M/s. United Breweries Ltd., Bangalore V. ACIT, Bangalore

ITA 469/BANG/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63630 (ITAT-BANGALORE)
• Duration Of Justice: 3 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 21-06-2012
• Assessment Year: 2005-2006
• Appeal Filed On: 14-05-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Principle of natural justice; Proportionate interest; Bad and doubtful debts
• Section: 234B; 37(1)

Judgement Text

PAGE 1 OF 16 ITA NOS.469/BANG/0 9 & 638/BANG/2 009 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.469/BANG/2009 (ASST. YEAR 2005-06) M/S UNITED BREWERIES LTD., UBTOWERS, 15 TH LEVEL UB CITY,NO.24, VITTAL MALLAYA ROAD, BANGALORE-1. PA NO.AAACU6053C VS THE ASST. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 2(3). BANGALORE. (APPELLANT) (RESPONDENT) ITA NO.638/BANG/2009 (ASST. YEAR 2005-06) (BY REVENUE) DATE OF HEARING : 19.07.2012 DATE OF PRONOUNCEMENT : 24.08.2012 ASSESSEE BY : SHRI K R PRADEEP, C.A. REVENUE BY : SHRI FARHAT HUSSAIN QURESHI, CIT-II & SMT. SUSAN THOMAS JOS E, JCIT ORDER PER GEORGE GEORGE K : THESE TWO APPEALS (I) ONE BY THE REVENUE; AND ( II) ANOTHER BY THE ASSESSEE COMPANY ARE DIRECTED AGAINST THE ORDE R OF THE CIT(A)-V, BANGALORE, DATED 18.3.2009. THE RELEVANT ASSESSMEN T YEAR IS 2005-06. PAGE 2 OF 16 ITA NOS.469/BANG/0 9 & 638/BANG/2 009 I. ITA NO.638/B/09 BY THE REVENUE: 2. THE REVENUE HAS RAISED FIVE GROUNDS. HOWEVER, ALL GROUNDS RELATE TO A SOLITARY ISSUE, NAMELY: THAT THE CIT (A) HAD ERRED IN ACCEPTING THE CONTEN TION OF THE ASSESSEE THAT THE INCOME ON SALE OF TRANSFER OF ASSETS WAS NOT TAXABLE WITHOUT REQUIRING THE ASSESS EE TO SUBSTANTIATE ITS CLAIMS. II. ITA NO.469/B/09 BY THE ASSESSEE: 3. THE ASSESSEE HAS RAISED TWELVE GROUNDS. GROUN D NOS.1, 11 AND 12 ARE GENERAL IN NATURE AND NO SPECIFIC ADJUDICATI ON IS CALLED FOR AND, HENCE, THE SAME ARE DISMISSED. GROUND NO.10 IS NOT MAINTA INABLE AS CHARGING OF INTEREST U/S 234B OF THE ACT IS MANDATORY AND CONSE QUENTIAL IN NATURE. THE REMAINING GROUNDS ARE REFORMULATED IN A CONCISE MAN NER AS UNDER: (1) GROUND NOS. 2 TO 5 : THAT THE CIT (A) ERRED IN UPHOLDING THE DISALLOWANCE OF INTEREST OF RS.2,61,31,140/- ON BORROWED CAPITAL: & (2) GROUND NOS. 6 TO 9: THAT THE CIT (A) OUGHT TO HAVE ALLOWED THE BAD DEBTS/BAD ADVANCES ACTUALLY WRITTEN OFF BY THE ASSESSEE. 4. AS THE ISSUES RAISED BY THE RIVAL PARTIES IN TH EIR APPEALS PERTAINED TO THE SAME ASSESSEE, BOTH THE APPEALS WE RE HEARD TOGETHER, CONSIDERED AND DISPOSED OFF, FOR THE SAKE OF CONVEN IENCE, IN THIS CONSOLIDATED ORDER. I. ITA NO.638/B/09 BY THE REVENUE: 5. BRIEFLY STATED, THE FACTS OF THE ISSUES ARE AS UNDER: PAGE 3 OF 16 ITA NOS.469/BANG/0 9 & 638/BANG/2 009 THE ASSESSEE IS A COMPANY. ITS NATURE OF BUSINES S IS MANUFACTURE AND SALE OF BEER. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO HAD NOTICED THAT THE ASSESSEE IN ITS P & L A CCOUNT OFFERED PROFIT ON SALE OF ASSETS AMOUNTING TO RS.17,00,301/- AND IN I TS COMPUTATION, IT HAD REDUCED THE SAME FOR ARRIVING AT ITS BUSINESS INCOM E. ACCORDING TO THE AO, THIS AMOUNT REPRESENTS NET OF THE PROFIT ON ASSETS DERIVED BY THE ASSESSEE DURING THE YEAR. SINCE THERE WERE NO DETAILS OF ASS ETS, SUCH AS, WHEN THOSE WERE ACQUIRED AND SOLD ETC., THE AO TREATED THE PRO FIT AS SHORT TERM CAPITAL GAIN [STCG] AND ADDED TO THE INCOME OF THE ASSESSEE. 