Pranava Electronics P Ltd, Bangalore V. Deputy Commissioner of Income tax, Circle-12(2), Bangalore

ITA 415/BANG/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1469 (ITAT-BANGALORE)
• Duration Of Justice: 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-09-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 19-03-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: K R PRADEEP
• Keywords: Business income; Bad and doubtful debts

Judgement Text

ITA.415/BANG/2015 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH 'B', BANGALORE BEFORE SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI. ABRAHAM P. GEORGE, ACCOUNTANT MEMBER I.T.A NO.415/BANG/2015 (ASSESSMENT YEAR : 2010-11) PRANAVA ELECTRONICS P. LTD, FLAT NO.101, 1 ST FLOOR, EDEN PARK, NO.20, VITTAL MALLYA ROAD, BANGALORE 560 001 .. APPELLANT PAN : AADCP2196C V. DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE -12(2), BANGALORE .. RESPONDENT ASSESSEE BY : SHRI. K. R. PRADEEP, CA REVENUE BY : DR. P. K. SRIHARI, ADDL. CIT HEARD ON : 07.09.2015 PRONOUNCED ON : 11.09.2015 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY ASSESSEE DIRECTED AGAINST AN ORDER OF CIT (A) -5, BANGALORE, DT.20.02.2015, FOR ASSESSMENT YEAR 2010- 11, IT HAS ALTOGETHER TAKEN SEVEN GROUNDS OF WHICH, GROUNDS 1 AND 7 ARE GENERAL IN NATURE NEEDING NO SPECIFIC ADJUDICATION. GROUND.6 IS ON CHARGE OF IN TEREST U/S.234B WHICH IS CONSEQUENTIAL IN NATURE. GROUND.5 WHICH RAISES A G RIEVANCE REGARDING REJECTION ITA.415/BANG/2015 PAGE - 2 OF TAX CREDIT U/S.115JAA OF THE INCOME-TAX ACT, 196 1 (THE ACT IN SHORT) WAS NOT ARGUED BY THE LD. AR. THIS LEAVES US WITH GROU NDS 3 AND 4. 02. ASSESSEE IN ITS GROUND 3 IS AGGRIEVED THAT CIT (A) CONFIRMED THE DISALLOWANCE OF BAD DEBTS WRITE OFF OF RS.4,86,14, 074/-. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT LOWER AUTHORITIES DID NOT C ONSIDER THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF T. R. F. LTD V. C IT [(2010) 323 ITR 397] ; CIT V. AMALGAMATIONS P. LTD [(1997) (226 ITR 188)] AND THAT OF DELHI THIRD MEMBER DECISION OF THIS TRIBUNAL IN THE CASE OF POY SHA OXYGEN (P) LTD V. ACIT [(2008) (19 SOT 711). AS PER THE LD. AR, AMO UNT LENT BY ASSESSEE TO ONE M/S. PIE EDUCATION PVT. LTD, WAS WRITTEN OFF AS BAD DEBT IN THE COURSE OF ASSESSEES BUSINESS. LD. AR RELYING ON PAPER BOOK PAGE NO.15, SUBMITTED THAT ASSESSEE WAS IN THE BUSINESS OF LENDING MONEY AND T HIS WAS CLEARLY DEMONSTRATED BY THE INTEREST EARNED AND PAID BY THE ASSESSEE DURING VARIOUS FINANCIAL YEARS STARTING FROM F. YS. 2004-05 TO 201 3-14. AS PER THE LD. AR INTEREST EARNED FOR THE IMPUGNED ASSESSMENT YEAR I TSELF CAME TO RS.9,818,325/-. FURTHER AS PER THE LD. AR, ASSESSEE HAD ALL ALONG S HOWN INTEREST INCOME AS BUSINESS INCOME