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TMI Blog2017 (10) TMI 1568X X X X Extracts X X X X X X X X Extracts X X X X ..... facts of the case are that the assessee is a firm engaged in the business of motor racing, rallying and real estate business, filed its return of income for the assessment year 2012- 13 electronically on 30.09.2012 admitting total income of Rs. 27,37,490/-. Initially the return was processed U/s.143(1) of the Act. Subsequently the case was selected for scrutiny and the finally the assessment was completed U/s.143(3) of the Act on 24.02.2015, wherein the Ld.AO made the above mentioned disallowances. 4. Ground No.2(i): Disallowing the claim of bad debts of Rs. 5 crores:- During the course of scrutiny proceedings it was noticed by the Ld. AO that the assessee had claimed deduction of Rs. 5 crores under the head bad debts written off in the books of accounts. On query it was submitted that the amount of Rs. 5 crores was advance given to Mrs. Sandhya Mulchandani during the Financial Year 2009-10 onwards on various dates as detailed herein bellow:- S. No. Date Cheque No. Amount 1. 17.08.2009 909341 3,00,00,000/- 2. 19.08.2009 909346 50,00,000/- 3. 19.08.2009 909347 50,00,000/- 4. 05.10.2009 172471 30,00,000/- 5. 06.10.2009 172477 25,00,000/- 6. 04.11.2009 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Tax, Business Circle XV, Chennai. Room No. 623-A, VI Floor, Wanaparthy Block (New Block), Aayakar Bhawan, No. 121, Nungambakkam High Road, Chennai-600 034. e-mail: [email protected] ph.044-28338636 In the matter of Wallace Sports and Research Foundations. Dear Sir, In reference to above, I hereby give the requested details: 1. Whether you have taken the amount of Rs. 5,00,00,000/- from M/s. Wallace Sports and Research 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 : Rs. 3,00,00,000 (b) 19.08.2009 Chq. No.909346 drawn on HDFC Bank Ltd., Chennai : Rs. 50,00,000 (c) 19.08.2009 Chq. No.909347 drawn on HDFC Bank Ltd., Chennai : Rs. 50,00,000 (d) 05.10.2009 Chq. No.172471 drawn on HDFC Bank Ltd., Chennai : Rs. 30,00,000 (e) 06.10.2009 Chq. No.172477 drawn on HDFC Bank Ltd., Chennai : Rs. 25,00,000 (f) 04.11.2009 Chq. No.909396 drawn on HDFC Bank Ltd., Chennai : Rs. 25,00,000 (g) 04.11.2009 Chq. No.909397 drawn on HDFC Bank Ltd., Chennai : Rs. 5,00,000 (h) 04.11.2009 Chq. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Magnesite (P) Ltd. vs CIT reported in 321 ITR 43, decisions of the Hon'ble Supreme Court in the case of CIT,Bombay vs. Abdullabhai Abdulkadar reported in 41 ITR 545 (SC) and Badridas Daga vs. CIT (1958) reported in 34 ITR 10 (SC), the Ld.CIT(A) confirmed the order of the Ld.AO by holding as under:- "The lending of Rs. 5 crores to Mrs Sandhya Mulchandani may have some connection with the business of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 gain arising out of the purchase and sale of the immovable property. From the facts of the case it also appears that the job of purchasing the property was vested with Ms. Sandhya Mulchandani. Moreover any person can perform as a real estate agent because there is no prescribed qualification for indulging in such activity. Thus according to the assessee, in the transaction, the amount advanced has become irrecoverable, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 5 crores being the loss suffered by the assessee as irrecoverable advances with respect to real estate business and thereby delete the addition. 5. Ground No. 2(ii): Disallowance of interest paid to M/s. Religare Finvest Limited by invoking Section 40(a)(ia) of the Act amounting to Rs. 27,87,184/-:- During the course of scrutiny assessment, it was found that the assessee had claimed expenditure of Rs. 27,87,184/- on account of interest paid to M/s. Religare Finvest Limited. It was also revealed that the assessee had not deducted 'tax at source' on the interest paid to M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 answer the question against the appellant/assessee thereby approving the view taken by the High Court." Therefore following the decision of the Hon'ble Apex court, we hereby hold the issue in favour of Ld.Revenue. However the third proviso of Section 40(a)(ia) of the Act states as under:- "Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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