DCIT, New Delhi V. Bhartiya Vehicles & Engineering Ltd., New Delhi

ITA 3340/DEL/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53482 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 13-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 08-07-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Assessee Lawyers: R K MEHRA
• Keywords: Business income; Bad and doubtful debts

Judgement Text

ITA NO. 3340/DEL/2010 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER I.T.A. NO. 3340/DEL/2010 A.Y. : 2007-08 DCIT, CIRCLE 2(1), ROOM NO. 398D, CR BUILDING, NEW DELHI VS. BHARTIYA VEHICLES & ENGINEERING LTD., 41-A, FRIENDS COLONY EAST, NEW DELHI 110 065 (PAN/GIR NO. : AAACB0177G) (APPELLANT ) (APPELLANT ) (APPELLANT ) (APPELLANT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) (RESPONDENT ) ASSEESSEE BY : SH. R.K. MEHRA, CA DEPARTMENT BY : MS. ANUSHA KHURANA, SR. D.R. ORDER ORDER ORDER ORDER PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM PER SHAMIM YAHYA: AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST TH E ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) DATED 15.4.2 010 PERTAINING TO ASSESSMENT YEAR 2007-08. 2. THE GROUNDS RAISED READ AS UNDER:- 1. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF ` 16,34,06 5/- ON ACCOUNT OF DEBTORS WRITTEN OFF IGNORING THE FACT TH AT UNREALIZED RENT CANNOT BE CLAIMED AS BAD DEBT UNDER SECTION 36(1)(VII) OF THE ACT. 2. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN LAW AND ON FACTS IN DELETING ADDITION OF ` 25,00,00 0/- ON ITA NO. 3340/DEL/2010 2 ACCOUNT OF ADVANCE WRITTEN OFF IGNORING THE FACT T HAT THE ASSESSEE WAS NOT ENGAGED IN BUSINESS OF MONEY LEND ING AND IT WAS A CASE OF INTEREST FREE LOAN TO SUBSIDI ARY COMPANY WHICH DOES NOT QUALIFY FOR DEDUCTION AS BAD DEBT WRITTEN OFF U/S. 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT. 3. THE APPELLANT CRAVES LEAVE FOR RESERVING THE RIG HT TO AMEND, MODIFY, ALTER, ADD OR FOREGO ANY GROUND(S) OF APPEA L AT ANY TIME BEFORE OR DURING THE HEARING OF THIS APPEAL. 3. APROPOS ADDITION OF ` 16,34,065/ APROPOS ADDITION OF ` 16,34,065/ APROPOS ADDITION OF ` 16,34,065/ APROPOS ADDITION OF ` 16,34,065/- -- - IN THIS CASE ASSESSING OFFICER NOTED THAT ASSESSE E COMPANY HAS DEBITED AN AMOUNT OF ` 16,34,065/- AND ` 25,00,00 0/- TO THE P&L ACCOUNT ON ACCOUNT OF DEBTORS WRITTEN OFF AND A DVANCES WRITTEN OFF RESPECTIVELY. ASSESSEE WAS ASKED TO SUBMIT THE EXP LANATION IN THIS REGARD. WITH REFERENCE TO DEBTORS WRITTEN OFF OF ` 16,34,025/-, ASSESSEE SUBMITTED THAT IT IS OF RENTAL INCOME DUE F ROM ARCHANA AIRWAYS LTD. WHICH WAS PART OF OTHER INCOME AND SU RRENDERED AS ITS INCOME IN THEIR RETURN OF INCOME. ASSESSING OFF ICER OBSERVED THAT THE CONTENTION OF THE ASSESSEE IS NOT ACCEPTABLE D UE TO THE REASON THAT RENTAL INCOME IS TO BE TAXED UNDER THE HEAD IN COME FROM HOUSE PROPERTY. HE FURTHER SUBMITTED THAT UNREALIZED RENT CAN NEITHER BE CLAIMED AS BAD DEBT NOR IT CAN BE CLAIMED AS BUSINESS LOSS UNDER THE HEAD PROFIT AND GAIN OF BUSINESS OR PROFESSION AS PER PROVISIONS OF IT ACT. ACCORDINGLY, ASSESSING OFFICER HELD THAT TH E CLAIM ON ACCOUNT OF DEBTORS WRITTEN OFF AT ` 16,34,065/- IS DISALLOWED AND ADDED BACK TO THE BUSINESS INCOME OF THE ASSESSEE. 4. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOME TAX (APPEALS) GAVE A FINDING THAT A PERUSAL OF THE PROF IT AND LOSS ACCOUNTS ITA NO. 3340/DEL/2010 3 AND THE STATEMENTS SHOWING COMPUTATION OF TOTAL I NCOME WOULD REVEAL THAT THE RENTAL INCOME WAS ALWAYS DECLARED A S BUSINESS INCOME AND WERE ASSESSED TO TAX AS SUCH BY THE LEARNED ASS ESSING OFFICER. IN NONE OF THESE YEARS THE ASSESSING OFFICER HAD EVER RAISED ANY ISSUE IN THIS REGARD. LD. COMMISSIONER OF INCOME TAX (APPEA LS) FURTHER OBSERVED THAT THE ASSESSEE HAS BEEN CONSISTENTLY SHOWING IT AS BUSINESS INCOME AND THE REVENUE HAS BEEN ACCEPTING T HE SAME IN THE EARLIER YEARS. LD. COMMISSIONER OF INCOME TAX (APPEA LS) FURTHER HELD THAT HAVING ASSESSED RENTAL INCOME AS BUSINESS INC OME IN THE PAST THE CONDITIONS LAID DOWN IN SEC. 36(2)(I) STANDS SATISF IED. MOREOVER, SINCE THE DEBT HAS BEEN WRITTEN OFF IN THE BOOKS OF ACCOU NTS, THE REQUIREMENT OF SECTION 36(1)(VII) ARE ALSO SATISFIE D. ACCORDINGLY, LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE C LAIM OF BAD DEBTS OF ` 16,34,065/- WAS ALLOWABLE. 5. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS GIVEN A FINDING THAT AS SESSEE HAS BEEN OFFERING THE IMPUGNED INCOME AS BUSINESS INCOME IN TH E PAST AND THE SAME HAS BEEN ASSESSED AS SUCH. UNDER THE CIRCUMSTA NCES, THE SAME HAS BEEN WRITTEN OFF AS BAD DEBT, THE SAME HAS TO BE ALLOWED, AS PER THE PROVISION OF SECTION 36(2)(I) AND 36(1)(VII). ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. COMMISSION ER OF INCOME TAX (APPEALS) AND UPHOLD THE SAME ON THIS ISSUE. 7. APROPOS ADDITION OF ` 25,00,000/ APROPOS ADDITION OF ` 25,00,000/ APROPOS ADDITION OF ` 25,00,000/ APROPOS ADDITION OF ` 25,00,000/- -- - THE AMOUNT OF ` 25,00,000/- REPRESENTED TO THE A DVANCE GIVEN TO SUBSIDIARY COMPANY. THE SAME WAS WRITTEN OFF AS BAD DEBT. ITA NO. 3340/DEL/2010 4 ASSESSING OFFICER OBSERVED THAT THE AMOUNT WAS NOT A DEBT WHICH AROSE IN THE NORMAL COURSE OF BUSINESS OF THE COMPANY NOR DID IT REPRESENT MONEY LENT BY THE ASSESSEE COMPANY IN THE C OURSE OF BANKING OR MONEY LENDING BUSINESS. ASSESSING OFFIC ER OBSERVED THAT THE CONDITION LAID DOWN IN SECTION 36(2)(I) OF THE ACT THAT THE DEBT OR PART THEREOF SHOULD HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHI CH IT WAS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR WAS NOT SATISFIED. ASSESSING OFFICER FURTHER FOUND THAT THERE WAS NO BASIS TO SHOW AS T O HOW THE LOANS AND ADVANCES CONSTITUTED BUSINESS LOSS OR BAD DEBTS IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE ASSESSEE. HE OBSE RVED THAT ASSESSEE IS A MANUFACTURER AND THERE WAS NOTHING TO INDICATE THAT THE ASSESSEE USED TO LEND MONEY IN THE ORDINARY COURSE O F ITS BUSINESS. HENCE, HE OBSERVED THAT SINCE THE CONDITIONS