THE TAINWALA CHEMICALS AND PLASTICS INDIA LTD, MUMBAI V. CIT(A) XXXIX/ACIT 8(3), MUMBAI

ITA 3338/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 48702 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 11 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 08-03-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 13-05-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SANJIV DUTT
• Assessee Lawyers: SAJJAN KUMAR TULSIYAN
• Keywords: Capital asset; Business income; Retrospective amendment; Question of law; Cost of acquisition; Fair market value; Bad and doubtful debts
• Section: 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH BEFORE SHRI T.R.SOOD, ACCOUNTANT MEMBER & SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER I.T.A.NO.3338/MUM/2008 A.Y 2004-05 TAINWALA CHEMICALS & PLASTICS INDIA LIMITED, TAINWALA HOUSE, OPP. PLOT NO.118, ROAD NO.18, MIDC, MAROL, ANDHERI (E), MUMBAI 400 093. PAN: AAACT 0212 C VS. ASST. COMMISSIONER OF I.T. 8(3), MUMBAI. (APPELLANT) (RESPONDENT) AND I.T.A.NO.3250/MUM/2008 A.Y 2004-05 ASST. COMMISSIONER OF I.T. 8(3), MUMBAI VS. TAINWALA CHEMICALS & PLASTICS INDIA LIMITED, MUMBAI. APPELLANT BY : S/SHRI SAJJAN KUMAR TULSIYAN & SHASHI TULSIYAN. RESPONDENT BY : SHRI SANJIV DUTT. O R D E R PER T.R.SOOD, AM: THESE CROSS APPEALS ARE HEARD TOGETHER AND DISPOSE D OF BY THIS COMMON ORDER. 2. I.T.A.NO.3338/M/08 [ASSESSEES APPEAL] : IN THIS APPEAL VARIOUS GROUNDS HAVE BEEN RAISED OUT OF WHICH GROUND NO.4 W AS NOT PRESSED AND, THEREFORE, SAME IS DISMISSED AS NOT PRESSED. G ROUND NO.1 IS OF GENERAL NATURE AND DOES NOT REQUIRE SEPARATE ADJUDI CATION. THE OTHER GROUNDS RAISED ARE AS UNDER: 2. THE C.I.T. APPEAL ERRED IN MAKING DISALLOWANCE U/S.14A OF THE I.T.ACT 1961 AN ADHOC BASIS AT THE RATE OF 5% OF TH E DIVIDEND INCOME AGGREGATING TO ` `` ` .1,07,882/-. 2 3. THE C.I.T. APPEAL ERRED IN DISALLOWING LONG TERM CAPITAL LOSS OF ` `` ` .3,06,75,158/- ON SURMISE, CONJECTURE AND GUESS WOR K THAT THE SALE IS EXECUTED BY MANAGEMENT TO CREATE THE LONG TERM CAP ITAL LOSS WHICH CAN BE ADJUSTED IN FUTURE AGAINST CAPITAL GAIN IF A NY. THESE APPEALS WERE ORIGINALLY HEARD ON 8-2-1011 AND ON THAT DATE THE LD.DR SOUGHT PERMISSION TO FILE WRITTEN SU BMISSIONS WITH A WEEK, WHICH WERE ULTIMATELY FILED ON 14-3-2011 IN W HICH AN ISSUE WAS ALSO RAISED REGARDING SOME PAPER BOOK CONTAINING 10 6 PAGES AND IT WAS SUBMITTED THAT ALL THESE DOCUMENTS WERE NOT FIL ED BEFORE THE AO. THEREFORE, TO CLARIFY THE SITUATION, THE MATTER WAS AGAIN PUT FOR HEARING FOR CLARIFICATION AND THE APPEALS WERE FINALLY HEAR D ON 25-3-2011. AS FAR AS THE ISSUE RAISED REGARDING BIG PAPER BOO K VIDE PARA 5.4 OF THE WRITTEN SUBMISSIONS OF THE LD.DR IS CONCERNE D, LD.COUNSEL OF THE ASSESSEE SUBMITTED THAT THESE ARE BASICALLY BALANCE -SHEET AND COMPUTATION OF INCOME OF EARLIER YEARS WHICH HAVE B EEN FILED IN EARLIER YEARS AND THESE PAPERS HAVE BEEN FILED TO PROVE A P OINT THAT THE ASSESSEE HAD ACCOUNTED FOR INTEREST ON THE LOAN GIV EN TO TAINWALA HOLDINGS PVT. LTD. THESE DOCUMENTS ARE PART OF THE RECORD OF THE REVENUE FOR EARLIER YEARS. AT THIS JUNCTURE, LD.DR SUBMITTED THAT IN ANY CASE COPY OF THE MINUTES OF THE BOARD MEETING WERE NOT FILED EARLIER. THE LD.COUNSEL OF THE ASSESSEE RESPONDED THAT IN TH AT CASE THIS PAPER MAY NOT BE CONSIDERED. BOTH THE PARTIES ALSO MADE C ERTAIN ARGUMENTS WITH REFERENCE TO THE WRITTEN SUBMISSIONS WHICH HAV E BEEN CONSIDERED BY US WHILE ADJUDICATING THE RESPECTIVE GROUNDS. 3. GROUND NO.2 : AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD EARNED DIVIDEND INCOME AND, THEREFORE, ASSESSEE COMPANY WAS ASKED W HY EXPENSES 3 ATTRIBUTABLE TO SUCH DIVIDEND INCOME SHOULD NOT BE DISALLOWED. IT WAS MAINLY SUBMITTED THAT ASSESSEE HAS NOT INCURRED ANY EXPENSES FOR EARNING THIS INCOME. HOWEVER, AO OBSERVED THAT ASSE SSEE MUST HAVE INCURRED AT LEAST 10% OF EXPENSES AND, THEREFORE, D ISALLOWED A SUM OF ` `` ` .2,15,L764/- U/S.14A. THE ACTION OF THE AO HAS BEEN CONFIRMED BY THE LD. CIT[A]. 4. BOTH THE PARTIES HAVE BEEN HEARD. 5. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIND THAT THIS ISSUE HAS BEEN RECENTLY DECIDED BY THE HON'BLE BOMBAY HIG H COURT IN THE CASE OF GODREJ & BOYCE MFG. CO.LTD. VS. DCIT [43 DT R 171], WHEREIN IT HAS BEEN HELD THAT ONLY A REASONABLE EXPENDITURE SH OULD BE DISALLOWED AFTER EXAMINING THE NATURE OF EXPENDITURE. THEREFOR E, WE SET ASIDE THE ORDER OF THE LD. CIT[A] AND REMIT THE MATTER BACK T O THE FILE OF THE AO WITH A DIRECTION TO DECIDE THE SAME IN THE LIGHT OF THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO.LTD. VS. DCIT [SUPRA]. 6. GROUND NO.3: AFTER HEARING BOTH THE PARTIES, WE FIND THAT DURING ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAD MADE A CLAIM FOR LONG TERM CAPITAL LOSS AMOUNTING TO ` `` ` .3,06,75,158/-, DETAILS OF WHICH ARE AS UNDER: NAME OF THE SCRIPT NO. OF SHARES PURCHASE DETAIL INDEXED COST SALE VALUE PROFIT/ (LOSS) YEAR AMOUNT TAINWALA POLYCONTAINERS LTD. 132000 1999-00 264000 314221 141240 (172981) TAINWALA POLYCONTAINERS LTD. 400000 1994-95 4000000 7150579 784000 (6366579) LARSEN & TOUBRO LTD. 200 1994-95 57120 102110 57854 (44256) 4 SAMSONITE INDIA LTD. 2500000 1996-97 2500000 37950820 25000000 (12950820) TAINWALA TRADING & INVESTMENT CO.LTD. 36796 1994-95 3679600 6577818 36796 (6541022) CONCEPT REALITY & SECURITIES LTD. 305000 1996-97 3050000 46300000 30500 (4599500) TOTAL 3373996 13550720 56725548 26050390 (30675158) IN RESPONSE TO THE QUERY WHY THIS LOSS SHOULD NOT B E DISALLOWED, THE ASSESSEE FILED ITS REPLY VIDE LETTER DATED 17-11-20 06 WHICH IS AS UNDER: DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE H AS SOLD CERTAIN QUOTED AS WELL AS UNQUOTED SHARES. THE UNQUOTED SHA RES HAVE BEEN SOLD AFTER TAKING INTO ACCOUNT THE NET WORTH OF THESE SH ARES AS PER THE LATEST AVAILABLE AUDITED FINANCIAL STATEMENTS I.E. FOR THE YEAR ENDED 31-03- 2003. COMPUTATION OF THE NET WORK FOR THE UNQUOTED SHARES ALONG WITH A COPY OF THE BALANCE SHEET IS ATTACHED AS PER ANNEXURE 1 ON A REVIEW OF THE COMPUTATION OF THE NET WORTH YOU SHALL OBSERVE THAT THE SHARES HAVE BEEN SOLD AT A PRICE HIGHER THAN TH E NET INTRINSIC VALUE OF THE UNQUOTED SHARES. AO AFTER EXAMINING THE REPLY OBSERVED THAT UNQUOTED SHARES OF THE GROUP COMPANIES WERE SOLD AT COST PRICE AND THE LOS S HAS BEEN INCURRED MAINLY DUE TO INDEXATION OF THE COST PRICE . HE ALSO OBSERVED THAT SUCH SHARES WERE MAINLY SOLD TO THE GROUP COMP ANIES ONLY, WHEREIN THE FAMILY MEMBERS HAD SUBSTANTIAL INTEREST . HE OBSERVED THAT THESE TRANSACTIONS HAVE NOT TAKEN PLACE IN THE NORM AL COURSE OF BUSINESS, BUT HAVE BEEN PLANNED BY THE ASSESSEE ONL Y TO GENERATE LONG TERM CAPITAL LOSS. HE ALSO OBSERVED THAT ASSESSEE C OMPANY, FOR EXAMPLE, SOLD SHARES AMOUNTING TO ` `` ` .2,60,50,000/- TO KATAYAN CONSTRUCTION & DEVELOPERS LTD. AND ON VERIFICATION OF LIST OF LOANS AND ADVANCES IT WAS SEEN THAT ACCOUNT OF THIS PARTY WAS SHOWN OF CREDIT 5 BALANCE OF ` `` ` .2.50 CRORES WHICH MEANS THE SALE CONSIDERATION HAS NOT BEEN RECEIVED BY THE ASSESSEE. IT WAS ALSO NOTED TH AT ASSESSEE HAS ALREADY WRITTEN OFF PROVISION OF DOUBTFUL DEBTS AMO UNTING TO ` `` ` .1,90,51,000/- IN RESPECT OF KATAYAN CONSTRUCTION & DEVELOPERS LTD. WHEN THAT PARTY HAD ALREADY BECOME DOUBTFUL, HOW TH E SHARES COULD BE SOLD ON CREDIT TO SUCH A PARTY. HE ALSO REFERRED TO THE PROVISIONS OF SALE OF GOODS ACT, 1930 AND OBSERVED THAT A CONTRAC T OF SALE WOULD BE COMPLETED WHEN THE PRICE HAS BEEN RECEIVED WHICH HA S NOT BEEN DONE SO IN THE PRESENT CASE AND SALE OF SHARES WAS DONE IN THE MONTH OF JUNE WHEREAS CONSIDERATION WAS NOT RECEIVED EVEN TI LL THE END OF MARCH, 2004. IN THIS BACKGROUND, THE CAPITAL LOSS C LAIMED BY THE ASSESSEE WAS DISALLOWED. 7. BEFORE THE CIT[A] IT WAS MAINLY ARGUED THAT SALE S WERE EFFECTED DURING THE RESTRUCTURING OF THE COMPANY IN WHICH IT WAS DECIDED TO REDUCE THE INVESTMENT IN NON CORE BUSINESS SO AS TO IMPROVE OVER ALL EFFICIENCY OF THE MANAGEMENT. THE ASSESSEE WAS A LI MITED COMPANY AND LISTED IN THE STOCK EXCHANGE AND COULD NOT HAVE POSSIBLY CREATED PAPER LOSS IN VIEW OF THE RESTRICTIONS IMPOSED BY T HE SEBI. IT WAS ALSO POINTED OUT THAT PROVISION FOR DOUBTFUL DEBT WAS IN THE CASE OF TAINWALA HOLDINGS PVT. LTD. AND NOT AGAINST THE NAM E OF KATAYAN CONSTRUCTION & DEVELOPERS LTD. AS OBSERVED BY THE A O. SOME OF THE SHARES WERE SOLD THROUGH STOCK EXCHANGE AND, THEREF ORE, THE LOSS WAS GENUINE. 