AND THIS WAS ACCEPTED BY THE AO FOR ALL THE YEARS. RELYING ON THE MEMORANDUM OF ASSOCIATION, PLACED IN PAPER BOOK PAGES.5 TO 14, LD. AR SUBMITTED THAT INCIDENTAL OBJECTS OF THE ASSESSEE C LEARLY MENTIONED ITS POWER TO DO BUSINESS OF LENDING MONEY. AGAIN AS PER THE LD . AR, ASSESSEE WAS THE PROMOTER SHAREHOLDER OF THE COMPANY, PIE EDUCATION P. LTD, TO WHICH IT HAD LENT MONEY, AND IN SUCH CAPACITY HAD NOT CHARGED AN Y INTEREST ON THE AMOUNTS ITA.415/BANG/2015 PAGE - 3 LENT TO IT. WHEN IT WAS FOUND THAT THERE WAS NO PO SSIBILITY OF ANY RECOVERY, DUE TO THE CONTINUOUS LOSSES SUFFERED BY M/S. PIE EDUCA TION P. LTD, AS PER THE LD. AR ASSESSEE HAD WRITTEN OFF THE AMOUNT. JUST BECAU SE ASSESSEE HAD NOT CHARGED ANY INTEREST ON THIS LOAN WOULD NOT BE A REASON TO HOLD THAT MONEY WAS NOT LENT IN THE ORDINARY COURSE OF BUSINESS OF LENDING. ACC ORDING TO HIM WRITE-OFF OF THE THE LOAN WAS NOTHING BUT A BUSINESS LOSS SUFFERED B Y ASSESSEE. WHEN RECOVERY OF LOAN WAS HIGHLY DOUBTFUL, IT WAS ONLY PRUDENT FO R THE ASSESSEE NOT TO CHARGE INTEREST, AND THIS COULD NOT BE CITED AS A REASON F OR DISALLOWING THE CLAIM OF BAD DEBT. RELIANCE WAS PLACED ON DECISION OF COORDINAT E BENCH IN THE CASE OF CEAT LTD V. DCIT [(2009) 24 DTR 445]. THUS ACCORDING TO HIM, LOWER AUTHORITIES FELL IN ERROR IN DISALLOWING THE CLAIM OF BAD DEBTS . 03. LD. DR STRONGLY SUPPORTING THE ORDER OF LOWER A UTHORITIES, SUBMITTED THAT LOANS GIVEN TO PIE EDUCATION P. LTD WAS NOT A PART OF ASSESSEES BUSINESS. THERE WAS NO CHARGE OF INTEREST ON SUCH LOANS. JUST BECAUSE ASSESSEE HAD ACCOUNTED INTEREST RECEIVED ON LOANS GIVEN BY IT, A S A PART OF ITS BUSINESS INCOME, WOULD NOT MAKE THE ASSESSEE ELIGIBLE FOR CLAIMING A BAD DEBT WRITE OFF. 04. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL CONTENTIONS. AMOUNT WRITTEN OFF BY THE ASSESSEE IS ON ADVANCE GIVEN BY IT TO ONE PIE EDUCATION P. LTD. IN ITS LETTER DT.07.02.2013 ADDRESSED TO THE AO, PLACED AT PAPER BOOK P.2, ASSESSEE MENTIONS AS UNDER ABOUT THE ABOVE WRITE OF F : ITA.415/BANG/2015 PAGE - 4 05. THUS IT HAS BEEN ADMITTED BY ASSESSEE THAT THE AMOUNT WAS LENT BY IT IN ITS CAPACITY AS A PROMOTER SHAREHOLDER OF PIE EDUCATION P. LTD. CLAIM OF THE ASSESSEE IS THAT IT WAS GIVEN OUT OF COMMERCIAL EX PEDIENCY SINCE IT WAS AN EQUITY INVESTOR AND IT WAS UNDER AN OBLIGATION TO S UPPORT PIE EDUCATION P. LTD. MEMORANDUM OF ASSOCIATION OF THE COMPANY HAS BEEN P LACED AT PAPER BOOK PAGE NOS.4 TO 14. THE MAIN OBJECT MENTIONED THEREIN ARE REPRODUCED HEREUNDER : ITA.415/BANG/2015 PAGE - 5 06. NO DOUBT, MEMORANDUM OF ASSOCIATION HAS IN IT ABOUT 45 INCIDENTAL OBJECTS AND SIX OTHER OBJECTS. HOWEVER, NONE OF TH ESE INCIDENTAL OBJECTS MENTIONS ANYTHING ABOUT CARRYING ON A BUSINESS OF IMPARTING EDUCATION TO