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TMI Blog2016 (8) TMI 558X X X X Extracts X X X X X X X X Extracts X X X X ..... shed on March 31, 1995, it appears that the caution notice issued by the Reserve Bank of India had already been withdrawn. Therefore, the learned Tribunal was wrong in proceeding on the basis that it is due to the pressure exerted by the Reserve Bank of India that the assessee was made to pay the debt due by New Tobacco Company to the Andhra Bank. There was nothing before the learned Tribunal to show that the Andhra Bank would not have advanced any further money to Andhra Cements Ltd. except upon payment by the assessee the dues owed by New Tobacco Company. Even assuming for the sake of argument that there was any such situation then the payment of ₹ 1.35 crores would take the character of the cost of acquisition of the shares of Andhra Cements Ltd. acquired by the assessee shortly before such payment. It is an admitted fact that the Andhra Cement Ltd. was acquired by the assessee in the year 1994 while the Andhra Cements Ltd. was in a BIFR proceeding. The learned Tribunal was utterly wrong in holding that the amount paid by the assessee to the bank in settlement of the debt owed by New Tobacco Company was a business loss of the appellant. - Decided in favour of the Revenue. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the court should not enlarge the scope of the appeal. He contended that it is not a case where the appeal was admitted ex parte. The appeal was admitted by the Division Bench upon notice to the assessee. The Division Bench heard the contentions of the parties and thereafter was pleased to admit the appeal solely on the ground as appearing from the order dated September 2, 2014. 6. We have considered his objection but we are unable to accede thereto. We have given opportunity to Mr. Khaitan to address us on the point as regards the allowance of deduction of a sum of ₹ 1.35 crores and after hearing him, we are of the opinion that the appeal, in fact, involves substantial question of law with regard thereto and therefore, we have decided to formulate the following question of law in addition to the one which was formulated by the order dated September 2, 2014. Whether the learned Tribunal erred in law in allowing deduction of a sum of ₹ 1.35 crores paid by the assessee to clear the dues of M/s. New Tobacco Company ? 7. The payment of a sum of ₹ 1.35 crores is backed by an agreement between the assessee and Andhra Bank which is, in fact, intit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sires that, with a view to enable Andhra Cements Limited to obtain further credit facilities as aforesaid and keep harmonious relationship with the bank, the following arrangements be entered into. 8. Mr. Khaitan submitted that the assessee had taken over Andhra Cements Limited in the year 1994 while the said Andhra Cements Limited was subject matter of a Board for Industrial and Financial Reconstruction proceedings. Andhra Cements Limited had borrowed funds from Andhra Bank. In order to make the net worth of Andhra Cements Limited positive, the assessee was appointed a promoter and in order to do so, Andhra Cements Limited needed more funds which the Andhra Bank was not agreeable to advance, so long as the debts owed by the new tobacco company were not cleared. 9. In order to remove the aforesaid hurdle and to rejuvenate the Andhra Cements Ltd., the debts owed by new tobacco company was cleared by the assessee. He added that the aforesaid payment was also necessitated because of the caution issued by the Reserve Bank of India against money being lent to the companies belonging to G. P. Goenka group. 10. He drew our attention to the judgement of the learned Tribunal from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with the hope that it would be recovered from the NTC. Ultimately and after the arbitration award the assessee lost all hopes to recover the amount and, therefore, wrote it off as a genuine business loss. In this connection, reliance was placed by the learned Accountant Member on the following decisions : (i) CIT v. Williamson Magor and Co. Ltd. [1979] 117 ITR 858 (Cal) ; (ii) CIT v. Gillanders Arbuthnot and Co. Ltd. [1982] 138 ITR 763 (Cal) ; (iii) Macneill and Barry Ltd. v. CIT [1986] 158 ITR 374 (Cal) ; and (iv) Turner Morrison and Co. Ltd. v. CIT [2000] 245 ITR 724 (Cal). In all the above cases when recovery of money paid as a guar antor on account of a subsidiary company or otherwise was allowed as a deduction when recovery of money became impossible. The learned Accountant Member held that ratio of above decisions was applicable to the case in hand.' (e) As such we find that the appellate authorities have consistently held that the amounts paid by the appellant to the banks in settlement of the amounts owned by NTC, was business loss of the appellant and it was allowed as expenditure incurred wholly and exclusively for the business purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and circumstances of this case. The assessee in that case was a partner of a firm of managing agents (hereinafter referred to as a managing agency ). They were managing a company known as Bharat Carbon (hereinafter referred to as a 'managed company'). At the instance of one of the partners of the managing agency huge sum was lent and advanced by the managed company which became irrecoverable. 