Income Tax Appellate Tribunal - Mumbai
Godrej & Boyce Mfg Ltd, Mumbai vs Department Of Income Tax on 31 December, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL,
MUMBAI BENCH "G", MUMBAI
BEFORE SHRI B.R. BASKARAN, ACCOUNTANT MEMBER AND
SHRI SANJAY GARG, JUDICIAL MEMBER
ITA Nos.4538 & 4539/M/2011
Assessment Years: 2003-04 & 2004-05
M/s. Godrej & Boyce Mfg. Co. The Additional Commissioner
Ltd., of Income Tax,
Pirojshanagar, Vs. Range 10(2),
Vikhroli, Aayakar Bhavan,
Mumbai - 400 079 M.K. Road,
PAN: AAACG1395D Mumbai - 400 020
(Assessee/appellant) (Respondent)
ITA No.4754/M/2011
Assessment Year: 2003-04
Asst. Commissioner of Income M/s. Godrej & Boyce Mfg. Co.
tax - 10(2), Ltd.,
th
Room No.432, 4 Floor, M/s. Godrej Industries Limited,
Aayakar Bhavan, Vs. Pirojshanagar,
M.K. Road, Eastern Express Highway,
Mumbai - 400 020 Vikhroli (E)
Mumbai - 400 079
PAN: AAACG1395D
(appellant) (Respondent)
Assessee by : Shri P.J. Pardiwall. A.R. & Shri Nitesh Joshi, A.R.
Revenue by : Smt. Parminder, D.R. & Shri Premanand, D.R.
Date of Hearing : 22.10.2014
Date of Pronouncement : 31.12.2014
ORDER
Per Sanjay Garg, Judicial Member:
The above titled cross appeals preferred against the orders of the Commissioner of Income Tax (Act) [hereinafter referred to as the CIT(A)] dated 17.03.2011 relevant to assessment years 2003-04 and 2004-05 are being ITA Nos.4538 & 4539/M/2011 2 ITA No.4754/M/2011 M/s. Godrej & Boyce Mfg. Co. Ltd.
disposed off with this common order. For the sake of convenience, facts have been taken from assessee's appeal bearing ITA No.4538/M/2011 for assessment year 2003-04.
ITA No 4538/M/2011 for A.Y. 2003-04 (Assessee's Appeal)
2. The assessee has taken the following grounds of appeal:
"1.0 The Assessing Officer erred in holding and the learned CIT(A) erred in upholding the grant of depreciation at Rs.39,75,12,704/- as against Rs.65,90,99,922/- claimed by the Appellant in its return of income.
2.0 The learned CIT(A) failed to appreciate that under Explanation 2B to section 43(6) of the Act, the written down value of the block of assets in the hands of the Appellant (the resulting company) would be such written down value of the assets as appearing in the books of account of Godrej Appliances Limited (the demerged company) immediately before the demerger.
3.0 The learned CIT(A) erred in holding that amendment in Explanation 2B to section 43(6) of the Act by Finance Act, 2003 with effect from assessment year 2004-05 will have retrospective effect and will also apply to a demerger in assessment year 2003-04.
4.0 The learned CIT(A) erred in not deciding the additional ground relating to non chargeability of interest under section 234B of the Act.
5.0 The learned CIT(A) ought to have held that no interest under section 234B of the Act could be charged in the facts of the present case."Grounds No.1 to 3
3. A perusal of the above grounds of appeal reveals that the effective issue raised by the assessee is relating to the interpretation/applicability of the provisions of Explanation 2B to section 43(6) of the Act as were applicable for the year under consideration. The assessee is aggrieved by the action of the lower authorities in not adopting the written value of block of assets as per books of account of the assets taken over from the demerged company as against the adopting of the written down value as per the ITA Nos.4538 & 4539/M/2011 3 ITA No.4754/M/2011 M/s. Godrej & Boyce Mfg. Co. Ltd.
provisions of Income Tax Act of the transferred assets of the demerged company adopted by the lower authorities.
