MANOJ SHIVYAG SINGH, MUMBAI V. DCIT CENT. CIR. 5(1), MUMBAI

ITA 5375/MUM/2016

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 8381 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Assessment Year: 2012-2013
• Appeal Filed On: 31-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SUMANTHA MULLAMUDI
• Assessee Lawyers: V G GINDE WITH KUMAR KALA
• Keywords: Business income; Depreciation; Business expenditure; Wholly owned subsidiary; Fair market value; Bad and doubtful debts; Unabsorbed depreciation; Set aside; CHAPTER IV
• Section: 192; 13

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL F BENCH MUMB AI BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND SHRI RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 5375/MUM/2016 (ASSESSMENT YEAR 2012-13 ) MANOJ SHIVYAG SINGH BABUBHAI GAIKWAD COMPOUND, TRIKAM DAS ROAD, KANDIVALI (WEST), MUMBAI-40067. PAN: ASJPS4147D VS. DCIT CENTRAL CIRCLE- 5(1) AAYAKAR BHAVAN, MUMBAI. APPELLANT RESPONDE NT APPELLANT BY : SHRI V.G. GINDE WITH KUMAR KALA (AR) RESPONDENT BY : MISS SUMANTHA MULLAMUDI (SR.DR) DATE OF HEARING : 17.02.2020 DATE OF PRONOUNCEMEN T : 27.05.2020 ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER ; 1. THIS APPEAL BY ASSESSEE UNDER SECTION 253 OF INCOME -TAX ACT (THE ACT) IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-53, MUMBAI DATED 30.06.2016 FOR ASSESSMENT YEAR 2012-13. THE ASSESSEE HAS RAISED TH E FOLLOWING GROUNDS OF APPEAL: BEING AGGRIEVED BY THE ORDER U/S.250 OF THE INCOME- TAX ACT, 1961 ('ACT') DATED 30.06.2016 PASSED BY THE LD. COMMISSIONER OF INCOME -TAX (APPEALS)-53, MUMBAI ['CIT(A)'], THE APPELLANT PREFERS THIS APPEA L PETITION, AMONG OTHERS, ON THE FOLLOWING GROUNDS OF APPEAL, EACH OF WHICH IS I NDEPENDENT OF, AND WITHOUT PREJUDICE TO, THE OTHERS: L. DISALLOWANCE OF EXPENSES CLAIMED IN M/S. RAUNAK AGENCY: L.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AND IN LAW, THE LD CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE OF ALL EXPENSE S AGGREGATING TO RS.83,72,085/- (INCLUSIVE OF BAD DEBTS WRITTEN OFF OF RS.76,11,276/-) DEBITED TO THE PROFIT & LOSS ACCOUNT OF M/S. RAUNAK AGENCY ('R A'), A PROPRIETARY CONCERN OF THE APPELLANT, MADE BY THE LD. AO ON THE GROUND THAT THE BUSINESS OF RA WAS CLOSED. ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 2 1.2 THE LD. CIT(A) FAILED TO APPRECIATE, AND OUGHT TO HAVE HELD, THAT RA WAS A PART OF THE SAME BUSINESS OF RUNNING LOTTERY AGENCY CARRIED ON BY THE APPELLANT AT DIFFERENT LOCATIONS, THOUGH IN DIFFERENT NAMES; AND THUS, THE APPELLANT CONTINUED TO CARRY ON THE BUSINESS THAT ENTITLED TH E APPELLANT TO CLAIM THE AFORESAID LEGITIMATE BUSINESS EXPENSES (INCLUDING B AD DEBTS WRITTEN OFF). IN VIEW OF ABOVE, THE APPELLANT PRAYS THAT DE DUCTION BE ALLOWED FOR THE EXPENSES OF RS.83,72,085/- (INCLUDING FOR BAD DEBTS OF RS.76,11,276/-) IN ACCORDANCE WITH THE LAW. 2. DISALLOWANCE OF DEBIT BALANCES WRITTEN OFF IN M/ S. AMBER AGENCY: 2.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, AND IN LAW, THE LD. CIT(A) ERRED IN SUSTAINING THE DISALLOWANCE OF RS.1,10,42, 315/- OUT OF THE DEBTS OF RS. 1,32,41,948/- (WRONGLY TAKEN AS RS.56,30,671/- BY T HE LD. AO) WRITTEN OFF BY THE APPELLANT IN THE BOOKS OF ACCOUNT OF M/S. AMBER AGENCY, A PROPRIETARY CONCERN OF THE APPELLANT. 2.2 THE LD. CIT(A) ERRED IN HOLDING THAT THE AFORES AID DEBT OF M/S. MAINSTAR LOTTERIES PVT. LTD. ('MLPL') WRITTEN OFF WAS NOT A DEBT ARISING OUT OF SALES, BUT WAS ON ACCOUNT OF LOAN, AND THEREFORE, NOT DEDUCTIB LE U/S.36( L)(VII) R /W S.36(2) OF THE ACT. 2.3 THE LD. CIT(A) ERRED IN NOT CONSIDERING THE APP ELLANT'S REVISED CLAIM FOR THE BAD DEBTS OF RS.71,39,414/- U/S.36(1)(VII) R. W. S. 36(2), AND CLAIM FOR BUSINESS LOSS OF RS.39,02,901/- IN RESPECT OF DEBT DUE FROM MLPL. 2.4 THE LD. CIT(A) ALSO ERRED IN REJECTING THE APPE LLANT'S ALTERNATIVE CLAIM FOR DEDUCTION OF RS.1,10,42,315/- AS BUSINESS LOSS. IN VIEW OF ABOVE, THE APPELLANT PRAYS THAT - (A) THE REVISED CLAIM FOR BAD DEBTS OF RS.71,39,414 /- IN RESPECT OF MLPL BE ALLOWED U/S. 36(1)(VII) R/W S. 36(2) OF THE ACT AND THE BALANCE AMOUNT OF RS.39,02,901/- BE ALLOWED AS BUSINESS LOSS; OR (B) WITHOUT PREJUDICE TO ABOVE, THE WHOLE OF THE SU M OF RS.1,10,42,315/- BE ALLOWED AS BUSINESS LOSS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, AND IN LAW, THE LD. CIT(A) ERRED IN NOT DIRECTING THE LD. AO TO CONSIDER THE A PPELLANT'S ALTERNATIVE CLAIM FOR BUSINESS LOSS IN THE EVENT THE CLAIM FOR BAD DEBT I S NOT ALLOWED IN RESPECT OF VARIOUS DEBIT BALANCES WRITTEN OFF BY THE APPELLANT AGGREGATING TO RS.21,99,633/- (OTHER THAN MLPL'S DEBT) FOR WHICH THE ISSUE WAS RE STORED TO THE FILE OF THE LD. AO. IN VIEW OF ABOVE, THE APPELLANT PRAYS THAT TH E LD. AO BE DIRECTED TO CONSIDER THE APPELLANT'S ALTERNATIVE CLAIM FOR BUSINESS LOSS IF THE CLAIM FOR BAD DEBT QUA THESE DEBIT BALANCES WRITTEN OFF IS NOT TO BE ALLOW ED BY THE AO. ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 3 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS PR OPRIETOR OF TWO CONCERNS NAMELY (I) M/S RAUNAK AGENCY (RA) AND (II) M/S AMBE R AGENCY (AA) AND ALSO DIRECTOR IN A PRIVATE LIMITED COMPANY NAMELY M /S MAINSTAR LOTTERIES PVT LTD (MLPL), ALL THREE CONCERNS WERE DEALING IN LOTTERY BUSINESS. THE ASSESSEE FILED ITS RETURN OF INCOME FOR ASSESSMENT YEAR 2012-13 ON 29.09.2012 DECLARING TOTAL INCOME AT RS. 8,58,781/- . THE ASSESSEE CLAIMED BUSINESS EXPENSES AND BED DEBTS IN RAUNAK AGENCY (R A) OF RS.83,72,085/-. THE ASSESSING OFFICER AFTER ISSUING SHOW CAUSE AND CONSIDERING THE REPLY OF THE ASSESSEE, DISALLOWED BUSINESS EXPENSES AND BED DEBTS BY TAKING VIEW THAT RA STOPPED ITS BUSINESS ACTIVITY IN FINANCIAL YEAR 2010-11 AND THAT IN ABSENCE OF BUSINESS ACTIVITY THE ASSESSEE IS NOT EN TITLED OF DEDUCTION UNDER CHAPTER IV OF INCOME TAX ACT. HENCE, ENTIRE EXPENSE S AND THE BED DEBTS AGGREGATING OF RS. 83,72,085/- WAS DISALLOWED. THE ASSESSEE ALSO CLAIMED BED DEBTS IN AMBER AGENCY (AA) OF RS. 1,32,41,948/- OUT OF WHICH A SUM OF RS. 1,10,42,315/- WAS IN RESPECT OF MLPL, A COM PANY WHEREIN THE ASSESSEE HOLD 95% OF SHARES. THE ASSESSING OFFICER AFTER ISSUING SHOW CAUSE AND CONSIDERING THE REPLY OF THE ASSESSEE ALSO DISA LLOWED THE ENTIRE CLAIM IN AMBER AGENCY BY TAKING VIEW THAT THE ASSESSEE HAS S UBSTANTIAL INTEREST IN MLPL AND THE ASSESSEE DEVELOPED CAMOUFLAGE DEVICE. THE ASSESSING OFFICER WHILE DISALLOWING THE CLAIM OF ASSESSEE RELIED ON T HE DECISION OF HONBLE SUPREME COURT IN MCDOWELL (154 ITR 148 SC). ON APPE AL BEFORE FIRST ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 4 APPELLATE AUTHORITY / LEARNED CIT(A), THE ACTION OF THE ASSESSING OFFICER ON BOTH THE CLAIMS WAS CONFIRMED. THUS, FURTHER AGGRIE VED BY THE ORDER OF LD CIT(A) THE ASSESSEE HAS FILED PRESENT APPEAL BEFORE THIS TRIBUNAL. 3. WE HAVE HEARD THE SUBMISSIONS OF THE LEARNED AUTHOR ISED REPRESENTATIVE (LD. AR) FOR THE ASSESSEE AND THE LEARNED SENIOR DEPARTM ENTAL REPRESENTATIVE (LD. DR) FOR THE REVENUE AND WITH THEIR ASSISTANCE GONE THROUGH THE ORDER OF LOWER AUTHORITIES. GROUND NO. 1 RELATES TO DISALLOW ANCES OF EXPENSES CLAIMED IN RAUNAK AGENCY (RA). THE LD. AR FOR THE A SSESSEE SUBMITS THAT RAUNAK AGENCY AND AMBER AGENCY CONSTITUTES ONE SING LE AND COMPOSITE BUSINESS CARRIED ON BY THE ASSESSEE AND THUS, IT WA S THE SAME BUSINESS IN BOTH THE ENTITIES. THE CLOSURE OF ONE LIMB OF BUSIN ESS IN RAUNAK AGENCY CANNOT BE CONSTRUED A CESSATION OF BUSINESS ITSELF , SO FAR AS OTHER LIMB OF BUSINESS IN AMBER AGENCY IS CONTINUED BY THE ASSESS EE. THE ASSESSEE BEING AN INDIVIDUAL WAS IN TOTAL CONTROL OF BOTH THESE PR OPRIETARY CONCERN. THERE WAS A COMPLETE UNITY OF CONTROL IN COMMON MANAGEMEN T HAVING INTERLINKING, INTERLACING AND INTERCONNECTION EMBRA CING THESE TWO CONCERNS TO CONSTITUTE THE SAME BUSINESS. THE LEARNED AR FOR THE ASSESSEE FURTHER SUBMITS THAT THE CASE LAWS RELIED BY LEARNED CIT (A ) IN C.L. MEHRA VERSUS ITO (59 ITD 99 DELHI), IS NOT APPLICABLE ON THE FAC TS OF THE PRESENT CASE. THE FACTS OF THAT CASE ARE QUITE DIFFERENT. IN THE SAID CASE THE ASSESSEE STARTED ANOTHER PROPRIETARY CONCERN AT DIFFERENT PLACE AFTE R CLOSING OF ITS PROPRIETARY CONCERN AT DIFFERENT PLACE, WHOSE LICENSE WAS TRANS FERRED TO NEW CONCERN. ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 5 THUS, BOTH THESE CONCERNED DID NOT CO-EXISTED AND C ARRY ON THE ACTIVITIES SIMULTANEOUSLY. HOWEVER, IN THE ASSESSEES CASE BOT H THE ENTITIES WERE CARRYING ITS BUSINESS THE BUSINESS UNTIL ONE WAS CL OSED. THE LD AR FOR THE ASSESSEE ALSO FILED THE FOLLOWING DOCUMENTS ON REC ORD; COPY OF ITR ACKNOWLEDGEMENT AND STATEMENT OF TOTAL INCOME FOR AY 2012-13 TAX AUDIT REPORT OF AMBER AGENCY FOR AY 2012-13 W ITH AUDITED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT, COPY OF TAX AUDIT REPORT OF RAUNAK AGENCY WITH CONS OLIDATED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT OF AMBER AGENCY A ND RAUNAK AGENCY WITH SCHEDULES FOR FY 2011-12. COPY OF ITR OF MLPL WITH STATEMENT OF INCOME FOR FY 2011-12 WITH AUDITED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT A ND COPY OF LEDGER ACCOUNT OF AMBER AGENCY IN THE BOOKS OF MLPL FOR FY 2011-12, COPY OF LEDGER ACCOUNT OF MLPL (SALES ACCOUNT) IN T HE BOOKS OF AMBER AGENCY FOR FY 2011-12, COPY OF LEDGER ACCOUNT OF MLPL (LOAN ACCOUNT) IN TH E BOOKS OF AMBER AGENCY FOR FY 2011-12, COPY OF REVISED LEDGER ACCOUNT OF MLPL(SALES ACCOUN T) IN THE BOOKS OF AMBER AGENCY FOR FY 2011-12, COPY OF REVISED LEDGER ACCOUNT OF MLPL (LOAN ACCOUN T) IN THE BOOKS OF AMBER AGENCY FOR FY 2011-12, COPY OF PURCHASE ACCOUNT OF MLPL FOR FY 2010-11 AN D 2011-12 REFLECTING PURCHASED MADE FROM AMBER AGENCY, COPY OF SALES REGISTER OF AMBER AGENCY FOR FY 2010- 11 AND 2011-12 REFLECTING SALES MADE FROM MLPL. COPY OF LEDGER ACCOUNT OF MLPL IN THE BOOKS OF AMBE R AGENCY FOR FY 2010-11, ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 6 COPY OF LEDGER ACCOUNT OF MLPL IN THE BOOKS OF RAUN AK AGENCY FOR FY 2010-11 AND COPY OF VARIOUS WRITTEN SUBMISSIONS FURNISHED BEFORE ASSESSING OFFICER AND LD CIT(A). 