2021 (10) TMI 790 - AT - Income Tax

Losses written off - business loss or capital loss - allowability of sum advanced to Blue Ocean Cruises Lines Pvt. Ltd., for the purpose of getting 30% shareholding in a joint venture to be set up between assessee-company and Mr.Oneil Raina for investing into M/s Blue Ocean Crusies Lines Pvt. Ltd.- HELD THAT - As in the present case, the facts shows that assessee made investment of ₹ 5 crore by the shares of M/s Blue Ocean Cruises Lines Pvt. Ltd. and written off the claim as loss. The present facts of the assessee s case shows that the investment was made not for the purpose of expansion of business activity but it was made with a view to creating capital asset in the form of holding shares. As relying on United Breweries Ltd. 2010 (1) TMI 86 - KARNATAKA HIGH COURT we are of the opinion that the claim of assessee cannot be held as business loss rather it is a capital loss . Accordingly, this ground of the assessee is dismissed. Additional ground with the petition - Disallowing the business loss u/s 37(1) - whether advances made were in the nature of trade and not for earning dividend, and since the same was done in the course of business, it would result in a business loss and the same would be allowable as a Business Loss u/s 37(1) - HELD THAT - In our opinion, there is a good and sufficient reason in not raising this ground on earlier occasion. Accordingly relying on the judgment of NTPC 1996 (12) TMI 7 - SUPREME COURT , we admit the additional grounds, as there is no question of investigation of fresh facts on this issue. Accordingly additional ground is admitted. Treatment of investment in shares, lee deposits MDLR airlines and miscellaneous deposits as business loss - With regard to investment in shares as business loss , we have already held in earlier paragraph that it is a capital loss and hence there is no question of adjudicating this ground on this issue by way of additional ground. Accordingly, with regard to the treatment of loss of investment is a capital loss , therefore, additional ground related to this issue is dismissed. MDLR airlines and miscellaneous deposits - Before the lower authorities, the assessee claimed bad debt u/s 36(2) of the Act which was disallowed on the reason it has not satisfied on decisions laid down in sec. 36(2) of the Act. However, before us, the assessee claimed it as deduction u/s 37 of the Act and which was not examined by the lower authorities. Hence, in the interest of justice, we remit the issue to the files of AO for fresh consideration. The assessee has to place necessary evidences viz., name and address of the parties concerned. With these observations, these two issues are remitted to the files of AO for fresh consideration. Addition u/s 41(1) - HELD THAT - The assessee has shown the above amount as outstanding from 5 parties and no confirmation was filed by the assessee from those 5 parties. Hence, the above amount was considered as cessation of liability u/s 41(1) of the Act. Before us also assessee was not able to produce any evidence to suggest that the said amount was actually outstanding on the date of balance sheet. Hence, lower authorities justified in treating it as a cessational liability by invoking the provisions of sec. 41(1) of the Act.

Issues Involved:
1. Allowability of advances written off as bad debts or business loss.
2. Confirmation of addition under Section 41(1) of the Income Tax Act.
3. Treatment of Lee deposits and miscellaneous deposits as business loss.
4. Levying of interest under Section 244A of the Income Tax Act.
5. Admission of additional grounds by the assessee.

Detailed Analysis:

1. Allowability of Advances Written Off as Bad Debts or Business Loss:
The primary issue is the allowability of ?5 crores advanced to Blue Ocean Cruises Lines Pvt. Ltd. for acquiring a 30% shareholding, which the assessee claimed as a business loss after the company shut down. The assessee argued that the investment was for business purposes, citing the Karnataka High Court's decision in the case of M/s ACE Designers Ltd., which allowed such losses as business losses when made for commercial expediency. However, the Tribunal distinguished the present case, noting that the investment was intended to create a capital asset in the form of shares, and thus, should be treated as a capital loss rather than a business loss. The Tribunal referenced the Karnataka High Court's decision in CIT(A) Vs. United Breweries Ltd., which held that advances for securing shares are capital expenditures and not deductible as business losses.

2. Confirmation of Addition under Section 41(1) of the Income Tax Act:
The assessee contested the addition of ?1,28,301 under Section 41(1) of the Act, arguing that the trading liability was not written off in the books and no benefit was derived from the cessation of liability. However, the Tribunal upheld the lower authorities' decision, as the assessee failed to provide confirmation from the concerned parties, justifying the addition as cessation of liability under Section 41(1).

3. Treatment of Lee Deposits and Miscellaneous Deposits as Business Loss:
The assessee claimed amounts given to MDLR Airlines and various service providers as bad debts under Section 37(1) of the Act, arguing that these became irrecoverable due to business shutdowns. The Tribunal noted that these claims were initially disallowed under Section 36(2) but were now being claimed under Section 37. The Tribunal remitted the issue back to the Assessing Officer (AO) for fresh consideration, instructing the assessee to provide necessary evidence, including the names and addresses of the parties concerned.

4. Levying of Interest under Section 244A of the Income Tax Act:
This issue was not specifically detailed in the judgment, and thus, no specific analysis was provided.

5. Admission of Additional Grounds by the Assessee:
The Tribunal admitted the additional grounds raised by the assessee, relying on the Supreme Court's judgment in the case of NTPC, which allows for the admission of new grounds if there is no need for fresh fact investigation. The additional grounds pertained to the treatment of investments and deposits as business losses, which were remitted to the AO for fresh consideration.

Conclusion:
The appeal was partly allowed for statistical purposes, with the Tribunal directing the AO to re-examine certain claims. The Tribunal upheld the treatment of the ?5 crores investment as a capital loss and confirmed the addition under Section 41(1). The issues concerning Lee deposits and miscellaneous deposits were remitted back to the AO for fresh consideration.

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