5.1 AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE, AM ONG OTHERS, WITH THE CIT (A) FOR RELIEF. AFTER DUE CONSIDERATION OF THE ASSESSEES CONTENTIONS, REMAND REPORT OF THE AO AND REJOINDER TO THE REMAND REPORT BY THE ASSESSEE, THE CIT (A) HAD OBSERVED AS UNDER: 21. GROUND NO.9: IN THIS GROUND, THE TREATMENT OF PROFIT ON SALE OF ASSETS AS SHORT TERM CAPITAL GAIN HAS BE EN CHALLENGED. SUCH TREATMENT WAS GIVEN BY THE AO BEC AUSE DATES OF ACQUISITION AND THE DETAILS OF ASSETS SOLD WERE NOT PROVIDED DURING THE COURSE OF ASSESSMENT PROCEE DING. DURING THE COURSE OF APPELLATE PROCEEDING, DETAILS OF ASSETS SOLD WERE PROVIDED WHICH WAS SENT FOR A REMA ND (REPORT). IT WAS PLEADED THAT SUCH ASSETS WERE SHO WN IN BOOKS FOR A LONG TIME AND ALSO ACCEPTED AS SUCH BY T HE DEPARTMENT. BESIDES CARVING OUT THE PROFIT AS SALE S MINUS WRITTEN DOWN VALUE, THE WRITTEN DOWN VALUE IT SELF SHOWS THAT THE ASSETS ARE OLD AND, THEREFORE, THE P ROFIT EARNED THERE-FROM SHOULD NOT BE TREATED AS SHORT TE RM CAPITAL GAIN. I SEE THE AO HAS NOT POINTED OUT SPECIFICALLY IN THE REMAND REPORT WHY HE DESIRES TO T REAT SUCH PROFIT AS SHORT TERM CAPITAL GAIN. THE DEPARTMENTAL RECORDS OF EARLIER YEARS COULD HAVE BEE N PAGE 4 OF 16 ITA NOS.469/BANG/0 9 & 638/BANG/2 009 CHECKED TO REBUT THE CLAIM OF THE AUTHORIZED REPRESENTATIVE THAT SUCH ASSETS WERE OLD AND WERE CONSISTENTLY BEING SHOWN TO THE DEPARTMENT. THAT BE ING NOT DONE, I HAVE NO HESITATION TO ALLOW THIS GROUND OF APPEAL. ADDITION IS DELETED. 5.2 AGGRIEVED, THE REVENUE HAS COME UP WITH THE P RESENT APPEAL. 5.3 DURING THE COURSE OF HEARING, THE LEARNED D R SUBMITTED THAT THE CIT (A) HAD GROSSLY ERRED IN ACCEPTING THE CONTE NTIONS PUT-FORTH BY THE ASSESSEE THAT THE INCOME ON SALE OF TRANSFER OF ASS ETS WAS NOT TAXABLE WITHOUT REQUIRING THE ASSESSEE TO SUBSTANTIATE ITS CLAIM. IT WAS ALSO ARGUED THAT THE CIT (A) FAILED TO ANALYZE THE TERMS PRESCRI BED IN S. 50(2) OF THE ACT AS TO WHETHER THE SALE OF DEPRECIABLE ASSETS GI VE RISE TO STCG ETC. IT WAS, FURTHER, SUBMITTED THAT NO DETAILS WITH REGARD TO THE ASSETS, AS SUCH, AS TO WHEN THEY WERE ACQUIRED AND SUBSEQUENTLY SOLD E TC., THE AO WAS JUSTIFIED IN TREATING THE PROFIT ON SALE OF ASSETS AS STCG AND ADDED TO THE ASSESSEES TOTAL INCOME. IT, WAS, THEREFORE, PLEAD ED THAT THE STAND OF THE AO REQUIRES TO BE SUSTAINED. 5.4 ON THE OTHER HAND, THE LEARNED A R SUBMITTED THAT AFTER DUE CONSIDERATION OF THE DETAILS FURNISHED BY THE ASSESS EE, THE CIT (A) HAD DELETED THE ADDITION WHICH WARRANTS NO INTERVENTION OF THIS BENCH. 5.5 WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISS IONS, PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORDS. NO DOUBT, DURING THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS, NO DETAILS, SUCH A S, THE DATE(S) OF ACQUISITION AS WELL AS SALE OF ASSETS WERE MADE AVA ILABLE. THEREFORE, THE AO PAGE 5 OF 16 ITA NOS.469/BANG/0 9 & 638/BANG/2 009 WAS LEFT WITH NO ALTERNATIVE, BUT, TO TREAT THE PRO FIT ON SALE OF ASSETS AS STCG OF THE ASSESSEE. HOWEVER, A STATEMENT SHOWING THE DETAILS WITH REGARD TO BLOCK OF ASSETS AND THE SALE OF ASSETS FU RNISHED BY THE ASSESSEE BEFORE THE CIT (A) WAS SENT TO THE AO FOR HIS COMME NTS. THE AO