4. The facts of the case, as brought out from the impugned order, are that the assessee claimed depreciation aggregating to Rs.65,90,99,922/-. In the Annexure 3 of tax audit report the assessee made the following disclosure:-
"The assets transferred from the demerged company viz. Godrej appliances Ltd. pursuant to the scheme of arrangement under section 291 and 394 of the companies Act 1956, have been taken over at the written down value of the block of assets as appearing in the books of accounts of the demerged company immediately before the demerger. (As per explanation 2B to section 43 (6) of the Act.) The written down value of the block of assets as appearing in the books of accounts of the demerged company has been reduced by Rs.14,35,87,519/-, to incorporate the effect of interest capitalised by the assessee in the books of accounts and claimed as revenue expenses under the income tax in the earlier previous year's."
5. During assessment proceedings, the Assessing Officer (hereinafter referred to as the AO) asked the assessee to explain as to why the relevant asset transferred to the assessee company should not be considered at the income tax written down value for the purpose of computing the depreciation u/s section 32 of the Act. In response, the assessee further explained to the AO that:-
-A scheme of arrangement between the assessee company, Godrej capital Ltd, Godrej appliances Ltd and their respective shareholders was approved by the Honourable High Court of Bombay.
-Pursuant to the said scheme of arrangement, the refrigerator and washing machine business of Godrej appliances Ltd, including all the assets and liabilities and obligations relating thereto are transferred to the assessee company.
-Consequent thereto the block of assets of the assessee company (the resultant company) was increased by the written down value of the assets as per the books of accounts of Godrej appliances Ltd (the demerged company) and depreciation was claimed on the basis of the written down value of the block of assets arrived at after such addition. -In this regard we invite your attention to explanation 2B to section 43 (6) of the Act which deals with the provisions relating to additions made to the block of assets of the resulting company i.e. the assessee company, pursuant to the scheme of demerger.
-It was therefore apparent that as per the said explanation 2B to section 43(6), the written down value of the assets transferred as appearing in the books of accounts of the demerged company was to be considered in the books of accounts of the resulting company i.e. the assessee company.
6. The assessee further explained that though the words 'book value of ITA Nos.4538 & 4539/M/2011 4 ITA No.4754/M/2011 M/s. Godrej & Boyce Mfg. Co. Ltd.
assets' were replaced by 'written down value of assets' in explanation 2A by the Finance Act 2000, a similar change was not made in explanation 2B, which deals with the computation of the written down value of the block of assets of the resulting company. By the Finance Act, 2000 the words 'value of assets' as appearing in the books of accounts in explanation 2B were replaced by the word 'written down value of the transfer o f asset as appearing in the books of account' thereby fortifying the belief that the legislature intended that the written down value of the block of assets in respect of resulting company shall be computed on the book WDV of the assets transferred to it from the demerged company.
7. The AO, however, was not satisfied with the assessee's submissions. The AO referred to the memorandum explaining the provisions of the finance Bill, 1999, whereby the provisions relating to the demerger of companies were initially introduced. The AO held that the amendments were made to the various provisions of the Act on the basis of certain broad principles, one of which was that the merger should be tax neutral and should not attract an additional liability to tax nor to provide any undue benefit to an assessee. In the scheme of demerger, the demerged company is to reduce the written down value of the assets transferred to the resulting company. Hence, the resulting company should add to its block of assets written down value of the assets taken over by it. The assessee cannot take a tax advantage by entering into a scheme of demerger because the intention of the legislature was to make such a scheme tax neutral. Since depreciation was to be computed as per the provisions of section 32, the written down value of the assets as per Income Tax Act should be considered. The value of assets as per the books of accounts could not be considered while calculating depreciation under the Income Tax Act. Accordingly, the depreciation u/s 32 was considered by AO based on the ITA Nos.4538 & 4539/M/2011 5 ITA No.4754/M/2011 M/s. Godrej & Boyce Mfg. Co. Ltd.
WDV as per Income Tax Act on such assets and depreciation in aggregate was allowed at Rs.39,75,12,704/-.
8. During appellate proceedings before the Ld. CIT(A), the assessee reiterated the above facts and argued that Explanation 2B to section 43(6) of the Act deals with the provisions relating to additions made to the block of assets of the resulting company i.e. the assessee company, pursuant to the scheme of demerger. It had been further submitted that for the year under consideration i.e. before the amendment made vide finance Act 2003, the said Explanation 2B reads as under:
"Where in a previous year, any asset forming part of a block of assets is transferred by a demerged company to the resulting company, then, not withstanding anything contained in clause (1), the written down value of the block of assets in the case of the resulting company shall be the written down value of the transferred assets as appearing in the books of account of the demerged company immediately before the demerger".
9. Consequent thereto, the block of assets of the Assessee company (the resulting company) was increased by the written down value of the assets as per the books of account of Godrej Appliances Ltd. (the demerged company) and depreciation thereon was claimed accordingly with complete disclosure thereof in terms of the audited accounts, Tax Audit Report (depreciation schedule) and the Return of Income.
10. It was further argued that Explanation 2A to section 43(6) of the Act deals wit h written dow n value o f t he demerged co mpa ny, whereas Explanation 2B deals with written down value of the resulting company. Explanation 2A and 2B were introduced by Finance Act, 1999, w.e.f. 1 st April, 1999. The said Explanations were thereafter amended from time to time, namely by Finance Act 2000 and Finance Act, 2003. The assessees further explained that though the words 'book value of assets' were replaced by 'written down value of assets' in Explanation 2A by the ITA Nos.4538 & 4539/M/2011 6 ITA No.4754/M/2011 M/s. Godrej & Boyce Mfg. Co. Ltd.
Finance Act, 2000, a similar change was not made in Explanation 2B, which deals with the computation of the 'written down value' of the block of assets of the resulting company. By the Finance Act, 2000 the words 'value of assets as appearing in the books of account' in Explanation 2B were replaced by the words 'written down value of the transferred assets as appearing in the books of account' thereby fortifying the proposition that the Legislature intended that the written down value of the block of assets transferred by the demerged company to the resulting company shall be the book written down value of the assets as appearing in the books of account of the demerged company immediately before the demerger.
11. It had been further submitted that amendment to Explanation 2B was thereafter made by Finance Act, 2003, whereby words "as appearing in the books of account" were omitted w.e.f. 1st April, 2004. Thereby clearly indicating that for the assessment year 2004-05 and onwards, the block of assets of the resulting company shall be increased by the written down value of the transferred assets of the demerged company. The said amendment to Explanation 2B is effective from 1 st April, 2004 i.e. w.e.f. assessment year 2004-2005 and onwards. Since it was a substantive amendment specifically in respect of a provision granting benefit/ allowance to the assessee, it will have effect prospectively i.e. w.e.f assessment year 2004-2005 and onwards.
12. It was further contended that provisions of Explanation 2A and 2B to Section 43(6) of the Act in this regard were very clear and there was no ambiguity in the language thereof at all. So long as there is no ambiguity, conflict or absurdity in the statutory language, resort to any interpretative process to unfold the Legislative intent is impermissible. Therefore, if any ITA Nos.4538 & 4539/M/2011 7 ITA No.4754/M/2011 M/s. Godrej & Boyce Mfg. Co. Ltd.
statutory provision is plain and unambiguous, admitting of no second meaning, then no rule of interpretation needs to be employed. As per the position of law stood for the previous year relevant to the assessment year 2003-04, in case of demerged company i.e. Godrej Appliances Ltd., written down value of block of assets should be reduced by the written down value of the assets transferred by demerged company and in case of the resulting company i.e. Godrej & Boyce Mfg. Co. Ltd - the Assessee Company, the written down value as appearing in the books of account of the assets transferred of demerged company should be added to the written down value of block. Attention was also invited to the Explanation 2A and Explanation 2B to section 43(6) of the Act as originally introduced by Finance Act, 1999 and thereafter amended by Finance Act, 2000 and Finance Act, 2003, which, for the sake of convenience, are reproduced as under:
"Finance Act 1999 w. e. f. assessment year 2000-2001 Section 43(6) "written down value" means ...........
...........
