED BY THE AUTHORITY TO ESTABLISH THAT THE PROPERTY HAD BEEN TRANSFERRED IN THE YEAR UNDER CONSIDERA TION. MERE CONSIDERATIO NS RECEIVED AND POSSESSION HANDED OVER WITHOUT ANY DOCUMENTARY EVIDENCE FOR ENJOYMENT OF THE PROPERTY TO THE BUYER IS NOT SUFFICIENT , HENCE, THE SECTION 2(47)(VI) IS ALSO NOT APPLICABLE . AS PER THE DOCUMENTS 6 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. AVAILABLE , WE FIND THAT THE TRANSACTION WAS DONE IN THE FINANCIAL YEAR 2009 - 10 AND TILL THE DATE OF HEARING , THE ASSESSEE IS UNABLE TO REBUT THE FINDING OF THE ASSESSING OFFICER IN REGARD TO NON - SUBMISSION OF THE SALE DEED. THE HON BLE SUPREME COURT OF INDIA IN THE CASE OF CIT VS. BALBIR SINGH MAINI [2017] 86 TAXMANN.COM 94 (SC) HAS SETTLED THE ISSUE IN RESPECT OF THE TRANSFER OF THE PROPERTY WHERE THE REGISTERED SALE DEED HAS NOT BEEN EXECUTED IN FAVOUR OF THE PROSPECTIVE BUYER. T HE RELEVANT PARA S ARE AS UNDER : 18. SECTION 53A, AS IS WELL KNOWN, WAS INSERTED BY THE TRANSFER OF PROPERTY AMENDMENT ACT, 1929 TO IMPORT INTO INDIA THE EQUITABLE DOCTRINE OF PART PERFORMANCE. THIS COURT HAS IN SHRIMANT SHAMRAO SURYAVANSHIV. PRALHAD BHAIROBA SURYAVANSHI [2002] 3 SCC 676 STATED AS FOLLOWS: ' 16. BUT THERE ARE CERTAIN CONDITIONS WHICH ARE REQUIRED TO BE FULFILLED IF A TRANSFEREE WANTS TO DEFEND OR PROTECT HIS POSSESSION UNDER SECTION 53 - A OF THE ACT. THE NECESSARY CONDITIONS ARE: (1) THERE MUST BE A CONTRACT TO TRANSFER FOR CONSIDERATION OF ANY IMMOVABLE PROPERTY; (2) THE CONTRACT MUST BE IN WRITING, SIGNED BY THE TRANSFEROR, OR BY SOMEONE ON HIS BEHALF; (3) THE WRITING MUST BE IN SUCH WORDS FROM WHICH THE TERMS NECESSARY TO CONS TRUE THE TRANSFER CAN BE ASCERTAINED; (4) THE TRANSFEREE MUST IN PART - PERFORMANCE OF THE CONTRACT TAKE POSSESSION OF THE PROPERTY, OR OF ANY PART THEREOF; (5) THE TRANSFEREE MUST HAVE DONE SOME ACT IN FURTHERANCE OF THE CONTRACT; AND 7 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. (6) THE TRANSFEREE MUST HAVE PERFORMED OR BE WILLING TO PERFORM HIS PART OF THE CONTRACT.' 19. IT IS ALSO WELL - SETTLED BY THIS COURT THAT THE PROTECTION PROVIDED UNDER SECTION 5 3A IS ONLY A SHIELD, AND CAN ONLY BE RESORTED TO AS A RIGHT OF DEFENCE. RAMBHAU NAMDEO GAJRE V. NARAYAN BAPUJI DHGOTRA [2004] 8 SCC 614 , PARA 10. AN AGREEMENT OF SALE WHICH FULFILLED THE INGREDIENTS OF SECTION 53A WAS NOT REQUIRED TO BE EXECUTED THROUGH A REGISTERED INSTRUMENT. THIS POSITION WAS CHANGED BY THE REGISTRATION AND OTHER RELATED LAWS (AMENDMENT) ACT, 2001. AMENDMENTS WERE MADE SIMULTANEOUSLY IN SECTION 53A OF THE TRANSFER OF PROPERTY ACT AND SECTIONS 17 AND 49 OF THE INDIAN REGISTRATION