TaxTMI 
TaxTMI 
2010 (1) TMI 86
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....e company M/s. United Breweries Limited, as the very name suggests, had been established, incidentally also had the object of related activities as indicated in the memorandum of association of the company which read as under: The objects for which the company is established are: (a) Primarily and without prejudice to the generality of the other objects of the company, to purchase or otherwise acquire and take over as going concerns the businesses of brewers and otherwise heretofore carried on under the names of the Bangalore Brewery Company at Bangalore and elsewhere, the Rose and Crown Brewery at Kaity in the District of Nilgiris and elsewhere, the Madras B. B. B. Brewery Company Limited at Madras and elsewhere, and all or any of the assets and liabilities in connection therewith and with a view thereto to enter into and carry into effect (either with or without modification) certain articles of agreement (referred to in article VII of the additions and modifications of the company's articles of association) as being proposed to be made between John Oakshott Robinson of the one part and the company of the other part. b) To carry on the business of brewers and maltsters i....
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.... in India or elsewhere, any lands, manufactories, buildings, mills, plant, engines, machinery and other things and to erect and maintain or reconstruct and adapt buildings, mills, plant, engines, machinery and other things found necessary or convenient for the purposes of the company. (h) To enter into partnership or into any agreement for sharing profits, union of interest, co-operation, joint adventure, reciprocal concession, or otherwise, with any person or company, carrying on or engaged in, or about to carry on or engage in any business or transaction which this company is authorised to carry on, or to engage in any business or transaction, capable of being conducted so as directly or indirectly to benefit this company. (i) To purchase or otherwise acquire any patents, brevets d'invention, licences, concessions, and the like, conferring any exclusive or non-exclusive or limited right to use any invention or privilege which may seem capable of being used for any of the purposes of the company, or the acquisition of which may seem calculated, directly or indirectly, to benefit this company, and to use, exercise, develop or grant licences in respect thereof, or otherwise tu....
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....acts by any such persons. (s) To subscribe for, purchase, take, or otherwise acquire and hold shares, stocks, debentures, or any other interest in any other company, whether British, Colonial, or Foreign, in which the liability of the members is limited by shares. (t) To lend money to any company; partnership, person, or association upon security to their or his undertaking, property, estate, assets and effects, or any part thereof, upon such terms as may be deemed expedient, and take such security, either in the shape of mortgages, mortgage debentures, or debentures, or in any other form. (u) To remunerate any person or company for services rendered in placing or assisting to place or guaranteeing the placing of any shares or debentures or other securities of this company or any other company promoted wholly or in part by this company. (v) To manage, improve, develop and turn to account, or otherwise deal with all or any part of the property of the company. (w) To enter into arrangements with any authorities, municipal, local, or otherwise, that many seem conducive to the company's objects, or any of them, and to obtain from any such authority, any rights, privilege....
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.... or for letting out on hire any other conveniences for the repairing or docking of ships and other vessels and to aid in or contribute to the aforesaid activity. (c-9) To manufacture, buy, sell, deal in, import and export television sets of all types and descriptions and its components, all electric goods, radios, radiograms, loudspeakers, phonograms, cassette and radio cassette players and decks, recording tapes of all kinds, compact disc and video cassette players, amplifiers, personal stereo cassette players of whatever description, dictaphones, all sorts of electric and wireless sets and equipment, radio receiving of transmitting sets of all types. (c-TO) To manufacture, install, maintain, repair, buy, setl, deal in, import and export all types of electronic articles/instruments, components, and equipment including transmitters, receivers, walkie-talkie sets, systems circuits required in military and commercial electrical and electronic industry, including heavy duty weather-proof communications, EPABX and PABX sets and systems, telecommunication and intercommunication sets and systems of all kinds and varieties, key telephone systems, automatic message recording telephon....
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....apable of repayment, had reimbursed the guarantee amount to the creditors and had claimed that amount as an expenditure in terms of the provisions of section 37 of the Act and as to whether an expenditure of this nature qualifies for deduction. 5. One question relating to the claim towards "legal expenses" incurred for obtaining certain advice and by way of consultation and as to whether it qualifies for deduction under section 37 of the Act is a question related to the assessment year 1996-97 and the other question relating to the interest which had accrued to the assessee-company in respect of the amounts advanced to its business associates, whether could be construed as "not real income" and therefore not taxable, notwithstanding the provisions of section 5 of the Act is a question which arises for the assessment year 1997-98. 6. In respect of the questions involving these three aspects, while the adjudicating authority had answered all questions relatable to these issues against the assessee and the first appellate authority the Commissioner of Income-tax (Appeals) has affirmed this view of the adjudicating authority and all questions covering these three aspects were hel....
