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TMI Blog2012 (7) TMI 20X X X X Extracts X X X X X X X X Extracts X X X X ..... se, mere fact that the assessee had made some inter-corporate deposits and the assessee earned income by way of interest in itself is not a circumstance to conclude that it was carrying on money lending activity as part of its business activity. The assessee's main business activity was only in providing services in telecommunication technology and not in money lending activity. Therefore, interest-free amount of Rs. 5.34 crore advanced to its sister concern cannot qualify as bad debt u/s 36(1)(vii) - Decided in favor of Revenue. - IT APPEAL NO. 23 OF 2006 - - - Dated:- 13-6-2012 - D.V. SHYLENDRA KUMAR AND B. MANOHAR, JJ. JUDGMENT Shylendra Kumar, J. Appeal by the revenue under Section 260A of the Income Tax Act, 1961 [for short, the Act]. 2. Revenue has raised the following two questions: 1. Whether the Tribunal was correct in holding that the sum of Rs.5,34,00,000/- can be written off as bad debt which had been advanced by the assessee in favour of one of its group companies M/s BWTL on the ground that the assessee was carrying on money lending business without basing that finding on any material and consequently recorded a perverse finding. 2. Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore written off in the books of accounts of the assessee-company during the accounting period corresponding to this assessment year. 5. Out of this amount, a sum of Rs 75.00 ,lakh was claimed to be an inter-corporate deposit, deposited with M/s BPL Wireless Telecommunication Services Ltd (BWTL) and the balance Rs 5.34 crore was advanced as interest free advance to the very company, if we are to go by the grounds raised in the memorandum of appeal before the tribunal, to which our attention has been drawn by Sri M Thirunalesh, learned standing counsel for the appellant-revenue, and both amounts were claimed as advance not recoverable and written off, for the reason that M/s BWTL, which was later known as India Paging Services Ltd., had closed down its business activities, as the company's business of providing paging services to its customers had become outdated due to advancement in technology and therefore that company had closed down its business. As M/s BWTL has closed down its business, the assessee-company had claimed the inter-corporate deposit of Rs 75 lakh with that company, which had earned some interest to the assessee company for some time, as also the advance it ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount of Rs 5.34 crore as a business loss incurred in the course of the business of the assessee was that even when the amount is recovered, it would not have in any way augmented the income of the assessee and non-receipt or non-recovery of this amount also did not in any way affect the profit or loss of the assessee; that it could never be treated either as a trading receipt or business a expenditure and therefore also the amount was not a debt in the course of business and cannot be claimed as an irrecoverable debt etc. The advance made being interest-free also weighed with the assessing officer in arriving at the said conclusion. 9. The assessee appealed against this order to the appellate commissioner. The appellate commissioner examined the matter in some detail and noticed that total amount of Rs 6.09 crore which the assessee had claimed as bad debt and written off, was an amount that had been advanced from 1998 and 2000 for the main reason that M/s BWTL needed funds for its expansion for providing paging services; that the advance was to enable the sister concern to tide over the competition from other entrants in the field including providers of cellular services, but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessing officer could allow a sum of Rs 75 lakh which was inter-corporate deposit by the assessee with the other company viz., M/s BWTL, could be allowed as part of bad debt incurred in the course of money lending activity of the assessee and as indicated in the memorandum of association, wherein money lending activity is shown as one of the activities of the assessee company, then there was no reason to make a distinction between this claim and the claim towards Rs 5.34 crore, advanced by the assessee to the other company, wherein it had its deposits and therefore opined that the view taken by the assessing officer and affirmed by the appellate authority that the amount was not one qualifying for deduction under the provisions of Section 36(1)(vii) read with Section 36(2) of the Act and opining that the activity of the business of the assessee is undoubtedly money lending activity and a loss incurred, whether by way of investor or lender, cannot make any difference for claiming a bad debt written off in terms of Section 36(1)(vii) r/w Section 36(2) of the Act and purporting to follow and apply the view taken by the Supreme Court in the case of CIT v. Nainital Bank [55 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd (xv); that on a proper examination of the nature of the advances in the present situation, the assessing officer as also the appellate authority had correctly opined that it was not at all a debt incurred in the course of money lending activity of the assessee or business activity of the assessee and therefore the finding recorded by the tribunal not based on the facts and circumstances prevailing in the case and not adverting to the material available in the record, but drawing analogy from different decisions cannot be sustained in law and therefore submits that the order of the tribunal warrants interference. 17. Sri Thirumalesh has drawn our attention to the judgment of a Division Bench of this court in the case of CIT v. United Breweries Ltd [[2010] ITR 546] to submit that in the present case also the assessee had not produced any material to substantiate any of its claims such as it was carrying on money lending activity as part of its business or to substantiate that the particular transaction or advance to an extent of Rs 5.34 crore made in favour of its sister concern was as part of its money lending activity; that reversing the finding of the assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds raised in the memorandum of appeal before the tribunal as under: The learned Commissioner (Appeals) ought to have appreciated that the amount of Rs. 5,34,00,000/- had been given by the appellant to M/s BPL Wireless Tele Communication Services Limited (BWTC) as interest-free loan as the appellant was the substantial share holder for the business and promotional activities of M/s. BWTL. to submit that this is virtually conceding that the advance was an interest-free advance and it is submitted that when it was not even the case of the assessee that the assessee was either carrying on regular money lending activity or that it had advanced a sum of Rs. 5.34 crore to the sister concern as part of its business activity, the finding recorded by the tribunal reversing the view expressed by the assessing officer and the appellate authority on this aspect is an unsustainable finding and therefore the tribunal was in error in concluding that the assessee was entitled to claim the deduction in terms of Section 36(1)(vii) of the Act. 21. Countering such submissions, Sri S Parthasarathy and Sri Malhararao, learned counsel for the assessee, have very vehemently urged that the view tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the records but not otherwise etc. 24. Sri Parthasarathy has also placed reliance on the decision of the Supreme Court in the case of CIT v. Pandit Lakshmi Kant Kha Others [[1972] 84 ITR 481] to submit that a debt incurred in the course of business activity of the assessee, if it is written off in any accounting period, it can be claimed as bad debt in the corresponding assessment year and the assessee having written off the debt of Rs. 5.34 crore as bad debt in the accounting period corresponding to the assessment year in question, the assessee was entitled to claim this deduction and therefore the tribunal was fully justified in allowing the same, reversing the view taken by the lower authorities. 25. Reliance is also placed on a decision of the Bombay High Court in the case of CIT v. Investa Industrial Corporation [[1979] 119 ITR 380] to submit that advance made to a business associate by an assessee, if becomes irrecoverable, it can be claimed as loss in trade and qualifies for deduction in terms of Section 36(1)(vii) of the Act and therefore submits that mere fact that the assessee had made an advance to its sister concern cannot in any way detract from eli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business; that it should be an activity incidental to the business and an amount which was not by way of a debt for any capital investment etc.; that it should be part of its trading activity and therefore an amount which could make a difference to the profit and loss statement of the assessee depending upon the receipt or non-receipt of the amount and such being the test, mere fact that a particular activity is a permitted activity in the memorandum of association of the company by itself cannot be the determinative factor for deciding as to whether an amount either spent or allowed as a credit in favour of a customer or lent to any other business associate or even as a deposit etc., becomes or is a part of business expenditure, and can be described as a 'debt'. 31. Ultimately, the purpose for which the amount was given, the nature of the lending, nature of the activity carried on by the assessee, which constitutes business activity of the assessee, are all factors which are to be considered in determining as to whether an amount given by the assessee is one which qualifies as a 'debt'. 32. A debt may be because of any service provided by the assessee to its customers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not based on any material on record; that there was nothing on record to indicate that the assessee had been recognized as money lender in terms of any legal provisions or business practice and the mere fact that the assessing officer and the appellate authority have opined correctly or otherwise that inter-corporate deposit of Rs. 75 lakh qualifies for deduction under Section 36(1)(vii) of the Act being a deposit made in the money lending business activity of the assessee automatically entails the assessee to a like deduction in respect of the advance to the extent of Rs. 5.34 crore also as a deduction under the very provision of law without more. The assessee's main business activity was only in providing services in telecommunication technology and not in money lending activity. 36. While it may be true that in terms of No 23 of the objects clause of Memorandum and Articles of Association of the Company, the assessee could have carried on this activity incidental to its main business, it was not made known as to whether the assessee was carrying this business also in a systematic manner. Mere fact that the assessee had made some inter-corporate deposits and the assessee ea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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