4. TO BUTTRESS HIS SUBMISSION, THE LEARNED AR OF THE A SSESSEE RELIED UPON THE DECISION OF FOLLOWING DECISIONS; SHREYAS S MORAKHIA VS DCIT (ITA NO. 198/MUM/2009) D ATED 27.11.2011, GUJARAT HIGH COURT IN BANSIDHAR (P)LTD VERSUS CIT ( 1981 5 TAXMAN 158 GUJARAT), DCIT VS PATIDARS GINNING AND PRESSING COMPANY (20 00) 108 TAXMAN 476(GUJ), MADRAS HIGH COURT IN CIT VERSUS RANJI INVESTMENT. L TD 319 ITR 433 (MADRAS), CIT VERSUS LATE TS SRINIVASA IYER 192 ITR 50 (MADRA S) AND CIT VERSUS WESTERN BENGAL COAL FIELDS LTD 233 ITR 1 39 (CALCUTTA ). 5. THE LEARNED AR FOR THE ASSESSEE SUBMITS KEEPING IN VIEW THE AFORESAID DECISIONS OF VARIOUS HIGH COURTS THE ASSESSEE IS EN TITLED FOR ALL EXPENSES INCLUDING BAD DEBTS WRITTEN OFF IN THE BOOKS OF RAU NAK AGENCY WHILE COMPUTING BUSINESS INCOME. 6. ON THE OTHER HAND THE LEARNED DR FOR THE REVENUE SU BMITS THAT THE ASSESSEE CLOSED ITS BUSINESS IN ONE THE CONCERN IN RESPECT O F WHICH THE BAD DEBTS WAS CLAIMED IN ANOTHER CONCERN. THE ASSESSEE FAILED TO PROVE THAT HE WAS RUNNING COMMON BUSINESS IN BOTH THE CONCERNS. THE ASSESSEE FAILED TO SUBSTANTIATE ITS CLAIM BEFORE THE LOWER AUTHORITIES. IN ABSENCE OF ANY BUSINESS ACTIVITIES THE ASSESSEE IS NOT ENTITLED TO CLAIM EXPENSES OF N E CONCERN IN OTHER CONCERN AS CLAIMED BY THE ASSESSEE. IN SUPPORT OF HER SUBMI SSIONS THE LD. DR FOR THE ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 7 REVENUE RELIED ON THE DECISION OF BANGALORE TRIBUNA L IN KARNATAKA INSTRADE CORPORATION LIMITED VS ACIT 127 ITD 74 (BANG). 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF BOTH TH E REPRESENTATIVE AND DELIBERATED ON THE VARIOUS CASE LAW RELIED BY THE L D. AR FOR THE ASSESSEE. THE ASSESSING OFFICER DISALLOWED THE TOTAL EXPENSES CLAIMED BY THE ASSESSEE WITH REGARD TO RAUNAK AGENCY BY TAKING VIEW THAT NO BUSINESS WAS CARRIED OUT BY RAUNAK AGENCY DURING THE YEAR AS IT WAS DISC ONTINUED IN EARLIER YEARS. THE LEARNED CIT (A) WHILE AFFIRMING THE ACTI ON OF ASSESSING OFFICER ALSO HELD THAT RAUNAK AGENCY AND AMBER AGENCY ARE TWO DIFFERENT AND DISTINCT BUSINESS CARRIED BY ASSESSEE AND THEREFORE , THEY DID NOT CONSTITUTE THE SAME BUSINESS. IT WAS ALSO HELD THAT ONLY STOPP AGE OF THE BUSINESS ACTIVITIES OF RAUNAK AGENCY NO DEDUCTION WAS ADMISS IBLE FOR AN EXPENDITURE INCLUDING THE BAD DEBTS. IT WAS FURTHER HELD THAT M ERELY RECOVERING DUES AND DISCHARGING LIABILITY AFTER DISCONTINUANCE OF BUSIN ESS ACTIVITY DOES NOT AMOUNT TO CARRY ON BUSINESS. AND THAT DEEMING PROVI SION OF SECTION 41 (1) CANNOT BE EXTENDED MERELY INCOME WAS OFFERED TO TAX UNDER SECTION 41. 8. THE COORDINATE BENCH OF MUMBAI TRIBUNAL IN SHREYAS S MORAKHIA VS DCIT (SUPRA) WHILE CONSIDERING THE ALLOWABILITY OF BED D EBTS AND IN ALTERNATIVE AS BUSINESS LOSS WITH REGARD TO THE ONE LIMB OF BUSINE SS WHICH WAS CLOSED, UNDER THE SECOND LIMB OF HIS BUSINESS, HELD AS UNDE R; 10. RIVAL CONTENTIONS HEARD. ON CAREFUL CONSIDERAT ION OF THE FACTS AND CIRCUMSTANCES OF THE CASE AND ON PERUSAL OF THE PAP ERS ON RECORD, ORDERS OF ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 8 THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS CITE D BEFORE US, WE HOLD AS FOLLOWS:- 11. THE BUSINESS OF THE ASSESSEE IS THAT A SHARE TR ADER AND WAS TRADING BOTH IN HIS OWN BEHALF AS WELL AS ON BEHALF OF THIRD PAR TIES. IN EARLIER YEAR, THE ASSESSEE SOLD STOCK EXCHANGE MEMBERSHIP CARD AND DI SCONTINUED TRADING IN SHARES ON BEHALF OF THIRD PARTIES. TRADING IN SHARE S ON OWN ACCOUNT WAS CONTINUED. ON THESE FACTS, WE HAVE TO SEE AS TO WHE THER IT CAN BE SAID THAT THE ASSESSEE IS CONTINUING WITH HIS BUSINESS. WE EX AMINED THE CASE LAWS RELIED UPON BOTH THE PARTIES. 12. THE HON'BLE SUPRE ME COURT IN STANDARD REFINERY & DISTILLERY LTD. (SUPRA), WAS CONSIDERING THE CASE OF A COMPANY WHICH OWNED DISTILLERIES AND HAD ALSO ACQUIRED A SU GAR FACTORY. IT HAD A BUSINESS OF SUGAR MANUFACTURING AND DISTILLERIES AS WELL AS BUSINESS OF DEALING IN SHARES. THE ASSESSEE SOLD CERTAIN SHARES AND THE LOSS AFTER BEING SET-OFF WAS SOUGHT TO BE CARRY FORWARD AS UNABSORBE D LOSS IN THE SALE OF SHARES AND SET-OFF WAS CLAIMED AGAINST INCOME FROM SUGAR MANUFACTURING AND DISTILLERIES. THE HONBLE SUPREME COURT HELD AS FOLLOWS:- HELD THE TRIBUNAL HAS NOW SUBMITTED THE SECOND SUP PLEMENTARY STATEMENT OF CASE CALLED FOR BY THIS COURT. THE FAC TS FOUND BY IT ARE AS FOLLOWS: (1) THERE IS A SINGLE TRADING AND PROFIT A ND LOSS ACCOUNT. IN THE SAME ACCOUNT THE SALES OF SPIRIT, SUGAR AND MOL ASSES AS WELL AS STOCK AND SHARES APPEAR; (2) THE SHARE TRANSACTIONS AS WELL AS THE BUSINESS HAS BEEN DEALT WITH BY A COMMON ORGANISATI ON, THOUGH THE SALE OF SHARES IS A SINGLE TRANSACTION AND THE PURC HASE OF THOSE SHARES IS ALSO MORE OR LESS OF THE SAME CHARACTER; (3) THE BUSINESS OF THE COMPANY AS WELL AS THE TRANSACTION