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2016 (8) TMI 215 - GUJARAT HIGH COURT

2016 (8) TMI 215 - GUJARAT HIGH COURT - TMI - Claim for bad debt disallowed - business carried on by the assessee in respect of which the debts were written off had been discontinued - Held that:- So far as the business activities carried on by the assessee, namely, pharmaceutical and commission agency, are concerned, since there was common management, common fund, common staff administration, consolidated accounts, balance sheet, complete unity of control in the management and administration of .....

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d funds and the loan given. In that view of the matter, we are of the opinion that the Tribunal has rightly deleted the disallowance. - Decided in favour of the assessee - Disallowance of interest on account of interest free advance given to M/s. Madhavdas Tulsidas & Co. - Held that:- Since the principal amount itself is doubtful and there was pending civil and criminal litigation, the disallowance of interest is required to be deleted. We are, therefore, of the view that the Tribunal has r .....

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e order of the Income-tax Appellate Tribunal, Ahmedabad, whereby the Tribunal has reversed the view taken by the Commissioner (Appeals) by allowing the appeal preferred by the assessee. 2. While admitting the appeals, this court has framed the following substantial questions of law in Tax Appeal No. 1440 of 2007: (A) Whether the Appellate Tribunal is right in law and on facts in allowing the assessee s claim for bad debt amounting to ₹ 1,31,84,176/-, when the business carried on by the ass .....

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on account of interest free advance of ₹ 1.21 crore given to M/s. Madhavdas Tulsidas & Co.? 2.1 In Tax Appeal No. 1439 of 2007, this court has framed the following substantial question of law : Whether the Appellate Tribunal is right in law and on facts in confirming the order passed by the CIT (A) deleting the disallowance paid in respect of interest free advances out of borrowed funds? 2.2 This court, while admitting Tax Appeal No. 1671 of 2007, has framed the following substantial q .....

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, a revised return of income was filed on 13.11.2002 disclosing total income of ₹ 29,59,07,885/-. The return of income was processed under section 143(1) of the Act on 21.3.2003 on the returned income. The assessment was finalized under section 143(3) of the Act on 30.3.2004. While determining the income of the assessee, the Assessing Officer had made certain additions. Being aggrieved by the order of the Assessing Officer, the assessee preferred appeal before the Commissioner of Income-ta .....

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g of pharmaceutical products and commission agent. The commission income from the agency business was credited to profit and loss account in the respective years. However, the activity was discontinued as it was not profitable. The main reason for discontinuance is that the company had to bear losses by way of bad debts from the customers. The assessee tried to recover the dues from the customers. However, the assessee could not recover the dues and wrote off the same. The Assessing Officer, whi .....

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L.M. Chhabda & Sons v. Commissioner of Income-tax reported in (1967) 65 ITR 0638, particularly, paragraph Nos. 6 and 10 which are extracted below: 6. For income of a business to be taxable under s. 10 of the Act it is one of the conditions that the assessee must carry on the business in the relevant year of account. If the business is discontinued before the commencement of the accounting year, the income attributable to that business received in the year cannot be taxed under s. 10, because .....

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usiness, and one of such business is closed before the previous year, he cannot claim allowance under s. 10 of the Act of an outstanding attributable to the business which is closed against the income of his other business in that year. 10. It is true that the appellants were conducting cinema theatres in Ahmedabad and Bombay, and the result of the accounts of the different ventures was entered in the accounts maintained at the head office, but from that circumstance no inference necessarily ari .....

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allow certain litigation expenses in connection with the suit relating to Prakash Talkies. But the AAC did not expressly find that the business of Prakash Talkies was part of a larger business carried on by the appellants, and no such inference may be raised by implication. From the fact that no appeal was filed by the revenue against the allowance of litigation expenses, it does not follow that the Department acquiesced in the contention of the appellants. 5. He has also relied on the decision .....

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or the assessee contends that the service department which was closed down is not a separate and independent business of the assessee but is a part of the main business as distributors for the products of Rayala Corporation and, therefore, the retrenchment compensation paid on closure of a portion of the business which is beneficial to the main business that was being carried on by the assessee should be taken to be an allowable expenditure as the closure of a portion of the business was underta .....

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377; 9,603/- as retrenchment compensation. The assessee claimed deduction under s. 37 of the IT Act, 1961, of the said sum. The claim having been rejected by the ITO as well as the AAC, the matter was taken to the Tribunal which held that the deduction could not be allowed because the several business were widely different in nature and they covered both manufacturing and trading activities, and the closure of one business was not shown to have affected the other business. When the matter was ta .....

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terlacing, interdependence and dovetailing of the different business activities carried on by the assessee and all the activities carried on by the assessee constituted one and the same business and, therefore, the deduction on account of the retrenchment compensation paid by the assessee upon the closure of one of its business and the write off of its outstanding dues as bad debts in the other were allowable deductions under ss. 37 and 36(1)(vii), respectively. The question is whether the princ .....

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e, but upon the nature of the business, the nature of their organisation, management, source of capital and fund utilised, the method of book keeping used and other related circumstances which stamp them as same or distinct. Thus, the test is whether one of the business can be closed without affecting the conduct of the other business. In this case, though an attempt was made by the assessee before the AAC to show that the business of servicing typewriters and the trading activities in typewrite .....

