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TMI Blog2018 (2) TMI 1091X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.80G of the Act since 18.07.2008. The CIT, Gandhinagar's approval order dated 18.07.2008 to this effect forms page 3 of the paper book. Relevant bank statement at page no.1 of the paper book reveals that the assessee/payer had actually paid the sum in question to the above payee on 14.08.2008. The payee trust thereafter issued its donation acceptance receipt on 14.08.2011 (page 2) acknowledging cheque no. 208216 qua the relevant amount. The assessee had been showing the above sum as a credit entry in payee's ledger account throughout the intervening period. It chose to write off the same as a donation in the relevant previous year (page 5) after taking it as opening balance on 01.04.2011. The Assessing Officer first of all observed in para 3.1.1 of the assessment order dated 05.02.2015 that the assessee had placed on record payee's registration only without its acceptance receipt. He then concluded that assessee's books stated the amount in question as opening balance which meant that the same was not paid during the relevant previous year as per Section 80G(1) & (2) of the Act. All this reasoning lead to the impugned disallowance being made in assessee's hands. 3. The CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onation. Thus there was no such donation of any money involved in the year under consideration. In other words, the appellant have waived the right to recover the lendings to the trust in the year under consideration, and this right to waive the right cannot be said to be the donation given by the appellant. 2.7. Further in the appellate proceeding the appellant has submitted copy of the receipt datedl4.08.2011 in respect of the donation issued by the trust which has not been produced before the AO in the assessment proceedings. Thus the receipt was an additional evidence filed first time before this office for consideration without making any written request for admission of the additional evidence under rule 46A of IT Act. Hence, in absence of the procedure followed by the appellant in this regard and without knowing the good and sufficient reasons for not producing this evidence in the assessment proceedings the additional evidence submitted is not accepted and hence the same is rejected. 2.8. In view of the aforesaid discussion, the disallowance of the deduction made by the AO is found correct and justified and hence the same is confirmed." 4. Heard rival contentions. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee having actually transferred the money to donee trust through banking channel only on 14.08.2008. Its books recognized the said amount on asset side till the relevant previous year wherein it decided to forgo its loan right by way of donating the amount in question to the donee in lieu of the corresponding acceptance receipt. We are of the opinion that both the lower authorities have erred in law as well as on facts in this peculiar circumstances to interpret the relevant statutory provision Section 80G of the Act in an unsustainable manner which tantamounts to denying the necessary relief in both assessment years i.e. the year of actual payment as well as that of getting the necessary donation receipt. In our considered opinion, the purpose of using the crucial expression "in relevant previous year" in statute is to ensure actual payment on or before the relevant previous year rather than altogether rejecting a case alike the instant facts only. We therefore accept assessee's first substantive ground to delete the impugned Section 80G disallowance of Rs. 11, 11, 111/- under challenge. 7. The assessee's next substantive ground seeks to reverse both the lower authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d advances was principal object of the company's business. It was further contended that the advance made to Bhagyam Industries Pvt Ltd & Dolphin Metal (I) ltd. were in ordinary Course of assessee company's business and that the advance were made through Manish Shah director of Gyscoal Alloys Ltd. (an associate company in which directors of assessee company are also directors) who was expected to pursue the repayment in case of default or delay, however, Shri Manish Shah expired on 21.08.2014 after suffering from cancer and hence, the company could not pursue the recovery. In respect of Dolphin Metal (I) Ltd since there were no assets left with the company after paying secured debtors of bank on sale of assets and hence, there was no alternative but to write off the amount as non-recoverable. In respect of Bhagyam Industries, the where about could not be located and hence, the amount was written off as non-recoverable and since the advances Were entirely genuine, the same were required to be allowed as written off against company's business income. 3.2.1. The replies and contentions of the assessee company are considered and not found to be acceptable on account of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear relevant to previous year 2011-12 i.e. in subsequent to the year in which assessee claimed to have advanced the funds & became irrecoverable, it is seen that the said Dolphin Metal India Ltd had paid huge amounts of Rs. 90, 38, 062/- as rolling charges from April 2011 to March 2012 which proves that the debt could not have become bad at the time when assessee wrote off the amount claiming the same as irrecoverable. Hence, the claim in respect of the said party is found to be non-genuine. 3.2.3 In light of the above, it is factually evident that the amounts claimed as sundry balances written off on account of non-recoverable loans and advance made to Dolphin Metal (Industries) Ltd & Bhagyam Industries P Ltd were not made in ordinary course of assessee company's business & hence, not allowable as deduction. 3.2.4 Notwithstanding the above, it is also pertinent to mention that assessee company's non-recoverable loans & advances were in the nature of capital loss & hence, are not allowable as deduction against the assessee company's revenue receipts & income taxable for the year under consideration. In this regard, reliance is placed on the following decisions: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me from other sources. The entire claim of Rs. 1, 00, 00, 000/- is hereby rejected and the amount is hereby added to the assessee's total income." 3.2. Appellant's submission:- The relevant extracts from the submission of the appellant are reproduced here under:- 2) "The Second ground of appeal is with regard to disallowance of Rs. 1, 00, 00, 000/- made by A.O. in respect of sundry balances written off during this year. It is submitted that the Appellant had advanced money of Rs. 60, 00, 000/- to Bhagyam Industries P. Ltd in June , 2009 and Rs. 40, 00, 000/- to Dolphin Metal (India) Ltd. in April, 2010 as advances in normal course of business. The copies of ledger account of both the parties from AY 2010-11 to AY 2012-13 along with bank statement highlighting entries of advances given are enclosed herewith on Page No. 4 to 9. Further the above advances given to both the parties were in the ordinary course of business to earn interest income, as the Appellant is engaged in money lending business, which can also be verified from the copy of Memorandum which is enclosed on Page No. 10 to 15. The Ld. A.O. has stated various objections on Page 4, Para 3.2.1 , which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted Tradecom has filed a suit against Dolphin Metal (I) Ltd for its recovery of dues for the similar year under consideration. The evidences regarding suits filed by Associated Tradecom are also enclosed herewith as per Page No. 25 to 40, which proved beyond the doubt that the party Dolphin Metal (I) Ltd is a defaulter and claim of the Appellant is genuine and legal one. The Ld. A.O. has relied on various decisions as cited on 6, Para 3.2.4, which are not at all applicable in assessee's case , as the above loans given to both the parties in normal course of business , which is clearly justifiable from the above submission as well as evidences enclosed herewith. In view of this, the entire claimed of Rs. 1, 00.00, 000/- written as bad debt may please be considered as genuine business loss and be allowed accordingly." 3.3. The appellant had also made the further written submission vide its letter dated 01 /02/2016 and the same have also been considered. 3.4. Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made the disallowance of claim of balance written off of Rs. 1, 00, 00, 000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the guidelines framed by the securities and exchange board of India (SEBI) from time to time. B.2 To form, constitute, float lend money to assist and control similar associations or undertakings whatsoever. B-15 To act as distributors, dealers, exporters, importers, agents and to undertake and carry on anywhere in India or abroad any or all the trades and business of ginners, packers, balers, spinners, weaver, processors and manufacturers of all types of yam, fibres, fabrics, cotton, wool, silk, flax, hemp, jute, cellulose and non cellulose products, nylon, polyster whether textile, netted or looped and also fibrous or textile substances altering, adding, bleaching, blending, carbonizing, calendaring, converting, colouring, curing, creeping, dyeing, doubling, dipping, dewatering, developing, enlarging, extracting, fishing, improving, knitting, knocting, , manipulating, mercerizing, making, printing, preparing, reconditioning, refining, sizing, sourcing, sanforizing, treating, twisting, thinning, texturising, watering, washing, working, utilizing. B.33 To lend, invest or otherwise employ or deal with money belonging to or entrusted to the company in securities and sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m Industries Pvt Ltd. have been taken from the said party as a security as indemnity. For the sake of argument even if it is assumed that the appellant has granted the advances in the ordinary course of business of financing, in that case the interest income could have been derived since granting loan to Bhagaym Industries in June 2009 and Dolphin Metals India Ltd. in June 2010. But by not deriving any interest income from these parties the appellant's contention of the business of finance and lendings in the ordinary course of business is not established. Even as per Clause B - 15, the lendings on the terms to be decided between the appellant and the customers or other companies dealing with the appellant granted in respect of the guarantee and the performance of any contract could be regarded as business in ordinary course as per the Memorandum of Association. However, in the appellant's case neither any terms and condition of lendings have been brought on record, nor it has been proved that those two parties were customers or having any dealing with the appellant company. Therefore, these lendings could not be said to be covered in the ordinary course of business. 