DCIT, New Delhi V. M/s Neminath Industries Pvt. Ltd., New Delhi

ITA 3393/DEL/2016

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9258 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 6 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2010-2011
• Appeal Filed On: 08-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: G JOHNSON
• Keywords: Capital asset; Business income; Earning of tax free income; Bad and doubtful debts; Capital receipt
• Section: 14A; 133(6); 28

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL, DELHI BENCH E, NEW DELHI BEFORE : SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI L.P. SAHU, ACCOUNTANT MEMBER ITA NO. 3393/DEL/2016 ASSESSMENT YEAR: 2010-11 D.C.I.T., CIRCLE 18(1), NEW DELHI. (APPELLANT) VS. NEMINATH INDUSTRIES PVT. LTD., 1-G, FIRST FLOOR, BHARAT NAGAR, NEW FRIENDS COLONY, NEW DELHI. PAN AAACR3132K (RESPONDENT) C.O. 282/DEL/2016 (IN ITA NO. 3393/DEL/2016) ASSESSMENT YEAR: 2010-11 NEMINATH INDUSTRIES PVT. LTD., 1 - G, FIRST FLOOR, BHARAT NAGAR, NEW FRIENDS COLONY, NEW DELHI. (APPELLANT) VS. D.C.I.T., CIRCLE 18(1), NEW DELHI. (RESPONDENT) REVENUE BY SH. G. JOHNSON, SR. DR RESPONDENT BY SH. AMOL SINHA, ADVOCATE & SH. ASHWINI KUMAR, ADVOCATE ORDER PER L.P. SAHU, A.M.: THE APPEAL BY THE REVENUE AND CROSS-OBJECTION BY T HE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A)-42, NEW DE LHI DATED 31.03.2016 FOR THE ASSESSMENT YEAR 2010-11 ON THE FOLLOWING GROUND S : DATE OF HEARING 03.12.2018 DATE OF PRONOUNCEMENT 21 .12.2018 ITA NO. 3393 & CO NO. 282/DEL/2016 2 GROUNDS RAISED BY REVENUE: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE C ASE & IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION AMOUNTI NG TO RS. 1,25,00,000/- ON ACCOUNT OF PREMIUM RECEIVED AGAINST TRANSFER OF TENANCY RIGHTS CONSIDERING THE RECEIPTS AS CAPITAL RECEIPTS IGNO RING THE FACT THAT THE ASSESSEE WAS NOT THE OWNER OF THE PREMISES? 2. WHETHER IN FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE DISALLOWANCE AMO UNTING TO RS. 4,77,433/- U/S 14A READ WITH RULE 8D OF THE INCOME TAX ACT, 196 1 WITHOUT CONSIDERING LEGISLATIVE INTEND OF INTRODUCING SECTI ON 14A BY THE FINANCE ACT 2001 AS CLARIFIED BY THE CBDT CIRCULAR NO. 5/201 4 DATED 10.02.2014? 3. WHETHER IN FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) IS JUSTIFIED IN DELETING THE DISALLOWANCE UND ER SECTION 14A READ WITH RULE 8D OF THE INCOME TAX ACT, 1961 AMOUNTING T O RS. 4,77,433/- WITHOUT CONSIDERING LEGAL PRINCIPLES THAT ALLOWABIL ITY OF EXPENDITURE UNDER THE ACT IS NOT CONDITIONAL UPON THE EARNING O F THE INCOME AS UPHELD BY HONBLE SUPREME COURT IN THE CASE OF CIT VS. RAJE NDRA PRASAD MOODY (1978) 115 ITR 519? GROUNDS OF CROSS-OBJECTION: 1. THE ORDER PASSED BY THE CIT(A)-42 IS BAD IN LAW AN D IS VOID -AB- INITIO. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE T HE CIT (A) HAS ERRED IN LAW AND HAS INCORRECTLY CONFIRMED THE ADDI TION MADE BY THE ASSESSING OFFICER BY ADDING A SUM OF RS. 3,95,00,00 0/- BY DISALLOWING THE AMOUNT WRITTEN OFF BY THE ASSESSEE AS BAD DEBT AS T HE SAID AMOUNT WAS GIVEN AS ADVANCE FOR CARRYING THE BUSINESS OF THE A SSESSEE COMPANY AND WAS ALLOWABLE UNDER THE PROVISIONS OF THE INCOME TAX ACT, 1961. 2. FROM THE AFORESAID GROUNDS, IT IS CLEAR THAT THE REVENUE HAS CHALLENGED THE DELETION OF FOLLOWING ADDITIONS : ITA NO. 3393 & CO NO. 282/DEL/2016 3 (I). ADDITION OF RS.1,25,00,000/- MADE ON ACCOUNT O F PREMIUM RECEIVED AGAINST TRANSFER OF TENANCY RIGHT BEING IN THE NATURE OF REVENUE RECEIPT. (II). DISALLOWANCE OF RS.4,77,433/- U/S. 14A R.W.R . 8D. 3. ON THE OTHER HAND, THE ASSESSEE BY WAY OF CROSS OBJECTION HAS CHALLENGED THE SUSTENANCE OF ADDITION OF RS.3,95,00 ,000/- MADE ON ACCOUNT OF DISALLOWANCE OF BAD DEBT/BUSINESS LOSS. 4. WE FIRST TAKE UP THE APPEAL OF THE REVENUE. THE FIRST ISSUE INVOLVED IN THIS APPEAL PERTAINS TO DELETION OF ADDITION OF RS. 1,25,00,000/- AS PREMIUM RECEIVED AGAINST TRANSFER OF TENANCY RIGHTS. THE AS SESSING OFFICER TREATED THIS RECEIPT AS REVENUE RECEIPTS WHEREAS THE LD. CIT(A) HAS ACCEPTED THE PLEA OF ASSESSEE OF IT BEING THE CAPITAL RECEIPT. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE HAD TENANCY RIGHTS AT 8 TH FLOOR, WEST TOWER, HOTEL LE MERIDIAN, JANPATH NEW DELHI. AS PER ASSESSING OFFICER, THE SA ID RIGHTS WERE ACQUIRED BY THE ASSESSEE FOR HIS BUSINESS ACTIVITIES AND THE AS SESSEE TRANSFERRED THE TENANCY RIGHTS OF PART OF THE LEASED PREMISES TO M/ S. LALIT MODI HUF AGAINST WHICH THE RECEIPTS OF RS.1,25,00,000/- CONSTITUTED TO BE THE REVENUE RECEIPTS TO COMPENSATE THE BUSINESS LOSSES OF THE ASSESSEE, AS IT WAS IN THE NATURE OF TRADING RECEIPTS. THE LEARNED DR HAS ALSO SUPPORTED THE CONTENTION OF THE ASSESSING OFFICER. THE CONTENTION OF THE ASSESSEE, AS PLEADED BY THE LD. AR, ON THE OTHER HAND, HAS BEEN THAT THE SAID PROPERTY WAS AN INCOME GENERATING ASSET AND THE RECEIPTS AGAINST TRANSFER OF TENANCY RIGHT ON SUCH AN ASSET, WOULD AMOUNT TO COMPENSATE THE LOSS OF ASSET OF ENDURING VALUE AND AS SUCH, THESE ITA NO. 3393 & CO NO. 282/DEL/2016 4 RECEIPTS WERE CAPITAL IN NATURE. HAVING DISREGARDED THE CONTENTION OF THE ASSESSEE AND RELYING ON SOME CASE LAWS, THE ASSESSI NG OFFICER MADE ADDITION OF RS.1,25,00,000/- AS REVENUE RECEIPTS TREATING TH E PREMIUM RECEIVED AGAINST TRANSFER OF TENANCY RIGHTS AS COMPENSATION OF BUSIN ESS ACTIVITIES AND TAXED THE SAME IN THE HANDS OF THE ASSESSEE. THE FIRST APPELL ATE AUTHORITY, AFTER CONSIDERING THE DETAILED SUBMISSIONS OF THE ASSESSE E AND FOLLOWING THE DECISION OF ITAT IN THE CASE OF ASSESSEE ITSELF FOR A.Y. 2005-06, 2006-07 & 2007-08 AND OF CIT(A) FOR A.Y. 2009-10, DELETED THE ADDITION OBSERVING AS UNDER : FINDING 5.5 I HAVE CONSIDERED THE FACTS OF THE CASE IN THE LIGHT OF SUBMISSION MADE BY THE APPELLANT AND VARIOUS DOCUMENTARY EVIDE NCES FILED BY IT IN THE LIGHT OF THE DECISION OF HON'BLE ITAT, DELHI IN THE CASE OF THE