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The Commissioner of Income Tax-V, Pune Versus Pudumjee Pulp & Paper Mills Ltd.

2015 (8) TMI 719 - BOMBAY HIGH COURT

Disallowance of amount written off on account of bad intercorporate deposits (ICD) - Tribunal deleting the disallowance - whether assessee is neither in the business of banking or moneylending de hors the provisions of Sec. 36(1)(vii) - Held that:- Respondent-Assesee had during the earlier Assessment Years offered to tax an amount of ₹ 42.65 lakhs received as interest on the deposit made with M/s. GSB Capital Market Ltd. The Appellant had since Assessment Year 1998-99 claimed an amount of .....

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ould thus be noticed the amount of ₹ 34.82 lakhs which constitutes partly the principal amount of the intercorporate deposits and partly the interest which is unpaid on the principal debt. The Assessing Officer's contention that amount of ₹ 34.82 lakhs was not offered to tax earlier and, therefore, deduction under Section 36(2)(i) of the Act is not available, is no longer reintegra.

This very issue came up for consideration before this Court in Shreyas S. Morakhia (2012 ( .....

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s Court held that the debt comprises not only the brokerage which was offered to tax but also principal value of shares which was not received. Therefore, even if a part of debt is offered to tax, Section 36(2)(i) of the Act, stands satisfied. The test under the first part of Section 36(2)(i) of the Act is that where the debt or a part thereof has been taken into account for computing the profits for earlier Assessment Year, it would satisfy a claim to deduction under Section 36(1)(vii) read wit .....

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of first part of Section 36(2)(i) of the Act, we have not opined on the second part thereof viz: whether or not the Assessee was engaged in the business of money lending and/or banking. This is so as in the present facts it becomes academic. - Decided in favour of assessee. - Income Tax Appeal No. 1590 of 2013 - Dated:- 5-8-2015 - M. S. Sanklecha And N. M. Jamdar, JJ. For the Petitioner : Mr. Tejveer Singh For the Respondent : Mr. R Murlidharan i/b. Mr. B Damodar i/b. M/s. Kanga & Co. ORDER .....

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ritten off by the assessee on account of bad intercorporate deposits (ICD) given, by ignoring the fact that the assessee is neither in the business of banking or moneylending de hors the provisions of Sec. 36(1)(vii) of the I. T. Act? (b) Whether on the facts and in the circumstances of the case and in law, the order passed by the Tribunal on the basis of erroneous assumptions, without appraising and evaluating the relevant facts and evidences, and also without applying the correct law as laid d .....

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treated as doubtful debts from the Assessment Year 1998-99 onwards. However, in the subject Assessment Year, a settlement was arrived at between M/s. GSB Capital Market Ltd. and the Respondent-Assessee whereby an amount of ₹ 15 lakhs was paid to the Respondent-Assessee and the balance amount of ₹ 34.82 lakh were written off by the Respondent-Assessee as bad debts. 4. During the subject Assessment Year,the Respondent-Assessee claimed the deduction on account of bad debts of ₹ 34 .....

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d (b) the amount of ₹ 34.82 lakhs being claimed as bad debts was not the income offered to tax either in the relevant Assessment Year or in the earlier Assessment Years. 5. Being aggrieved, the Respondent-Assesseee filed an Appeal to the Commissioner of Income Tax (Appeals) [CIT(A)]. By the order dated 26th August, 2011, the CIT(A) held that the amount of ₹ 34.82 lakhs sought to be disallowed as bad debts was the balance of the inter corporate deposit and the interest accrued thereon .....

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e interest income on the deposit had been offered to tax in earlier Assessment Years. Thus, the claim for deduction was allowable. Moreover, it was held that the Respondent was engaged in money lending business. Therefore, it held that deduction under Section 36(1)(vii) read with Section 36(2)(i) of the Act was allowable. Accordingly, the Revenue's appeal was dismissed. 7. Mr. Tejveer Singh, learned Counsel appearing for the Appellant submits that the activity of the Respondent-Assessee is o .....

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Court in CIT v/s. Shreyas S. Morakhia 342 ITR 285. It is further submitted that the Respondent-Assessee is entitled to the benefit of Section 36(2)(i) of the Act - on the ground that the interest income was offered to tax earlier and that the Assessee was engaged in the business of lending money. In the above view, it is submitted that the order of the Tribunal calls for no interference. 9. The CIT(A) as well the Tribunal have considered Sections 36(1)(vii) and 36 (2)(i) of the Act which for the .....

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ided that in the case of an assessee to which clause (viia) applies, the amount of the deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or part thereof exceeds the credit balance in the provision for bad and doubtful debts account made under that clause, Explanation - For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful de .....

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of the business of banking or moneylending which is carried on by the assessee. 10. So far as Section 36(1)(vii) of the Act is concerned, it is a settled position in law that after 1st April, 1989, it is not necessary that the debt itself must be proved to be irrecoverable. The only requirement is that the amounts claimed as bad debts should be written off as irrecoverable in the account of the Assessee (see TKF Ltd. v/s. CIT - 323 ITR 397). The satisfaction of the above provision is not disput .....

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s of banking or moneylending which is carried on by the assessee. Therefore, even if one of the two conditions of Section 36(2) (i) of the Act is satisfied, then bad debts claimed under Section 36(1)(vii) of the Act has to be allowed. 12. So far as first part of Section 36(2)(i) of the Act is concerned, i.e. (a) above, we find that the Respondent-Assesee had during the earlier Assessment Years offered to tax an amount of ₹ 42.65 lakhs received as interest on the deposit made with M/s. GSB .....

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able was being claimed as bad debts by writing off the same in its books of account. It would thus be noticed the amount of ₹ 34.82 lakhs which constitutes partly the principal amount of the intercorporate deposits and partly the interest which is unpaid on the principal debt. The Assessing Officer's contention that amount of ₹ 34.82 lakhs was not offered to tax earlier and, therefore, deduction under Section 36(2)(i) of the Act is not available, is no longer reintegra. This very .....

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