TaxTMI 
TaxTMI 
TaxTMI 
2016 (4) TMI 564
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.... and circumstances of the case and in law, the learned CIT (A) erred in not allowing the claim of bad debts being in the nature of irrecoverable advance as business loss under section 37(1) of the Act. 2) Disallowance of interest under section 36(1)(iii) of Rs. 6,53,567 On the facts and circumstances of the case and in law, the learned CIT (A) erred in confirming disallowance of interest under section 36(1)(iii) of the Act without considering the fact that the Appellant had sufficient interest-free funds to finance interest-free advances. The disallowance being bad in law, needs to be deleted." 2. Rival contentions have been heard and record perused. Facts in brief are that he assessee is engaged in the business of development of real estate, trading in TDR and finance. The notice u/s.143(2) of the Act was issued on 18-8-2010 and various details were called for by the AO by issuing notices u/s.142(1) of the Act. The assessee filed various details in response thereto. The assessment was completed by the AO by passing assessment order u/s. 143 (3) of the Act on 30.12.2011 and determining the total income of the assessee at Rs. 87,880/-. The Assessing Officer made following di....
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....s of our company, a conscious decision was taken to write off this amount as bad debt. Accordingly, a resolution was passed in the Board meeting on 28th March 2009 and the said amount has been written off as 'bad debt. " Further, the assessee furnished following justification for claiming the principal amount as bad debts vide letter dated 26/12/2011: . "We submit that as per provisions of Section 36(2), in respect of monies advanced in the ordinary course of business, the same allowab./e as bad debts even if the amount has not been taken into account in computing the total income. This is well accepted position in respect of write off of advances given in the lending business. The present case fully falls within the provisions of sec. 36(2) hence the write off of advances is allowable u/s. 36(1 )(vii). " However, the learned AO did not accept the above submission made by the assessee and held that the same was never an income of the assessee Therefore Rs. 10 crores was considered as capital loss of the assessee. 5. The following facts are not in dispute:- i) The assessee is engaged in the business of real estate and financing. ii)The Objects Clause of the Mem....
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....4 ITR 481 (SC) CIT v Potential Management Services Ltd (2009) 29 (I) ITCL 110 (Cal-HC) DCIT v SREI International Finance Ltd. [2006]10 SOT 722 (DELHI) Ajar Entrade (P.) Ltd.v ACIT [2005]2 SOT 511 (AHD.) Matrix Logistics (P.) Ltd. v CIT [2010]122 ITD 228 (AHD.) Poysha Oxygen (P.) Ltd. v ACIT [2008]19 SOT 711 (DELHI)(TM) Small Industries Development Bank of India v Addnl CIT [2009] 32 SOT 536 (MUM.) A gist of the aforesaid rulings is enclosed in Annexure 1. 2.14. It is also a settled position that a write off of a trade debt in the books of accounts is sufficient to claim the bad debts under the Act. A copy of the ledger of the party highlighting the write-off is enclosed herewith for your perusal. 2.15, Based on the above, the disallowance of the claim of bad debts in respect of advances to M/s c.Bhansali is bad in law and therefore. the Appellant request your Honour to delete the same. (b) Without prejudice to the above and without admitting, On the facts and circumstances of the case and in law, aforesaid amount of Rs. 10 crore should be allowed as business loss to the appellant. 2.16. The Appellant submits that without prejudice to the above, the ....
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....y Chettiar [1946] 141TR 236 (MAD.) Section 37(1) of the Income-tax Act, 1961 [Corresponding to section 10(2)(xii) (Now section 10(2)(xv» of the Indian Income-tax Act, 1922]- Business expenditure - Allowability of - Assessment year 1940-41 - Assessee, a Nattiukottai Chettiar engaged in money-lending business, sought to deduct under section 10(2)(xii) of 1922 Act certain sum of loan for which he guarantee and which he had to make good on borrowers failure to repay had given - It was common practice among Nattukottai Chettiars to borrow from banks for purpose of lending out sums so obtained at higher rates of interest and to stand surety for one another in these borrowings - Whether by reason of aforesaid practice, sum paid by assessee should be regarded as loss incurred by assessee in carrying on his money-lending business and, therefore, he Was entitled to deduction under section 10(2)(xii) of 1922 Act - Held, yes 2.19. Based on the above, the Appellant requests your Honour to allow this ground of appeal and delete the disallowance of write-off of advances." 5. By the impugned order, the CIT(A) confirmed the disallowance after dealing with the issue at para 3.3 at pages 6....
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....s business loss u/s.28/37 of the I.T.Act. The case laws cited before the CIT(A) fully support the conclusion that money given in ordinary course of business for the purpose of business if remains non-recoverable, the same is to be allowed as business loss u/s.28/37 of the I.T.Act. 8. We found force in the alternate plea of the assessee that advance given to M/s C.Bhansali Developers Pvt. Ltd. in order to purchase certain commercial premises and for reservation by way of booking in their upcoming project at Old Mumbai Pune Highway, Khapoli was in the ordinary course of business of assessee as developer. Since the amount could not be recovered even after much persuasion the assessee company passed a resolution in its Board meeting held on 28-3-2009, and the said amount has been written off as bad debts. The money given in the ordinary course of business as advance if could not be recovered is allowable u/s.28/37 of the I.T.Act. The claim of the assessee has to be seen from the angle of the provisions of Section 37(1) of the Act, wherein it is provided that all expenditure relating to carrying on of the business is to be allowed as deduction while computing the income chargeab....
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....egarding provision of non-performing assets do not constitute expenses on the basis of which deduction could be claimed by the NBFC under Section 36(1)(vii) or section 37(1) and the same is to be added back to the total income even by applying the theory of real income. The Hon'ble Supreme Court further observed that since a provision for doubtful debt is kept out of the ambit of the bad debt by Explanation to Section 36(1)(vii), the said Explanation has to be taken into account in the computation of total income under I.T.Act and that section 37 applies only to items which do not fall under Sections 30 to 36. However, in the instant case before us, it is not a case of provision of any doubtful debts nor provision of NPA as suggested by Hon'ble Supreme Court. It is a case of irrecoverable advance given in the normal course of assessee's business for purchase of certain commercial premises, reservation by way of booking in the upcoming project. The amount so paid does not fall under any of the provisions of Section 30 to 36 nor it is in the nature of capital expenditure, insofar as it was not for acquiring any capital asset but to buy/reserve place in the upcoming project, which is ....