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TMI Blog2009 (12) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... h Section 251 of the Income Tax Act, 1961 has disallowed the bad debts claims for a sum of Rs.25,98,579/- CIT(A) and ITAT allowed the claim the bad debts - held that - First Appellate Authority as well as the Tribunal have considered the materials on record and came to the conclusion that the transactions involved are true and genuine. They have also held that the advances have been made during the course of the business and they have become irrecoverable as bad debts and hence the assessee is entitled to the benefit under Section 36 (1) (vii) of the Income Act, 1961. The said decision being based upon the findings of fact, the same cannot be agitated before this Court. – revenue appeal dismissed - 490 OF 2004 - - - Dated:- 23-12-2009 - Mr. K.Raviraja Pandian And Mr. M.M.Sundresh, JJ. For Appellant: Mr.J.Narayanaswamy For Respondent: Mr.R.Venkatanarayanan for M/s.Subbaraya Aiyar JUDGMENT M.M.SUNDRESH, J The Revenue has come on appeal against the order passed by the Income Tax Appellate Tribunal, Chennai 'B" Bench in I.T.A. No.2272/Mds/1994 dated 23.09.2003 for the Assessment Year 1989-90 by raising the following substantial questions of law: ''(1)Whethe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts as bad debts for the assessment year 1989-90. The assessing officer in the assessment passed under Section 143 (3) read with Section 251 of the Income Tax Act, 1961 has disallowed the bad debts claims for a sum of Rs.25,98,579/-. The assessing officer has held that when the interest was not received from the assessment year 1978-79, the payment of further advances by the assessee in favour of the subsidiary company cannot be construed as an advancement of loans during the course of business and therefore the assessee was not entitled to claim bad debt. The assessing officer has also held that the amount having been given only to tide over the financial difficulties of the subsidiary company, the same cannot be construed as a loan or advance made in the course of business. 6. Being aggrieved by the order passed by the assessing officer, the assessee filed an appeal to the Commissioner of Income Tax (Appeals) in Appeal No.491/92-93. The First Appellate Authority has allowed the appeal by holding that there is no dispute regarding the genuiness or bonafides of the transactions, the fact that for the subsequent advances no interest was received by itself cannot be a ground for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r M/s.Subbaraya Aiyar appearing for the assessee submitted that in the present case on hand there is no dispute to the fact about the money lending business of the assessee. There is also no dispute about the advancing of money by the assessee in favour of the sister concern from 1969 onwards. The mere fact that no income was received subsequent to 1978 alone cannot be a ground to disallow the claim of bad debt. The assessing officer has not doubted the genuiness or bonafides of the transactions. Further the assessee has made the payment in order to protect its interest which is by way of recovering the amount due to the assessee, to sustain the value of its share and to get over the liability as a guarantor. Moreover the subsidiary company has suffered huge loss and therefore under those circumstances, the First Appellate Authority as well as the Tribunal have correctly concluded that the bad debts claimed by the assessee are allowable. 12. We have heard the learned counsels appearing for the Revenue as well as the assessee. 13. The facts involved in the present case are not in dispute. The assessee is doing the business in financing. The Memorandum and Articles of the Associ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oney advanced by the assessee has become irrecoverable and the same was given during the course of the business. Further admittedly the subsidiary company was paying the interest regularly earlier and thereafter paid the principal as well. What was not paid by the subsidiary company was only the interest and there was no principal amount due at the time of advancing the amount thereafter. The advances made by the assessee was also utilised by subsidiary company for the purpose for which the same was obtained which is to run the foundry. The above said facts would also indicate that the amount has been given out of commercial expediency as well. 17. An identical issue was considered by the Calcutta High Court in COMMISSIONER OF INCOME-TAX v. GILLANDERS ARBUTHNOT CO. LTD. [(1982) Vol.138 ITR 763] wherein, it has been observed as follows: "The AAC held, on appeal, that the amount was not allowable u/s.36(2) as the amount could not be said to have been advanced in the course of any money-lending business in a normal or prudent manner. There was an appeal before the Tribunal and the Tribunal considered the rival contentions and the authorities cited before the Tribunal and thereaf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtmental representative that the assessee's claim cannot be allowed against the dividend income, if at all, loses its significance. Even if the amount cannot be treated as a bad debt in the sense that it was not an advance in the course of money-lending business, it can certainly be allowed as a trading loss incurred by the assessee in the course of its business. This alternative claim definitely is reasonable and can be entertained as it is not necessary to make further investigation into the facts for entertaining it. We agree with the assessee's representative, Dr.Pal, that some of the observations of the Supreme Court in the two decisions relied upon by him are of assistance to him. No doubt in the cases decided by the Supreme Court the question was about the allowability of the loss in respect of the managing agency income but here we have given a finding that the assessee was engaged in the business of financing its subsidiaries or that, at any rate, financing the subsidiaries was incidental to the assessee's main business activities which were diverse in nature. Therefore, the loss incurred by the assessee has to be allowed as on business account." As the Tribunal held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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