APPELLANT FOR A.Y. 2005-06. IT IS UNDISPUTED THAT THE APPELLA NT HAD ACQUIRED RIGHTS UNDER A SUB-LICENSING AGREEMENT IN RESPECT OF OFFIC E SPACE IN HOTEL LE MERIDIAN UNDER THE SUB-LICENSING AGREEMENT DATED 29 .05.1999. THE APPELLANT HAS BEEN OFFERING THE INCOME FROM SUB-LET TING OUT OF SUCH PROPERTY AS 'INCOME FROM HOUSE PROPERTY', HOWEVER, THE AO HAS BEEN TAXING SUCH INCOME AS BUSINESS INCOME. THE HON'BLE I TAT FOLLOWING ITS DECISION IN THE CASE OF THE APPELLANT FOR THE A.Y. 2005-06, WHICH WAS FOLLOWED IN A.Y. 2006-07, A.Y. 2007-08 AND A.Y. 200 8- 09 HAS HELD THAT IN VIEW OF THE FACT THAT THE APPELLANT WAS IN FULL CON TROL IN HIS CAPACITY IN EARNING INCOME BY SUB-LETTING OF THE PROPERTY, SUCH INCOME WAS TAXABLE AS 'INCOME FROM HOUSE PROPERTY'. THIS DECISION HAS BEEN FOLLOWED BY THE ID. CIT(A)-XVI, NEW DELHI 5.6 IN VIEW OF THE ABOVE, IT IS EVIDENT THAT THE BU NDLE OF RIGHTS ACQUIRED BY THE APPELLANT ON ENDORSEMENT OF SUB-LICENSING AG REEMENT WITH RESPECT TO THE TWO IMMOVABLE PROPERTIES IN THE NATURE OF OF FICE SPACE IN 8TH FLOOR OF LE MERIDIAN HOTEL, NEW DELHI COMPRISING 'TENANCY RIGHTS' WERE IN THE NATURE OF A CAPITAL ASSET, WHICH HAVE BEEN EXPLOITE D BY THE APPELLANT OVER ITA NO. 3393 & CO NO. 282/DEL/2016 5 THE LAST SEVERAL YEARS OF HOLDING OF SUCH TENANCY R IGHTS FOR THE PURPOSE OF EARNING RENTAL INCOME FROM SUB-LETTING IT. THIS INCO ME HAS BEEN HELD BY THE ITAT TO BE IN THE NATURE OF 'INCOME FROM HOUSE P ROPERTY'. THERE IS NO DISPUTE THAT CONSEQUENT UPON THE AGREEMENT WITH M/S LALIT MODI HUF DATED 28.08.2008, THE ENTIRE BUNDLE OF RIGHTS EMBED DED IN SUCH TENANCY RIGHTS THAT WERE ENDORSED TO THE APPELLANT IN RESPE CT OF THE SUB-LICENSEE AGREEMENT FOR THE AFORESAID PROPERTY WERE IRREVOCAB LY TRANSFERRED TO THE TRANSFEREE M/S LALIT MODI HUF. IT IS ALSO EVIDENT T HAT THE APPELLANT HAS NOT BEEN IN THE BUSINESS OF TRADING IN TENANCY RIGHTS. THEREFORE, THE INCOME ON TRANSFER OF SUCH TENANCY RIGHTS CANNOT BE HELD AS B USINESS INCOME IN THE LIGHT OF HON'BLE ITAT, DELHI'S DECISION FOR A.Y. 20 05-06 AND SUBSEQUENT ASSESSMENT YEARS, BY WHICH THE NATURE OF SUB-TENANC Y RIGHTS HAS BEEN HELD TO BE CAPITAL IN NATURE. IN VIEW OF THIS, THE ACTIO N OF THE AO IS HELD TO BE DEVOID OF MERIT AND CANNOT BE SUSTAINED. IN VIEW OF THIS, THE RECEIPT OF RS. 1.25 CRORES IS HELD TO BE CAPITAL IN NATURE. 5.7 HAVING HELD THIS, THE COMPUTATION OF LTCG MADE B Y THE APPELLANT NEEDS EXAMINATION. IT IS SEEN THAT THE AP PELLANT HAD COMPUTED LONG TERM CAPITAL GAINS ON TRANSFER OF TENANCY RIGH TS AT RS. 178,89,058/-. IN THIS REGARD, THE APPELLANT HAS GIVEN THE WORKING AS UNDER: (A) THE CALCULATION OF THE LTCG IS WORKED OUT AS UND ER: AMOUNT RECEIVED RS. 1,25,00,000/- ADD: LIABILITY TAKEN OVER BY THE TRANSFEREE RS. 67, 50,000/- ADD: EXCESS OF AMOUNT REED, FROM TENANT OVER THE SECURITY DEPOSIT MADE WITH LAND LORD RS. 2,97,368/- TOTAL : RS. 1,95,47,368 (B) THE ASSESSEE COMPANY HAS CLAIMED LONG TERM CAPIT AL LOSS