Subscription   Feedback   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Articles Highlights TMI Notes SMS News Newsletters Calendar Imp. Links Database Experts Contact us More....
Extracts
Home List
← Previous Next →

M/s Kyati Realtors Pvt. Ltd. Versus ACIT-6 (2) , Mumbai

2016 (4) TMI 564 - ITAT MUMBAI

Disallowance u/s.36(1)(iii) - Held that:- Amount borrowed for the purpose of business was partly disallowed by the AO on the plea that interest cannot be allowed to the extent of interest free advances/loans. As per the details furnished before the lower authorities, we found that advances were made in the regular course of business for purchase of property, which cannot be treated as not related to the business. Further we found that the reserve and surplus of assessee company was much more hig .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

urisdictional High Court, we do not find any merit in the disallowance so made by the AO u/s.36(1)(iii) of the I.T.Act, where reserves and surplus of assessee was much more than the advances. - Decided in favour of assessee. - ITA No.129/Mum/2014 - Dated:- 4-3-2016 - SHRI R.C.SHARMA, AM AND SHRI PAWAN SINGH, JM For The Assessee : Shri Vijay Mehta For The Revenue : Shri K.V.Narsimhacharya ORDER PER R.C.SHARMA (A.M): This is an appeal filed by the assessee against the order of CIT(A)-Mumbai, dated .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

10 crores by holding that the Appellant is not engaged in money lending business and therefore, not entitled to claim loss on account of irrecoverable loan/ advance. Disallowance being bad in law, needs to be deleted. b. Without prejudice to the above, on the facts and circumstances of the case and in law, the learned CIT (A) erred in not allowing the claim of bad debts being in the nature of irrecoverable advance as business loss under section 37(1) of the Act. 2) Disallowance of interest unde .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pment of real estate, trading in TDR and finance. The notice u/s.143(2) of the Act was issued on 18-8-2010 and various details were called for by the AO by issuing notices u/s.142(1) of the Act. The assessee filed various details in response thereto. The assessment was completed by the AO by passing assessment order u/s. 143 (3) of the Act on 30.12.2011 and determining the total income of the assessee at ₹ 87,880/-. The Assessing Officer made following disallowances while determining incom .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er of CIT(A) assessee is in further appeal before us. 4. We have considered rival contentions, carefully gone through the orders of authorities below and also deliberated on the judicial pronouncements referred by lower authorities in their respective orders. From the record we found that AO has dealt with the issue of bad debts in para 6 of his assessment order, wherein the AO has rejected explanation of the assessee that it was falling within the provisions of Section 36(2) as the advance was .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tion I booking of said commercial premises, builder insisted for advance of ₹ 10 crores. Accordingly, the company had advanced ₹ 10 crores on 06.03.2007 towards reserving! booking of the commercial premises in the said project ... Since the said advance was for purchase of commercial property, there was no question of charging interest thereon ... However, further development about the said project of the builder is that the builder after taking advances from us did not proceed in th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eeting on 28th March 2009 and the said amount has been written off as 'bad debt. " Further, the assessee furnished following justification for claiming the principal amount as bad debts vide letter dated 26/12/2011: . "We submit that as per provisions of Section 36(2), in respect of monies advanced in the ordinary course of business, the same allowab./e as bad debts even if the amount has not been taken into account in computing the total income. This is well accepted position in r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of real estate and financing. ii)The Objects Clause of the Memorandum of Association of the Appellant company reflects the business of contractors, erectors, constructors of buildings, etc as well as receiving or lending money as its objects (copy of extract of Memorandum of Association is enclosed). iii) Amount of ₹ 10,00,00,000/- was advanced on 6-3-2007 to M/s C. Bhansali Developers Pvt Ltd in order to purchase certain commercial premises and for reservation by way of bookings in their .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on 36(1 )(vii) read with section 36(2)(i). 2.10. The relevant extract of section 36(2) of the Act is reproduced below: " In making any deduction for a bad debt or part thereof, the following provisions shall apply- (i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money len .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the assessee and therefore, such debt on becoming bad is allowable as a deduction. According to section 36(2)(i), restriction for accounting of debt as income in the earlier year is not applicable where such debt represents loan in the ordinary course of business of banking or money-lending which is carried on by the assessee. 2.13. In this connection, we place reliance on the following judicial precedents: CIT v Pandit Lakshmi Kant Jha [1972] 84 ITR 481 (SC) CIT v Potential Management Servic .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ounts is sufficient to claim the bad debts under the Act. A copy of the ledger of the party highlighting the write-off is enclosed herewith for your perusal. 2.15, Based on the above, the disallowance of the claim of bad debts in respect of advances to M/s c.Bhansali is bad in law and therefore. the Appellant request your Honour to delete the same. (b) Without prejudice to the above and without admitting, On the facts and circumstances of the case and in law, aforesaid amount of ₹ 10 crore .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

