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TMI Blog2010 (8) TMI 635X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.9.2005 in ITA No. 363/K/2005 for AY 2000-01 – Accordingly this ground of the appeal is dismissed According to the AO, the payment was not permissible because the payments represented penalties paid at check posts for infraction of law - Each local authority has its own set of rules regarding documentation and the truck drivers being semi literate, the deficiencies can be found in the documents - In this view of the matter and also in the absence of any contrary material brought on record by the revenue authorities at the time of hearing - This ground of appeal of the revenue is also dismissed Regarding write off of bad debts - Though the appellant was not in the business of granting of loans, the loan advanced to Marvel was in the course of appellant’s business and therefore it was a trade loan or advance - The A/R explained that the appellant could not take steps for execution of the decree & recover the decretal amount because Marvel was declared as a sick company by BIFR and therefore appellant lost all hopes of recovery of the decretal amount through legal process - the Madhya Pradesh High Court in the case of Mrs. Geeta Sanohi vs. CIT ( 277 ITR 388) - Even though the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y eight days and a condonation petition has been filed and is placed on record. After bearing both the sides and perusing the condonation petition, we condone the delay of eight days and the appeal has been taken up for hearing. 3. Ground no. 1 relates to deletion of disallowance of Rs.28,21,321/- being expenditure on share buyback expenses. Briefly stated facts of the case are that the assessee company incurred a sum of Rs.28,21,321/- as capital expenditure for Buy Back of Shares and claimed as revenue expenses. Before the AO, the assessee company submitted that The share Buy Back Expenses have been debited to Profit . Loss Account included in Miscellaneous Expenses. The Expenses incurred during the course of business of company and allowable as an expenditure with provision of Section 37(1) of Income-tax Act . The AO, therefore, observed that the said explanation of assessee do not constitute any force as the increased or decreased of share capital of company is a life long benefit of company. When the increase of share capital of company is a capital expenditure as the benefit derived long term benefit. Similarly when the company offered for buy back of share for reduction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in deciding the character of expenditure in case of increase and reduction in the share capital. In my opinion the A.O. s proposition is not supported by the decision of the Supreme Court in the case of Punjab State Industrial Development Corporation Ltd (225 ITR 792). In this judgment the Supreme Court admitted that increase of share capital may certainly help the company in increasing its profit earning but because the benefit derived is of long term and enduring nature and there being permanent expansion of the capital base which results in capital in follow; the expenditure is capital in nature. In the case of buyback of shares however there is no permanent change in the capital structure of the company. The company buys back its outstanding stock from the existing share holders and such purchase is effected out of company s free reserves which are otherwise capable of being freely distributable to the shareholders by way of dividend or can be used for declaration of bonus shares. 14. On comparing provisions of Sec 77A and Sec 81 of the Act it is found that many conditions for issue of bonus share are parameteria with provisions relating to buyback of shares. In both the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee could not be allowed deduction once again in respect of depreciation of these assets as and by way of revenue expenditure. In appeal, the Ld. CIT(A) respectfully following the decision of the ITAT, Kolkata E Bench vide order dated 9.9.2005 in ITA No. 363/Kol/2005 deleted the disallowance of Rs.15,85,785/-. Aggrieved by the said order, now the revenue is in appeal before us. 8. At the time of hearing before us, the Ld. DR relied on the order of the AO and submitted that the action of the AO in making the disallowance of Rs.15,75,868/- on account of depreciation on assets used in R D was justified since the assessee was always allowed deduction for capital expenditure towards purchase of R D assets u/s. 35, therefore, the assessee could not be allowed deduction once again in respect of depreciation. Of these assets as and by way of revenue expenditure. He lastly prayed before the bench to set aside the order of the Ld. CIT(A) and restore that of the AO. 9. On the other hand, the Ld. Counsel for the assessee relied on the order of the Ld. CIT(A) and urged before the bench to confirm his action since he deleted the disallowance of