OF RS. 16,58,310/- AS PER DETAIL GIVEN BELOW: A. REFUNDABLE SECURITY DEPOSITED WITH 31,30,69 5/- M/S C.J. INTERNATIONAL HOTELS LTD., NEW DELHI IN THE YEAR 1999 TO ACQUIRE THE PREMISES. B. INDEX COST OF THE REFUNDABLE SECURITY 50,86,373 /- (I.E. RS. 3130695/389*632) LESS: SECURITY REFUNDED BY MR. LA LIT MODI (HUF) 3 4,28,063/- LONG TERM CAPITAL LOSS 16,58,310/- ITA NO. 3393 & CO NO. 282/DEL/2016 6 (C) NET 1,78,89,058/- 5.8 ON CAREFUL CONSIDERATION, IT IS SEEN THAT THE A PPELLANT HAD CLAIMED THE BENEFIT OF COST INFLATION INDEXING IN RESPECT O F REFUNDABLE SECURITY DEPOSIT GIVEN TO THE OWNER OF THE PROPERTY M/S C.J. INTERNATIONAL HOTELS LTD. (RS. 31,30,695/-) AND AFTER INDEXING IT FOR TH E PERIOD BETWEEN 1999 TO 2010, TOOK THE INDEXED VALUE OF SUCH SECURITY DEPOS IT AT RS. 50,86,373/-, ON WHICH LONG TERM CAPITAL LOSS OF RS. 16,58,310/- WAS CLAIMED. IN MY CONSIDERED VIEW, THE ONLY ASSET IN QUESTION WAS THE BUNDLE OF TENANCY RIGHTS, WHICH WERE SOLD AT RS. 1.25 CRORES, IN RESP ECT OF WHICH THE APPELLANT HAD DISCLOSED LONG TERM CAPITAL GAIN OF RS. 1.95 CR ORES. THE SECURITY DEPOSIT MADE WITH THE OWNER OF PROPERTY SUB-LET TO IT, CANNOT BE EQUATED WITH AN ASSET, SINCE SUCH A DEPOSIT IS ONLY IN THE NATURE OF FINANCIAL TRANSACTION AND, IN ITSELF, DOES NOT COMPRISE OF AN Y RIGHTS AND HENCE, LACKS THE ATTRIBUTES OF AN ASSET. THE SAID DEPOSIT OF RS. 31,30,695/- HAS BEEN REFUNDED BY THE TRANSFEREE ON BEHALF OF THE OWNER W ITH A SURPLUS OF RS. 2,97,368/-. HOWEVER, BY NO STRETCH OF IMAGINATION, SUCH A REFUND OF DEPOSIT CAN BE TREATED AS ELIGIBLE FOR COST INFLATI ON INDEXATION UNDER SECOND PROVISO TO SECTION 48 AS THE SAME DOES NOT C ONSTITUTE THE COST OF AN ASSET. IN VIEW OF THIS, ENHANCEMENT OF RS. 16,58,31 0/- IN THE LONG TERM CAPITAL GAINS IS BEING MADE. THE APPELLANT GETS RELI EF IN RESPECT OF ADDITION OF RS.1.25 CRORES MADE IN THE BUSINESS INCOME. 5. HAVING CONSIDERED THE RIVAL CONTENTIONS, WE DO N OT FIND ANY JUSTIFICATION TO INTERFERE WITH THE DECISION REACHED BY THE LD. C IT(A). THE LD. CIT(A) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AFTER C ONSIDERING THE DOCUMENTARY EVIDENCES FURNISHED BY THE ASSESSEE AND THE DECISIO N REACHED BY THE ITAT IN THE CASE OF ASSESSEE FOR A.Y. 2005-06 WHICH WAS FOL LOWED IN ASSESSMENT YEAR 2006-07, 2007-08 AND 2008-09. THE LD. CIT(A) HAS AL SO FOLLOWED THE DECISION OF TRIBUNAL IN A.Y. 2009-10. THERE BEING NO CONTRAR Y MATERIAL ON RECORD FROM THE SIDE OF REVENUE TO TAKE A CONTRARY VIEW, WE FIN D NO JUSTIFICATION TO DISTURB THE FINDINGS REACHED BY THE LD. CIT(A). WE, THINK I T APPROPRIATE TO ADD THAT THE ASSET, THE TENANCY RIGHT OF WHICH WERE TRANSFERRED BY THE ASSESSEE WAS ITA NO. 3393 & CO NO. 282/DEL/2016 7 UNDOUBTEDLY AN INCOME EARNING SOURCE AND THEREFORE, THE AMOUNT RECEIVED AGAINST TRANSFER OF TENANCY RIGHTS SHOULD HAVE BEEN TREATED AS COMPENSATION FOR STERILIZATION OF PROFIT EARNING SOURCE AND NOT IN ORDINARY COURSE OF ITS BUSINESS. FOR THIS, WE FIND SUPPORT FROM THE DECISI ON OF HONBLE SUPREME COURT IN CIT VS. SAURASHTRA CEMENT LTD. (2010) 192 TAXMAN 300(SC) RELIED BY THE LD. AR. VIEWED FROM THIS ANGLE ALSO THE ORDER O F THE LD. CIT(A) DOES NOT SUFFER FROM ANY INFIRMITY. ACCORDINGLY, THE FIRST I SSUE IS DECIDED AGAINST THE REVENUE AND IN FAVOUR OF THE ASSESSEE. 