TMI Blog2016 (4) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of section 263 of the Act and directed the Assessing Officer to redo the assessment. Hence, we find no infirmity in the order passed by the ld. CIT and dismiss the grounds raised by the assessee. - Decided against assessee - I.T.A.No.1010/Mds/2012 - - - Dated:- 24-2-2016 - Shri Chandra Poojari, Accountant Member AND Shri Duvvuru RL Reddy, Judicial Member For The Appellant : Shri R. Vijayaraghavan, Advocate For The Respondent : Dr. B Nischal, JCIT ORDER PER DUVVURU RL REDDY, JUDICIAL MEMBER: This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax - IV, Chennai, dated 26.03.2012 relevant to the assessment year 2007-08 passed under section 263 of the Income Tax Act, 1961 [ Act in short]. The first effective ground raised in the appeal of the assessee is with regard to assuming jurisdiction under section 263 of the Act and holding that the assessment order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue. 2. Brief facts of the case are that the assessee was engaged in the business of film production and filed his return of income for the assessment year 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ility by the assessee should not have been set off and should have been taken as business income for the assessment year 2007-08. Since the Assessing Officer without considering the fact that the assessee had retained the said amount of ₹.79,93,000/- as a liability instead of crediting the same as income back to the profit and loss account, the ld. CIT was of the opinion that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of Revenue and accordingly, the ld. CIT, served a notice under section 263 of the Act on 28.12.2012 to file objections, if any. 4. Before the ld. CIT, the assessee has filed detailed written submissions, wherein, the assessee has stated as under: The petitioner in the past produced a feature film by availing a loan from one Dr. M. V. S. Murthy during the financial year 1999-2000 and upon release of the film certain principal amount was repaid whereas the balance principal and interest was carried as outstanding in the books of accounts year after year and eventually the petitioner submitted to the lender that the petitioner has no means to repay the principal as well as the interest. Accordingly, whatever the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, the assessee took loan from State Bank of India towards capital asset. The Hon'ble Madras High Court has held, relying on the principles laid down in Vinod Behari Jain v. ITO (2008) 306 ITR 392, that by applying the purpose test, the object of grant will have to be seen. Applying the principle laid down by the Apex Court the objection of the transaction namely the loan transaction is towards the purchase of the capital asset as against the running of the regular business, the Hon'ble High Court has held that such a receipt would be a capital receipt. In this case, purpose is for running a business of film production. There is no evidence on record to show that the loan was purchase of any capital asset. Hence, the ratio of the decision of the case cited by the assessee's representative will not apply to the facts of the assessee's case where the assessee himself has treated the principal amount of ₹ 79.93 as capital receipt and treated the same as non taxable remission. Hence, I am of the considered view that the said amount of ₹ 79,93,000/- claimed as 'bad debts written off' should have taken as business income in the assessee's hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer, in the assessment order has not discussed the loan liability of the assessee, which, was written off as bad debt in the accounts of Dr. Murthy, and also shown as a liability in the books of the assessee. However, by invoking provision of section 263 of the Act, whether the ld. CIT is correct to hold that the bad debt written off should be taken as business income within the meaning of section 41(1) and section 28(iv) of the Act is required to be examined. 10. Now, it has to be considered as to whether the bad debt written off representing remission in the principal amount is a capital receipt or not. In this case, the loan taken was for the purpose of running the business of film production. Before the Assessing Officer, the assessee has submitted that The petitioner in the past produced a feature film by availing a loan from one Dr. M. V. S. Murthy during the financial year 1999-2000 and upon release of the film certain principal amount was repaid whereas the balance principal and interest was carried as outstanding in the books of accounts year after year and eventually the petitioner submitted to the lender that the petitioner has no means to repay the principal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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