ACT. BY THE AFORESAID AMENDMENT, THE WORDS 'THE CONTRACT, THOUGH REQUIRED TO BE REGISTERED, HAS NOT BEEN REGISTERED, OR' IN SECTION 53A OF THE 1882 ACT HAVE BEEN OMITTED. SIMULTANEOUSLY, SECTIONS 17 AND 49 OF THE 1908 ACT HAVE BEEN AMENDED, CLARIFYING THAT UNLESS THE DOCUMENT CONTAINING THE CONTRACT TO TRANSFER FOR CONSIDERATION ANY IMMOVABLE PROPERTY (FOR THE PURPOSE OF SECTION 53A OF 1882 ACT) IS REGISTERED, IT SHALL NOT HAVE ANY EFFECT IN LAW, OTHER THAN BEING RECEIVED AS EVIDENCE OF A CONTRACT IN A SUIT FOR SP ECIFIC PERFORMANCE OR AS EVIDENCE OF ANY COLLATERAL TRANSACTION NOT REQUIRED TO BE EFFECTED BY A REGISTERED INSTRUMENT. SECTION 17(1A) AND SECTION 49 OF THE REGISTRATION ACT, 1908 ACT, AS AMENDED, READ THUS: '17(1A). THE DOCUMENTS CONTAINING CONTRACTS TO T RANSFER FOR CONSIDERATION, ANY IMMOVABLE PROPERTY FOR THE PURPOSE OF SECTION 53A OF THE TRANSFER OF PROPERTY ACT, 1882 (4 OF 1882) SHALL BE REGISTERED IF THEY HAVE BEEN EXECUTED ON OR AFTER THE COMMENCEMENT OF THE REGISTRATION AND OTHER RELATED LAWS (AMEND MENT) ACT, 2001 AND IF SUCH DOCUMENTS ARE NOT REGISTERED ON OR AFTER SUCH COMMENCEMENT, THEN THEY SHALL HAVE NO EFFECT FOR THE PURPOSES OF THE SAID SECTION 53A.' '49. EFFECT OF NON - REGISTRATION OF DOCUMENTS REQUIRED TO BE REGISTERED. NO DOCUMENT REQUIRED B Y SECTION 17 OR BY ANY 8 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. PROVISION OF THE TRANSFER OF PROPERTY ACT, 1882 (4 OF 1882), TO BE REGISTERED SHALL (A) AFFECT ANY IMMOVABLE PROPERTY COMPRISED THEREIN, OR (B) CONFER ANY POWER TO ADOPT, OR (C) BE RECEIVED AS EVIDENCE OF ANY TRANSACTION AFFECTING SUCH PROPERTY OR CONFERRING SUCH POWER, UNLESS IT HAS BEEN REGISTERED: PROVIDED THAT AN UNREGISTERED DOCUMENT AFFECTING IMMOVABLE PROPERTY AND REQUIRED BY THIS ACT OR THE TRANSFER OF PROPERTY ACT, 1882 (4 OF 1882), TO BE REGISTERED MAY BE RECEIVED AS EVIDENCE OF A CONTRACT IN A SUIT FOR SPECIFIC PERFORMANCE UNDER CHAPTER II OF THE SPECIFIC RELIEF ACT, 1887 (1 OF 1877) OR AS EVIDENCE OF ANY COLLATERAL TRANSACTION NOT REQUIRED TO BE EFFECTED BY REGISTERED INSTRUMENT.' 20. THE EFFECT OF THE AFORESAID AMENDMENT IS THAT, ON AND AFTER THE COMMENCEMENT OF THE AMENDMENT ACT OF 2001, IF AN AGREEMENT, LIKE THE JDA IN THE PRESENT CASE, IS NOT REGISTERED, THEN IT SHALL HAVE NO EFFECT IN LAW FOR THE PURPOSES OF SECTIO N 53A. IN SHORT, THERE IS NO AGREEMENT IN THE EYES OF LAW WHICH CAN BE ENFORCED UNDER SECTION 53A OF THE TRANSFER OF PROPERTY ACT. THIS BEING THE CASE, WE ARE OF THE VIEW THAT THE HIGH COURT WAS RIGHT IN STATING THAT IN ORDER TO QUALIFY AS A 'TRANSFER' OF A CAPITAL ASSET UNDER SECTION 2(47)(V) OF