6. THE SECOND ISSUE RELATES TO DISALLOWANCE U/S. 14 A. THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD MADE INVESTMENTS OF R S.72,32,400/- IN SHARES, BUT NO SUO MOTO DISALLOWANCE OF EXPENSES WERE MADE U/S. 14A. THE ASSESSING OFFICER OBSERVED THAT SINCE THE INVESTMENT HAVE BEE N MADE IN SHARES, THE INCOME FROM WHICH SHALL BE TAX FREE IN THE HANDS OF THE ASSESSEE, THE EXPENSES MADE FOR EARNING SUCH TAX FREE INCOME IS LIABLE TO BE DISALLOWED. THE CONTENTION OF THE ASSESSEE HAS BEEN THAT THE INVEST MENTS IN SHARES SHOWN IN THE BALANCE SHEET WERE NOT MADE OUT OF ANY INTEREST BEARING FUNDS. THE INVESTMENTS WERE MADE IN THE YEAR 1990 AND NO EXEMP T INCOME HAS COME IN THE HANDS OF THE ASSESSEE IN THE YEAR UNDER CONSIDE RATION. THE ASSESSING OFFICER AFTER RELYING ON THE DECISION OF ITAT SPECI AL BENCH IN THE CASE OF M/S. CHEMINVEST LTD. VS. ITO DATED 05.08.2009, MADE DISA LLOWANCE U/S. 14A OF RS.4,77,433/- BY APPLYING THE FORMULA GIVEN U/R 8D OF THE IT RULES. THE ADDITION SO MADE BY ASSESSING OFFICER STOOD DELETED BY THE LD. CIT(A) BY THE IMPUGNED ORDER. ITA NO. 3393 & CO NO. 282/DEL/2016 8 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE GON E THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. THE CONTENTION OF THE LD. DR HAS BEEN THAT IT IS NOT NECESSARY TO EARN THE EXEMPT INCOME FOR INVOKI NG THE PROVISIONS OF SECTION 14A IN VIEW OF DECISION OF HONBLE SUPREME COURT IN CIT VS. RAJENDRA PRASAD MOODY, 115 ITR 519. THE LD. CIT(A) WHILE DEL ETING THE ADDITION HAS OBSERVED THAT THE INVESTMENTS IN SHARES WERE MADE I N THE YEAR 1990 AND NO DIVIDEND INCOME HAS EVER BEEN EARNED BY THE ASSESSE E. IT WAS ALSO OBSERVED THAT THERE EXISTS NO EVIDENCE ON RECORD THAT THE AS SESSEE HAD MADE ANY EXPENDITURE TO EARN EXEMPT INCOME. THE BALANCE SHEE T FURNISHED BY THE ASSESSEE GOES TO SUBSTANTIATE THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE HAD SUFFICIENT OWN FUNDS AND AS SUCH, IT CANNOT BE SAID THAT THE INVESTMENT SO MADE IN THE YEAR 1990 WAS OUT OF ANY INTEREST BEARI NG FUNDS. THE ASSESSING OFFICER HAS NOT GIVEN ANY COGENT FINDING TO DISCARD THIS CONTENTION OF THE ASSESSEE. THEREFORE, KEEPING IN VIEW THE DECISION O F HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS . CIT (2012) 347 ITR 272 (DEL), THE LD. CIT(A), IN OUR OPINION, APPEARS TO H AVE COMMITTED NO ERROR WHILE DELETING THE IMPUGNED ADDITION ON THE PREMISE THAT THE PROVISIONS OF RULE 8D HAVE BEEN MECHANICALLY APPLIED BY THE ASSESSING OFF ICER. NO SUCH SITUATION EXISTS IN THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA), AS RELIED BY THE LD. DR. THEREFORE, THERE