8. THE LD. CIT[A] AFTER EXAMINING THE SUBMISSIONS D ID NOT FIND FORCE IN THE SAME AND CONFIRMED THE ADDITION ON THE REASONING GIVEN 6 BY THE AO. HE ALSO OBSERVED THAT SOME OF THE SHARES WERE STATED TO BE SOLD AT THE RATE MORE THAN INTRINSIC VALUE, BUT THA T WAS NOT CORRECTLY DONE BECAUSE VALUE OF THE LAND AND BUILDING WAS TAK EN ON THE BASIS OF BOOK VALUE. 9. BEFORE US LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY IS A PUBLIC LIMITED COMPANY IN WHI CH PUBLIC ARE SUBSTANTIALLY INTERESTED AND IS ALSO A LISTED COMPA NY IN THE BOMBAY STOCK EXCHANGE (BSE) AS WELL AS NATIONAL STOCK EXCH ANGE (NSE). THIS MEANS MOST OF THE TRANSACTIONS HAVE TO BE CARRIED O N ONLY AS PER THE SEBI REGULATIONS AND IT IS NOT POSSIBLE JUST TO ENT ER INTO PAPER TRANSACTIONS. HE SUBMITTED THAT THE ASSESSEE COMPAN Y HAD INVESTED IN SHARES OF VARIOUS COMPANIES AND IN ORDER TO RESTRUC TURE THE WHOLE COMPANY SO AS TO IMPROVE THE EFFICIENCY AND TO CONC ENTRATE ONLY ON CORE BUSINESS, IT WAS DECIDED TO DISPOSE OF THE SHA RES OF QUOTED AS WELL AS UNQUOTED COMPANIES. THIS DECISION WAS TAKEN IN THE BOARD MEETING HELD ON 26-04-2003 AND A COPY OF THE RESOLU TION HAS BEEN FILED AT PAGE-1 OF ASSESSEES PAPER BOOK. THEN HE R EFERRED TO THE ASSESSMENT ORDER WHEREIN THE LIST OF COMPANIES IN W HICH SHARES HAVE BEEN SOLD IS EXTRACTED BY THE AO AND POINTED OUT TH AT AS FAR AS THE SALE OF SHARES IN THE CASE OF TAINWALA POLYCONTAINERS LT D. AND LARSEN & TOUBTRO LTD. IS CONCERNED, SAME WERE QUOTED COMPANI ES AND SHARES WERE SOLD THROUGH THE STOCK MARKET THROUGH BROKER A T THE MARKET PRICE. THE LOSS OF ` `` ` .65 LACS APPROXIMATELY WAS INCURRED IN THESE TWO TRANSACTIONS AND AT LEAST NO FAULT CAN BE FOUND IN RESPECT OF THESE TWO TRANSACTIONS. FURTHER, THE OTHER MAJOR SALE WAS IN RESPECT OF SHARES OF 7 SAMSONITE INDIA LTD. WHERE INTRINSIC VALUE OF THE C OMPANY WAS ` `` ` .5.57 PER SHARE AS ON 31-3-2003, WHEREAS SAME SHARES HAVE BEEN SOLD @ ` `` ` .10/- I.E. AT THE RATE AT WHICH THE SAME WERE ACQUI RED AND LOSS OF ABOUT ` `` ` .1.29 CRORES HAS ARISEN MAINLY BECAUSE OF INDEXATIO N OF THE COST OF ACQUISITION. SIMILARLY, SHARES OF TAINWALA TRADI NG & INVESTMENT CO. LTD. AND CONCEPT REALITY & SECURITIES ARE CONCERNED , SAME WERE SOLD MUCH ABOVE INTRINSIC VALUE AND LOSS HAS ARISEN MAIN LY ON ACCOUNT OF INDEXATION. IN FACT, ASSESSEE HAS RECEIVED PREMIUM OVER THE INTRINSIC VALUE. HE SUBMITTED THAT CIT[A] HAS REJECTED THIS A RGUMENT BY OBSERVING THAT LAND AND BUILDING WAS NOT VALUED AT MARKET PRICE, BUT IF THAT IS THE CASE, THE DEPARTMENT SHOULD HAVE ASKED THE ASSESSEE TO CALCULATE THE VALUE ACCORDINGLY. IN FACT, BREAK UP VALUE IS AN ACCEPTED METHOD OF VALUATION AND THAT IS WHY ASSESSEE DETERM INED THE INTRINSIC VALUE ON BREAK UP VALUE BASIS AND SOLD THE SHARES. THE TRANSACTIONS CANNOT BE BRUSHED ASIDE MERELY BY OBSERVING THAT SH ARES HAVE BEEN SOLD TO CONCERNS IN WHICH SOME OF THE DIRECTORS ARE RELATED. 10. HE THEN REFERRED TO THE OBJECTION OF THE AO WHE REIN HE REFERRED TO THE PROVISIONS OF SALE OF GOODS ACT AND SUBMITTE D THAT AO HAS NOT CORRECTLY INTERPRETED THE PROVISION. WHAT IS REQUIR ED UNDER THE LAW IS THAT SALE WOULD BE EFFECTED ONLY WHEN THE PROPERTY HAS BEEN TRANSFERRED FOR A PRICE. PRICE DOES NOT MEAN THAT I T SHOULD BE IMMEDIATELY PAID ACROSS THE TABLE. IF THIS INTERPRE TATION IS GIVEN TOWARDS CONTRACT OF SALE OF GOODS THEN PERHAPS NO S ALE ON CREDIT BASIS WOULD BE VALID. THE ASSESSEE HAS CONTINUOUSLY SOLD THE SHARES FOR A CONSIDERATION AND IN TWO CASES THE CONSIDERATION WA S RECEIVED LATER ON. 8 THE OTHER OBJECTION OF THE AO IS THAT SALES HAVE BE EN MADE TO KATAYAN CONSTRUCTION & DEVELOPERS LTD. AGAINST WHICH ASSESS EE HAS ALREADY CREATED A PROVISION OF DOUBTFUL DEBT AMOUNTING TO R S.1.90 CRORES. THIS IS NOT CORRECT BECAUSE LOAN HAS BEEN WRITTEN OFF IN THE CASE OF TAINWALA HOLDINGS PVT. LTD. AND NOT THE CASE OF KATAYAN CONS TRUCTION & DEVELOPERS LTD. 11. HE THEN REFERRED TO THE PROVISIONS OF SEC.45 AN D POINTED OUT THAT FOR BRINGING ANY TRANSACTION UNDER THIS SECTIO N WHAT IS REQUIRED IS THAT THERE SHOULD BE A CAPITAL ASSET AND THE SAME S HOULD HAVE BEEN TRANSFERRED FOR A CONSIDERATION. FURTHER, THE COMPU TATION PROVISION OF SECTION 48 PROVIDES THAT CAPITAL GAIN/LOSS WOULD BE COMPUTED AFTER REDUCING THE COST OF ACQUISITION FROM THE SALE CONS IDERATION. THE FACILITY OF INDEXATION IS ALSO GIVEN FOR COMPUTING THE COST OF ACQUISITION. IN THE CASE BEFORE US ALL THROUGH SHARES OF QUOTED AND UNQ UOTED COMPANIES WERE SHOWN UNDER THE HEAD INVESTMENT AND MOST OF THE SHARES HAVE BEEN ACQUIRED LONG BACK AND THIS FACT HAS NOT BEEN DISPUTED. THE SHARES OF QUOTED COMPANIES HAVE BEEN SOLD THROUGH S TOCK EXCHANGE THROUGH THE BROKERS AND THIS FACT HAS ALSO NOT BEEN DENIED. THE SHARES HAVE BEEN SOLD FOR A CONSIDERATION. IN THE CASE OF UNQUOTED COMPANIES SHARES HAVE BEEN SOLD FOR MORE THAN INTRINSIC VALUE OF THE SHARES AND THIS FACT HAS ALSO NOT BEEN DENIED AND, THEREFORE, THESE TRANSACTIONS COULD NOT HAVE BEEN IGNORED. 12. THEN HE REFERRED TO THE CELEBRITY DECISION OF H ONBLE SUPREME COURT IN THE CASE OF VARGHESE (K.P.) VS. ITO [131 I TR 597] WHEREIN IT WAS CLEARLY HELD THAT IT WAS NOT SUFFICIENT FOR THE REVENUE TO SAY THAT 9 ASSESSEE HAS RECEIVED MORE CONSIDERATION THAN SHOWN IN THE DOCUMENTS. THE BURDEN WAS ON THE REVENUE TO PROVE T HAT CLEARLY MORE CONSIDERATION HAS BEEN RECEIVED AND, IN FACT, BECAU SE OF THIS DECISION SECTION 52 ITSELF WAS OMITTED FROM THE ACT AND THIS DECISION WAS FOLLOWED LATER ON IN THE CASE OF CIT VS. SHIVKANI C O. P. LTD. [159 ITR 71] AND CIT VS. GODAVARI CORPORATION LTD. [200 ITR 567]. HE THEN REFERRED TO THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MRS. ALPANA CHINNAI VS. ITO [269 ITR 123] WHEREI N IT WAS OBSERVED AS UNDER: TO INVOKE SECTION 52[2] OF THE INCOME-TAX ACT, 196 1, IT IS NOT ONLY NECESSARY FOR THE REVENUE TO ESTABLISH THAT THE FAI R MARKET VALUE OF THE CAPITAL ASSET TRANSFERRED BY THE ASSESSEE EXCEEDS T HE FULL VALUE OF THE CONSIDERATION DECLARED IN RESPECT OF THE TRANSFER B Y NOT LESS THAN 15 PER CENT. OF THE VALUE SO DECLARED, BUT IT IS ALSO NECE SSARY FOR THE REVENUE TO ESTABLISH THAT THE FULL VALUE OF THE CONSIDERATI ON DECLARED BY THE ASSESSEE IS LESS THAN THE AMOUNT ACTUALLY RECEIVED BY THE ASSESSEE. WITHOUT ESTABLISHING THAT THE CONSIDERATION ACTUALL Y RECEIVED BY OR ACCRUED TO THE ASSESSEE IS MORE THAN WHAT IS DECLAR ED, THE REVENUE CANNOT INVOKE SECTION 52(2) OF THE ACT. 13. LASTLY, HE REFERRED TO A RECENT DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. GILLETTE DIVERSIFIED O PERATIONS P. LTD. [324 ITR 226] WHEREIN IN ALMOST IDENTICAL CIRCUMSTANCES SHARES OF THE GROUP COMPANIES WERE SOLD TO OTHER GROUP COMPANIES AND SU CH LOSS WAS ACCEPTED BY THE HONBLE COURT BY HOLDING THAT SUCH SALE CANNOT BE TREATED AS COLOURABLE DEVICE. 14. ON THE OTHER HAND, LD.DR REFERRED TO THE ASSESS MENT ORDER AND APPELLATE ORDER AND SUBMITTED THAT A COMBINED READI NG OF THE SAME WOULD SHOW THAT SHARES SOLD BY THE ASSESSEE COMPANY WERE MAINLY CONSISTED OF SHARES BELONGING TO TAINWALA GROUP ONL Y. THE TRANSACTIONS HAVE NOT BEEN DONE IN THE NORMAL COURSE OF BUSINESS BECAUSE MONEY 10 WAS NOT RECEIVED IMMEDIATELY WHICH ONLY SHOWS THAT TRANSACTIONS WERE CARRIED OUT FOR THE PURPOSE OF CREATING THE LOSSES. IN ANY CASE, THE LD. CIT(A) HAS POINTED OUT THAT THE SALE TRANSACTIONS O F THE SHARES WERE DONE DURING THE FAMILY SETTLEMENT. HE ARGUED THAT T HE FAMILY SETTLEMENT WOULD NOT BE COVERED BY THE DEFINITION O F TRANSFER AND IN THIS REGARD HE RELIED ON THE DECISION OF THE CHENNA I BENCH OF THE TRIBUNAL IN THE CASE OF KAY ART ENTERPRISES VS. JCI T [97 ITD 291]. 15. HE FURTHER ARGUED TAT THE DECISION RELIED ON BY THE LD.COUNSEL OF THE ASSESSEE ON THE POINT WHETHER THERE WAS ANY UND ERSTATEMENT OF CONSIDERATION HAS NO RELEVANCE BECAUSE THAT IS NOT THE ISSUE BEFORE US. EVEN THE DECISION OF HONBLE DELHI HIGH COURT IN TH E CASE OF CIT VS. GILLETTE DIVERSIFIED OPERATIONS P. LTD. [SUPRA] IS NOT RELEVANT BECAUSE ISSUE WAS NOT WHETHER THE SALE OF SHARES WAS A COLO URABLE DEVICE. 16. IN THE REJOINDER LD.COUNSEL OF THE ASSESSEE SUB MITTED THAT THE SHARES WERE SOLD BECAUSE OF RESTRUCTURING EXERCISE AS THE COMPANY WANTED TO CONCENTRATE MAINLY ON CORE BUSINESS OF TH E COMPANY. THE AO HAS NEVER WHISPERED A SINGLE WORD ABOUT A FAMILY SETTLEMENT AND EVEN CIT(A) HAS ALSO MERELY CASUALLY MENTIONED ABOU T THE FAMILY SETTLEMENT AND, THEREFORE, LD.DR CANNOT MAKE A NEW CASE THAT IT WAS A CASE OF FAMILY SETTLEMENT. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY AND FIND THAT AO HAS REJECTED THE CLAIM OF THE ASSESSEE MAINLY BE CAUSE ASSESSEE SOLD THE UNQUOTED SHARES OF THE GROUP COMPANIES AT COST PRICE AND THE LOSS AROSE DUE TO INDEXATION OF THE COST PRICE. ACC ORDING TO THE AO, SHARES HAVE BEEN SOLD TO COMPANIES WHICH WERE BELON GING TO TAINWALA 11 GROUP ONLY WHEREIN FAMILY MEMBERS HAVE SUBSTANTIAL INTEREST AND, THEREFORE, THESE TRANSACTIONS COULD NOT BE CONSTRUE D IN THE NORMAL COURSE OF BUSINESS. HE ALSO OBSERVED THAT THE TRANS ACTIONS ARE DEVOID OF ANY CREDITABILITY OR JUSTIFICATION TO HOODWINK T HE TAX AUTHORITIES. HE ALSO QUOTED VARIOUS PROVISIONS OF THE SALE GOODS AC T AND NOTED THAT SINCE CONSIDERATION HAS NOT BEEN RECEIVED IMMEDIATE LY, THEREFORE, IT CANNOT BE SAID THAT SHARES HAVE BEEN SOLD FOR A PRI CE. HE ALSO NOTED THAT ASSESSEE HAS ALREADY WRITTEN OFF A SUM OF RS.1 .90 CRORES AS DOUBTFUL DEBTS AGAINST KATAYAN CONSTRUCTION & DEVEL OPERS LTD. THEN HOW SHARES COULD BE SOLD TO THE SAME COMPANY FOR WH ICH CONSIDERATION WAS RECEIVED LATER. 18. THUS FROM THE ABOVE OBSERVATIONS IT IS CLEAR TH AT AO HAS NOT REJECTED THE CLAIM BECAUSE IT WAS A FAMILY ARRANGEM ENT, HE HAS RATHER REJECTED THE CLAIM THAT IT CANNOT BE SAID THAT ASSE SSEE HAS SOLD THE SHARES FOR PROPER CONSIDERATION. IT HAS ALSO BEEN A LLEGED THAT IT WAS MERELY PAPER TRANSACTION. THE LD. CIT(A) ADJUDICATE D THE ISSUE VIDE PARA 5.2 WHICH IS AS UNDER: I HAVE CONSIDERED THE FACTS OF THE CASE, SUBMISSIO N OF THE APPELLANT AND ALSO THE FINDING OF THE AO. THE CAPITAL LOSS HA S BEEN WORKED OUT AS UNDER: NAME OF THE SCRIPT NO. OF SHARES PURCHASE DETAIL INDEXED COST SALE VALUE PROFIT/ (LOSS) YEAR AMOUNT TAINWALA POLYCONTAINERS LTD. 132000 1999-00 264000 314221 141240 (172981) TAINWALA POLYCONTAINERS LTD. 400000 1994-95 4000000 7150579 784000 (6366579) LARSEN & TOUBRO LTD. 200 1994-95 57120 102110 57854 (44256) SAMSONITE INDIA LTD. 2500000 1996-97 2500000 37950820 25000000 (12950820) TAINWALA 12 TRADING & INVESTMENT CO.LTD. 36796 1994-95 3679600 6577818 36796 (6541022) CONCEPT REALITY & SECURITIES LTD. 305000 1996-97 3050000 46300000 30500 (4599500) TOTAL 3373996 13550720 56725548 26050390 (30675158) FROM THE DETAILS FILED, IT IS SEEN THAT THESE SHARE S PERTAIN TO THE ASSOCIATE CONCERN ONLY. IT IS FURTHER NOTICED THAT ALL THESE SHARES HAVE BEEN SOLD TO ASSOCIATE CONCERNS NAMELY KATYAYAN CON STRUCTION & DEVELOPERS LTD. AND TAINWALA HOLDINGS P. LTD. THE A PPELLANT HAS STATED THAT THE UNQUOTED SHARES HAVE BEEN SOLD AFTE R TAKING INTO CONSIDERATION THE NET WORTH OF THESE SHARES AS PER LATEST AVAILABLE AUDITED FINANCIAL STATEMENTS OF THE YEAR 31-3-2003. ACCORDING TO THE APPELLANT, COMPUTATION OF THE NET WORTH OF THESE SH ARES WOULD SHOW THAT THE SHARES WERE SOLD AT A PRICE HIGHER THAN TH E NET INTRINSIC VALUE OF THESE SHARES. ACCORDING TO THE APPELLANT, SHARES WERE HELD AS INVESTMENT AND WERE SOLD WITH A VIEW TO REDUCE ALL INVESTMENT IN NON CORE BUSINESS, AS A PART OF BUSINESS RESTRUCTURING AND AN OVERALL EFFICIENCY MANAGEMENT PROGRAM. THE APPELLANT HAS FU RTHER STATED THAT SINCE THE APPELLANT IS A LISTED COMPANY, THERE IS N O POSSIBILITY OF ANY SUBTERFUGE REGARDING SALE TRANSACTIONS OF THESE SHA RES. FROM THE ABOVE CHART, IT CAN BE SEEN THAT AN AMOUNT OF RS.1.29 CRO RES LOSS IS WORKED OUT ON ACCOUNT OF SALE OF RS.25 LACS SHARES OF SAMS ONITE INDIA LTD. THESE SHARES WERE SOLD TO OTHER GROUP CONCERN AT RS .10 PER SHARE. IT HAS BEEN STATED THAT NET ASSET VALUE OF THE SHARES IS RS.5.57 PER SHARE AS ON 31-3-2003. THEY WERE PURCHASED AT RS.10 AND S OLD AT SAME RATE AND THE LOSS HAS OCCURRED BECAUSE OF INDEXATION. IN RESPECT OF OTHER SHARES, IT IS SEEN THAT THEY HAVE BEEN SOLD AT MUCH LOWER RATE THAN PURCHASE PRICE. FOR EXAMPLE, SHARES OF TAINWALA POL YCONTAINERS LTD. PURCHASED FOR RS.40 LACS IN 1994-95 WERE SOLD FOR R S.7,84,000/-. SIMILARLY, SHARES OF TAINWALA TRADING AND INVESTMEN T CO. LTD. PURCHASED FOR RS.36,79,600/- WERE SOLD FOR RS.36,79 6/- AND SHARES OF CONCEPT REALITY AND SECURITY LTD. PURCHASED FOR RS. 30,50,000/- WERE SOLD FOR RS.30,500/-. THE AO HAS FURTHER NOTED IN T HE ASSESSMENT ORDER THAT EXCEPT IN ONE CASE, ALL THE SHARES HAVE BEEN S OLD TO KATYAYAN CONSTRUCTION & DEVELOPERS P. LTD, BUT THE APPELLANT DID NOT RECEIVE THE MONEY FOR QUITE SOME TIME. IT WAS ALSO NOTED BY THE AO TAT PROVISION FOR DOUBTFUL DEBTS HAVE BEEN MADE IN RESPECT OF LOA N AMOUNTING TO RS.1,90,51,000/- GIVEN TO M/S KATYAYAN CONSTRUCTION & DEVELOPERS P. LTD. FROM THE FACTS ON RECORDS, IT IS APPARENT AND AS FAIRLY ADMITTED BY THE APPELLANT THAT TRANSACTION OF SHARES TOOK PLACE IN VIEW OF FAMILY SETTLEMENTS EVEN THE ABOVE APPELLATE ORDER SHOWS THAT IT WAS NO T ALLEGED THAT IT WAS A CASE OF FAMILY ARRANGEMENT AND THE CLAIM HAS BEEN MAINLY REJECTED BECAUSE CONSIDERATION WAS NOT PROPER. THER E IS NO SPECIFIC ALLEGATION THAT IT WAS A CASE OF FAMILY SETTLEMENT. THEREFORE, LD.DR 13 COULD NOT HAVE POSSIBLY ARGUED THAT IT WAS MERELY A CASE OF FAMILY ARRANGEMENT PARTICULARLY WITHOUT ANY EVIDENCE ON RE CORD IN THE FORM OF FAMILY SETTLEMENT. 19. WE FURTHER FIND THAT ASSESSEE IS A PUBLIC LIMIT ED COMPANY WHICH IS LISTED IN THE STOCK EXCHANGE WHICH MEANS THAT AS SESSEE IS BOUND BY THE LISTING AGREEMENT AS WELL AS VARIOUS REGULATION S OF THE SEBI AND COULD NOT HAVE SOLD THE SHARES OR INDULGED IN ANY O THER PAPER TRANSACTIONS WITHOUT INFORMING THE STOCK EXCHANGE. THE COPY OF THE BOARDS RESOLUTION, FILED AT PAGE-1 OF THE PAPER BO OK, READS AS UNDER: CERTIFIED TRUE COPY OF THE MINUTES OF MEETING OF T HE BOARD OF DIRECTORS OF TAINWALA CHEMICAL AND PLACTICS [IND IA] LIMITED HELD ON STAURDAY, 26 TH APRIL, 2003 AT 11.00 A.M. AT THE REGISTERED OFFICE OF THE COMPANY AT TAINWALA HOUSE, ROAD NO.18, M.I.D.C., MAROL, ANDHERI [EAST], MUMBAI 400 093. THE CHAIRMAN INFORMED THE BOARD THAT COMPANY HAD IN VESTED IN SHARES OF MANY COMPANIES. NOW THE COMPANY WANT TO RESTRUCT URE THE UNCORE BUSINESS AND WANT TO PUT THE STRENGTH IN CORE BUSIN ESS AND THE BOARD REQUIRE TO DISPOSE OFF THE QUOTED AND UNQUOTED SHAR ES. AFTER MUCH DISCUSSION THE BOARD APPROVED THE SALE O F SHARES AND PASSED THE FOLLOWING RESOLUTION IN THIS REGARD: RESOLVED THAT THE CONSENT OF THE BOARD BE AND IS H EREBY ACCORDED TO DISPOSE OFF THE QUOTED AND UNQUOTED SHA RES OF COMPANIES. FURTHER RESOLVED THAT MR. DUNGARMAL TAINWALA BE AND IS HEREBY AUTHORISED TO EXECUTE THE SHARE TRANSFER DEE D AND TO DO ALL SUCH ACTS, DEEDS, MATTERS AND THINGS AS MAY BE CONSIDERE D NECESSARY TO GIVE EFFECT TO THE AFOREMENTIONED RESOLUTION. DR. RAESH TAIWALA, MR. RAKESH TAINWALA AND MR. DUNG ARMAL TAINWALA BEING INTERESTED DID NOT PARTICIPATED IN T HE DISCUSSION AND VOTE UPON THE RESOLUTION. CERTIFIED TRUE COPY FOR TAINWALA CHEMICALS AND PLASTICS (INDIA) LTD. THE ABOVE ONLY SHOWS THAT THE SHARES HAVE BEEN SOLD BECAUSE THE COMPANY WAS IN THE PROCESS OF RESTRUCTURING AND WAN TED TO STRENGTHEN 14 ITS CORE BUSINESS. THE ASSESSEE COMPANY DURING THE YEAR HAS SOLD SHARES IN SIX COMPANIES OUT OF WHICH SHARES IN THE CASE OF LARSON & TOUBRO LTD. AND TAINWALA POLYCONTAINERS LTD. WERE S AID TO HAVE BEEN SOLD THROUGH STOCK EXCHANGE THROUGH VARIOUS BROKERS AT MARKET PRICE. THIS FACT HAS NOT BEEN DISPUTED BY THE REVENUE AUTH ORITIES. OUT OF THE OTHER FOUR COMPANIES, THE CASE OF THE ASSESSEE IS T HAT SHARES HAVE BEEN SOLD AT MORE THAN THE INTRINSIC VALUE. THE LD. CIT(A) HAS STATED THAT THE INTRINSIC VALUE HAS NOT BEEN PROPERLY CALC ULATED IN THE CASE OF SHARES OF SAMSONITE INDIA LTD. BECAUSE LAND AND BUI LDING WAS TAKEN AT BOOK VALUE. AS POINTED OUT BY THE LD.COUNSEL OF THE ASSESSEE, FIRSTLY THESE SHARES WERE SOLD AT RS.10 PER SHARE AGAINST I NTRINSIC VALUE OF RS.5.57 PER SHARE. SECONDLY, THE REVENUE HAS NOT BR OUGHT ON RECORD ANY MATERIAL TO SHOW THAT ASSESSEE HAS RECEIVED EXT RA CONSIDERATION. IN THIS REGARD, THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF VERGHESE (K.P.) [SUPRA] WAS CITED. THE HONBLE APEX COURT HAS OBSERVED AS UNDER: CAPITAL GAINS-UNDERSTATEMENT-SCOPE OF PROVISIONSD IFFERENCE BETWEEN MARKET VALUE AND CONSIDERATION DECLARED NOT SUFFICIENT ASSESSEE MUST BE SHOWN TO HAVE RECEIVED MORE THAN W HAT IS DECLARED OR DISCLOSED BY HIM AS CONSIDERATIONBURDEN OF PROO F ON THE DEPARTMENTCOMPUTATION-ONLY THAT INCOME WHICH HAS A CCRUED OR BEEN RECEIVED. IT WAS HELD BY THE APEX COURT SUB-SECTION (2) OF S ECTION 52 OF THE