9911796707
TMI Blog2018 (12) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... come on 10.10.2001 declaring a total income of Rs. 1,33,83,287/-. The return was processed under Section 143(1) of the Income Tax Act, 1961 (for brevity, the Act). Subsequently, the notices under Sections 143(2) and 142(1) of the Act were issued. The assessment was completed under Section 143(3) of the Act on 29.3.2004 and the total income was determined at Rs. 1,44,83,290/-. While doing so, the Assessing Officer disallowed a sum of Rs. 16,05,000/- representing bad debts written off by the assessee. 5. The assessee's case was that in the normal course of business, they advanced money to a firm namely M/s.Deccan Pictures Private Limited for a Telugu movie project. According to the assessee, the project did not take off and the assessee was not in a position to realize the amount so advanced by them for the said venture. Hence, the assessee had written off the amount as normal business expenditure. 6. For the assessment year 2001-02, the assessee claimed a sum of Rs. 16,05,000/- representing bad debts as deduction. However, the Assessing Officer disallowed the same. On appeal before the Commissioner of Income Tax (Appeals) [for short, the CIT (A)], the assessee contended that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en written off as irrecoverable in the accounts for the purposes of the said Clause. 10. Explanation 1 states that for the purposes of Clause (vii), any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee. Explanation 2 states that for the removal of doubts, it is clarified that for the purposes of the proviso to Clause (vii) to Sub-Section (2) of Section 36 of the Act and Clause (v) to Sub-Section (2) of Section 36 of the Act, the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under Clause (viia) and such account shall relate to all types of advances, including advances made by rural branches. Sub-Section (2) of Section 36 states that in making any deduction for a bad debt or part thereof, the provisions under Clauses (i) to (v) shall apply. In the case on hand, Clause (i) would be relevant, which states that 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 de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances were out of the excess liquidity available with the assessee in order to earn extra income from the excess funds available. Furthermore, the partnership deed, by which, the assessee was established, provided a clause for the assessee to invest the surplus funds on ventures like that of movie production. Thus, the CIT (A) concluded that the assessee advanced money to its sister concern possibly for producing a film and perhaps, it could not get back the advance and therefore, they had written off the entire sum due and ultimately agreed that the assessee's case squarely fell under Section 36(1)(vii) of the Act and it could not be disallowed. Accordingly, the appeal filed by the assessee was allowed. 15. On appeal by the Revenue, the Tribunal, while reversing the order passed by the CIT(A), relied upon the decision of the Tribunal of Mumbai 'G' Bench in the case of Grindwell Norton Ltd. Vs. DCIT [(2004) 91 ITD 412] and held that the amount advanced to sister concern was not for business purposes of the assessee and therefore, the amount so advanced, when lost, would not constitute trading loss and accordingly rejected the plea of the assessee. The Tribunal also pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 36(2) of the Act, which provides for money lending business carried on by the assessee. The CIT(A) had given a factual finding that the amount advanced to M/s.Deccan Pictures Private Limited, Telugu was not out of borrowed funds, but out of surplus income of the assessee firm. Therefore, the case of the assessee would squarely fall within the ambit of Section 36(1)(vii) of the Act. 21. Now, the question would be as to whether the Tribunal was justified in rejecting the case of the assessee by relying upon the decision of the Tribunal at Bombay in the case of Grindwell Norton Ltd. 22. Firstly, we find that the facts of the said case are totally different, as, in the said case, the claim for deduction was under Section 28 of the Act. The Tribunal at Bombay, after taking into consideration the factual situation, held that the claim of the assessee therein had to be considered under Section 37(1) of the Act and not under Section 28 of the Act as claimed by the assessee therein. Therefore, under the said context, the Tribunal at Bombay came to the conclusion that the assessee therein was not entitled to deduction of irrecoverable advances under Section 37 of the Act. Therefore, we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowable as a business expenditure if it was incurred on grounds of commercial expediency. It was pointed out that it is not the opinion of the Court that in every case, interest on borrowed loan had to be allowed if the assessee advances it to a sister concern and that it all depends on the facts and circumstances of the respective case. It was also pointed out that a holding company has a deep interest in the subsidiary, that if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would ordinarily be entitled to deduction of interest on its borrowed loans. 28. On the other hand, Mrs.R.Hemalatha, learned Senior Standing Counsel for the Revenue submits that while issuing notice on 30.4.2012, in the applications for condonation of delay and also on the special leave petitions in the case of ACIT Vs. Tulip Star Hotels Ltd. [reported in (2012) 21 Taxmann.com 97], the Hon'ble Supreme Court doubted the decision in the case of S.A.Builders and held that it needs reconsideration. 29. However, the decision in the case of S.A. Builders holds the field as on date and can be relied upon by this Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
