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2015 (12) TMI 1364 - ITAT AHMEDABAD

2015 (12) TMI 1364 - ITAT AHMEDABAD - TMI - Disallowance of bad debt - Assessing Officer after holding held that the same is related to Debentures held by the Appellant and cannot be deductible either as a bad-debt u/s 36 or as business loss - Held that:- acquisition of debentures, on the facts of the case before us, was in the course of the business carried on by the assessee and, therefore, it cannot be seen on standalone basis divorced from the peculiar facts under which the assessee company .....

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integral part of the financing business carried on by the assessee. As for the question whether the amount has actually become bad and whether loss can be claimed as a deduction for bad debts in the current year, suffice to note that the assessee has written off the amount in this year and, following the law laid down by Honíble Supreme Court in the case of TRF Limited Vs CIT [2010 (2) TMI 211 - SUPREME COURT ], the deduction is to be allowed in the year of write off. - Decided in favour of ass .....

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e course of his business, he is to be allowed depreciation in respect of that asset. The use in leasing business is also a use of the asset. The matter needs to be re-examined in this light. While doing so, the Assessing Officer will give a reasonable opportunity of hearing to the assessee, decide the matter by way of a speaking order and in accordance with the law. Order, accordingly.

Disallowance of EMI residual account - CIT(A) deleted the addition - Held that:- In the case before .....

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Courtís judgment in the case of CIT Vs Shiv Prakash Janak Raj & Co Pvt Ltd [1996 (9) TMI 5 - SUPREME Court], that was a case in which accrual had admittedly taken place. That is not the situation before us. In these circumstances, we see no infirmity in the well reasoned conclusion arrived at by the CIT(A) and decline to interfere in the matter. - Decided against revenue. - ITA No.3698/Ahd/2004, ITA No.3803/Ahd/2004, ITA No.2525/Ahd/2006, ITA No. 1463/Ahd/2005, ITA No.1699/Ahd/2005, ITA No. 1920 .....

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1th October 2004 passed by the learned CIT(A) in the matter of assessment under section 143 (3|) of the Income Tax Act, 1961, for the assessment year 2001-02. 3. In the appeal filed by the assesse (i.e. ITA No. 3698/Ahd/2004), following grievances have been raised: 1. The Learned Commissioner of Income Tax (Appeals)-VIII, Ahmedabad has erred in confirming the disallowance of bad debt of ₹ 1 crore made by the Assessing Officer after holding that the same is related to Debentures held by the .....

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During the course of the assessment proceedings, the Assessing Officer noted that the assesse has claimed a deduction of ₹ 1,0,00,000 in respect of the bad debt written off in respect of IFB Finance Limited. The Assessing Officer also noted that the amount written off represents amount of debentures issued by the IFBFL to the assesse company. The assessee s claim was that these debentures were issued to the assesse in satisfaction of his a loan, advanced during normal course of business, i .....

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s and was liable to be allowed as deduction under section 36(1)(vii). However, the Assessing Officer rejected these contentions and disallowed this claim of deduction. He was of the view tha money receivable in respect of the debentures held by the assessee cannot be held as deductible under section 36(1)(vii) . While he did not dispute that the amount of original loan given by the assesse was later on converted into debentures , he was of the view that non redemption of debentures by the IFBFL .....

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e never shown as stock in trade, and that, therefore, any loss on account of these debentures cannot be allowed as a bad debt or business loss. Learned CIT(A) also held that since neither the debentures are transferred during the year nor rights in these debentures have extinguished in this year, the assesse cannot be held to have incurred any loss, including a capital loss, in this assessment year. The disallowance was thus not only confirmed but also further fortified. The assesse is aggrieved .....

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ssment order, originally the assesse company had given a loan of ₹ 1 crore to IFB Finance Ltd which was later on converted into debentures . It is also an undisputed position that the loan was advanced in the ordinary course of assesse s business activities and interest on the same was assessed as business income. On these facts, the amount due to IFBFL being written off can only be considered to be incidental to the business carried on by the assesse. It is wholly immaterial as to how the .....