HAD, IN HIS REMAND REPORT, BRIEFLY COMMENTED AS UNDER: 3. PROFIT ON SALE OF ASSETS: PERUSAL OF ANNEXURE G FILED DURING THE COURSE OF APPELLATE PROCEEDINGS, REVEALS THAT THE ENTIRE BLOC K OF ASSETS WAS SOLD AT RS.98,57,431/- (AS PER LAST COLU MN OF THE STATEMENT). IN THE THIRD COLUMN OF THE STATEME NT, THE TOTAL WDV OF THE ASSETS HAS BEEN SHOWN AT RS.81,57,130/-. IT IS, THEREFORE, SEEN THAT THERE WAS A PROFIT OF RS.17,00,301/- ON SALE OF THIS BLOCK OF A SSETS. HENCE, THE PROFIT WAS RIGHTLY TAXED UNDER THE HEAD O F CAPITAL GAINS. 5.6 IT CAN BE OBSERVED FROM THE ASSERTION OF THE AO THAT THE ISSUE HAS NOT BEEN DEALT WITH AS IT DESERVED. AS RIGHTLY POINTED OUT BY THE CIT (A), THE REVENUE WAS EXPECTED TO VERIFY THE CLAIM O F THE ASSESSEE WITH REFERENCE TO THE EARLIER RECORDS OF THE ASSESSEE IN ITS POSSESSION. ON A PLAIN READING OF THE REMAND REPORT, ONE COULD FAIRL Y ASSUME THAT THE ISSUE HAS NOT BEEN DEALT WITH COMPREHENSIVELY AS TO WHETHE R THERE BE ANY SUBSTANCE IN THE CLAIM OF THE ASSESSEE. THIS VERY F ACT HAS PRECISELY BEEN OVERLOOKED BY THE AO, MAY BE, BY OVERSIGHT. 5.7 TAKING INTO ACCOUNT THE ABOVE FACTS AND CIRCU MSTANCES OF THE MATTER AND ALSO KEEPING THE INTEREST OF PRINCIPLES OF NATURAL JUSTICE AND EQUITY IN VIEW, WE ARE OF THE CONSIDERED OPINION THA T THIS ISSUE REQUIRES TO BE PAGE 6 OF 16 ITA NOS.469/BANG/0 9 & 638/BANG/2 009 REMITTED BACK TO THE FILE OF THE AO WITH A SPECIFIC DIRECTION TO LOOK INTO THE ISSUE AFRESH WITH REFERENCE TO THE DETAILS WHICH WO ULD BE FURNISHED BY THE ASSESSEE OR AVAILABLE IN THE PREVIOUS RECORDS AND T O TAKE APPROPRIATE ACTION IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. IT I S ORDERED ACCORDINGLY. 6. LET US NOW TAKE UP THE ASSESSEES APPEAL FOR A DJUDICATION. II. ITA NO.469/B/09 BY THE ASSESSEE: DISALLOWANCE OF INTEREST ON BORROWED CAPITAL: 6.1 DURING THE YEAR UNDER DISPUTE, THE ASSESSEE HA D CLAIMED TO HAVE INVESTED IN SHARES AGGREGATING TO RS.37.33 CRO RES AND CLAIMED INTEREST EXPENDITURE OF RS.37.67 CRORES. AFTER EXAMINING TH E DETAILS FURNISHED BY THE ASSESSEE, THE AO HAD OBSERVED THAT FOR THE FY 2 003-04, THE ASSESSEE HAD MADE INVESTMENTS INTO THE COMPANIES (I) ASSOC IATED BREWERIES AND DISTILLERIES, (II) MANGALORE BREWERIES & DISTILLERI ES LTD. AND SHARES OF (III) MILLENNIUM ALCOBEV PVT. LTD. IT HAS BEEN FUR THER OBSERVED THAT THE ASSESSEE HAD PAID HUGE AMOUNTS TOWARDS SHARE PRICE THAN WAS WARRANTED IN THE GUISE THAT THESE INVESTMENTS WERE MADE AS PART OF THEIR BUSINESS STRATEGY. HOWEVER, IN FACT, THE ABOVE COMPANIES WER E ALREADY UNDER THE MANAGEMENT AND CONTROL OF THE ASSESSEE GROUP AND IT WAS ALSO USING THE BREWERY FACILITIES OF THE SAID THREE COMPANIES EVEN PRIOR TO THE ACQUISITION OF SHARES. IT WAS, THEREFORE, THE STAND OF THE AO THAT THE INVESTMENT CANNOT BE SAID TO HAVE BEEN MADE FOR THE BUSINESS O F THE ASSESSEE. IT WAS FURTHER HELD BY THE ASSESSING OFFICER THAT AS THE AS SESSEE DURING THE YEAR HAD NOT FURNISHED THE DETAILS AS TO HOW THE BORROWE D CAPITAL HAS BEEN UTILIZED EXCLUSIVELY FOR ITS BUSINESS PURPOSE AND NO NEXUS WAS SHOWN BETWEEN PAGE 7 OF 16 ITA NOS.469/BANG/0 9 & 638/BANG/2 009 THE FUNDS BORROWED AND THEIR UTILIZATION AND THE BU SINESS ACTIVITY OF THE ASSESSEE COMPANY, IT CAN BE REASONABLY CONCLUDED THA T THE ASSESSEE HAS ACQUIRED