OF SE CTION 36(2) R.W.S. 36(1)(VII) OF THE ACT ARE NOT SATISFIED, THE ADVANC E COULD NOT BE CLAIMED AS BAD DEBTS WRITTEN OFF. ASSESSING OFFICER FURT HER OBSERVED THAT THE CLAIMED ADVANCE OF ` 25,00,000/- CAN ALSO NOT BE CLA IMED AS BUSINESS LOSS. IN THIS REGARD HE REFERRED TO THE JUDGEMENT OF THE HONBLE APEX COURT IN THE CASE OF C.I.T. VS. ABDULLABHAI ABDULKA DAR (1961) 41 ITR 545 (SC). IN THIS CASE HONBLE COURT HAD HELD THAT IN THE CASE OF BAD DEBTS ARISING OUT OF ADVANCES MADE IN A BUSINESS O R PROFESSION, THE DECIDING POINT IS WHETHER ADVANCES ARE MADE FOR THE PURPOSE OF BUSINESS OR PROFESSION OR WHETHER THEY ARE RELATED TO THE BUSINESS OR PROFESSION OR RESULTS THEREON. IN THE BACKGROUN D OF THE AFORESAID DISCUSSION, ASSESSING OFFICER HELD THAT THE ADVANC ES WRITTEN OFF AMOUNTING TO ` 25,00,000/- IS HELD AS A LOSS OF CAPI TAL NATURE AND IS DISALLOWED AS DEDUCTION. ITA NO. 3340/DEL/2010 5 8. UPON ASSESSEES APPEAL LD. COMMISSIONER OF INCOM E TAX (APPEALS) OBSERVED THAT THE ADVANCES WRITTEN OFF OF ` 25,00,000/- WAS LENT IN THE COURSE OF MONEY LENDING BUSINESS. IN THIS REGARD, LD. COMMISSIONER OF INCOME TAX (APPEALS) REFERRED TO THE CLAUSE NO. 17 OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION WHICH ALLOWED THE ASSESSEE TO CARRY ON THE BUSINESS OF MONEY LENDING. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVE D THAT IT IS NOT IN DISPUTE THAT THIS WAS THE FIRST TRANSACTION IN THE COURSE OF THE MONEY LENDING BUSINESS THOUGH SUCH BUSINESS WAS DISCONTIN UED BECAUSE OF ADVERSE RESULTS. LD. COMMISSIONER OF INCOME TAX (A PPEALS) FURTHER OBSERVED THAT MONEY LENDING AND THE COMMERCIAL EXIG ENCIES ARE COMBINED IN THIS CASE. HE FURTHER OBSERVED THAT I N THE CASE OF MONEY LENDING BUSINESS THE WRITING OFF AS BAD DEBT UNDER SECTION 36(1)(VII) READ WITH SECTION 36(2)(I) ARE OTHERWISE ALLOWABLE AS DEDUCTION. LD. COMMISSIONER OF INCOME TAX (APPEALS) FURTHER REFERRE D TO THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF SA BUILDER S VS. C.I.T. REPORTED IN 288 ITR 1 (SC). LD. COMMISSIONER OF INCOME TAX (A PPEALS) HELD THAT THE RATIO OF THE PRINCIPLES OF LAW LAID DOWN IN THE ABOVE SAID CASE BEFORE THE HONBLE SUPREME COURT IS THAT IN CASE TH E HOLDING COMPANY IS HAVING DEEP INTEREST IN THE SUBSIDIARY COMPANY, T HE INTEREST PAID BY THE HOLDING COMPANY ON THE MONEY BORROWED AND USED B Y THE ITA NO. 3340/DEL/2010 6 SUBSIDIARY FOR BUSINESS IS ALLOWABLE AS DEDUCTION. LD. COMMISSIONER OF INCOME TAX (APPEALS) OPINED THAT THIS PRINCIPLE SHA LL ALSO APPLY IN CASE THE LOSS IS TO BE CLAIMED AS DEDUCTION U/S. 36(1)(V II) R.W.S. 36(2) OF THE ACT. LD. COMMISSIONER OF INCOME TAX (APPEALS) FUR THER OBSERVED THAT THE FACT RELATING TO ARCHANA AIRWAYS LTD. BEING THE SUBSIDIARY COMPANY OF THE ASSESSEE COMPANY IS NOT IN DISPUTE WHICH PRO VES THE COMMERCIAL ANGLE IN ADVANCING MONEY TO THE SAID SUBS IDIARY COMPANY. LD. COMMISSIONER OF INCOME TAX (APPEALS) ACCORDINGLY , HELD THAT HE WAS INCLINED TO ALLOW THE CLAIM OF ` 25,00,000/- AS ALLOWABLE