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e of deduction as a bad debt, will constitute, observed as follows: Now, a question under section 10(2)(xi) can only arise if there is a bad or doubtful debt. Before a debt can become bad or doubtful it must first be a debt. What is meant by debt in this connection was laid down by Rowlatt J. in Curtis v. J . & G. Oldfield Ltd. [1925] 9 Tax Cas 319 as follows: "When the rule speaks of a bad debt it means a debt which is a debt that would have come into the balance-sheet as a trading deb .....

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to business or results from it. To be claimable as a bad or doubtful debt it must first be shown as a proper debt. The observations of Rowlatt J. were applied by the Privy Council in Arunachalam Chettiar v. Commissioner of Income-tax [1936] 4 ITR 173 (PC), where their Lordships observed as follows: "Their Lordships moreover can give no countenance to a suggestion that upon a dissolution of partnership a partner's share of the losses for several preceding years can be accumulated and thr .....

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ullabhai Abdulkadar [1961] 41 ITR 545 (SC) and referred to the observations of Venkatarama Aiyar J. in Badridas Daga v. Commissioner of Income-tax [1958] 34 ITR 10 (SC), where the learned judge speaking for this court said that a business debt "springs directly from the carrying on of the business and is incidental to it and not any loss sustained by the assessee, even if it has some connection with his business". Section 10(2)(xi) is in two parts. One part deals with an assessee who c .....

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shares cannot be said to be incidental to the trading activities of the assessee company but then what clearly is important is whether the amount written off can be said to be incidental to the business activities of the assessee. 9. Viewed thus, acquisition of debentures, on the facts of the case before us, was in the course of the business carried on by the assessee and, therefore, it cannot be seen on standalone basis divorced from the peculiar facts under which the assessee company came to .....

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l part of the financing business carried on by the assessee. As for the question whether the amount has actually become bad and whether loss can be claimed as a deduction for bad debts in the current year, suffice to note that the assessee has written off the amount in this year and, following the law laid down by Hon ble Supreme Court in the case of TRF Limited Vs CIT [(2010)323 ITR 397 (SC)], the deduction is to be allowed in the year of write off. 10. In view of the above discussions, as also .....

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which includes depreciation on the assets covered by sale and lease back transactions. On these facts, and relying upon the decision of this Tribunal in the case of ICICI Limited Vs DCIT (87 ITD 537 SB), the Assessing Officer disallowed depreciation claimed on leased assets, i.e. assets of sale and lease back transactions entered into earlier years, amounting to ₹ 29,66,367. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without much success. While learned CIT(A) ag .....

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of the applicable legal position. 14. We find that there are significant legal developments post the special bench decision in the case of the ICICI Bank Ltd (supra), based on which the disallowance was so made by the Assessing Officer, and in the case of ICICI Bank itself, a coordinate bench has, in the judgment reported as ICICI Bank Ltd Vs JCIT (2014 TIOL 235 ITAT MUM; judgment dated 2nd May 2014), has summed up these developments as follows: 4.3 We have carefully perused the order of the lo .....

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les financed by it which is neither owned by the Assessee nor used by the Assessee?" The Hon'ble Supreme Court after perusing the lease agreement and other related factors held that the lessor is the owner of the vehicles. As an owner, it used the assets in the course of its business satisfying both the requirements of Sec. 32 of the Act and hence is entitled to claim depreciation. 4.3.1 A similar view was taken by the Hon'ble Delhi High Court in the case of Cosmos Films (supra) whe .....

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at para 27 of its order and at para 28 followed the findings of the Hon'ble Supreme Court in the case of ICDS (supra) and also of the co-ordinate bench in the case of Development Credit Bank Ltd. (supra) and allowed the claim of depreciation on sale of lease back assets 15. We are in respectful agreement with the views so expressed by the coordinate bench. In this view of the matter, we deem it fit and proper to remit the matter to the file of the Assessing Officer for adjudication de novo .....

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nd in accordance with the law. Order, accordingly. 16. Ground no. 2 is thus allowed for statistical purposes in the terms indicated above. 17. The appeal filed by the assessee is thus partly allowed in the terms indicated above. 18. In the appeal filed by the Assessing Officer, the assessee has raised the following grievance: The ld. CIT(A) erred in law and on facts of the case in deleting the disallowance of EMI residual account amounting to ₹ 803.40 lacs, without appreciating the definit .....