THE ACT, THERE MUST BE A 'CONTRACT' WHICH CAN BE ENFORCED IN LAW UNDER SECTION 53A OF THE TRANSFER OF PROPERTY ACT. A READING OF SECTION 17(1A) AND SECTION 49 OF THE REGISTRATION ACT SHOWS THAT IN THE EYES OF LAW, THERE IS NO CONTRACT WHICH CAN BE TAKEN COGNIZANCE OF, FOR THE PURPOSE SPECIFIED IN SECTION 53A. THE ITAT WAS NOT CORRECT IN REFERRING TO THE EXPRESSION 'OF THE NATURE REFERRED TO IN SECTION 53A' IN SECTION 2(47)(V) IN ORDER TO ARRIVE AT THE OPPOSITE CONCL USION. THIS EXPRESSION WAS USED BY THE LEGISLATURE EVER SINCE SUB - SECTION (V) WAS INSERTED BY THE FINANCE ACT OF 1987 W.E.F. 01.04.1988. ALL THAT IS MEANT BY THIS EXPRESSION IS TO REFER TO THE INGREDIENTS OF APPLICABILITY OF SECTION 53A TO THE CONTRACTS ME NTIONED THEREIN. IT 9 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. IS ONLY WHERE THE CONTRACT CONTAINS ALL THE SIX FEATURES MENTIONED IN SHRIMANT SHAMRAO SURYAVANSHI (SUPRA), THAT THE SECTION APPLIES, AND THIS IS WHAT IS MEANT BY THE EXPRESSION 'OF THE NATURE REFERRED TO IN SECTION 53A'. THIS EXPRESSIO N CANNOT BE STRETCHED TO REFER TO AN AMENDMENT THAT WAS MADE YEARS LATER IN 2001, SO AS TO THEN SAY THAT THOUGH REGISTRATION OF A CONTRACT IS REQUIRED BY THE AMENDMENT ACT OF 2001, YET THE AFORESAID EXPRESSION 'OF THE NATURE REFERRED TO IN SECTION 53A' WOU LD SOMEHOW REFER ONLY TO THE NATURE OF CONTRACT MENTIONED IN SECTION 53A, WHICH WOULD THEN IN TURN NOT REQUIRE REGISTRATION. AS HAS BEEN STATED ABOVE, THERE IS NO CONTRACT IN THE EYE OF LAW IN FORCE UNDER SECTION 53A AFTER 2001 UNLESS THE SAID CONTRACT IS REGISTERED. THIS BEING THE CASE, AND IT BEING CLEAR THAT THE SAID JDA WAS NEVER REGISTERED, SINCE THE JDA HAS NO EFFICACY IN THE EYE OF LAW, OBVIOUSLY NO 'TRANSFER' CAN BE SAID TO HAVE TAKEN PLACE UNDER THE AFORESAID DOCUMENT. SINCE WE ARE DECIDING THIS CA SE ON THIS LEGAL GROUND, IT IS UNNECESSARY FOR US TO GO INTO THE OTHER QUESTIONS DECIDED BY THE HIGH COURT, NAMELY, WHETHER UNDER THE JDA POSSESSION WAS OR WAS NOT TAKEN; WHETHER ONLY A LICENCE WAS GRANTED TO DEVELOP THE PROPERTY; AND WHETHER THE DEVELOPER S WERE OR WERE NOT READY AND WILLING TO CARRY OUT THEIR PART OF THE BARGAIN. SINCE WE ARE OF THE VIEW THAT SUB - CLAUSE (V) OF SECTION 2(47) OF THE ACT IS NOT ATTRACTED ON THE FACTS OF THIS CASE, WE NEED NOT GO INTO ANY OTHER FACTUAL QUESTION. 6.5 THEREFOR E, WE UPHOLD THE ORDER OF THE CIT(A) IN CONFIRMING THE AO'S ACTION IN DISALLOWING THE ASSESSEE'S CLAIM OF LONG TERM CAPITAL LOSS OF RS. 24,76,342/ - . ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS DISMISSED. HOWEVER, IT IS CLEAR FROM THE OR DER OF AO THAT THE ASSESSEE CAN OFFER INCOME UNDER THE HEAD LONG TERM CA P ITAL GAIN IN THE YEAR IN WHICH THE LAND IS DULY TRANSFERRED IN ALL RESPECT S AS PER THE ABOVE CITED DECISION 10 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. TO THE PROPOSED BUYER TO WHICH THE ASSESSING OFFICER CAN DECIDE THE ISSUE AS PER LAW IN THE RESPECTIVE YEAR. 7. AS REGARDS GROUND NO. 3 RELATING TO THE DISALLOWANCE OF RS. 77,523/ - U/S 14A RWR 8D(2)(III) OF THE ACT, THE AO NOTED THAT THE ASSESSEE HAD SHOWN DIVIDEND INCOME OF RS. 3,46,312/ - ON THE INVESTMENTS MADE OF RS. 3,10,09,726/ - , WHEREAS RS. 23,22,22,889/ - WAS CLAIMED TOWARDS INTEREST AND FINANCIAL CHARGES. SINCE NO DISALLOWANCE OF EXPENDITURE INCURRED FOR EARNING TAX FREE INCOME WAS MADE, THE AO INVOKED THE PROVISIONS OF SECTION 14A RWR 8D(2) AND DISALLOWED RS. 12,05,664/ - UNDER RULE 8D(2)(II) AND RS. 77,524/ - UNDER RULE 8D(2)(III) TOTALING TO RS. 12,83,188/ - . 7.1 BEFORE THE CIT(A), THE AR OF THE ASSESSEE SUBMITTED THAT NO INVESTMENTS WERE MADE DURING THE YEAR AND ALL INVESTMENTS MADE INTO EQUITY SHARES AND MUTUAL FUNDS IN THE EARLIER YEAR S. THE AR FURTHER SU BMITTED THAT THE ASSESSEE'S PAID - UP CAPITAL IS RS. 4.05 CR. AND HAS RESERVES OF RS. 74.01 CRORES AS ON 31/03/2010, THUS HAVING TOTAL OWN FUNDS OF RS. 78.96 CRORES. SINCE, NO FRESH INVESTMENTS WERE MADE IN THE YEAR UNDER CONSIDERATION AND THE INVESTMENTS MA DE IN THE PREVIOUS YEARS WAS OUT OF THE INCOME EARNED IN THOSE YEARS AND FURTHER AS THE COMPANY HAS SUFFICIENT OWN FUNDS, THE AR SUBMITTED THAT DISALLOWANCE U/S 8D(2) IS NOT JUSTIFIED. 11 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. 7.2 AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, THE CIT(A) DELE TED THE DISALLOWANCE MADE BY THE AO UNDER RULE 8D(2) (II) ON THE GROUND THAT ASSESSEE HAS HUGE OWN FUNDS WHEN COMPARED TO A SMALL INVESTMENTS MADE IN EQUITY SHARES AND MUTUAL FUNDS. 7.3 THE CIT(A) CONFIRMED THE DISALLOWANCE UNDER RULE 8D(2)(III) ON THE GR OUND THAT SINCE THE SAID RULE PROVIDES FOR NOMINAL DISALLOWANCE OF EXPENDITURE AS PER THE GIVEN WORKING TOWARDS ESTABLISHMENT/ADMINISTRATION EXPENSES AT 0.5% AVERAGE VALUE OF INVESTMENT AS APPEARING IN THE BALANCE SHEET ON THE FIRST DAY AND LAST OF THE PRE VIOUS YEAR AS THE DISALLOWANCE. 7.4 BEFORE US, THE LD. AR OF THE ASSESSEE IN HIS WRITTEN SUBMISSIONS, INTER - ALIA, STATED THAT NO PARTICULAR EXPENSES WAS BROUGHT TO ITS NOTICE WHICH COULD HAVE BEEN INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME, THAT T HERE WERE NO SUCH EXPENSES OF MANAGERIAL NATURE WHICH COULD BE ATTRIBUTED TOWARDS EARNING OF EXEMPT INCOME AND THAT DURING THE YEAR NO ACTIVITY OF SALE OR PURCHASE WAS DONE IN RESPECT OF SHARES. HE RELIED ON THE DECISIONS IN THE CASE OF PRIYA EXHIBITORS ( P) LTD. VS. ACIT, 27 TAXMANN.COM (DELHI TRIB.) AND THE JUDGMENT OF BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 194 TAXMAN 203. 