THE SHARES OUT OF BORROWED FUNDS AND THERE WAS DIRECT NEXUS BETWEEN BORROWED FUNDS AND INVESTMENTS. THE ASSESS ING OFFICER EXAMINED THE TOTAL SOURCE AVAILABLE TO THE ASSESSEE WHICH IS AS UNDER:- SHARE HOLDER FUNDS RS.252.12 CRORES SECURED AND UNSECURED LOANS RS.275.97 CRORES DIFFERED CREDIT RS. 4.34 CRORES DIFFERED TAX LIABILITY RS. 8.10 CRORES 6.2 THE ASSESSING OFFICER FINALLY CONCLUDED THAT T OTAL INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE WAS RS.37.87 CRO RES. THE PERCENTAGE OF INTEREST CLAIMED AS EXPENDITURE COMPARED TO THE SOURCES AVAILABLE WORKS OUT TO 7%. HE ACCORDINGLY DISALLOWED RS.2.61 CRORES BEING THE PROPORTIONATE INTEREST EXPENDITURE FOR THE INVESTMENT OF RS.37.33 CRORES. 6.3 AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE WIT H THE CIT (A). AFTER TAKING INTO ACCOUNT THE CONTENTIONS OF THE AS SESSEE, THE VERSION OF THE AO IN HIS REMAND REPORT, REJOINDER OF THE ASSES SEE TO THE REMAND REPORT AND ALSO EXTENSIVELY QUOTING HIS EARLIER FIND INGS IN THE CASE OF M/S. UNITED BREWERIES (HOLDINGS) LTD FOR THE AY 1984-85 AND 85-86, THE CIT (A) HAD CONCLUDED THUS: 14. SO FAR AS THE APPLICATION OF RATIO DECIDED IN THE CASE LAW, SMT. CHANCHAL KATYAL (298 ITR 182) IS CONCERNED , I ENTIRELY GO BY THE FINDING OF FACT BY THE AO IN HIS REMAND REPORT DATED 29.9.2008 VIDE ENCLOSURE. IN T HAT REPORT, IT HAS BEEN POINTED OUT THAT ACCOUNTS WERE MIXED UP. DETAILS OF FUNDS BORROWED AND OTHER THAN BORRO WED PAGE 8 OF 16 ITA NOS.469/BANG/0 9 & 638/BANG/2 009 FUNDS WERE NOT PROVIDED AT THE TIME OF REMAND TO EXAMINE THE POINT IN ISSUE. THOUGH AT THE REJOINDE R STAGE, IT HAS BEEN ARGUED THAT THE SOURCE OF INVEST MENT IN SHARES OF SUBSIDIARIES ITS FROM ROCPS NO SPECIFI C DETAILS COULD BE PROVIDED AS TO THE DATES OF SUCH REDEMPTIONS AND CORRESPONDING DATES OF INVESTMENT I N PURCHASE OF SHARES OF ITS SUBSIDIARIES WHICH I INTE NDED TO SEND TO AO FOR VERIFICATION. BUT DUE TO NON-PRO VIDING OF SUCH INFORMATION THOUGH ASKED FOR SPECIFICALLY AN D ALSO IN VIEW OF THE FACTUAL FINDING OF THE FACT THAT A C OMMON ACCOUNT HAS BEEN MAINTAINED, I HAVE NO ALTERNATIVE BUT TO DISMISS THE APPEAL ON THIS GROUND UPHOLDING THE ADD ITION. DISALLOWANCE OF RS.2,61,31,140/ IS UPHELD. 6.4 AGGRIEVED WITH THE FINDINGS OF THE CIT (A), T HE ASSESSEE HAS COME UP WITH THE PRESENT APPEAL. 6.5 DURING THE COURSE OF HEARING, IT WAS SUBMITTE D THAT THE CIT (A) HAD FAILED TO APPRECIATE THAT THERE WAS BUSINESS NE XUS TO THE INVESTMENT MADE AND THE ENTIRE INTEREST ON BORROWED CAPITAL WA S TOWARDS BUSINESS NEEDS, LIABLE TO BE ALLOWED U/S 36 (1)(III) OF THE ACT AND CONSEQUENTLY, NO PART OF INTEREST WAS LIABLE TO BE DISALLOWED. IT WAS, F URTHER, SUBMITTED THAT THE CIT (A) OUGHT NOT TO HAVE DISALLOWED THE INTEREST O N BORROWED CAPITAL HOLDING BORROWED FUND HAD BEEN UTILIZED FOR NON-BUS INESS PURPOSES. ON THE CONTRARY, IT WAS SUBMITTED BY THE LEARNED A R THAT T HE CIT (A) OUGHT TO HAVE APPRECIATED THAT THE ASSESSEE HAD SUFFICIENT F UNDS OTHER THAN LOANS AND ADVANCES AND, HENCE, NO BORROWED CAPITAL WAS BE ING UTILIZED FOR NON- BUSINESS PURPOSE. 