Rs.15,85,785/- by following the order of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t statutory payments by the assessee but the reimbursement of expenses to transporters. The reimbursements were not for the violation of any law but are merely payments for non compliance with procedural matters. He also placed reliance on the following decisions : i) Prakash Cotton Mills P. Ltd. V. CIT (201 ITR 684) (SC), ii) Swadeshi Cotton Mills Co. Ltd. Vs. CIT (233 ITR 199 )(SC), iii) Mahalakshmi Sugar Mills Co. Vs. CIT (123 ITR 429) (SC), iv) CIT Vs. Luxmi Devi Sugar Mills P. Ltd. (188 ITR 41 )(SC), v) CIT Vs. Mysore Electrical Industries Ltd. (196 ITR 884) (Kar) and vi) CIT Vs. Chemical Constructions (243 ITR 858)(Mad). He lastly urged before the bench to confirm the action of the Ld. CIT(A) in this regard. 14. After hearing the rival submissions, perusing the material available on record and the case laws cited by the Ld. Counsel, we find that the AO made the disallowance by stating that the payment made at check post was in the nature of penalty for infraction of law, and hence, the same was disallowable. The Ld. CIT(A) deleted the addition by stating that the payments made at different check posts by the transporters were compensatory in na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e loan was repayable along with interest in monthly instalments. According to A.O. assessee was a manufacturing company and not a finance company and therefore loan advanced was not income of its manufacturing business and could not be treated as trade advance, From the judgment decree obtained by assessee on 09.06.1994 it was clear that the amount was advanced by way of loan and decree was for the principal and interest. The A.O. further noted that though assessee filed execution petition for recovery of principal and interest, no interest was offered for tax as no interest was actually received and was assessed to tax. The A.O. further noted that the assessee assigned its rights in the decree passed by the Court; to M/s. Shubhamangal Traders Pvt. Ltd and received Rs. 35 lacs which was much lesser amount; after long battle of about ten years and claimed business loss. With reference to these facts the A.O. concluded that it was clear that the assessee had advanced loan which was not in the course of business nor loan advanced was taken into account, in computing income in the earlier years and therefore the assessee s claim did not satisfy conditions of sec. 36(1)(vii) read with S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable by the assessee to Marvel. The above arrangement clearly indicates the intention of the parties that the amount of Rs. 2 crore was a temporary loan advance granted during the course of business of the assessee due to business exigencies. In other words, the loan advance of Rs. 2 crore which was to be recovered by the assessee from Marvel against processing charges was nothing but payment of advance price. In support of his submissions, he placed reliance on the following case laws : i) CIT v. Mysore Sugar Limited (46 ITR 649) (SC), ii) Indoor Maiwa United Limited v. State of Madhya Pradesh (55 ITR 736) (SC), iii) CIT v. Jwalaprasada Radha Kishan (107 ITR 540) (All). iv) CIT v. Inden Biselers (181 ITR 69) (Mad). In view of the above submissions, he contended that it will be appreciated that the write off of loan advanced to Marvel is allowable as a deduction. He also contended that moreover, vide Dee of Assignment dated 15th October, 2002, due to the assessee was transferred to Shubhamangal Traders Pvt. Ltd. for a consideration of Rs. 35 lakhs pursuant to which rights, benefits and all advantages available to the assessee under the decree dated 7th Septem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its solvent extraction plant in favour of the appellant. 21. According to A.O. the appellant was in the business of manufacturing and not in the business of financing and therefore loan granted to Marvel could not be considered to have been advanced in the course of appellant s business. However, having regard to the facts and documents on record I do not find force in this finding. Merely because assessee was not in the business of financing or money lending; that fact alone does not lead to conclusion that moneys were not advanced in the course of or for the purpose of assessee s business. The expression for the purpose of business is much wider in its connotation and sweep which is not confined only to earning of income. In the course of carrying on business an assessee has to take commercial decisions having regard to commercial necessities, commercial exigencies expediency. The appellant in the present is widely held company having established credentials was a major exporter of goods. Considering its export performance the appellant was granted Star Trading House status by the Ministry of Commerce, Govt. of India. The appellant had secured export orders for soya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of