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TMI Blog2011 (2) TMI 1402X X X X Extracts X X X X X X X X Extracts X X X X ..... n i) The assessing officer held that as there was no business activity in the year, no expenditure is allowable. This led to the disallowance of an amount of ₹ 1,47,223/-. ii) The assessee had claimed a diminution in the value of investments to the extent of ₹ 7,22,89,000/- in respect of its investments in 1% cumulative Redeemable Convertible Preference Shares in Super Stock Absorbers Ltd. This was disallowed on the ground that it is capital in nature. iii) The appellant had credited the profit and loss account with a sum of ₹ 5,02,45,000/- being bad debts recovery in respect of amounts due from M/s Omayal Agro Industries Ltd, a BIFR Company, which had been written off in the accounting year 2003-04. In the return of income filed for the assessment year 2004-05 , it had claimed it as bad debt. However, before the assessment for that year was completed by the assessing officer, Omayal Agro Industries Limited allotted preference shares on 30.06.05 to the appellant of the value of Rs..5,02,45,000/- to cover its debts to the appellant. Thus, there was recovery of the amount earlier written off as bad debts. iv) As the appellant s assessment for 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estments, represents loss of value of shares in SSAL of the assessee and does not reflect the loss of value of stock in trade or any current asset of the assessee and the amount has been booked as investment in the books of a/cs. 3.3 Having regard to the decision of the Hon'ble High Court of Kerala in the case of Kerala Small Industries Development Corporation Limited.vs Commissioner Of Income-Tax (270 ITR 452) and the orders of this Hon'ble Tribunal in the case of Mis Kwality Fun Foods Restaurant P Ltd in ITA No 283/Mds/2003, the learned CIT(A) ought to have upheld the orders of the A.O. 4.1 The learned CIT(A) has erred in deleting the addition of bad debt recovery of ₹ 5,02,45,000/- in M/s Umayal Agro India Ltd. 4.2 The learned CIT(A) failed to appreciate that any recovery in respect of amount written off as bad debts has to be taxed only in the year of recovery. Shares were allotted in lieu of loans on 30/06/2005 and revised return for AY 2004-05 was filed on 23/03/2006. 5.1 The learned CIT(A) has erred in deleting the addition of ₹ 7,22,89,000/-for the purpose of section 115JB in respect of diminution in the value of assets. 5.2 Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and interest payments as detailed in the accounts in the year of account. The company may not obtain or be able to execute a single business contract for months and yet it may be deemed to carry on its business, if during the period of lull and inactivity it is kept above and if it retains its registered office and holds meetings. It is not necessary that a business to be in existence should have work all the time. There may be long intervals of inactivity and a concern may still be a going concern, though it may for sometime be quiet and dormant. The mere fact that a business has for some time been in that sense doimant would not mean that it has ceased to exist, the assessee continues to maintain an establishment and incur expenses in the expectation that work would come and the business would be successful. How long he shall remain in the hope and in what manner he must carryon his work to gain success is primarily his own concern. The mere fact that for some time he is not able to secure a contract or do the work which he set out to do should not disqualify him from pleading that the expenditure that he had incurred was expended for the purpose of his business. Therefore the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of this argument of the ld.DR is that this loss of the assessee does not reflect loss of value of stock-in-trade or any current asset but this represents loss of value of shares which has been booked as investment. In this regard, the ld.DR has tried to substantiate his contention with the help of Hon'ble Kerala High Court s decision rendered in the case of Kerala Small Industries Development Corporation Ltd vs CIT, 270 ITR 452 and the order of the Tribunal in the case of M/s Kwality Fun Foods Restaurant P. Ltd in I.T.A.No.283/Mds/2003. On the other hand, by justifying the claim made by the assessee, the ld.AR has heavily relied on the Tribunal order (supra). 