2018 (2) TMI 1091 - AT - Income Tax

Section 80G disallowance - Held that - We are of the opinion that both the lower authorities have erred in law as well as on facts in this peculiar circumstances to interpret the relevant statutory provision Section 80G of the Act in an unsustainable manner which tantamounts to denying the necessary relief in both assessment years i.e. the year of actual payment as well as that of getting the necessary donation receipt. The purpose of using the crucial expression in relevant previous year in statute is to ensure actual payment on or before the relevant previous year rather than altogether rejecting a case alike the instant facts only. We therefore accept assessee s first substantive ground to delete the impugned Section 80G disallowance under challenge. Disallowing of claim of sundry balances - Held that - We find that Peninsular Plantations Ltd. vs. ACIT 2014 (4) TMI 214 - KERALA HIGH COURT holds that such a specific money lending clause is not necessary as it is very much possible for a company to lend money to another entity even in absence of a money lending clause. Their lordships are of the view that the test in such a case would be as to whether the transaction in question has taken place in ordinary course of business or not. The assessee s above referred evidence sufficiently indicates that it had proposed to charge interest on the advances in question given through banking channel. We conclude that the money in question advanced as per its above object clause or for that even in absence of object clause amounted to a transaction in its ordinary course of business only. Both the lower authorities corresponding finding by this effect accordingly stand reversed. Treating the impugned write off as a capital loss and not revenue in nature so as to be deposited against income of the impugned assessment year - Held that - As assessee has advanced the sum in question of ₹ 60lacs and ₹ 40lacs to M/s. Bhagyam Industries Pvt. Ltd. and M/s. Dolphin Metal (India) Ltd. totaling to ₹ 1 crore through banking channel in its ordinary course of business in lieu of charging interest and non recovery thereof for almost three years formed sufficient reason to write them off as sundry balances as revenue loss to be adjusted against its income of the impugned assessment year. The assessee s second substantive ground is accordingly accepted.

Summary

Issues Involved:
1. Disallowance of Section 80G deduction claim.
2. Disallowance of sundry balances written off.
3. Partial disallowance of Section 36(1)(iii) interest.

Issue-wise Detailed Analysis:

1. Disallowance of Section 80G Deduction Claim:
The first issue concerns the disallowance of a Section 80G deduction claim amounting to ?11,11,111. The assessee had donated this amount to "Shankersingh Vaghela Bapu Charitable Trust," which had a valid registration under Section 80G of the Income Tax Act since 18.07.2008. The donation was initially a loan given on 14.08.2008 and later converted into a donation on 14.08.2011. The Assessing Officer disallowed the claim because the donation was not paid during the relevant previous year and was merely a book entry converting a loan into a donation. The CIT(A) upheld this disallowance, stating that the donation must be paid in the year under consideration and that the conversion of a loan into a donation does not meet the criteria for a deductible expenditure under Section 80G. The Tribunal found that the CIT(A) had adopted a hypertechnical approach and failed to consider the substantive justice. The Tribunal concluded that the disallowance was incorrect and deleted the disallowance of ?11,11,111.

2. Disallowance of Sundry Balances Written Off:
The second issue involves the disallowance of sundry balances written off amounting to ?1,00,00,000 in the case of M/s. Bhagyam Industries Pvt. Ltd. and M/s. Dolphin Metal (India) Ltd. The assessee argued that these advances were made in the ordinary course of business and should be allowed either under Section 36(1)(vii) as bad debts or under Section 37 of the Act. The Assessing Officer and CIT(A) disallowed the claim, stating that the advances were not made in the ordinary course of business, lacked due diligence, and were not recoverable. The Tribunal, after examining the relevant documents and case law, concluded that the advances were made through banking channels, and the transactions were in the ordinary course of business. The Tribunal held that the non-recovery of the amounts for a continuous period of three years constituted sufficient reason for the write-off and allowed the claim of ?1,00,00,000 as a revenue loss to be adjusted against the income of the assessment year.

3. Partial Disallowance of Section 36(1)(iii) Interest:
The third issue pertains to the partial disallowance of interest under Section 36(1)(iii) amounting to ?2,22,586 out of ?10,22,586. The assessee's counsel stated that they did not wish to press this ground. Consequently, the Tribunal declined to consider this ground as it was not pressed by the assessee.

Conclusion:
The Tribunal allowed the appeal partly by deleting the disallowance of the Section 80G deduction and the sundry balances written off, while the partial disallowance of interest under Section 36(1)(iii) was not pressed by the assessee.