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....e first two authorities, namely, adjudicating authority and the first appellate authority had disallowed this amount, the Tribunal has reversed the findings and allowed the deduction of this amount, also by reducing it from the total taxable income of the assessee for the assessment year in question. 9. The third claim for deduction which had been declined by the first two authorities and allowed by the Appellate Tribunal was a sum of Rs. 15 lakhs which had been paid by the assessee-company by way of "legal fee" to M/s. Fraser and Ross, a chartered accountant firm who incidentally also happen to be the auditors of the assessee-company and which amount had been paid to them for eliciting their opinion about the feasibility of the assessee-company taking over a foreign company, namely, M/s. National Sirghum Breweries, a company located in South Africa and being of the view that the consultation fee paid to M/s. Fraser and Ross is an expenditure incurred by way of "revenue expenditure" and not as part of "capital expenditure" as had been opined by the two lower authorities. 10. It is for answering these substantial questions which have been mentioned in paragraphs 29 to 37 of th....
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....or initiating any legal action to recover the same? 7. Whether the Tribunal was correct in allowing the assessee's claim to treat the various amounts claimed by it as bad debt and allowed it as deduction under section 36(1) (vii) when there was no proof for making such payment and there was no effort to recover the debt nor an explanation given as to supervening the impossibility on the part of the debtor to pay? 8. Whether the Tribunal was correct that once the assessee enters into an agreement to stand guarantee and in the case of default such payments made would automatically be in the course of business, even though the party is a separate legal entity carrying on a distinct business without receiving any guarantee commission nor disclosing the profit on account of standing such surety? 9. Whether the sum of Rs.15,00,000 paid to M/s. Frazer and Ross for obtaining the feasibility/viability report for purchasing National Sirghum Breweries, South Africa was a business expenditure allowable under section 37(1) of the Act as held by the Tribunal as a capital investment as held by the Assessing Officer?" 11. We may mention here itself that in so far as the substantial que....
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....o show that these debts arise out of the business of manufacturing beer or that their payment was made towards advance for supply or for carrying on the business of the assessee. 14. Whether the Tribunal was correct in holding that a sum of Rs.74.75 lakhs should be excluded on the principle of real income in accordance with the decision of the apex court in CIT V. Bokaro Steel Ltd. [1999] 236 ITR 315, when the interest income had accrued and reflected in the profit and loss account in the present case and the judgment was not applicable to the facts of the present case?" 13. Out of these questions, question No. 14 alone is a question raised afresh for the assessment year 1997-98 on the theory of "no real income" to the assessee though on accrual basis the income whether it has been realized or not, becomes taxable under the provisions of the Act and the question has to be independently considered and answered for this assessment year. 14. It is covering questions from 1 to 14 mentioned at paragraphs 29 to 42 of the memorandum of appeal in I. T. A. No. 492 of 2001 which are the questions relating to the two assessment years on which elaborate submissions have been made b....
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....are capital. Confirmation letter from U.B. Limited to this effect is enclosed herewith difference between the book balance against U.B. Limited i.e. Rs. 61,85,257 and the amount settled Rs. 18,07,624, i.e., 43,77,633 was credited to the capital reserve account.' Thus from the above submissions made by M/s. PUL before its Assessing Officer, it was very clear that the loss was not a revenue loss as the amounts given by the assessee-company was towards share application money and not towards trade advances as claimed by the assessee-company in its return. The copy of the said letter was made available to the authorised representative of the assessee-company to give an opportunity to make their submissions in this regard. The assessee-company vide letter dated March 11, 1999, submitted as under: 'The point to be noted here is at the time when the original advance was made, it constituted a trade advance in our books as it was part of the pharmaceutical portfolio of the U. B. group. At the same time, when the joint venture came to an end, the loss being UBL's share had to be absorbed as the new company was unable to repay, owing to the losses accumulated by it. If it is assu....