STUDENTS. MAIN OBJECT OF THE ASSESSEE AS REPRODUCED ABOVE, HAD NO THING TO DO WITH ANY EDUCATION OR TRAINING OF STUDENTS. COMING TO THE CLAIM OF AS SESSEE THAT IT LENT MONEY IN ITS ORDINARY COURSE OF BUSINESS, THIS COULD HAVE BEEN T RUE IF ASSESSEE HAD CHARGED INTEREST ON SUCH LOAN AT ANY POINT OF TIME. IT IS AN ADMITTED POSITION THAT ASSESSEE HAD NOT CHARGED ANY INTEREST ON THE LOAN GIVEN BY I T TO M/S. PIE EDUCATION P. LTD.. SECTION 36(2)(I) OF THE ACT, IS REPRODUCED HEREUNDE R : ITA.415/BANG/2015 PAGE - 6 (2) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART THEREOF, THE FOLLOWING PROVISIONS SHALL APPLY- (I) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR, OR REPR ESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY -LENDING WHICH IS CARRIED ON BY THE ASSESSEE ; 07. WHEN ASSESSEE ITSELF HAD NOT CHARGED ANY INTERE ST ON THE AMOUNT ADVANCED, IT CANNOT SAY THAT ANY INCOME FROM SUCH L OANS WERE TAKEN INTO ACCOUNT FOR COMPUTING ITS TOTAL INCOME. FOR THE SI MPLE REASON THAT ASSESSEE HAD NEVER CHARGED ANY INTEREST ON THE LOAN TO PIE EDUCA TION P. LTD, SUCH LOAN CANNOT BE TREATED AS MONEY LENT BY THE ASSESSEE IN THE ORD INARY COURSE OF A BUSINESS OF MONEY-LENDING. IN OUR OPINION, ASSESSEE IS SQUAREL Y HIT BY THE LIMITATION PLACED BY SECTION.36(2)(I) OF THE ACT. CLAIM OF THE ASSES SEE ALSO CANNOT BE CONSIDERED AS A BUSINESS LOSS, FOR THE REASON THAT ASSESSEE WA S NOT IN THE BUSINESS OF PROVIDING EDUCATION AND TRAINING. EVEN IF WE PRESU ME THAT ASSESSEE WAS CARRYING ON A BUSINESS OF LENDING MONEY, THE AMOUNT WRITTEN OFF HERE WAS NOT LENT IN THE COURSE OF MONEY LENDING BUSINESS. 08. COMING TO THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF T. R. F. LTD (SUPRA), THE QUESTION THERE WAS WHETHER FOR A C LAIM OF BAD DEBTS, WRITE- OFF IN THE BOOKS ALONE WAS SUFFICIENT. HONBLE APEX CO URT IN THE SAID JUDGMENT WAS DEALING WITH A CLAIM OF BAD DEBTS WHICH SATISFI ED THE CONDITIONS MENTIONED U/S.36(2)(I) OF THE ACT. HONBLE APEX COURT DID NO T SAY THAT A GO-BY HAS TO BE GIVEN TO S.36(2)(I) OF THE ACT. ITA.415/BANG/2015 PAGE - 7 09. IN THE JUDGMENT OF AMALGAMATIONS P. LTD (SUPRA) , QUESTION WAS WHETHER LOSS INCURRED FOR PROVIDING BANK GUARANTEE FOR LOAN S TAKEN BY A SUBSIDIARY COULD BE ALLOWED. ASSESSEE HERE HAS NOWHERE STATED THAT PIE EDUCATION P. LTD IS A SUBSIDIARY OF THE ASSESSEE COMPANY, NOR WAS THE WRI TE-OFF IN RELATION TO ANY BANK GUARANTEES. 10. AS FOR THE JUDGMENT OF HONBLE JURISDICTIONAL H IGH COURT IN THE CASE OF CIT V. UNITED BREWERIES LTD & ANOTHER (292 ITR 188) , THE QUESTION WAS ALLOWABILITY OF A CLAIM OF LOSS ON MONEY ADVANCED T O A SUBSIDIARY COMPANY. 