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2016 (7) TMI 450 - ITAT MUMBAI

2016 (7) TMI 450 - ITAT MUMBAI - TMI - Addition to tax interest income on accrual basis - Held that:- The Assessing Officer in assessment years 2002-3 to 2004-05 has accepted the plea of the assessee that no interest income accrues with respect to the impugned deposits made with MCCL on account of its poor financial health and, therefore, in the absence of change in facts and circumstances in the instant year, the addition in this year does not survive. On this aspect of the matter, Ld. Departme .....

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ent of the Hon'ble Bombay High Court in the case of Pudumjee Pulp & Paper Mills Ltd.,(2015 (8) TMI 719 - BOMBAY HIGH 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 .....

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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, (hereinafter referred to as "C.IT.(A)") Mahindra Engineering & Chemical Products Limited, Mumbai (hereinafter referred to as "Appellant") hereby submits the following grounds for your kind and sympathetic co .....

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circumstances of the case and in law the learned CIT(A) erred in confirming the order of the learned AO not allowing deduction for interest of ₹ 1,35,35,072 in respect of the aforesaid deposit which interest was brought to tax in AY 2002-03, 2003-04 , AND 2004-05. The learned CJT(A) ought to have allowed the claim of the appellant in the year under appeal since the principal amount of the said deposit was written off in the books as not recoverable. The appellant be allowed deduction for .....

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ding expenditure of ₹ 3,13,446 on repairs to plant and machinery as being capital in nature The appellant be allowed deduction for ₹ 3,13,446 as claimed by it. 5. On the facts and in the circumstances of the case and in law the learned CIT(A) erred in confirming the order of the learned AO holding expenditure of ₹ 1,14,000/- on software expenses as being capital in nature. The appellant be allowed deduction for ₹ 1,14,000 as claimed by it. 6. On the facts and in the circu .....

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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 assess .....

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d interest income thereon of ₹ 15,73,952/-, which has been taxed. Subsequently, from assessment year 2002-03 onwards assessee did not account for any interest income on the ground that the deposit/advance itself had become doubtful of recovery and, therefore, there was no accrual of interest income. The material on record reveals that in assessment year 2002-03 and upto assessment year 2004-05, the aforesaid stand of the assessee was not accepted by the incometax authorities and instead fo .....

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oor financial health of MCCL and, thereafter decide the matter afresh. 5. Before us, Ld. Representative for the assessee has furnished copies of the orders passed by the Assessing Officer in pursuance to the directions of the Tribunal for assessment years 2002-03 to 2004-05, wherein assessee s plea that no addition on account of notional interest merited has been accepted. In such orders, passed by the Assessing Officer under section 143(3) r.w.s 254 of the Act dated 28/03/2013, it has been acce .....

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ucceed. The Assessing Officer in assessment years 2002-3 to 2004-05 has accepted the plea of the assessee that no interest income accrues with respect to the impugned deposits made with MCCL on account of its poor financial health and, 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 .....

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stly, 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 has primarily justified the action of the lower authorities by pointing ou .....

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speaking, it is not in dispute that assessee had made deposits/advances with MCCL in the previous year 2000-01, corresponding to assessment year 2001-02 amounting to ₹ 4,35,00,000/-. The interest accruing on such deposits for assessment year 2001-02 amounted to ₹ 15,73,952/-, which was duly offered to tax in the said assessment year. Subsequently, assessee has not accounted for any interest income on the ground that the aggregate of the principal amount as well as interest accrued t .....

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ot engaged in any systematic business of money lending and that the non-recovery was a capital loss. 10. Before us, the Ld. Representative for the assessee has relied upon the judgment of the Hon'ble Bombay High Court in the case of Pudumjee Pulp & Paper Mills Ltd., in ITA No.1590 of 2013 dated 05/08/2015. According to the Ld. Representative for the assessee, in the case of Pudumjee Pulp & Paper Mills Ltd. (supra), a somewhat similar fact-situation prevailed. In the case before Hon b .....

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t 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 pa .....

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i) of the Act is concerned, i.e. (a) above, we find that the Respondent-Assessee had during the earlier Assessment Years offered to tax an amount of ₹ 42.65 lakhs received as interest on the deposit made with M/s. GSB Capital Market Ltd. The Appellant had since Assessment Year 1998-99 claimed an amount of ₹ 49.82 lakhs as doubtful debts from M/s. GSB Capital Market Ltd. This consisted of the aggregate of principal and interest payable by M/s. GSB Capital Market Ltd. It was in the sub .....

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al debt. The Assessing Officer s contention that amount of ₹ 34.82 lakhs was not offered to tax earlier and, therefore, deduction under Section 36(2)(i) of the Act is not available, is no longer res+-integra. This very issue camp up for consideration before this court in Shreyas S. Morakhia (supra) wherein the assessee was a stock broker and engaged in the business of sale and purchase of shares. The brokerage payable by the client was offered for tax. Subsequently, it was found that the p .....

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tands satisfied. The test under the first part of Section 36 (2)(i) of the Act is that where the debt or a part thereof has been taken into account for computing the profits for earlier Assessment Year, it would satisfy a claim to deduction under section 36(1)(viii) read with Section 36(2)(i) of the Act. In fact, the Revenue also does not dispute the above provisions as no submission in that regard were made during the course of hearing before us. 10.1 In the present case, as per the Revenue, th .....

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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 s .....

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