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....unt as bad debts written off we may request that it may be considered as process wastage/claims paid on account of defective stock. At the same time, we also request that the amount of claim may be restricted to Rs. 14.87 lakhs.' From the above reply, it is very much clear that the assessee-company had written off the amount due from M/s. Premier Enterprises without making any efforts to collect the same. As per the said letter, M/s. Premier Enterprises have accepted a debt of Rs. 3.61 lakhs and to that extent the assessee-company's claim of bad debt warrants disallowance. As regards the process wastage/claims paid on account of defective stock, the assessee-company has not produced any documents/correspondence in this regard. Further, if the claim was relating to the assessment year 1994-95 (relevant to the previous year 1993-94) then the assessee-company should have accepted the claim of the assessee or rejected in the same assessment year. As the assessee-company is following the mercantile system of accounting, any loss pertaining to the assessment year 1994-95 cannot be allowed in this assessment year. Therefore, the loss claimed on account of wastage/defective stocks....
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....the assessment proceedings for the assessment year 1995-96 before the Assessing Officer as well as the Commissioner of Income-tax (Appeals). From the said details produced, it is found that the U. B. group wanted to enter the field of petrochemicals and more specifically wanted to start a Butyl Rubber Project and the said project was to be started by M/s. U. B. Elastomers Ltd. The later company entered into collaboration with few companies abroad for importing of technology for their proposed plant. However, the project could not be implemented because of financial reasons and also because of some disagreements with the foreign collaborators. Though the agreement for the project was finally signed with some foreign collaborator in February 1989, but due to the foreign exchange crisis in 1991 and also due to the new policy of economic liberalisation and consequent reduction in the import duties in line with the international standards, made the project unviable and thus had to be given up. During the course of formulation of the project of U. B. Elastomers Ltd., the assessee-company has made some advances which have been written off during the previous year relevant to this asses....
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.... 32.73 lakhs; During the course of assessment proceedings, it was pleaded that the marine advances were made to suppliers of shrimp which was exported by the assessee-company. Due to the slump in the market, the business was disrupted and the advance made to suppliers became doubtful and the assessee-company did not receive the money back fill March 31, 1996. The assessee-company is basically engaged in the manufacture and sale of beer. It wanted to venture into a new line of business of marine export. The assessee-company has claimed that they have exported the marine product for which no evidence as produced during the assessment proceedings. Therefore, I feel that these advances were made by the assessee-compariy for a totally new line of business and therefore it cannot be claimed as a bad debt of revenue nature. This was decided by the Calcutta High Court in Hasi m Industries Ltd. v. CIT [1990] 184 ITR 174. In the said case, advance made to a mill which was taken over on lease by the assessee for modernisation of mills plant became irrecoverable as the mill went into liquidation. The Calcutta High Court held that the loss was not a trading loss and hence cannot be claime....
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....ract Act and has nothing to do with the prohibition policy. 3. The customer owed Rs. 145.79 lakhs to the assessee-company itself shows that the volume of turnover of the said customer M/s. Sunny Enterprises was quite huge and he cannot just go out of the business taking all his assets overnight as claimed by the assessee-company. Therefore, I am of the opinion that the assessee-company has not satisfactorily proved the circumstances in which the debts relating to M/s. Sunny Enterprises have become bad and irrecoverable. The burden of proof lies on the assessee-company to clearly establish and furnish all the particulars regarding the claim made in the return of income. No such particulars were filed nor any documents were produced to show that the debt has really become bad and its efforts to recover did not bear fruit. Therefore, the bad debt claim Rs. 145.79 lakhs is hereby disallowed. In this regard, I rely upon the following three decisions in support of my view (1) CIT v. Radhakishan Ramnarain [1929] AIR 1929 Nag 153; (2) CIT v. Calcutta Agency Ltd. [1951] 19 ITR 191 (SC) ; and (3) Mannalal Ratanlal v. CIT [1965] 58 ITR 84 (Cal). and in so far as for the asse....
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.... assessee can be claimed as deduction in CIT v. Birla Brothers P. Ltd. [1970] 77 ITR 751 (SC). The funds were given to Western India Enterprises not in connection with trade, but to enable the latter to tide over liquidity problem. It is not allowable under section 36 of the Income-tax Act. 20. The appellant objects to this. Though no specific written argument was given, Sri Parthasarathi told that the assessee was doing money-lending business and therefore, this should be considered as incurred in course of money-lending business. 21. In this relevance, I requested the authorised representative to submit evidence to substantiate this claim by showing the debt as a part of business turnover in the year in which the amount was advanced, the rate of interest, if any, agreed on such loan alleged to be given during the course of money-lending business, and the interest charged accounted as part of income of the business. (The assessee was following mercantile system of accounting as the details filed for every year shows). No material or evidence was submitted in this regard. In fact, the accounts for the assessment years 1991-92 to date which I have examined does not show that t....
