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2020 (8) TMI 805
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.... in the circumstances of the case, and in law, the Ld CIT(A) erred in sustaining the disallowance of all expenses aggregating to Rs. 83,72,085/- (inclusive of bad debts written off of Rs. 76,11,276/-) debited to the profit & loss account of M/s. Raunak Agency ('RA'), a proprietary concern of the appellant, made by the Ld. AO on the ground that the business of RA was closed. 1.2 The Ld. CIT(A) failed to appreciate, and ought to have held, that RA was a part of the same business of running lottery agency carried on by the appellant at different locations, though in different names; and thus, the appellant continued to carry on the business that entitled the appellant to claim the aforesaid legitimate business expenses (including bad debts written off). In view of above, the appellant prays that deduction be allowed for the expenses of Rs. 83,72,085/- (including for bad debts of Rs. 76,11,276/-) in accordance with the law. 2. Disallowance of Debit Balances written off in M/s. Amber Agency: 2.1 On the facts and in the circumstances of the case, and in law, the Ld. CIT(A) erred in sustaining the disallowance of Rs. 1,10,42,315/- out of the deb....
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....sessing officer after issuing show cause and considering the reply of the assessee, disallowed business expenses and bed debts by taking view that RA stopped its business activity in financial year 2010-11 and that in absence of business activity the assessee is not entitled of deduction under Chapter IV of Income tax Act. Hence, entire expenses and the bed debts aggregating of Rs. 83,72,085/- was disallowed. The assessee also claimed bed debts in Amber Agency (AA) of Rs. 1,32,41,948/- out of which a sum of Rs. 1,10,42,315/- was in respect of MLPL, a company wherein the assessee hold 95% of shares. The assessing officer after issuing show cause and considering the reply of the assessee also disallowed the entire claim in Amber Agency by taking view that the assessee has substantial interest in MLPL and the assessee developed camouflage device. The assessing officer while disallowing the claim of assessee relied on the decision of Hon'ble Supreme Court in McDowell (154 ITR 148 SC). On appeal before first appellate authority / learned CIT(A), the action of the assessing officer on both the claims was confirmed. Thus, further aggrieved by the order of ld CIT(A) the assessee has filed ....
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....n the books of Amber agency for FY 2011-12, • Copy of ledger account of MLPL (loan account) in the books of Amber agency for FY 2011-12, • Copy of revised Ledger account of MLPL(sales account) in the books of Amber agency for FY 2011-12, • Copy of revised ledger account of MLPL (loan account) in the books of Amber agency for FY 2011-12, • Copy of purchase account of MLPL for FY 2010-11 and 2011-12 reflecting purchased made from Amber agency, • Copy of sales register of Amber agency for FY 2010-11 and 2011-12 reflecting sales made from MLPL. • Copy of ledger account of MLPL in the books of Amber agency for FY 2010-11, • Copy of ledger account of MLPL in the books of Raunak agency for FY 2010-11 and • Copy of various written submissions furnished before assessing officer and ld CIT(A). 4. To buttress his submission, the learned AR of the assessee relied upon the decision of following decisions; • Shreyas S Morakhia Vs DCIT (ITA No. 198/Mum/2009) dated 27.11.2011, • Gujarat High Court in Bansidhar (P)Ltd versus CIT (1981 5 Taxman 158 Gujarat), â....
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....s and in alternative as business loss with regard to the one limb of business which was closed, under the second limb of his business, held as under; "10. Rival contentions heard. On careful consideration of the facts and circumstances of the case and on perusal of the papers on record, orders of the authorities below as well as the case laws cited before us, we hold as follows:- 11. The business of the assessee is that a share trader and was trading both in his own behalf as well as on behalf of third parties. In earlier year, the assessee sold Stock Exchange Membership Card and discontinued trading in shares on behalf of third parties. Trading in shares on own account was continued. On these facts, we have to see as to whether it can be said that the assessee is continuing with his business. We examined the case laws relied upon both the parties. 12. The Hon'ble Supreme Court in Standard Refinery & Distillery Ltd. (supra), was considering the case of a company which owned distilleries and had also acquired a sugar factory. It had a business of sugar manufacturing and distilleries as well as business of dealing in shares. The assessee sold certain shares and ....
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....rnish a strong indication that the two businesses construed a same business. When there is common management and common control in business, it was held that the assessee was entitled to carry forward the loss in import business and set it off against the profits of export business in the subsequent year. 14. The Hon'ble Jurisdictional High Court in Principal Officer, Laxmi Surgical Pvt. Ltd. (supra), was considering the case of an assessee which manufactures a surgical cotton. The manufacturer, on own account, was discontinued by the assessee but the production of surgical cotton was continued on job basis from an another manufacturer. The Hon'ble Court held that the same business continues and loss and depreciation of the earlier year can be carry forward and set-off. 15. The Hon'ble Jurisdictional High Court in Shri Laxmi Printing & Dyeing Works Pvt. Ltd. (supra) was considering the case of an assessee which was carrying on the business of processing of cloth with the aid of his own machinery. For the year ended 1957-58, there was carry forward unabsorbed depreciation. In the year 1956, the assessee company entered into an agreement with "B" Limited for pro....
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....cases discussed above, we are of the considered opinion that the assessee's business of trading in shares is a composite business which had two limbs, (i) trading on own account and (ii) trading on account of third parties. Discontinuing of trading in shares on behalf of third parties, in our opinion, cannot be considered discontinuance of business of share trading. The test of unity of control and common management are fulfilled in this case, as this is a case of an individual. The test to determine whether two different ventures can be considered to constitute the same business are not is to see whether there was any interconnection, inter-lacing, inter-dependence, embracing the ventures and whether different ventures were so inter-laced and so dovetailed into each other as to make them into the same business. 19. In our view, the test is fulfilled in this case and, hence, the claim of the assessee of bad debts from brokering business is to be allowed. Coming to the second limb of disallowance, admittedly, the issue whether the conditions under section 36(2) are fulfilled or not, is decided in favour of the assessee by the decision of Mumbai Special Bench in assessee's own case f....
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....usiness was combined with trading activities was again a matter of no consequence because that, by itself, or coupled with the other circumstances present herein, will not lead to the conclusion that there was no inter-lacing or inter-dependence inasmuch as there was a unity of control. Even if different books of account were maintained and the transactions inter se between the different business units were recorded in those books of account, once it was found that ultimately there was a common profit and loss account and balance sheet, that circumstance would pale into insignificance because such a method of accounting would be more for convenience of business than for the purpose of maintaining different identities. The fact that the closure of one business did not affect or lead to the closure of the other businesses was also not of such consequence because no decisive inference could be drawn therefrom. In fact, the closure of two businesses in two years in succession and the third within five years thereafter was circumstance which leads to a reasonable inference that the various businesses were in all probability so closely interconnected that one could not bear the impact of....
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....d single and composite business carried out by the assessee. Both the concerns were engaged in the business of lottery. The assessee was having complete control over both the proprietary concern. The lower authorities disallowed the claim of deduction under chapter IV of the Act only on the ground that no business activity was Raunak Agency. The ld CIT(A) affirmed the action of assessing officer by taking view that the assessee carried two distinct business. We have noted that the status of both the concerns being proprietary concern of assessee and business their activities is not disputed by the lower authorities. Both the entity was engaged in the lottery business. The control over the business of both the concern by assessee is also not disputed by the lower authorities. No contrary fact that the assessee was not having control over the business of both the concern or the business of both the entity was different was brought on record by the lower authorities. 12. Considering the test of unity of control and common management as held by coordinate bench in Shreyas S. Morakhia (supra), by following the decision of Hon'ble Supreme Court in Standard Refinery & Distillery Ltd....
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....the beds debts due from MLPL. The learned AR further submits that the circumstance that leads to such situation was totally beyond the control of assessee. The financial transaction between assessee and MLPL were composite in nature, in that apart from sale of lotteries to MLPL. At that time MLPL had also paid for certain expenses on behalf of the assessee and the assessee had also transferred funds partly for reimbursing those payments and partly by way of financial assistance. Two separate ledger accounts were maintained, at the time payments made by the MLPL on behalf of the assessee were wrongly posted to the credit of ledger account (sales), while payments made by the assessee towards reimbursement were posted in loan accounts thereby increasing the debit balance in the loan account, which was transferred to ledger account (sales) at the time of write off. When these facts were examined by learned CIT (A), the assessee submitted the recast ledger accounts to bi-furcate the debit balance written off on account of sales transaction and on account of loan account. The learned CIT(A) brushed aside this explanation by taking view that it is an afterthought and self-serving evide....
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....We have considered the submissions of both the representative and deliberated on the various case law relied by the ld. AR for the assessee. The assessing officer disallowed the assessee's claim by taking view that assessee write off of debts is claimed to reduce the taxable income by taking reliance on the decision of case law in McDowell (supra). The learned CIT (A) affirmed the action of assessing officer by taking view that amount written off of Rs. 1.10 Crore did not represent debts towards the sales effected, but actually, it represents the loan advanced by the assessee to MLPL. It was also held that the same did not represent money lent in ordinary course of business of money lending and therefore deduction under section 36(1)(vii) could not be allowed. It was further held that, though MLPL written back this sum as advance in its books, it did not pay any tax thereon because he did not claim similar deduction in written off in the sundry balances to the tune of about Rs. 2.00 crore and thereby has suffered losses thus the assessing officer was rightly invoked the case law in McDowell (supra). 20. The alternative claim of assessee was also not accepted by the learned CI....