2021 (7) TMI 1238 - AT - Income Tax

Accrual of Capital Gain - Surplus which arose on sale through the appellant, of the mortgaged plots of land by the mortgagee of the plots - CIT-A assessment long term capital gain - HELD THAT - Assessee company has voluntarily sold the mortgaged property and has received the sale proceeds thereof through banking transactions at the market value, hence surplus arising on the sale of agricultural land declared as capital gain by the assessee has been rightly subjected to taxable income of the assessee for the year under assessment. So, finding no illegality or perversity in the impugned findings returned by the ld. CIT(A), ground nos.1, 2 3 are determined against the assessee. Addition on account of bad debts written off not due to business exigencies but due to collusive nature of transaction as provided under section 36(1)(vii) - CIT (A) deleted the addition by thrashing the facts and settled principle of law on the issue in question - HELD THAT - This issue has already been decided in favour of the assessee by the coordinate Bench of the Tribunal in assessee s group company case WGF Financial Services Pvt. Ltd. 2021 (3) TMI 394 - ITAT DELHI we are of the considered view that when the assessee has suffered losses in the ordinary course of business as a guarantor it has to be treated as a business loss which is eligible to be written off as bad debt due to business exigencies. There is not an iota of evidence in the file if this business loss is due to collusive nature of transaction as provided u/s 36(1)(vii) of the Act. So, finding no illegality or perversity in the deletion of addition made by the ld. CIT (A), ground is determined against the Revenue.

Summary

Issues Involved:
1. Taxation of surplus arising from the sale of mortgaged plots of land.
2. Treatment of bad debts written off as business loss.

Issue-wise Detailed Analysis:

1. Taxation of Surplus Arising from the Sale of Mortgaged Plots of Land:

The assessee contested the assessment of surplus from the sale of mortgaged plots as long-term capital gain, arguing it should be excluded from taxable income based on precedents like the Kerala High Court's judgment in CIT vs. Smt Thressiamma Abraham. The assessee also cited the principle of consistency from UOI vs. Kaumudini Narayan Dalal, asserting that the revenue cannot dispute an issue accepted in one case in another.

The Tribunal noted that the assessee, in its ordinary business, acted as a guarantor for loans and mortgaged its plots of land. The lender invoked the guarantee, leading to the sale of the mortgaged plots. The assessee declared the surplus as long-term capital gain in its return. However, the CIT(A) treated the surplus as taxable income, observing that the sales were made at market value and proceeds were received by the assessee.

The Tribunal referred to a precedent involving the assessee's group company, WGF Financial Services Pvt. Ltd., where it was held that the sale consideration received by the assessee and subsequently paid to the lender indicated that the sale was not forced. The Tribunal concluded that the assessee voluntarily sold the mortgaged property, received the sale proceeds, and thus, the surplus was rightly subjected to tax as capital gain.

2. Treatment of Bad Debts Written Off as Business Loss:

The AO disallowed the bad debts written off, amounting to ?20,71,90,000, arguing that the transactions were not in the ordinary course of business and were collusive. The CIT(A) deleted this addition, finding that the losses were incurred in the normal course of business as a guarantor.

The Tribunal referred to a similar case involving the assessee's group company, WGF Financial Services Pvt. Ltd., where it was established that the assessee provided guarantees in its ordinary business and suffered losses due to defaults by borrowers. The Tribunal noted that the transactions were genuine, undertaken through bank accounts and registered deeds, and spread over five years. The Tribunal held that the losses were business losses, not collusive transactions, and thus eligible to be written off as bad debts.

Conclusion:

The Tribunal dismissed both the appeals filed by the assessee and the Revenue. It upheld the CIT(A)'s decision to tax the surplus arising from the sale of mortgaged plots as capital gains and to allow the bad debts written off as business losses. The Tribunal found no illegality or perversity in the CIT(A)'s findings.