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....cy of the subsidiary company would adversely affect the assessee-company's trade and therefore the payment made by the holding company was allowable as a revenue expenditure. Thus, the criterion was that insolvency of the subsidiary banking company would have adversely affected the profit earning capacity of the said company. However, in the case of the assessee-company, the non-payment of M/s. Best and Crompton Engg. Ltd. would not have affected the profit earning capacity of the assessee-company. Therefore, the payment made on behalf of the assessee-company is held as capital payment which cannot be allowed as a bad debt as claimed. The appellant objects to this and reiterates the contentions before the Assessing Officer. 24. In this relevance, the following aspects are to be noted: (1) Best & Crompton Engg. Ltd. is not a subsidiary of the assessee and the assessee's responsibility to discharge liabilities of that company in that company is limited by the shares held. The case, therefore, cannot even be that clearing of the debts of Best and Crompton was on account of its position as holding company, or because the adverse financial position, if at all, of B & C would ha....
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....s.14,85,820. 25. The written explanation give by the assessee to the Assessing Officer vide letter dated February 15, 2000 is very brief and as follows: 'The amount was written off as there was a dispute between the parties as to the amount to be paid to us in respect of certain shares." 25.2 The Assessing Officer has observed that M/s. Sivan & Company is a share broker and the amount written off by the assessee during the year was amount in dispute between the two. The advance given to the share broker was not having revenue nature, as the assessee is not a dealer in shares. The advances given was payment towards capital payment and hence cannot be allowed under section 36 of the Income-tax Act. He disallowed the claim. 26. The appellant objects to the disallowance. It has not added anything to clarify the position. 27. It would not that the assessee has been acquiring shares only as an investor and not as a trader. It has been showing profit and gains of transaction in shares under the head 'Capital gains' and not as profit of business. 27.2 Section 56(1) require that income from dividend is to be assessed under the head 'Other sources'. Therefore, the expenditu....
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....Eagle Electricals 32,00,000 (vii) M/s. Rita Bottling 2,57,375 (viii) M/s. L & T Food Division 2,56,351 73,13,726 28. The assessee gave the following explanation regarding these items vide letter dated February 15, 2000 to the Assessing Officer: "WIE Digital Electronics. Vipin Industries, Eagle Electricals The details in this regard, if any, will be furnished to you shortly, as this is not readily available. Rita Bottling, L & T Food Division-Rs.2.57 lakhs and 2.56 lakhs These are our suppliers of capital items and the amount has remained outstanding for a long time on account of certain disputes. During the year, it was decided that the amounts are written off." No further details were furnished to the Assessing Officer who has referred to the submissions of the assessee in the assessment order. 28.2 The Assessing Officer noted that the amounts were given as advance and not trading debts and are therefore not of revenue nature. For allowance of deduction as bad debt written off the business or trading debts should spring directly from carrying on of a business or trade and should be incidental to it and cannot be just....
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....pose of business. There is no doubt that it is a business loss and the same should be allowed under section 37. 17. So far as the write off in the case of UB Elastomers Ltd., Tamilnadu Alkaline Batteries and Unitel Communications Ltd., they are covered by the decision of the Tribunal in the assessee's own case for the assessment year 1995-96 and we rely on the same and direct the Assessing Officer to allow the claim. 18. Lastly, the write off in the case of Pharmacia United Limited having been advanced during the course of carrying on a money-lending business, the same should be allowed under the Income-tax Act. The Department had not brought out any reason for denying the claim of the assessee. Hence, we direct the Assessing Officer to allow the entire claim of the assessee, amounting to Rs.554 lakhs. 19. Thus, the assessee succeeds on the issue of write off bad debts." In so far as the aspect of honouring the guarantee issued by the assessee-company and as indicated above, the adjudicating authority was of the view that the assessee is not entitled to claim the amount by way of any expenditure under section 37 of the Act by indicating the reasons as under: "(a) Dis....
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....see-company is of a capital nature. It is immaterial as to whether the amalgamating companies would have been entitled to claim the said payments as expenditure if they had existed during the previous year relevant to the assessment year under consideration. Apart from the above, no documents were produced by the assessee-company to show that TNABL had no assets left from which the assessee-company could have made an attempt to recover the amounts paid by it in discharge of the guarantee obligation. It seems that the assessee-company has made its claim without exhausting the remedies that the guarantor has to recover the amount from the assets of the TNABL. In the light of the above discussion, I hereby disallow an amount of Rs.26,43,204.33 claimed by the assessee for discharge of guarantee obligation in respect of Tamilnadu Alkaline Batteries Ltd. (b) Disallowance of expenses relating to M/s. UNITEL Communications Ltd.: As per the details furnished by the assessee-company, M/s. UNTTEL Communications Ltd. (M/s. UCL) was a company promoted as a joint sector company in the State of Orissa for manufacture of telecom equipments. The main shareholders were three wholly owned....
