APL (INDIA) P. LTD, MUMBAI V. DCIT 8(1), MUMBAI

ITA 5619/MUM/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62484 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 07-05-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 15-10-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ARTIU VISSANJISH AJIT SHAH
• Keywords: Capital asset; Depreciation; Business expenditure; Bad and doubtful debts; Commercial expediency; Revised return; Revenue expenditure; Capital expenditure
• Section: 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI VIJAY PAL RAO, JM & SHRI N K BILLAIYA , AM ITA NO. 5619/MUM/2009 (ASSESSMENT YEAR 2004-05 ) APL INDIA PVT LTD TRADE PLAZA, 2 ND FLOOR 414 VEER SAVARKAR MARG, CADELL ROAD PRABHADEVI MUMBAI 400 025 VS THE ADDL COMMR OF INCOME TAX RANG 8(1), MUMBAI (APPELLANT ) (RESPONDENT) PAN NO. AABCA2731N ASSESSEE BY SMT ARTIU VISSANJI/SH AJIT SHAH REVENUE BY SHRI C G K NAIR DT.OF HEARING 7 TH MAY 2012 DT OF PRONOUNCEMENT 8 TH JUNE 2012 ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 6.8.2009 OF THE COMMISSIONER OF INCOME TAX(APPEALS) FOR THE ASSESSMENT YEAR 2004- 05. 2 THE ASSESSEE HAS RAISED THE FOLLOWING EFFECTIVE G ROUNDS IN THIS APPEAL: 1 THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) I N THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT AND IN L AW ERRED IN- (A) DISALLOWING RS. 1,18,225/- IN RESPECT OF COMPUTE R EXPENSES AS CAPITAL IN NATURE UNDER THE DOMAIN OF COMPUTER. (B) DISALLOWING RS. 1,66,463/- IN RESPECT OF REPAIR S AND MAINTENANCE EXPENSES AS CAPITAL IN NATURE. (C) NOT GRANTING DEDUCTION IN RESPECT OF AMOUNT OF R S. 2,80,31,905/- RECEIVABLE FROM THE SUBSIDIARY COMPANY NOL PROPERTIES ( INDIA) PVT. LTD., WHICH WAS WRITTEN OFF DURING THE YEAR, EITHER AS BAD DEBTS OR AS APL INDIA PVT LTD ITA NO. 5619/MUM/2009 2 TRADING LOSS OR EXPENDITURE INCURRED FOR THE PURPOSE OF BUSINESS, AS THE CASE MAY, BE UNDER THE RELEVANT PROVISIONS OF THE ACT. (D) CHARGING INTEREST UNDER SECTION 220(2) AMOUNTING TO RS. 1,05,330/- AS THERE WAS NO DEMAND OUTSTANDING, WHICH WAS PAYAB LE. 3 GROUND 1(A) IS REGARDING DISALLOWANCE OF COMPUTER EXPENSES BEING CAPITAL IN NATURE. 3.1 THE ASSESSING OFFICER HAS NOTED THAT THE ASSESS EE HAS DEBITED AN AMOUNT OF ` 32,80,058/- ON ACCOUNT OF COMPUTER EXPENSES. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE COMPUTER EXPENSES SHOULD NOT BE CAPIT ALISED. IN RESPONSE, THE ASSESSEE HAS FILED THE DETAILS OF COMPUTER EXPENSE S. FROM THE DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER FOUND THAT SOME OF THE EXPENSES ARE IN RELATION TO CD ROM DRIVE/HARD DISK DRIVE/RAM OF ` 86,975/- AND PRINTER/SCANNER/WEB CAMRA OF ` 31,250/- . ACCORDINGLY, THE ASSESSING OFFICER HELD THAT THE EXPENDITURE OF ` 1,18,225/- IS CAPITAL IN NATURE BEING COMPUTER HA RDWARE ACQUIRED BY THE ASSESSEE, WHICH IS DEPRECIABLE ASSET AND DISALLOWED THE SAME . THE ASSESSING OFFICER ACCORDINGLY ALLOWED PROPORTIONATE DEPRECIATION @ 60 %. BECAUSE CD ROM DRIVE/HARD DISK/RAM WERE PURCHASED AFTER 30.9.2003; THEREFORE, 30% OF ` 86,975/- WAS ALLOWED IN THIS RESPECT. 3.2 ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPEA LS) CONFIRMED THE ACTION OF THE ASSESSING OFFICER BY FOLLOWING THE DECISION OF THE HONBLE RAJASTHAN HIGH COURT IN THE CASE OF ARAWALI CONSTRUCTION COMPANY REPORTED IN 259 ITR 30 AND THE ORDER OF THE TRIBUNAL IN THE CASE OF MARUTI UDYONG LTD REPORTED IN 92 ITD 119. 4 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THE EXPENDITURE WAS INCURRED ON REPLACEMENT OF THE DEFECTIVE COMPUTER P ARTS AND NOT FOR ANY ADDITION IN THE BLOCK OF ASSETS. HE HAS REFERRED THE WRITT EN DOWN VALUE OF THE FIXED ASSETS PARTICULARLY COMPUTER AND SUBMITTED THAT WHATEVER C APITAL EXPENDITURE INCURRED BY APL INDIA PVT LTD ITA NO. 5619/MUM/2009 3 THE ASSESSEE ON COMPUTER HAS BEEN INCLUDED IN THE B LOCK OF ASSETS. THE OPENING WRITTEN DOWN VALUE THE COMPUTER IS ` 3.79 CRORES WHEREAS THE CLOSING DOWN VALUE (CDV) IS ` 3.86 CRORES WHICH SHOWS THAT THE ADDITION MADE BY THE ASSESSEE DURING THE YEAR IN THE COMPUTER HAS BEEN DULY INCLUDED IN THE FIXED ASSETS. THE LD AR OF THE ASSESSEE THUS SUBMITTED THAT SINCE THE EXPENDITURE WAS INCURRED FOR REPLACEMENT OF PARTS/ACCESSORIES OF THE COMPUTER; AS SUCH IN THE N ATURE OF ALLOWABLE REVENUE EXPENDITURE. 4.1 ON THE OTHER HAND, THE LD DR HAS RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE ASSESSING OFFICER HAS CLEARLY MADE OUT IN THE ASSESSMENT ORDER THAT OUT OF THE TOTAL EXPENDITURE OF ` 32,80,058/-, ` 1,18,225/- WAS INCURRED BY THE ASSESSEE FOR NEW HARDWARE OF THE CO MPUTER, WHICH IS IN THE NATURE OF CAPITAL. 5 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL A S THE RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER HAS GIVEN THE DETAIL S OF THE EXPENDITURE INCURRED BY THE ASSESSEE IN RESPECT OF THE COMPUTER HARDWARE IN PARA. 4.4 AS UNDER: 4.4 THE SUBMISSION OF THE ASSESSEE HAS BEEN PERUSED AND CONSIDERED. FROM THE DETAILS FILED BY THE ASSESSEE IT WAS SEEN THAT THE FOLLOWING EXPENSES WERE INCURRED IN RESPECT OF COMPUTER HARDWARE. THE DETAILS OF THE SAME ARE AS UNDER: 1 CD ROM DRIVE/HARD DISK DRIVE/RAM OF ` 86,975/- 2 PRINTER/SCANNER/WEB CAMRA OF ` 31,250/-. TOTAL ` 1,18,225/- 5.1 IT IS TO BE NOTED THAT APART FROM THE EXPENDITU RE OF ` 32,80,058/-, THE ASSESSEE HAS ALSO PURCHASED SOME COMPUTER, WHICH WERE INCLUD ED IN