TMI Blog2016 (7) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... COURT ) the test contained in section 36(2)(i) of the Act stands satisfied, inasmuch as, debt or part thereof has been taken into consideration for computing the profit for an earlier year. In this view of the matter, the other aspect as to whether the assessee was engaged in the business of money lending and/banking is not relevant to adjudicate the controversy. - AO directed to grant appropriate relief. - Decided in favor of assessee. - ITA No. 2947/MUM/2010 - - - Dated:- 30-6-2016 - Shri G. S. Pannu, Accountant Member And Shri Sanjay Garg, Judicial Member For the Appellant : Shri H. P. Mahajani For the Respondent : Shri K. Ravi Ramchandran ORDER Per G. S. Pannu, A. M The captioned appeal of the assessee is directed against the order passed by CIT(A)-5, Mumbai dated16/02/2010, pertaining to the assessment year 2005-06, which in turn has arisen from the order passed by the Assessing Officer dated 19/12/2007 under section 143(3) of the Income Tax Act, 1961 ( in short the Act ). 2. In this appeal assessee has raised the following Grounds of appeal:- Being aggrieved of the order passed by the Commissioner of Income-tax (Appeals)-5, Mumbai, (hereinaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecting the contention of the appellant that the expenditure was allowable as a revenue expenditure. The appellant be allowed deduction for ₹ 3,53,760 as claimed by it. 2. At the time of hearing Ld. Representative for the assessee submitted that in so far as the Grounds of appeal No.2,4,5 6 are concerned, the same are not pressed and accordingly they are dismissed as not pressed. 3. The substantive dispute remaining in this appeal revolves around the deposit of ₹ 4,35,00,000/- made by the assesse with Mahindra Construction Company Ltd (in short MCCL) in an earlier financial year of 2000-01 corresponding to assessment year 2001-02. Firstly, the appellant is aggrieved that the lower authorities have brought to tax interest income of ₹ 15,73,952/- on such deposit on a hypothetical basis, notwithstanding that assessee had written off the principal amount of deposit itself as irrecoverable. Secondly, assessee company is aggrieved with the action of lower authorities in not allowing the write off of ₹ 4,35,00,000/- while computing the total income. 4. Briefly put, the facts relevant to adjudicate the aforesaid controversy can be summarized as fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , therefore, in the absence of change in facts and circumstances in the instant year, the addition of ₹ 15,73,952/- in this year does not survive. On this aspect of the matter, Ld. Departmental Representative has not made any argument considering the order of the Assessing Officer for assessment years 2002-03 to 2004-05. Accordingly, the appellant succeeds on this issue. 7. The second dispute is with regard to the claim of the assessee that the amount of ₹ 4,35,00,000/-written off in the books of account as not recoverable be allowed as deduction as a bad debt. On this aspect of the controversy, Ld. Representative for the assessee pointed out that the assessee company fulfils the requirements of section 36(1)(vii) r.w.s 36(2)(i) of the Act. Firstly, the amount has been written off as irrecoverable in the books of account. Secondly, it is pointed out that the interest income for assessment year 2001-02 of ₹ 15,73,952/- was offered and assessed to tax as part of business income and, therefore, it was to be understood that the impugned deposits/advances made to MCCL were in the ordinary course of business. 8. On this plea, the Ld. Departmental Representative ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income tax authorities primarily on the ground that the conditions of section 36(1)(vii) r.w.s. 36(2) of the Act are applicable, inasmuch as, the assessee company was not carrying on business of money lending and that the principal amount claimed as bad debt was not in fact offered to tax either in the relevant assessment year or in the earlier assessment years. The Hon'ble High Court considered the provisions of section 36(1)(vii) and section 36(2)(i) of the Act and made the following discussion:- 11. It is noticed that Section 36(2)(i) of the Act allows deduction on account of satisfaction of any of one of the two conditions as under:- (a) bad debts or part thereof taken into account in computing the income of the assessee for an earlier Assessment Year before such debt or part thereof is written off; or (b) the debt represents money lent in the ordinary course of business of banking or money lending 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd were made during the course of hearing before us. 10.1 In the present case, as per the Revenue, the amount of principal deposits/advances was not offered to tax in an earlier or the current year and, therefore, condition prescribed under section 36(2)(i) is not fulfilled. The Hon'ble Bombay High Court referred to its earlier judgment in the case of CIT vs. Shreyas S. Morakhia, 342 ITR 285(Bom), wherein assessee was a stock broker and engaged in the business of sale and purchase of shares. Brokerage earned from the clients was offered for tax; and the principal amount due from the clients also remained outstanding. The claim of the assessee was to treat not only the unrecoverable brokerage, but also the unrecoverable amount of principal as a bad debt. The Hon'ble Bombay High Court held that the debt referred to in section 36(2)(i) of the Act comprises not only of the brokerage which was offered to tax but also the principal value of shares not received. Therefore, according to the Hon ble High Court, even if a part of the debt was offered to tax, the condition contained in section 36(2)(i) of the Act stood satisfied. In the present case too, it is not disputed that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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