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....sessee, the appellate authority affirmed this finding by recording its findings as under: "Issue No. 2: Disallowance of expenses relating to (A) M/s. Tamil Nadu Alkaline Batteries Ltd.-Rs.26,43,204: 35. According to the assessee, two of its subsidiaries, viz., Golden Investments Ltd. and East Coast Investments Ltd., owned by Tamil Nadu Alkaline Batteries Ltd., (TNABL), a company engaged in manufacture of batteries. TNABL availed of a loan of Rs.16 lakhs from Tamilnadu Investment Corporation. For this loan the two subsidiaries mentioned above were the guarantors by virtue of deed executed on October 10, 1985. TNABL also availed of a loan of Rs.60.34 lakhs from Bank of Madura Ltd. for which also these two subsidiaries stood as guarantors. The two subsidiaries got amalgamated with the assessee, with effect from April 1, 1994. On default of TNABL, Bank of Madura filed a suit against the assessee-company after invoking the guarantee provisions. After negotiation, the amount was settled by the assessee which was acknowledged by the bank vide its letter dated November 8, 1994. 36. The Assessing Officer noted in this context that the liability to pay the guarantee amounts arose....
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....was on this account that Bank of Madura and IRBI recalled their loans and also invoked the guarantees. After a great deal of negotiations between the lender and the UB group companies, it was finally decided that the entire loan will be repaid by way of one-time settlement it is pleaded that the entire amount of Rs.26,43,204 paid consequently as outstanding to the IDBI on account of guarantees should be allowed as a deduction. The assessee relies on the decision of the Supreme Court in the case of CIT v. Amalgamations Ltd. [1997] 226 ITR 188 (SC). 38. If one go carefully through the presentation of facts by the assessee, it would be seen that the assessee uses the expressions like guarantee given "by the UB group of companies", negotiation between "UB group of companies and lenders, etc." The assessee has avoided mentioning, when and against which company in the UB group the lenders invoked the guarantee obligation provisions originally. This, I consider to be deliberate to distract attention from the fact that the guarantee must have been given by Golden Investments Ltd. and East Coast Investment Ltd., or some other concern and the default by TNABL on the loan availed of in ....
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....e assessee has deliberately avoided giving the crucial facts which would show that the expenses if at all was to be allowed in somebody else's hands and in some other previous year and the assessee is only a pretender to the claims. 38.3 If the assessee has a real case that the liability to discharge the guarantee provision was not invoked by the creditors on the amalgamating subsidiaries before the amalgamation effective from April 1, 1994, and that the guarantee provisions could have been and was invoked for the first time on the assessee only during the previous year ended March 31, 1996, relevant to the assessment year, nothing prevented the assessee from coming out with details and evidence in support of the same. It is the onus of the assessee to disclose the details and prove its case of deduction. The relevant materials throwing full light on the transactions have to be in the possession of the assessee as the successor to the business of the amalgamating subsidiaries. That it does not produce the details lead to the presumption under the general rules of evidence that the materials and evidence if produced would go against its contentions. 39. In view of the above di....
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....9, dated September 8, 1998, are as follows: M/s. UNITEL Communications Ltd. (hereinafter referred to as UNITEL was a company promoted as a joint sector company in the State of Orissa for manufacture of telecom equipment. The main shareholders of the company are: * three wholly owned subsidiaries of UB Ltd. and the Orissa State Industrial Development Corporation Ltd. (OSIDC). UNITEL also availed of huge loans from financial institutions and banks. Due to high gearing and other factors, the company became sick and all the efforts to review the business did not bear fruit. Under the circumstance, it was decided that UNITEL will once again approach the financial institutions for a rehabilitation loan. The financial institutions, on the other hand, insisted that the promoters should infuse more funds for the revival of the company. In the meanwhile, UNITEL required some assets and also funds for its operations. It approached UB Ltd. for a guarantee so that it can independently avail of some lease finance from various leasing companies as per details given below: Name of the leasing company Date of guarantee by UBL Nagarjuna Finance Ltd. 18-02-91 Vysya Bank Lea....