13. The aforesaid act of negligence on the part of one of the partners of the managing agency was likely to have landed the managing agency in a ruinous litigation. It is in those circumstances, the settlement was arrived at and the money was paid. 14. It would appear that the managed company had a cause of action in that case against the managing agency and, therefore, the payment made by the assessee on account of its share of the loss of the managed company was allowed as an expenditure. 15. The next judgment cited by Mr. Khaitan is in the case of Bikaner Gypsums Ltd. v. CIT reported in [1991] 187 ITR 39 (SC). Mr. Khaitan drew our attention to the following views expressed by the apex court (page 48) : The court pointed out that there is a sharp distinction betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ird and the last judgment cited by Mr. Khaitan is in the case of S. A. Builders Ltd. v. CIT (Appeals) reported in [2007] 288 ITR 1 (SC). Mr. Khaitan drew our attention to paragraphs 25, 35 and 36 of the aforesaid judgment, which read as follows (page 8) : In our opinion, the High Court as well as the Tribunal and other Income-tax authorities should have approached the question of allowability of interest on the borrowed funds from the above angle. In other words, the High Court and other authorities should have enquired as to whether the interest-free loan was given to the sister company (which is a subsidiary of the assessee) as a measure of commercial expediency, and if it was, it should have been allowed . . . We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (B.) Ltd. [2002] 254 ITR 377 (Delhi) that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of settlement entered into between the assessee and the Andhra Bank that the tobacco division of the assessee was demerged and was transferred pursuant to a scheme sanctioned by this court with the consent of the creditor, that is to say, Andhra Bank. The lender Andhra Bank not only consented to the scheme passed by this court on July 31, 1984 but also acted upon such transfer by rearranging the monies lent and advanced to New Tobacco Company. There is a recital that on October 12, 1986 the New Tobacco Company approached the bank and the credit facilities earlier granted to the assessee were transferred in favour of the New Tobacco Company, against the security of stocks, stores and tobacco owned by the borrower, namely, New Tobacco Company. It would further appear from the recitals that the suit filed by the bank against New Tobacco Company was not also a suit against the assessee. The assessee, as a matter of fact, was not a party to that suit. After the scheme dated July 31, 1984 was sanctioned by this court, the assessee had no further connection with New Tobacco Company nor was the assessee liable for the debt due by New Tobacco Company to its lender Andhra Bank. This import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... page of The Telegraph dated March 31, 1995 from which it appears that the caution notice issued by the Reserve Bank of India had been withdrawn on or prior to March 30, 1995. The contents of a news item published in a newspaper are not admissible in evidence. What is admissible is that such a news was published. Whether it is correct or incorrect there is no evidence with regard thereto. Even assuming that such a news was published on March 31, 1995, it appears that the caution notice issued by the Reserve Bank of India had already been withdrawn. Therefore, the learned Tribunal was wrong in proceeding on the basis that it is due to the pressure exerted by the Reserve Bank of India that the assessee was made to pay the debt due by New Tobacco Company to the Andhra Bank. There was nothing before the learned Tribunal to show that the Andhra Bank would not have advanced any further money to Andhra Cements Ltd. except upon payment by the assessee the dues owed by New Tobacco Company. Even assuming for the sake of argument that there was any such situation then the payment of ₹ 1.35 crores would take the character of the cost of acquisition of the shares of Andhra Cements Ltd. acq ..... X X X X Extracts X X X X X X X X Extracts X X X X
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