BEING DISPARITY OF FACTS, THIS DECISION IS NOT FOUND APPLICABLE TO THE PRESENT FACTS OF THE CASE IN HAND. THE LD. AR OF THE ASSESSEE HAS ALSO RELIED ON VARIOUS DECISIONS ON THIS ISSUE. IN THE RECENT DECISION RELIED BY ASSESSEE, I N PR. CIT V. IL & FS ENERGY DEVELOPMENT COMPANY LTD., 84 TAXMANN.COM 186(DELHI) , HONBLE JURISDICTIONAL HIGH COURT AFTER CONSIDERING THE DEC ISION OF SPECIAL BENCH OF ITA NO. 3393 & CO NO. 282/DEL/2016 9 TRIBUNAL IN CHEMINVEST LTD. (SUPRA) AND OF HONBLE SUPREME COURT IN RAJENDRA PRASAD MOODY (SUPRA) HAS HELD THAT MERELY BECAUSE TAX AUDITOR HAD SUGGESTED IN TAX AUDIT REPORT THAT THERE OUGHT TO B E SUCH DISALLOWANCE, IT COULD NOT BE A GROUND TO MAKE DISALLOWANCE IN TERMS OF SE CTION 14A READ WITH RULE 8D. IN THE INSTANT CASE ALSO, THE ASSESSING OFFICER HAS ONLY SPECULATED THAT THE INCOME FROM INVESTMENT IN SHARE SHALL BE EXEMPT FRO M TAX, BUT THERE IS NO FINDING THAT ANY SUCH INCOME HAS BEEN EARNED BY THE ASSESSEE OR NOT. THERE ARE PLETHORA OF DECISIONS TO SUPPORT THE AFORESAID FINDING. WE ACCORDINGLY, DO NOT FIND ANY INFIRMITY IN THE IMPUGNED ORDER ON THI S COUNT. ACCORDINGLY, THE APPEAL OF THE REVENUE DESERVES TO BE DISMISSED. 8. ADVERTING TO THE CROSS OBJECTION OF ASSESSEE, TH E ONLY ISSUE INVOLVED IS WITH RESPECT TO DISALLOWANCE OF BAD DEBT WRITTEN OF F AT RS.3,95,00,000/- IN THE NAME OF PUNJAB FIBERS LTD., THE DETAILS OF WHICH, A S GIVEN BY ASSESSEE ARE MENTIONED IN THE ASSESSMENT ORDER. THE ASSESSING OF FICER AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND RELYING ON VARI OUS DECISIONS, DISALLOWED THE BAD DEBTS WRITTEN OFF BY ASSESSEE IN ITS BOOKS OF ACCOUNT. THE ASSESSING OFFICER OBSERVED THAT THE IMPUGNED AMOUNT WAS ONLY THE ADVANCE AND NOT A BAD DEBT FOR THE PURPOSE OF ITS BUSINESS, AS THE AS SESSEE WAS NOT ENGAGED IN THE BUSINESS OF LENDING MONEY. THE AGREEMENT UNDER WHICH THE SAID AMOUNT WAS GIVEN TO THE DEBTOR WAS ALSO NOT CONSIDERED AS AUTHENTIC HAVING BEEN MADE ON PLAIN PAPER. THE LD. CIT(A) ALSO SUSTAINED THE IMPUGNED ADDITION VIDE IMPUGNED ORDER. ITA NO. 3393 & CO NO. 282/DEL/2016 10 9. DURING THE COURSE OF HEARING, THE AR OF THE ASSE SSEE SUBMITTED THAT THE DEBTORS, M/S PUNJAB FIBRES LTD. WAS IN THE BUSINESS OF MANUFACTURE AND SALE OF FABRICS/ACRYLIC YARNS HAVING TWO TEXTILE SPINNIN G MILLS, ONE AT VILL. RIL MAJRA, TEHSIL BALACHAUR, DISTT. NAWANSHAHAR (PUNJAB ) AND THE OTHER AT VILL. GULISTANPUR, TEHSIL DADRI, DISTT, GAUTAM BUDH NAGAR , UTTAR PRADESH. THE ASSESSEE COMPANY ENTERED INTO AN AGREEMENT WITH THE SAID DEBTOR IN APRIL, 2008 TO THE EFFECT THAT M/S PUNJAB FIBRES LTD. WOUL D REGULARLY SUPPLY A SPECIFIED QUANTITY OF ACRYLIC YARN, EACH MONTH TO T HE ASSESSEE COMPANY FOR A PERIOD OF 3 YEARS AGAINST CONSIDERATION OF SUM OF R S. 4 CRORES. THE PAYMENT OF RS. 3,95,00,000/- WAS MADE BY THE ASSESSEE COMPANY TO THE SAID PARTY ON THIS ACCOUNT. THE SUPPLIER PARTY, HOWEVER, FAILED TO HON OUR THE AGREEMENT. IT NEITHER MADE UP THE