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....ess connection was with its subsidiaries. Even if the assessee had the business of standing guarantor in this case there is no case that the assessee stood as guarantor for any consideration. Further, when the assessee gave its name as guarantor, UNITEL had already become sick. The assessee had clear access to information about the affairs of UNITEL through its wholly owned subsidiaries. That is, the assessee entered into the transaction with the clear knowledge that only loss and liability would arise to it from the guarantee. If in such a situation the assessee ventured to give guarantee for Lease Finance Ltd., it could not have been with the intention of making any gain from the venture, but with the deliberate intention of courting loss. It is possible that considerations like there being no use of such loss for the subsidiaries which had accumulated loss by that time must have weighed with the assessee to stand as guarantor instead of subsidiaries with the aim of earning toss to set off against its own income for the purpose of income-tax. Considerations of reducing profit so as to avoid the tax liability cannot be taken to be genuine business consideration." The Tribuna....
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....hat the cheques issued by the parties were dishonoured by the banks and some of the Directors of the borrower companies were also jailed in between. It was also pointed out by the learned advocate that even till date, no amount had been recovered from the parties concerned. The learned advocate contended that this case is squarely covered by the decision of the hon'ble Supreme Court in CIT v. Bokaro Steel Ltd. [1999] 236 ITR 315. 52. The learned Departmental representative as well as the Assessing Officer contended that the only way in which the assessee could have claimed is to write off the sum and then claim it as an expenditure rather than excluding it. For this the learned advocate for the assessee submitted that as decided by the hon'ble Supreme Court in various cases, the taxability or otherwise of an income or an expenditure should be considered only from the point of view of the Income-tax Act and not on the basis of entries which the assessee had passed in the books. In Bokaro Steel Ltd. 's case [1999] 236 ITR 315 cited by the assessee, we find a direct support. The relevant paragraph as appearing in page 324 is reproduced below. 'In the present case also the entry ....
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....e was not allowed under section 36(2), still the irrecoverable amount represented the business loss and accordingly liable to be allowed as a deduction. It is also the contention of the assessee that the persons from whom debts were claimed as irrecoverable have become incapacitated and there is sufficient evidence to this effect. 4. The second issue in ground Nos. 5 and 6 is against the disallowance of expenses towards discharge of guarantee obligation in respect of M/s. Tamil Nadu Alkaline Batteries Ltd. and UNITEL Communications Ltd. According to the assessee, the Bangalore Bench of the Tribunal in the assessee's own case for the earlier year had allowed the guarantee obligation. 7. The fifth issue relates to legal fees paid to M/s. Fraser and Ross as revenue expenditure under section 37(1) of the Act. 9. The final issue raised by the assessee is that the Commissioner of Income-tax (Appeals) should have adjudicated on the ground instead of holding that the issue has become final under section 143(1) (a) and could not be agitated in the regular assessment under section 143(3)." 27. The submission relating to the acceptance of deduction by way of "bad debts" by the Tri....
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....s Pharmacia United Ltd., which had a joint venture between the assessee-company and Pharmacia United, Sweden. The advances were made during the course of the assessee carrying on of business activity of money-lending. Due to various developments, the joint venture project was abandoned and, consequently, a sum of Rs. 54.77 lakhs with Pharmacia United Ltd. could not be recovered. The financial position of this company also did not permit any payment. Hence, the assessee had written off this sum as non-recoverable. The assessee's contention is that it had accounted large income from money-lending operations/guarantee obligation which one of its main activities. Hence, the advance to Pharmacia United Ltd., which was made during the course of money-lending business and which could not be recovered, is an allowable deduction under the Income-tax Act and accordingly the assessee prayed for allowing the same. 11. The next bad debt written off relates UB Elastomers Ltd. The assessee during the course of carrying on its money-lending business had advanced a sum of Rs. 264.75 lakhs to one of its group companies called M/s. UB Elastomers Ltd. The details facts of UB Elastomers had been dea....
