Apcom Exports Pvt. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2196/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 95835 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-08-2015
• Appeal Filed By: Assessee
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 28-08-2014
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: PHILIP GEORGE
• Keywords: Cost of acquisition; Revenue expenditure; Capital expenditure

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , ! ' # , $ %& BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ ITA NO. 2196/MDS/2014 / ASSESSMENT YEAR : 2006-07 M/S. APCOM EXPORTS PVT. LTD., NEW # 4(OLD # 8), DEVELOPED PLOTS, PERUNGUDI INDUSTRIAL ESTATE, PERUNGUDI, CHENNAI 600 096. PAN AAACA3228P APPELLANT) V. THE DEPUTY COMMISSIONER OF INCOME-TAX, COMPANY CIRCLE-I(1), CHENNAI -34. RESPONDENT) / APPELLANT BY : SHRI PHILIP GEORGE, ADVOCATE / RESPONDENT BY : SHRI N. MADHAVAN, JCIT ! / DATE OF HEARING :.17.06.2015 '# ! / DATE OF PRONOUNCEMENT : 12.08.2015 ' / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DA TED 26.12.2013. - - ITA 2196/14 2 2. THE FIRST GROUND IN THIS APPEAL TAKEN BY THE ASSESSEE IS THAT THE COMMISSIONER OF INCOME-TAX(APP EALS) ERRED IN CONFIRMING THE DISALLOWANCE OF THE LONG TERM CAP ITAL LOSS OF ` 1,38,11,828/-. 3. THE FACTS OF THIS ISSUE ARE THAT THE ASSESSEE H AS DISCLOSED LONG TERM CAPITAL LOSS OF ` 1,38,11,828/- FOR SALE OF SHARES OF M/S. SITA-GITA.COM LTD. IN THIS CONNECTI ON, THE COMPUTATION OF LONG TERM CAPITAL GAINS DISCLOSED BY THE ASSESSEE IS AS UNDER : NAME OF CO. DATE OF SALE SALES PRICE TR. EXP. NET SATE PRICE PURCHASE DATE PURCHASE COST INDEX I COST CAPITAL GAIN SITA GITA CO. 30.3.06 44450 0 444501 28.4.01 6983500 8147417 -810 2967 -DO- 30.3.06 1082 0 1082 30.9.03 170000 182484 -181 402 -DO- 30.3.06 318251 0 318251 10.1.03 5000000 5559284 -5527459 77357 77357 12153500 13889185 138118281 THE ABOVE SHARES HAVE BEEN SOLD BY THE ASSESSEE TO MS. NIRMAL MIRZA, WHO IS THE WIFE OF THE MANAGING DIRECTOR OF THE ASSESSEE- COMPANY. THESE SHARES HAVE BEEN SOLD AT THE RATE O F ` 0.064 PER SHARE. THEY HAVE BEEN PURCHASED AT THEIR FACE VALUE OF ` 10/-. TO SUMMARIZE, THE SHARES WHICH HAVE BEEN PUR CHASED AT THE RATE OF ` 10/- HAVE BEEN SOLD AT THE RATE OF 0.064. THE DET AILS - - ITA 2196/14 3 OF THE ABOVE PURCHASE AND SALE OF SHARES GIVEN BY T HE ASSESSEE ARE AS UNDER: NO. OF SHARES DATE OF PURCHASE COST PER SHARE DATE OF SALE