I.T.ACT, 1961 CAN BE INVOKED ONLY WHERE THE CONSIDE RATION FOR THE TRANSFER HAS BEEN UNDERSTATED BY THE ASSESSEE OR, I N OTHER WORDS, THE CONSIDERATION ACTUALLY RECEIVED BY THE ASSESSEE IS MORE THAN WHAT IS DECLARED OR DISCLOSED BY HIM AND THE BURDEN OF PROV ING SUCH AN UNDERSTATEMENT OR CONCEALMENT IS ON THE REVENUE. TH E . SUB-SECTION (2) HAS NO APPLICATION IN THE CASE OF AN HONEST AND BONA FIDE TRANSACTION WHERE THE CONSIDERATION RECEIVED BY THE ASSESSEE HA S BEEN CORRECTLY DECLARED OR DISCLOSED BY HIM. IT DOES NOT CREATE ANY FICTIONAL RECEIPT. IT DOE S NOT DEEM AS RECEIPT SOMETHING WHICH IS NOT IN FACT RECEIVED. IT MERELY PROVIDES A STATUTORY BEST JUDGMENT ASSESSMENT OF THE CONSIDERA TION ACTUALLY RECEIVED BY THE ASSESSEE AND BRINGS TO TAX CAPITAL GAINS ON THE FOOTING 15 THAT THE FAIR MARKET VALUE OF THE CAPITAL ASSET REP RESENTS THE ACTUAL CONSIDERATION RECEIVED BY THE ASSESSEE AS AGAINST T HE CONSIDERATION UNTRULY DECLARED OR DISCLOSED BY HIM. THE WORD 'DECLARED' IS VERY ELOQUENT AND REVEALING. IT CLEARLY INDICATES THAT THE FOCUS OF SUB-SECTION (2) IS ON THE CONSIDE RATION DECLARED OR DISCLOSED BY THE ASSESSEE AS DISTINGUISHED FROM THE CONSIDERATION ACTUALLY RECEIVED BY HIM AND IT CONTEMPLATES A CASE WHERE THE CONSIDERATION RECEIVED BY THE ASSESSEE IN RESPECT O F THE TRANSFER IS NOT TRULY DECLARED OR DISCLOSED BY HIM BUT IS SHOWN AT A DIFFERENT FIGURE. SECTION 42[1] DOES NOT DEEM INCOME TO ACCRUE OR TO BE RECEIVED WHICH IN FACT NEVER ACCRUED OR WAS NEVER RECEIVED. IT SEE KS TO BRING WITHIN THE NET OF TAXATION ONLY THAT INCOME WHICH HAS ACCRUED OR IS RECEIVED BY THE ASSESSEE AS A RESULT OF THE TRANSFER OF THE CAP ITAL ASSET. SINCE IT WOULD NOT BE POSSIBLE FOR THE ITO TO DETER MINE PRECISELY WHAT IS THE ACTUAL CONSIDERATION RECEIVED BY THE ASSESSE E OR IN OTHER WORDS HOW MUCH MORE CONSIDERATION IS RECEIVED BY THE ASSE SSEE THAN THAT DECLARED BY HIM, PRECISELY HOW MUCH MORE CONSIDERAT ION IS RECEIVED BY THE ASSESSEE THAN THAT DECLARED BY HIM, SUB-SECT ION (1) PROVIDES THAT THE FAIR MARKET VALUE OF THE PROPERTY AS ON THE DAT E OF THE TRANSFER SHALL BE TAKEN TO BE THE FULL VALUE OF THE CONSIDERATION FOR THE TRANSFER WHICH HAS ACCRUED TO OR IS RECEIVED BY THE ASSESSEE. THE NET EFFECT OF THIS PROVISION IS AS IF A STATUTORY BEST JUDGMENT ASSESS MENT OF THE ACTUAL CONSIDERATION RECEIVED BY THE ASSESSEE IS MADE, IN THE ABSENCE OF RELIABLE MATERIALS. THUS, THE FUNDAMENTAL PRINCIPLE IS THAT IF IT IS AL LEGED THAT ASSESSEE HAS RECEIVED LESS CONSIDERATION THE REVENUE SHOULD HAVE PROVED THAT ASSESSEE HAS RECEIVED MORE CONSIDERATION. IN THE CA SE BEFORE US IF THERE WAS DOUBT ON CALCULATION OF INTRINSIC VALUE, THE REVENUE COULD HAVE EASILY REWORKED THE APPROPRIATE VALUE BUT THE MATTER HAS BEEN LEFT ONLY BY MAKING AN ALLEGATION. THE REVENUE HAS NOT DISCHARGED THE BURDEN WHICH WAS CASTE ON IT IN TERMS OF THE DECISI ON OF THE HONBLE SUPREME COURT IN THE CASE OF VERGHESE (K.P.) [SUPRA ]. IN FACT, THIS DECISION HAS BEEN FOLLOWED BY MANY LATER DECISIONS OF HONBLE SUPREME COURT AND VARIOUS HIGH COURTS. THE SAME HAS BEEN FO LLOWED EVEN BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF MRS. A LPANA CHINNAI VS. ITO [SUPRA]. 16 20. THE OBSERVATIONS OF THE AO THAT SINCE THE SALE CONSIDERATION WAS NOT RECEIVED IMMEDIATELY, THEREFORE, THE TRANSA CTION CANNOT BE CONSTRUED AS SALE IN TERMS OF SALES OF GOODS ACT. S ECTION 4(1) AS EXTRACTED BY THE AO READS AS UNDER: 4. (1) A CONTRACT OF SALE OF GOODS IS A CONTRACT W HEREBY THE SELLER TRANSFERS OR AGREES TO TRANSFER THE PROPERTY IN GOODS TO THE BUYER FOR A PRICE. THERE MAY BE A CONTRACT OF SALE BETWEEN ONE PART-OWNER AN D ANOTHER. THE ABOVE ONLY SHOWS THAT WHAT IS REQUIRED IS THAT THE SELLER TRANSFERS OR AGREED TO TRANSFER OF PROPERTY IN GOODS TO A BUY ER FOR A PRICE. THERE IS NO FURTHER RESTRICTION THAT SUCH PRICE HAS TO BE PAID IMMEDIATELY. IF THAT INTERPRETATION IS ACCEPTED, TH EN PERHAPS NO SALE CAN EVER TAKE PLACE ON CREDIT BASIS. THEREFORE, THI S TRANSACTION CANNOT BE REJECTED MERELY BECAUSE THE CONSIDERATION WAS RE CEIVED LATER ON. WE ALSO FIND THAT IT WAS CLEARLY POINTED OUT THAT A SSESSEE HAS NOT WRITTEN OFF ANY DOUBTFUL DEBT AGAINST KATAYAN CONST RUCTION & DEVELOPERS LTD. BUT THE LOAN HAS BEEN WRITTEN OFF A GAINST TAINWALA HOLDING PVT. LTD. IT FURTHER BECOMES CLEAR FROM PAR A-7 OF THE APPELLATE ORDER WHEREIN GROUND NO.6 HAS BEEN REPRODUCED WHICH READS AS UNDER: GROUND 6 BAD DEBTS WRITTEN OFF THE AO ERRED IN DISALLOWING THE PROVISION MADE FOR DOUBTFUL RECOVERY OF LOAN GIVEN TO TAINWALA HOLDINGS PRIVATE LIMITED ON THE ALLEGED GROUND THAT THE SAID LOAN GIVEN TO THIS COMPANY ARE NOT DECLARED AS INCOME IN EARLIER YEARS SO THIS AMOUNT CANNOT BE AL LOWED AS DEDUCTION U/S.36(1)(VII) OF THE ACT. IN THIS REGARD IT IS RESPECTFULLY SUBMITTED THAT LO AN GIVEN TO TAINWALA HOLDINGS PRIVATE LIMITED OUT OF THE SURPLUS FUNDS O F THE APPELLANT, WHICH WERE ALREADY OFFERED TO TAX IN THE EARLIER YE ARS. THEREFORE, THE CONTENTION OF THE AO THAT THE LOAN GIVEN TO COMPANY IS NOT DECLARED AS INCOME, IS NOT CORRECT. 17 FURTHER, IT IS TO BE NOTED THAT THE PROVISION IS MA DE AFTER CONSIDERING WEAK FINANCIAL POSITION OF THE TAINWALA HOLDINGS PR IVATE LIMITED. THIS IS CLEARLY LOSS OF FUND OF THE APPELLANT AND THEREF ORE, ALLOWABLE AS DEDUCTION U/S.36(1)(VII) OF THE ACT. THE APPELLANT HUMBLY PRAYS THAT THE PROPER AND APPR OPRIATE RELIEF BE ALLOWED IN THE APPEAL TO MEET THE ENDS OF JUSTICE A S BEING AGGRIEVED BY THE ASSESSMENT MADE, THE APPELLANT IS CONSTRAINED T O FILE THIS APPEAL. THUS, FROM THE ABOVE IT IS CLEAR THAT THE LOAN WAS WRITTEN OFF AGAINST TAINWALA HOLDING PVT. LTD. AND NOT KATAYAN CONSTRUC TION & DEVELOPERS LTD. 21. COMING TO THE LAST ALLEGATION THAT IT IS MERELY A PAPER TRANSACTION, WE ARE NOT INCLINED TO ACCEPT THE SAME BECAUSE AS MENTIONED EARLIER OUT OF SIX COMPANIES, SHARES OF T WO COMPANIES HAVE BEEN SOLD THROUGH STOCK EXCHANGE IT HAS NOWHERE BEE N DENIED THAT SHARES OF FOUR OTHER COMPANIES WERE NOT DELIVERED O R TRANSFERRED. IN FACT, NO ENQUIRY HAS BEEN MADE IN THIS REGARD. SIMP LY BECAUSE SHARES HAVE BEEN SOLD TO GROUP COMPANIES WILL NOT PROVE AN YTHING. IN FACT, HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. GIL LETTE DIVERSIFIED OPERATIONS P. LTD [SUPRA] WAS DEALING WITH A SIMILA R SITUATION. IN THIS CASE THE FACTS OF THE CASE WERE AS UNDER: ON JANUARY 1, 2000, THE ASSESSEE, ENGAGED IN THE B USINESS OF LEASING OF EQUIPMENT, AMALGAMATED WITH GDOPL. THE ASSESSEE HAD PURCHASED SHARES IN WSIL ON APRIL 4, 1996 FOR A SUM OF RS.7,9 2,70,381. THOSE SHARES WERE SOLD ON DECEMBER 30, 1999 FOR A CONSIDE RATION OF RS.7,88,76,000. HOWEVER, DUE TO APPLICATION OF THE COST INDEX, THE COST OF THESE SHARES FOR THE PURPOSE OF COMPUTATION OF C APITAL GAIN WORKED OUT TO RS.10,11,02,224, THEREBY RESULTING IN A CAPI TAL LOSS OF RS.2,22,26,224. THE ASSESSEE HAD ALSO PURCHASED SHA RES IN GDOPL ON APRIL 4, 1996 FOR A CONSIDERATION OF RS.8,40,83,094 AND HAD SOLD THOSE SHARES TO GGIPL ON DECEMBER 30, 1999 FOR A SALE CON SIDERATION OF RS.8,36,64,770, THEREBY RESULTING IN LOSS OF RS. 4, 18,324. HOWEVER, DUE TO APPLICATION OF THE COST INDEX, THE CAPITAL L OSS ON SALE OF THESE SHARES WORKED OUT TO RS.2,35,76,735. THE ASSESSEE-C OMPANY FILED A RETURN DECLARING LOSS OF RS.4,71,54,210 FOR THE ASS ESSMENT YEAR 2000- 01. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE -COMPANY HAD OUTSTANDING LIABILITY OF RS. 19.77 CRORES, USED FOR PURCHASE OF SHARES OF 18 GROUP COMPANIES. HE CONCLUDED THAT THE TRANSACTIONS WERE ENTERED ON THE SAME DATE MERELY TO CREATE CAPITAL LOSS AND WAS A COLOURABLE DEVICE FOR TAX AVOIDANCE. HE DISALLOWED THE CAPITAL LOSS O N SALE OF SHARES ON THE GROUND THAT THESE SHARES WERE PURCHASED FROM TH E FUNDS MADE AVAILABLE BY THE GROUP COMPANIES AND OBSERVED THAT THE ASSESSEE- COMPANY HAD ENTERED INTO THESE TRANSACTIONS ON THE SAME DAY ONLY TO CREATE CAPITAL LOSS OF INVESTMENT HELD BY IT. THE C OMMISSIONER (APPEALS) ALLOWED THE LOSS ON ACCOUNT OF SALE OF WS IL SHARES BUT UPHELD THE DISALLOWANCE OF LOSS IN RESPECT OF SHARE S OF GDOPL ON THE GROUND THAT THE SALE PROCEEDS WERE USED TO REDUCE L IABILITIES PRIOR TO AMALGAMATION WITH GDOPL. WHILE ALLOWING THE APPEAL FILED BY THE ASSESSEE AND DISMISSING THE CROSS-APPEAL FILED BY T HE REVENUE, THE TRIBUNAL NOTED THAT NO PLAUSIBLE OBJECTION HAD BEEN RAISED BEFORE IT TO JUSTIFY DISALLOWANCE OF LOSS ON SALE OF SHARES OF W SIL. THE TRIBUNAL, THEREFORE, UPHELD THE ORDER OF THE COMMISSIONER (AP PEALS), ALLOWING THE LOSS INCURRED BY THE ASSESSEE ON SALE OF SHARES OF WSIL. AS REGARDS SALE OF SHARES OF GDOPL, THE TRIBUNAL WAS OF THE VI EW THAT THE TRANSACTION OF SALE OF THESE SHARES WAS QUITE SIMIL AR TO THE TRANSACTION OF SALE OF SHARES OF WSIL. THE TRIBUNAL NOTED THAT NO BENEFIT OF CAPITAL LOSS HAD BEEN TAKEN BY THE ASSESSEE TILL DATE BY AD JUSTING IT AGAINST OTHER LONG-TERM CAPITAL GAINS. IT WAS ALSO NOTED TH AT EVEN IN THE ASSESSMENT OF 2002-03 THE AMALGAMATED COMPANY HAD B ROUGHT FORWARD THE LOSSES OF EARLIER YEARS. THE TRIBUNAL, THEREFOR E, FELT THAT HAD THE SHARES BEEN SOLD AS A DEVICE TO OBTAIN ANY UNFAIR T AX BENEFIT, THE ASSESSEE-COMPANY OR THE AMALGAMATED COMPANY WOULD H AVE IMMEDIATELY ADJUSTED IT AGAINST INCOME FROM LONG-TE RM CAPITAL GAINS. THE TRIBUNAL WAS OF THE VIEW THAT THE TRANSACTION C OULD NOT BE THROWN OUT MERELY BECAUSE IT WAS CARRIED OUT A FEW DAYS BE FORE AMALGAMATION OF THE COMPANY. THE TRIBUNAL WAS OF THE VIEW THAT I T WAS IMMATERIAL WHETHER THE LOAN WAS DUE TO A GROUP COMPANY OR TO A N OUTSIDER. THE TRIBUNAL TOOK NOTE OF THE FACT THAT ACTUAL LOSS OF SALE OF SHARES WAS ONLY RS.4,18,324 AND IT WAS ONLY ON ACCOUNT OF INDEXATIO N THAT THE AMOUNT OF CAPITAL LOSS HAD INCREASED. ON THE ABOVE FACTS, IT WAS HELD AS UNDER: HELD, DISMISSING THE APPEAL, THAT AS NOTED BY THE C OMMISSIONER (APPEALS) AS WELL AS BY THE TRIBUNAL, THE SHARES IN QUESTION WERE HELD BY THE ASSESSEE-COMPANY FOR MORE THAN THREE YEARS B EFORE THEY WERE SOLD. THE ASSESSEE-COMPANY WAS VERY MUCH ENTITLED I N LAW TO SELL THE SHARES HELD BY IT AT ANY TIME, WHICH IT CONSIDERED TO BE APPROPRIATE FOR SUCH SALE. IT WAS FOR THE HOLDER OF THE SHARES AND NOT FOR THE REVENUE TO DECIDE, WHEN TO SELL THE SHARES HELD BY IT. IF THE SALE OF SHARES WAS NOT ILLEGAL, IT COULD HAVE BEEN MADE TO ANYONE, INCLUDI NG A GROUP COMPANY. THERE WAS NOTHING ILLEGAL IN THE ASSESSEE-COMPANY S ELLING SHARES HELD BY IT, FOR THE PURPOSE OF REDUCING ITS LIABILITIES. IT WAS ALSO ABSOLUTELY IMMATERIAL THAT THE LIABILITIES OF THE ASSESSEE-COM PANY WERE TOWARDS GROUP COMPANIES. SIMILARLY, IT WAS ALSO IMMATERIAL THAT THE SHARES SOLD BY THE ASSESSEE-COMPANY WERE OF ANOTHER GROUP COMPA NY. IT WAS ALSO IMMATERIAL AS TO WHO THE PURCHASER OF THE SHARES WA S, SO LONG AS THE SHARES WERE NOT SOLD AT A PRICE WHICH WAS HIGHER OR LOWER THAN THEIR FAIR PRICE AND THERE WAS NO RESTRICTION ON SALE OF SUCH SHARES TO A GROUP COMPANY. AS NOTED BY THE TRIBUNAL, NEITHER THE ASSE SSEE-COMPANY NOR 19 THE AMALGAMATED COMPANY ADJUSTED THE CAPITAL LOSS O N ACCOUNT OF SALE OF THESE SHARES AGAINST ANY LONG-TERM CAPITAL GAIN EVEN TILL THE ASSESSMENT YEAR 2002-03. NO TAX BENEFIT WAS, THEREF ORE, OBTAINED BY THE ASSESSEE-COMPANY FOR AT LEAST TWO YEARS AFTER T HE CAPITAL LOSS WAS BOOKED BY IT. HENCE, IT COULD NOT BE SAID THAT THE TRANSACTIONS IN QUESTION WERE A COLOURABLE DEVICE, MEANT TO GAIN SO ME UNFAIR TAX ADVANTAGE. NO SUBSTANTIAL QUESTION OF LAW AROSE TO INTERFERE WITH THE ORDER OF THE TRIBUNAL. IN THE CASE BEFORE US ALSO SHARES HAVE BEEN HELD BY THE ASSESSEE COMPANY FROM ASSESSMENT YEARS 1994-95 TO 1999-00 WH ICH MEANS SHARES WERE ALREADY HELD FOR MORE THAN 4 TO 6 YEARS . THE SAME HAVE BEEN SOLD FOR RESTRUCTURING OF THE BUSINESS SO AS T O 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 TH E ABOVE DISCUSSION, WE ARE OF THE VIEW, THAT THE LOSS CLAIMED BY THE AS SESSEE IS ALLOWABLE AND, ACCORDINGLY, WE SET ASIDE THE ORDER OF THE LD. CIT(A) AND DIRECT THE AO TO ALLOW THE SAME. 22. IN ADDITION TO THE ABOVE GROUND, ASSESSEE HAS A LSO FILED AN ADDITIONAL GROUND VIDE LETTER DATED 4-6-2009, FILED ON 14-7-09/ THE ADDITIONAL GROUND READS AS UNDER: IN VIEW OF THE ABOVE FACT THAT THE BUSINESS LOAN O F ` `` ` .1,90,51,000/- GRANTED TO TAINWALA POLYCONTAINERS LTD. HAVING BECO ME BAD, THE AO AND CIT[A] ERRED IN DISALLOWING THE CLAIM HOLDING T HE SAME TO BE OF CAPITAL NATURE. 23. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ISSUE RAISED IN THE ADDITIONAL GROUND IS PURELY OF LEGAL NATURE. HE ALSO INVITED OUR ATTENTION TO THE DECISION OF THE HON'BLE SUPREME CO URT IN THE CASE OF VIJAYA BNAK VS. CIT [323 ITR 166] WHEREIN IT HAS BE EN EXPLAINED THAT IF PROVISION FOR DOUBTFUL DEBT IS REDUCED FROM THE DEB TORS ON THE ASSETS SIDE OF THE BALANCE SHEET, THEN SAME IS TO BE ALLOW ED. THEREFORE, THIS 20 LEGAL GROUND SHOULD BE ADMITTED IN THE LIGHT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF NATIONAL THERM AL POWER LTD. VS. CIT [229 ITR 383]. 24. ON THE OTHER HAND, LD. DR DID NOT RAISE ANY SER IOUS OBJECTION FOR ADMISSION OF THE ADDITIONAL GROUND. 25. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE FIN D THAT THE FACTS RELEVANT FOR ADJUDICATION OF THIS GROUND ARE ALREAD Y ON RECORD AND, THEREFORE, WE ADMIT THIS GROUND. 26. AFTER HEARING BOTH THE PARTIES WE FIND THAT DUR ING THE ASSESSMENT PROCEEDINGS AO NOTICED THAT ASSESSEE HAS DEBITED A SUM OF ` `` ` .1,90,51,000/- AS EXCEPTIONAL ITEMS AND IN RESPONSE TO A QUERY IT WAS STATED THAT THESE ITEMS PERTAIN TO THE PROVISIO N FOR DOUBTFUL DEBT ON ACCOUNT OF SPECIFIC LIABILITY AND, THEREFORE, SA ME WAS NOT ADDED TO THE TAXABLE INCOME IN ACCORDANCE WITH THE GENERAL A CCEPTED ACCOUNTING POLICY. FURTHER, PARA 6 OF SCHEDULE-O OF NOTES TO THE ACCOUNTS READS AS UNDER: CONSIDERING THE WEAK FINANCIAL POSITION OF THE COM PANY CONCERNED, THE PROVISION HAVE BEEN MADE TOWARDS DOUBTFUL LOAN GIVEN IN THE EARLIER YEARS TO DIRECTORS INTERESTED COMPANY AMOU NTING TO ` `` ` .1,90,51,000/- AND SHOWN AS EXCEPTIONAL ITEMS IN THE PROFIT & LOSS ACCOUNT. THEREFORE, LOANS GIVEN WERE NOT ON ACCOUNT OF REVEN UE EXPENDITURES/RECEIPTS, BUT WERE IN THE NATURE OF CA PITAL EXPENDITURE AND EVEN IF THE SAME HAVE BECOME BAD, IT CANNOT BE CLAIMED AS A BAD DEBT. IT WAS FURTHER OBSERVED THAT SINCE LOANS HAVE NOT BEEN ACCOUNTED FOR WHILE COMPUTING THE INCOME OF EARLIER YEARS, THE LOANS HAVE NOT BEEN GRANTED IN RESPECT OF THE BUSINESS CA RRIED ON BY THE 21 ASSESSEE. THE SAME HAS NOT BEEN ESTABLISHED TO HAVE BECOME BAD. HE ALSO RELIED ON THE DECISION OF THE HON'BLE KERALA H IGH COURT IN THE CASE OF TRVANCORE TEA ESTATES LTD. VS. CIT 198 ITR 528 A ND ACCORDINGLY DISALLOWED THE CLAIM. 27. ON APPEAL, LD. CIT[A] ADJUDICATED THE ISSUE VID E PARA 7.1 WHICH READS AS UNDER: 7.1 I HAVE CONSIDERED THE FACTS OF THE CASE, SUBMISSION OF THE APPELLANT AND ALSO THE FINDING OF THE A.O. I DO FIND ANY ERROR IN AOS ORDERS IN THIS REGARD. PROVISION OF SECTION 36(1)(V II) OF THE I.T.ACT IS VERY SPECIFIC IN THIS REGARD AND ONLY THE AMOUNT WH ICH HAS BEEN OFFERED TO TAX IN EARLIER YEARS CAN BE WRITTEN OFF AS BAD DEBTS. THIS PROVISION CANNOT BE EXTENDED TO SURPLUS WRITTEN OFF AS BAD DEBTS. THIS PROVISION CANNOT BE EXTENDED TO SURPLUS ACCUMULATED ON ACCOUNT OF BUSINESS. ACCORDING TO THE APPELLANT, THE LOAN WAS GIVEN FROM PROFIT WHICH IS COVERED U/S.36(1)(VII) OF THE I.T.ACT, THI S IS THE STRETCHING LOGIC TO BEYOND THE BREAKING POINT. WHAT WAS CLAIME D AS BAD DEBT IS NOT AN UNREALIZED TRADING RECEIPT, BUT A LOAN. THIS CLAIM OF THE APPELLANT IS NOT ALLOWABLE. 28. BEFORE US, LD. COUNSEL OF THE ASSESSEE REFERRED TO VARIOUS DOCUMENTS FILED IN THE PAPER BOOK AND POINTED OUT T HAT LOAN TO TAINWALA POLYCONTAINERS LTD. WAS GIVEN IN A.Y 1994- 95. THE INITIAL LOAN WAS OF ` `` ` .3,62,72,256/- AND INTEREST WAS CHARGED @ 15%. LATE R ON TAINWALA POLYCONTAINERS LTD. RETURNED A SUM OF ` `` ` .1,77,22,221/-. FURTHER FRESH LOANS WERE ALSO GRANTED IN A.Y 1998-9 9 AND 2000-01 AND INTEREST AMOUNTING TO ` `` ` .21,16,362/- AND ` `` ` .49,64,333/- WAS CHARGED. THIS WAS DULY RETURNED AS INCOME AND IN THIS RESPEC T HE REFERRED TO THE ASSESSMENT ORDERS OF THESE YEARS. LATER ON, THE FIN ANCIAL POSITION OF TAINWALA POLYCONTAINERS LTD. BECAME VERY BAD BECAUS E OF FALL IN THE SHARE MARKET AND ULTIMATELY IT WAS DECIDED TO WAIVE THE INTEREST IN A.Y 2000-01. THE ASSESSEE COMPANY FOUND THAT ONLY A PAR T OF THE AMOUNT WAS RECOVERABLE AND ACCORDINGLY, IT MADE A PROVISIO N OF 22 ` `` ` .1,90,51,000/-. HE REFERRED TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. REALEST BUILDERS & PVT . LTD. [308 ITR 246] WHEREIN PART OF THE LOAN WAS WRITTEN OFF BECAUSE DE BTOR COMPANY HAD SUFFERED HEAVY LOSSES AND THE SAME WERE HELD TO BE ALLOWABLE. 