THE FIXED ASSETS AS CLEAR FROM THE SCHEDULE C SHOWING THE FIXED ASSETS AT THE WRITTEN DOWN VALUE. THE PARKS LIKE CD ROM DRIVE, HARD DISK DRIVE AND RAM ARE ONLY SPARES OF THE CENTRAL PROCESSING UNIT (CPU) OF THE COMPUTER AND THEY CANN OT BE CONSIDERED AS SEPARATE APL INDIA PVT LTD ITA NO. 5619/MUM/2009 4 AND INDEPENDENT MACHINERY. ACCORDINGLY, REPLACEMENT OF THE PARTS OF THE MACHINERY IS ALLOWABLE EXPENDITURE. THE EXPENDITUR E INCURRED ON PRINTER, SCANNER AND WEB CAMARE CANNOT BE SAID TO BE REPLACEMENT OF THE SPARES /DEFECTIVE PARTS OF THE COMPUTER. THE PRINTER, SCANNER AND WEB CAME RA ARE INDEPENDENT AND SEPARATE DEVICE; THEREFORE, THE EXPENDITURE OF ` 31,250/- INCURRED ON PRINTER, SCANNER AND WEB CAMERA IS CAPITAL IN NATURE AND ACC ORDINGLY, THE ADDITION TO THE EXTENT OF ` 31,250/- IS CONFIRMED. THIS ISSUE IS PARTLY ALLOWE D TO THE EXTENT OF THE EXPENDITURE OF ` 86,975/- AS REVENUE EXPENDITURE U/S 37 OF THE I T ACT. 6 GROUND NO. 1(B) IS REGARDING DISALLOWANCE OF REPA IRS AND MAINTENANCE EXPENSES BY TREATING AS CAPITAL IN NATURE. 6.1 THE ASSESSING OFFICER NOTED THAT THE ASSESSEE H AS ACCOUNTED FOR REPAIRS AND MAINTENANCE EXPENSES OF ` 50,35,444/-. THE ASSESSEE WAS ASKED TO FURNISH THE DETAILS AND THE STATEMENT OF EXPENSES INCURRED WITH REGARD TO THE REPAIRS AND MAINTENANCE. IN RESPONSE, THE ASSESSEE FILED THE D ETAILS. FROM THE DETAILS FILED BY THE ASSESSEE, THE ASSESSING OFFICER OBSERVED THAT V ARIOUS AMOUNTS AGGREGATING TO ` 1,66,463/- HAVE BEEN DEBITED , WHICH ARE CAPITAL I N NATURE. THE SAID EXPENDITURE WAS INCURRED IN RESPECT OF KANDLA OFFICE RENOVATION OF ` 1,35,613/- AND KANDLA OFFICE SPLIT AC OFFICE CHARGES OF ` . 30,850/- TOTAL AMOUNTING TO ` 1,66,463/-. THE ASSESSING OFFICER ACCORDINGLY DISALLOWED THE SAME. 6.2 ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPEA LS) HAS CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE G ROUND THAT THE EXPENDITURE INCURRED ON RENOVATION/IMPROVEMENT OF THE OFFICE PR EMISES IMMEDIATELY AFTER TAKING OVER THE PREMISES ON LEASE WAS CAPITAL EXPENDITURE. 7 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITTE D THAT THE EXPENDITURE WAS INCURRED ONLY FOR RENOVATION WORK CARRIED OUT AT TH E OFFICE PREMISES, WHICH WAS TAKEN APL INDIA PVT LTD ITA NO. 5619/MUM/2009 5 ON LEASE BY THE ASSESSEE; THEREFORE, THE SAME IS RE VENUE IN NATURE. SHE HAS REFERRED THE DETAILS OF THE EXPENDITURE ON RENOVATION AND RE PAIRS AT PAGES 34 OF THE PAPER BOOK, SHE HAS ALSO RELIED UPON THE ORDER OF THE TR IBUNAL IN THE CASE OF M/S OGILVY & MATHER PVT LTD IN ITA NO 3343/MUM/2004 DATED 17.1 2.2008 AND SUBMITTED THAT SIMILAR ISSUE HAS BEEN CONSIDERED THE DECIDED BY TH E COORDINATE BENCH OF THE TRIBUNAL IN FAVOUR OF THE ASSESSEE. 