TaxTMI 
TaxTMI 
2019 (1) TMI 400
X X X X Extracts X X X X
X X X X Extracts X X X X
....2. 4. On a perusal of the assessment order and appellate order of the Ld. Commissioner of Income-tax (Appeals), we find that the issue has been decided against the assessee by the Tribunal. Thus, respectfully following the said order of the Tribunal for the Assessment Year 2006-07, we sustain the action of the Assessing Officer as well as the Appellate authority and reject the grounds raised by the assessee on this issue. 5. The second ground of appeal, in the appeal of the assessee is with regard to the addition sustained by the Ld.CIT(A) in respect of the advances written off by the assessee. 6. Briefly stated the facts are that, the assessee an individual filed return of income on 8.8.2011 in response to notice u/s. 142(1) declaring loss of Rs..1,66,08,851/-. As the assessee filed return beyond the time specified u/s. 139(4) of the Act the return filed by the assessee was treated as invalid return. Subsequently, the assessment was reopened by issue of notice u/s. 148 of the Act and the re-assessment was completed u/s. 143(3) r.w.s. 147 of the Act on 27.02.2014 determining the income of the assessee at Rs..10,55,25,340/-. 7. While completing the re-assessment the Asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e had to rescue her, as non-payment of loans would have resulted into criminal proceedings against her which would have created a serious crisis in his carrier as a film artist having substantial reputation. Therefore, it was contended that since assessee's wife had no source of income, non-payment of the debts owed by here to borrowers would have resulted in consequences u/s. 138 of the Negotiable Instrumental Act which are criminal in nature resulting in irreparable damage to his reputation besides causing several mental trauma. 9. It was further contended that assessee stood as guarantor to the amounts borrowed by his wife and therefore any default of her would have resulted in his personal guarantees being invoked. Therefore, in order to preserve his image as an actor he had to resort to borrowings from banks to pay all the debts incurred by his wife. Therefore, it was contended that the said loans are advanced to ensure the recovery of his old loans, to improve his image as an actor for preserving his image as an actor besides preventing any criminal proceedings being lodged against the assessee as well as the assessee's wife. 10. However, Assessing Officer not convinced....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 1 and Page No. 9 of the Paper Book which are the agreements entered by the assessee with Innetwork Entertainment Ltd, submitted that assessee stood as guarantor for Mrs. Ayesha Shroff for the loans taken by her for production of films in which the assessee was acted as hero to carryon successfully his carrier. Referring to Clause 31 of the Guarantee Agreement dated 26.07.2002 and Clause 22 of the Guarantee Agreement dated 29.07.2002, it is submitted that the assessee being the guarantor, guarantee the payments of all the amounts due and payable by M/s. Quest Films in case of default or breach of any of the terms and conditions on the part of the producer. Ld. Counsel for the assessee, therefore, submitted that the said loans were advances by the assessee to ensure the recovery of his old loans and to improve his image as an actor, for preserving his image as an actor besides preventing any criminal proceedings being lodged against him or wife. Therefore, it is submitted that the amounts advanced to by the assessee to his wife is in the nature of business advances and should be allowed as business loss. The Ld. Counsel for the assessee placed reliance on the following decisions in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....were advanced for producing the films by assessee's wife as she did not have any independent source of income. It was the submission of the assessee that the amounts were advanced in the course to build his carrier and there is a business exigency in advancing moneys to his wife, therefore, it should be allowed as business loss. However, Assessing Officer denied the claim of the assessee for the reason that the assessee is not in any money lending business and the expenses cannot be allowed as wholly and exclusively incurred for the purpose of assessee's business. We find that the Ld.CIT(A) accepted the contentions of the assessee that the money's advanced by the assessee to M/s. Quest Films and also to Mrs. Ayesha Shroff are in the nature of business advances observing as under: "6. I have considered the facts of the issue and the submissions of the AR. The Appellant is a noted film star in the Hindi film world. There is no doubt that he was a super star in 1994-1999. However, after this his career started lagging behind and he only played side roles. It is common for film stars to start their 'home productions' to promote themselves. Some succeed, some don't.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....une of Rs. 6,25,238/-. The AO sought explanation from the assessee. The assessee filed reply dt. lih July, 2007 submitted that the loan of Rs. 2 crores was taken from Bank of India in the financial year 2002-03 and loan of Rs. 50 lakhs was taken from Kokan Mercantile Bank in the financial year 2003-04 for discharge of personal liabilities. The AO was of the opinion that the loan has been taken for repaying personal liabilities and purchase of assets. The AO further observed that the assessee has given loan of Rs. 9,97,47,562/- to various parties from whom no interest is offered as income. The AO disallowed Rs. 25,99,311/- and added back to the income of the assessee. Before the Ld. CIT(A), the assessee reiterated his submission that these amounts were borrowed for purchase of assets and also for discharging personal liabilities. After considering the submissions and the materials on record, the Ld. CIT(A) concluded that similar issue had arisen in the past wherein his predecessor in office has allowed claim of interest. In particular, the Ld. CIT(A) referred to the case of A.Y. 1996-97 following his predecessor's decision, the Ld. CIT(A) allowed the appeal of the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mal course of business, the repayment of these debts was allowable as a deduction in computing total income. 6.6. Further, in the other decisions cited by the Appellant, the ratio of decisions is that one has to consider the facts and circumstances of each case and it cannot be held that merely because the advances were given to associate concerns, the same were not in the normal course of doing business even though the assessee was not in the business of lending money. 6.7. In my opinion considering all the facts and the decisions relied upon by the Appellant, the view taken by the AO that the said advances are mere personal loans given to Quest Films and Ayesha Shroff cannot be accepted. The AO has also not rebutted the Appellants claim that the said amounts have been given to Quest Films / Ayesha Shroff for producing films. Merely because the loans are advanced by the Appellant to his wife or to her proprietory concern cannot be the only criteria for holding that loans were personal in nature. 6.8. The AO's reliance on the decision of the Supreme Court in the case of S. A. Builders is completely misplaced. In fact, this decision actually supports t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncern, and what the sister concern did with this money, in order to decide whether it was for commercial expediency, but that has not been done. It is true that the borrowed amount in question was not utilized by the assessee in its own business, but had been advanced as interest free loan to its sister concern. However, in our opinion, that fact is not really relevant. What is relevant is whether the assessee advanced such amount to its sister concern as a measure of commercial expediency. Learned counsel for the Revenue relied on a Bombay High Court decision in Phaltan Sugar Works Ltd. v. CWT [1994] 208 ITR 989 1 in which it was held that deduction under section 36(l)(iii) can only be allowed on the interest if the assessee borrows capital for its own business. Hence, it was held that interest on the borrowed amount could not be allowed if such amount had been advanced to a subsidiary company of the assessee. With respect, we are of the opinion that the view taken by the Bombay High Court was not correct. The correct view in our opinion was whether the amount advanced to the subsidiary or associated company or any other party was Advanced as a measure of commerc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uction u/s. 36(1)(vii) / 37(1) of the Act. 19. The Hon'ble Bombay High Court in the case of CIT v. R.B. Rungta & Co. (supra) held as under: - "3. In our opinion, the argument of Mr. Joshi that the Tribunal was not entitled to consider the claim of the assessee for deduction as coming within section 10(1) is not sustainable. It may be that the assessee in claiming a particular deduction, after having set out the facts and circumstances and the manner in which his claim arose, labelled it wrongly and claimed it as falling under a head under which it does not fall. Such a wrong label attached by the assessee to his claim, however, will not disentitle him from getting the relief under the proper head to which the claim belongs if all the facts necessary for treating the claim under that head have been already stated by the assessee and no further investigation into any fresh facts is found to be necessary to give the assessee the said relief. In the present case, the facts which the assessee put before the Income-tax Officer and the Tribunal were that he had entered into these transactions on behalf of his constituents. The constituents had suffered losses and when the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess as an adatiya the assessee had to make those payments to the association." 20. As could be seen from the above decision of the Hon'ble Jurisdictional High Court wherein it has been held that the assessee is entitled to claim a benefit under appropriate head even though it has been wrongly claimed under a particular head. In the case on hand before us though the assessee made his claim that it should be allowed as bad debt the advances written off by the assessee are allowable as business loss u/s. 28 of the Act, since the assessee has proved that loans were advanced for commercial reasons and it is not a personal loan. 21. In the case of Patnaik & Co. Ltd. v. CIT (supra)the Hon'ble Supreme Court held as under: - "5. According to the statement of the case drawn up on the basis of the appellate order of the Appellate Tribunal the assessee was told that if it subscribed for the Government Loan preferential treatment would be granted to it in the placing of orders for motor vehicles required by the various Government Departments and to the further benefit of an advance from the Government up to 50 per cent of the value of the orders placed. Pursuant to that u....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... payable by the producer the brother of the Assessee by invoking the guarantee agreement and the assessee being a guarantor treated the amount as having been lost in the business and claimed the same as business loss. The Tribunal held that such loss incurred by the assessee was in the course of the carrying on business and should be allowed as business loss u/s. 28 of the Act which decision was confirmed by the Hon'ble Bombay High Court. 24. In the case of Sassoon J. David & Co. (P.) Ltd. v. CIT (supra) the Hon'ble Supreme Court held as under: - "1. The assessee-company was neither dissolved nor was its business undertaking sold. It continued to exist as a juristic entity even after the transfer of its shares by D in favour of T. No doubt that on account of such transfer of shares, the transferees gained control on the assessee Co., but neither D nor T derived any direct benefit out of the payment of retrenchment compensation even though such retrenchment might have facilitated the transfer of shares. The High Court wrongly placed more emphasis on the motive with which the amount was expended than the fact that the expenditure was incurred in connection with th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....entitled to deduction even though there was no compelling necessity to incur such expenditure. The fact that some body other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)9xv) if it satisfies otherwise the test laid down by law." 25. As could be seen from the above, the Hon'ble Supreme Court held that money expended on the ground of commercial expediency and in order indirectly to facilitate to carrying on of the business is an allowable expenditure. It was also held that such expenditure may be incurred voluntarily and without any necessity and if it is incurred for promoting the business and to earn profits, the assessee is entitled to deduction, even though there was no compelling necessity to incur such expenditure. 26. In the case of S.A Builders Ltd. v. CIT [288 ITR 1] the Hon'ble Supreme Court observed as under: - "The expression "commercial expediency" is an expression of wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. The expenditure may not have been incurred under any legal obligation, but....