"Explanation 2A. - Where in any previous year, any asset forming part of a block of assets is transferred by a demerged company to the resulting company, then, notwithstanding anything contained in clause (1), the written down value of the block of assets of the demerged company for the immediately preceding previous year shall be reduced by the book value of the assets transferred to the resulting company pursuant to the demerger.
Explanation 2B. - Where in a previous year, any asset forming part of a block of assets is transferred by a demerged company to the resulting company, then, notwithstanding anything contained in clause (1), the written down value of the block of assets in the case of the resulting company shall be the value of the assets as appearing in the books of account of the demerged company immediately before the demerger:
(emphasis supplied) Provided that if the value of the assets as appearing in the books of account of the demerged company immediately before the demerger exceeds the written down value of such assets in the hands of the demerged company, the amount representing such excess shall be reduced from the written down value of the assets."
ITA Nos.4538 & 4539/M/2011 8 ITA No.4754/M/2011 M/s. Godrej & Boyce Mfg. Co. Ltd.
Finance Act 2000 : w. e. f. assessment year 2000-2001 (upto assessment year 2003-04) Section 43(6) "written down value" means ................
................
"Explanation 2A. - Where in any previous year, any asset forming part of a block of assets is transferred by a demerged company to the resulting company, then, notwithstanding anything contained in clause (1), the written down value of the block of assets of the demerged company for the immediately preceding previous year shall be reduced by the [written down value of the assets] transferred to the resulting company pursuant to the demerger.
Explanation 2B. - Where in a previous year, any asset forming part of a block of assets is transferred by a demerged company to the resulting company, then, notwithstanding anything contained in clause (1), the written down value of the block of assets in the case of the resulting company shall be the [written down value of the transferred assets as appearing in the books of account] of the demerged company immediately before the demerger. (emphasis supplied) Finance Act 2003 : w. e. f. assessment year 2004-2005 (and onwards) Section 43(6) "written down value" means ............
............
"Explanation 2A. - Where in any previous year, any asset forming part of a block of assets is transferred by a demerged company to the resulting company, then, notwithstanding anything contained in clause (1), the written down value of the block of assets of the demerged company for the immediately preceding previous year shall be reduced by the [written down value of the assets] transferred to the resulting company pursuant to the demerger.
Explanation 2B. - Where in a previous year, any asset forming part of a block of assets is transferred by a demerged company to the resulting company, then, notwithstanding anything contained in clause (1), the written down value of the block of assets in the case of the resulting company shall be the [written down value of the transferred assets of the demerged company immediately before the demerger.] (emphasis supplied) ITA Nos.4538 & 4539/M/2011 9 ITA No.4754/M/2011 M/s. Godrej & Boyce Mfg. Co. Ltd.
13. It had been contended that the "Written down value as appearing in the books of account" means value of net block of the assets (i.e. Gross value of block less depreciation as charged in books of account) as appearing in the books of account maintained by the Company under the Companies Act, 1956. "Written down value" as defined in the Income Tax Act, means the actual cost to the assessee less all depreciation allowed to him under the Income-tax Act. Hence, it was contended that the amendments made above from time to time were prospective and not retrospective. Explanation 2B to section 43(6) clearly provides that in case of resulting company, the value to be added to the block of assets for the purpose of computing depreciation under the Income Tax Act is the written down value of the transferred assets as appearing in the books of account of the demerged company.
14. It was therefore submitted that the assessee company, being the resulting company, had accordingly increased its block of assets by the written down value of the assets as appearing in the books of account of Godrej Appliances Ltd. (the demerged company) immediately before the demerger, and depreciation during the previous year was claimed thereon, based on the provisions of Law, as it stood for assessment year 2003-04. The assessee company has accordingly, claimed depreciation by strictly applying the provisions of section 43(6) of the Act in respect of the scheme of demerger. The claim of depreciation should, therefore, be allowed as claimed by the assessees vide the return of income based on the complete details furnished thereof vide the annual audited accounts and tax audit report.
15. The Ld. CIT(A) however observed that the identical issue was also there in the case of assessee's group company M/s. Godrej Industries Ltd. for A.Yrs.2002-03, 2003-04 and 2005-06. The ITAT vide its combined order ITA Nos.4538 & 4539/M/2011 10 ITA No.4754/M/2011 M/s. Godrej & Boyce Mfg. Co. Ltd.
dtd.30.09.2008 in ITA No.4196,4197/MUM/2006 for A.Y. 2002-03 and 2003-04 and in ITA No.1090/MUM/2009 for A.Y. 2005-06 had decided the issue against the assessee. Since the facts of the issue under consideration were identical, he, therefore, following the decision of ITAT, in the case of Godrej Industries Ltd., decided the issue against the assessee.
16. Before us, the Ld. counsel of the assessee has submitted that though the identical issue has already been considered and decided by the co-ordinate bench of the tribunal, as stated above, yet a fresh consideration be given to his submissions. He has reiterated his submissions as were made before the lower authorities and has further contented that the amendment made to Explanation 2B to section 43(6) vide Finance Act 2003 was prospective in nature and could not be applied retrospectively. As per the provisions in force for the year under consideration, in the case of resulting company, the value to be added to the block of assets for the purpose of computing depreciation under the Income Tax Act was the written down value of the transferred assets as appearing in the books of account of the demerged company, which accordingly was adopted by the assessee. The Ld. counsel has also relied upon a catena of judgments to stress the point that where the amendment made to a provision of any statute affects any substantive right vested in the assessee, such amendments are required to be considered as prospective in nature. Any right vested in the assessee cannot be taken away with retrospective application of the amended provision, unless, so specifically provided in the relevant statute itself.
On the other hand the ld. DR has relied upon the findings of the lower authorities.
17. We have considered the rival contentions and have also gone through the record. We have carefully gone through the relevant provisions i.e. ITA Nos.4538 & 4539/M/2011 11 ITA No.4754/M/2011 M/s. Godrej & Boyce Mfg. Co. Ltd.
explanation 2A and 2B to section 43(6) and have also considered the respective amendments brought out from time to time in the said provisions. We find that the explanations 2A and 2B were inserted by Finance Act, 1999 w.e.f. 01.04.2000. The relevant words under clause 2A were "written down value of the block of assets of the demerged company" whereas the corresponding relevant words under clause 2B were "the value of assets as appearing in the books of accounts". However, a subsequent amendment was made vide Finance Act, 2000 w.e.f. the same date i.e. 01.04.2000 vide which the words "the value of the assets as appearing in the books of account" were substituted with the words "written down value of the transferred assets as appearing in the books of account". Now we have to see whether any change was brought out with the amendment made vide Finance Act, 2000 into the relevant provisions? We find that at the time of insertion of the relevant provisions, the value of the assets of the demerged company was to be taken as its 'written down value' under clause 2A, whereas under clause 2B, the corresponding written down value of the assets of the resulting company was mentioned as the 'value of assets as appearing in the books of account'. However, immediately, before these provisions come into operation, an amendment was brought out in explanation 2B and the relevant words were substituted with 'written down value of the transferred assets'. However, the other relevant words "as appearing in the books of account" were not omitted. If we take the contention of the assessee as correct, then in that event there would not have been any impact or change in the interpretation of the relevant provisions even after the amendment made by Finance Act, 2000. If, as contended by the Ld. Counsel for the assessee, the intention of the legislature has been that the written down value as appearing in the books of account maintained under the Companies Act be adopted, then it will not be understandable as to what was the purpose of immediate amendment made ITA Nos.4538 & 4539/M/2011 12 ITA No.4754/M/2011 M/s. Godrej & Boyce Mfg. Co. Ltd.
vide Finance Act, 2000, subsequent to the insertion of the relevant provisions made vide Finance Act, 1999 both w.e.f. 01.04.2000.