12 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. 7.5 THE LD. DR, ON THE OTHER HAND RELIED ON THE ORDERS OF REVENUE AUTHORITIES. 7.6 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AS WELL AS GONE THROUGH THE ORDERS OF REVENUE AUTHORITIES. WE DO NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT NO ADMINISTRATIVE/ MANAGERIAL EXPENSES INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME. ASSESSEE EARNED DIVIDEND INCOME OF RS. 3,46,312/ - WHICH IS EXEMPT U/S 10(34)/10(35) OF THE ACT. THE INVESTMENT RELEVANT TO EARNING OF EXEMPT INCOME IS AS UNDER: S.NO. INVESTMENT AS AT 31 - 03 - 2009 AS AT 31 - 03 - 2010 INCREASE DURING THE Y EAR DIVIDEND EARNED 1. CORPORATION BANK 9,76,000 9,76,000 NIL 97,600 2 BANK OF BARODA 7,61,300 7,61,300 NIL 29,790 3 LIC LIQUID FUND DIVIDEND PLAN 34,56,782 36,75,704 2,18,922 2,18,922 TOTAL DIVIDEND 3,46,312 7.7 THE FINDINGS GIVEN BY THE CIT(A) ARE NOT IN ACCORDANCE WITH RULE 8D(2)(III) . THE DISALLOWANCE CAN BE MADE UNDER THIS RULE ONLY ON 0.5% OF TH E AVERAGE VALUE OF INVESTMENTS WHICH YIELD EXEMPT INCOME . THE ASSESSEE HAS RECEIVED DIVIDEND FROM THE INVESTMENTS A S QUOTED IN THE ABOVE TABLE AND THE AVERAGE VALUE OF THESE INVESTMENTS IS RS 53,03,543/ - AND 0.5% OF THE AVERAGE VALUE COMES TO 13 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. RS. 26,518/ - . THEREFORE, THE DISALLOWANCE IS TO BE RESTRICTED TO RS. 26,518/ - AN D ASSESSEE GETS RELIED OF RS. 51006/ - , HENCE, THIS GROUND OF ASSESSEE IS PARTLY ALLOWED. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN ABOVE TERMS. 9. AS REGARDS REVENUE'S APPEAL, THE REVENUE HAS RAISED 4 GROUNDS OF APPEAL, OUT OF WHICH GROUND NOS. 1 & 4 ARE GENERAL IN NATUR E, HENCE, NEED NO ADJUDICATION. GROUND NO. 2 IS AGAINST THE ACTION OF THE CIT(A) IN ALLOWING ASSESSEE'S CLAIM OF BAD DEBITS OF RS. 90,01,443/ - AND GROUND NO. 4 IS AGAINST DELETION OF ADDITION OF RS. 97,96,233/ - . 10. AS REGARDS GROUND NO. 3 RELATING TO THE ADDITION OF RS. 90,01, 443/ - , THE AO OBSERVED THAT THE ASSESSEE CLAIMED BAD DEBTS OF RS. 1,49,86,880/ - REGARDING RECEIVABLES FROM C&F AGENTS. THE AO NOTED THAT THE ASSESSEE COULD NOT FURNISH ANY DETAILS REGARDING EFFORTS TAKEN THROUGH LEGAL MEASURES AND ALSO DID NOT FURNISH ANY CONFIRMATIONS REGARDING WRITE OFF OF THE RECEIVABLES FROM THOSE C&F AGENTS/DEALERS. THE ASSESSEE REQUESTED FOR ALLOWING DEBTS LYING FOR MORE THAN 3 YEARS BEFORE FY 2009 - 10 AS BAD DEBTS WRITTEN OFF. CONSIDERING THE ASSESSEE'S REQUES T, ONLY A SUM OF RS. 59,85,437/ - WAS ALLOWED BY THE AO AS BAD DEBTS ON THE GROUND THAT THE AGE OF SUCH DEBTS IS MORE THAN 3 YEARS BEFORE FY 2009 - 10 AND THE BALANCE AMOUNT OF RS. 14 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. 90,01,443/ - BEING RELATIVELY YOUNGER DEBTS, WAS DISALLOWED. 10.1 BEFORE THE C IT(A), THE AR OF THE ASSESSEE SUBMITTED THAT TAKING OF LEGAL STEPS FOR RECOVERY OF RECEIVABLES AND CONFIRMATIONS FOR WRITE OFF OF RECEIVABLES IS NOT NECESSARY FOR ALLOWING WRITE OFF BAD DEBTS AFTER THE AMENDMENTS MADE TO SECTION 36(1)(VIII) W . E . F . 01/04/19 89. HE RELIED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TRF VS. CIT, 323 ITR 397 WHEREIN IT WAS HELD THAT BAD DEBTS WRITTEN OFF ARE ALLOWABLE AS DEDUCTION AND ESTABLISHING THAT SUCH DEBTS HAVE BECOME BAD IS NOT REQUIRED. THE AR ALSO RELIE D UPON THE CIRCULAR NO. 12/2016, DATED 30/05/2016 IN THIS REGARD. 10.2 THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, OBSERVED THAT IT IS NOW WELL SETTLED LAW THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT HAD IN FACT BECOME BAD TO BE WRITTEN OFF AS BAD DEBT IN VIEW OF THE AMENDMENT MADE TO SECTION 36(1)(VII) FROM 01/04/1989 AND THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TRF (SUPRA). HE, THEREFORE, HELD THAT THE ACTION OF THE AO IN ALLOWING DEBTS OF MORE THAN THREE YEARS ONLY AS BAD DEBTS IS ERRONEOUS AND, THUS, DIRECTED THE AO TO ALLOW THE ENTIRE BAD DEBTS WRITTEN OFF AS ALLOWABLE. 10.3 THE LD. DR RELIED ON THE ORDER OF AO WHILE THE LD. AR REITERATED THE SUBMISSIONS MADE BEFORE THE CIT(A) AND 15 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. CASE LAW CITED B EFORE HIM. 10.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AS WELL AS GONE THROUGH THE ORDERS OF REVENUE AUTHORITIES. ON GOING THROUGH THE FINANCIAL STATEMENTS, IN THE P&L ACCOUNT BAD DEBTS/ADVANCES/DEPOSITS WRITTEN OFF O F RS. 4,28,33,731/ - , WHICH INCLUDES 90,01,443/ - , WHICH IS THE DISPUTED AMOUNT. THE LD. CIT (A) HAS RIGHTLY ALLOWED THIS ISSUE AFTER RELYING ON THE JUDGEMENT CITED SUPRA. IN VIEW OF THE ABOVE OBSERVATIONS, WE DO NOT FIND ANY INFIRMITY IN THE DECISION OF CIT(A) IN DIRECTING THE AO TO ALLOW THE CLAIM OF BAD DEBTS OF RS. 90,01,443/ - AND UPHOLDING THE ORDER OF CIT(A) ON THIS COUNT, WE DISMISS THE GROUND NO. 0 2 RAISED BY THE REVENUE ON THIS ISSUE. 11. AS REGARDS GROUND NO. 3 RELATING TO THE ADDITION OF RS. 97,96,233/ - , THE AO OBSERVED THAT THE ASSESSEE HAS WRITTEN OFF THE DEPOSITS/ADVANCES AMOUNTING TO RS. 97,96,233/ - , WHICH REPRESENT ADVANCES GIVEN TO VARIOUS SUPPLIERS AND DEPOSITS PLACED WITH VARIOUS PARTIES. THE AO HELD THAT SINCE THESE DEPOSITS/ADVANCES HAVE NEVER BEEN PART OF INCOME IN EARLIER YEARS WRITE OFF OF THESE ADVANCES/DEPOSITS IS NOT ALLOWABLE AS EXPENDITURE BECAUSE THE SAME ARE NOT REVENUE ITEMS. HE, THEREFORE , DISALLOWED THE DEPOSITS/ADVANCES WRITTEN OFF OF RS. 97,96,233/ - . 16 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. 11.1 BEFORE THE CIT(A), THE AR OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SUPPLY OF MEDICAL FORMULATIONS TO VARIOUS GOVERNMENT DEPARTMENTS AND IN THE PROCESS , BID FOR TENDERS AND PAYS EMD WHILE BIDDING FOR TENDERS. IT ALSO MADE DEPOSITS WITH VARIOUS GOVERNMENT DEPARTMENTS FOR TAKING FACILITIES FROM THEM IN THE COURSE OF CARRYING ON ITS BUSINESS. APART FROM THE ABOVE, THE APPELLANT PAYS ADVANCES TO VARIOUS PART IES FOR SUPPLY OF MATERIALS AND FOR PROVIDING SERVICES. AFTER ADJUSTMENTS BY THE SAID PARTIES, SOME BALANCES ARE LEFT OVER IN THE SAID ACCOUNT FOR A NUMBER OF YEARS WHICH CANNOT BE RECOVERED AND THEY WERE WRITTEN OFF, WHICH IS ALLOWABLE AS DEDUCTION U/S.28 AND 37(1) OF THE ACT. THE AR RELIED UPON A NUMBER OF DECISIONS PARTICULARLY THAT OF MOHAN MEAKIN VS CIT (348 ITR L09)(DEL), WHEREIN IT WAS HELD THAT THE DEPOSITS/ADVANCES MADE DURING THE COURSE OF BUSINESS WHICH LATER BECOME UNREALIZABLE FOR VARIOUS REASO NS ARE ALLOWABLE AS DEDUCTION. THE AR ALSO RELIED UPON THE RECENT JUDGMENT OF HON'BLE ITAT, VISAKHAPATNAM IN THE CASE OF DCIT VS FRIENDS SHOES COMPANY TO BUTTRESS THE ARGUMENT. 11.2 THE CIT(A) DELETED THE DISALLOWANCE BY OBSERVING AS UNDER: 6.2 I HAVE CAREFULLY CONSIDERED THE ISSUE AND THE SUBMISSIONS MADE BY THE AR. THE AO DISALLOWED THE DEPOSITS/ADVANCES WRITTEN OFF ON THE GROUND THAT THEY HAVE NEVER BEEN PART OF INCOME IN THE EARLIER YEARS AND THEREFORE CAN'T BE ALL OWED AS BAD DEBTS U/S.36(1)(VII) OF THE ACT. THE QUESTION HERE IS NOT WRITE OFF BAD DEBTS BUT 17 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. THE DEPOSITS/ ADVANCES GIVEN TO GOVERNMENT DEPARTMENTS AND THE SUPPLIERS IN THE COURSE OF BUSINESS, A SMALL PART OF WHICH COULD NOT BE RECOVERED FROM THEM FOR A N UMBER OF YEARS. THIS IS EVIDENT FROM THE DETAILS OF SUCH DEPOSITS/ADVANCES WRITTEN OFF AS FILED BY THE AR. THIS ISSUE HAS BEEN SUBJECT MATTER OF HON'BLE ITAT, VISAKHAPATNAM IN THE CASE 0; DOT VS FRIENDS SHOES COMPANY WHEREIN IT WAS HELD THAT THE WRITE OFF OF ADVANCES/DEPOSITS ARE ALLOWABLE AS DEDUCTION U/S.37 OF THE ACT. SINCE THE FACTS OF THE APPELLANT ARE SIMILAR TO THE ABOVE MENTIONED CASE LAW, THE DISALLOWANCE MADE BY THE AO IS D E LE TED AND THE GROUNDS OF APPEAL IS ALLOWED. 11.3 THE LD. DR RELIED ON THE ORDER OF AO WHILE THE LD. AR BESIDES RELYING ON THE ORDER OF CIT(A) REITERATED THE SUBMISSIONS MADE BEFORE HIM. 11.4 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AS WELL AS GONE THROUGH THE ORDERS OF REVENUE AUTHORITIES. WE OBSERVE THAT THE CIT(A) IS NOT JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 97,96,233/ - MADE BY THE AO ON ACCOUNT OF DEPOSITS/ADVANCES WRITTEN OFF BY THE ASSESSEE, BECAUSE THESE ADVANCES/DEPOSITS RELATE TO VARIOUS PARTIES AND N O CORRESPONDENCE BETWEEN THE ASSESSEE AND THE PARTIES HAS TAKEN PLACE. ON GOING THROUGH THE PAGES 23 & 24 OF PAPER BOOK , IN WHICH , LIST OF DEPOSITS/ADVANCES WRITTEN OFF DURING THE YEAR 2009 - 10 IN A TABULAR FORM FURNISHED BY THE ASSESSEE, THERE ARE VARIOU S 18 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. TYPES OF ADVANCES GIVEN TO DIFFERENT PERSONS, SUPPLIERS, EMPLOYEES, EMD FOR PARTICIPATING IN TENDERS IN THE GOVT. DEPARTMENTS, ETC. TO CLAIM BAD DEBTS, THE AMOUNTS MUST BE TREATED AS INCOME BUT, THE ISSUE IN DISPUTE RELATES TO ADVANCE/DEPOSITS WHICH HAVE NEVER BEEN CONSIDERED AS INCOME OF THE ASSESSEE . EVEN IF IT IS CONSIDERED AS EXPENDITURE U/S 37(1) OF THE ACT, THE EXPENDITURE MUST BE CRYSTALIZED DURING THE IMPUGNED AY, BUT, THE ASSESSEE FAILED TO PRODUCE ANY DOCUMENTARY EVIDENCE TO SUBSTANTIATE ITS CLA IM THAT THE PARTIES TO WHOM ADVANCES HAVE BEEN GIVEN AS PER PAGES 23 & 24 OF THE PAPER BOOK THAT THE PARTIES WERE REFUSED TO PAY BACK THE ADVANCES. IN SUPPORT OF OUR DECISION, WE RELY ON THE COORDINATE BENCH OF ITAT, MUMBAI BENCHES IN THE CASE OF ELITE INT ERNATIONAL (P.) LTD. V. ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE - 6(2), MUMBAI , [2017] 83 TAXMANN.COM 213 (MUMBAI - TRIB.). T HE CASE LAW RELIED ON BY THE ASSESSEE CITED SUPRA AS WELL AS RELIED ON BY THE LD. CIT(A) ARE NOT APPLICABLE TO THE CASE OF THE A SSESSEE. IN VIEW OF THE ABOVE OBSERVATIONS, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THAT OF THE AO ON THIS ISSUE. THUS, TH E GROUND NO. 0 3 OF THE REVENUE IS ALLOWED. 12. IN THE RESUL T, APPEAL OF THE REVENUE IS PARTLY ALLOWED IN ABOVE TERMS. 19 ITA NOS. 1879 & 2070/HYD/2017 BIOLOGICAL E LTD., HYD. 13. TO SUM UP, APPEAL OF THE ASSES S EE AND THE APPEAL OF THE REVENUE ARE PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 25 TH O CTOBER, 2021. SD/ - SD/ - (S.S. GODARA) (L. P. SAHU) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 25 TH O CTOBER, 2021. KV COPY TO : 1 BIOLOGICAL E LTD., 18/1 & 3, AZAMABAD, HYDERABAD 500 020 2 DCIT, CIRCLE 1(3), HYDERABAD. 3 CIT(A) - 8, HYDERABAD 4 PR. CIT 1, HYDERABAD 5 ITAT, DR, HYDERABAD. 6 GUARD FILE.