TaxTMI 
TaxTMI 
2025 (12) TMI 1348
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....eleted the addition of Rs. 4,19,61,906/- by disallowing the expenditure debited to profit and loss account under the head administrative expenses being deposits with M/s. Suchirayu Health Care Solutions Limited, written off by relying on a settlement agreement reached between the Assessee and that party. The claim of the Revenue is that there was a private settlement agreement between two related parties showing it as a business transaction and then such advances are written off as revenue expenditure whereas actually the amount advanced was to acquire a capital asset in the form of an MRI machine. The Ld. CIT(A) has wrongly relied upon the decision of the Hon'ble Supreme Court in 100 ITR 240 despite the facts are distinguishable and not considering the decision of Hon'ble Supreme Court in case of PCIT vs. Khyati Realtors Pvt. Ltd. The Revenue also challenges that the amount of claim for write off is for a colorable device. 4. The briefly stated facts shows that, that the Assessee is a company engaged in the business of medical diagnostic services with MRI, CT scan etc., It is also having a pathological lab and ambulance services. It filed its return of income on 30.10.2018 at a....
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.... as a trading loss. The conditions as required u/s-37(1) have been fulfilled by our company which are restated for the purpose of clarity as under; 1. The expenditure should not be of the nature described in sections 30-36 2. It should have been incurred in respect of business carried on by the assessee. 3. It must not be in the nature of capital expenditure. 4. It must not be in the nature of personal expenditure of the assessee It should not have been laid out or expended wholly and exclusively for the purpose of such business. 5. In your Show cause notice (scn) dated 19/02/2021 you have stated that the assessee company has not fulfilled the conditions laid down in section 37(1) which is not correct and natural justice. For the purpose of business has interpreted very narrowly in your scn. Your kind attention is drawn to the case law of Hon'ble Supreme Court of India in CIT Vs. Dhanrajgiriji Raja Nursing Giriji Raja Nursing (1973) 91 ITR 544 that the department cannot dictate the circumstances in which expenditure is to be incurred. Every businessman knows his interest best. Similarly, the department cannot consider expediency factor, but must confine its examination to the reali....
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....t, the transaction of writing off of deposits is not for the purpose of business is incorrect in our case. For the purpose of business is a wider in scope than mere purpose of earning profits. In our case, the deposit giving to Suchirayu Health Care India Ltd. Is not voluntary in nature but for the purpose of business. It was intended to keep business going upward or continuously with the said company. In other words, the connection of having given deposits earlier and claimed it as expenditure or business loss on settlement of all dues and loans by virtue of an agreement is not only real in the course of business. The Writing off of the deposit is not remote or illusory just because of the related party matter between both the companies. As the commercial expediency must be decided from the businessman point of view, Hubli Scan Centre Ltd written off Non- recoverable deposit as a business loss under section 37(1) is a reasonable business man's view. Having non realized the said deposit under the contractual obligation, and on reaching settlement agreement in the interest of business, the loss so written off has been rightly claimed under section 37(1) in the interest of natural ju....
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....ing from it and ultimately loose it for no reasons. Moreover, in support of the contention that the deposit & loan given to Suchirayu are not voluntary but for the purpose of business, assessee has furnished nothing to establish that it was actually for the purpose of business. 8.1.2 Further, Assessee's contention that it is incorrect to state that assessee has diverted its borrowings for non-business purposes, it can be very well seen from the Financials of the assessee for the year under consideration as well it is assessee's own contention in the assessment proceedings in its own case for A.Y.2016-17 before the Assessing Officer which has categorically been discussed that assessee has utilized entire loan amounts taken from Tata Capital Services and from Karnataka Bank Ltd. to invest in the Shares of Suchirayu Health care Services Ltd. amounting in total to Rs. 5,70,00,000/-. Hence in the Scrutiny assessment proceedings of A.Y. 2016-17 invoking the provisions of section 14, Disallowance of an amount of Rs. 76,93,926 was made as per Rule 8D since interest bearing funds were utilized by the assessee to invest in shares of Suchirayu Health Care Solutions Ltd. from which th....