RELATING TO THE SHARES WERE ATTENDED TO AS PART AND PARCEL OF THE ASSESSEE-COMP ANY; (4) A COMMON FUND WAS UTILISED BOTH FOR BUSINESS PURPOSES AS WELL AS FOR THE PURCHASE OF SHARES. A PART OF THE OVERDRAFT OF RS. 6,80,046 TAKEN FROM THE BANK ON 31ST DEC., 1947, HAS BEEN DISCHARG ED FROM OUT OF THE INCOME OF THE BUSINESS; AND (5) THE SHARE TRANS ACTION WORK AS WELL AS THE OTHER BUSINESS OF THE ASSESSEE- COMPANY WERE CARRIED ON IN THE SAME PLACE OF BUSINESS. FROM THE FACTS FOUND BY THE TRIBUNAL, IT IS CLEAR THAT THE SHARE TRANSACTION AS WELL AS THE OTH ER BUSINESS OF THE COMPANY WERE DEALT WITH BY A COMMON MANAGEMENT, COM MON ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 9 BUSINESS ORGANIZATION, COMMON ADMINISTRATION, COMMO N FUND AND COMMON PLACE OF BUSINESS. THE BUSINESS OF THE COMPA NY OF DEALING IN SHARES AND THE BUSINESS OF MANUFACTURING SUGAR AND OTHER COMMODITIES CONSTITUTE THE SAME BUSINESS WITHIN THE MEANING OF S. 24(2). STANDARD REFINERY & DISTILLERY LTD. VS. CIT (1965) 55 ITR 139 (CAL) : TC 45 R.502 REVERSED. 13. IN B.R. LIMITED (SUPRA), THE HONBLE SUPREME CO URT WAS CONSIDERING THE CASE WHERE IMPORT BUSINESS WAS CLOSED DOWN AND EXPO RT BUSINESS OF COTTON TEXTILE COMMENCED IN THE NEXT YEAR AND THE ASSESSEE SOUGHT SET-OFF OF LAWS OF IMPORT BUSINESS AS AGAINST PROFIT FROM EXPORT BU SINESS. IN SUCH A SITUATION, THE HON'BLE SUPREME COURT HELD THAT THE DECISIVE TE ST FOR DETERMINING 'SAME BUSINESS' WITHIN THE MEANING OF 24(2) OF 1922 ACT I S UNITY OF CONTROL AND NOT THE NATURE OF TWO LINES OF BUSINESS. THE FACT T HAT ONE BUSINESS CANNOT CONVENIENTLY BE CARRIED ON AFTER THE CLOSURE OF OTH ER MAY FURNISH A STRONG INDICATION THAT THE TWO BUSINESSES CONSTRUED A SAME BUSINESS. WHEN THERE IS COMMON MANAGEMENT AND COMMON CONTROL IN BUSINESS, I T WAS HELD THAT THE ASSESSEE WAS ENTITLED TO CARRY FORWARD THE LOSS IN IMPORT BUSINESS AND SET IT OFF AGAINST THE PROFITS OF EXPORT BUSINESS IN THE S UBSEQUENT YEAR. 14. THE HON'BLE JURISDICTIONAL HIGH COURT IN PRINCI PAL OFFICER, LAXMI SURGICAL PVT. LTD. (SUPRA), WAS CONSIDERING THE CAS E OF AN ASSESSEE WHICH MANUFACTURES A SURGICAL COTTON. THE MANUFACTURER, O N OWN ACCOUNT, WAS DISCONTINUED BY THE ASSESSEE BUT THE PRODUCTION OF SURGICAL COTTON WAS CONTINUED ON JOB BASIS FROM AN ANOTHER MANUFACTURER . THE HONBLE COURT HELD THAT THE SAME BUSINESS CONTINUES AND LOSS AND DEPRECIATION OF THE EARLIER YEAR CAN BE CARRY FORWARD AND SET-OFF. 15. THE HONBLE JURISDICTIONAL HIGH COURT IN SHRI L AXMI PRINTING & DYEING WORKS PVT. LTD. (SUPRA) WAS CONSIDERING THE CASE OF AN ASSESSEE WHICH WAS CARRYING ON THE BUSINESS OF PROCESSING OF CLOTH WIT H THE AID OF HIS OWN MACHINERY. FOR THE YEAR ENDED 1957-58, THERE WAS CA RRY FORWARD UNABSORBED DEPRECIATION. IN THE YEAR 1956, THE ASSESSEE COMPAN Y ENTERED INTO AN AGREEMENT WITH B LIMITED FOR PROCESSING THE GOODS OF THE LATTER ON CERTAIN TERMS AND CONDITIONS AND BY USE OF SPECIAL KIND OF MACHINERY. B LIMITED IMPORTED THIS MACHINERY AND INSTALLED THE SAME IN T HE BUSINESS PREMISES OF THE ASSESSEE COMPANY. DUE TO WANT OF SPACE, THE ASS ESSEE COMPANY SOLD ITS ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 10 MACHINERY. THEREAFTER, THE ENTIRE SHARE CAPITAL OF THE ASSESSEE COMPANY WAS PURCHASED BY B LIMITED AND, HENCE, THE ASSESSEE C OMPANY BECAME THE WHOLLY OWNED SUBSIDIARY OF B LIMITED, THE ISSUE W AS WHETHER THE ASSESSEE IS ENTITLED TO CLAIM OF SET-OFF OF CARRY FORWARD DE PRECIATION. THE HONBLE COURT HELD THAT THE ACTIVITY CARRIED ON BY THE ASSE SSEE NAMELY THE ACTIVITY OF PROCESSING REMAINED THE SAME AND THE BUSINESS IS TH E SAME BUSINESS. 16. THE HONBLE KERALA HIGH COURT IN V.P. JOHN, JAN ATHA MEDICALS (SUPRA), HELD THAT THE ASSESSEE WAS HAVING A COMPOSITE BUSIN ESS AND MERE DISCONTINUANCE OF ONE ACTIVITY WILL NOT DISENTITLE THE ASSESSEE TO THE BENEFIT OF SET-OFF OF CARRY FORWARD LOSS. 17. NOW, COMING T O THE JUDGMENT OF HON'BLE SUPREME COURT IN L.M. CHABDA & SONS (SUPRA) RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, WHEREIN THE COURT HELD THAT FOR THE PURPOSE OF ASCERTAINING OF PROFIT, IF AN ASSESSEE CARRIES ON S EVERAL DISTINCT AND INDEPENDENT BUSINESSES, AND ONE OF SUCH BUSINESSES IS CLOSED BEFORE THE PREVIOUS YEAR HE CANNOT CLAIM ALLOWANCE UNDER S. 10 , OF AN OUTGOING ATTRIBUTABLE TO THE BUSINESS WHICH IS CLOSED, AGAIN ST THE INCOME OF HIS OTHER BUSINESSES IN THAT YEAR. IT IS HELD THAT THE HEAD O F INCOME MAY BE ONE I.E., BUSINESS, WHEREAS THE COMPONENTS ARE DIFFERENT. I T HELD THAT THAT THE EXPENDITURE IS A COMPONENT INHERENT IN THE PROCESS OF ASCERTAINING THE PROFITS REFERABLE TO A PARTICULAR INDEPENDENT ACTIV ITY OF BUSINESS. THE HONBLE MADRAS HIGH COURT IN I.S. & C. MACHADO (SUP RA) WAS CONSIDERING A CASE WHERE THE ASSESSEE HAD TWO DIFFERENT BUSINESSE S AND WHEN ONE BUSINESS WAS CLOSED, IT HELD THAT EXPENDITURE OF DISCONTINUE D BUSINESS CANNOT BE SET- OFF AGAINST PROFITS OF ANOTHER BUSINESS. 