11. AS FOR THE DECISION OF MUMBAI BENCH OF THE TRIB UNAL IN THE CASE OF CEAT LTD (SUPRA), INTEREST WAS DUE TO THE CONCERNED ASSE SSEE IN TERMS OF A CONTRACTUAL AGREEMENT, AND THE ASSESSEE HAD NOT CHARGED INTERES T ON SUCH LOANS DESPITE TERMS OF CONTRACT PROVIDING FOR IT. IN THE CASE BEFORE U S ADMITTEDLY THERE WAS NO CONTRACTUAL AGREEMENT BETWEEN THE ASSESSEE AND PIE EDUCATION P. LTD FOR CHARGING OF ANY INTEREST. 12. IN THE CASE OF B. N. KHANDELWAL V. ITO [2007) 1 6 SOT 343], RELIED ON BY THE LD. AR, NO DOUBT IT WAS HELD THAT ABSENCE OF MO NEY LENDING LICENSE WAS NOT A CRUCIAL FACTOR FOR DECIDING ON THE NATURE OF THE BUSINESS ACTIVITY UNDERTAKEN BY AN ASSESSEE. IN THE CASE BEFORE US ASSESSEE HAS NO T BEEN ABLE TO DEMONSTRATE THAT THE MONEY LENT BY IT TO PIE EDUCATION P. LTD WAS IN THE COURSE OF A BUSINESS OF BANKING OR MONEY LENDING. ESPECIALLY SO SINCE ASSE SSEE HAD CHARGED NO INTEREST FROM PIE EDUCATION P. LTD. ITA.415/BANG/2015 PAGE - 8 13. COMING TO THE THIRD MEMBER DECISION OF DELHI BE NCH IN THE CASE OF POYSHA OXYGEN (P) LTD (SUPRA), RELIED ON BY THE LD. AR, THERE WAS AN AGREEMENT ENTERED BY ASSESSEE WITH THE BORROWER WHE REIN THE RATE OF INTEREST OF 30.5% WAS CLEARLY SPECIFIED. IT WAS HE LD THAT SOLITARY TRANSACTION BY ITSELF COULD NOT BE CONSIDERED AS AN IMPEDIMENT FOR CONSTRUING THE MEANING OF MONEY LENDING BUSINESS. AS AGAINST THIS, ASSESSEE HERE HAD ADVANCED THE MONEY TO PIE EDUCATI ON P. LTD WITHOUT ANY AGREEMENT REGARDING INTEREST AND THAT TOO NOT A S A PART OF ITS LENDING ACTIVITY, IF AT ALL IT HAD ANY. 14. IN OUR OPINION, NONE OF THESE DECISIONS WOULD C OME TO THE AID OF ASSESSEE. LOWER AUTHORITIES WERE JUSTIFIED IN DISA LLOWING THE SUM OF RS.4,86,14,074/-. GROUND.3 OF THE ASSESSEE IS DISM ISSED. 15. VIS-A-VIS GROUND 4, LD. AR SUBMITTED THAT HIS S OLE GRIEVANCE WAS THAT THE DISALLOWANCE U/S.14A OF THE ACT MADE ON AC COUNT OF ASSESSEES OWN SUBMISSION, WAS CONSIDERED BY THE AO AS A DISAL LOWANCE MADE BY THE LATTER. AOS FINDING IN RELATION TO THE DISALL OWANCE U/S.14A OF THE ACT, IS REPRODUCED HEREUNDER : ITA.415/BANG/2015 PAGE - 9 16. IT IS CLEAR THAT ASSESSEE HAD ITSELF WORKED OU T THE SUM OF RS.13,20,388/- AS DISALLOWANCE THAT WAS REQUIRED U/ S.14A OF THE ACT. RELEVANT PART OF THE LETTER DT.22.02.2013 OF THE AS SESSEE ADDRESSED TO THE AO IS REPRODUCED HEREUNDER : ITA.415/BANG/2015 PAGE - 10 17. THIS BEING AN ADMITTED ADDITION WE ARE OF THE O PINION THAT ASSESSEE CANNOT HAVE ANY GRIEVANCE NOW. WE DO NOT FIND ANY REASON TO INTERFERE IN THE ORDER OF LOWER AUTHORITIES ON THIS ISSUE ALSO. GRO UND.4 OF ASSESSEE IS DISMISSED. 18. TO SUMMARISE THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH DAY OF SEPTEMBER, 2015. SD/- SD/- (SMT. ASHA VIJAYARAGHAVAN) (ABRAHAM P GEORGE) JUDICIAL MEMBER ACCOUNTA NT MEMBER MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER ASSISTANT REGISTRAR