6.6 WITH REGARD TO ADDITION OF RS.2.61 CRORES MAD E TOWARDS INTEREST ON BORROWED CAPITAL ALLEGING DIVERSION OF FUNDS FOR NON-BUSINESS PAGE 9 OF 16 ITA NOS.469/BANG/0 9 & 638/BANG/2 009 PURPOSES, IT WAS SUBMITTED THAT THE ASSESSEE DURING THE YEAR UNDER DISPUTE ISSUED REDEEMABLE OPTIONALLY CONVERTIBLE PREFERENCE SHARES [ROCPS] AGGREGATING TO RS.213.63 CRORES, WHICH FORMS PART O F SHARE CAPITAL WHICH WAS EVIDENT FROM THE BALANCE SHEET. IT WAS, FURTHE R, ARGUED THAT THIS AMOUNT WAS UTILIZED TO MAKE THE STRATEGIC INVESTMEN T IN THE COMPANIES AS MENTIONED BY THE AO WHICH AGGREGATES TO RS.37.33 CRO RES. THUS, IT WAS ARGUED, NO PART OF THE BORROWED CAPITAL WAS UTILIZE D TO ACQUIRE SHARE IN THE INVESTMENT COMPANIES. IT WAS ONLY AN ADDITIONAL CAP ITAL RAISED WHICH WAS USED TO MAKE THE INVESTMENTS. REFUTING THE AOS VIE W THAT THE CLAIM OF THE ASSESSEE, THAT THE INVESTMENT HAD INCREASED ITS LEA DERSHIP IN THE INDUSTRY, CANNOT BE ACCEPTED AS CORRECT, SINCE THE SAID COMPA NIES WERE ALREADY UNDER THE MANAGEMENT AND CONTROL OF THE SAME GROUP ETC. I T WAS SUBMITTED THAT THOUGH THE MANAGEMENT AND CONTROL WAS WITH THE ASSE SSEE, THE SUBSIDIARY COMPANIES HAVING BEEN DECLARED SICK BY BIFR, THE ASS ESSEE ACQUIRED THE SAID COMPANIES BY INVESTING IN SHARES OF THOSE SICK COMPA NIES AS THEY WERE ALREADY IN BREWERY BUSINESS AND HAD OPTIMUM CAPACITY T O MANUFACTURE BEER. IT WAS, FURTHER, SUBMITTED THAT SINCE THE ASSESSEE WAS IN THE LEAD BUSINESS OF MANUFACTURING BEER, IT DID NOT WANT ANY COMPETITO R TO ENTER INTO THIS BUSINESS AND, HENCE, THROUGH ITS STRATEGIC INVESTME NT HAD ENHANCED ITS LEADERSHIP IN THE INDUSTRY. IT IS ALSO EVIDENT FROM THE BALANCE-SHEET FOR THE YEAR-ENDED 31.3.2005 THAT THE SUBSIDIARY COMPANIES WE RE PART OF UB GROUP OF COMPANIES THE ASSESSEE. IT WAS, FURTHER, ARG UED THAT THE AO HAD ERRED IN VIEWING THAT THE RULING OF THE HONBLE SUP REME COURT IN THE CASE OF S.A. BUILDERS REPORTED IN 288 ITR 1 (SC) WAS NOT AP PLICABLE TO THE ASSESSEES CASE, WHEREAS THE INVESTMENTS IN SHARES IN ITS SUBS IDIARIES ARE COVERED UNDER THE ABOVE DECISION OF THE HONBLE COURT. PAGE 10 OF 16 ITA NOS.469/BANG/ 09 & 638/BANG/2 009 6.7 ON THE OTHER HAND, THE LEARNED D R SUPPORTED THE STAND TAKEN BY THE AUTHORITIES BELOW AND, THEREFORE, PLEADED THA T THE FINDING OF THE CIT (A) REQUIRES TO BE SUSTAINED. 6.8 WE HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORDS. PRIMARILY, THE AO HAD TAKEN A STAND THAT SINCE THE ASSESSEE, DURING THE YEAR, HAD NOT FU RNISHED THE DETAILS AS TO HOW THE BORROWED CAPITAL HAD BEEN UTILIZED EXCLUSIV ELY FOR ITS BUSINESS PURPOSE, THE NEXUS BETWEEN THE FUNDS BORROWED AND T HEIR UTILIZATION, THE BUSINESS ACTIVITY OF THE ASSESSEE COULD NOT BE ASCER TAINED. IT WAS, THEREFORE, CONCLUDED THAT THE ASSESSEE HAD ACQUIRED THE SHARES OUT OF THE BORROWED FUNDS ALSO [SOURCE: ON PAGES 2 & 3 OF THE ASST. ORDER]. MOREOVER, THE CIT (A) IN HIS FINDING HAD BRIEFLY OBSERVED THUS : 12. ALL THE ABOVE ARGUMENTS ARE CONSIDERED. IN TH E CASE OF M/S. UNITED BREWERIES (HOLDINGS) LTD FOR AY 1984 -85 AND 1985-86 IN ITA NOS. 25 AND 26/ACIT CC 2(3)/BLORE/CIT(A)-VI/2007-08 DATED_____, I HAVE CONCLUDED THAT THE AUTHORIZED REPRESENTATIVES HEAV Y RELIANCE ON THE CASE LAW OF M/S S.A. BUILDERS LTD V . CIT (APPEALS) AND ANOTHER (2006) REPORTED IN 288 ITR 1( SC) IS ENTIRELY MISPLACED. 