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TMI Blog2010 (8) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... subscription fees of Rs. 7380 paid for the director 's individual membership was not an allowable expenditure and Ld. CIT (A) was not right in allowing it." 2. The revenue appeal is delayed by eight days and a condonation petition has been filed and is placed on record. After bearing both the sides and perusing the condonation petition, we condone the delay of eight days and the appeal has been taken up for hearing. 3. Ground no. 1 relates to deletion of disallowance of Rs.28,21,321/- being expenditure on share buyback expenses. Briefly stated facts of the case are that the assessee company incurred a sum of Rs.28,21,321/- as capital expenditure for Buy Back of Shares and claimed as revenue expenses. Before the AO, the assessee company submitted that "The share Buy Back Expenses have been debited to Profit &. Loss Account included in Miscellaneous Expenses. The Expenses incurred during the course of business of company and allowable as an expenditure with provision of Section 37(1) of Income-tax Act". The AO, therefore, observed that the said explanation of assessee do not constitute any force as the increased or decreased of share capital of company is a life long benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the impugned order the A.O. disallowed share buyback expenses because in his opinion buyback of shares resulted in permanent reduction in share capital. According to A.O. the same considerations should be applied in deciding the character of expenditure in case of increase and reduction in the share capital. In my opinion the A.O.'s proposition is not supported by the decision of the Supreme Court in the case of Punjab State Industrial Development Corporation Ltd (225 ITR 792). In this judgment the Supreme Court admitted that increase of share capital may certainly help the company in increasing its profit earning but because the benefit derived is of long term and enduring nature and there being permanent expansion of the capital base which results in capital in follow; the expenditure is capital in nature. In the case of buyback of shares however there is no permanent change in the capital structure of the company. The company buys back its outstanding stock from the existing share holders and such purchase is effected out of company's free reserves which are otherwise capable of being freely distributable to the shareholders by way of dividend or can be used for declaration o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75,868/- being depreciation on R&D assets calculated as per provisions of the Companies Act. The AO held that since the assessee was always allowed deduction for capital expenditure towards purchase of R&D assets u/s. 35, the assessee could not be allowed deduction once again in respect of depreciation of these assets as and by way of revenue expenditure. In appeal, the Ld. CIT(A) respectfully following the decision of the ITAT, Kolkata "E" Bench vide order dated 9.9.2005 in ITA No. 363/Kol/2005 deleted the disallowance of Rs.15,85,785/-. Aggrieved by the said order, now the revenue is in appeal before us. 8. At the time of hearing before us, the Ld. DR relied on the order of the AO and submitted that the action of the AO in making the disallowance of Rs.15,75,868/- on account of depreciation on assets used in R&D was justified since the assessee was always allowed deduction for capital expenditure towards purchase of R&D assets u/s. 35, therefore, the assessee could not be allowed deduction once again in respect of depreciation. Of these assets as and by way of revenue expenditure. He lastly prayed before the bench to set aside the order of the Ld. CIT(A) and restore that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rters to defray the charges levied at check posts for deficiencies in the interstate entry forms. These levies are later reimbursed when the transporter wins the case at appellate level on correct of the deficiencies in the forms. Hence they are not statutory payments by the assessee but the reimbursement of expenses to transporters. The reimbursements were not for the violation of any law but are merely payments for non compliance with procedural matters. He also placed reliance on the following decisions : i) Prakash Cotton Mills P. Ltd. V. CIT (201 ITR 684) (SC), ii) Swadeshi Cotton Mills Co. Ltd. Vs. CIT (233 ITR 199 )(SC), iii) Mahalakshmi Sugar Mills Co. Vs. CIT (123 ITR 429) (SC), iv) CIT Vs. Luxmi Devi Sugar Mills P. Ltd. (188 ITR 41 )(SC), v) CIT Vs. Mysore Electrical Industries Ltd. (196 ITR 884) (Kar) and vi) CIT Vs. Chemical Constructions (243 ITR 858)(Mad). He lastly urged before the bench to confirm the action of the Ld. CIT(A) in this regard. 14. After hearing the rival submissions, perusing the material available on record and the case laws cited by the Ld. Counsel, we find that the AO made the disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (Marvel).The A.O. required the assessee to furnish its explanation in support of the claim of write off. After examining the assessee's explanation and details furnished; the A.O. found that assesee had advanced Rs. 2 crores to Marvel by way of loan for purchase of plant and equipments. The loan was repayable along with interest in monthly instalments. According to A.O. assessee was a manufacturing company and not a finance company and therefore loan advanced was not income of its manufacturing business and could not be treated as trade advance, From the judgment decree obtained by assessee on 09.06.1994 it was clear that the amount was advanced by way of loan and decree was for the principal and interest. The A.O. further noted that though assessee filed execution petition for recovery of principal and interest, no interest was offered for tax as no interest was actually received and was assessed to tax. The A.O. further noted that the assessee assigned its rights in the decree passed by the Court; to M/s. Shubhamangal Traders Pvt. Ltd and received Rs. 35 lacs which was much lesser amount; after long battle of about ten years and claimed business loss. With reference to these fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of the business of the assessee and was in respect of its erstwhile soya division. He also contended that Clause 2 of the agreement dated 2nd December 2001 clearly indicates that the said amount was to be repaid in monthly instalments by way of recovery from the processing charges payable by the assessee to Marvel. The above arrangement clearly indicates the intention of the parties that the amount of Rs. 2 crore was a temporary loan advance granted during the course of business of the assessee due to business exigencies. In other words, the loan advance of Rs. 2 crore which was to be recovered by the assessee from Marvel against processing charges was nothing but payment of advance price. In support of his submissions, he placed reliance on the following case laws : i) CIT v. Mysore Sugar Limited (46 ITR 649) (SC), ii) Indoor Maiwa United Limited v. State of Madhya Pradesh (55 ITR 736) (SC), iii) CIT v. Jwalaprasada Radha Kishan (107 ITR 540) (All). iv) CIT v. Inden Biselers (181 ITR 69) (Mad). In view of the above submissions, he contended that it will be appreciated that the write off of loan advanced to Marvel is allowable as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovered from Marvel on quarterly basis out of the processing charges payable by the appellant. By another agreement dated 02.12.1991 the appellant agreed to advance Rs. 2 crores to enable Marvel to purchase plant and equipment for it's solvent extraction plant. To secure the said loan Marvel created charge on assets of its solvent extraction plant in favour of the appellant. 