AVISTA CORPORATE FINANCE ADVISORY P.LTD, MUMBAI V. ITO 3(1)(1), MUMBAI

ITA 3078/MUM/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 8850 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 5 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 19-04-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 115JB; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH A BENCH BEFORE SHRI B.R.MITTAL(JUDICIAL MEMBER) AND SHRI B.RAMOKOTAIAH (ACCOUNTANT MEMBER) ITA NO.3078/MUM/2011 ASSESSMENT YEAR: 2004-05 AVISTA CORPORATE FINANCE ADVISORY PVT LTD., 706, MAKER CHAMBERS-V, NARIMAN POINT, MUMBAI-400 021 PA NO.AACCC 0111B ITO 3(1)(10, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI. (APPELLANT) VS. (RESPONDENT) APPELLANT BY : SHRI NIRAJ SHETH RESPONDENT BY: MS NEERAJA PRADHAN DATE OF HEARING: 30.8.2012 DATE OF PRONOUNCEMENT: 26 .9.2012 ORDER PER B.R.MITTAL, JM: THE ASSESSEE HAS FILED THIS APPEAL FOR ASSESSMENT YEAR 2004-05 AGAINST ORDER DATED 9.2.2011 OF LD CIT(A)-7, MUMBAI ON FOLLOWING GROUNDS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY AO IN RESPECT OF IRRECOVERABLE ADVANCES OF RS.5,677,904 MADE TO CFL IN THE COURSE OF ITS BUSINESS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD CIT(A) HAS ERRED IN SUSTAINING THE LEVY OF INTEREST UNDER SECTION 234C OF THE I.T.ACT, 1961. 2. IN RESPECT OF GROUND NO.1 OF APPEAL, RELEVANT FA CTS ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDING CORPORATE FINANCE ADVI SORY SERVICES BASICALLY RELATED TO PREPARATION OF PRESENTATIONAL MATERIAL INCLUDING IN FORMATION MEMORANDUMS/PLACEMENT DOCUMENTS, STRUCTURING OF PROJECTS AND LIASIONING WITH INSTITUTIONS/INVESTORS/BANKS WITH A VIEW TO HELP COMPANIES/CLIENTS RAISE NECESSARY RE SOURCES FOR THEIR BUSINESS/EXPANSION NEEDS. THE ASSESSEE FILED RETURN OF INCOME DECLARI NG TOTAL LOSS OF RS.14,53,436. ITA NO.3078/MUM/2011 ASSESSMENT YEAR: 2004-05 2 ASSESSEE DECLARED INCOME AT RS42,24,550 AS PER PROV ISIONS OF SECTION 115JB OF THE I.T.ACT. ASSESSEE CLAIMED DEDUCTION OF IRRECOVERAB LE ADVANCES WRITTEN OFF OF RS.56,77,904 IN THE COMPUTATION OF INCOME FILED ALO NGWITH THE RETURN OF INCOME. ASSESSEE STATED THAT IT ENTERED INTO A MEMORANDUM O F UNDERTAKING (MOU) WITH M/S. CREDENTIAL FINANCE LTD. (CFL) TO SOURCE MANDATES AN D TRANSACTIONS FOR THE COMPANY IN CONSIDERATION OF FEES/BROKERAGE AS CFL HAD GOOD CON TACTS WITH VARIOUS MID & SMALL SIZE CORPORATES. ASSESSEE COMPANY STATED THAT IT WAS MA KING ON ACCOUNT PAYMENTS TO CFL FOR ITS CONTINUED SERVICES AND THE BROKERAGE WAS AD JUSTED AGAINST THIS