6.9 HOWEVER, HE HAD NOT SPELT OUT AS TO HOW THE R ULING OF THE HONBLE SUPREME COURT CITED SUPRA HAS NOT BEEN APPL ICABLE TO THE ISSUE UNDER CONSIDERATION. INSTEAD, HE WENT ON TO OBSERV E AS UNDER [AT THE COST OF REPETITION]: 14. SO FAR AS THE APPLICATION OF RATIO DECIDED IN THE CASE LAW, SMT. CHANCHAL KATYAL (298 ITR 182) IS CONCERNED , I PAGE 11 OF 16 ITA NOS.469/BANG/ 09 & 638/BANG/2 009 ENTIRELY GO BY THE FINDING OF FACT BY THE AO IN HIS REMAND REPORT DATED 29.9.2008 VIDE ENCLOSURE. IN T HAT REPORT, IT HAS BEEN POINTED OUT THAT ACCOUNTS WERE MIXED UP. DETAILS OF FUNDS BORROWED AND OTHER THAN BORRO WED FUNDS WERE NOT PROVIDED AT THE TIME OF REMAND TO EXAMINE THE POINT IN ISSUE. THOUGH AT THE REJOINDE R STAGE, IT HAS BEEN ARGUED THAT THE SOURCE OF INVEST MENT IN SHARES OF SUBSIDIARIES ITS FROM ROCPS NO SPECIFI C DETAILS COULD BE PROVIDED AS TO THE DATES OF SUCH REDEMPTIONS AND CORRESPONDING DATES OF INVESTMENT I N PURCHASE OF SHARES OF ITS SUBSIDIARIES WHICH I INTE NDED TO SEND TO AO FOR VERIFICATION. BUT DUE TO NON-PRO VIDING OF SUCH INFORMATION THOUGH ASKED FOR SPECIFICALLY AN D ALSO IN VIEW OF THE FACTUAL FINDING OF THE FACT THAT A C OMMON ACCOUNT HAS BEEN MAINTAINED, I HAVE NO ALTERNATIVE BUT TO DISMISS THE APPEAL 6.10 IT IS APPARENT FROM THE ABOVE OBSERVATIONS A ND ALSO THE REMAND REPORT OF THE AO THAT NO DETAILS OF THE LOANS AND I NVESTMENTS WERE FURNISHED BY THE ASSESSEE DURING THE COURSE OF HEARI NG EVEN AFTER ALLOWING IT SUFFICIENT OPPORTUNITY. TAKING INTO ACCOUNT THE ABO VE FACTS AND ALSO IN THE INTERESTS OF NATURAL JUSTICE, THIS ISSUE IS REMITTE D BACK TO THE FILE OF THE AO FOR A FRESH LOOK WITH REFERENCE TO THE DETAILS OF L OANS AND INVESTMENTS WHICH WOULD BE FURNISHED BY THE ASSESSEE AND TO TAKE APPROPRIATE ACTION IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. WHILE D OING SO, THE AO SHALL KEEP IN VIEW THE RATIO LAID DOWN BY THE HONBLE SUP REME COURT IN THE CASE OF S.A. BUILDERS LTD V. CIT (APPEALS) CITED SUPRA. I T IS ORDERED ACCORDINGLY. DISALLOWANCE OF BAD DEBTS/TRADE ADVANCES: 7. IT COULD BE SEEN FROM THE ASSESSMENT ORDER THA T THE BAD DEBTS OF RS.8.51 CRORES CLAIMED BY THE ASSESSEE WAS DISALL OWED BY THE AO ON THE PAGE 12 OF 16 ITA NOS.469/BANG/ 09 & 638/BANG/2 009 GROUND THAT NO DETAILS AS TO WHOM SUCH DEBT HAS BEE N GIVEN, THEIR ADDRESSES AND REASONS FOR TREATING THE SAME AS IRRECOVERABLE WERE PROVIDED. 7.1 DURING THE COURSE OF APPELLATE PROCEEDINGS BE FORE THE CIT (A), IT WAS CONTENDED THAT AFTER THE AMENDMENT OF S. 36( 1)(VII) AND S. 36(2) OF THE ACT, IT WAS NOT NECESSARY TO PROVIDE SUCH DETAIL S AS IT WAS NOW ENOUGH TO WRITE OFF SUCH DEBTS IN ITS BOOKS TO AVAIL SUCH DEDUCTION. IN THE MEANTIME, THE ASSESSEE HAD FURNISHED THE BREAK-UP O F THE BAD DEBTS BEFORE THE CIT (A) WHICH WAS SENT TO THE AO FOR HIS COMMEN TS. HOWEVER, THE AO, ACCORDING TO THE CIT (A), HAD MENTIONED IN HIS REMA ND REPORT THAT IN SPITE OF ASKING FOR THE ADDRESSES AND DETAILED NAMES, THE SAME WAS NOT PROVIDED FOR VERIFICATION. IT WAS ALSO POINTED OUT IN THE RE MAND REPORT THAT THE ASSESSEE HAD FAILED TO PROVE THAT SUCH DEBTS HAVE B EEN INCURRED FOR THE CONDUCT OF BUSINESS. 