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TMI Blog2011 (5) TMI 567X X X X Extracts X X X X X X X X Extracts X X X X ..... f 2008 ITA No.444 of 2008 ITA No.448 of 2008 - - - Dated:- 11-5-2011 - MR. JUSTICE A.K. SIKRI ,MR. JUSTICE M.L. MEHTA, JJ. For Applicant : Ms. Suruchi Aggarwal, Sr. Standing Counsel with Ms. Shawana Bari, Advocate. A.K. SIKRI, J. 1. All these three appeals are between the same parties and the Assessment Years involved are 1998-99, 1999-2000 and 2003-04. Some of the questions raised are common to these appeals. Therefore, we feel it appropriate to take up the appeal relating to the Assessment Year 1998-99, which will take care of common questions arising in other appeals as well. 2. In this appeal, the following three substantial questions of law are proposed for adjudication: a) Whether the I.T.A.T. was correct in deleting the disallowance of ₹ 122.47/- lacs made by the Assessing Officer by holding that the alleged debt had not been incurred in the normal course of business and is not allowable as deduction? b) Whether the I.T.A.T. was correct in law in allowing the deduction of ₹ 85 lacs claimed by the assessee on account of bad debt written off when the said debt had not become bad and requirements of Section 36 are not satisfied in this case? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with M/s. Fairmark as a co-promoter and pledged their fixed deposit receipts with the Citibank, as a security for loan to be given by Citibank to Fairmark. It was further seen by the AO that in order to promote its business, certain advances were also given. After the borrower failed to offer the money in the Citibank and security of FDR given by the assessee company was adjusted by the Citibank against the dues to Fairmark. On perusal of the documents, it was seen by the AO that Sh. Paul Dass who was a non-resident has confirmed the valuation and settlement in U.K. and in India and, therefore, it does not appear to be clear cut case where the money advanced by the assessee company could be said to be money advanced in the normal course of business of money lending. The AO further observed that the assessee company had advanced this money to Fairmark as a co-promoter and definitely advancing money to promote the assessee company is not a part of the business of the assessee. Once the money was advanced to a company, the recovery proceedings from the company are to be carried out with under the provisions of the Companies Act and no such details regarding the steps being taken for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere not satisfied as held in the case of Commissioner of Income-tax (Central), Calcutta Vs. Birla Bros. P. Ltd. [77 ITR 751]. Following discussion from the said judgment was specifically referred to: .Now a bad debt means a debt which would have gone into the balance sheet as a trading debt in the business or trade. It must arise in the course of and as a result of the assessee's business. The deduction claimed should not be too remote from the business carried on by the assessee. In Madan Gopal Bagla v. Commissioner of Income tax West Bengali [1956]30ITR174(SC) the principle which was accepted was that the debt in order to fall within Section 10(2)(xi) must be one which can properly be called a trading debt i.e. debt of the trade the profits of which are being computed. It was observed that the assessee in that case was not a person carrying on business of standing" surety for other persons nor was he a money-lender. He was simply a timber merchant. There was some evidence that he had from time to time obtained finances for his business by procuring loans on the joint security of himself and some other person. But it was not established that he was in the habit of standin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more towards the issue of shares in future if a company is to be brought into existence and in the hope of getting shares allotted in the company. An expenditure incurred for securing shares per se is a capital expenditure and never revenue expenditure and therefore the amount never qualifies for deduction either under Section 36 or Section 37 of the Act. 10. The aforesaid two judgments would not be applicable to the facts and circumstances of the present case. In Birla Bros. P. Ltd. (supra), it was a recorded fact that expenditure was not incurred in the course and as a result of the assessees business. He stood surety, though it was not a part of his normal business. Likewise in United Breweries Ltd. (supra), the advances were made to business associate for issue of shares in future and this expenditure incurred for securing shares was treated per se a capital expenditure and not revenue expenditure. On this premise, it was held that the amount did not qualify for deduction either under Section 36 or Section 37 of the Act. In contrast, in the present case, findings of fact have been established on record and found by the Tribunal on the following: (i) The assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearing, as Makan refused its indebtedness to the assessee. Thereafter, discussions took place between the assessee and Makan, whereby it was mutually agreed by the assessee to reduce a sum of ₹ 85 lacs of principal amount with the hope that the assessee would receive the balance amount. In these circumstances, a sum of ₹ 85 lacs was claimed as bad debt during this year. 13. We may point out at this stage that the assessee could not receive the balance amount of ₹ 340 lacs as well and for this reason, it claimed that amount as bad debt in the Assessment Year 1999-2000. 14. The AO, however, refused the treat the same as bad debt on the ground that the assessee was not in the business of money lending. Further, according to the AO, the principal debtor of the assessee was still Piem and therefore, the assessee should have furnished the details and steps taken by it for recovery of the application money for Piem, which was still carrying on its business. No such details were furnished and therefore, the AO formed the view that the amount could not be treated as bad debt, as the same shown to be irrecoverable from Makan was still recoverable from Piem. 15. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Sub-Section (2) of Section 36. Relevant portion thereof reads as follows: (36) (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply (i) No such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lend in the ordinary course of the business of banking or money-lending which is carried on by the assessee; 19. As noted above, against the cheques of ₹ 500 lacs given to the assessee by Makan, cheque worth of ₹ 75/- lacs had been cleared. However thereafter, Makan started raising dispute about its indebtedness. At that stage, there was a mutual understanding vide which the assessee agreed to forego a sum of ₹ 85 lacs. It is clear that in these circumstances, the said sum of ₹ 85 lacs had become bad debt. Since it was a part of inter-corporate deposit, it could clearly be treated as debt. Such debt becoming bad would clearly qualify for deduction under Section 36(1)(vii) of the Act. The embargo put ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to the case of industrial undertaking and the assessee is not an industrial undertaking, nor it is a case of extension of an industrial undertaking. Accordingly the provisions of Section 35D were not applicable. The CIT (A) also confirmed the action of the AO. 25. The Tribunal had simply remitted the case back to the AO to decide the same afresh in the light of the decision of the Mumbai Tribunal Bench in the case of HSBC Securities India Holding Ltd., as can be discerned from the following discussion: 43. The learned counsel for the assessee, who appeared before the Tribunal stated that the matter should be sent back to the file of the Assessing Officer to decide the same in light of the decision of the H Bench of the Mumbai Tribunal in the case of HSBC Securities India Holding Ltd. decided in 1394/Mum/2000 for A.Y. 96-97 vide order dated 20.09.2004, as the facts in the case in hand and the facts in the case of HSBC are similar. On the other hand, the Ld. Departmental Representative placed reliance on the orders of the authorities below. 44. After considering the submissions and perusing the material on record, we restore this issue to the file of the Assessing Office ..... X X X X Extracts X X X X X X X X Extracts X X X X
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