9911796707
TMI Blog2012 (12) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... e are that the assessee company filed its return of income for the relevant assessment year on 30.11.2006 returning nil income. During the assessment proceedings u/s 143(3) of the Income-tax Act, the Assessing Officer has noticed that the assessee has debited a sum of Rs.7,53,55,636/- as advances written off in its profit and loss accounts. The details of the said expenditure were called for and the assessee was also directed to show cause as to why this amount should not be disallowed as the same is in the nature of investment and not a trading loss. The assessee vide letter dated 8.12.2008 submitted the details of advances written off of Rs.7,53,55,636/-, which is as under : S.N Particulars Amount 1. BPL Ltd., 327,45,842/- 2. BPL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir dues. It was submitted that restructuring was approved by the courts at Kerala. After considering the assessee's submission and also the provision of law u/s sec. 36(i)(vii) and 36(2) of the Income-tax Act, the AO held that all debts incurred by an assessee do not qualify for a deduction unless the debts incurred by him were on revenue account and they have been taken into account in computing the profits of the assessee for an earlier year. He held that the assessee has not satisfied any of the conditions laid down in sec.36(1)(vii) read with sec. 36(2) thereof before writing off of these advances in the profit and loss account. According to him, the assessee had submitted that these amounts constituted advances and the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenditure and, therefore, the same should not be considered as income of the assessee under provision of sec. 41(1) of the Income-tax Act. He accordingly granted a relief of Rs.4,88,88,278/- to the assessee. 5. Against the confirmation of the assessment order that an amount of Rs.7,53,55,636/- is not allowable as bad debts or business loss u/s 36(1)(vii) of the Income-tax Act or sub sec. (2) of secs. 36 or 37 or sec. 28 of the Income-tax Act, the assessee is in appeal before us, while on the relief given by the CIT(A) to the extent of Rs.4,88,88,278/-, the Revenue is in appeal before us. 6. In support of his contentions, the learned counsel for the assessee has filed written submissions stating that the assessee is in the business of inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture u/s 36 or 37 of the Income-tax Act. He submitted that the purpose of advances to M/s BPL Communications Ltd., has also not been shown by the assessee. In the rejoinder, the learned counsel for the assessee submitted that the assessee is in the business of money lending and therefore, applying the provision s of the sec. 36(1)(vii) of the Income-tax Act read with sec. 36(2) of the Income-tax Act, the amount advanced are to be treated as bad debts written off or as business loss. 9. Having heard both the parties and having considered the rival contentions, we find that the basic question which requires consideration is the nature of the assessee's business. We find that in the assessment order, it is mentioned that the assessee is in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bt has to be claimed as a bad or doubtful debt, it must first be shown to be a proper debt. Now the question which arises is what is a debt? As mentioned by various courts, 'a debt' is out standing which if recorded would have swelled up the profits. It means something more than the mere advance and something which is related to business or results from it. A debt is that which one owes to others; any money; goods or services that one is bound to another ; a peculiar demand; liquid demand; etc. Thus evidence of an obligation to repay is the first factor to be singled out of the surrounding facts and circumstances to call it a debt. 10. In the case on hand, the AO has held that the advances given by the assessee are for the investment in sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure in the earlier years u/s 41(1) of the Income-tax Act as cessation of liability. The assessee had also claimed that if the advances written off cannot be allowed as deduction u/s 36(1)(vii) of the Income-tax Act, then the liability written back also cannot be considered as income of the assessee. The CIT(A) has accepted the contention of the assessee and the Revenue is in appeal before us. 12. The learned DR submitted that the nature of the liability and the conditions under which it is written back have not been explained by the assessee nor have they been considered by the authorities below and, therefore, it needs reconsideration by the AO. The learned counsel for the assessee on the other hand supported the orders of the CIT(A). 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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