SUPPLIES AS AGREED TO NOR REFUN DED THE ADVANCES PAID THEREFOR. IT WAS SUBMITTED THAT THE TRANSACTION WAS PURE AND SIMPLE A BUSINESS TRANSACTION AND IT WAS NOT A CASE OF LOAN OR THAT O F SOME EXTRANEOUS PAYMENT HAVING NOTHING TO DO WITH THE ASSESSEE'S BUSINESS. COPY OF BUSINESS AGREEMENT DATED 10.04.2008, SIGNED BY BOTH THE PARTIES TO THE AGREEMENT AND WITNESSED BY TWO INDEPENDENT WITNESSES, DULY ATTESTED BY THE NOTARY PUBLIC. THE ASSESSING OFFICER HAS WRONGLY CONSIDERED THE AGREEM ENT AS INCREDIBLE WITHOUT ANY PLAUSIBLE REASON. HE ALSO RELIED ON THE JUDGMEN T OF HONBLE SUPREME COURT IN THE CASE OF ALOKA BOSE VS. PARMATMA DEVI A ND ORS. (2009) 2 SCC 582. 10. THE LD. DR, ON THE OTHER HAND, RELIED ON THE FI NDINGS REACHED BY THE LD. AUTHORITIES BELOW AND SUPPORTED THE IMPUGNED ORDER. THE AGREEMENT WAS NOT RELIABLE TO PROVE THAT IT WAS A BUSINESS TRANSACTIO N OF THE ASSESSEE. THE ITA NO. 3393 & CO NO. 282/DEL/2016 11 ASSESSEE WAS UNDER BIFR NOTIFICATION. HENCE, THE LD . CIT(A) WAS JUSTIFIED TO SUSTAIN THE ADDITION. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HA VE GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. AS FAR AS THE CREDIBILITY OF AGREEMENT, UNDER WHICH THE IMPUGNED AMOUNT WAS ADVANCED TO THE CREDITOR IS CONCERNED, IN OUR CONSIDERED OPINION, IT COULD NOT BE DOUBTED ON FLIMSY REASONS. THE ASSESSING OFFICER BEFORE DOUBTING THE CREDIBILITY OF THE AGREEMENT DID NOT MAKE ANY ENQUIRY EITHER FROM ANY PARTY TO AGREEMENT NOR FROM ANY WITNESSES, WHO WITNESSED THE SAME. EVEN TH E ASSESSEE WAS NOT DIRECTED TO PRODUCE ANY DIRECTOR OR PRINCIPAL OFFIC ER OF M/S. PUNJAB FIBERS LTD. NOR DOES THE ASSESSING OFFICER ISSUE ANY NOTICE U/S . 133(6) TO ASCERTAIN THE VERACITY OF THE AGREEMENT UNDER WHICH THE ADVANCE W AS GIVEN BY THE ASSESSEE TO M/S. PUNJAB FIBERS LTD. THE LD. CIT(A) APPEARS T O HAVE DISCARDED THE CONTENTIONS OF THE ASSESSEE ON THE PREMISE THAT THE TERMS OF AGREEMENT WERE DOUBTFUL BECAUSE M/S. PUNJAB FIBERS LTD. WAS NOTIF IED BY BIFR AND A SALE OF ASSET NOTIFICATION WAS ISSUED ON 05.02.2010. THIS DOUBT ON THE TERMS OF AGREEMENT TOO DOES NOT APPEAR TO BE BASED ON VALID REASONS BECAUSE THE SAID NOTIFICATION WAS STATED TO HAVE BEEN ISSUED ON 05.0 2.2010 AND THE AGREEMENT BETWEEN THE PARTIES WAS EXECUTED IN APRIL, 2008. IT IS NOT THE CASE OF REVENUE THAT THE SAID PARTY DID NOT DEAL WITH ANY SUCH GOOD S DEALT BY THE ASSESSEE. HOWEVER, AT THE SAME TIME, THE ADVANCE GIVEN WAS IN THE NORMAL COURSE OF BUSINESS FOR SUPPLY OF GOODS. SUCH AN ADVANCE IS PU RELY FOR BUSINESS PURPOSE AND UNLESS THERE IS ANY MATERIAL BROUGHT ON RECORD TO SHOW THAT EITHER IT WAS SHAM OR MAKE BELIEVE ARRANGEMENT, THEN NO ADVERSE I NFERENCE CAN BE DRAWN. ITA NO. 3393 & CO NO. 282/DEL/2016 12 EVEN IF THE ASSESSEE HAD MADE INVESTMENT IN SHARES AND WAS HAVING INTEREST IN THE SAID COMPANY, THEN ALSO NATURE OF ADVANCE WAS P URELY FOR COMMERCIAL CONSIDERATION. THEY WOULD HARDLY AFFECT THE TERMS O