7.2 TAKING INTO CONSIDERATION OF THE ABOVE FACTS AND ALSO FOLLOWING HIS FINDINGS RECORDED IN THE CASE OF MCDOWELLS LTD FOR THE AY 2005-06, THE CIT (A) UPHELD THE AOS STAND. WITH REGARD TO THE CLAIM OF ADVANCE WRITTEN OFF AS BAD U/S 37(1) OF THE ACT AS BUSINESS LOSS, T HE CIT (A) HAD, BY EXTENSIVELY QUOTING THE REMAND REPORT OF THE AO, OBS ERVED AS UNDER: 20. AN OPPORTUNITY WAS PROVIDED TO REFUTE THE ABOVE CONCLUSION OF AO. HOWEVER, THE ISSUE RAISED THEREI N HAS NOT EVEN BEEN TOUCHED UPON BY THE AUTHORIZED REPRESENTATIVE IN THE REJOINDER. SHE HAS QUOTED AG AIN A HOST OF DECISIONS WHICH ARE NOT AT ALL APPLICABLE T O THE LAW POINTS OR FACTS INVOLVED IN THE CASE ON HAND. FIRS T OF ALL THE APPELLANT IS NOT SURE WHETHER THE AMOUNT GIVEN TO M/S. CASTLE BREWERIES LTD IS ADVANCE OR DEPOSIT. B OTH PAGE 13 OF 16 ITA NOS.469/BANG/ 09 & 638/BANG/2 009 THESE WORDS HAVE VASTLY DIFFERENT CONNOTATION UNDER IT LAW. BOTH WORDS ARE NOT INTERCHANGEABLE. THE APPE LLANT HAS TO BE FIRST SURE WHETHER THE PAYMENTS MADE TO M/ S. CASTLE BREWERIES LTD., IS DEPOSIT OR AN ADVANCE. T HEN ONLY THE ISSUE OF TREATING THE SAME AS BAD CAN BE CL AIMED BY IT. BESIDES THE ABOVE ADVANCE/DEPOSIT, THE CLAIM HAS BEEN MADE U/S 37(1) OF I T ACT SPEAKS ABOUT EXPENDI TURE WHICH ARE ELIGIBLE FOR DEDUCTION/ALLOWANCE AND NOT DEPOSIT/ADVANCE. THE THREE WORDS DEPOSIT, ADV ANCE AND EXPENDITURE HAVE DIFFERENT MEANINGS AND RAMIFICATIONS VASTLY DIFFERENT FROM EACH OTHER. THE APPELLANT FIRST OF ALL MUST GET CERTAIN WHETHER TO TREAT THE AMOUNT GIVEN TO M/S. CASTLE BREWERIES LIMITED I S ADVANCE, DEPOSIT OR EXPENDITURE AND THEN PROC EED FOR THE ALLOW ABILITY OF THE CLAIM UNDER PROPER SECTION. FOR THE TIME BEING THE PAYMENT SHOWN AS DEPOSIT IN ITS BOOKS, IT CANNOT BE TREATED AS EXPENDITURE AND, CONSEQUENTLY, NO ALLOWANCE COULD BE GIVEN UNDER SECT ION 37(1) OF I T ACT .. 7.3 AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE U S. IT WAS SUBMITTED THAT THE CIT (A) OUGHT TO HAVE ALLOWED TH E BAD DEBTS/BAD ADVANCES WRITTEN OFF AS CLAIMED BY THE ASSESSEE. I T WAS CONTENDED THAT THE AMOUNT WERE ACTUALLY WRITTEN OFF IN THE DEBTORS ACCOUNT AND IT WAS PROVED TO BE IRRECOVERABLE AND, ACCORDINGLY, THE CIT (A) OUGHT TO HAVE ALLOWED THE DEDUCTION IN FULL. IT WAS, FURTHER, SU BMITTED THAT THE CIT (A) HAD FAILED TO APPRECIATE THAT THE AMOUNTS ADVANCED BY THE ASSESSEE TO M/S. CASTLE BREWERIES WERE IN THE COURSE OF BUSINESS TOW ARDS SUPPLY OF RAW MATERIALS AND THEY HAVE BECOME IRRECOVERABLE AND, HE NCE, THE ASSESSEE WAS ENTITLED TO DEDUCTION AS CLAIMED OR IN THE ALTERNAT IVE AS LOSS FROM BUSINESS. 7.4 DURING THE COURSE OF HEARING, THE LEARNED AR DREW THE ATTENTION OF THIS BENCH TO THE EFFECT THAT WHILE P REPARING ITS TAXATION PAGE 14 OF 16 ITA NOS.469/BANG/ 09 & 638/BANG/2 009 WORKING (AS PER THE P & L ACCOUNT), THE ASSESSEE HA D ALREADY ADDED THE BAD ADVANCE WRITTEN OFF OF RS.5,55,17,181/- [SOURCE: P 2 OF PB AR] TO ITS INCOME. IF AGAIN ADDING THE SAME, IT WAS ARGUED, WOULD AMOU NT TO DOUBLE ADDITION. IN CONCLUSION, THE LEARNED AR HAD PLACED RELIANCE ON T HE FINDINGS OF THE HONBLE EARLIER BENCH IN THE CASE OF M/S MCDOWELL & CO. LTD V. ACIT IN ITA NO.217/BNG/09 DATED 21.8.2009 FOR THE AY 2005-06. 7.5 ON THE OTHER HAND, THE LEARNED D R HAD STRONG LY SUPPORTED THE STAND OF THE AUTHORITIES BELOW ON THE ISSUE. TO JU STIFY HIS SUBMISSION, THE LEARNED D R HAD PLACED RELIANCE ON THE FINDINGS OF HONBLE EARLIER BENCH IN THE ASESSEES OWN CASE FOR THE AY 2004-05 IN ITA NO .635/BANG/2008 DATED: 1.4.2009. 7.6 WE HAVE DULY CONSIDERED RIVAL SUBMISSIONS, PER USED THE RELEVANT MATERIALS AVAILABLE ON RECORDS AND ALSO THE CASE LA WS ON WHICH BOTH THE PARTIES HAVE PLACED THEIR RELIANCE. IT WAS THE CA SE OF THE ASSESSEE THAT CERTAIN AMOUNTS WERE WRITTEN OFF AS BAD DEBTS AS TH E ASSESSEE HAD COME TO THE CONCLUSION THAT SUCH AMOUNTS COULD NOT BE RECOV ERED FROM THE PARTIES; THAT THESE AMOUNTS WERE RECEIVABLE FROM THE TRADE D EBTORS WHICH HAD ARISEN DURING THE COURSE OF REGULAR TRADING ACTIVIT IES OF THE ASSESSEE. IT WAS, FURTHER, ARGUED THAT SUCH AMOUNTS HAVING BECOM E BAD AND IRRECOVERABLE, THEY HAVE ACTUALLY BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. 7.8. MOREOVER, THE LEARNED AR HAD SPECIFICALLY DRA WN THE ATTENTION OF THIS BENCH THAT THE BAD ADVANCE WRITTEN OFF TO T HE EXTENT OF RS.5,55,17,181/- HAS BEEN ADDED BACK TO THE TOTAL I NCOME FOR THE PURPOSE OF PAGE 15 OF 16 ITA NOS.469/BANG/ 09 & 638/BANG/2 009 COMPUTATION OF P & L ACCOUNT FURNISHED ALONG WITH I TS RETURN OF INCOME. IT WAS; THEREFORE, CONTENDED THAT IF THE SAME WERE AGA IN TO BE ADDED TO THE ASSESSEES INCOME, IT WOULD AMOUNT TO DOUBLE ADDITI ON. WE FIND THERE IS FORCE IN THE SUBMISSION OF THE LEARNED A.R. STRANGELY, THI S PIECE OF VITAL INFORMATION HAS NEITHER BEEN BROUGHT TO THE ATTENTI ON OF THE AO OR CIT (A) BY THE ASSESSEE EARLIER NOR LOOKED INTO BY THE AUTHOR ITIES CONCERNED. THIS CERTAINLY NEEDS VERIFICATION BY THE ASSESSING OFFICER . MOREOVER, THE ASSESSING OFFICER IN HIS REMAND REPORT HAD OBSERVED THAT (ON PAGE 7) THE ASSESSEE HAS NOT FURNISHED THE NAMES OF THE DEBTORS AGAINST WHOM THE DEBTS ARE OUTSTANDING. THEREFORE, IT COULD NOT BE VERIFIED AS TO WHETHER THESE DEBTS WERE INCIDENTAL TO THE BUSINESS OF THE ASSESSEE OR NOT. IN ABSENCE OF ANY DETAILS AND SINCE THE ASSESSEE HAS NO T BEEN ABLE TO PROVE THAT THE DEBTS HAVE ARISEN TO IT OUT OF THE OPERATI ON OF BUSINESS OR PROFESSION AND SIMPLY CLAIMING THAT THE DEBTS HAVE B EEN WRITTEN OFF IN THE ACCOUNTS, THE ASSESSEES CLAIM THAT IT IS ENTITLED TO DEDUCTION AS PER THE CASE LAW OF DCIT V. OMAN INTERNATIONAL BANK SAOG (2006) 100 ITD (MUM) (SB) CANNOT BE ACCEPTED AS CORRECT. 6.19 CONSIDERING THE ABOVE FACTS AND CIRCUMSTANC ES OF THE ISSUE AS DISCUSSED AND PARTICULARLY THE ASSESSEE CLAIMED TO H AVE ADDED RS.5.55 CRORES BEING BAD ADVANCES WRITTEN OFF TO ITS INCOME WHILE PREPARING ITS COMPUTATION OF INCOME (CITED SUPRA), WE ARE OF THE CONSIDERED VIEW THAT THIS ISSUE REQUIRES VERIFICATION AT THE AOS LEVEL. ACC ORDINGLY, THIS ISSUE IS REMANDED BACK TO THE AO WITH A SPECIFIC DIRECTION T O VERIFY THE ASSERTION OF THE ASSESSEE AND ALSO OTHER DETAILS WHICH WOULD BE FURNISHED BY THE ASSESSEE [AS MENTIONED BY THE AO IN HIS REMAND REPOR T] AND TO TAKE PAGE 16 OF 16 ITA NOS.469/BANG/ 09 & 638/BANG/2 009 APPROPRIATE ACTION IN ACCORDANCE WITH THE PROVISION S OF THE ACT. IT IS ORDERED ACCORDINGLY. 6.20 BEFORE PARTING WITH, WE WOULD LIKE TO RECORD THAT WE HAVE PERUSED THE FINDINGS OF THE HONBLE EARLIER BENCHES (SUPRA) AS RELIED ON BY THE RIVAL PARTIES. 7. IN THE RESULT: (1) THE REVENUES APPEAL IS TREATED AS ALLOWED FOR STAT ISTICAL PURPOSE; & (2) THE ASSESSEES APPEAL IS TREATED AS ALLOWED FOR ST ATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 24 TH DAY OF AUGUST, 2012 SD/- SD/- (JASON P BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE.