Gujarat High Court
Commissioner Of Income Tax - Ahmedabad - ... vs Rao Construction (P) on 25 March, 2013
Author: Akil Kureshi
Bench: Akil Kureshi
COMMISSIONER OF INCOME TAX - AHMEDABAD - III....Appellant(s)V/SRAO CONSTRUCTION (P) LTD....Opponent(s) O/TAXAP/579/2012 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 579 of 2012 ================================================================ COMMISSIONER OF INCOME TAX - AHMEDABAD - III....Appellant(s) Versus RAO CONSTRUCTION (P) LTD....Opponent(s) ================================================================ Appearance: MR.VARUN K.PATEL, ADVOCATE for the Appellant(s) No. 1 MR MANISH J SHAH, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI Date : 25/03/2013 ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI) Challenging the order of the Income Tax Appellate Tribunal dated 09.12.2011, this Tax appeal is preferred proposing following substantial questions of law for our consideration:
1. Whether the facts and circumstances of the case, the learned ITAT has erred in law in confirming the order of the CIT(A) in deleting the disallowance of Rs. 35,66,478/-, made by the Assessing Officer on account of writing off the assets such as cash balance of Rs. 6460/- in current account, Fixed Deposit of Rs.
20,60,293/- and shares of Rs. 15,00,025/- of Visnagar Nagrik Sahakari Bank Ltd. after treating such capital loss as revenue expenditure?
2. Whether in the facts and circumstances of the case, loss on account of writing off the assets such as cash balance of Rs. 6160/- in current account, Fixed Depsoit of Rs. 20,60,293/- and shares of Rs. 15,00,025/- of Visnagar Nagrik Sahakari Bank Ltd. was capital loss or revenue loss?
Both the questions are being considered together as they arise out of the identical issue. Heard learned counsel Mr. Patel for the revenue and Mr. Shah for the assesseee-respondent. Brief facts for understanding the dispute between the parties are necessary to be reproduced:
2.1 The assessee herein had enjoyed the bank guarantee facility from Visnagar Nagrik Sahakari Bank Ltd. The company was required to furnish bank guarantee in accordance with terms of the contract. It was required to produce certain equity shares and place the fixed deposit with the said bank for the said purpose. The assessee had fixed deposited the sum of Rs. 20,60,293/-
with Visnagar Nagrik Sahakari Bank Ltd. and the shares worth Rs. 15,00,025/- lacs were also produced. Balance in the current account was to the tune of Rs. 6,160/-. For the year under consideration, Reserve Bank of India ordered the liquidation of the said bank and the company had written off the balance of fixed deposit, equity share and balance in the current account, in all, to the tune of Rs. 35,66,478/-. When it claimed deduction from the business profit, the Assessing Officer was of the view that this claim was not acceptable. This was so done relying on various decisions of the courts and further more, it also held that there was no clarity as to whether the possibility of any recovery from the bank had totally ceded.
2.2 When challenged before the CIT(A), it set aside the order of the Assessing Officer and upheld the say of the assessee-respondent that the assessee was required to furnish such bank guarantee for obtaining the tender from the Government of Gujarat. Since it could not have obtained the bank guarantee without purchase of share and placing the fixed deposit, this was not investment but a condition precedent for the bank guarantee, and therefore, this was done in a capacity not as an owner of the asset but as a trader.
2.3 Revenue challenged the same before the Income Tax Appellate Tribunal, which, concurring with the CIT(A) relied on the two decisions of the Apex Court, also confirmed such findings.
It is argued by learned counsel Mr. Patel for the revenue strenuously that there should be interference in the orders of both CIT(A) as well as the Tribunal as this was essentially a capital loss and not a loss incidental to the business. He further pointed out that, it is, however, also not emerging from the record that such amount could not have been recovered eventually by the assessee-respondent from the bank. He also further argued that decision sought to be relied upon by the revenue authorities was concerned with the shares and they have been wrongly applied to the case of the present assessee-respondent.
Per contra, Mr. Shah submitted that both the authorities rightly applied the well settled principles to the facts of the present assessee. This was essentially the investment needed to be made by the parties of carrying on the business without which could not have obtained the contract of the Government.
On thus considering submissions of both the sides and also on examining the material on the record, we are of the opinion that no interference is required. As could be noticed from the record, requirement was of the Government to furnish the bank guarantee from the nationalized bank or the scheduled bank. The Assessee had availed such bank guarantee facilities from the Visnagar Nagrik Sahakari Bank Ltd. and the sanctioned limit of such bank was of Rs. 2 crores. The prescribed norms of the bank had noted the purchase of the shares and margin money for using the bank guarantee also was required to be kept as a fixed deposit. This co-operative bank, when eventually was declared as sick bank, was unable to repay the deposits, the membership of the said bank also was cancelled and the steps were taken pursuant to the order of the Reserve Bank of India. Assessee-company, thereafter, had written off the balance of amount of Rs. 35,66,478/-. In such circumstances, both CIT(A) as well as the Tribunal were absolutely justified in applying the ratio laid down by the Apex Court in case of Ramchandra Shivnarayan Vs. CIT (1978) (111 ITR 263)(SC) as also in case of Indian Aluminium Co. Ltd. Vs. CIT 84 ITR 735(SC) to hold that such expenditure were needed to be spent by the assessee for the purpose of carrying on its business and are incidental to the business, therefore, any loss shall have to be considered as the revenue cost and not the capital cost.
There being no infirmity, tax appeal is dismissed.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) Jyoti Page 5 of 5