29. HE FURTHER ARGUED THAT CIT[A] HAS MAINLY DISALL OWED THE CLAIM BECAUSE IT WAS ONLY A PROVISION FOR DOUBTFUL DEBT. HE REFERRED TO THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. REALEST BUILDERS PVT. LTD. [308 ITR 246] WHEREIN PART OF TH E LOAN WAS WRITTEN OFF BECAUSE DEBTOR COMPANY HAD SUFFERED HEAVY LOSSE S AND THE SAME WERE HELD TO BE ALLOWABLE. HE FURTHER ARGUED THAT T HE CIT(A) HAS MAINLY DISALLOWED THE CLAIM BECAUSE IT WAS ONLY A P ROVISION FOR DOUBTFUL DEBT. HE SUBMITTED THAT RECENTLY HONBLE SUPREME COURT HAS CLEARLY HELD IN THE CASE OF VIJAYA BANK VS. CIT [SU PRA] THAT IF PROVISION FOR HAS BEEN ULTIMATELY DEBITED TO THE PROFIT & LOS S ACCOUNT AND REDUCED FROM THE DEBTOR IN THE ASSETS SIDE OF THE B ALANCE-SHEET, THEN SAME HAS TO BE CONSTRUED AS WRITING OFF OF THE DEBT . THEN HE REFERRED TO VARIOUS DOCUMENTS, WHICH IS COPY OF THE BALANCE SHEET AND POINTED OUT THAT THIS PROVISION WAS DEBITED TO THE PROFIT & LOSS ACCOUNT AND THE SAME HAS BEEN REDUCED FROM THE OVER ALL LOANS GRANT ED BY THE ASSESSEE COMPANY, THEREFORE, IT IS NOT A CASE OF PR OVISION FOR DOUBTFUL DEBT BUT IT IS SIMPLY BECAUSE OF WRITE OFF OF DEBT. 31. ON THE OTHER HAND, LD.DR SUBMITTED THAT FIRST O F ALL BEFORE THE AO IT WAS CLAIMED THAT DOUBTFUL DEBT WAS IN RESPECT OF KATAYAN CONSTRUCTION & DEVELOPERS LTD. AND THIS FACT CAN BE FURTHER VERIFIED FROM LETTER DATED 17-11-2006 VIDE PARA-6, WHEREAS B EFORE THE CIT(A) 23 THE PROVISION FOR DOUBTFUL DEBTS WAS SHOWN TO BE AG AINST TAINWALA HOLDINGS PVT. LTD. THIS CLEARLY SHOWS THAT ASSESSEE HAS BEEN CHANGING ITS STAND. FURTHER, ASSESSEE HAS NOT ACCOUNTED FOR THESE DEBTS WHILE COMPUTING ITS INCOME. SINCE ASSESSEE IS NOT IN THE BUSINESS OF MONEY LENDING BECAUSE IT IS NOT A NBFC THEREFORE IT CANNO T BE SAID THAT ASSESSEE HAS LENT THE MONEY IN THE ORDINARY COURSE OF BUSINESS AND, THEREFORE, CONDITIONS OF SEC.36(2) ARE NOT COMPLIED WITH. IT WAS FURTHER ARGUED THAT IN RESPONSE TO NOTICE U/S.274 FOR LEVY OF PENALTY U/S.271[1][C] AGAINST THIS DISALLOWANCE, IT WAS CLA IMED BY THE ASSESSEE THAT THE SAID PROVISION WAS ERRONEOUSLY CONSIDERED AS BAD DEBT. THIS ONLY SHOWS THAT ASSESSEE IS SHIFTING ITS STAND. IN ANY CASE LOAN AGAINST TAINWALA HOLDINGS PVT. LTD. HAS BEEN SHOWN AT RS.40 ,11,59,942/-. THIS ONLY SHOWS THAT THE AMOUNT OF PROVISION WAS NOT RED UCED AND IN THIS REGARD HE HAS FILED COPY OF THE LIST SHOWING LOANS AND ADVANCES IN THE ANNUAL REPORT. THEREFORE, THE DECISION OF HONBLE S UPREME COURT IN THE CASE OF VIJAYA BANK VS. CIT [SUPRA] IS NOT APPL ICABLE. HE ALSO REFERRED TO PAGES 59 TO 61 OF THE PAPER BOOK, WHICH IS A COPY OF THE ANNEXURE TO THE AUDITORS REPORT OF TAINWALA HOLDIN GS PVT. LTD. AND INVITED OUR ATTENTION TO PAGE-60 WHEREIN IT WAS MEN TIONED THAT THE COMPANY WAS REGULAR IN REPAYMENT OF PRINCIPAL AND I NTEREST. 32. IN THE REJOINDER, LD.COUNSEL OF THE ASSESSEE PO INTED OUT THAT THE PROVISION FOR DOUBTFUL DEBT IS DEFINITELY IN RESPEC T OF TAINWALA HOLDINGS PVT. LTD. ONLY AND IT WAS BY MISTAKE MENTIONED AS K ATAYAN CONSTRUCTION & DEVELOPERS LTD. THIS FACT BECOMES F URTHER CLEAR FROM THE ORDER OF THE CIT(A) WHEREIN AT PAGE-7 HE HAS RE PRODUCED THE 24 GROUNDS WHICH CLEARLY MENTIONED THE NAME OF TAINWAL A HOLDINGS PVT. LTD. IN ANY CASE, THIS CAN BE VERIFIED BY THE AO. H E ALSO SUBMITTED THAT THERE IS NO FORCE IN THE SUBMISSION THAT ASSESSEE M ADE ARGUMENTS WHILE REPRESENTING HIS APPEAL PROCEEDINGS THAT PROV ISION FOR DOUBTFUL DEBT WAS ERRONEOUSLY CLAIMED AS BAD DEBT, BECAUSE P ENALTY PROCEEDINGS ARE DIFFERENT FROM ASSESSMENT PROCEEDIN GS AND IN ANY CASE PROVISION FOR DOUBTFUL DEBTS MADE NOT HAVE BEC OME ALLOWABLE BEFORE THE DECISION OF THE HONBLE SUPREME COURT I N THE CASE OF VIJAYA BANK VS. CIT [SUPRA] WHICH WAS RENDERED ON 15 TH APRIL, 2010 WHEREAS REPLY IN PENALTY PROCEEDINGS WAS MADE ON 26-12-2006 . THEN HE REFERRED TO PAGES 82 TO 101 OF THE PAPER BOOK WHICH IS A COPY OF THE BALANCE SHEET FOR F.Y 2003-04 OF THE ASSESSEE COMPA NY AND IN PARTICULAR HE INVITED OUR ATTENTION TO PAGE-92 WHIC H IS THE COPY OF THE BALANCE-SHEET WHEREIN LOANS AND ADVANCES HAVE BEEN SHOWN AT RS.8,11,21,850/- AS PER SCHEDULE I. THEN HE REFERRE D TO PAGE-95 WHICH IS THE COPY OF THE SCHEDULE I WHEREIN LOANS TO BODY CORPORATES HAVE BEEN SHOWN AT RS.45884926/- WHICH IS NET OF THE PRO VISION FOR DOUBTFUL DEBT. THUS, IT IS CLEAR THAT PROVISION WAS REDUCED FROM THE OUTSTANDING DEBT. HE THEN REFERRED TO PAGE 98 OF THE PAPER BOOK AND SUBMITTED THAT THE SCHEDULE GIVEN BY THE LD.DR, IN FACT, IS P ART OF THE SCHEDULE-O WHICH IS THE COPY OF THE SIGNIFICANT ACCOUNTING PO LICIES AND NOTES FORMING PART OF THE ACCOUNTS AND INFORMATION GIVEN IS BY WAY OF ADDITIONAL INFORMATION UNDER THE COMPANIES ACT. TOT AL AMOUNT OF OUTSTANDING LOANS AND MAXIM AMOUNTS OF OUTSTANDING DURING THE YEAR HAVE TO BE GIVEN IN THE ANNUAL REPORT. THEREFORE, I NFORMATION RELIED BY 25 THE LD.DR IS IN A DIFFERENT CONTEXT THOUGH IT IS AL SO PART OF THE BALANCE- SHEET. HE ALSO SUBMITTED THAT AS FAR AS ANNUAL REPO RT OF TAINWALA HOLDINGS PVT. LTD. IS CONCERNED, IT WAS THE COMMENT OF THE DEBTOR COMPANY WHICH IS TOTALLY INCORRECT BECAUSE NOTHING WAS PAID TO THE ASSESSEE AFTER 1999-2000 AND IN VIEW OF THE BAD FIN ANCIAL POSITION EVEN NO INTEREST WAS CHARGED FROM THAT YEAR. 33. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. THE FIRST OBJECTION OF THE LD.DR IS THAT ORIGINALLY THE PROVI SION FOR DOUBTFUL DEBT WAS CLAIMED AGAINST KATAYAN CONSTRUCTION & DEVELOPE RS LTD. BEFORE THE AO, WHEREAS BEFORE THE CIT(A) THIS PROVISIONS W AS SHOWN TO BE AGAINST TAINWALA HOLDINGS PVT. LTD. WE FIND THAT TH E LD. CIT(A) HAS REPRODUCED GROUND NO.6 IN PARA-7 WHICH READS AS UND ER: GROUND 6 BAD DEBTS WRITTEN OFF THE AO ERRED IN DISALLOWING THE PROVISION MADE FOR DOUBTFUL RECOVERY OF LOAN GIVEN TO TAINWALA HOLDINGS PRIVATE LIMITED ON THE ALLEGED GROUND THAT THE SAID LOAN GIVEN TO THIS COMPANY ARE NOT DECLARED AS INCOME IN EARLIER YEARS SO THIS AMOUNT CANNOT BE AL LOWED AS DEDUCTION U/S.36(1)(VII) OF THE ACT. IN THIS REGARD IT IS RESPECTFULLY SUBMITTED THAT LO AN GIVEN TO TAINWALA HOLDINGS PRIVATE LIMITED OUT OF THE SURPLUS FUNDS O F THE APPELLANT, WHICH WERE ALREADY OFFERED TO TAX IN THE EARLIER YE ARS. THEREFORE, THE CONTENTION OF THE AO THAT THE LOAN GIVEN TO COMPANY IS NOT DECLARED AS INCOME, IS NOT CORRECT. FURTHER, IT IS TO BE NOTED THAT THE PROVISION IS MA DE AFTER CONSIDERING WEAK FINANCIAL POSITION OF THE TAINWALA HOLDINGS PR IVATE LIMITED. THIS IS CLEARLY LOSS OF FUND OF THE APPELLANT AND THEREF ORE, ALLOWABLE AS DEDUCTION U/S.36(1)(VII) OF THE ACT. THE APPELLANT HUMBLY PRAYS THAT THE PROPER AND APPR OPRIATE RELIEF BE ALLOWED IN THE APPEAL TO MEET THE ENDS OF JUSTICE A S BEING AGGRIEVED BY THE ASSESSMENT MADE, THE APPELLANT IS CONSTRAINED T O FILE THIS APPEAL. 34. FROM THE ABOVE IT IS CLEAR THAT PROVISION FOR D OUBTFUL DEBT SEEMS TO BE ONLY AGAINST TAINWALA HOLDINGS PVT. LTD. HOWE VER SINCE A DOUBT 26 HAS BEEN RAISED, THEREFORE, WE REMIT THE MATTER BAC K TO THE FILE OF THE AO FOR VERIFICATION OF THE NAME AGAINST WHOM THE PR OVISION FOR DOUBTFUL DEBT HAS BEEN CLAIMED. THE SECOND OBJECTION THAT SI NCE ASSESSEE IS NOT A NBFC, THEREFORE, IT CANNOT BE SAID THAT ASSESSEE COMPANY WAS ENGAGED IN THE BUSINESS OF GRANTING LOANS. IT WAS P OINTED OUT BY THE LD.COUNSEL OF THE ASSESSEE THAT WHENEVER ASSESSEE C OMPANY HAS SURPLUS FUNDS THEY WERE LENT AS INTER CORPORATE DEP OSITS AND THIS FACT BECOMES CLEAR FROM PAGE-17 OF THE PAPER BOOK WHEREI N INTEREST HAS BEEN ACCOUNTED FOR. THIS FACT CAN BE FURTHER VERIFI ED FROM ASSESSMENT ORDER FOR A.Y 1995-96, COPY OF WHICH HAS BEEN FILED AT PAGES 53 TO 57 OF THE PAPER BOOK WHEREIN INTEREST FROM LOANS AMOUN TING TO RS.33,00,238/- HAS BEEN ASSESSED AS BUSINESS INCOME . SIMILARLY, IN A.Y 1996-97 FROM THE ASSESSMENT ORDER, COPY OF WHICH IS PLACED AT PAGES 75 TO 78 OF THE PAPER BOOK WHEREIN WHILE DEALING WI TH THE ISSUE OF DEDUCTION U/S.80IA AGAINST INTEREST INCOME IT HAS B EEN CLEARLY MENTIONED THAT ASSESSEE HAS EARNED INTEREST INCOME OF RS.30,68,014/- AND IT HAS BEEN OBSERVED THAT NO DEDUCTION U/S.80IA WAS AVAILABLE. BUT IT CLEARLY SHOWS THAT ASSESSEES INTEREST INCOME HA S BEEN CLEARLY ASSESSED AS BUSINESS INCOME. THUS, IT IS CLEAR THAT WHENEVER ASSESSEE HAS EARNED INCOME FROM GIVING MONEY TO INTER CORPOR ATE DEPOSITS SAME HAS BEEN OFFERED AS BUSINESS INCOME AND HAS BEEN AS SESSED ALSO AS BUSINESS INCOME. THE LD.DR IN THE WRITTEN SUBMISSIO NS HAD ALSO RELIED ON THE DECISION OF THE BOMBAY BENCH OF THE TRIBUNAL IN THE CASE OF M/S. MAINI SHIPPING PVT. LTD. IN I.T.A.NOS.2687/M/0 