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2022 (10) TMI 274 - AT - Income TaxDisallowance as bad debts as well as business loss//loss incidental to business - HELD THAT - It is pertinent to note that though the assessee has stated that the intention of the assessee to give advances to its subsidiary for making capital and subsidy but the intention was to control the operation of the GTL and to oversee that the manufacturing cost of the yarn clearer remained below its import cost which has to be economical/cost effective for the assessee. Thus, the advances were intended to have a smooth running of manufacturing activities of the assessee company taking into account the cost effectives while investing in the equity shares of GTL. Thus, the same cannot be stated as advance given for acquisition of capital and hence it was rightly treated as bad debt as well as business loss/loss incidental to business by the assessee when GTL became defunct and it was impossible to recover the amount on its liquidation. Thus, ground no.1 is allowed. Disallowance of bad debts written off - AR submitted that the amounts were outstanding for more than six years and the details of debts written off giving the names of the debtors and the amounts were submitted during the course of assessment proceedings - HELD THAT - Only contention of the assessee is that the said debts were outstanding for last more than six years but the assessee has not been able to show as to any correspondence made with the parties for recovering the said amount. There was no efforts made by the assessee to recover the said amount and simplicitor saying that the amount was less than Rs.1 lakh cannot be held as bad debt. In the common parlance of business each and every rupee matters and the businessman always try to recover even if it is not filing any legal action as such. But here intention of recovering the said debts were not shown by the assessee before the Assessing Officer or before the CIT(A) as well as before us. Thus, ground no.3 is dismissed. Long Term Capital Loss in respect of equity shares of subsidiary company - HELD THAT - No reason why a shareholder who in distribution of assets has not received any deemed consideration in satisfaction of his rights and interests in the holding and has thereby suffered a total loss, cannot claim the benefit of set off or carry forward of the loss suffered by him. Otherwise, a startling and unjust situation may arise where the receipt of even one paise would enable him to claim set off or carry forward of capital loss as worked out under section 48, while, a shareholder who is a shade worse off and gets nothing in the event of such total loss should be denied the effect of section 46(2) read with sections 71 and 74 and be put to a perpetual loss. Therefore, even where the receipt is nil on the date of distribution on the liquidation of the company, the case of such shareholder will fall under section and the deemed full value of the consideration for the purpose of section 48 will be regarded as nil and on that basis the income chargeable under the head Capital gains has to be computed under section 48. Therefore, when the assessee company ensures that the assessee company will not gain any consideration in future as the subsidiary company was in liquidation, the assessee Company has rightly claimed for Long Term Capital Loss. This fact was totally ignored by the CIT(A) as well as by the AO - Thus, the CIT(A) was not right in disallowing the Long Term Capital Loss. Non-granting exemption from the tax payable on Long Terms Capital Gain (LTCG) earned on transfer of land - HELD THAT - Decision of Hon ble Gujarat High Court in case of CIT vs. Mitesh Impex 2014 (4) TMI 484 - GUJARAT HIGH COURT which is apt in the present case wherein it is held that though the assessee did not raise a claim in the return for deduction u/s 80IB 80HHC, it was entitled to raise the claim before the CIT(A) for the first time. If a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come, merely because it is raised for the first time before the appellate authority without resorting to revising the return before the AO. Courts have taken a pragmatic view and not a technical one as to what is required to be determined in taxable income. Assessment proceedings are not adversarial in nature. In fact in present case, the assessee made a claim during the assessment proceedings itself before the Assessing Officer which was totally ignored by the AO - The decision of Hon ble Supreme Court in case of Goetz (I) Ltd. 2006 (3) TMI 75 - SUPREME COURT was not at all considered in its true spirit in the present assessee s case. Therefore, ground is allowed.
Issues Involved:
1. Non-allowance of Rs. 1,36,72,000/- as bad debts/business loss. 2. Disallowance of plant shifting charges of Rs. 36,60,000/-. 3. Disallowance of bad debts written off amounting to Rs. 69,33,446/-. 4. Non-allowance of long-term capital loss of Rs. 1,59,85,643/-. 5. Non-granting of exemption from tax on long-term capital gains (LTCG). Issue-wise Detailed Analysis: 1. Non-allowance of Rs. 1,36,72,000/- as Bad Debts/Business Loss: The assessee claimed that the amount of Rs. 1,36,72,000/- advanced to its subsidiary, Gujarat Textronic Limited (GTL), should be allowed as bad debts or business loss, as GTL became defunct and the amount was unrecoverable. The Assessing Officer (AO) treated this as a capital loss, not allowable under Section 36(1)(viii) and 36(2) of the Income Tax Act, 1961. The Tribunal noted that the advances were intended to control GTL's operations and maintain cost-effectiveness for the assessee's manufacturing activities. It concluded that the advances were for business purposes and allowed the claim as a business loss. Thus, ground no. 1 was allowed. 2. Disallowance of Plant Shifting Charges of Rs. 36,60,000/-: The assessee did not press this ground during the hearing. Therefore, ground no. 2 was dismissed. 3. Disallowance of Bad Debts Written Off Amounting to Rs. 69,33,446/-: The assessee argued that the debts were outstanding for over six years and were written off as the debtors, mainly textile mills, had either closed down or changed ownership. The Tribunal observed that the assessee failed to provide evidence of efforts made to recover the debts. The mere fact that the amounts were less than Rs. 1 lakh was insufficient to classify them as bad debts without showing recovery attempts. Thus, ground no. 3 was dismissed. 4. Non-allowance of Long-term Capital Loss of Rs. 1,59,85,643/-: The assessee claimed a long-term capital loss on the liquidation of its subsidiary, GTL, arguing that the indexed cost of acquisition was Rs. 1,59,85,643/-. The AO disallowed this, stating there was no transfer. The Tribunal referred to the Gujarat High Court's decision in CIT vs. Jay Krishna Harivallabhdas, which held that extinguishment of rights in shares on liquidation is deemed a transfer under Section 46(2) read with Section 48. The Tribunal concluded that the assessee rightly claimed the loss as the investee company was wound up, and no amount was realizable. Thus, ground no. 4 was allowed. 5. Non-granting of Exemption from Tax on Long-term Capital Gains (LTCG): The assessee argued that the LTCG on the transfer of land should be exempt as per the Board of Industrial and Financial Reconstruction (BIFR) sanctioned scheme. The AO and CIT(A) disregarded this, stating that the assessee did not file a revised return. The Tribunal noted that the assessee made the claim during assessment proceedings and referred to the Gujarat High Court's decision in CIT vs. Mitesh Impex, which allowed claims not made in the original return but raised before appellate authorities. The Tribunal concluded that the BIFR scheme's concessions should prevail over the Income Tax Act provisions. Thus, ground no. 5 was allowed. Conclusion: The appeal was partly allowed, with grounds 1, 4, and 5 being accepted, while grounds 2 and 3 were dismissed. The judgment emphasized the importance of the purpose behind advances and the necessity of demonstrating efforts to recover bad debts. It also highlighted the precedence of BIFR schemes over the Income Tax Act in specific cases.
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