ADVANCE. IT IS STATED THAT AT THE END OF FINANCIAL YEAR 2001-02, T HERE WAS AN ADVANCE WITH CFL OF RS.56,77,903. A WINDING UP PETITION WAS FILED DURI NG THE FINANCIAL YEAR 2002-03 AGAINST CFL DUE TO LIQUIDITY PROBLEMS AND THE HONBLE HIGH COURT APPOINTED AN OFFICIAL LIQUIDATOR. SINCE THE ADVANCES WERE NOT RECOVERED, THE SAME WERE WRITTEN OFF AND CLAIMED AS DEDUCTION. THE AO CONSIDERED THE SUBMIS SIONS OF ASSESSEE AND STATED THAT ASSESSEE HAS CLAIMED DEDUCTION OF ADVANCES WRITTEN OFF. HE STATED THAT AS PER PROVISIONS OF SECTION 36(1)(VII) R.W. S. 36(2), THE DEDUCTION FOR WRITTEN OFF OF BAD DEBTS COULD BE ALLOWED ONLY IF THE DEBT HAD BEEN TAKEN IN TO ACCOUNT WHILE COMPUTING THE INCOME OF THE ASSESSEE IN ANY EARLIER YEAR. FURTHE R, THE ADVANCES/LOANS CAN BE ALLOWED TO BE WRITTEN OFF IN CASES OF ASSESSES WHO ARE INVO LVED/ENGAGED IN THE BUSINESS OF BANKING OR MONEY LENDING. AO STATED THAT NEITHER T HE SAID AMOUNT CLAIMED TO BE WRITTEN OFF AS BAD DEBT HAD BEEN TAKEN INTO IN COMP UTING THE INCOME OF THE ASSESSEE IN EARLIER YEAR NOR ASSESSEE IS IN THE BUSINESS OF BAN KING OR MONEY LENDING. HENCE, CLAIM OF THE ASSESSEE DOES NOT FALL WITHIN THE AMBIT OF P ROVISIONS OF SECTION 36(1)(VII) R.W. S 36(2) OF THE ACT. AO FURTHER STATED THAT THERE IS NO EVIDENCE ON RECORD TO MAKE SUCH ADVANCES GIVEN TO CFL WAS INCIDENTAL TO BUSINESS. AO HAS STATED THAT CFL WAS MORE OR LESS INVOLVED IN FUND RAISING BY BILL DISCOUNTING. ASSESSEE HAS NOT GIVEN ANY ADVANCE FOR THIS PURPOSE BUT FOR CANVASSING BUSINESS TRANSACTIO NS ON BROKERAGE OR FEES BASIS. HENCE, SAID ADVANCE CANNOT BE SAID TO HAVE BEEN GIV EN TO CFL IN THE NORMAL COURSE OF BUSINESS ACTIVITY. AO AFTER CONSIDERING CASES CITE D BY ASSESSEE BEFORE HIM HELD THAT THE IMPUGNED AMOUNT OF RS.56,77,903 IS PURELY ON CAPITA L ACCOUNT AND NOT ALLOWABLE AS A REVENUE LOSS OR EXPENDITURE. ACCORDINGLY, CLAIM OF THE ASSESSEE OF RS.56,77,903 WAS DISALLOWED BY THE AO. BEING AGGRIEVED, ASSESSEE FI LED APPEAL BEFORE LD CIT(A). ITA NO.3078/MUM/2011 ASSESSMENT YEAR: 2004-05 3 3. LD CIT(A) HAS CONFIRMED THE ACTION OF AO. HE H AS STATED THAT THE APPOINTMENT OF OFFICIAL LIQUIDATOR FOR CFL DOES NOT MAKE ANY DI FFERENCE AS IT ONLY CONFIRMS THE PLEA OF THE ASSESSEE THAT THE AMOUNT IS NOT RECOVERABLE. T HE SAID AMOUNT IS NOT A GENUINE ALLOWABLE BUSINESS LOSS TO THE ASSESSEE. HE HAS FU RTHER STATED THAT IT CANNOT BE CONSIDERED AS NORMAL BUSINESS PRACTICE TO GIVE ADVA NCE FOR BROKERAGE. A BUSINESS ENTITY GIVES BROKERAGE ON EARNING AN INCOME THROUGH A BROK ER AND THE BROKERAGE IS GIVEN AFTER EARNING SUCH INCOME. LD CIT(A) HAS HELD THAT ADVAN CE WAS NOT PART OF REGULAR BUSINESS ACTIVITY OF THE ASSESSEE. HENCE, ASSESSEE IS IN FU RTHER APPEAL BEFORE THE TRIBUNAL. 