7.1 THE LD DR ON THE OTHER HAND HAS SUBMITTED THAT THE COMMISSIONER OF INCOME TAX(APPEALS) HAS GIVEN A FINDING OF FACTS THAT THE EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE PRIOR TO USE OF THE PREMISES IN QUESTI ON AND AFTER TAKING THE SAME ON LEASE; THEREFORE, THE SAME IS CAPITAL IN NATURE AND NOT ALLOWABLE. 8 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL A S THE RELEVANT MATERIAL ON RECORD. THE DETAILS OF EXPENDITURE GIVEN BY THE AS SESSING OFFICER IN PARA 5.2 ARE AS UNDER: 5.2 ON A PERUSAL OF THE DETAILS, FURNISHED IT WAS OBS ERVED THAT VARIOUS AMOUNTS AGGREGATING TO ` 1,66,463/- HAVE BEEN DEBITED, WHICH APPEARS TO BE OF CAPITAL NATURE, THE DETAILS WHEREOF AS UNDER: I) KANDLA OFFICE RENOVATION CHARGES ` 1,35,613/- II) KANDLA OFFICE SPLIT AC OFFICE CHARGES ` 30,850/- ` `` ` 1,66,463/- 8.1 FROM THE DETAILS, IT CLEAR THAT OUT OF THE TOTA L EXPENDITURE OF ` . 50,35,444/-, THE ASSESSING OFFICER DISALLOWED ` 1,66,423/- BEING CAPITAL IN NATURE. 8.2 AS REGARDS THE EXPENDITURE OF ` 1,35,613/-, PERTAINS TO OFFICE RENOVATION CHARGES, THE SAME HAS BEEN INCURRED BY THE ASSESSEE TO MAKE THE OFFICE PREMISES AS FIT FOR BUSINESS USE OF THE ASSESSEE AND WITHOUT BRINGING ANY NEW CAPITAL ASSET INTO EXISTENCE; THEREFORE, THE SAME IS ALLOWABLE AS REVE NUE EXPENDITURE. APL INDIA PVT LTD ITA NO. 5619/MUM/2009 6 8.3 AS REGARDS THE EXPENDITURE ON SPLIT AC OF ` 30,850/-, IT IS APPARENT THAT THE ASSESSEE HAS BROUGHT INTO EXISTENCE A NEW ASSET; TH EREFORE, THE SAME IS CAPITAL IN NATURE AND ONLY DEPRECIATION IS ALLOWABLE. ACCORDI NGLY, WE CONFIRM THE DISALLOWANCE TO THE EXTENT OF ` 30,850/ TOWARDS SPILT AIR-CONDITIONING EXPENDITURE . 9 GROUND NO. 1( C ) IS REGARDING DISALLOWANCE OF TR ADING LOSS . 9.1 THE ASSESSEE MADE A CLAIM OF ` 2,80,31,905/- AS BAD DEBTS. THE ASSESSING OFFICER NOTED THAT THE SAID AMOUNT REPRESENTS PART OF DEPOSITS GIVEN BY THE ASSESSEE IN THE EARLIER YEARS TO ITS SUBSIDIARY COMPANY M/S NOL PROPERTIES (INDIA) PVT LTD AGAINST THE LEASE OF PREMISES. THE SAID NOL PROPER TIES INDIA P LTD HAVE REFUNDED PART OF THE TOTAL AMOUNT OF ADVANCE. SINCE THE AMO UNT RECEIVED BACK BY THE ASSESSEE HAS NOT BEEN SHOWN AS INCOME, THEREFORE, T HE ASSESSING OFFICER DISALLOWED THE CLAIM OF BAD DEBTS OR TRADING LOSS OR EXPENDITU RE INCURRED FOR BUSINESS AS CLAIMED BY THE ASSESSEE. 9.2 ON APPEAL, THE COMMISSIONER OF INCOME TAX(APPEA LS) HAS CONFIRMED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THE G ROUND THAT THE ASSESSEE ITSELF HAS NOT SHOWN THIS AMOUNT AS BAD DEBTS OR TRADING L OSS IN THE BOOKS OF ACCOUNT; BUT MADE A CLAIM ONLY IN THE FORM OF NOTE. THE COMMISS IONER OF INCOME TAX(APPEALS) HAS HELD THAT IN ORDER TO CLAIM BAD DEBTS OR TRADIN G LOSS, THE AMOUNT SHOULD HAVE BEEN DEBITED TO THE P&L ACCOUNT AND ALSO FULFIL T HE CONDITIONS LAID DOWN IN SEC. 36(1)(III) OF THE I T ACT. SINCE THE ASSESSEE HAS NOT FULFILLED THE CONDITIONS OF BAD DEBTS OR BUSINESS LOSS; THEREFORE, THE COMMISSIONER OF INCOME TAX(APPEALS) HELD THAT THE ASSESSING OFFICER HAS RIGHTLY DISALLOWED THE CL AIM OF THE ASSESSEE. 10 BEFORE US, THE LD AR OF THE ASSESSEE HAS SUBMITT ED THAT THE DEPOSIT WAS GIVEN TO THE SUBSIDIARY COMPANY FOR TAKING THE PREMISES O N LEASE. THE LEASE WAS CANCELLED AND THE SUBSIDIARY COMPANY DID NOT REFUND THE FULL AMOUNT, RESULTING THE APL INDIA PVT LTD ITA NO. 5619/MUM/2009 7 ASSESSEE HAS SUFFERED LOSS OF ` 2,80,31,905/-. THE LD AR HAS FURTHER SUBMITTED TH AT THE UN-RECOVERED AMOUNT HAS BEEN WRITTEN OFF BY THE ASS ESSEE TO THE GENERAL RESERVES DURING THE YEAR AND THEREFORE, IT SHOULD BE ALLOWED AS BAD DEBT OR ALTERNATIVELY TRADE LOSS OR BUSINESS EXPENDITURE. THE LD AR HAS SUBMITTED THAT THE WRITTEN OFF AMOUNT HAS BEEN SHOWN BY THE ASSESSEE IN SCHEDULE B OF THE BALANCE SHEET. SINCE THE SUBSIDIARY COMPANY HAS SUFFERED LOSS AND WAS HA VING NO INCOME; THEREFORE, IT COULD NOT REFUND THE ADVANCE PAID BY THE ASSESSEE. THE LD AR HAS FURTHER SUBMITTED THAT WHEN THE RENT PAID FOR THE PREMISES IS ALLOWED AS BUSINESS EXPENDITURE, THEN, THE LOSS OF ADVANCE GIVEN FOR TAKING THE PREMISES O N LEASE IS ALSO AN ALLOWABLE EXPENDITURE. THE SUBSIDIARY COMPANY HAS SOLD ITS A SSETS IN QUESTION AND PAID THE ASSESSEE PART OF THE ADVANCE AMOUNT AND THE BALANCE WAS CLAIMED BY THE ASSESSEE AS LOSS. THE LD AR HAS SUBMITTED THAT THE ENTRIES IN THE BOOKS OF ACCOUNT ARE NOT RELEVANT FOR ALLOWING THE CLAIM, WHICH IS OTHERWISE ALLOWABLE. IN SUPPORT OF HER CONTENTION, THE LD AR HAS RELIED UPON THE DECIS ION OF THE HONBLE JURISDICTIONAL HIGH COURT I.B.M. WORLD TRADE CORPORATION V. COMMIS SIONER OF INCOME-TAX REPORTED IN 186 ITR 412. THE LD AR HAS ALSO RELIED ON THE FO LLOWING DECISIONS: I) CIT VS GILLANDERS ARBUTHNOT & CO LTD 195 ITR 3 31(CAL) II) CIT VS INVESTA INDUSTRIAL CORPN LTD 119 ITR 38 0(BOM) III) VASSANJI SONS & CO P LTD VS CIT 125 ITR 462(B OM) 10.1 ON THE OTHER HAND, THE LD DR HAS SUBMITTED THA T THE ASSESSEE HAS NOT EVEN CLAIMED TRADING LOSS IN THE RETURN OF INCOME BUT H AS MADE A CLAIM ONLY DURING THE APPELLATE PROCEEDINGS BY WAY OF A NOTE. THUS, IN T HE ABSENCE OF REVISED RETURN , THE ASSESSEE CANNOT MAKE A FRESH CLAIM AND THE ASSESSIN G OFFICER HAS NO JURISDICTION TO CONSIDER A FRESH CLAIM. HE HAS RELIED UPON THE DE CISION OF THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. V. COMMISS