TMI Blog2010 (12) TMI 1255X X X X Extracts X X X X X X X X Extracts X X X X ..... erving that the interest earned from the deposits was income from other sources and not income from business or profession . 3. During the course of hearing, the assessee vide its application dated:16.8.2010 sought permission of this Bench to raise an additional ground of appeal in the following format - (a) The learned CIT(A) erred in holding that the amount was never shown as income in any of the previous year and, accordingly, this was not an allowable deduction as bad debt as per the provisions of s.36(1)(vii) r.w.s.36(2)(i); (b) the Ld. CIT (A) ought to have appreciated that under the provisions of s.36(2)(i), it is not necessary that the amount of debt has to be taken into account in computing the income of the assessee and it will be sufficient even if income from such debt is taken into account in computing the income of assessee. 3.1. After consideration of the rival submissions, the additional ground sought to be raised was admitted for adjudication and the Registry was suitably directed to place the assessee s application on record. 4. The back-ground of the case, in brief, that the assessee was in the business of manufacturing and selling of dia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest due given by ICNET on 20.3.1996 were dishonoured by the Bank; - the assessee had created a provision of ₹ 5 lakhs towards doubtful deposits in the year ended 31.3.97 which was added back in its return for the said year and no deduction was claimed; - when the assessee s efforts to retrieve the balance amounts have become naught, a criminal case was lodged against the defaulter under Negotiable Instruments Act in May, 1996 and the NBA warrant obtained could not be executed as the directors of the defaulter company were untraceable; the criminal case against the defaulter was still being pursued in the courts; - in the meanwhile, the defaulter company had closed down its operation, its directors could not be traceable and the recovery of balance amount had become remote, the same was written off in its books of account for the AY under dispute and the same was claimed as deduction while computing the taxable income; - the loss on account of write off of inter-corporate deposit was a loss on revenue account and not capital in nature since the question of whether a loss was on revenue account or capital in nature depends on the facts of each case reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d accordingly, this was not an allowable deduction as bad debt as per the provisions of s.36(1)(vii) r.w.s.36(2)(i), it was rebutted that the CIT(A) s observation was based on the provisions contained in s.36(2)(i) which inter alia provides that in making any deduction for a bad debt or part thereof, no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof was written off of an earlier previous year; that various judiciary have held that in order to satisfy the condition stipulated in s. 36(2)(i), it is not necessary that the entire amount of debt has to be taken into account in computing the income of the assessee and it would be sufficient even if part of such debt is taken into account in computing the income of the assessee; case laws relies on: (i) Veerabhadra Rao v. CIT 155 ITR 152 (SC) (ii) Shreyas s. Morakhia v. DCIT ITA NO.3374/MUM/2004 (ITAT, Mumbai SB) (iii) Poysha Oxygen (P) Ltd v. ACIT 19 SOT 711 (ITAT, Delhi); (iv) Goetze India Ltd. v. DCIT 119 TTJ 351 (ITAT Delhi) - In all the abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ICNET by 30th November, 1995 itself. For the balance principal amount and interest thereof, the cheques received from ICNET in March, 1996 were bounced and, accordingly, the assessee went ahead with in lodging a criminal case under Negotiable Instruments Act and obtained NBW against the defaulter(s) which, however, could not be enforced as the directors of the said company were, according to the assessee, at large and so on and so forth. This very fact has neither been contradicted either by the AO or the first appellate authority. When the assessee s efforts to salvage the balance amount and the interest thereof have become remote in spite of legal proceedings initiated against the defaulter and also exhausted all its avenues at its command to recover the same, it had resorted to write off the sum of ₹ 15 lakhs in its books of account during the previous year relevant to the assessment year under dispute and claimed the same as deduction while computing its taxable income. 6.3. At the out-set, we would like to point out that once the assessee had written off debts as irrecoverable in his/its accounts, the assessee need not be required to prove that they have become bad et ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ratio laid down by the Hon ble Bombay High Court in the case of CIT v. Indo Swiss Jewels Ltd. and Anr reported in 284 ITR 389 (Bom) is squarely applicable to the issue on hand. The Hon ble Court had ruled that The interest earned on the short-term deposits of the money kept apart for the purpose of business has to be treated as income earned on business and cannot be treated as income from other sources . 7.1. The Hon ble High Court of Madras in the case of CIT v. Tamilnadu Dairy Development Corporation Ltd. reported in 216 ITR 535 (Mad), citing the ruling of the Hon ble Supreme Court in the case of CIT v. Calcutta National Bank Ltd (1959) 37 ITR 171 had held that Following the above ruling of the Supreme Court, we are of the view that the term business is a word of very wide connotation and by no means determinate in its scope and has to be considered with reference to each particular kind of activity and occupation of the person concerned. Upon the peculiar facts of this case, we are of the opinion that the interest accrued on short term deposits of the assessee-company which were made out of the business funds available with the assessee-company before the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y establishment expenses. Article 3 of the MOA of the assessee enumerated its objects; and cl. (v) thereof provides that to invest and deal with the funds of the company not immediately required upon such securities and in such manner as may from time to time be determined. ITO held that the amounts received by the company as interest and by share transfer and splitting fees were income from other sources . After consideration of the issue in depth, the Hon ble Court reasoned that the share capital was deposited in banks because the company had not commenced business, and the amounts were not immediately required for any business. The deposit of the share capital by the company in banks was not a business carried on by it and the receipt of income by interest was only incidental or consequential on the deposit and that the assessee was not entitled to the deduction of the expenses amounting to ₹ 34,139 as Office and establishment expenses unconnected with the earning of the company or keeping the company alive were not permissible deductions under s. 57 of the Act. With due respects to the above ruling, we would like to point out that the present issue was entirely on ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