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ual borrowers until the point of time when all these loans are fully recovered. Under this arrangement, the assessee is entitled to retain interest in excess of the agreed rate of interest recovered from the borrowers. It was in this backdrop that the assessee computed the surplus of ₹ 932.42 lakhs being the difference between EMI recoverable form the borrowers during the remain loan tenure, and the amount payable by the assessee to the buyer of assessee s home loan portfolio. This represe .....

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erest differential was concerned. The Assessing Officer, however, was not satisfied with the same. He was of the view that entire difference between recovery value of housing loans and amount payable to the buyer of loan portfolio should be brought to tax in this year itself. He also held that even the amount of contingency set aside by the assessee at ₹ 428.31 lakhs could not be allowed as it is only a contingent, and not real, liability. He thus proceeded to bring to tax the balance amou .....

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the buyer of loan portfolio. It was also noted that the EMI residual income has been subsequently brought to tax in the year in which related recoveries have taken place. The Assessing Officer is aggrieved of the relief so given by the CIT(A) and is in appeal before us. 20. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 21. In the landmark judgment of Chainrup Sampatram Vs CIT [(1953) 24 IT .....

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ice and accountancy. As profits for income-tax purposes are to be computed in conformity with the ordinary principles of commercial accounting, unless of course, such principles have been superseded or modified by legislative enactments, unrealised profits in the shape of appreciated value of goods remaining unsold at the end of an accounting year and carried over to the following year's account in a business that is continuing are not brought into the charge as a matter of practice, though, .....

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ight, an element of dichotomy in this approach inasmuch as anticipated losses are taken into account and anticipatory profits are ignored, but that is the impact of accounting principles sanctioned by the statute and the law laid down by Hon ble Supreme Court. No matter how reasonable is it to assume that the assessee will make these profits, these profits cannot be brought to tax at this stage. That is what the legal position, for the detailed reasons set out above, is. 22. In the case before u .....

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ourt s judgment in the case of CIT Vs Shiv Prakash Janak Raj & Co Pvt Ltd [(1996) 222 ITR 583 (SC)], that was a case in which accrual had admittedly taken place. That is not the situation before us. In these circumstances, we see no infirmity in the well reasoned conclusion arrived at by the CIT(A) and decline to interfere in the matter. 23. The appeal filed by the Assessing Officer is thus dismissed. 24. To sum up, for the assessment year 2001-02 in quantum assessment proceedings, while the .....

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nd depreciation on leased assets amounting to ₹ 6,01.978. As the first disallowance is deleted by our order of even date, and as the second issue is remitted to the matter of the Assessing Officer, this penalty deletion is only academic in effect. The appeal filed by the Assessing Officer is therefore infructuous. 27. In the result, in revenue s appeal in penalty matter for the assessment year 2001-02, the appeal is dismissed as infructuous. ITA No.1463 and 1699 /Ahd/2005 Assessment Year: .....

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of sale and leaseback transactions of assets after relying on ITAT, Mumbai Bench decision in case of ICICI Ltd. 30. Learned representatives fairly agree that whatever we decide for the assessment year 2001-02 on this issue will apply mutatis mutandis on this assessment year as well. Vide our order earlier hereinabove, we have remitted the matter to the file of the Assessing Officer. The same fate and the same directions will apply here as well. Accordingly, for this issue, the matter stands remi .....

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e year due to sale/transfer assignment of individual home loans to M/s HDFC Ltd. as income accrued to assessee. 2. The Ld. CIT(A) has erred in law and on facts of the case in directing to delete the disallowance of deduction to the tune of ₹ 1,10,86,036/- u/s. 36(1)(viii) of the I.T. Act disregarding that the income by way of prepayment charges and processing/administrative fees cannot be termed as income derived from the business of long term finance for construction/purchase of residenti .....

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s fairly agree that whatever we decide for the assessment year 2001-02 on this issue will apply mutatis mutandis on this assessment year as well. Vide our order earlier hereinabove, we have upheld the relief granted by the CIT(A) in this respect. Accordingly, in terms of our observations in paragraphs 18 to 22, we uphold the relief given by the CIT(A) and decline to interfere in the matter. 32. Ground no. 1 is thus dismissed. 33. As for the second ground of appeal, learned representatives fairly .....

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