IONER OF INCOME-TAX REPORTED IN APL INDIA PVT LTD ITA NO. 5619/MUM/2009 8 284 ITR 323. THE LD DR HAS ALSO REFERRED THE ORDE R OF THE COMMISSIONER OF INCOME TAX(APPEALS) AND SUBMITTED THAT WHEN THE ASSESSEE HAS NOT DEBITED THE BAD DEBTS OR TRADING LOSS IN THE PROFIT & LOSS ACCOUNT AND AL SO NOT SHOWN ANY INCOME IN RESPECT OF THE ADVANCE THEN THE CONDITIONS FOR ALLOWING T HE CLAIM ARE NOT FULFILLED. 10.2 IN REBUTTAL, THE LD AR HAS SUBMITTED THAT THE ASSESSEE HAS NOT CLAIMED BAD DEBTS OR TRADING LOSS IN THE RETURN OF INCOME TO AV OID LEVY OF PENALTY. THEREFORE, THE ASSESSEE HAS MADE THE CLAIM BY WAY OF A NOTE. 11 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL AS RELEVANT MATERIAL ON RECORD. AS REGARDS THE OBJECTION RAISED BY THE LD D R THAT WITHOUT FILING THE REVISED RETURN THE ASSESSING OFFICER HAS NO JURISDICTION TO ENTERTAIN A FRESH CLAIM; IT IS TO BE NOTED THAT THE JURISDICTION OF THE APPELLATE AUTHOR ITIES IS NOT BARRED AS OBSERVED BY THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (I NDIA) LTD. (SUPRA). THEREFORE, THE ASSESSEE CAN VERY WELL RAISE FRESH CLAIM BEFORE THE APPELLATE AUTHORITIES. ON MERITS 12 THE ASSESSEE HAS CLAIMED BAD DEBTS/TRADING LOSS OF RS. 2,80,31,905/- BEING NON RECOVERABLE DEPOSIT GIVEN TO THE SUBSIDIARY COMPAN Y M/S NOL PROPERTIES (INDIA) PVT LTD. THIS AMOUNT OF TRADING LOSS CLAIMED BY THE AS SESSEE IS PART OF THE TOTAL ADVANCE/DEPOSITS GIVEN BY THE ASSESSEE TO THE SUBSI DIARY COMPANY FOR TAKING THE PREMISES ON LEASE. HOWEVER, THERE IS NO AGREEMENT BETWEEN THE ASSESSEE AND THE SUBSIDIARY COMPANY SHOWING THE ADVANCE GIVEN BY THE ASSESSEE IS AGAINST THE PREMISES TAKEN BY THE ASSESSEE. IT IS NOT THE CASE OF THE ASSESSEE THAT THE ADVANCE WAS GIVEN TO THE SUBSIDIARY COMPANY DURING THE ORDI NARY COURSE OF BUSINESS OR IN RELATION TO THE BUSINESS OF THE ASSESSEE. THE ASSE SSEE IS NOT IN THE BUSINESS OF FINANCING OR ADVANCING. THE LOAN WAS NOT GIVEN TO T HE SUBSIDIARY COMPANY FOR COMMERCIAL EXPEDIENCY OR IN CONNECTION WITH COMMERC IAL OR BUSINESS RELATIONS WITH APL INDIA PVT LTD ITA NO. 5619/MUM/2009 9 THE SUBSIDIARY COMPANY. IT IS CLEAR THAT THE ASSES SEE HAD NO BUSINESS TRANSACTION WITH THE SUBSIDIARY COMPANY AND THEREFORE. THE DEPO SIT WAS NOT GIVEN IN THE PROCESS OF ANY BUSINESS TRANSACTION OR IT MAY BE CALLED FOR COMMERCIAL EXPEDIENCY. THE ASSESSEE HAS CLAIMED THAT THE ADVANCE WAS GIVEN FOR TAKING THE PREMISES ON LEASE; WHEREAS THE DEPOSITS OR ADVANCE IS GIVEN TO THE L ESSOR BEING THE SECURITY AND TO ENSURE THE PERFORMANCE OF THE AGREEMENT VIZ - DEFAU LT IN PAYMENT OF RENT, DAMAGE OF THE LEASED PROPERTY AND FOR TIMELY VACATION OF T HE PREMISES. THEREFORE, THE DEPOSIT MADE AGAINST TAKING THE PREMISES ON LEASE I S A CAPITAL OUTGO BECAUSE THE SAME IS REFUNDABLE. 