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....rayu except for the deposit. Assessee has also failed to establish the business exigency to write off the huge amount advanced to its Associate and then to claim benefit of the same by debiting it to P & L account claiming as business loss. Further it is pertinent to note here that during the year under consideration, assessee has not only settled the above terms but has disposed of entire shares held by it of M/s. Suchirayu which fetch Capital Gains to the assessee, it contradicts the fact that the deposit advanced to M/s. Suchirayu was irrecoverable and hence needed to write off from the books. The above transactions trigger to verify its genuineness since no prudent businessman will enter into such alleged business transactions which yield it huge business loss & specifically in this case with the Associate company and it definitely attracts attention of the taxing statute and its relevant provisions. 8.1.5 Since the assesses are Companies, the information pertaining to their activities are available in Public Domain. Likewise, the press release as available in public domain with regard to Suchirayu Health Care Services Pvt. Ltd. is perused. It has not shut down its ope....
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....ance as under:- A. ADDITION NO.-(1): Rs 4,19,61,906/- disallowance of expenditure debited to profit and loss account under the head administrative expenses being deposits written off: 1. The appellant assessee in its submission's states that, "....The transactions as entered into by the assessee company with associate company or for the purpose of business only. In the assessment order it is stated that the assessee Company diverted borrowed funds for the nonbusiness purpose which is factually wrong. The assessee company did enter into an agreement for doing long term business. Having realized that full settlement has happened including all outstanding dues as well as loans except repayment of loan to Tata Capital Ltd. the assessee Company made a decision to write off not recovered deposit as a business loss u/s 37(1)....". 2. The appellant assessee states that, the claim the company diverted borrowed funds for the nonbusiness purpose is factually wrong. The assessee company did enter into an agreement for doing long term business. Having realized that the full settlement has happened including all outstanding dues as well as loans, except repayment o....
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....he amount of Rs 4,19,61,906/- as deposits written off in Note-23; Sr No.-11 under the head administration expenses, and a screenshot of the same is reproduced hereunder: 8. The Ld AO in its submission's states that, "....Thus assessee has failed to substantiate that, the amounts written off were advanced in the regular course of business. As well looking into the volume of the Associate Company which was quite huge & it cannot just go out of the business taking all its assets overnight & become seek. 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. Except the One Time settlement agreement entered into by and between the assessee and its Associate, without establishing the reasonable cause & basis on which the settlement amount was arrived at it cannot be said that assessee has discharged its burden...". The AO states that, theassessee has failed to substantiate that, the amounts written off were advanced in the regular course of business. As well as looking at the volume of the Associate Company which was quite huge & it cannot just go out of the business taking all i....
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....o 4 of the appellant are allowed." 8. Therefore, aggrieved, the ld AO is in appeal before us. The learned departmental representative vehemently submitted that the learned CIT - A has deleted the disallowance for flimsy reasons. It was submitted that it is the loan given to a subsidiary company or an associated enterprises which has been written off and claimed as deduction under section 37 (1) of the act. He specifically referred to the provisions of section 37 (1) and submitted that it has to be an expenditure first, it should be not a capital loss or capital expenditure, it should be wholly and exclusively incurred for the purposes of the business and then only it is allowable. He submitted that in this case it is clearly a deposit/loan was given to an associate concern without any basis and the settlement agreement was entered into for write-off of the above sum, such right of was claimed in the profit and loss account as an expenditure and same is allowed by the learned CIT - A ignoring all the contentions of the learned assessing officer. He submitted that there is no proof that the amount of advance was given by the assessee for the purposes of the business; there is also....
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....t on 1 July 2013 along with another associated concern according to which the second party was also having a hospital business and the assessee was also into the hospital business. The associated concerns expressed its desire to that a medical resonance imaging [ MRI ] machine for which the assessee has an expertise running MRI successfully for over a decade. The parties agreed to purchase MRI machine at the hospital of associated enterprises. The assessee advanced Rs. 5 crores to the other party as a security deposit. Such security deposit was to be paid till the date of acquiring new machine by the associated enterprises. The machine was to be installed by 31st of March 2016 or extended period. In the event of failure to perform the agreed obligation, the assessee will get a right of callback of security deposit with interest at the rate of 12% per annum. The revenue was to be shared from the collection of the machine in the mutually agreed ratio. It is very important to note that both the parties are based at Hubli. 14. This agreement was revised on 1 January 2015 wherein the date of installing the new machine was extended to 31st of December 2016. 15. On 30th day of June ....