TMI Blog2017 (10) TMI 1568X X X X Extracts X X X X X X X X Extracts X X X X ..... case before us. Hence, we hereby direct the Ld.AO to grant deduction being the loss suffered by the assessee as irrecoverable advances with respect to real estate business and thereby delete the addition. Disallowance u/s 40(a)(ia) - Disallowance of interest paid - Whether the provisions of Section 40(a)(ia) shall be attracted when the amount is not 'payable' to a contractor or sub-contractor but has been actually paid? - HELD THAT:- As relying on M/S. PALAM GAS SERVICE VERSUS COMMISSIONER OF INCOME TAX [ 2017 (5) TMI 242 - SUPREME COURT] if the assessee in not deemed to be an assessee in default under the first proviso to sub-section(1) of section 201, then, Section 40(a)(ia) of the Act will not be attracted w.e.f. 1-4-2013 i.e., from the assessment year 2012-13. Hence we hereby remit the matter to the file of the Ld.AO to examine the issue with respect to the applicability of the provisions of Section 40(a)(ia) of the Act in totality and thereafter decide this issue afresh in accordance with law and merits. Appeal of the assessee is partly allowed for statistical purpose. - I.T.A. Nos. 1304/Mds/2016 - - - Dated:- 16-10-2017 - Shri A. Mohan Alankamony, Accounta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 172471 30,00,000/- 5. 06.10.2009 172477 25,00,000/- 6. 04.11.2009 909396 25,00,000/- 7. 04.11.2009 909397 5,00,000/- 8. 04.11.2009 909400 5,00,000/- 9. 27.11.2009 909423 5,00,000/- 10. 27.11.2009 909424 5,00,000/- Total 5,00,00,000/- It was further revealed that the assessee has extended the aforesaid loan to Mrs. Sandhya Mulchandani as interest free loan for purchase of residential property in New Delhi in good faith. Since the assessee s business was primarily to promote and encourage motor sports amongst amateurs and professionals, compete in such events and not in the business of money lending, the Ld.AO disallowed the claim of bad debts. Subsequently the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search Foundations? If so, please provide date and mode of receipt of the same? Yes. Date and mode is given below (a) 17.08.2009 Chq. No.909341 drawn on HDFC Bank Ltd., Chennai : ₹ 3,00,00,000 (b) 19.08.2009 Chq. No.909346 drawn on HDFC Bank Ltd., Chennai : ₹ 50,00,000 (c) 19.08.2009 Chq. No.909347 drawn on HDFC Bank Ltd., Chennai : ₹ 50,00,000 (d) 05.10.2009 Chq. No.172471 drawn on HDFC Bank Ltd., Chennai : ₹ 30,00,000 (e) 06.10.2009 Chq. No.172477 drawn on HDFC Bank Ltd., Chennai : ₹ 25,00,000 (f) 04.11.2009 Chq. No.909396 drawn on HDFC Bank Ltd., Chennai : ₹ 25,00,000 (g) 04.11.2009 Chq. No.909397 drawn on HDFC Bank Ltd., Chennai : ₹ 5,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount advanced in the course of business transaction of the Appellant firm, the various case laws relied upon by the appellant being CIT v. Girish Bhagwat Prasad 265 ITR 772 (Guj.), TRF Ltd. 230 CTR 14 (Se), etc. do not come to the rescue of the Appellant. 21. Alternatively, and without prejudice to the observation in the preceding paragraph, a loan sum can be treated as bad debt, if it were lent by a person in the normal course of money lending business. But the appellant is not a money lender. It does not possess the requisite license to lend money as business. Further, if it were a money lending transaction, the appellant having followed Mercantile system of accounting, as exhibited in column 11 (a) of Form no.3CD-Part B, the interest income accrued, even if not received, should be offered to taxation. While the appellant has failed to undertake the same, the transaction cannot be treated as a debt at the first place and, hence, its write-off does not fall under the purview of S.36(1 )(vii) read with S.36(2)(ii). Therefore, the appellant fails on this count, as well. 4.3 Thereafter relying on the decision of the Hon ble High Court of Bombay in the case of Salem M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 We have heard the rival submissions and carefully perused the materials available on record. There is no doubt that the assessee is engaged in real estate business other than motor racing, etc., because the Ld.AO himself in his order dated 24.02.2015 has specifically mentioned in the title of the order item No. 10 Motor racing and rallying, Real estate . Therefore it is crystal clear that one of the activities of the assessee firm is real estate business. From the facts of the case and the letter addressed to the assessee and the Assistant Commissioner of Tax by Ms. Sandhya Mulchandani supra, it is evident that the amount was advanced interest free by the assessee to Ms. Sandhya Mulchandani for purchase of residential house property in Delhi. Further in the letter addressed by Ms. Sandhya Mulchandani to the assessee dated 29th July 2009, it is not mentioned whether the immovable property is to be purchased in the name of the assessee or Ms. Sandhya Mulchandani. It is pertinent to mention that no business house will give interest free loan to third party without any quit-pro-quo . Therefore there is an implied inference that the assessee s expectation is to participate in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession; shall be chargeable to income-tax under the head Profits and gains of business or Profession . Conversely the loss arising from business has also to be set off from the profits of the business. Further the ratio laid down in the case TRF Limited vs. CIT reported in 230 CTR 14 is applicable in the case of the assessee. In the case TRF vs. CIT supra, the Hon ble Apex Court has held that After 1st April 1989, it is not necessary to establish that the debt in fact has become irrecoverable . Therefore considering the facts and circumstances of the case and the decision of the Hon ble Apex court we are of the considered view that the loss written off by the assessee is genuine and has to be set off from the profit earned by it. Further the case cited by the Revenue has no relevance considering the facts and circumstance of the assessee s case before us. Hence, we hereby direct the Ld.AO to grant deduction of ₹ 5 crores being the loss suffered by the assessee as irrecoverable advances with respect to real estate business and thereby delete the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of the Honourable Punjab and Haryana High Court, in the above case, and also referring to the CBDT Circular No.10/DV/2013 dated 16.12.2013, I dismiss the contentions of the appellant and confirm the addition of ₹ 27,87,184/- made under section 40(a)(ia) by the AO. 5.1 At the outset, we find the issue to be covered by the decision of the Hon ble Apex Court in the case M/s. Palam Gas Service vs. Commissioner of Income Tax, Civil Appeal No.5512 of 2017 vide order dated 03.05.2017 wherein with respect to the question of law Whether the provisions of Section 40(a)(ia) shall be attracted when the amount is not 'payable' to a contractor or sub-contractor but has been actually paid? the Hon ble Apex Court held as follows: In view of the aforesaid discussion, we hold that the view taken by the High Courts of Punjab Haryana, Madras and Calcutta is the correct view and the judgment of the Allahabad High Court in CIT v. Vector Shipping Services (P) Ltd., (2013) 357 ITR 642did not decide the question of law correctly. Thus, insofar as the judgment of the Allahabad High Court is concerned, we overrule the same. Consequences of the aforesaid discussion will be to ans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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