its business and for business considerations. The loan debtor defaulted on repaying principal and ultimately loan amount became irrecoverable despite appellant obtaining decree from Civil Court in Bangalore. The loss was thus incurred by the appellant in the course of business and therefore it was fully allowable. Ratio laid down in the decisions in the cases of CIT Vs. Mysore Sugar Limited (46 ITR 649); Indoor Mlwa United Limited Vs. State of Madhya Pradesh (55 ITR 736); CIT Vs. Jwalaprasada Radha Kishan (107 ITR 540) and CIT vs. Inden Biselers (181 ITR 69) support appellant s claim. Apart from the above decisions, appellant s claim also appeared to be supported by recent decisions rendered by Delhi, Madhya Pradesh and Calcutta High Courts as well. The Delhi High Court in the case of CIT vs. Goyal M. G. Gases Ltd (163 Taxman 541 ) considered a similar claim for write off. In this case the assessee had granted bill discounting facilities to M/s Kedia Castle from whom Rs.4.24 crores was outstanding On failure of the debtor to repay the debt the assessee filed winding up petition against the debtor in the Calcutta High Court. While winding up proceedings were pendin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Ltd vs. CIT (253 ITR 355) similarly allowed a claim for bad debts on assignment of a loan. In that case the assessee had granted loan of Rs. 4 lacs to a company bearing interest. Upon inability of the debtor to repay loan and accrued interest, assessee assigned the loan to another company in full and final settlement and claimed Rs.2,15,751/- as bad debt which was disallowed by A.O. and Tribunal. On appeal, the High Court held that loss incurred upon assignment of loan to third party was allowable as revenue deduction. The ratio laid down in this decision is squarely applicable in the present case because facts of the assessee s case appeared to be parameteria. Considering the totality of the facts of the case therefore I hold that the assessee was entitled for deduction of Rs.1,04,63,615/- which was the debt written off in the appellant s book. The A.O. is accordingly directed to delete the disallowance of Rs.1,04,63,615/-. We find that the Ld. CIT(A) by relying on the decision of jurisdictional High Court in the case of Ashoka Marketing Ltd. (supra) directed the AO to delete the disallowance on account of bad debt written off. In view of the above and in the absence of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perused the reasons given by A.O. in support of the disallowance made. It appeared that the A.O. made the disallowance of part of the Short Term Capital loss by invoking Sec 94(7). Sec 94(7) is a deeming provision of the I.T. Act. It is a settled legal proposition that a deeming provision of the taxing statue should be strictly construed. Sec 94(7) disentitles an assessee to claim loss on sale of units to the extent of exempt income earned from the transactions involving purchase and sale of units conducted within specified time frame. In order to apply Sec 94(7) it is however incumbent on the A.O. to prove that the assessee sold the shares or units within 3 months after the date on which the dividend was declared. In the present case it is an admitted fact that the assessee purchased Kotak-K Bond Dividend Plan Units on 13.03.2002 and the record date for declaration of dividend was also 13.03.2002. It is also admitted fact that the assessee sold the said units on 14.06.2002 and therefore apparently the assessee did not fall within the mischief of Sec 94(7). 28. In the impugned order the A.O. disallowed the loss on the ground that the assessee was not the owner of these units o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case was 13.03.2002. The first month therefore began on 14.03.2002 and ended on 13.04.2002. The second month commenced on 14.04.2002 and ended on 13.05.2002 and the third month commenced on 14.05.2002 and ended on 13.06.2002. By A.O. s own admission the units were not sold on or before 13.06.2002 when the period of 3 months prescribed in Sec 94(7) ended. The sale was admittedly made on 14.06.2002 which was beyond the period of 3 months after the record date. I therefore hold that the A.O. was not justified in disallowing Short Term Capital loss of Rs.1,08,30,324/- because the assessee did not violate provisions of Sec 94(7). The A.O. is accordingly directed to assess Short Term Capital loss on sale of units at Rs.1,13,82,6711- as against Rs.5,52,347/- assessed in the impugned order. The facts of this case were not disputed by the revenue authorities at the time of hearing and since the Ld. CIT(A) has given relief to the assessee by placing reliance on the decision of ITAT on similar facts, we do not find any infirmity in the order of the Ld. CIT(A) and the same is hereby upheld. This ground of appeal of the revenue is, therefore, dismissed. 23. In Ground No. 6, the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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