section 37. 2.18. In this regard, the Appellant relies on the following judicial precedents: a. I.B.M. WORLD TRADE CORPORATION v CIT (1990) 1861TR 412 (BOM) Amounts advanced by the assessee for the purpose of acquiring the factory on lease-Amount is advanced for the purpose of the assessee's businessWhen such advances were lost, the loss would be a business loss and not a capital loss-Mere fact that factory would be ready in a year or so would not make any difference-Loss was therefore allo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

on should be allowed as business expenditure under section 37(1) - Whether in view of fact that nature of business and system of working of assessee being such that it was necessary to make advances to carry on business, it could be concluded that advances were paid in ordinary course of business and therefore, assessee was entitled to deduction under section 37( 1) - Held, yes c. CIT v Pure Beverages Ltd. [1994] 209 ITR 131 (GUJ.) Section 37(1) of the Income-tax Act,1961 - Business expenditure .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tiar [1946] 141TR 236 (MAD.) Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xii) (Now section 10(2)(xv» of the Indian Income-tax Act, 1922]- Business expenditure - Allowability of - Assessment year 1940-41 - Assessee, a Nattiukottai Chettiar engaged in money-lending business, sought to deduct under section 10(2)(xii) of 1922 Act certain sum of loan for which he guarantee and which he had to make good on borrowers failure to repay had given - It was common practic .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s ground of appeal and delete the disallowance of write-off of advances. 5. By the impugned order, the CIT(A) confirmed the disallowance after dealing with the issue at para 3.3 at pages 6 to 13 of his order. It was also argued before the CIT(A) that alternate plea of the assessee is that deduction should be allowed u/s.37 of the Act, if the write off of advance is not falling under Section 36(2) of the Act. The CIT(A) declined assessee s claim u/s.36(2) on the plea that assessee was not having .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

flected business of real estate as well as receiving or lending of money as its objects. During the year under consideration also on the money so lent the assessee has earned interest income of ₹ 24.62 crores. This interest income was also treated by AO as business income and not as income from other sources. This interest income was earned on the amount advanced by the assessee during the year as per its object clause, however, on the advance of ₹ 10 crore the assessee had not charg .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at Old Mumbai Pune Highway, Khapoli. Thus, money was advanced in the course of its business of real estate development, loss of such money on account of non-recoverability of advance made in the course of business is required to be allowed u/s.28/37 of the I.T.Act as business loss. The fact that advance was made in the ordinary course of business was not denied by the AO. It is also a matter of record that the advance so given could not be recovered, under these circumstances the assessee has wr .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e certain commercial premises and for reservation by way of booking in their upcoming project at Old Mumbai Pune Highway, Khapoli was in the ordinary course of business of assessee as developer. Since the amount could not be recovered even after much persuasion the assessee company passed a resolution in its Board meeting held on 28-3-2009, and the said amount has been written off as bad debts. The money given in the ordinary course of business as advance if could not be recovered is allowable u .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

that the expenditure claimed by the assessee is not covered by any of the provisions of sections 30 to 36 of the Act and being not a capital or personal expenditure, and having been incurred for the purpose of carrying on of the business, is eligible for deduction under section 37(1) of the Act. The provisions of Section 37 reads as under :- 37.(1) Any expenditure (not being expenditure of the nature described in sections 30 to 36 [***] and not being in the nature of capital expenditure or pers .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

commercial premises in the ordinary course of assessee s business of real estate development and which could not be recovered therefore, there is no reason to decline assessee s claim as business loss u/s.37(1) r.w.s.28 of the I.T.Act. Accordingly, we direct the AO to allow the advance of ₹ 10 crore which could not be recovered u/s.28 r.w.s.37(1) of the I.T.Act, 1961. 9. We also found that due to persistent efforts the assessee has been able to recover part of the advance and such recovere .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Hon ble Supreme Court in the case of Southern Technologies Ltd., 320 ITR 577 is completely misplaced insofar as Hon ble Supreme Court has held that RBI directives regarding provision of non-performing assets do not constitute expenses on the basis of which deduction could be claimed by the NBFC under Section 36(1)(vii) or section 37(1) and the same is to be added back to the total income even by applying the theory of real income. The Hon ble Supreme Court further observed that since a provisio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of assessee s business for purchase of certain commercial premises, reservation by way of booking in the upcoming project. The amount so paid does not fall under any of the provisions of Section 30 to 36 nor it is in the nature of capital expenditure, insofar as it was not for acquiring any capital asset but to buy/reserve place in the upcoming project, which is stock-in-trade in assessee s case dealing in real estate. The advance payment so made was also not in the nature of personal expenditur .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e normal course of business, and the same is allowable as expenses u/s.37(1) or as business loss u/s.28 of the I.T.Act. Insofar as CIT(A) s conclusion regarding disallowance on bad debts u/s.36(1)(vii), we are in agreement with the CIT(A) that since no interest income was received by assessee it cannot be said to be loan given in the normal course of business for earning interest income, therefore, the same cannot be allowed u/s.36(1)(vii) r.w.s.36(2) of the I.T.Act. In view of the above discuss .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

what is new what is new
  ↓     bird's eye view     ↓  


|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version