SALE PRICE PER SHARE & ADDRESS OF PERSON TO WHOM SOLD 500000 10.01.03 10 30.03.06 0.064 NIRMAL MIRZA NO.15, CASURINA DRIVE, NEELANKARAI, CHENNAI-4 PAN AACPN1941R 17000 30.09.03 10 30.03.06 0.064 NIRMAL MIRZA NO.15 , CASURINA DRIVE, NEELANKARAI, CHENNAI-4 PAN AACPN1941R 698350 28.04.01 10 30.03.06 0.064 NIRMAL MIRZA NO.1 5, CASURINA DRIVE, NEELANKARAI, CHENNAI-4 PAN AACPN1941R NO. OF SHARES DATE OF PURCHASE COST PER SHARE ALLOTMENT/ PURCHASE 5,00,000 10.01.2003 10/- ALLOTMENT 3,62,000 28.04.2001 10/- PURCHASE FROM M/S. APCOM COMPUTERS PVT. LTD. 3,36,350 28.04.2001 10/- ALLOTMENT 12,16,350 TOTAL 3.1 SINCE THE SHARES OF M/S. SITA-GITA.COM LTD. ARE NOT LISTED IN ANY STOCK EXCHANGE, THE ASSESSEE COMPANY WAS ASKED TO EXPLAIN BY THE AO AS TO HOW THE VALUE OF S UCH SHARES WERE FIXED A 0.064 ON THE DATE OF TRANSFER. THE ASSESSEE'S AUTHORISED REPRESENTATIVE EXPLAINED THAT THE VALUATION OF SUCH ASSESSES WERE MADE ON THE BASIS O F THE AUDITED FINANCIALS OF THE COMPANY AS ON 31.3.2005. HE FURTHER EXPLAINED THAT THE SHARE CAPITAL OF THE SAI D COMPANY - - ITA 2196/14 4 WAS FULLY ERODED DUE TO THE ACCUMULATED LOSSES AND SINCE THE COMPANY WAS NOT IN POSSESSION OF ANY IMMOVABLE PROPERTIES, THE NET WORTH HAD TURNED NEGATIVE. HE EXPLAINED THAT SINCE THE ASSESSEE COMPANY WANTED TO EXIT FROM THE ABOVE COMPANY AND TO TERMINATE ITS INVESTMENTS INTO THE SAID COMPANY, IT DECIDED TO SELL THE SHARES. 3.2 AFTER CONSIDERING THE SUBMISSIONS OF THE AR OF THE ASSESSEE, THE QUESTION POSTED BY THE AO TO THE AR A S TO HOW THE VALUE OF EACH SHARE WAS DETERMINED AT 0.064 REMAINED UNANSWERED, THOUGH HE SUBMITTED THAT THE C APITAL OF M/S. SITA-GITA.COM LTD. HAS BEEN COMPLETELY EROD ED ON 31.3.2005. AS IT IS SEEN FROM THE DETAILS GIVEN IN THE TABLE SHOWN ABOVE THAT THE ASSESSEE HAD PURCHASED THE SHA RE AT THEIR FACE VALUE OF ` 10 PER SHARE NOT VERY LONG AGO, THE LATEST PURCHASE BEING ON 30.9.2003. THE AUTHORIZED REPRESENTATIVE WAS ASKED TO FURNISH THE COPIES OF F INANCIAL STATEMENTS OF M/S. SITA-GITA.COM LTD. FOR THE LAST 3 FINANCIAL YEARS. A PERUSAL OF THE SAME SHOWED THAT EVEN ON T HE DATE THAT THE SHARES WERE PURCHASED BY THE ASSESSEE COMP ANY AT THE RATE OF ` 10/- PER SHARE FROM OUTSIDERS AND FROM - - ITA 2196/14 5 COMPANY DIRECTLY, THE NET WORTH OF SUCH COMPANY WAS NEGATI VE. THE ASSESSEE COMPANY HAD DECIDED TO PURCHASE THE SHARES AT THE RATE OF ` 10/- AT A TIME WHEN ITS BOOK VALUE WAS NEGATIVE. SUCH SHARES PURCHASED AT AN