4. AT THE TIME OF HEARING, LD A.R. MADE HIS SUBMISS IONS ON THE LINES OF SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HE SUBMITTED TH AT ASSESSEE GOT BUSINESS THROUGH CFL AND REFERRED PAGES 166 TO 168 OF PB. HE SUBMIT TED THAT IN THE FINANCIAL YEAR 2000- 2001 RELEVANT TO A.Y. 2001-02, ASSESSEE PAID BROKER AGES OF RS.55,70,231 TO CFL. IN THE FINANCIAL YEAR 2001-02, RELEVANT TO ASSESSMENT YEAR 2002-03, ASSESSEE PAID BROKERAGE OF RS.9,11,200. HE SUBMITTED THAT ASSESSEE MADE AD VANCE IN FINANCIAL YEAR 2001-02 TO CFL OF RS.56,77,903 OVER AND ABOVE BROKERAGE OF RS. 55,70,231 PAID TO CFL. HE SUBMITTED THAT THE SAID ADVANCE COULD NOT BE RECOVE RED AS THE OFFICIAL LIQUIDATOR WAS APPOINTED ON 7.3.2003. LD A.R. SUBMITTED THAT THE ADVANCE WAS GIVEN IN THE NORMAL COURSE OF BUSINESS ACTIVITY TO CFL. HENCE, NON-REC OVERY OF THE SAID ADVANCE IS NORMAL BUSINESS LOSS TO THE ASSESSEE AND SAME SHOULD BE AL LOWED AS DEDUCTION. TO SUBSTANTIATE HIS SUBMISSION, HE RELIED ON THE FOLLO WING DECISIONS: I) CIT VS CRESCENT FILMS (P) LTD., 248 ITR 670(MAD); II) CIT VS. F.M.CHINOY & CO. LTD., 74 ITR 780(BOM); III) CIT VS. M/S. DCM SHRIRAM CONSOLIDATED LTD(2012-TIOL -577-HC-DEL-IT. LD A.R. SUBMITTED THAT THE SUM WRITTEN OFF BE ALLOW ED AS BUSINESS LOSS TO THE ASSESSEE. 5. ON THE OTHER HAND, LD D.R. SUPPORTED THE ORDERS OF AUTHORITIES BELOW. HE SUBMITTED THAT ASSESSEE CLAIMED THE SAID AMOUNT AS BAD DEBT BUT CONDITIONS LAID DOWN UNDER SECTION 36(2) OF THE ACT ARE NOT SATISFIED. SHE FURTHER SUBMITTED THAT THE AMOUNT WRITTEN OFF CANNOT BE ALLOWED AS BUSINESS LOSS BECA USE ASSESSEE HAS NOT GIVEN ADVANCE ITA NO.3078/MUM/2011 ASSESSMENT YEAR: 2004-05 4 IN ITS NORMAL ACTIVITY OF BUSINESS. SHE SUBMITTED THAT ASSESSEE IS NOT IN THE MONEY LENDING BUSINESS. SHE SUBMITTED THAT ORDERS OF AUT HORITIES BELOW BE CONFIRMED AND CASES CITED BY LD A.R. ARE NOT APPLICABLE TO THE F ACTS OF THE CASE. 6. WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTAT IVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. WE HAVE ALSO GONE THROUGH THE C ASES CITED BY LD A.R. IT IS A FACT THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVIDI NG CORPORATE FINANCE ADVISORY SERVICES BASICALLY RELATED TO PREPARATION OF PRESEN TATIONAL MATERIAL INCLUDING INFORMATION MEMORANDUMS/PLACEMENT DOCUMENTS, STRUCTURING OF PRO JECTS AND LIASIONING WITH INSTITUTIONS/INVESTORS/BANKS WITH A VIEW TO HELP CO MPANIES/CLIENTS RAISE NECESSARY RESOURCES FOR THEIR BUSINESS/EXPANSION NEEDS. ASSE SSEE STATED THAT IT ENTERED INTO A MOU WITH CFL AS CFL HAD GOOD CONTACTS TO INTRODUCE CLIENTS TO THE ASSESSEE. WE OBSERVE THAT ASSESSEE ENTERED INTO AN UNDERSTANDING IN THE FINANCIAL YEAR 2000-2001. IT IS OBSERVED THAT ASSESSEE PAID BROKERAGE TO CFL OF RS.55,77,231. IT IS THE FIRST YEAR OF THE SAID MOU ENTERED INTO BY THE ASSESSEE WITH CFL. LD A.R. SUBMITTED THAT IT GAVE ADVANCE OF RS.56,77,903 TO CFL IN FINANCIAL YEAR 20 01-02 OVER AND ABOVE BROKERAGE OF RS.9,22,200 FOR THE BUSINESS RECEIVED. NO DOCUMENT S HAVE BEEN PLACED ON RECORD THAT THE SAID ADVANCE OF RS.56,77,903 WAS GIVEN BY THE A SSESSEE TO CFL IN THE ORDINARY COURSE OF ITS BUSINESS ACTIVITY OR IT WAS JUST AN A CCOMMODATION PROVIDED BY THE ASSESSEE TO CFL. WE OBSERVE THAT THE OFFICIAL LIQUIDATOR WA S APPOINTED ON 7.3.2002 IN A WINDING PETITION NO.265/1997. HENCE, THE YEAR IN WHICH ASS ESSEE ENTERED INTO MOU WITH CFL AND/OR THE YEAR IN WHICH SAID ADVANCE OF RS.56,77,9 03 WAS GIVEN TO CFL; CFL WAS IN FINANCIAL PROBLEM AND WAS FACING WINDING UP PROCEED INGS BEFORE THE HONBLE HIGH COURT. THE ABOVE FACTS CLEARLY ESTABLISH THAT THE SAID ADV ANCE WAS GIVEN BY THE ASSESSEE TO CFL NOT IN THE ORDINARY COURSE OF ITS BUSINESS BUT AS A N ACCOMMODATION ADVANCE TO CFL. NO DOCUMENTS HAVE BEEN PLACED ON RECORD FOR GIVING SUC H ADVANCE TO CFL PARTICULARLY WHEN ASSESSEE HAS PAID BROKERAGE OF RS.9,11,200 TO CFL S EPARATELY FOR THE BUSINESS IT RECEIVED FROM CFL. CONSIDERING THE FACTS, WE ARE OF THE CONSIDERED VIEW THAT THE SAID ADVANCE WAS GIVEN BY THE ASSESSEE TO CFL NOT IN THE ORDINARY COURSE OF ITS BUSINESS BUT AS AN ACCOMMODATION FOR THE REASONS NOT SUBSTANTIAT ED BY ANY DOCUMENTARY EVIDENCE ON RECORD, PARTICULARLY WHEN CFL WAS FACING WINDING PROCEEDINGS BEFORE THE HONBLE HIGH COURT. THE CASE RELIED UPON BY LD A.R. OF HON BLE MADRAS HIGH COURT IN THE CASE OF CIT VS CRESCENT FILMS (P) LTD (SUPRA) IS NOT RELEV ANT TO THE CASE BEFORE US. WE ITA NO.3078/MUM/2011 ASSESSMENT YEAR: 2004-05 5 OBSERVE THAT IN THE SAID CASE, THE MONEY WAS LENT B Y THE ASSESSEE TO A FILM PRODUCER TO ENABLE HIM TO COMPLETE THE FILM. THE MONEY WAS LEN T BY AN ARRANGEMENT. IN THAT CASE, IT WAS HELD THAT IT WAS A TRADING LOSS AND ASSESSEE WAS ENTITLED TO DEDUCTION U/S.37 OF THE I.T.ACT. IN THE CASE BEFORE US, NO FACTS HAVE BEEN BROUGHT ON RECORD THAT ASSESSEE ADVANCED A SUM OF RS.56,77,903 TO CFL IN CONNECTION WITH ANY BUSINESS BENEFIT TO THE ASSESSEE WHICH BECAME IRRECOVERABLE. 7. SIMILARLY THE CASE OF HONBLE BOMBAY HIGH COURT IN THE CASE OF F.M.CHINOY & CO. LTD (SUPRA) IS NOT APPLICABLE AS IN THAT CASE, ASS ESSEE WAS CARRYING ON BUSINESS TO ACT AS MANAGING AGENTS TO VARIOUS COMPANIES. THE ASSES SEE WAS APPOINTED BY AN AGREEMENT AS MANAGING AGENTS OF A COMPANY FOR A PER IOD OF 20 YEARS AND PURSUANT TO THIS AGREEMENT, ASSESSEE MADE ADVANCE OF MONEY TO T HE SAID COMPANY FROM TIME TO TIME. ASSESSEE ALSO STOOD GUARANTOR FOR CERTAIN LO ANS ADVANCED BY BANKS TO THE SAID COMPANY. THE SAID COMPANY BECAME IN FINANCIAL DIFF ICULTY AND ULTIMATELY WENT INTO LIQUIDATION AND THE ASSESSEE WRITTEN OFF THE AMOUNT IN THEIR BOOKS OF ACCOUNT. IN THAT CONTEXT, IT WAS HELD THAT ASSESSEE COMPANY INCURRED LOSS IN THE COURSE OF ITS BUSINESS AND THE LOSS WAS DEDUCTIBLE. IN THE CASE BEFORE US , IT IS NOT THE CASE THAT ASSESSEE COMPANY GAVE ADVANCE TO CFL FOR THE PURPOSE OF ANY BUSINESS ACTIVITY AS NO DOCUMENTS HAVE BEEN PLACED ON RECORD. WE HAVE HELD THAT ASSE SSEE HAD GIVEN ADVANCE TO CFL JUST TO ACCOMMODATE CFL AND HENCE, WRITTEN OFF CANNOT BE SAID TO BE A BUSINESS LOSS TO THE ASSESSEE WHICH COULD BE ALLOWED U/S.37 AND/OR 28 OF THE ACT. 8. SIMILARLY THE CASE OF HONBLE DELHI HIGH COURT I N THE CASE OF M/S. DCM SHRIRAM CONSOLIDATED LTD (SUPRA) IS NOT APPLICABLE TO THE F ACTS OF THE CASE AS IN THAT CASE ASSESSEE MADE ADVANCE TO SUPPLIER OF RAW MATERIALS FOR UNINTERRUPTED SUPPLY. ASSESSEE FAILED TO RECOVER THE ADVANCE GIVEN AND IN THAT CON TEXT, IT WAS HELD THAT THE SAID AMOUNT WAS A BUSINESS LOSS WHICH WAS ALLOWABLE U/S.28 OF T HE ACT. 9. IN VIEW OF ABOVE, WE HOLD THAT LD CIT(A) HAS RIG HTLY HELD THAT THE CLAIM OF THE ASSESSEE TO WRITE OFF THE ADVANCE OF RS.56,77,903 M ADE TO CFL IS NOT ALLOWABLE AS DEDUCTION EITHER UNDER SECTION 36(1)(VII) OR U/S.37 OR U/S 28 OF THE ACT. HENCE, WE UPHOLD THE ORDER OF LD CIT(A) BY REJECTING GROUND N O.1 TAKEN BY ASSESSEE. ITA NO.3078/MUM/2011 ASSESSMENT YEAR: 2004-05 6 10. IN RESPECT OF GROUND NO.2 OF APPEAL, NO SUBMISS IONS WERE MADE BY LD A.R. HENCE, GROUND NO.2 OF APPEAL IS REJECTED. 11. IN THE RESULT, APPEAL FILED BY ASSESSEE IS DISM ISSED. PRONOUNCED IN THE OPEN COURT ON 26 TH SEPTEMBER, 2012 SD/- (B.RAMAKOTAIAH) ACCOUNTANT MEMBER SD/- (B.R. MITTAL) JUDICIAL MEMBER MUMBAI, DATED 26 TH SEPTEMBER, 2012 PARIDA COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER OF INCOME TAX (APPEALS)7,, MUMBAI 4. COMMISSIONER OF INCOME TAX, 3 , MUMBAI 5. DEPARTMENTAL REPRESENTATIVE, BENCH A MUMBAI //TRUE COPY// BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI