TaxTMI 
TaxTMI 
2018 (12) TMI 49
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....sessment year 2001-02, the appellant filed return of income on 10.10.2001 declaring a total income of Rs. 1,33,83,287/-. The return was processed under Section 143(1) of the Income Tax Act, 1961 (for brevity, the Act). Subsequently, the notices under Sections 143(2) and 142(1) of the Act were issued. The assessment was completed under Section 143(3) of the Act on 29.3.2004 and the total income was determined at Rs. 1,44,83,290/-. While doing so, the Assessing Officer disallowed a sum of Rs. 16,05,000/- representing bad debts written off by the assessee. 5. The assessee's case was that in the normal course of business, they advanced money to a firm namely M/s.Deccan Pictures Private Limited for a Telugu movie project. According to the assessee, the project did not take off and the assessee was not in a position to realize the amount so advanced by them for the said venture. Hence, the assessee had written off the amount as normal business expenditure. 6. For the assessment year 2001-02, the assessee claimed a sum of Rs. 16,05,000/- representing bad debts as deduction. However, the Assessing Officer disallowed the same. On appeal before the Commissioner of Income Tax (Appea....
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....erable and it shall be deemed that such debt or part thereof has been written off as irrecoverable in the accounts for the purposes of the said Clause. 10. Explanation 1 states that for the purposes of Clause (vii), any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee. Explanation 2 states that for the removal of doubts, it is clarified that for the purposes of the proviso to Clause (vii) to Sub-Section (2) of Section 36 of the Act and Clause (v) to Sub-Section (2) of Section 36 of the Act, the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under Clause (viia) and such account shall relate to all types of advances, including advances made by rural branches. Sub-Section (2) of Section 36 states that in making any deduction for a bad debt or part thereof, the provisions under Clauses (i) to (v) shall apply. In the case on hand, Clause (i) would be relevant, which states that no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income ....
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....it and loss account for the year 1997-98, came to the conclusion that the advances were out of the excess liquidity available with the assessee in order to earn extra income from the excess funds available. Furthermore, the partnership deed, by which, the assessee was established, provided a clause for the assessee to invest the surplus funds on ventures like that of movie production. Thus, the CIT (A) concluded that the assessee advanced money to its sister concern possibly for producing a film and perhaps, it could not get back the advance and therefore, they had written off the entire sum due and ultimately agreed that the assessee's case squarely fell under Section 36(1)(vii) of the Act and it could not be disallowed. Accordingly, the appeal filed by the assessee was allowed. 15. On appeal by the Revenue, the Tribunal, while reversing the order passed by the CIT(A), relied upon the decision of the Tribunal of Mumbai 'G' Bench in the case of Grindwell Norton Ltd. Vs. DCIT [(2004) 91 ITD 412] and held that the amount advanced to sister concern was not for business purposes of the assessee and therefore, the amount so advanced, when lost, would not constitute tradin....
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....the situation, the case of the assessee would squarely fall within Clause (i) of Section 36(2) of the Act, which provides for money lending business carried on by the assessee. The CIT(A) had given a factual finding that the amount advanced to M/s.Deccan Pictures Private Limited, Telugu was not out of borrowed funds, but out of surplus income of the assessee firm. Therefore, the case of the assessee would squarely fall within the ambit of Section 36(1)(vii) of the Act. 21. Now, the question would be as to whether the Tribunal was justified in rejecting the case of the assessee by relying upon the decision of the Tribunal at Bombay in the case of Grindwell Norton Ltd. 22. Firstly, we find that the facts of the said case are totally different, as, in the said case, the claim for deduction was under Section 28 of the Act. The Tribunal at Bombay, after taking into consideration the factual situation, held that the claim of the assessee therein had to be considered under Section 37(1) of the Act and not under Section 28 of the Act as claimed by the assessee therein. Therefore, under the said context, the Tribunal at Bombay came to the conclusion that the assessee therein was no....