TMI Blog2019 (1) TMI 400X X X X Extracts X X X X X X X X Extracts X X X X ..... t extent and direct the Assessing Officer to allow the claim of write off of advances by the assessee as business loss u/s. 28 of the Act. - Decided in favour of assessee. - ITA NO.4838/MUM/2016 - - - Dated:- 31-12-2018 - SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI N.K. PRADHAN, HON'BLE ACCOUNTANT MEMBER For The Assessee : Shri Madhur Agarwal And Shri Pankaj Jain For The Department : Shri Sushil Kumar Poddar ORDER PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Learned Commissioner of Income Tax (Appeals) 4, Mumbai [hereinafter in short Ld.CIT(A) ] dated 27.04.2016 for the Assessment Year 2009-10. 2. The first ground in the appeal of the assessee is against confirming the action of the Assessing Officer in bringing to tax the advances received by the assessee as income, as against the income shown by the assessee based on completion and release of movies. 3. Ld. Counsel for the assessee, at the outset submitted that the identical issue in appeal is decided against the assessee for the Assessment Year 2006-07 by the Tribunal in ITA. No. 7843/Mum/2010 dated 21.11.2012. 4. On a perusa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the film be completed and successfully released in order to recover the cost as also to save his image and good will as the leading film actor in the industry. It was contended that the film BOOM was released during the year 2003 and it was a failure at the box office due to which Mrs. Ayesha Shroff suffered a huge loss and she was not in a position to repay the creditors. She also undertook production of film SANDHYA which had almost been completed but could not be released due to several legal, technical issues and financial constraints. It was contended that the above two events have caused great financial burden and resulted in complete shutdown of her production house with no scope for any revival. 8. It was contended that assessee funded his wife s production house with intention of recovery of funds advanced for production of the films as also to improve his image as a film actor which was possible only if the films were successful at box office and unfortunately none of the films worked at box office successfully. It was contended that since assessee s wife had borrowed huge amounts from the lenders which could not be paid due to failure of her films, assessee had to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese amounts have been advanced in the normal course of business the mere suomoto write off of the same cannot be allowed as deduction, and thus sustained the order of the Assessing Officer. Against this order the assessee is in appeal before us. 12. The Ld. Counsel for the assessee reiterated the submissions made before the lower authorities. He further submitted that assessee funded Mrs. Ayesha Shroff s production house with an intention of recovery of funds advanced for production of the films as also to improve his image as a film actor which was possible only the films were successful at box office. It is submitted that none of the films did well at box office and she incurred huge loss. It is submitted that this fact should be evidenced from the return of income along with annual accounts filed by Mrs. Ayesha Shroff the assessee s wife for the year ended 31.04.2004 corresponding to the Assessment Year 2004-05. Wherein Mrs. Ayesha Shroff declared loss of ₹.7,66,76,922/- and this return was accepted by the Revenue and assessment was also completed u/s. 143(3) determining the loss of ₹.7,13,00,138/-. 13. Ld. Counsel for the assessee further referring to Page No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. The amounts advanced upto 31.03.2008 stood at ₹.9,01,68,594/- out of these advances during the current Assessment Year M/s. Quest Films returned an amount of ₹.1,09,25,851/-, thereby the total advances made by the assessee to M/s. Quest Films stood at ₹.7,92,42,743/- by the end of the current Assessment Year. Similarly, assessee advanced ₹.2,31,80,631/- upto 31.03.2008 to his wife Mrs. Ayesha Shroff and during the current Assessment Year an amount of ₹.1,10,36,405/- was advanced totaling to ₹.3,42,17,236/- to Mrs. Ayesha Shroff. The total advances made by the assessee upto the end of the current Assessment Year stood at ₹.11,34,59,979/-. 17. The assessee s contention was that these amounts were advanced to the proprietary concern of Mrs. Ayesha Shroff the assessee s wife in order to produce the films in which the assessee acted as hero and to boost his carrier as a film actor. It was also the submission of the assessee that the advances were given in earlier Assessment Years i.e. A.Y: 2001-02 for production of the film BOOM which was not successful at the box office and to recover the loans which were already given, further lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enced. The statements of the Appellant and his wife which were recorded by the AO also corroborate these facts. 6.3. The Appellant has also produced copies of the assessment order of Ms. Ayesha Shroff for AY 2004-05 to substantiate the fact that these films 'Boom' and 'Sandhya' had resulted in huge losses. Copies of the Appellant accounts for AY 2004-05 to 2006-07 also reveal that loans were taken by the Appellant and advanced to Quest Films / Ayesha Shroff. The issue of allowability of interest of the amounts borrowed by the Appellant to advance loans to Quest Film/ Ayesha Shroff and others had arisen in the AY 2005-06 and 2006-07. The AO had held that the amounts were borrowed by the Appellant to discharge personal liabilities, which included advances to Quest Films, Ayesha Shroff and others and therefore the interest was not allowable. On these facts and circumstances, the ITAT while allowing the Appellants appeal has observed as under: During the course of the assessment proceedings, the AO found that the assessee has claimed interest on loan taken from Bank of India to the tune of ₹ 19,74,073/- and from Kokan Mercantile Bank to the tune of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that would justify looking to the nature of profession of assessee. Considering all these facts into totality, we do not find any merit in the submissions of the PR, findings of the Ld. CIT(A) are accordingly confirmed. Ground No.2 of Revenue's appeal is dismissed. 6.4. The ITAT has clearly held that borrowing of amounts to maintain his life style and promoting his image as a film star cannot be said to be personal in nature and therefore the amounts lent by the Appellant to various parties including Quest Films / Ayesha Shroff cannot be considered to be personal loans as held by the AO. 6.5. The decision of the Bombay High Court in the case of CIT V/s. K.M. Mody (141 ITR 903) deals with issue of lending money to a production house were the assesses brother was playing a main role as also guaranteeing the loans taken by the production company from others. In these circumstances, the Bombay High Court held that the personal relationship of the assessee cannot be the only factor in determining whether the loans given were personal in nature or whether they were in the normal course of business. The Court has held that since the amounts were advanced in the normal cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowed amount was donated to a college with a view to commemorate the memory of the assessee's deceased husband after whom the college was to be named. It was held by this Court that the interest on the borrowed fund in such a case could not be allowed, as it could not be said that it was for commercial expediency. Thus, the ratio of Madhav Prasad Jatia's case (supra) is that the borrowed fund advanced to a third party should be for commercial expediency if it is sought to be allowed under section 36(l)(iii) of the Act. In the present case, neither the High Court nor the Tribunal nor other authorities have examined whether the amount advanced to the sister concern was by way of commercial expediency. It has been repeatedly held by this Court that the expression for the purpose of business is wider in scope than the expression for the purpose of earning profits vide CIT v. Malayalam Plantations Ltd. [1964] 53 ITR 140, CIT v. Birla Cotton Spg. Wvg. Mills Ltd. [1971J 82 ITR166 etc. The High Court and the other authorities should have examined the purpose for which the assessee advanced the money to its sister concern, and what the sister concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether the amount was advanced for earning profits. The Appellant has clearly demonstrated that the loan of ₹ 11,34,59,9797- was given for commercial reasons and it is not a personal loan as held by the AO. Therefore, based on the above decision of the ITAT in the Appellants own case for AY 2005-06, 2006-07 the Bombay High Court in the case of K.M. Modi and the Supreme Court decision in the case of S. A. Builders, it is held that the loans aggregating to ₹ 11,34,59,9797- are business advances and not personal loans. 18. These findings of the Ld.CIT(A) that the monies advanced by assessee are in the nature of business advances have not been challenged by the Revenue. However, we find that Ld.CIT(A) sustained the disallowance only for the reason that the assessee has suomoto written off the advances and such suomoto write off is not allowable as deduction u/s. 36(1)(vii) / 37(1) of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. In our opinion the view taken by the Tribunal, that on the facts before it the relief sought by the assessee could be granted to it not only under the head under which the assessee had pitched its claim, but even in the alternative under another head, was correct and the Tribunal was entitled to do so. Under rule 12 of the Appellate Tribunal Rules, the Tribunal in deciding the appeal before it, is not merely confined to the ground set forth in the memorandum of appeal or taken by leave of the Tribunal, but may even rest its decision on any other ground provided before basing its decision on the said new ground, it gives the party affected sufficient opportunity to be heard on that ground. It is not disputed that such an opportunity was allowed to the other side before it had decided in favour of the assessee under section 10(1). On the merits of the said ground also in our opinion the decision of the Tribunal is correct and in the circumstances of the case the assessee was entitled to treat the deductions as a revenue loss in computing its profits of the business under section 10(1), inasmuch as for the purpose of doing its business as an adatiya the assessee had to make thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellate Tribunal held that the investment was made by way of commercial expediency for the purpose of carrying on the assessee's business and that therefore, the loss suffered by the assessee on the sale of the investment must be regarded as a revenue loss. We are of opinion that the Appellate Tribunal is right. 22. As could be observed from above, the Hon'ble Apex Court upheld that, the order of the ITAT in holding that investment made by way of commercial expediency for the purpose of carrying on the assessee s business and the loss suffered by assessee on sale of such investments must be regarded as revenue loss. 23. The Hon'ble Bombay High Court in the case of CIT v. K.M. Mody (supra) considered a situation wherein the assessee advanced moneys to his brother who is a film producer and also stood as a guarantor for the loans obtained by his brother. As per Guarantor Agreement the assessee gave a continuing and irrevocable authority to the financier to recover and to appropriate towards the account of the producer all moneys payable by the financier to the guarantor i.e. Assessee. The financier appropriated the amounts payable by the producer the brother ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the business. The three tests laid down in the said case, viz., (i) that the payment should have been made as a matter of practice which affected the quantum of salary, (ii) that there was an expectation by the employee of getting a gratuity and (iii) that the sum of money was expended on the ground of commercial expediency and in order indirectly to facilitate the carrying on of the business of the assessee have to be read disjunctively and if they are so read, the present case which satisfied the third test should be held as falling under section 10(2)(xv). The High Court was, therefore, in error in holding that the amount involved in the case did not satisfy the test applicable to the expenditure allowable under section 10(2) (xv). 3. The expression 'wholly and exclusively' used in section 10(2)(xv) does not mean 'necessarily'. Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee is entitled to deduction even though there was no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prietary concern of Mrs. Ayesha Shroff and also in her individual capacity to build up the carrier of the assessee as well as to promote the business of Mrs. Ayesha Shroff and also to recovery the moneys already advanced to her which is all goes to show that the moneys were advanced as a measure of commercial expediency. When the moneys are advanced as measure of commercial expediency such advances are in the nature of business advances and the write off such advances by the assessee should be allowed as deduction u/s. 37(1) or u/s. 28 of the Act as business loss. 28. It is the submission of the assessee that till date the moneys advanced to M/s. Quest Films and also to Mrs. Ayesha Shroff could not be recovered and there is no possibility of recovery in near future and therefore the amounts write off by the assessee have to be allowed as business loss appears to be justified. 29. In view of our above discussion, we hold that the Ld.CIT(A) having held that the amount advanced by the assessee are business advances is wrong in holding that the said advances cannot be held as deduction as the assessee had written off advances suomoto. We are in agreement with the Ld.CIT(A) that t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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