12.1 THE PARTIES IN THE TRANSACTION ARE HOLDING AN D SUBSIDIARY COMPANY IS THEREFORE, THE SUBSIDIARY COMPANY IS NOT SUPPOSED T O DEMAND ANY DEPOSIT FROM THE HOLDING COMPANY AGAINST THE PROPERTY GIVEN ON LEASE BECAUSE THE SECURITY DEPOSIT IS NECESSARY ONLY IN THE CASES WHERE THE LESSOR HAS OTHERWISE NO CONTROL FOR COMPLIANCE OF THE LEASE AGREEMENT; THEREFORE, TO PR OTECT THE INTEREST OF LESSOR AGAINST DEFAULT OR ARREARS OF RENT, DAMAGE OF THE PROPERTY BY THE LESSEE INCLUDING VACATION OF THE PREMISES, THE DEPOSIT IS DEMANDED. WHEN THE ASSESSEE IS HOLDING COMPANY AND BOTH THE COMPANIES ARE CONTROLLED BY TH E SAME MANAGEMENT THEN THERE WAS NO SUCH NEED FOR ANY DEPOSIT. THEREFORE, THE ELEMENT OF COMMERCIAL EXPEDIENCY DOES NOT EXIST IN THE CASE IN HAND. 12.2 THE DECISION RELIED UPON BY THE LD AR OF THE ASSESSEE ARE CLEARLY ON THE POINT WHEN THE ADVANCE OR LOAN WAS GIVEN BY THE ASSESSEE IN THE ORDINARY COURSE OF BUSINESS OR IN RELATION TO THE BUSINESS OF THE ASSE SSEE, THEN THE LOSS ON SUCH ADVANCE WAS ALLOWABLE AS BUSINESS LOSS. THEREFORE, THE DECI SION RELIED UPON BY THE LD AR WILL NOT HELPS THE CASE OF THE ASSESSEE. EVEN IN THE CA SE OF I.B.M. WORLD TRADE CORPORATION (SUPRA), THE ADVANCE WAS GIVEN FOR TIME LY AND SPEEDY CONSTRUCTION OF APL INDIA PVT LTD ITA NO. 5619/MUM/2009 10 THE FACTORY PREMISES; BUT SUBSEQUENTLY, THE LANDLOR D BECOME INSOLVENT AND THE ENTIRE AMOUNT INCLUSIVE OF INTEREST WAS WRITTEN OFF BY THE ASSESSEE. 13 IN THE CASE IN HAND, IT WAS NOT A CASE OF INSOLV ENCY OF THE SUBSIDIARY COMPANY; BUT THE ASSESSEE VOLUNTARILY WAIVE OFF THE CLAIM; THEREFORE, WHEN THE ADVANCE WAS NOT GIVEN EITHER IN THE ORDINARY COURSE OF BUSINESS OR IN CONNECTION WITH THE BUSINESS, THEN THE LOSS OF THE SAME IS LOS S OF CAPITAL AND IS NOT ALLOWABLE. 14 IT IS SETTLED PROPOSITION OF LAW THAT WHEN THE L IABILITY MADE BY THE ASSESSEE WAS NOT LOSS MADE IN THE COURSE OF CARRYING ON THE BUSI NESS OF MONEY LENDING, THEN IT WOULD NOT BE TREATED AS UN-RECOVERED EXPENDITURE A NY LOSS OF SUCH REFUNDABLE DEPOSIT WILL BE LOSS OF CAPITAL. ACCORDINGLY, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE. 15 GROUND NO1(D) IS REGARDING INTEREST U/S 220(2) O F THE IT ACT. 16 SINCE INTEREST U/S 220(2) IS CONSEQUENTIAL IN NA TURE; THEREFORE, NO SPECIFIC FINDING IS REQUIRED. 17 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 8 TH DAY OF JUNE 2012 SD/- SD/- ( N K BILLAIYA ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 8 TH , JUNE 2012 RAJ* APL INDIA PVT LTD ITA NO. 5619/MUM/2009 11 COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI