TMI Blog2017 (2) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore, find no reason to interefere with the decision of the CIT(A) that the claim of the assessee for write off of ₹ 50,00,000/- advanced as ICD to BRCL is allowable as a deduction under section 36(1)(vii) r.w.s.36(2)(i) of the Act. - Decided against revenue - ITA No.2616/Mum/2016 - - - Dated:- 30-11-2016 - SHRI G.S.PANNU, ACCOUNTANT MEMBER For The Appellant : Shri S.R.Kirtane For The Respondent : Shri Vimal Punmiya ORDER The captioned appeal filed by the Revenue pertaining to assessment year 2012-13 is directed against an order passed by CIT(A)-13, Mumbai dated 28/01/2016, which in turn, arises out of an order passed by the Assessing Officer under section 143(3) of the Income Tax Act, 1961 (in short the Act ) dated 25/02/2015. 2. In this appeal, although Revenue has raised multiple Grounds of appeal, but the only grievance of the Revenue is against the action of the CIT(A) in holding that assessee was entitled for the write-off of bad debts amounting to ₹ 50,00,000/- under section 36(1)(vii) r.w.s. 36(2)(i) of the Act. 3. In this context, the relevant facts are that the respondent- assessee is a company incorporated under the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was dated 1st November 2004 forms the basis for the advance of ₹ 50 lakhs made to BRC by way of the ICD. The advance of the ICD thus formed part of the appellant s business. Secondly, it is also clear that advancing of such monies was very much part of the objects of the appellantcompany as seen from its Memoranda and Article of Association. Thirdly, it is noteworthy that the actual write-off has taken place during the very same financial year in which BRC had approached the BIFR. Quite obviously, the action of write-off has come about only as the last resort and was by no means precipitate or premature. Fourthly, it can be seen that the interest from the said ICD has already been returned by the appellant earlier. Fifthly, the decision relied on by the AO [viz. CIT v. Epsilon Advisors Private Limited (supra) had been rendered in the context of bad debts of a money-lending concern. An NBFC (Non-Banking Financial Company) is obliged to be registered as such for commencing operations of money-lending. This have nt been done, the assessee had been denied relief of write-off of bad debts. In the instant case, the appellant is clearly no money-lender. The debt in question i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly directed to be reversed. Against the aforesaid decision, the Revenue is in appeal before the Tribunal. 5. Before me, the Ld. Departmental Representative has assailed the order of the CIT(A) by pointing out that the CIT(A) erred in accepting the consultancy business of the assessee company as business of money lending so as to hold that the advancing of ICD to BRCL was in the course of business. The Ld. Departmental Representative also pointed out that the CIT(A) erred in allowing the write off of ₹ 50,00,000/- as bad debt instead of treating it as capital loss since BRCL had been referred to the BIFR as a sick company. The Ld. Departmental Representative also submitted that the CIT(A) erred in accepting that the ICD written-off in the books of account satisfied the requirements of section 36(2)(i) of the Act that it had been taken as a part of the income of the assessee company. 6. On the other hand, Ld. Representative for the assessee defended the order of the CIT(A) by pointing out that the advancing of ICD to BRCL formed part of the assessee s business and such an activity was also a part of the objects of the assessee company as evidenced by the Memo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom BRCL as irrecoverable and claimed it as a deduction under section 36(1)(vii) of the Act as bad debts . The amounts so written-off comprise of two limbs, namely, the amount receivable on account of management fee, etc., and the amount of ICD of ₹ 50,00,000/-. The Assessing Officer objected to the write off of ₹ 50,00,000/- under section 36(1)(vii) of the Act, as according to him, assessee is not in the business of money lending and, therefore, such a write-off does not satisfy the requirement of section 36(2)(i) of the Act to the effect that such debt or part thereof has not been taken into account in computing the income of the assessee of the previous year in which the amount is written off or of an earlier year. The aforesaid stand of the Assessing Officer has been reiterated before me by the Ld. Departmental Representative also. 7.1 In my considered opinion, there is no denying the fact that the advancing of ₹ 50,00,000/- to the BRCL is based on a comprehensive management and advisory services agreement dated 01/11/2004 entered into by the assessee with BRCL. Under these circumstances, I find no reason to disagree with the CIT(A) that advancing of ICD f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tipulated in section 36(2)(i) was not satisfied. The Hon'ble High Court noted that the debt of the assessee comprised, inter-alia, of the value of shares transacted and the brokerage payable by the client on whose behalf transaction took place and only brokerage having been credited to the P L Account, it was evident that a part of the debt was taken into account in computing the income of the assessee and, therefore, the requirement of section 36(2)(i) was fulfilled. Accordingly, the Hon'ble High Court allowed the claim of the assessee for deduction under section 36(1)(vii) r.w.s. 36(2) of the Act. To the similar effect is the judgment of Hon'ble Bombay High Court in the case of Pudumjee Pulp Paper Mills Ltd., (supra). In the said case assessee was a paper manufacturer, who advanced ICD to another concern. The assessee earned interest on such ICD which was offered for tax. In the subsequent year, which was before the Hon'ble High Court assessee could not recover the amount and arrived at a settlement with the other concern, whereby recovered only a part of principal and interest and balance amount was written-off which comprised principal amount as well as intere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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