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TMI Blog2015 (11) TMI 793X X X X Extracts X X X X X X X X Extracts X X X X ..... as to why the assessee has repaid the amounts to third party on behalf of the two companies. Learned counsel for the assessee says that the payment is made by the assessee in excess to the funds borrowed and therefore, there is an arbitration between the assessee and the two sister companies. When we specifically asked about the directors of the sister concern and the director of the assessee-company, learned counsel for the assessee has fairly accepted that both are one and the same. We find that the payment made by the assessee to the third parties on behalf of the two companies, i.e., M/s. Malar Finance Pvt. Ltd. and M/s. Malar Gautham Hotels P. Ltd. were not connected with the business of the assessee. Therefore, it is neither allowable under section 36(1)(vii) nor under section 37 of the Act. In view of the above, we find that the disallowance made by the Assessing Officer and confirmed by the learned Commissioner of Income- tax (Appeals) is correct and no interference is required. - Decided against assessee. - I. T. A. No. 2117 /Mds/ 2012(assessment year 2009-10). - - - Dated:- 25-6-2015 - CHANDRA POOJARI (Accountant Member) and V. DURGA RAO (Judicial Member) T. V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecember 15, 2011 asking for clarification regarding the nature of the advances as well as to explain why the amount should not be disallowed since the amount is a capital loss and will not come under the ambit of section 36(1)(vii) ? In its reply dated December 20, 2011, the assessee submitted that, The Fortis Malar Hospitals Ltd. (formerly known as Malar Hospitals Ltd.) has written off ₹ 2,89,43,158 as not recoverable from two companies, with whom we had financial transactions. These amounts were advanced in the ordinary course of business. All these transactions happened about more than 10 years prior to the financial year and the arbitration was pending for more than four years. Instead of carrying amount in the book as receivable, and not utilising the funds, it was agreed to settle the dispute and realise the money. Hence, during the course of the arbitration it was decided to realise a part and write off the balance. The amount written off is not a capital loss, but only revenue in nature, since the amounts were advanced in the ordinary course of business. It is submitted that amount written off is allowable as business loss. 3. The Assessing Officer, after ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing this year. 4. The Assessing Officer, after considering the explanations of the assessee, has observed that the sum is advanced in the ordinary course of business as submitted by the assessee is not acceptable and it is not a business loss of the assessee. As per the Income-tax Act, a bad debt is allowable as revenue expenditure only if, the amount has been offered as income in the previous year. However, in this case, the sum has been advanced as loan to its sister-concern for the repayment of its loan. Since, the assessee is not in the business of money lending, the sum advanced as a loan and subsequent non-recovery cannot be considered as bad debts as per the provisions of section 36(1)(vii) of the Act. The Assessing Officer, further observed that the sum advanced as a loan to its sister-concern is for the purpose of liquidating the short-term funds raised for Malar Hospital, which cannot be considered to be in the ordinary course of business. Hence, the expenses claimed do not satisfy the provisions under section 37 of the Act. Therefore, the entire claim of ₹ 2,89,43,000 was disallowed by the Assessing Officer. 5. The assessee carried the matter in appeal befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position of law. In view of the above discussion, I hold that the claim of the appellant with regard to 'advances written off' amounting to ₹ 2,89,43,000 cannot be allowed either under section 28 or under section 36(1)(vii) or even under section 37 of the Act. I therefore confirm the action of the Assessing Officer in disallowing the above said claim of the appellant and the grounds of appeal taken by the appellant are dismissed. 6. On being aggrieved, the assessee carried the matter in appeal before the Tribunal. 7. Learned counsel for the assessee has submitted that the assessee Malar Hospital to raise funds for expansion of capital, formed two group companies M/s. Malar Finance Pvt. Ltd. and M/s. Malar Gautham Hotels Pvt. Ltd. These two companies borrowed funds from the market and advanced certain portion to the Malar Hospital. When the assessee is repaying the amounts to the two sister companies, the assessee has paid excess amounts. Therefore, according to learned counsel for the assessee it is a business loss and it has to be allowed. 8. On the other hand, the learned Departmental representative has submitted that the assessee has borrowed funds fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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