DEDUCTION U/S. 36(1)(VII) AS BAD DEBTS WRITTEN OFF R.W.S. 36( 2) OF THE IT ACT. 9. AGAINST THE ABOVE ORDER THE REVENUE IS IN APPEAL BEFORE US. 10. WE HAVE HEARD THE RIVAL CONTENTIONS IN LIGHT OF THE MATERIAL PRODUCED AND PRECEDENT RELIED UPON. WE FIND THAT ASSESSEE IN THIS CASE HAS LENT A SUM OF ` 25,00,000/- TO THE SUBSIDIA RY COMPANY ARCHANA AIRWAYS. IT HAS BEEN CLAIMED THAT THE AMOU NT HAD BEEN ADVANCED IN THE COURSE OF THE MONEY LENDING BUSINES S. TO SUBSTANTIATE THIS GROUND, IT HAS BEEN URGED THAT CL AUSE NO. 17 OF THE MEMORANDUM AND ARTICLES OF ASSOCIATION HAD ALLOWED T HE ASSESSEE TO CARRY ON THE BUSINESS OF MONEY LENDING. WE FIND TH AT EXCEPT FOR THIS MENTION IN THE MEMORANDUM AND ARTICLES OF ASSOCIATION ASSESSEE HAS NOT PRODUCED ANY DOCUMENTS WHATSOEVER PERTAINING TO THE SAID LOAN ITA NO. 3340/DEL/2010 7 TRANSACTION. IT IS AN ADMITTED POSITION THAT IT W AS THE ONLY TRANSACTION OF MONEY LENDING DONE BY THE COMPANY AND THE COMPANY H AS CEASED TO DO ANY BUSINESS OF SUCH NATURE. THE ASSESSEE HAS NOT PRODUCED ANY LOAN AGREEMENT IN THIS REGARD. ON QUERY IN THIS REGARD, LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT THERE WAS NO RATE OF INTEREST SPECIFIED AND THERE WAS NO RESOLUTION ALSO BY THE SAID COMPANY FOR GRANT OF FRESH LOAN. THE PURPOSE FOR WHICH THE AMOUNT OF LOAN WAS SPECIFIED IS ALSO NOT BEING SPELT OUT. IN THESE CI RCUMSTANCES, WHEN THERE ARE NO DOCUMENT WHATSOEVER TO SUPPORT THE V ERACITY OF THE SAID LOAN TRANSACTION OF THE SAID COMPANY, IN OUR C ONSIDERED OPINION, THE ACTION OF THE LD. COMMISSIONER OF INCOME TAX (APPE ALS) IS NOT SUSTAINABLE. REFERENCE TO THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF SA BUILDERS VS. C.I.T. REPORTED IN 288 ITR 1 (SC) DOES NOT SUPPORT THE ASSESSEES CASE ON THE FACTS AND THE CI RCUMSTANCES OF THE CASE. IN THE PRESENT CASE, ASSESSEE HAS GIVEN A SUM OF ` 25,00,000/- TO THE SUBSIDIARY COMPANY, THERE IS NO LOAN AGREEMENT , NO RATE OF INTEREST SPECIFIED AND NO RESOLUTION FOR ADVANCI NG OF THE AMOUNT AND NO SPECIFICATION AND THE PURPOSE FOR WHICH THE LO AN WAS TO BE UTILIZED. IN THESE CIRCUMSTANCES, IT IS CLEAR THAT IT CANNOT BE SAID THAT ADVANCE WAS MADE FOR THE PURPOSE OF BUSINESS OF THE ASSESSE E AND THAT IT WAS RELATED TO THE BUSINESS OF THE ASSESSEE. HENCE, WE SET ASIDE THE ORDER ITA NO. 3340/DEL/2010 8 OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) AND R ESTORE THAT OF ASSESSING OFFICER ON THIS ISSUE. THUS THE DISALLOW ANCE OF ` 25,00,000/- BY THE ASSESSING OFFICER IS UPHELD. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16/12/2011. SD/- SD/- [ [[ [I.P. BANSAL I.P. BANSAL I.P. BANSAL I.P. BANSAL] ]] ] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] [SHAMIM YAHYA] JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER ACCOUNTANT MEMBER DATE 16/12/2011 SRB COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: COPY FORWARDED TO: - -- - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY BY ORDER, ASSISTANT REGISTRAR, ITAT, DELHI BENCHES