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a Department is not conclusive one way or the other. Unless the assessee establishes that the service organization was part of the main organisation of carrying on the business of dealing in typewriters, the assessee s assertion that it is part of the main business cannot straightaway be accepted. In the absence of materials to show that the business that was closed was only an integral part of the business that is being carried on by the assessee, the assessee cannot claim the retrenchment com .....

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the old stock already referred to. The loss of ₹ 1,59,489-1-5 was made up of payment of interest on moneys borrowed, depreciation on the machinery and buildings, bad debts written off, loss in revaluation of closing stock due to deterioration and establishment and miscellaneous charges of the various concerns. The company, however, continued to retain its holding of shares in the Chittivalsah Jute Mills Co. Ltd., and to that extent the company was undoubtedly carrying on business; and thi .....

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relied upon the Full Bench decision of the High Court in Arunachalam Chetty vs. CIT ILR 52 Mad. 296. There a trader having two branches in his trade, viz., a cloth business and a banking business, carried on both, each with borrowed capital and, as the cloth business, ended in a loss, he had to close it in 1924 and all that portion of the borrowed capital which was sunk in the cloth business was lost before 1924; and the trading having had to pay interest on that lost capital in 1924-25, the ye .....

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A.L.A.R., their primary business being the usual Nattukottai Chetty business of banking and money - lending. Under the style of Ramaswami & Co., they also traded in piecegoods in Madras. That business was unsuccessful and when closed down in 1924 had sustained a loss of ₹ 11,00,000 odd. It was found by the CIT that the business of Ramaswami & Co., was quite separate and distinct from that of A.L.A.R. The Full Bench of which I was a member, however, did not agree with this finding .....

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ch was carried on under a different name and in a different place was only a branch of the banking business because I am satisfied that those two business were separate and distinct. I think that the examples given by Coutts-Trotter, C.J., on p. 299 are not quite happy ones. This decision can only be taken as applying the principle to cases where the businesses are not separate. What is the position in the present case? The fallacy underlying the assessees, argument is that because a company car .....

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ed in cases under the IT Acts in England. One of these is Scales vs. George Thompson & Co. Ltd. 13 Tax Cases 83. There the respondent was incorporated in 1905 to take over as a going concern the business of George Thompson & Co., ship owners, ship and insurance brokers, underwriters and merchants. As regards their underwriting business the firm had been represented by two of their partners who acted on behalf of the partnership as names or members of a syndicate whose credit was used by .....

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hese nominees retired and in 1920 the other died, where upon the underwriting business ceased. The company claimed that the underwriting business was a business separate from their other activities and that it should be treated as a separate business in computing their liability. The Special Commissioners allowed their appeal. It was held by the High Court that the question was one of fact and that there was evidence on which the Commissioners could come to their decision. Rowlatt, J., in his ju .....

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ships. They might stop the ships and it does not affect the underwriting. 7. So far as the second issue regarding deletion of disallowance of interest on account of interest free advance given to Sardar Patel Foundation is concerned, the learned counsel for the revenue has taken through paragraph Nos. 5 and 6 of the assessment order where the Assessing Officer has given reasons for disallowing the interest payments and contended that the Assessing Officer has rightly rejected the claim of inter .....

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er has given reasons in his order for disallowing the same as it is of doubt nature. The Commissioner (Appeals) has confirmed the said disallowance. However, the Tribunal has wrongly deleted the disallowance made by the Assessing Officer. Hence the order of the Tribunal is required to be interfered with. 8. Learned counsel for the assessee has contended that the Tribunal has rightly deleted the disallowance made by the Assessing Officer. He has taken us through the order of the Tribunal, particu .....

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is same. 9. The learned counsel for the assessee has then taken us to page No. 115 of the appeal where it is observed at paragraph No. 5.2 as under: The CIT(A) decided the matter as under: I have considered the facts of the case and submissions of the A.R. of the appellant carefully. I have also gone through the decisions relied upon by the A.R. Of the appellant, referred to above and the observations of the assessing officer in the assessment order and then in the remand report. I have also gon .....

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of ₹ 34.18 crore). The borrowing from the banks was ₹ 7.78 crore. Thus, the appellant has claimed that it has utilised its own funds for giving interest free loans. However, the assessee has not been able to prove that the loan given to Sardar Patel Foundation is out of the reserves only and not from the borrowed funds. The assessing officer has also not brought on record any material evidence to establish that the loans are given out of borrowed funds and there is direct nexus betw .....

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Apex Court in the case of Commissioner of Income-tax v. Excel Industries Ltd. reported in (2013) ITR 295 (SC), Godhra Electricity Co. Ltd. v. Commissioner of Income-tax, reported in 225 ITR 746 (SC) and Veecumsees v. Commissioner of Income-tax, reported in (1996) 220 ITR 185 (SC). He has further relied on the decision of Delhi High Court in the case of Commissioner of Incometax v. Goyal M G Gases P. Ltd., reported in (2008) 303 ITR 159 (Del). In the light of the above decisions, he has contende .....

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