F AGREEMENT, UNDER WHICH THE ADVANCING OF MONEY BY THE ASSESSEE AGAINST SUPP LY OF GOODS FOR CONTINUOUS THREE YEARS WERE AGREED TO. 12. IT IS WORTHWHILE TO NOTE THAT THE LOSS CAUSED D UE TO NON-RECOVERY OF ADVANCES MADE IN THE COURSE OF BUSINESS IS DEDUCTIB LE UNDER THE INCOME TAX ACT, PROVIDED IT IS A TRADING LOSS. EVEN THE LOSSES CAUSED DUE TO A BREACH OF CONTRACT FOR DELIVERY OF GOODS BY EITHER PARTY ARE ALSO DEDUCTIBLE UNDER THE IT ACT. THE LEARNED CIT(A) APPEARS TO HAVE CONCLUDED T HAT THE IMPUGNED ADVANCE WAS IN THE NATURE OF LOAN AND NOT A TRADING ADVANCE AS CLAIMED BY THE ASSESSEE. HOWEVER, THIS CONCLUSION OF THE LD. CIT(A ) IS NEITHER DISCERNIBLE FROM THE ATTENDING FACTS AND CIRCUMSTANCES NOR IS SUBSTA NTIATED BY ANY EVIDENCE. THE NOTIFICATION OF BIFR FOR SALE OF ASSETS OF PUNJ AB FIBERS LTD. IN THE YEAR 2010, I.E., AFTER TWO YEARS FROM THE DATE OF AGREEM ENT, IN OUR OPINION DOES NOT GO TO SUPPORT THE CONCLUSION OF THE LD. CIT(A) THAT IT WAS A LOAN NOT CONNECTED WITH ASSESSEES TRADE. RATHER IT GOES TO STRENGTHEN THE NON-RECOVERABILITY OF ADVANCE IN THE YEAR UNDER CONSIDERATION EITHER IN T ERMS OF MONEY OR IN TERMS OF SUPPLY OF GOODS. THE ASSESSEE HAS FILED COPY OF AGREEMENT BETWEEN THE PARTIES WHICH HAS BEEN DOUBTED WITHOUT ANY VERIFICA TION AND THE IMPUGNED AMOUNT HAS BEEN WRITTEN OFF IN THE BOOKS OF ASSESSE E AS IRRECOVERABLE ADVANCE. EVEN IF SUCH WRITE OFF IS NOT HELD TO BE I N THE NATURE OF BAD DEBT, THEN ALSO IT CERTAINLY WOULD BE IN THE NATURE OF BUSINES S LOSS.THE LD. CIT(A) APPEARS TO HAVE FURTHER TREATED THE IMPUGNED DEBT AS LOAN G IVEN BY THE ASSESSEE ON THE PREMISE THAT THE PURCHASES MADE IN EARLIER YEARS AN D IN THE YEAR UNDER ITA NO. 3393 & CO NO. 282/DEL/2016 13 CONSIDERATION WERE NOT SHOWN EITHER IN THE SALES OR IN THE CLOSING STOCK. THIS, HOWEVER, AT THE MOST BE A GROUND FROM MAKING TRADIN G ADDITION IN THE HANDS OF THE ASSESSEE OR FOR REJECTION OF BOOKS OF ACCOUN T, BUT CANNOT BE A VALID GROUND TO HOLD THE MONEY ADVANCED AS LOAN BY THE AS SESSEE TO PUNJAB FIBERS LTD., WHICH WAS ADVANCED DURING THE ORDINARY COURSE OF ITS BUSINESS. NO MATERIAL IS PLACED ON RECORD ON BEHALF OF THE REVEN UE TO SUBSTANTIATE THAT THE AMOUNT ADVANCED BY ASSESSEE TO M/S. PUNJAB FIBERS L TD. WAS A LOAN TRANSACTION AND NOT AN ADVANCE AGAINST SUPPLY OF GO ODS AS PER AGREEMENT PRODUCED. WE ACCORDINGLY, ARE NOT INCLINED TO JUST IFY THE SUSTENANCE OF ADDITION, BEING A BUSINESS LOSS ALLOWABLE U/S. 28 O F THE IT ACT. ACCORDINGLY, THE IMPUGNED ADDITION DESERVES TO BE DELETED AND THE CR OSS-OBJECTION OF THE ASSESSEE HAS TO BE ALLOWED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED AND THE CROSS OBJECTION OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 21.12.2018. SD/- SD/- (AMIT SHUKLA) (L.P. S AHU) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21ST DECEMBER, 2018 *AKS* COPY OF ORDER FORWARDED TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES, NEW DELHI