3.8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance made by the AO is confirmed." 8. We deem it appropriate first of all to deal with relevant documents on record. Paper book pages 6 to 50 comprise of assessee's memorandum including its money lending activity clause, copy of ledger accounts pertaining to both entities M/s. Bhagyam Industries Pvt. Ltd. and M/s. Dolphin Metal (India) Ltd. right from assessment year 2010-11 up to the impugned assessment year alongwith necessary bank statements highlighting the advances in question to have been actually given through banking channel, corresponding loan agreements, evidence indicating civil suit filed by one M/s. Associated Tradecon against the said latter entity as well as initiating Section 138 cheque dishonour criminal proceedings, latter company's incorporation as per CIN allotted under Companies Act and its blank cheque(s) given as collateral security; respectively. 9. We now proceed to examine the instant issue in light of relevant factual backdrop as emanating from preceding paragraphs. There does not appear to be much dispute about the basic fact on record. The assessee had actually advanced the two sums in question of Rs. 60lacs and Rs. 40lacs to M/s. Bhagyam Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not specified does not in our opinion form the sole reason to disbelieve all the said facts and circumstances indicating the assessee to have actually paid the amount in question through banking channel by way of a loan agreement. The payee concerned did not return the said amount for almost three years. We quote hon'ble apex court's landmark judgment in Chainrup Sampatram v. CIT (1953) 24 ITR 481 (SC) settling the law that anticipated losses can be booked at first sign of probability. We thus observe that non recovery of the amount in question for a continuous time period of three years formed a sufficient reason for the assessee to write off the corresponding amount of Rs. 60lacs pertaining to the said former entity M/s. Bhagyam Industries (supra). 11. It further transpires that assessee's case qua write off regarding latter entity M/s. Dolphin Metal (India) Ltd. is much stronger than that of former one accepted hereinabove. Case records suggest that the said entity had been facing both the civil as well as Section 138 prosecution proceedings for having not discharged its liability in case of M/s. Associated Tradecom. Page 48 of the paper book reveals that this latter entity h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment orders of the earlier years that the assessee used to give advances in connection with the business activity of the assessee. Therefore, when the business of the assessee was closed and after his death there was no chance of recovery of debts as given in the ordinary course of the business then it cannot be said that the decision taken by the legal heirs of the assessee is not an honest decision. It is pertinent to note that even if it is considered that the advances were given for film production but the same is in the nature of working capital of the assessee and when the business was closed and there is no scope for revival then this is loss of working capital and not in the capital filed as such. Even otherwise when the legal representatives of the assessee have written off the balances as appearing on the asset side of the balance sheet as well as the advance and loan appearing in the liability side of the balance sheet simultaneously then accepting one of the Act of writing back and not accepting the write off unrecoverable amount is contrary to the Rule of consistency or uniform principle on the part of the AO. The AO should have adopted the same principle while dealin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the money so lost to the assessee was rightly held by the Commissioner and the Tribunal to be a trading loss. Learned counsel for the Revenue, however, contended that the decision of this court in the case of CIT v. Coimbatore Pictures (P.) Ltd. [1973] 90 ITR 452 should govern this case. The fact that the assessee therein was also a distributor even as the assessee here is a distributor, does not imply that that decision, without anything more, will be applicable to this case as well. A decision is to be regarded as a precedent for its ratio decidendi and not for the facts in relation to which such ratio was laid down. The ratio of that case as we read it is that before a deduction can be claimed on the ground of business loss, the loss should have been incurred in the course of business, and it should be in the nature of revenue loss. We are in entire agreement with that proposition. On the facts of this case, the loss to the assessee being a revenue loss which had been incurred in the course of business, the assessee was entitled to deduct the same under section 37 of the said Act. We answer the question referred to us in favour of the assessee and against the Revenue." 7. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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