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Shri A. Sai Prasad Versus The Income Tax Officer, Media Ward II, Chennai.

2016 (4) TMI 756 - ITAT CHENNAI

Revision u/s 263 - 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? - whether the bad debt written off representing remission in the principal amount is a capital receipt or not? - Held that:- The loan was taken for business purpose and not for the purpose of purchase of any capital asset. Therefore, the written off of balance principal and interest amount of loan in the acco .....

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tances of the case, we are of the opinion that the ld. CIT has rightly invoked the 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 .....

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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 2007-08 declaring an income of ₹.3,897/-. The case of the assessee was selected for scrutiny and notice under section 143(2) of the Act was issued on 26.09.2008. After considering the submissions of the assessee, the Assessing Officer has noted that as .....

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the assessee. When the mistake was pointed out to the AR of the assessee, the assessee vide his letter dated 18.12.2009 submitted that I request the AO to consider the loss incurred by me for the AY 2003-04 as st off against the income for the year. I therefore submit that the set off of carry forward statement shall undergo a modification to this extent that against the income returned for the year 2007-08 the loss that would be eligible to be set off would pertain to the AYs. 2001-02, 2002-03 .....

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r 2007-08 against the brought forward loss pertaining to the assessment years 2001-02, 2002-03 & 2003- 04. Accordingly, the Assessing Officer completed the assessment order under section 143(3) of the Act dated 23.12.2009. 3. Against the above assessment order, on verification of record, the ld. CIT has found that Shri M.V.V.S. Moorthy had written off the principal amount of ₹.79,93,000/- and claimed it as bad debts written off in his account as on 31.03.2007. However, the assessee has .....

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T 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 .....

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mount amounting to ₹ 79.93 lakhs representing remission in the principal amount, which was never claimed as allowance by the petitioner, which the petitioner treated as a 'Capital receipt' and treated the same as non taxable remission. In this regard, the petitioner also draws the attention of the learned CIT to the binding Judicial pronouncement of the Madras High Court in the case of ISKRAEMECO REGENT LTD. Vs. CIT 196 Taxman 103 wherein the jurisdictional Court clearly distinguis .....

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s High Court (supra), the assessee's representative has requested the ld. CIT for dropping of the proceedings with further submission that the assessee who is no more is represented by his Legal Representative who has no means of any nature to meet any of the tax demands that may be raised on the assessee. He has also brought to the notice of the ld. CIT that the assessee has stopped doing business activity for more than a decade and considering the facts and circumstances of the case, the p .....

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MVS Murthy during the financial year 1999-2000. It is a fact that the said loan was available for production of a feature film by the assessee. Hence, it cannot be termed as a loan acquired towards a capital asset. In that 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 s .....

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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 and assessed accordingly. Since the Assessing Officer has failed to do, the o .....

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the event of raising demand in consequent to order under s.263, is a different matter and there is no exception provided in Section 263 to consider a case whether it is prejudicial to the interests of revenue nor not on the financial conditions of the assessee to pay the tax dues. Hence, the assessee's aforesaid submissions in this regard is not considered in this order. 7. Aggrieved, the assessee is in appeal before the Tribunal. The ld. Counsel for the assessee has, with regard to assumin .....

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mitted that there are no two views and only one view is possible and supported the order passed by the ld. CIT. 9. We have heard both sides, perused the materials on record and gone through the orders of authorities below. The ld. CIT, while exercising power under section 263 of the Act came to a conclusion that the order passed by the Assessing Officer under section 143(3) of the Act dated 23.12.2009 is erroneous and prejudicial to the interest of Revenue for the reason that the ld. CIT, after .....

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ooks 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 o .....

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incipal as well as the interest…. Therefore, it is clear that the loan availed during the course of business of the assessee was only for the purpose of his business i.e. production of film and upon release of the film, certain principal amount was repaid. 11. Before us, the ld. Counsel for the assessee has relied on the decision in the case of CIT v. Xylon Holdings Pvt. Ltd. [2013] 90 DTR 205 (Bom), wherein, the assessee has taken loan from the holding company by virtue of which liabilit .....

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