2012 (8) TMI 1095 - AT - Income Tax

Tribunal allows write-off claim for film financing advances, deems irrecoverable amounts as trading losses.

The Tribunal allowed the claim of write-off for irrecoverable advances made in the film financing business but disallowed the loss returned by the ... - Issues Involved:1. Disallowance of irrecoverable advances written off.2. Addition of amounts written back without examining the nature of credits.Summary:Issue 1: Disallowance of irrecoverable advances written offThe learned CIT (A) erred in sustaining the disallowance of Rs. 14,76,89,384/- being the amounts written off representing irrecoverable advances made during the ordinary course of business of film financing. The assessee, late Shri Jhamu Sughand, was engaged in the business of production, distribution, and financing of films. The AO issued a notice u/s.148, and the legal heirs filed the return accompanied by an audit report. The AO observed that the return was not filed as per the provisions of section 139 and concluded that the debts were not written off in the books of the assessee in the previous year ended on 31.03.2006. The AO disallowed the write-off of loans and advances as the assessee was not in the money lending business and no efforts were made to recover the financial debt. The CIT (A) confirmed the disallowance.The Tribunal noted that the assessee was in the business of distribution, production, and finance of films production, and the advances/loans were given in the ordinary course of business. The Tribunal held that the decision taken by the legal heirs to write off the advances was an honest decision as the business was closed and there was no chance of recovery. The Tribunal emphasized that the advances were part of the working capital and not in the capital field. The Tribunal relied on the decision of the Hon'ble Madras High Court in the case of CIT vs. Crescent Films (P.) Ltd. 248 ITR 670, which held that money lent during the business, if found to be irrecoverable, is a trading loss. The Tribunal concluded that the write-off should be accepted as a trading loss.Issue 2: Addition of amounts written back without examining the nature of creditsThe learned CIT (A) also erred in sustaining the addition of Rs. 15,07,59,412/- being amounts written back in respect of loans, sundry creditors, and others, without even examining the nature of credits. The Tribunal observed that the AO should have adopted the same principle while dealing with the identical nature of write-off and write-back amounts. The Tribunal held that both the writing off and written back amounts should be accepted, but since there was no business, the loss returned by the assessee shall be ignored, and the income should be treated as 'nil'.Conclusion:The Tribunal allowed the claim of write-off but disallowed the loss returned by the assessee, treating the income as 'nil'. Both appeals were partly allowed.