8 AND 2718/M/07 AND 3531/M/07. IN THAT CASE IT WAS CLEARLY FOUND TH AT INTEREST HAS BEEN 27 CHARGED ONLY FROM TWO PARTIES AND, THEREFORE, LENDI NG OF MONEY COULD NOT BE CONSIDERED AS BUSINESS OF THE ASSESSEE. WHER EAS IN THE CASE BEFORE US, INTEREST HAS BEEN CHARGED FROM ALL THE P ARTIES. MOREOVER, IN THE CASE OF M/S.MAINI SHIPPING PVT. LTD.I.T.A.NO.26 87/M/07 [SUPRA] IT WAS ALSO OBSERVED THAT THERE WAS NO DISCUSSION REGA RDING CHARGING OF INTEREST INCOME AS BUSINESS INCOME AND SECTION 143[ 3] ORDER WAS AVAILABLE ONLY FOR ONE YEAR, WHEREAS IN THE CASE BE FORE US SECTION 143[3] ORDERS ARE AVAILABLE FOR A.YRS.1995-96 AND 1 996-97 AND ALSO THERE IS DISCUSSION REGARDING INTEREST INCOME WHILE ADJUDICATING THE ISSUE FOR DEDUCTION U/S.80IA. THUS, THOSE DECISIONS ARE CLEARLY DISTINGUISHABLE AND WE HOLD THAT ONCE ASSESSEE HAS LENT THE SURPLUS MONEY AND OFFERED THE INTEREST INCOME AS BUSINESS I NCOME, THEN THE ACTIVITY OF LENDING THE MONEY HAS TO BE TREATED AS BUSINESS ACTIVITY. IN ANY CASE, IF THIS CLAIM CANNOT BE ALLOWED AS BAD DE BT, SAME HAS TO BE ALLOWED AS BUSINESS LOSS BECAUSE MONEY WAS LENT DUR ING THE COURSE OF BUSINESS FOR EARNING INCOME. THIS VIEW IS FURTHER S UPPORTED BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN TH E CASE OF DY. CIT VS. SHRI SHREYAS S.MORAKHIA I.T.A.NO.3374/MUM/2004 DATE D 16 TH JULY, 2010. IN THIS CASE VIDE PARA-32 IT WAS HELD AS UNDE R [210 ITR 1] IN WHICH IT WAS HELD AS UNDER: 32. KEEPING IN VIEW ALL THE FACTS OF THE CASE AND THE LEGAL POSITION EMANATING FROM THE VARIOUS JUDICIAL PRONOUNCEMENTS AS DISCUSSED ABOVE, WE ARE OF THE VIEW THAT THE AMOUNT RECEIVABLE BY THE A SSESSEE, WHO IS A SHARE BROKER, FROM HIS CLIENTS AGAINST THE TRANSACTIONS O F PURCHASE OF SHARES ON THEIR BEHALF CONSTITUTES DEBT WHICH IS A TRADING DEBT. TH E BROKERAGE/COMMISSION INCOME ARISING FROM SUCH TRANSACTIONS VERY MUCH FOR MS PART OF THE SAID DEBT AND WHEN THE AMOUNT OF SUCH BROKERAGE/COMMISSION HA S BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF INCOME OF THE ASSESSEE OF THE RELEVANT PREVIOUS YEAR OR ANY EARLIER YEAR, IT SATISFIES THE CONDITIO N STIPULATED IN SECTION 36(2)(I) AND THE ASSESSEE IS ENTITLED TO DEDUCTION U/S.36(1) (VII) BY WAY OF BAD DEBTS AFTER HAVING WRITTEN OF THE SAID DEBTS FROM HIS BOO KS OF ACCOUNT AS 28 IRRECOVERABLE. WE, THEREFORE, ANSWER THE QUESTION R EFERRED TO THIS SPECIAL BENCH IN THE AFFIRMATIVE THAT IS IN FAVOUR OF THE A SSESSEE. 35. THE THIRD OBJECTION IS THAT THE AMOUNT WAS REAL LY NOT REDUCED FROM THE DEBTOR ON THE ASSETS SIDE OF THE BALANCE-S HEET AND IN THIS REGARD THE LD.DR HAD FILED A COPY OF THE ANNUAL REP ORT. HOWEVER, WE FIND THAT THE PORTION OF THE REPORT WHICH HAS BEEN FILED BY THE LD.DR IS A COPY OF THE SCHEDULE-O WHICH CONSISTS OF SIGNIFI CANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2004, THEREFORE, IT IS NOT THE PART OF THE BALANCE SHEET AS SUCH. UNDER COMPANIES ACT EVERY COMPANY IS REQUIRED TO FI LE CERTAIN STATISTICAL INFORMATION, E.G., PRODUCTION CAPACITY, QUANTITATIVE DETAILS OF STOCK ETC. SIMILARLY, IN THE CASE OF LOANS EXTENDED TO THE COMPANIES WITHIN THE SAME GROUP, EVERY COMPANY HAS TO DISCLOS E THE AMOUNT OUTSTANDING AT THE END OF THE YEAR, MAXIMUM AMOUNT OUTSTANDING DURING THE YEAR, NUMBER OF SHARES HELD IN SUCH COMP ANIES AND MAXIMUM NUMBERS OF SHARES HELD IN SUCH COMPANIES, S O THIS PART OF THE SCHEDULE BASICALLY DEALS WITH THE STATISTICAL I NFORMATION IN COMPLIANCE WITH THE REQUIREMENT OF THE COMPANIES AC T. WHEREAS ACTUAL SCHEDULE OF LOANS AND ADVANCES IS SCHEDULE I WHEREIN THE LOAN AMOUNT HAS BEEN SHOWN AFTER REDUCING THE PROVISION FOR DOUBTFUL DEBTS. 36. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF C IT VS. GENERAL INSURANCE CORPORATION LTD. [254 ITR 204] WHEREIN ON E OF THE ISSUE WAS THAT IF A DEBT HAS BEEN WRITTEN OFF THEN WHAT WOULD BE THE PROCEDURE FOR WRITING OFF OF THE DEBT. THE HONBLE COURT ANAL YSED THE CONCEPT OF 29 WRITING OFF AND MADE THE FOLLOWING OBSERVATIONS AT PAGE 209 OF THE REPORT WHICH READ AS UNDER: IN THE CASE OF JWALA PRASAD TIWARI [1953] 24 ITR 5 37, THE BOMBAY HIGH COURT HAD HELD THAT THE EXPRESSION WRITING OF F IS A TECHNICAL TERM USED BY THE AUDITORS. THAT, THERE ARE TWO METH ODS OF DEALING WITH A DEBT WHICH HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT, VIZ., BY GIVING CORRESPONDING CREDIT TO THE DEBTORS ACCOUNT OR BY GIVING CORRESPONDING CREDIT TO THE BAD AND DOUBTFUL DEBTS ACCOUNT. THE FIRST METHOD IS ONLY EMPLOYED WHERE IT IS DESIRED TO CLOS E THE ACCOUNT OF THE DEBTOR. THE SECOND METHOD IS EMPLOYED WHERE THERE A RE SOME CHANCES OF RECOVERY. THAT, WHEN WE TALK OF WRITING OFF, W E ARE NOT CONCERNED WITH THE CREDIT TO BE GIVEN TO AN ACCOUNT. THAT, WRITING OFF MEANS RAISING A DEBIT ENTRY. THIS CAN ONLY BE TO THE DEBI T OF THE PROFIT AND LOSS ACCOUNT. THAT, THIS IS THE ONLY DEBIT WHICH CAN BE RAISED AS A RESULT OF WRITING OFF A BAD DEBT. TO THE SAME EFFECT IS THE J UDGMENT OF THE GUJARAT HIGH COURT IN THE CASE OF SARANGPUR COTTON MFG. CO. LTD. [1983] 143 ITR 166. IN THE CASE OF VITHALDAS H. DH ANJIBHAI BARDANWALA V. CIT [1981] 130 ITR 95, THE DIVISION B ENCH OF THE GUJARAT HIGH COURT HAS HELD THAT UNDER SECTION 36 O F THE ACT, BEFORE ANY CLAIM FOR ALLOWANCE FOR A BAD DEBT IS HELD ESTA BLISHED BY THE ASSESSING OFFICER, IT MUST APPEAR THAT THE CONCERNE D BAD DEBT WAS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT BOOKS O F THE ASSESSEE. THIS REQUIREMENT IS A CONDITION FOR THE GRANT OF CLAIM F OR BAD DEBT ALLOWANCE. TO THAT EXTENT, THERE IS A DEPARTURE FRO M THE EARLIER ACT. HOWEVER, SO FAR AS THE EXACT REQUIREMENT OF THE WRI TING OFF IS CONCERNED, THE LANGUAGE USED IN THE INDIAN INCOME-T AX ACT, 1922 AND THE 1961 ACT IS IDENTICAL. IF THE DEBIT ENTRIES POS TED BY THE ASSESSEE INDICATE THAT BAD DEBT HAS BEEN WRITTEN OFF AS IRRE COVERABLE IN THE ACCOUNTS OF THE ASSESSEE, THEN THE STATUTORY CONDIT ION STANDS FULLY COMPLIED WITH. THAT, IF THE ASSESSEE HAS POSTED ENT RIES IN THE PROFIT AND LOSS ACCOUNT AND THE CORRESPONDING ENTRIES ARE POST ED IN THE BAD DEBT RESERVE ACCOUNT, IT WOULD BE SUFFICIENT COMPLIANCE WITH THE PROVISIONS OF THE STATUTORY REQUIREMENT FOR WRITING OFF AS IRR ECOVERABLE THE CONCERNED DEBT IN THE BOOKS OF THE ASSESSEE. THESE JUDGMENTS SQUARELY APPLY TO THE FACTS OF OUR CASE. IN THE PRESENT MATT ER, THE ASSESSEE HAS POSTED ENTRIES IN THE PROFIT AND LOSS ACCOUNT AND H AS MADE CORRESPONDING ENTRIES IN THE BAD DEBT RESERVE ACCOU NT. THERE- FORE, THERE IS COMPLIANCE WITH SECTION 36(1)(VII). IT MAY BE NOTED THAT PRIOR TO APRIL 1, 1989, THIS STATUTORY REQUIREMENT EXISTE D UNDER SECTION 36(2)(I). THAT ENTRY HAS BEEN SHIFTED AND BROUGHT T O SECTION 36(1)(VII). THEREFORE, TO THE EXTENT OF THE EXACT REQUIREMENT O F WRITING OFF OF THE CONCERNED DEBT AS IRRECOVERABLE, THE LAW REMAINS TH E SAME EVEN AFTER APRIL 1, 1989. HENCE, THERE IS COMPLIANCE WITH SECT ION 36(1)(VII). RULE 5(A) OF THE FIRST SCHEDULE, INTER ALIA, LAYS DOWN T HAT WHERE ANY EXPENDITURE OR ALLOWANCE IS DEBITED TO THE PROFIT A ND LOSS ACCOUNT BY WAY OF RESERVE WHICH IS NOT ADMISSIBLE UNDER THE PR OVISIONS OF SECTION 36(1), THEN THE AMOUNT SHALL BE ADDED BACK IN COMPU TING THE PROFITS OF THE BUSINESS. HOWEVER, IN THE PRESENT CASE, AS STAT ED HEREINABOVE, THERE IS FULL COMPLIANCE WITH SECTION 36(1)(VII). THE MAN NER OF WRITING OFF IS AS PER THE STATUTORY REQUIREMENT. THE DEPARTMENT HA S NOT RAISED THE 30 RELEVANT FACTUAL DISPUTE AS TO WHETHER THE DEBT HAS NOT BECOME IRRECOVERABLE. RECENTLY, THE HONBLE SUPREME COURT HAS DEALT WITH THIS MATTER IN THE CASE OF VIJAYA BANK VS. CIT [322 ITR 166]. IN THAT CASE IT WAS OBSERVED AS UNDER: THOUGH A MERE DEBIT TO THE PROFIT AND LOSS ACCOUNT WOULD CONSTITUTE A PROVISION FOR A BAD AND DOUBTFUL DEBT, YET THAT WOU LD NOT CONSTITUTE ACTUAL WRITE OFF. BUT WHERE BESIDES DEBITING THE PR OFIT AND LOSS ACCOUNT AND CREATING A PROVISION FOR BAD AND DOUBTFUL DEBT, THE ASSESSEE HAS CORRESPONDINGLY/SIMULTANEOUSLY OBLITERATED THE SAID PROVISION FROM ITS ACCOUNTS BY REDUCING THE CORRESPONDING AMOUNT FROM LOANS AND ADVANCES/DEBTORS ON THE ASSETS SIDE OF THE BALANCE- SHEET, AND, CONSEQUENTLY AT THE END OF THE YEAR, THE FIGURE IN THE LOANS AND ADVANCES OR THE DEBTORS ON THE ASSETS SIDE OF THE B ALANCE-SHEET IS SHOWN AS NET OF THE PROVISION FOR 'IMPUGNED BAD DEBT', TH E ASSESSEE WILL BE ENTITLED TO THE BENEFIT OF DEDUCTION UNDER SECTION 36(1)(VII), AS THERE IS AN ACTUAL WRITE