INFLATED VALU E HAVE BEEN SUBSEQUENTLY SOLD RELATED PARTY VIZ, THE WIFE OF THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY FOR A MEA GRE AMOUNT OF AROUND 6 PAISE PER SHARE. THIS EXERCISE H AS BEEN DONE ONLY TO BUILD LOSSES IN THE BOOKS OF THE COMPA NY. SINCE LOSS IS ARISING OUT OF TRANSACTIONS BETWEEN RELATED PARTIES AND IN THE ABSENCE OF EXPLANATION O N HOW THE VALUE OF ` 0.064 PER SHARE WAS DETERMINED, THE LOSS CLAIMED BY THE ASSESSEE IS DISALLOWED BY THE AO. AGAINST T HIS, THE ASSESSEE WENT IN APPEAL, BEFORE THE CIT(APPEALS). 4. BEFORE THE CIT(APPEALS), THE LD. AR SUBMITTED TH AT DISALLOWANCE OF LONG TERM CAPITAL LOSS AMOUNTING TO ` L,38,11,8281/- ARISING ON SALE OF SHARES OF M/S. SI TAGITA CORN LTD., ON THE GROUND THAT THE SALE WAS TO RELATED PARTY AND SALE PRICE OF ` 0.064 PER SHARE WAS NOT EXPLAINED. THE GRIEVANCE OF THE AO WAS THAT THE SHARES WERE 'PURCHASED AT ` 10 PER SHARE FROM VARIOUS PARTIES IN THE EARLIER YEARS. THE AO W AS OF THE - - ITA 2196/14 6 OPINION THAT THE SHARES WERE PURCHASED AT AN INFLAT ED VALUE WHICH WAS SUBSEQUENTLY SOLD TO A RELATED PARTY TO B UILD LOSSES IN THE BOOKS OF THE COMPANY. FURTHER THE LD. AR SUBM ITTED BEFORE THE CIT(APPEALS) THAT THE AO HAS FAILED TO APPRECIA TE THE FOLLOWING FACTS: A. THE ASSESSEE COMPANY HAD STOPPED ITS LEATHER GARMENT EXPORT BUSINESS WAY BACK IN 1997-98. AFTER THAT IT WAS DOING INVESTMENT ACTIVITY IN ITS ASSOCI ATE COMPANIES IN FORM OF INVESTMENT IN SHARES AND GIVIN G LOON AND ADVANCES. THE REGULAR SOURCE OF INCOME WAS DIVIDEND INCOME EARNER! BY IT THROUGH THE EQUITY INVESTMENT IN ITS ASSOCIATE COMPANIES AND INTEREST INCOME ON THE LOANS & ADVANCES GIVEN TO ASSOCIATE COMPANIES AND RENTAL INCOME. DURING THE FY 2005-06, IT HAD LEARNED ` 66.34 LAKHS THROUGH SALE OF SOFTWARE WHICH WAS FOR ONE TIME. EVEN IN THE SUBSEQUENT YEAR S THE MAIN SOURCE OF INCOME WAS INTEREST INCOME AND DIVIDEND INCOME. HENCE THE MAIN ACTIVITY CARRIES ON BY THE COMPANY WAS THAT OF INVESTMENT AND FINANCING. THE SAID INTEREST INCOME WAS ALSO OFFERED AS BUSINE SS INCOME WHICH HAS BEEN ACCEPTED BY THE LEARNED AO. B. SITAGITA CORN LTD WAS MAINLY FORMED FOR THE PURPOSE OF TAKING ADVANTAGE OF THE DOTCOM. IT WAS INCORPORATED ON 13.01.2000 AS A CLOSELY HELD PUBLIC LIMITED COMPANY. INITIALLY IT WAS FORMED WITH A PAID UP SHARE CAPITAL OF ` 2.02 CRORES WHEREIN THE ASSESSEE HAD INVESTED ` 50.00 LAKHS IN FIRST YEAR OF OPERATION AND ON ASSOCIATE COMPANY M/S. APCOM