Income Tax Appellate Tribunal - Delhi
Bhartiya Vehicles & Engineering Ltd., ... vs Department Of Income Tax on 15 April, 2010
ITA NO. 3340/DEL/2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "A" NEW DELHI
BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER
AND
SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER
I.T.A. No. 3340/Del/2010
A.Y. : 2007-08
DCIT, Circle 2(1), vs. Bhartiya Vehicles & Engineering
Room No. 398D, CR Building, Ltd.,
New Delhi 41-A, Friends Colony East,
New Delhi - 110 065
(PAN/GIR NO. : AAACB0177G)
(Appellant ) (Respondent )
Asseessee by : Sh. R.K. Mehra, CA
Department by : Ms. Anusha Khurana, Sr. D.R.
ORDER
PER SHAMIM YAHYA: AM This appeal by the Revenue is directed against the order of the Ld. Commissioner of Income Tax (Appeals) dated 15.4.2010 pertaining to assessment year 2007-08.
2. The grounds raised read as under:-
"1. The Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting addition of ` 16,34,065/- on account of debtors written off ignoring the fact that unrealized rent cannot be claimed as bad debt under section 36(1)(vii) of the Act.
2. The Ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in deleting addition of ` 25,00,000/- on 1 ITA NO. 3340/DEL/2010 account of Advance Written Off ignoring the fact that the assessee was not engaged in business of money lending and it was a case of interest free loan to subsidiary company which does not qualify for deduction as bad debt written off u/s. 36(1)(vii) read with section 36(2) of the Act.
3. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal."
3. Apropos addition of ` 16,34,065/-
16,34,065/-
In this case Assessing Officer noted that assessee company has debited an amount of ` 16,34,065/- and ` 25,00,000/- to the P&L account on account of 'debtors written off' and 'advances written off' respectively. Assessee was asked to submit the explanation in this regard. With reference to debtors written off of ` 16,34,025/-, assessee submitted that it is of rental income due from Archana Airways Ltd. which was part of other income and surrendered as its income in their return of income. Assessing Officer observed that the contention of the assessee is not acceptable due to the reason that rental income is to be taxed under the head income from house property. He further submitted that unrealized rent can neither be claimed as bad debt nor it can be claimed as business loss under the head 'profit and gain of business or profession' as per provisions of IT Act. Accordingly, Assessing Officer held that the claim on account of debtors written off at ` 16,34,065/- is disallowed and added back to the business income of the assessee.
4. Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) gave a finding that a perusal of the profit and loss accounts 2 ITA NO. 3340/DEL/2010 and the statements showing computation of total income would reveal that the rental income was always declared as business income and were assessed to tax as such by the learned assessing officer. In none of these years the Assessing Officer had ever raised any issue in this regard. Ld. Commissioner of Income Tax (Appeals) further observed that the assessee has been consistently showing it as business income and the revenue has been accepting the same in the earlier years. Ld. Commissioner of Income Tax (Appeals) further held that having assessed rental income as business income in the past the conditions laid down in sec. 36(2)(i) stands satisfied. Moreover, since the debt has been written off in the books of accounts, the requirement of section 36(1)(vii) are also satisfied. Accordingly, Ld. Commissioner of Income Tax (Appeals) held that the claim of bad debts of ` 16,34,065/- was allowable.
5. Against the above order the Revenue is in appeal before us.
6. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that Ld. Commissioner of Income Tax (Appeals) has given a finding that assessee has been offering the impugned income as business income in the past and the same has been assessed as such. Under the circumstances, the same has been written off as bad debt, the same has to be allowed, as per the provision of section 36(2)(i) and 36(1)(vii). Accordingly, we do not find any infirmity in the order of the Ld. Commissioner of Income Tax (Appeals) and uphold the same on this issue.
7. Apropos addition of ` 25,00,000/-
25,00,000/-
The amount of ` 25,00,000/- represented to the advance given to subsidiary company. The same was written off as bad debt. 3
ITA NO. 3340/DEL/2010 Assessing Officer observed that the amount was not a debt which arose in the normal course of business of the company nor did it represent money lent by the assessee company in the course of banking or money lending business. Assessing Officer observed that the condition laid down in Section 36(2)(i) of the Act that the debt or part thereof should have been taken into account in computing the income of the assessee of the previous year in which it was written off or of an earlier previous year was not satisfied. Assessing Officer further found that there was no basis to show as to how the loans and advances constituted business loss or bad debts in the facts and circumstances of the case of the assessee. He observed that assessee is a manufacturer and there was nothing to indicate that the assessee used to lend money in the ordinary course of its business. Hence, he observed that since the conditions of section 36(2) r.w.s. 36(1)(vii) of the Act are not satisfied, the advance could not be claimed as bad debts written off. Assessing Officer further observed that the claimed advance of ` 25,00,000/- can also not be claimed as business loss. In this regard he referred to the judgement of the Hon'ble Apex Court in the case of C.I.T. vs. Abdullabhai Abdulkadar (1961) 41 ITR 545 (SC). In this case Hon'ble Court had held that in the case of bad debts arising out of advances made in a business or profession, the deciding point is whether advances are made for the purpose of business or profession or whether they are related to the business or profession or results thereon. In the background of the aforesaid discussion, Assessing Officer held that the advances written off amounting to ` 25,00,000/- is held as a loss of capital nature and is disallowed as deduction.
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ITA NO. 3340/DEL/2010
8. Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) observed that the advances written off of ` 25,00,000/- was lent in the course of money lending business. In this regard, Ld. Commissioner of Income Tax (Appeals) referred to the clause no. 17 of the Memorandum and Articles of Association which allowed the assessee to carry on the business of money lending. Ld. Commissioner of Income Tax (Appeals) further observed that it is not in dispute that this was the first transaction in the course of the money lending business though such business was discontinued because of adverse results. Ld. Commissioner of Income Tax (Appeals) further observed that money lending and the commercial exigencies are combined in this case. He further observed that in the case of money lending business the writing off as bad debt under section 36(1)(vii) read with section 36(2)(i) are otherwise allowable as deduction. Ld. Commissioner of Income Tax (Appeals) further referred to the decision of the Hon'ble Apex Court in the case of SA Builders vs. C.I.T. reported in 288 ITR 1 (SC). Ld. Commissioner of Income Tax (Appeals) held that the ratio of the principles of law laid down in the above said case before the Hon'ble Supreme Court is that in case the holding company is having deep interest in the subsidiary company, the interest paid by the holding company on the money borrowed and used by the 5 ITA NO. 3340/DEL/2010 subsidiary for business is allowable as deduction. Ld. Commissioner of Income Tax (Appeals) opined that this principle shall also apply in case the loss is to be claimed as deduction u/s. 36(1)(vii) r.w.s. 36(2) of the Act. Ld. Commissioner of Income Tax (Appeals) further observed that the fact relating to Archana Airways Ltd. being the subsidiary company of the assessee company is not in dispute which proves the commercial angle in advancing money to the said subsidiary company. Ld. Commissioner of Income Tax (Appeals) accordingly, held that he was inclined to allow the claim of ` 25,00,000/- as allowable deduction u/s. 36(1)(vii) as bad debts written off r.w.s. 36(2) of the IT Act.
9. Against the above order the Revenue is in appeal before us.
10. We have heard the rival contentions in light of the material produced and precedent relied upon. We find that assessee in this case has lent a sum of ` 25,00,000/- to the subsidiary company Archana Airways. It has been claimed that the amount had been advanced in the course of the money lending business. To substantiate this ground, it has been urged that clause no. 17 of the Memorandum and Articles of Association had allowed the assessee to carry on the business of money lending. We find that except for this mention in the Memorandum and Articles of Association assessee has not produced any documents whatsoever pertaining to the said loan 6 ITA NO. 3340/DEL/2010 transaction. It is an admitted position that it was the only transaction of money lending done by the company and the company has ceased to do any business of such nature. The assessee has not produced any loan agreement in this regard. On query in this regard, ld. counsel of the assessee submitted that there was no rate of interest specified and there was no resolution also by the said company for grant of fresh loan. The purpose for which the amount of loan was specified is also not being spelt out. In these circumstances, when there are no document whatsoever to support the veracity of the said loan transaction of the said company, in our considered opinion, the action of the Ld. Commissioner of Income Tax (Appeals) is not sustainable. Reference to the decision of the Hon'ble Apex Court in the case of SA Builders vs. C.I.T. reported in 288 ITR 1 (SC) does not support the assessee's case on the facts and the circumstances of the case. In the present case, assessee has given a sum of ` 25,00,000/- to the subsidiary company, there is no loan agreement, no rate of interest specified and no resolution for advancing of the amount and no specification and the purpose for which the loan was to be utilized. In these circumstances, it is clear that it cannot be said that advance was made for the purpose of business of the assessee and that it was related to the business of the assessee. Hence, we set aside the order 7 ITA NO. 3340/DEL/2010 of the Ld. Commissioner of Income Tax (Appeals) and restore that of Assessing Officer on this issue. Thus the disallowance of ` 25,00,000/- by the Assessing Officer is upheld.
11. In the result, the appeal filed by the Revenue stands partly allowed.
Order pronounced in the open court on 16/12/2011.
Sd/- Sd/-
[I.P. BANSAL]
BANSAL] [SHAMIM YAHYA]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Date 16/12/2011
SRB
Copy forwarded to: -
1. Appellant 2. Respondent 3. CIT 4. CIT (A)
5. DR, ITAT
TRUE COPY
By Order,
Assistant Registrar,
ITAT, Delhi Benches
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