21. According to A.O. the appellant was in the business of manufacturing and not in the business of financing and therefore loan granted to Marvel could not be considered to have been advanced in the course of appellant's business. However, having regard to the facts and documents on record I do not find force in this finding. Merely because assessee was not in the business of financing or money lending; that fact alone does not lead to conclusion that moneys were not advanced in the course of or for the purpose of assessee's business. The expression "for the purpose of business" is much wider in its connotation and sweep which is not confined only to earning of income. In the course of carrying on business an assessee has to take commercial decisions having regard to commercial necessities, commerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... & accordingly wrote off Rs.104,63,615/- which was the balance outstanding amount. 23. In my opinion the amount written off was allowable as business loss/expenditure because after the assignment of debt the appellant permanently lost its right to receive any further sums from Marvel. The appellant had advanced loan to Marvel in the course of its business and for business considerations. The loan debtor defaulted on repaying principal and ultimately loan amount became irrecoverable despite appellant obtaining decree from Civil Court in Bangalore. The loss was thus incurred by the appellant in the course of business and therefore it was fully allowable. Ratio laid down in the decisions in the cases of CIT Vs. Mysore Sugar Limited (46 ITR 649); Indoor Mlwa United Limited Vs. State of Madhya Pradesh (55 ITR 736); CIT Vs. Jwalaprasada Radha Kishan (107 ITR 540) and CIT vs. Inden Biselers (181 ITR 69) support appellant's claim. Apart from the above decisions, appellant's claim also appeared to be supported by recent decisions rendered by Delhi, Madhya Pradesh and Calcutta High Courts as well. The Delhi High Court in the case of CIT vs. Goyal M. G. Gases Ltd (163 Taxman 541 ) con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Shubhamangal Traders Pvt. Ltd. and obtained Rs. 35 lacs in full and final settlement. On amounts advanced to Marvel and therefore the loss was rightly written off by the appellant as bad debt in F.Y.2002-03 because the deed of assignment was executed in October 2002. The jurisdictional Calcutta High Court in the case of Ashoka Marketing Ltd vs. CIT (253 ITR 355) similarly allowed a claim for bad debts on assignment of a loan. In that case the assessee had granted loan of Rs. 4 lacs to a company bearing interest. Upon inability of the debtor to repay loan and accrued interest, assessee assigned the loan to another company in full and final settlement and claimed Rs.2,15,751/- as bad debt which was disallowed by A.O. and Tribunal. On appeal, the High Court held that loss incurred upon assignment of loan to third party was allowable as revenue deduction. The ratio laid down in this decision is squarely applicable in the present case because facts of the assessee's case appeared to be parameteria. Considering the totality of the facts of the case therefore I hold that the assessee was entitled for deduction of Rs.1,04,63,615/- which was the debt written off in the appellant's book. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing the material available on record we find that the AO disallowed short term capital loss of Rs.1,08,30,824/- claimed on sale of Kotak K. Bond Dividend Plan Units by applying the provisions of section 94(7) of the Act. But the Ld. CIT(A) had given relief to the assessee by observing as under : "27. I have considered the submissions of the A/R and perused the reasons given by A.O. in support of the disallowance made. It appeared that the A.O. made the disallowance of part of the Short Term Capital loss by invoking Sec 94(7). Sec 94(7) is a deeming provision of the I.T. Act. It is a settled legal proposition that a deeming provision of the taxing statue should be strictly construed. Sec 94(7) disentitles an assessee to claim loss on sale of units to the extent of exempt income earned from the transactions involving purchase and sale of units conducted within specified time frame. In order to apply Sec 94(7) it is however incumbent on the A.O. to prove that the assessee sold the shares or units within 3 months after the date on which the dividend was declared. In the present case it is an admitted fact that the assessee purchased Kotak-K Bond Dividend Plan Units on 13.03.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se is beyond a period of 3 months the CIT(A) was perfectly justified in allowing the appeal. We find no reason to interfere with the order of CIT(A)." 29. Applying the decision of the ITAT Kolkata to the facts of the present case I find that the "record date" for dividend declaration was 13.03.2002 and hence "such date" contemplated in Sec 94(7) in the present case was 13.03.2002. The first "month" therefore began on 14.03.2002 and ended on 13.04.2002. The second month commenced on 14.04.2002 and ended on 13.05.2002 and the third month commenced on 14.05.2002 and ended on 13.06.2002. By A.O.'s own admission the units were not sold on or before 13.06.2002 when the period of 3 months prescribed in Sec 94(7) ended. The sale was admittedly made on 14.06.2002 which was beyond the period of 3 months after the record date. I therefore hold that the A.O. was not justified in disallowing Short Term Capital loss of Rs.1,08,30,324/- because the assessee did not violate provisions of Sec 94(7). The A.O. is accordingly directed to assess Short Term Capital loss on sale of units at Rs.1,13,82,6711- as against Rs.5,52,347/- assessed in the impugned order." The facts of this case w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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