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....paragraph 20 of the order of the Tribunal which is by way of following the order passed for the earlier assessment year. 31. The submission of Sri Seshachala, learned counsel for the appellant-Revenue on these aspects, is that the order of the Tribunal is totally perverse, not supported by either facts or in law ; that the assessee had not produced any supporting material in the first instance to indicate that the amounts constituted a "debt" owed to the company by the persons in whose favour advances were sought to be written off; that even if it is to be a "debt", for claiming it as "bad debt" in terms of section 36(1)(vii) of the Act, the assessee should have produced proof of the efforts made on the part of the assessee to recover the amount and it is only when such efforts have failed and it is impossible to recover the amount that it can be claimed as irrecoverable debt and, therefore, a "bad debt" can be claimed as an amount to be written off and as a deduction in computing the profits of the year in which it is so written off ; that such is the requirement even in ms of section 36(1)(vii) of the Act which reads as under: "36.(l)(vii) Subject to the provisions of sub (....
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....unt should have been a debt incurred in the course of carrying on the business activity of the assessee and in the present state of facts, the assessee had never made good as to how the amount had become a "debt" as an amount either lent on any terms or for the necessity of the business and under what commitment and what terms it should have been repaid, etc. 34. The fact that these amounts had never been reflected in the books of account of the assessee for the earlier year's and also that no income by way of interest had been offered to tax is also a circumstance pointed out by Sri Seshachala, learned senior standing counsel for the appellant-Revenue to submit that the claim by way of "debt" itself is not tenable and to further claim that it is a "written off bad debt" is something which is incomprehensible and, therefore, the order passed by the Tribunal in reversing the findings of the two lower authorities on this aspect is nothing short of perverse finding, liable to be reversed and these questions to be answered in favour of the Revenue. 35. It is also pointed out by Sri Seshachala, learned senior standing counsel appearing for the Revenue that the assessee cannot blow....
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....s placed reliance on the decision of the Supreme Court in the case of Bharat Sanchar Nigam Ltd. v. Union of India reported in [2006] 282 ITR 273, particularly with reference to the observations made at paragraph 15 which reads as under (page 286): "15. The decisions cited have uniformly held that res judicata does not apply to matters pertaining to tax for different assessment years because res judicata applies to debar courts from entertaining issues on the same cause of action whereas the cause of action for each assessment year is distinct. The courts will generally adopt an earlier pronouncement of the law or a conclusion of fact unless there is a new ground urged or a material change in the factual position. The reason why courts have held parties to the opinion expressed in a decision in one assessment year to the same opinion in a subsequent year is not because of any principle of res judicata but because of the theory of precedent or the precedential value of the earlier pronouncement. Where facts and law in a subsequent assessment year are the same no authority whether quasi-judicial or judicial can generally be permitted to take a different view. This mandate is subjec....
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....ed by way of irrecoverable debt, etc., and not by simply saying it is not a real income and therefore deserves to be excluded even when the assessee itself had reflected the amount, in its books of account and the balance-sheet for the relevant period, following the mercantile system of accounting adopted by the assessee and which balance-sheet in fact had been placed before the shareholders at its annual general meeting to substantiate the claim of the assessee-company, with regard to the profits earned by the company for the year in question. 43. It is therefore submitted this finding is not sustainable at all both in law and on the facts and based on the relevant statutory provisions and in support of this submission, reliance is placed on the decision of the Supreme Court in the case of State Bank of Travancore v. CIT reported in [1986] 158 ITR 102 and in particular reliance is placed on paragraph 31 which reads as under (page 152): "The concept of reality of the income and the actuality of the situation are relevant factors which go to the making up of the accrual of income but once accrual takes place and income accrues, the same cannot be defeated by any theory of real....
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.... impugned order of the Tribunal does suffer from the vice of being of non-speaking order, would nevertheless submit that the questions should not necessarily be answered against the assessee and in favour of the Revenue only for this reason and if at all the matter deserves to be remanded to the Tribunal for recording proper findings on all aspects of the matter. 47. Sri Parthasarathi, elaborating his submissions would further contend that the amounts claimed by way of "bad debt" in terms section 36(1) (vii) of the Act are all advances made either to the business associates of the company or business associates of the subsidiary of the assessee-company that such advances were inevitable having regard to the nature of the business of the assessee, namely, one of vending beer; that in this line of business providing its product by way of credit is an inevitable course of business activity and impossibility of realizing certain advances is also a real and a concomitant incidence of such business activity and when the assessee had in fact demonstrated that all the companies in whose favour the assessee-company had advanced the amounts had become either sick or have become defunct or....
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....not real income as when there was no possibility of recovering the capital itself, recovering any interest is too far fetched and therefore the acceptance of the real income theory and the income being not real in the hands of the assessee by the Tribunal was warranted in law and should be sustained and the questions posed on this aspect should be answered against the Revenue and in favour of the assessee. 51. We have not only perused .the orders, but have perused the record also and given our anxious consideration to the submissions made at the Bar by the learned standing counsel for the Revenue and learned counsel for the respondent-assessee and examined the authorities relied upon by the respective counsel. 52. With regard to the first request made by Sri Parthasarathi, learned counsel for the respondent for remanding the matter to the Tribunal to record a proper finding and with reasons, we find that a request of this nature can not be acceded to for the reason that a remand is not for the sake of remand but only when it is warranted and when a finding of fact is conspicuously absent notwithstanding there being supporting material or evidence to arrive at a finding on the....
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....payable in respect of a money demand recoverable by action. In common parlance it is a sum of money due from one person to another. The word "debt" is of large import, including not only debts of record or judgment, and debts by speciality but also obligations arising under simple contract, to a very wide extent, and in its popular sense includes all that is due to a man under any form of obligation of promise. BAD DEBT: Debt which cannot reasonably be collected. A debt about which there is no reasonable expectation of recovery; debt believed to be unrecoverable (section 6 Interest-tax Act), (section 36(1)(vii) Income-tax Act). According to Black's Law Dictionary DEBT: A sum of money due by certain and express agreement. A specified sum of money owing to one person from another, including not only obligation of debtor to pay but right of creditor to receive and enforce payment. BAD DEBT: Uncollectible account receivable, under National Bank Act, an unsecured debt on which interest or payment is past due for at least six months. A debt which is uncollectible; a permissible deduction for tax purposes in arriving at taxable income. Different tax treatment is affor....
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....paid by the assessee as part of discharge of its accumulated obligations and being allowed by the Tribunal relating to substantial question No. 8 for the assessment year 1996-97 it is to be answered in favour of the Revenue and against the assessee for the reason that while the Tribunal does not refer to any supporting material or reasoning to reverse the well considered and well recorded finding of the assessing authority and the first appellate authority, the so called obligations on the part of the assessee are too far fetched and not having any direct proximity or relationship to the business transaction of the assessee. The judgment of this court in the case of the very assessee is not one which is required to be applied and followed for the year 1996-97 also for the reason that in taxation matters, it does not constitute res judicata as each assessment year is different and on this aspect, reliance placed by Sri Seshachala, learned senior standing counsel appearing for the Revenue on the decision of the Supreme Court in the case of CIT v. Birla Brothers P. Ltd. [1970] 77 ITR 751. Each and every expenditure incurred cannot be characterized as a legal obligation and a necessary....
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....ank of Travancore's case [1986] 158 ITR 102 (SC) also fully covers this aspect of the issue against the assessee and in favour of the Revenue. 66. It is only such income which dissipates midway and will never reach the assessee that can be characterized as not income accruing or arising to an assessee and not because even though the assessee gets a right to claim that the amount in reality does not reach the assessee for any reason. 67. While the observations of the Supreme Court in State Bank of Travancore's case [1986] 158 ITR 102 and in Shiv Prakash Janak Raj and Co. P. Ltd. 's case [1996] 222 ITR 583 (SC) are very apt on this aspect, reliance placed by Sri Parthasarathi, learned counsel for the respondent-assessee on the decision of the Supreme Court in Bokaro Steel Ltd.'s case [1999] 236 ITR 315 to the effect that the income being not one reaching the assessee and therefore "no real income" is not attracted to the facts of the case as in the case decided by the Supreme Court, on the facts, it had been demonstrated by the assessee that the entire nature of transaction had been changed and therefore the income ceased to exist in favour of the assessee as the very agreement....
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....trial unit, etc., is to be amortized as part of the investments, we are not impressed either by the submissions that, it is in the nature of "capital expenditure" or that section 35D of the Act is attracted to the facts of the present case. 70. We say so for the reason that an expenditure incurred even in connection with acquiring a capital asset which is in the nature of a fee paid towards consultation for the business expansion, as the expenditure incurred may or may not result in the acquisition of the capital asset itself, it is for the very purpose of finding out the prudence or feasibility of acquiring the asset the assessee seeks an expert opinion on that and an expenditure incurred for such purpose and therefore in our considered view, this expenditure can never partake of the character of "capital expenditure" but is only a "revenue expenditure" and the Tribunal has rightly allowed this amount as "deductible expenditure" though has not spelt out the reason either elaborately or succinctly in its order. Be that as it may, we answer question No. 9 relatable to paragraph No. 37 of the memorandum of appeal in I. T. A. No. 492 of 2001 in favour of the assessee and against th....