17.1 When we read the relevant words prior to amendment made vide Finance Act, 2000 i.e. 'the value of assets as appearing in the books of account' and the words appearing after the amendment made vide Finance Act, 2000 i.e. 'the written down value of the assets as appearing in the books of account', and if the contention of the assessee is to be accepted, then, the words appearing before amendment and after amendment made vide Finance Act 2000, will give the same meaning, resulting to inference that the legislature has not made any amendment in the said section and the said amendment will become meaningless and rendered redundant. However, in our view, the Parliament has not made a futile exercise in amending the relevant provisions vide Finance Act, 2000. Hence, we agree with the view taken by the Ld. AO after referring to the memorandum explaining the provisions of Finance Bill, 1999 that provisions relating to the demerger of companies were introduced based on certain principles one of which was that the demergers should be tax neutral and should not attract any additional tax liability. The value of the assets of the demerged company should be the same when transferred to the resulting company. The amendment made by Finance Act, 2003 w.e.f. 01.04.2004, in our view, is curative and clarificatory in nature. The omission of the words "as appearing in the books of account" have neither taken away nor affected any rights of the assessee which were accrued to him before the said amendment. The amendment made vide Finance Act, 2003 has just removed the ambiguity. It has neither taken away any right of any assessee nor has given any new right to the Revenue.
18. We have gone through the order of the Tribunal in the case of "Godrej Industries Ltd." (supra) and we agree with the view taken by the Tribunal in ITA Nos.4538 & 4539/M/2011 13 ITA No.4754/M/2011 M/s. Godrej & Boyce Mfg. Co. Ltd.
the said case that the emphasis of the legislature in explanation 2B after the amendment made vide Finance Act, 2000 was that the value of the block of assets in the case of resulting company shall be the written down value of the assets of the demerged company immediately before the demerger. Hence, we do not find any infirmity in the findings of the lower authorities that only the written down value of the transferred assets of the demerged company as per the accounts maintained under the Income Tax Act shall accordingly constitute the written down value of the block of assets of the resulting company.
19. Now coming to some important decisions relied upon by the Ld. counsel for the assessee as mentioned herein below:
1. CIT vs. Triveni Engineering & Industries Ltd. and Others (DOD:05.08.2010) (Delhi - HC)
2. CIT vs. Kerala Electric Lamp Workers Ltd. - 261 ITR 721 (Kerla
- HC)
3. SEDCO Forex International Drill INC and Others - 279 ITR 310 (SC)
4. DCIT vs. Core Health Care Ltd. - 298 ITR 194 (SC)
5. CIT vs. Sree Senha Valli Textiles P. Ltd. - 259 ITR 77 (Mad. -
HC)
6. CIT vs. Vatika Township Pvt. Ltd. and others - Civil appeal No.8750 of 2014 decided on September 5, 2014.
20. We have perused the aforesaid decisions and found that the Hon'ble High Courts and Hon'ble Supreme Court in the above said decisions are unanimous to hold that where a substantive right has been affected by the amendment, the amendment, if not so expressively provided under the relevant statute, will have to be taken prospectively. However, the above decisions cannot be applied to the facts and circumstances of the present case. In the present case, as observed above by us, the omission of the words "as appearing in the books of account" neither have in any way affected any substantive right already vested in the assessee nor has taken away any such right which was accruing to the assessee before such omission. In fact, the curative amendment ITA Nos.4538 & 4539/M/2011 14 ITA No.4754/M/2011 M/s. Godrej & Boyce Mfg. Co. Ltd.
was made by the Parliament vide Finance Act, 2000 and only the ambiguity has been removed vide Finance Act, 2003 so as to bring clarity. In our humble view, whatever rights had accrued to the assessee in view of the ambiguity in the provisions at the time of their insertion vide Finance Act, 1999, the same had been taken away/clarified immediately by removing the ambiguity through amendment made vide Finance Act, 2000. Hence, without going into the details of the facts of the various case laws, we have no hesitation to hold that the proposition laid therein cannot be applied to the facts and circumstances of the case in hand. These grounds are accordingly decided against the assessee.
Grounds No.4 & 521. Vide grounds No.4 & 5, the assessee has agitated the levy of interest under section 234B. Now the law has been settled that the levy of interest under section 234B is mandatory. These grounds, being consequential, are accordingly decided against the assessee.
ITA No.4754/M/2011 for assessment year 2003-04 (Revenue's Appeal)22. The Revenue in this appeal has agitated the action of the Ld. CIT(A) in deleting the disallowance made by the AO on account of irrecoverable inter corporate deposits written off.
23. The facts are that the assessee had written off inter corporate deposits placed with Godrej Hi-care Ltd. of Rs.41,00,000/-. The assessee explained to the AO that the demerged company Godrej Capital Ltd. was in the business of carrying out financial operations and had advanced an amount of Rs.41,00,000/- to Godrej Hi-care Ltd. Since the Godrej Capital Ltd. had merged into the assessee company w.e.f. 01.04.02 as result thereof inter corporate deposits placed by the erstwhile Godrej Capital Ltd. being irrecoverable, had been written off by the assessee company during the year ITA Nos.4538 & 4539/M/2011 15 ITA No.4754/M/2011 M/s. Godrej & Boyce Mfg. Co. Ltd.
under consideration. The demerged company was carrying out the finance business and was registered as a non banking financial company with the Reserve Bank of India. The interest income from the said deposits was always assessed as business income in the hands of the demerged company. Having regard to the business carried on by the Godrej Capital Ltd, money was the stock in trade of the company which had become irrecoverable and as such was a business loss and thus was required to be allowed both under section 36 as also under section 28 of the Act. The Ld. AO, however, did not agree with the contention of the assessee and held that the bad debts could be allowed only if such debt had passed through trading/P&L account of the company. He therefore held that the deduction could not be allowed since the debt had been taken into account in computing the income of the assessee and accordingly disallowed the above claim of the assessee.
24. In appeal, the Ld. CIT(A) however allowed the claim of the assessee observing that the demerged company i.e. Godrej Capital Ltd. was in business of lending the money. The money was lent in the course of business. The interest income from the loans was always assessed as business income of the Godrej Capital Ltd. The said Godrej Capital Ltd. had merged with the assessee company and the assessee had written off the deposit of Rs. 41 lakhs as the amount had become irrecoverable. He therefore held that the claim was allowable as bad debt under section 36(1)(vii) read with section 36(2) of the Act. He observed that under the provisions of section 36(1) read with section 36(2), such a claim of bad debts was allowable, even if the debts were not passed through the P&L account but the debts were representing money lent in the ordinary course of business of lending carried on by the assessee.
25. Before us, the Ld. A.R. of the assessee has relied upon the findings of the Ld. CIT(A) and has further contended that the finance business of the ITA Nos.4538 & 4539/M/2011 16 ITA No.4754/M/2011 M/s. Godrej & Boyce Mfg. Co. Ltd.
demerged company was further carried over by the assessee company, though, it was not the exclusive business but one of the business activities of the resulting company. The condition of passing the entry through P&L account is not mandatory in case of money lent in the business of money lending even as per the provisions of section 36(2)(i) of the Act. After hearing the Ld. Representatives of the parties, we do not find any infirmity in the order of the Ld. CIT(A) on this issue and the same is accordingly upheld.
26. In the result, the appeal of the Revenue is hereby dismissed.
ITA No.4539/M/2011 for assessment year 2004-05 (assessee's appeal)27. The grounds taken by the assessee in this appeal are identical to that of grounds taken by the assessee in its appeal for assessment year 2003-04. In view of our findings given above, this appeal of the assessee is hereby dismissed.
28. In the result, the appeals filed by the assessee as well the appeal filed by the Revenue are hereby dismissed.
Order pronounced in the open court on 31.12.2014.
Sd/- Sd/-
(B.R. Baskaran) (Sanjay Garg)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 31.12.2014.
* Kishore, Sr. P.S.
Copy to: The Assessee
The Respondent
The CIT, Concerned, Mumbai
ITA Nos.4538 & 4539/M/2011
17 ITA No.4754/M/2011
M/s. Godrej & Boyce Mfg. Co. Ltd.
The CIT (A) Concerned, Mumbai
The DR Concerned Bench
//True Copy// [
By Order
Dy/Asstt. Registrar, ITAT, Mumbai.