18. THE JU DGMENT RELIED UPON BY THE LEARNED DEPARTMENTAL REPRESENTATIVE, DOES NOT APPLY TO THE FACTS OF THE CASE, AS THE FINDING OF THE TRIBUNAL WAS THAT TWO DIFFERE NT BUSINESS WAS CARRIED ON BY THE ASSESSEE AND THE ONE WHICH WAS DISCONTINUED IN THE YEAR 1947 HAD NOTHING TO DO WITH EACH OTHER AND THERE WAS NO INTE R-DEPENDENCE BETWEEN THEM. APPLYING TO THE PROPOSITION LAID DOWN IN THE OTHER CASES DISCUSSED ABOVE, WE ARE OF THE CONSIDERED OPINION THAT THE AS SESSEES BUSINESS OF TRADING IN SHARES IS A COMPOSITE BUSINESS WHICH HAD TWO LIMBS, (I) TRADING ON OWN ACCOUNT AND (II) TRADING ON ACCOUNT OF THIRD PA RTIES. DISCONTINUING OF TRADING IN SHARES ON BEHALF OF THIRD PARTIES, IN OU R OPINION, CANNOT BE CONSIDERED DISCONTINUANCE OF BUSINESS OF SHARE TRAD ING. THE TEST OF UNITY OF ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 11 CONTROL AND COMMON MANAGEMENT ARE FULFILLED IN THIS CASE, AS THIS IS A CASE OF AN INDIVIDUAL. THE TEST TO DETERMINE WHETHER TWO DIFFERENT VENTURES CAN BE CONSIDERED TO CONSTITUTE THE SAME BUSINESS ARE NOT IS TO SEE WHETHER THERE WAS ANY INTERCONNECTION, INTER-LACING, INTER-DEPEND ENCE, EMBRACING THE VENTURES AND WHETHER DIFFERENT VENTURES WERE SO INT ER-LACED AND SO DOVETAILED INTO EACH OTHER AS TO MAKE THEM INTO THE SAME BUSINESS. 19. IN OUR VIEW, THE TEST IS FULFILLED IN THIS CASE AND, H ENCE, THE CLAIM OF THE ASSESSEE OF BAD DEBTS FROM BROKERING BUSINESS IS TO BE ALLOWED. COMING TO THE SECOND LIMB OF DISALLOWANCE, ADMITTEDLY, THE IS SUE WHETHER THE CONDITIONS UNDER SECTION 36(2) ARE FULFILLED OR NOT , IS DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF MUMBAI SPECIAL BENCH IN ASSESSEES OWN CASE FOR EARLIER ASSESSMENT YEAR. RESPECTFULLY FOLLOWING THE SAME, WE SET ASIDE THE ORDER OF THE COMMISSIONER (APPEALS) AND ALLOW T HIS GROUND OF APPEAL . 9. THE HONBLE GUJARAT HIGH COURT IN BANSIDHAR (P) LTD VS CIT (SUPRA) WHILE CONSIDERED THE QUESTIONS OF LAWS; (I) WHETHE R, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUS TIFIED IN HOLDING THAT STEEL-O-STYLE UNIT OF THE ASSESSEE AND THE UNITS ( A ) CARRYING ON BUSINESS OF PURCHASE AND SALE OF CLOTH ( B ) PROCESSING AND MANUFACTURING OF COLOURS AND CHEMICALS IN THE NAME O: M/S. BAN DYES, DID NOT CONSTITUTE THE SAME BUSINESS AND HENCE THE RETRENCHMENT COMPEN SATION OF RS. 9,603 PAID ' TO THE WORKERS OF STEEL-O-STYLE UNIT A FTER ITS CLOSURE WAS NOT AN ALLOWABLE DEDUCTION AND (II) WHETHER, ON THE FAC TS AND IN THE CIRCUMSTANCES OF THE CASE, THE TRIBUNAL WAS JUSTIFI ED IN HOLDING THAT THE ACTIVITIES OF STEEL ROLLING MILL AND MACHINERY MANU FACTURING UNITS WHICH WERE CLOSED IN 1961 AND 1962 RESPECTIVELY, DID NOT CONSTITUTE THE SAME BUSINESS AS PURCHASE AND SALE OF CLOTH AND MANUFACT URING OF CHEMICALS ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 12 AND DYES AND THAT THE APPELLANT WAS NOT ENTITLED TO DEDUCTION OF BAD DEBTS OF RS. 34,617 (RS. 18,772 RELATING TO MACHINE RY DEPARTMENT AND RS. 15,845 RELATING TO STEEL ROLLING MILL) AGAINST THE INCOME OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1967-68. THE HONB LE HIGH COURT HELD AS UNDER; ------------, THE ASSESSEE'S BOARD OF DIRECTORS HA D AN OVERALL CONTROL OVER THE ASSESSEE'S ENTIRE BUSINESS ACTIVITY. THERE WAS A CO MMON FUND FROM WHICH THE NECESSARY CAPITAL AND WORKING FUNDS WERE SUPPLIED T O THE VARIOUS BUSINESS ACTIVITIES. THE ULTIMATE GAIN OR LOSS OF BUSINESS W AS ALSO WORKED OUT BY A CONSOLIDATED PROFIT AND LOSS ACCOUNT AND BALANCE SH EET. MERELY BECAUSE THERE WAS A SEPARATE STAFF, WHICH WAS NOT INTER-TRANSFERA BLE, THE UNITY OF CONTROL WAS NOT AFFECTED SINCE, AT THE APEX, THERE WAS A CO MMON MANAGEMENT AND ADMINISTRATION IN VIEW OF THE OVERALL CONTROL OF TH E VARIOUS BUSINESSES VESTING IN ITS BOARD OF DIRECTORS. THOUGH SOME OR MOST OF T HE BUSINESSES WERE CARRIED ON AT DIFFERENT PLACES, THE ULTIMATE CONTROL WAS EX ERCISED AT ITS REGISTERED OFFICE AND THAT CIRCUMSTANCES ALSO, THEREFORE, DID NOT DETRACT FROM THE UNITY OF CONTROL. THE EMPHASIS ON THE WIDELY DIFFERENT NATUR E OF THE BUSINESS ACTIVITIES, THOUGH NOT ALTOGETHER IRRELEVANT, WAS N OT BY ITSELF DECISIVE. THE FACT THAT MANUFACTURING BUSINESS WAS COMBINED WITH TRADING ACTIVITIES WAS AGAIN A MATTER OF NO CONSEQUENCE BECAUSE THAT, BY I TSELF, OR COUPLED WITH THE OTHER CIRCUMSTANCES PRESENT HEREIN, WILL NOT LEAD T O THE CONCLUSION THAT THERE WAS NO INTER-LACING OR INTER-DEPENDENCE INASMUCH AS THERE WAS A UNITY OF CONTROL. EVEN IF DIFFERENT BOOKS OF ACCOUNT WERE MA INTAINED AND THE TRANSACTIONS INTER SE BETWEEN THE DIFFERENT BUSINES S UNITS WERE RECORDED IN THOSE BOOKS OF ACCOUNT, ONCE IT WAS FOUND THAT ULTI MATELY THERE WAS A COMMON PROFIT AND LOSS ACCOUNT AND BALANCE SHEET, T HAT CIRCUMSTANCE WOULD PALE INTO INSIGNIFICANCE BECAUSE SUCH A METHOD OF A CCOUNTING WOULD BE MORE FOR CONVENIENCE OF BUSINESS THAN FOR THE PURPOSE OF MAINTAINING DIFFERENT IDENTITIES. THE FACT THAT THE CLOSURE OF ONE BUSINE SS DID NOT AFFECT OR LEAD TO THE CLOSURE OF THE OTHER BUSINESSES WAS ALSO NOT OF SUCH CONSEQUENCE BECAUSE NO DECISIVE INFERENCE COULD BE DRAWN THEREFROM. IN FACT, THE CLOSURE OF TWO ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 13 BUSINESSES IN TWO YEARS IN SUCCESSION AND THE THIRD WITHIN FIVE YEARS THEREAFTER WAS CIRCUMSTANCE WHICH LEADS TO A REASON ABLE INFERENCE THAT THE VARIOUS BUSINESSES WERE IN ALL PROBABILITY SO CLOSE LY INTERCONNECTED THAT ONE COULD NOT BEAR THE IMPACT OF THE DEATH OF ANOTHER. THEREFORE, THE CONCLUSION WAS INEVITABLE THAT THERE WAS COMPLETE INTER-CONNEC TION, INTER-LACING, INTER- DEPENDENCE AND DOVETAILING OF THE DIFFERENT BUSINES SES ACTIVITIES CARRIED ON BY THE ASSESSEE AND THAT ALL THOSE ACTIVITIES REALL Y CONSTITUTED ONE AND SINGLE BUSINESS. 10. FURTHER, HONBLE GUJARAT HIGH COURT IN CIT VS PATID AR GINNING & PRESSING CO.(SUPRA), WHILE CONSIDERING THE FACTS THAT THE AS SESSEE-COMPANY HAD A GINNING MILL. DUE TO FINANCIAL DIFFICULTIES THE ASS ESSEE STOPPED ITS ACTIVITIES OF GINNING AND PRESSING AND BEFORE COMMENCEMENT OF THE YEAR ENGAGED ITSELF IN PURCHASING AND SELLING OF COTTON. HOWEVER , THE SELLING OF COTTON WAS NOT DIFFERENT FROM THE ACTIVITY OF SELLING COTTON A FTER GINNING AND PRESSING. BOTH THE ACTIVITIES WERE CONDUCTED BY THE SAME MANA GEMENT WITH THE HELP OF THE SAME FUNDS UNDER THE SAME CONTROL. THE ASSES SEE CLAIMED THE FACT THAT CLOSURE OF ONE BUSINESS DID NOT AFFECT OR LEAD TO C LOSURE OF OTHER BUSINESS, WAS NOT OF MUCH CONSEQUENCE WHEN DIFFERENT ACTIVITI ES WERE CARRIED OUT BY THE ASSESSEE. THE CASE OF THE ASSESSEE WAS THAT ALL ACTIVITIES CONSTITUTED ONE AND THE SAME BUSINESS AND THE WRITE OFF OF ITS OUTS TANDING DUES AS BAD DEBTS WERE ALLOWABLE DEDUCTIONS. THE ASSESSING OFFICER, D ISALLOWED THE ASSESSEES CLAIM BY TAKING VIEW ( I ) THAT THE ASSESSEE HAD STOPPED ITS GINNING AND PRESSING BUSINESS AND AFTER SOMETIME AS NEW BUS INESS ACTIVITIES HAD COMMENCED, AND ( II ) THAT SUITS HAD BEEN FILED FOR RECOVERY OF AMOUNT. THE TRIBUNAL ALLOWED THE DEDUCTION CLAIMED ON THE GROUN D THAT OLD BUSINESS ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 14 SHOULD BE DEEMED TO CONTINUE DESPITE ITS CLOSURE, A S PER THE RESOLUTION OF THE BOARD OF DIRECTORS, AND THAT IT WAS ENOUGH IF THE A SSESSEE WROTE OFF THE DEBT AS BAD IN ITS BOOKS OF ACCOUNT AND THE ASSESSEE NEE D NOT ESTABLISH THE DEBT TO HAVE BECOME BAD. ON FURTHER APPEAL BY THE REVENUE B EFORE HIGH COURT, THE HONBLE COURT WHILE REFERRING THE DECISION OF HON BLE APEX COURT IN VEECUMSEES V. CIT [1996] 220 ITR 185(SC)/ 86 TAXMA N 243 , HELD THAT THE FACT THAT A PARTICULAR PART OF THE BUSINESS FOR WHICH THE LOAN HAD BEEN OBTAINED HAD BEEN TRANSFERRED OR CLOSED DOWN, DID N OT ALTER THE FACT THAT THE LOANS, WHEN OBTAINED, HAD BEEN FOR THE PURPOSE OF T HE ASSESSEES BUSINESS AND DISMISSED THE APPEAL OF REVENUE. 11. BEFORE US, THE LD. AR FOR THE ASSESSEE VEHEMENTLY SUBMITTED THAT RAUNAK AGENCY AND AMBER AGENCY CONSTITUTED ONE AND SINGLE AND COMPOSITE BUSINESS CARRIED OUT BY THE ASSESSEE. BOTH THE CONC ERNS WERE ENGAGED IN THE BUSINESS OF LOTTERY. THE ASSESSEE WAS HAVING COMPL ETE CONTROL OVER BOTH THE PROPRIETARY CONCERN. THE LOWER AUTHORITIES DISALLOW ED THE CLAIM OF DEDUCTION UNDER CHAPTER IV OF THE ACT ONLY ON THE G ROUND THAT NO BUSINESS ACTIVITY WAS RAUNAK AGENCY. THE LD CIT(A) AFFIRMED THE ACTION OF ASSESSING OFFICER BY TAKING VIEW THAT THE ASSESSEE CARRIED TWO DISTINCT BUSINESS. WE HAVE NOTED THAT THE STATUS OF BOTH THE CONCERNS BEING PROPRIETARY CONCERN OF ASSESSEE AND BUSINESS THEIR ACTIVITIES IS NOT DISPUTED BY THE LOWER AUTHORITIES. BOTH THE ENTITY WAS ENGAG ED IN THE LOTTERY BUSINESS. THE CONTROL OVER THE BUSINESS OF BOTH THE CONCERN B Y ASSESSEE IS ALSO NOT ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 15 DISPUTED BY THE LOWER AUTHORITIES. NO CONTRARY FACT THAT THE ASSESSEE WAS NOT HAVING CONTROL OVER THE BUSINESS OF BOTH THE CONCER N OR THE BUSINESS OF BOTH THE ENTITY WAS DIFFERENT WAS BROUGHT ON RECORD BY T HE LOWER AUTHORITIES. 12. CONSIDERING THE TEST OF UNITY OF CONTROL AND COMMON MANAGEMENT AS HELD BY COORDINATE BENCH IN SHREYAS S. MORAKHIA (SUPRA), BY FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN STANDARD REFINERY & DIS TILLERY LTD VS CIT (1971) 79 ITR 589(SC), THE ASSESSEE IS ENTITLED FOR THE DEDUCTION EXPENSES IN RAUNAK AGENCY. THE CASE LAW RELIED BY LD CIT(A) IN CL MEHRA VS ITO 59 ITD 99 (DELHI) IS NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. IN THE SAID CASE THE BUSINESS IN TWO ENTITIES WAS NOT CARR IED BY ASSESSEE SIMULTANEOUSLY, MOREOVER TWO SEPARATE ACCOUNTS WERE MAINTAINED BY ASSESSEE IN THE SAID CASE. THE CASE LAW RELIED BY L D. DR FOR THE REVENUE IN KARNATAKA INSTRADE CORPORATION LTD. VS. ACIT (SUPRA ) IS ALSO NOT HELPFUL TO THE REVENUE. IN THE SAID CASE IT WAS HELD THAT IN O RDER TO ALLOW BUSINESS LOSS UNDER SECTION 72(1)(I) CONDITION IS THAT ASSESSEE S HOULD CARRY ON BUSINESS IN YEAR UNDER APPEAL AND IT IS ONLY AGAINST PROFITS OF SUCH BUSINESS THAT BROUGHT FORWARD LOSS CAN BE SET OFF. WHERE ASSESSEES PROFI TS WERE ASSESSED UNDER SECTION 41(1) AS BUSINESS INCOME, SAID PROFITS DID NOT REPRESENT PROFITS AND GAINS OF ANY BUSINESS CARRIED ON BY ASSESSEE AND TH EREFORE, BROUGHT FORWARD BUSINESS LOSS WAS NOT ALLOWABLE AGAINST PROFITS ASS ESSED UNDER SECTION 41(1). HOWEVER, IN THE CASE IN HAND THE ASSESSEE THROUGHOU T THE PROCEEDINGS IS CLAIMING THAT HE IS CARRYING HIS LOTTERY BUSINESS U NDER TWO LIMBS AND IS ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 16 ENTITLED FOR THE DEDUCTIONS OF BED DEBTS AND OTHER EXPENSES. IN THE RESULT THE GROUND NO. 1 OF THE APPEAL IS ALLOWED. 