COMPUTERS P LT D., HAD INVESTED ` 36.20 LAKHS. SUBSEQUENTLY, THE ASSESSEE HAD INVESTED IN FINANCIAL YEAR 2001-02 ` 33.64 LAKHS THROUGH FURTHER ALLOTMENT AT FACE VALUE . AS APCOM COMPUTERS P LTD. ANOTHER ASSOCIATE COMPANY WHEREIN THE ASSESSEE WAS HOLDING SUBSTANTIAL INTERE ST - - ITA 2196/14 7 WAS INCURRING HUGE LOSSES BECAUSE OF THE DOT CORN BUST, WANTED TO LIQUIDATE ITS INVESTMENT IN SITAGIT A CORN LTD AND FUND FOR ITS CORE BUSINESS. HENCE THE ASSESSEE WAS FORCED TO BUY OUT THE SHARES HELD BY APCOM COMPUTERS P LTD. FOR ` 36.20 LAKHS AS SITAGITA WAS AN UNLISTED COMPANY AND THE SAME WAS NOT SALEABLE IN THE STOCK EXCHANGE. AS ALREADY THE DOT COM HAD FOILED IN LARGE NUMBER OF CASES, THE ASSESS EE COMPANY WAS NOT ABLE TO GET OUTSIDE INVESTORS. THE LEARNED AO FAILED TO APPRECIATE THE FACT THAT ALL T HESE TECHNOLOGY COMPANIES INITIALLY INCUR LOSSES. IT TAK ES TIME TO TURN AROUND THE COMPANY. THIS IS PROVED BY THE FACT THAT ONE OF THE ASSOCIATE COMPA NIES APCOM COMPUTERS P LTD., WHEREIN ASSESSEE HAS SUBSTANTIAL INTEREST AND INCURRING LOSSES FOR THE FY 2001-02 TO THE EXTENT OF ` 3.84 CRORES, IN FY 2002-03 ` 85.47 LAKHS BUT PROFIT OF ` 126.83 LAKHS IN FY 2003-04. HENCE, BASED ON THE FACT THAT THE COMPANY SITAGITA.COM. LT D CAN BE TURNED AROUND, THE ASSESSEE HAD FURTHER INVESTED IN FY 2002-03 ANOTHER ` 50 LAKHS. FURTHER IT BOUGHT 1,700 SHARES FROM MRS. PRABHA CHAKRAVARTHY, ONE OF FOUNDER MEMBERS AS SHE WANTED TO EXIT FROM THE SAME. THE OTHER FACT THE LEARNED AOFAILED TO NOTE IS THAT AS PER SECTION 79 (1) ANY ISSUE OF SHARES AT A DISCOUNT IS A LABORIOUS TASK, WHEREIN THE APPROVAL FROM COMPANY LAW BOARD NEEDS TO BE TAKEN ALONG WITH OTHER CONDITIONS WHICH NEEDS TO BE FULFILLED. ANY COMPANY ISSUING THE SHARES OF A DISCOUNT WILL FIND IT DIFFICULT TO SELL AS WELL AS THE NUMBER OF SHARES WILL INCREASE SUBSTANTIALLY. THE LEARNED AO HAS ALSO FAILED TO APPRECIATE THE FACT THAT MOST OF THE INVESTMENTS ARE HELD FOR A MINIMUM PERI OD OF THREE YEARS AND ABOVE. C. THE ASSESSEE RELIES UPON TAINWALA CHEMICALS & PLASTICS VS ACIT 8(3) ITAT MUMBAI ITA 3338/MUM/2008/AY 2004-05. IN CLAUSE 21 LAST PARA 'IN THE CASE BEFORE US ALSO SHARES HAVE BEEN HELD B Y THE ASSESSEE COMPANY FROM ASSESSMENT YEARS 1994- - - ITA 2196/14 8 95 TO 1999-00 WHICH MEANS SHARES WERE ALREADY HELD FOR MORE THAN 4 TO 6 YEARS. THE SAME HAVE BEEN SOLD FOR RESTRUCTURING OF THE BUSINESS SO AS TO CONCENTRATE ON THE MAIN BUSINESS OF THE COMPANY. THE SHARES HAVE BEEN ALREADY TRANSFERRED TO THE VARIOUS COMPANIES AND, THEREFORE, SAME CANNOT BE CONSTRUED ONLY AS PAPER TRANSACTIONS. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIEW, THAT THE LOSS CLAIM ED BY THE ASSESSEE IS ALLOWABLE AND, ACCORDINGLY, WE SET ASIDE THE ORDER OF THE ID. CIT(A) AND DIRECT THE AO TO ALLOW THE SAME'. ACCORDING TO THE LD. AR, THE ABOVE CASE IS SQUARELY APPLICABLE, AS THE ASSESSEE HAS ALSO EXITED THE BUSINESS AS IT WAS UNABLE TO TURNAROUND THE COMPANY. WHEN THE ASSESSEE INVESTS I N SEVERAL COMPANIES, IT IS NATURAL THAT SOME BUSINESSES DO NO T MAKE PROFIT AND HENCE NEEDS TO BE EXITED. THE INVESTMENTS MADE BY COMPANY ARE YIELDING IN THE FORM OF INTEREST AS WEL L AS DIVIDEND, WHICH FACT WAS NOT APPRECIATED BY THE LEARNED AO. 4.1 AFTER CONSIDERING THE SUBMISSIONS OF THE LD. AR , THE CIT(APPEALS) OBSERVED THAT T HE CONTENTIONS RAISED DURING APPELLATE PROCEEDINGS ARE NOT ACCEPTABLE. IT IS SE EN FROM THE FACTS THAT EVEN ON THE DATE THAT THE SHARES WERE PU RCHASED BY THE ASSESSEE COMPANY AT THE RATE OF ` L0 PER SHARE FROM OUTSIDERS AND FROM COMPANY DIRECTLY, THE NET WORTH OF SUCH COMPANY WAS NEGATIVE. THE ASSESSEE COMPANY HAD DEC IDED TO - - ITA 2196/14 9 PURCHASE THE SHARES AT THE RATE OF ` L0 AT A TIME WHEN ITS BOOK VALUE WAS NEGATIVE. SUCH SHARES PURCHASED AT AN INF LATED VALUE HAVE BEEN SUBSEQUENTLY SOLD TO A RELATED PARTY VIZ, THE WIFE OF THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY FOR A MEAGRE AMOUNT OF AROUND 6 PARSE PER SHARE. SINCE LOSS IS ARISING OUT OF TRANSACTIONS BETWEEN RELATED PARTIES AND IN THE ABS ENCE OF EXPLANATION ON HOW THE VALUE OF ` 0.064 PER SHARE WAS DETERMINED, THE LOSS CLAIMED BY THE ASSESSEE WAS DISALLOWED BY THE AO. HOWEVER, BEFORE THE CIT(APPEALS) ALSO, THE AR HAS NOT OFFERED ANY EXPLANATION ON HOW THE VALUE OF ` 0.064 PER SHARE WAS DETERMINED. IN THE ABSENCE OF OFFERING ANY EXP LANATION TO SUBSTANTIATE THE LOSS INCURRED, THE CIT(APPEALS) HE LD THAT THE AO IS JUSTIFIED IN DISALLOWING THE LOSS CLAIMED BY THE ASSESSEE AND THIS GROUND IS DISMISSED. AGGRIEVED BY THIS, THE A SSESSEE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. AS NOTED BY THE CIT(APPEALS), THE ASSES SEE HAS PURCHASED SHARES AT THE RATE OF ` 10 PER SHARE FROM OUTSIDE AND ALSO FROM COMPANY DIRECTLY, WHEN THE NET WORTH OF T HE COMPANY WAS IN NEGATIVE. LATER THE SAME WAS SOLD TO THE WI FE OF THE - - ITA 2196/14 10 MANAGING DIRECTOR OF THE ASSESSEE COMPANY FOR A MEA GRE AMOUNT OF 6 PAISE PER SHARE. THE ASSESSEE HAS NOT BROUGHT ON RECORD ANY EVIDENCE, EVEN BEFORE US TO ESTABLISH TH AT THE LOSS WAS INCURRED BY THE ASSESSEE ON GENUINE REASON AND AS SUCH, THE SAME CANNOT BE SAID TO BE GENUINE LOSS. THE SA LE OF SHARES OF SUCH LOWEST PRICE IS SHOCKING CONSCIOUS OF THE B ENCH AND ALL HUMAN PROBABILITY SHOWS A PRUDENT PERSON NEVER TO S ELL THE SHARES AT SUCH A SALE PRICE, AS HELD BY THE SUPREME COURT IN THE CASES OF SUMATI DAYAL V. CIT ( 214 ITR 804) AND CIT V. DURGA PRASAD MORE (82 ITR 540). ACCORDINGLY, WE ARE INCL INED TO SAY THAT THIS LOSS CANNOT BE CONSIDERED AS CAPITAL LOSS SO AS TO ALLOW THE CLAIM OF THE ASSESSEE IN THE ABSENCE OF ANY PRO PER EXPLANATION TO SELL THE SHARE SUCH LOW PRICE. ACCO RDINGLY, THIS GROUND IS REJECTED. 6. THE NEXT GROUND IS THIS APPEAL IS THAT THE CIT(A PPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF ` 17,50,000/- WRITTEN OFF. 7. THE FACTS OF THIS ISSUE ARE THAT THE ASSESSE COMPANY HAS WRITTEN OFF IN THE BOOKS OF ACCOUNTS AN AMOUNT OF ` 17.50 LAKHS GIVEN AS ADVANCE TO M/S. SITA-GITA.COM LTD. THE SA ID SUM HAS - - ITA 2196/14 11 NOT BEEN ADDED BACK TO THE TAXABLE INCOME IN THE CO MPUTATION STATEMENT. THE ASSESSEE COMPANY HAD GIVEN ADVANCE TO ITS ERSTWHILE SUBSIDIARY COMPANY, VIZ., M/S. SITA-GITA. COM LTD AS LOAN SO AS TO HELP 'THE SAID COMPANY IN MEETING ITS WORKING CAPITAL REQUIREMENTS. SINCE THIS ADVANCE HAS BECOME IRRECOVERABLE, IT DECIDED TO WRITE IT OFF. THE AO OBSERVED THAT THE ASSESSEE COMPANY DOES NOT HAVE ANY BUSINESS REL ATIONS WITH THE COMPANY M/S. SITA-GITA.COM LTD. TO CLARIF Y FURTHER, THERE ARE NO PURCHASE OR SALE TRANSACTIONS OR TRANSACTION S IN THE NATURE OF PROVISION OF SERVICES BETWEEN THE ASSESSE E COMPANY AND M/S. SITA-GITA.COM LTD. ACCORDING TO THE AO, THE MONEY GIVEN BY THE ASSESSEE COMPANY TO M/S. SITA-GITA.COM LTD. IN THE ABOVE CIRCUMSTANCES SHOULD THEREFORE BE REGARDED AS A LOAN. THE WRITE OFF OF AN AMOUNT REPRESENTING LOAN GIVEN BY THE COMPANY SHOULD BE REGARDED AS A CAPITAL EXPENDITURE . THIS SUM ONLY REPRESENTS A LOSS OF CAPITAL WHICH DOES NOT HA PPEN IN THE NORMAL COURSE OF BUSINESS. THE AO FURTHER OBSERVED THAT THE ASSESSEE COMPANY IS NOT IN THE BUSINESS OF MONEY LE NDING. ONLY FOR SUCH ASSESSEES, WHICH ARE ENGAGED IN THE BUSINE SS OF MONEY-LENDING, LOSS ARISING OUT OF IRRECOVERABILITY OF A LOAN CAN - - ITA 2196/14 12 BE ALLOWED AS A REVENUE EXPENDITURE. ACCORDINGLY, THE AO CONCLUDED THAT THIS LOAN IS ON THE CAPITAL FIELD AN D THEREFORE, THE SAME IS DISALLOWED IN COMPUTING THE TOTAL INCOME. AGGRIEVED BY THIS, THE ASSESSEE WENT IN APPEAL BEFORE THE CIT(AP PEALS). 