8. After cogitating the rival submissions, we have noticed that Super Shock Absorbers Ltd, a BIFR company, could not be revived and it was thought proper to write off the funds provided to this company in the shape of convertible preferential shares, though this company ultimately failed. It is also noticed that the assessee has shown this amount in the Profit Loss Account as diminution in the value of investment . We have gone through the Tribunal order and have found that similar activity was treated as bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made in the course of business of promoting industrial ventures. Objective of the assessee company is to promote the business and for this purpose, loans and advances to various concerns are made in view of the investments. As a promoter of business, the company had to make investments/advances in various forms as a part and parcel of business activities. The assessee company borrowed funds for making investments/advances to get returns thereof. The portfolio has thus to be taken as one common source of revenue in order to ascertain the profit and loss in the business. 18. From the financial details as brought out by the Assessing Officer as well as the CIT (A) and as submitted by the assessee, it is seen that there is no difference in the facts. The net financial assistance provided by the assisting companies during the year is 5.67 crores and the balance investment is out of the old funds. This fact has been narrated by the CIT (A) in para 7.11.6 of his order where the total investments as on 31.3.1997 is 23.40 crores and as on 31.3.98 is ₹ 31.83 crores and as on 31.3.2000 it is 35.78 crores. We do not agree with the finding of the CIT (A). There is no old financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcerpt of the Tribunal order makes it amply clear that the Tribunal has given a finding in favour of the assessee and we are bound to follow the same in this year. The decisions relied on by the Department are rendered on distinguishable facts but the Tribunal order in this case is exactly on identical facts which has a binding effect on us. Therefore, by respectfully following the Tribunal order (supra), we cannot interfere in this finding of the ld. CIT(A). Accordingly, the grounds raised in respect of this issue are dismissed. 11. The next issue taken vide Ground Nos. 4.1 and 4.2 relates to deletion of addition made on account of bad debt recovery amounting to ₹ 5,02,45,000/- invested in M/s Omayal Agro Industries Ltd. In the assessee s Profit Loss Account for the year ended 31.3.2006, a credit of ₹ 5,02,45,000/- was shown as recovery of dues from Omayal agro Industries Ltd . This amount had been written off as bad in the books for the year ended 31.3.2004 and has been claimed as bad debt in the original returns filed for assessment year 2004-05. The original return was filed on 28.12.2004. The assessee recovered this amount on 30.6.2005 during the assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter disallowing the bad debt amounting to ₹ 5,02,45,000/- meaning thereby that bad debt has not been claimed and had not been allowed also in assessment year 2004- 05 and in effect, the assessee had suffered tax in that very year on this amount. When the assessee has recovered this amount in this assessment year which is under consideration, this cannot be again taxed as it would amount to double taxation which is not permissible in law. In the backdrop of these facts, the recovery of the bad debt and crediting it in the Profit Loss Account of the assessment year under consideration, cannot be taxed again in this year because this amount has already been taxed in assessment year 2004-05 particularly when the revised return for that year has been accepted by the Assessing Officer himself. In our considered opinion, there is no fallacy in this finding of the ld. CIT(A) hence, we confirm the same. Accordingly, we dismiss Ground Nos 4.1 and 4.2 of this appeal as well. 15. The last issue of this appeal relates to deletion of addition of ₹ 7,22,89,000/- for the purpose of section 115JB of the Act in respect of diminution in the value of assets. The case of the Revenue i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount or amounts of expenditure relatable to any income to which [section 10[(other than the provisions contained in clause (23G) thereof) or section 10A or section 10B or section 11 or section 12 apply]. 16. It becomes crystal clear from the above that the assessee has actually written off the value of the assets and it is not at all a provision debited to Profit Loss Account, to attract this provision. In the Balance Sheet also this amount has been written off and it is not placed under the head provisions in the liability side of the Balance Sheet. In the assets side also the value of the shares has been shown as NIL . Therefore, the ratio of the decision of Apollo Tyres(supra) which is reproduced below, squarely applies to this issue: Section 115J of the Income-tax Act, 1961 read with Parts II and III of Schedule VI to the Companies Act, 1956 Zero-tax companies Assessee company, while determining its net profit had provided for arrears of depreciation in its Profit Loss Account which according to Revenue was not in accordance with Parts II and III of Schedule VI to the Companies Act, 1956. Hence, Assessing Officer while considering case of assessee-com ..... X X X X Extracts X X X X X X X X Extracts X X X X
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