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TMI Blog2012 (12) TMI 716X X X X Extracts X X X X X X X X Extracts X X X X ..... t the disallowance of deduction u/s 36(1)(vii) - Held that:- Unable to accept the contention of the assessee that if the claim of advance written off by the assessee is not accepted, the same analogy has to be applied to the liabilities written back by the assessee. Each claim of the assessee has to be considered independently and in accordance with law. As rightly pointed out by the DR, the nature of the liability and the condition under which the liability has been written back has not bee explained by the assessee and in fact it is the assessee which has treated the same as its income. The claim of the assessee to set off is not permissible until and unless there is clear nexus between the two which is absent in the present case. As the nature of the liability written back has not been examined by any of the authorities below it is desirable to remit issue back to AO for consideration - in favour of revenue for statistical purposes. - ITA Nos.423 & 673/Bang./011 - - - Dated:- 12-6-2012 - SMT. P MADHAVI DEVI, AND SHRI JASON P BOAZ, JJ. Appellate by : Shri C Ramesh, C.A Respondent by : Shri S.K Ambastha, CIT O R D E R PER P MADHAVI DEVI, JUDICIAL MEMBER : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to get better price for its shares. It was submitted that the assessee company wrote off an amount of Rs.7.54 crores because BST Ltd. and BPL Display Device Ltd., were under winding up and BPL Ltd. was in a debt restructuring process whereby the lenders and creditors had to write off of their dues. It was submitted that restructuring was approved by the courts at Kerala. After considering the assessee s submission and also the provision of law u/s sec. 36(i)(vii) and 36(2) of the Income-tax Act, the AO held that all debts incurred by an assessee do not qualify for a deduction unless the debts incurred by him were on revenue account and they have been taken into account in computing the profits of the assessee for an earlier year. He held that the assessee has not satisfied any of the conditions laid down in sec.36(1)(vii) read with sec. 36(2) thereof before writing off of these advances in the profit and loss account. According to him, the assessee had submitted that these amounts constituted advances and the assessee company was exiting by sale of its investment in the companies and, therefore, this does not constitute a trading loss but partakes the character of a capital loss. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd, therefore, the advances made will have to be considered as part of the money lending business and are allowable u/s 36(2)(vii) read with sec. 36(2) of the Income-tax Act. 7. He further submitted that as long as the debts have been written off as bad debts, they have to be allowed subsequent to the amendment to the said provision and placed reliance upon the decision of the Hon ble Supreme Court in the case of TRF Ltd. Vs CIT reported in 323 ITR 397 (SC) for this proposition. 8. The learned DR, on the other hand, supported the orders of the authorities below as far as the disallowance of the claim of advances written off is concerned and submitted that the assessee has stated that it is in the business of financial sector but neither of the authorities have considered as to what is the nature of the assessee s business or the nature of advances. He submitted that every advance cannot be treated as a trading debt. He submitted that at some places, the assessee has itself stated to be an investment company and, therefore, if there is any loss on account of investment , the same has to be treated as capital loss and cannot be allowed as bad debt or business expenditure u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arious courts, a debt is out standing which if recorded would have swelled up the profits. It means something more than the mere advance and something which is related to business or results from it. A debt is that which one owes to others; any money; goods or services that one is bound to another ; a peculiar demand; liquid demand; etc. Thus evidence of an obligation to repay is the first factor to be singled out of the surrounding facts and circumstances to call it a debt. 10. In the case on hand, the AO has held that the advances given by the assessee are for the investment in shares of BPL Ltd. Even from the submissions of the assessee, it seems so. In view of the same , we consider it fit and proper to remit the issue to the file of the Assessing Officer to verify the exact nature of assessee s business and also whether the advances which are written off were for the purpose of carrying on the assessee s business of money lending or for trading purposes and if it is found to be so, then such advances written off will have to be allowed as bad debts written off u/s 37(1)(vii) of the Income-tax Act read with sec. 36(2) of the Income-tax Act. If the assessee is found to be no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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