13. GROUND NO. 2 RELATES TO DISALLOWANCE OF DEBIT BALAN CES WRITTEN OFF IN M/S. AMBER AGENCY. THE LD. AR FOR THE ASSESSEE SUBMITS T HAT MLPL WAS ACTING AS A SOLE STOCKIST OF AMBER AGENCY IN KOLKATA FOR M ARKETING THE LOTTERIES THROUGH A NETWORK OF ITS CUSTOMER. DUE TO HIGH RATE OF SALES TAX IN THE STATE OF WEST BENGAL, AND THEREAFTER A BAN WAS IMPOSED BY THE STATE GOVERNMENT; MLPL HAD TO STOP ITS BUSINESS OPERATION. DUE TO WHI CH MLPL COULD NOT RECOVER DUES FROM ITS CUSTOMER AND CONSEQUENTLY COU LD NOT PAY DUES TO THE ASSESSEE BECAUSE IT WAS ESSENTIALLY A BACK-TO-BACK SALE ARRANGEMENT. MLPL USED TO GET SMALL COMMISSION ON OVERALL SALES AFFEC TED BY IT. MLPL WRITE OFF ITS SUNDRY BALANCES RECEIVABLE AS WELL AS PAYAB LE DURING THE RELEVANT YEARS. IT ALSO CLOSED ITS BUSINESS AND TRANSFERRED ITS FIXED ASSET MAINLY COMPUTERS AND PRINTERS TO THE ASSESSEE AT THE WRITT EN DOWN VALUE (WDV) AS PER INCOME-TAX ACT, AT RS. 24,14,546/-, THOUGH I TS BOOKS VALUE WAS RS. 60,08,593/-. IT WAS ARGUED BY LD. AR FOR THE ASSESS EE THAT UNDER THESE CIRCUMSTANCES, THE ASSESSEE HAD TO WRITE OFF THE BE DS DEBTS DUE FROM MLPL. THE LEARNED AR FURTHER SUBMITS THAT THE CIRCUMSTANC E THAT LEADS TO SUCH SITUATION WAS TOTALLY BEYOND THE CONTROL OF ASSESSE E. THE FINANCIAL TRANSACTION BETWEEN ASSESSEE AND MLPL WERE COMPOSIT E IN NATURE, IN THAT APART FROM SALE OF LOTTERIES TO MLPL. AT THAT TIME MLPL HAD ALSO PAID FOR CERTAIN EXPENSES ON BEHALF OF THE ASSESSEE AND THE ASSESSEE HAD ALSO ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 17 TRANSFERRED FUNDS PARTLY FOR REIMBURSING THOSE PAYM ENTS AND PARTLY BY WAY OF FINANCIAL ASSISTANCE. TWO SEPARATE LEDGER ACCOUN TS WERE MAINTAINED, AT THE TIME PAYMENTS MADE BY THE MLPL ON BEHALF OF THE ASSESSEE WERE WRONGLY POSTED TO THE CREDIT OF LEDGER ACCOUNT (SAL ES), WHILE PAYMENTS MADE BY THE ASSESSEE TOWARDS REIMBURSEMENT WERE POSTED I N LOAN ACCOUNTS THEREBY INCREASING THE DEBIT BALANCE IN THE LOAN AC COUNT, WHICH WAS TRANSFERRED TO LEDGER ACCOUNT (SALES) AT THE TIME O F WRITE OFF. WHEN THESE FACTS WERE EXAMINED BY LEARNED CIT (A), THE ASSESSE E SUBMITTED THE RECAST LEDGER ACCOUNTS TO BI-FURCATE THE DEBIT BALANCE WRI TTEN OFF ON ACCOUNT OF SALES TRANSACTION AND ON ACCOUNT OF LOAN ACCOUNT. T HE LEARNED CIT(A) BRUSHED ASIDE THIS EXPLANATION BY TAKING VIEW THAT IT IS AN AFTERTHOUGHT AND SELF-SERVING EVIDENCE AND THAT ASSESSEE DID NOT PRO JECT THE CORRECT BALANCE IN THESE TWO ACCOUNTS BY PROJECTING RECTIFIED LEDGER A CCOUNTS BEFORE HIM. 14. THE LEARNED AR FURTHER SUBMITS THAT THERE IS NO DIS PUTE THAT ASSESSEE HAD AFFECTED SALES TO MLPL AND THEREFORE THE EXTENT DEB IT BALANCE WRITTEN OFF WAS ON ACCOUNT OF SALES, THE SAME WAS CLEARLY ALLOW ABLE AS A BAD DEBTS UNDER SECTION 36(1)(VII). 15. WITH REGARD TO ALTERNATIVE CLAIM FOR BUSINESS LOSSE S, THE LEARNED AR OF THE ASSESSEE SUBMITS THAT THERE WAS A CLOSE BUSINESS CO NNECTION BETWEEN THE ASSESSEES BUSINESS AND MLPL BUSINESS AND THEREFORE WHERE THE ASSESSEE HAD ADVANCED LOAN IT WAS CLEARLY INCIDENTAL FOR CAR RYING OUT OF HIS BUSINESS. THE ASSESSEE HAS DEEP INTEREST IN THE BUSINESS OF M LPL AND THUS THE AMOUNT ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 18 ADVANCED BY WAY OF BUSINESS EXPERIENCES WAS ALLOWAB LE ON ACCOUNT OF BUSINESS ADVANCES. IN SUPPORT OF HIS SUBMISSION THE LEARNED AR OF THE ASSESSEE RELIED UPON THE DECISION OF HONBLE APEX C OURT IN CASE OF SA BUILDERS LTD VERSUS CIT (2007) 288 ITR1 (SC). 16. THE LEARNED AR OF THE ASSESSEE PRAYED THAT THE ASSE SSEE IS ENTITLED FOR DEDUCTION ON ACCOUNT OF BAD DEBTS OR IN ALTERNATIVE AS A BUSINESS LOSS. TO BUTTRESS HIS SUBMISSIONS THE LEARNED AR OF THE ASSE SSEE ALSO RELIED UPON THE FOLLOWING DECISIONS; CIT VERSUS MYSORE SUGAR CO LTD (1946) 46 ITR 469 (S C), T.J. LALWANI VERSUS CIT (1970) 78 ITR 176 (BOM), IBM WORLD TRADE CORPORATION (1990) 186 ITR 412 (MU M) AND LORDS DAIRY FARMS LTD VERSUS CIT (1958) 27 ITR 70 0 (BOM). 17. FINALLY, THE LD AR FOR THE ASSESSEE WOULD SUBMIT T HAT THE LD CIT(A) HAS NOT EXAMINED THE ALTERNATIVE CLAIM OF THE ASSESSEE AND PRAYED THAT THIS ISSUE MAY BE RESTORED TO THE FILE OF ASSESSING OFFICER OR LD. CIT(A) TO EXAMINE IT AFRESH. 