8. ON APPEAL, THE CIT(APPEALS) OBSERVED THAT THE A SSESSEE COMPANY HAS WRITTEN OFF IN THE BOOKS OF ACCOUNT AN AMOUNT OF ` 17.50 LAKHS GIVEN AS ADVANCE TO M/S. SITA-GITA.COM LTD. THE SAID SUM HAS NOT BEEN ADDED BACK TO THE TAXABLE INCOME IN THE COMPUTATION STATEMENT. THE ASSESSEE COMPANY HAD GIVEN ADVANCE TO ITS ERSTWHILE SUBSIDIARY COMPA NY VIZ., M/S.SITA-GITA.COM LTD AS LOAN SO AS TO HELP THE SAI D COMPANY IN MEETING ITS WORKING CAPITAL REQUIREMENTS. THE CIT( APPEALS) FURTHER OBSERVED THAT SINCE THIS ADVANCE HAS BECOME IRRECOVERABLE, THE ASSESSEE DECIDED TO WRITE IT OFF . ACCORDING TO HIM, THE ASSESSEE COMPANY DOES NOT HAVE ANY BUSINES S RELATIONS WITH THE COMPANY M/S.SITAGITA.COM LTD. A CCORDING TO THE CIT(APPEALS), THE MONEY GIVEN TO M/S. SITA-GIT A.COM LTD. IN THE ABOVE CIRCUMSTANCES SHOULD !THEREFORE BE REGARD ED AS A LOAN AND THE WRITE OFF OF AN AMOUNT REPRESENTING LO AN GIVEN BY THE COMPANY SHOULD BE REGARDED AS A CAPITAL EXPENDI TURE. THE - - ITA 2196/14 13 CIT(APPEALS) ALSO OBSERVED THAT THIS SUM ONLY REPRE SENTS A LOSS OF CAPITAL WHICH DOES NOT HAPPEN IN THE NORMAL COUR SE OF BUSINESS. THE ASSESSEE COMPANY IS NOT IN THE BUSINE SS OF MONEY LENDING. ONLY FOR SUCH ASSESSEES WHICH ARE ENGAGED IN THE BUSINESS OF MONEY-LENDING, LOSS ARISING OUT OF IRRECOVERABILITY OF A LOAN CAN BE ALLOWED AS A REVENUE EXPENDITURE. ACCORDINGLY, HE AGREED WITH THE FINDINGS OF THE AO AND CONCLUDED THAT SINCE THE ASSESSEE HAS NOT DISPUTED THE FACTS THAT IT DOE S NOT HAVE ANY BUSINESS RELATIONS WITH THE COMPANY M/S.SITA-GITA.C OM LTD, THE AMOUNT ADVANCED BY THE ASSESSEE HAS TO BE TREATED AS CAPIT AL EXPENDITURE AND THE AO IS JUSTIFIED IN ADDING BACK THE ADVANCES WRITTEN OFF OF ` 17 .50 LAKHS TO THE RETURNED INCOME. AGAINST THIS , THE ASSESSEE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MAT ERIAL ON RECORD. IT IS SEEN FROM THE FACTS OF THE CASE T HAT BAD DEBT COULD BE ALLOWED WHILE COMPUTING THE INCOME UNDER T HE HEAD INCOME FROM BUSINESS AND THE FOLLOWING CONDITION S ARE COMPLIED WITH, AS IS GIVEN IN SEC.36(1)(VII) AND 36 (2), WHICH READ AS UNDER: 36(1)(VII): SUBJECT TO THE PROVISIONS OF SUB-SECT ION (2), - - ITA 2196/14 14 THE AMOUNT OF [ANY BAD DEBT OR PART HEREOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR]: 36(2)(I) : NO SUCH DEDUCTION SHALL BE ALLOWED UNLES S SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOU S YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THERE OF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR, OR REPR ESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS O F BANKING OR MONEY LENDING WHICH IS CARRIED ON BY THE ASSESSEE. 10. IN THE PRESENT CASE, THE ASSESSEE WAS NOT ABLE TO ESTABLISH THAT THE LOAN WAS ADVANCED DURING THE NOR MAL COURSE OF BUSINESS CARRIED ON BY IT. THERE IS NO EVIDENCE TO SHOW THAT THE ASSESSEE WAS CARRYING ON MONEY LENDING BUSINESS AND MERELY BECAUSE, THE ASSESSEE ADVANCED THE MONEY TO ITS SISTER CONCERN, IT CANNOT BE SAID THAT THE ASSESSEE IS CAR RYING ON MONEY LENDING BUSINESS. THEREFORE, NON-RECOVERY OF THAT LOAN CANNOT BE TREATED AS BUSINESS LOSS. THIS IS NOT AN ADVANCE GIVEN TO M/S. SITA-GITA.COM LTD. IN ORDINARY COURSE OF BUSINESS OF THE ASSESSEE. IN OTHER WORDS, THOUGH IT WAS TRE ATED AS AN ADVANCE, IT WAS NOT GONE INTO THE COMPUTATION OF IN COME WHILE COMPUTING THE INCOME OF THE ASSESSEE. AT BEST, IT COULD BE ADVANCED IN THE CAPITAL FIELD. BEING SO, THE LOSS OF CAPITAL CANNOT BE ALLOWED AS AN EXPENDITURE, WHEN IT BECAME BAD AN D - - ITA 2196/14 15 THEREAFTER, WRITTEN OFF. ADVANCE OF LOANS TO A SIS TER CONCERN OR A SUBSIDIARY COMPANY CANNOT BE SAID TO BE FOR THE PUR POSE OF BUSINESS. IT IS TRUE THAT, THE ASSESSEE IS ENTITLE D TO WRITE OFF OF DEBT IN A YEAR IN WHICH THE ASSESSEE FEELS THAT DEB T BECOMES IRRECOVERABLE. HOWEVER, IT CANNOT BE SAID THAT IT IS AN ADVANCE MADE IN NORMAL COURSE OF BUSINESS OF THE ASSESSEE A ND ALSO THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE TO SHOW THAT THE LOAN WAS ADVANCED IN THE NORMAL COURSE OF BUSINESS. HEN CE, THE MANDATORY CONDITIONS OF SEC.36(2) HAVE NOT FULFILLE D FOR A CLAIM OF BAD DEBT. IN OUR OPINION, THESE CONDITIONS HAVE NO T BEEN FULFILLED BY THE ASSESSEE AND THEREFORE, WE HOLD THAT THE CIT (APPEALS) IS JUSTIFIED IN CONFIRMING THE ADDITION MADE TOWARDS B AD DEBT. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED ON WEDNESDAY THE 12TH OF AUGUST, 2015 AT CHENNAI. SD/- SD/- ( $% &'( ) ) ( $ ( * + ) ,-.//.0.12345.65.7.48 ,-.345.699:.5 ;8 ' )< /JUDICIAL MEMBER ! )<=>>9?3@.3@A2BC25 $' /CHENNAI, D) /DATED, THE 12 TH AUGUST, 2015. MPO* - - ITA 2196/14 16 )E FGHG /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. I8 /CIT(A) 4. I /CIT 5. GJ& K /DR 6. &LM /GF.