OFF BY THE ASSESSEE IN HIS BOOKS. D ISALLOWANCE CANNOT BE MADE ON AN APPREHENSION THAT IF THE ASSESSEE FAI LED TO CLOSE EACH AND EVERY INDIVIDUAL ACCOUNT OF ITS DEBTOR, IT MAY RESULT IN THE ASSESSEE CLAIMING DEDUCTION TWICE OVER. HELD, ON THE FACTS, THAT THE ASSESSEE WAS ENTITLED TO THE DEDUCTION CLAIMED BECAUSE : (I) THE HEAD OFFICE ACCOUNTS OF T HE ASSESSEE CLEARLY INDICATED THAT ON REPAYMENT IN SUBSEQUENT YEARS THE AMOUNTS WERE DULY OFFERED FOR TAX ; (II) THAT UNDER ACCOUNTANCY PRACT ICE THE ACCOUNTS OF THE RURAL BRANCHES HAD TO TALLY WITH THE ACCOUNTS OF TH E HEAD OFFICE, AND IF THE AMOUNT REPAID IN SUBSEQUENT YEARS IS NOT CREDIT ED TO THE PROFIT AND LOSS ACCOUNT OF THE HEAD OFFICE AND IF THE REPAID A MOUNT IN SUBSEQUENT YEARS IS NOT CREDITED TO THE PROFIT AND LOSS ACCOUN T OF THE HEAD OFFICE, WHICH WAS WHAT MATTERED ULTIMATELY, THEN THERE WOUL D BE A MISMATCH BETWEEN THE RURAL BRANCH ACCOUNTS AND THE HEAD OFFI CE ACCOUNTS ; (III) IN ANY EVENT UNDER SECTION 41(4), WHERE DEDUCTION HAD BEEN ALLOWED IN RESPECT OF A BAD DEBT OR A PART THEREOF UNDER SECTI ON 36(1)(VII) THEN IF THE AMOUNT SUBSEQUENTLY RECOVERED ON ANY SUCH DEBT IS GREATER THAN THE DIFFERENCE BETWEEN THE DEBT AND THE AMOUNT SO ALLOW ED, THE EXCESS IS DEEMED TO BE PROFITS AND GAINS OF BUSINESS, AND ACC ORDINGLY CHARGEABLE TO TAX AS THE INCOME OF THE PREVIOUS YEAR IN WHICH IT IS RECOVERED ; AND THE INCOME-TAX OFFICER IS SUFFICIENTLY EMPOWERED TO TAX SUCH SUBSEQUENT REPAYMENTS UNDER SECTION 41(4). THUS, FROM THE ABOVE IT IS CLEAR THAT ONCE A PROVIS ION OF DOUBTFUL DEBT HAS BEEN DEBITED IN THE PROFIT & LOSS ACCOUNT AND T HE CORRESPONDING PROVISION HAS BEEN CREDITED OR REDUCED FROM THE DEB TORS ACCOUNT ON THE ASSETS SIDE OF THE BALANCE-SHEET, THEN THIS WOU LD AMOUNT TO WRITING OFF. IN THE CASE BEFORE US, THE ASSESSEE COMPANY HA S DEBITED THE 31 PROVISION OF DOUBTFUL DEBT TO THE PROFIT & LOSS ACC OUNT AND CORRESPONDINGLY HAS REDUCED THE ASSETS BY REDUCING THE AMOUNT OF UNSECURED LOANS OUTSTANDING AND THUS WOULD AMOUNT T O WRITING OFF OF THE LOAN. ACCORDINGLY, ASSESSEE WOULD BECOME ENTITL ED TO THE CLAIM OF BAD DEBT. ONE MORE OBJECTION WAS RAISED THAT THE DE BTOR COMPANY HAS STATED IN ITS ANNUAL REPORT THAT THEY WERE REGULAR IN MAKING REPAYMENTS, THEREFORE, SUCH WRITE OFF CANNOT BE TRE ATED AS BONA FIDE WRITE OFF. HOWEVER, IT WAS CLEARLY POINTED OUT BEFO RE US THAT THIS OBSERVATION WAS ALSO MADE BY THE DEBTOR COMPANY WHE REAS THE FACT REMAINS THAT NO PAYMENTS WERE RECEIVED IN 2000-01 A ND, IN FACT, ASSESSEE HAD STOPPED CHARGING INTEREST AFTER A.Y 19 97-98 BECAUSE THE FINANCIAL POSITION OF THE DEBTOR COMPANY HAD BECOME BAD. WHEN ASSESSEE COMPANY HAD NOT RECEIVED ANY AMOUNT FOR TH E LAST THREE YEARS AND EVEN NO INTEREST CHARGED, THEN IF ASSESSE E COMPANY AFTER ASCERTAINING THE AMOUNT AS IRRECOVERABLE HAS WRITTE N OFF THE BALANCE AMOUNT, THEN IT CANNOT BE SAID THAT THE SAME IS NOT BONA FIDE. THEREFORE, WE FIND NO FORCE IN THIS OBJECTION. THE LD.DR HAD ALSO MENTIONED THAT IN PENALTY PROCEEDINGS ASSESSEE HAS TAKEN A PLEA THAT THIS AMOUNT WAS NOT CLAIMED AS BAD DEBT BUT WAS ONL Y A PROVISION FOR DOUBTFUL DEBT. AS POINTED OUT BY THE LD.COUNSEL OF THE ASSESSEE FIRST OF ALL IT IS SETTLED THAT ASSESSMENT PROCEEDINGS ARE T OTALLY SEPARATE AND INDEPENDENT FROM PENALTY PROCEEDINGS AND IN ANY CAS E THE REPRESENTATION REGARDING PENALTY WAS MADE ON 26-12- 2006 WHEREAS THE DECISION OF THE HONBLE SUPREME COURT IN THE C ASE OF VIJAYA BANK VS. CIT [SUPRA] WAS RENDERED ON 15 TH APRIL, 2010 WHICH MEANS AT THAT 32 POINT OF TIME THERE WAS A DOUBT WHETHER THE PROVISI ON FOR DOUBTFUL DEBT COULD ALSO BE CONSIDERED AS CLAIM FOR BAD DEBT S BECAUSE ACTUAL WRITING OFF OF THE DEBT WAS NOT THERE AND THIS POSI TION GOT SETTLED ONLY IN 2010 BY THE HONBLE SUPREME COURT. 37. THE ISSUE REGARDING WRITING OFF OF PART OF THE DEBT CAME UP FOR CONSIDERATION BEFORE THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. REALEST BUILDERS AND SERVICES LTD. [308 ITR 246 ]. IN THAT CASE THE FACTS INVOLVED WERE AS UNDER: FOR THE ASSESSMENT YEAR 2001-02, THE ASSESSING OFF ICER DISALLOWED THE DEDUCTION CLAIMED BY THE ASSESSEE IN RESPECT OF BAD DEBTS WRITTEN OFF. THE DEBTOR COMPANY SUFFERED A HEAVY LOSS DUE T O A FIRE WHICH BROKE OUT IN ITS FACTORY. THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY TOOK A BUSINESS DECISION AND PASSED A RESOLUTION ON MARCH, 2001, TO WRITE OFF THE DEBTS TO THE EXTENT THEY WERE NOT REC OVERABLE. A COMPROMISE DEED WAS ALSO EXECUTED ON 14TH MAY, 2001 , WITH THE ASSESSEE COMPANY. THE COMMISSIONER (APPEALS) DELETE D THE ADDITIONS MADE BY THE ASSESSING OFFICER AND RECORDED THE FIND INGS (I) THAT THE ASSESSEE WAS IN THE BUSINESS OF MONEY LENDING THERE IS NO QUESTION OF THE PRINCIPAL AMOUNT WRITTEN OFF TO BE TREATED AS C APITAL IN NATURE AND (II) THAT THE ASSESSEE HAD WRITTEN OFF THE AMOUNT I N THE BOOKS OF ACCOUNT DURING THE RELEVANT PREVIOUS YEAR, THE COMPROMISE F OR WRITE OFF WAS ONLY A FORMALITY. THE TRIBUNAL UPHELD THE ORDER OF THE COMMISSIONER (APPEALS) THAT THE BAD DEBTS WRITTEN OFF IN THE BOO KS OF ACCOUNT OF THE ASSESSEE HAD TO BE ALLOWED AS DEDUCTION UNDER SECTI ON 36(1)(VII) OF THE INCOME-TAX ACT, 1961. ON THE ABOVE FACTS, IT WAS HELD AS UNDER: HELD, DISMISSING THE APPEAL, THAT THE ASSESSEE DID NOT HAVE TO ESTABLISH THE BAD DEBT AND HE HAS TO MERELY INDICATE THAT THE BAD DEBT WAS WRITTEN OFF IN ITS BOOKS IN THE YEAR IN QUESTION. THE PLEA THAT THE ASSESSEE WAS NOT IN THE BUSINESS OF MONEY-LENDING COULD NTO BE R AISED IN APPEAL, PARTICULARLY, WHEN THE COMMISSIONER (APPEALS) HAD G IVEN A CLEAR FINDING TO THE CONTRARY. THERE WAS NO INFIRMITY IN THE ORDER OF THE TRIBUNAL. THUS, IT IS CLEAR THAT EVEN WHEN A PART OF THE DEBT IS WRITTEN OFF, SAME CAN BE ALLOWED AS CLAIM FOR BAD DEBT. IN VIEW OF TH IS DETAILED DISCUSSION, WE SET ASIDE THE ORDER OF THE LD. CIT(A ) AND DIRECTED THE AO TO ALLOW THE CLAIM FOR BAD DEBT. 33 38. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED. 39. I.T.A.NO.3250/M/08 : IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWING GROUND: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT[A] ERRED IN DELETING THE AOS DISALLOWANCE OF P ROVISION OF DOUBTFUL DEBTS IN THE WORKING OF BOOK PROFIT UNDER SECTION 115JB OF THE I.T.ACT WITHOUT APPRECIATING THE FACTS OF THE CASE. 40. THE LD.DR SUBMITTED THAT THOUGH THIS ISSUE IS C ONSEQUENTIAL TO THE CLAIM OF THE ASSESSEE FOR ALLOWING PROVISION FO R DOUBTFUL DEBT, BUT SINCE CLAUSE [I] OF SEC.115JB HAS BEEN INSERTED BY THE FINANCE (NO.2) ACT, 2009 WITH RETROSPECTIVE EFFECT FROM 1-4-2001 W HEREIN PROVISION FOR DIMINUTION OF ANY ASSET IS REQUIRED TO BE ADDED BAC K. 41. ON THE OTHER HAND, LD.COUNSEL OF THE ASSESSEE S IMPLY SUBMITTED THAT THE TRIBUNAL MAY DECIDE THIS ISSUE AFTER CONSI DERING THE DECISION IN IN ASSESSEES APPEAL REGARDING ALLOWANCE OF BAD DEB TS. 42. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFU LLY. WE FIND THAT A CONTROVERSY WAS GOING WHETHER PROVISION FOR DOUBT FUL DEBT WAS AGAINST ANY ASCERTAINED LIABILITY OR A DIMINUTION O F ASSET AND WHETHER SAME COULD BE ADDED BACK TO THE PROFITS U/S.115JB. THE CONTROVERSY WAS SETTLED BY THE HONBLE SUPREME COURT IN THE CA SE OF IN THE CASE OF CIT VS. HCL COMNET SYSTEMS & SERVICES LTD. [305 ITR 499] BY HOLDING THAT PROVISION FOR DOUBTFUL DEBT IS A PROVISION AGA INST DIMINUTION OF THE ASSET AND, THEREFORE, SAME COULD NOT BE ADDED BACK TO THE BOOK PROFITS. HOWEVER, PARLIAMENT INSERTED CLAUSE [I] TO SEC.115JB BY WHICH EVEN THE PROVISION OF DIMINUTION IN THE ASSETS WAS ALSO REQUIRED TO BE ADDED TO THE BOOK PROFITS. THEREFORE, IT WAS A MERE CASE OF PROVISION FOR DOUBTFUL DEBT, THEN IT IS REQUIRED TO BE ADDED BACK TO THE BOOK 34 PROFITS. HOWEVER, WHILE DECIDING THE ASSESSEES APP EAL THE ISSUE REGARDING CLAIM FOR BAD DEBT ALSO CAME UP FOR CONSI DERATION BEFORE THE TRIBUNAL AND BY FOLLOWING THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF VIJAYA BANK VS. CIT [SUPRA] WE HAVE ALR EADY HELD THAT THE CLAIM FOR BAD DEBT IS ALLOWABLE. ONCE SUCH CLAIM IS ALLOWABLE AS SUCH, THEN THERE IS NO QUESTION OF ADDING BACK THE SAME T O THE BOOK PROFITS. IN VIEW OF THIS DISCUSSION, WE CONFIRM THE ORDER OF THE LD. CIT(A). 43. IN THE RESULT, ASSESSEES APPEAL IS PARTLY ALLO WED AND REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 27/4/2011. SD/- SD/- (SMT.ASHA VIJAYARAGHVAN) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI: 27/4/2011. P/-*