18. ON THE OTHER HAND THE LEARNED AR FOR THE REVENUE SU PPORTED THE ORDER OF LOWER AUTHORITIES. THE LEARNED DR FOR THE REVENUE F URTHER SUBMIT THAT ASSESSEE HAS TAKEN INCONSISTENT STAND BEFORE THE AS SESSING OFFICER AS WELL AS BEFORE FIRST APPELLATE AUTHORITY AND FAILED TO PRO VE ITS CONTENTION REGARDING THE CLAIMS OF BED DEBTS AS WELL AS ITS BUSINESS EXP EDIENCY. THE ASSESSEE HAS NOT FURNISHED EVIDENCE TO SUBSTANTIATE HIS CLAIM OF BUSINESS LOSS UNDER ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 19 SECTION 28(IV). THE ONUS WAS ON THE ASSESSEE TO EST ABLISH THAT THE LOSS HAS BEEN OCCURRED IN THE COURSE OF BUSINESS CARRIED OUT BY THE ASSESSEE. 19. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE REPR ESENTATIVE AND DELIBERATED ON THE VARIOUS CASE LAW RELIED BY THE L D. AR FOR THE ASSESSEE. THE ASSESSING OFFICER DISALLOWED THE ASSESSEES CLA IM BY TAKING VIEW THAT ASSESSEE WRITE OFF OF DEBTS IS CLAIMED TO REDUCE THE TAXABLE INCOME BY TAKING RELIANCE ON THE DECISION OF CASE LAW IN MCDO WELL (SUPRA). THE LEARNED CIT (A) AFFIRMED THE ACTION OF ASSESSING OF FICER BY TAKING VIEW THAT AMOUNT WRITTEN OFF OF 1.10 CRORE DID NOT REPRESENT DEBTS TOWARDS THE SA LES EFFECTED, BUT ACTUALLY, IT REPRESENTS THE LOAN ADVA NCED BY THE ASSESSEE TO MLPL. IT WAS ALSO HELD THAT THE SAME DID NOT REPRES ENT MONEY LENT IN ORDINARY COURSE OF BUSINESS OF MONEY LENDING AND TH EREFORE DEDUCTION UNDER SECTION 36(1)(VII) COULD NOT BE ALLOWED. IT WAS FUR THER HELD THAT, THOUGH MLPL WRITTEN BACK THIS SUM AS ADVANCE IN ITS BOOKS, IT DID NOT PAY ANY TAX THEREON BECAUSE HE DID NOT CLAIM SIMILAR DEDUCTION IN WRITTEN OFF IN THE SUNDRY BALANCES TO THE TUNE OF ABOUT RS. 2.00 CRORE AND THEREBY HAS SUFFERED LOSSES THUS THE ASSESSING OFFICER WAS RIGHTLY INVOK ED THE CASE LAW IN MCDOWELL (SUPRA). 20. THE ALTERNATIVE CLAIM OF ASSESSEE WAS ALSO NOT ACCE PTED BY THE LEARNED CIT(A) BY TAKING VIEW THAT NO COGENT EVIDENCE WAS F URNISHED BY THE ASSESSEE TO SUBSTANTIATE HIS CLAIM. THE ASSESSEE HA S NOT PROVED THAT THE LOSS HAS OCCURRED IN THE COURSE OF BUSINESS CARRIED OUT BY HIM OR INCIDENTAL TO ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 20 SUCH BUSINESS OR THAT IT WAS A TRADING LOSS AND NOT A CAPITAL LOSS. FURTHER THERE IS NOTHING ON RECORD TO SHOW THAT LOAN ADVANC ED WAS UTILISED BY MLPL FOR THE PURPOSE OF BUSINESS AND THAT ASSESSEE HAS N OT EXPLAIN HOW THE SAID LOAN WAS TO BE TREATED AS BUSINESS LOSS INCURRED DU RING THE CURRENT YEAR. THE LEARNED CIT(A) ALSO HELD THAT ASSESSEE OUGHT TO HAV E ASCERTAINED THE FAIR MARKET VALUE OF THE FIXED ASSETS WHICH CONSIST OF M AINLY COMPUTER AND PRINTER OF MLPL DIRECTLY TRANSFERRED TO HIS CAPITAL ACCOUNT. 21. BEFORE US, THE LD AR FOR THE ASSESSEE VEHEMENTLY S UBMITTED THAT THE THERE WAS A CLOSE BUSINESS CONNECTION BETWEEN THE ASSESSE ES BUSINESS AND MLPL BUSINESS AND THEREFORE WHERE THE ASSESSEE HAD ADVAN CED LOAN IT WAS CLEARLY INCIDENTAL FOR CARRYING OUT OF HIS BUSINESS, AND TH E ASSESSEE HAS DEEP INTEREST IN THE BUSINESS OF MLPL AND THUS THE AMOUNT ADVANCE D BY WAY OF BUSINESS EXPERIENCES WAS ALLOWABLE ON ACCOUNT OF BUSINESS AD VANCES AND RELIED UPON THE DECISION OF HONBLE APEX COURT IN CASE OF SA BU ILDERS LTD VERSUS CIT (SUPRA). WE HAVE NOTED THAT THE ALTERNATIVE PLEA O F THE ASSESSEE WAS NOT ACCEPTED BY LD CIT(A) BY TAKING VIEW THAT NO COGENT EVIDENCE IS FURNISHED BY THE ASSESSEE, THE ASSESSEE NOT PROVED THAT LOSS OCCURRED IN THE COURSE OF BUSINESS OR IT WAS A TRADING LOSS AND NOT CAPITAL. IT WAS ALSO HELD THAT THERE IS NO EVIDENCE THAT ADVANCE GIVEN TO MLPL WAS UTILISED FOR THE PURPOSE OF BUSINESS. THE ASSESSEE HAS ALSO FILED VARIOUS DOCUM ENTARY EVIDENCES, WHICH WE HAVE RECORDED IN PARA -3 SUPRA . THE ASSESSEE HAS CERTIFIED THAT ALL THESE EVIDENCES WERE FURNISHED BEFORE THE LOWER AUTHORITI ES. WE HAVE NOTED THE ITA NO. 5375 MUM 2016-MANOJ SHIVYAG SINGH 21 ALTERNATIVE PLEA OF BUSINESS LOSS WAS RAISED FOR TH E FIRST TIME BEFORE LD CIT(A) AND IT WAS REJECTED SUMMARILY WITHOUT REFERE NCE TO THE AFORESAID EVIDENCE. THEREFORE, WE DEEM IT APPROPRIATE TO REST ORE THE ALTERNATIVE CLAIM OF BUSINESS LOSS TO THE FILE OF ASSESSING OFFICER T O CONSIDER IT AFRESH. NEEDLESS TO DIRECT THAT BEFORE PASSING THE ORDER AFRESH THE ASSESSING OFFICER SHALL GRANT REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE A ND WILL PASS THE ORDER IN ACCORDANCE WITH LAW. IN THE RESULT THE GROUND NO. 2 OF THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 22. GROUND NO. 3 RELATES TO DISALLOWANCE OF VARIOUS DE BIT WRITTEN OFF AND TO TREAT THE SAME AS BUSINESS LOSS. AS WE HAVE RESTOR ED THE GROUND NO. 2 TO THE FILE OF ASSESSING OFFICER, THEREFORE, THE GROUND NO .3 IS ALSO RESTORE TO THE ASSESSING OFFICER FOR FRESH ADJUDICATION. 23. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 27/05/2020. SD/- SD/- RIFAUR RAHMAN PAWAN SINGH ACCOUNTANT MEMBER J UDICIAL MEMBER MUMBAI, DATE: 27.05.2020 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR F BENCH, ITAT, MUMBAI 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI