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TMI Blog2017 (1) TMI 1335X X X X Extracts X X X X X X X X Extracts X X X X ..... business and therefore chargeable to tax as income - Held that:- The loan was given to the mills in the course of the business and in the event of writing off the same in the books as irrecoverable is allowable for deduction. While holding so, we have relied in the case of CIT Vs. Ramaniyam Homes (P) Ltd. (2016 (4) TMI 954 - MADRAS HIGH COURT). Accordingly in our considered view the same ratio is also applicable in the instant issue. Therefore we do not find any reason to interfere in the order of ld. CIT(A). - ITA No.830 & 923/Kol/2012 - - - Dated:- 21-9-2016 - Shri Waseem Ahmed, Accountant Member and Shri S.S.Viswanethra Ravi, Judicial Member For The assessee : Shri D.S.Damle, FCA For The Respondent : Shri Sallong Yaden, Addl. CIT-DR ORDER PER Waseem Ahmed, Accountant Member:- These are cross-appeals by the assessee and Revenue against common order of Commissioner of Income Tax (Appeals)-XXIV, Kolkata dated 18.03.2012. Assessment was framed by DCIT, Circle-7, Kolkata u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 31.12.2007 for assessment year 2005-06. Shri D.S. Damle, Ld. Authorized Representative app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) Industrial Cotton Yarn Project ₹ 11,35,076.22 Rs.2,76,85,166.70 However the AO during the assessment proceedings observed that:- 1) The assessee failed to furnish the copy of the arrangement with the spinning mills with regard to the advances paid to them for the payment of their bills and labour expenses. 2) The assessee has not taken any legal action against the spinning Mills to recover the advances. 3) In the scheme of amalgamation there was no clause for writing off such advances in the books of accounts. In view of above the AO has disallowed the claim of the assessee for the writing off these advances and added to the total income of the assessee. 4. Aggrieved assessee preferred an appeal to ld. CIT(A) who found that the following amounts were written off by the assessee for the year under consideration. i ) Advances to contract processors /Manufacturers (i.e. Co-op Mills) Rs.2,04,39,222/- ii) Amounts on account of sales to Co-op. Mill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56,10,934/- only. The assessee has raised following grounds of appeal:- 1) For that on the facts and in the circumstances of the case, the CIT(A) was unjustified in law and on facts in upholding the disallowance of ₹ 16,35,010/- being debt written off; due from a co-operative Mill. 2) For that on the facts and in the circumstances of the case, the CIT(A) failed to appreciate that since the interest bearing loan was granted by the assessee in the course of and in connection with carrying on appellant s business, the said irrecoverable loan; written off was allowable as business loss . 3)For that on the facts and in the circumstances of the case, the AO be directed to allow the deduction for write off of interest bearing loan to a co-operative mill; amounting to ₹ 16,35,010/- as business loss in computing income under the head profits gains of business. 4) For that on the facts and in the circumstances of the case, the CIT(A) wrongly dismissed the appellant s claim for exclusion of ₹ 2,64,54,856/- from the total income on the ground that liability written back had arisen in the normal course of business and therefore chargeable as inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . From the foregoing discussion we find that that the assessee has not taken any action for the recovery of the advances given to the spinning mills and such advances was not appearing in the scheme of amalgamation. Similarly the assessee failed to provide any written arrangement for giving such advances. Therefore the AO has made the addition. However the learned CIT(A) found that advances were given in the course of the business for ₹ 2,04,39,222/- and deserves to be allowed for computing the business profit as it is a current account transactions. But the ld. CIT(A) sustained in the addition for the loan given to the spinning middle for ₹ 16,35,010/- as it is a capital account transaction. Now the following issues arise before us for the consideration. 1. Whether the amount of advances given in the course of business is allowable expenses while computing the business profit. 2. Whether the amount of loan given in the course of business is allowable expenses while computing the business profit. Now we first take up the Revenue appeal 923/Kol/2012 . 8. From the above facts we find that there is no doubt that the advance was given by the assessee in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of ₹ 16,35,010/-. In this case, we find that the assessee has given the loan to the same spinning mills to which the advances were also provided in the course of the business. However, we find that the loan given is representing the transaction on capital account and this is not a business of the assessee to provide the loan on interest of basis. However, the ld. AR before us argued that even a single transaction can be regarded as business transaction and the income earned from such transaction was also shown as business income. From the facts, we find that the loan was given to the same mills to which the advances were provided and such advances have been held by us as in the course of the business. Therefore the color of the transaction should not be changed on the basis of the nomenclature of the similar kind of transaction. Therefore we are inclined to reverse the order of the authorities below. In this connection we rely in the case of CIT Vs. Ramaniyam Homes (P) Ltd. [2016] 68 taxmann.com 289 (Madras) where the Hon ble HIGH COURT OF MADRAS has held as under : 39. Therefore, it is not the actual receipt of money, but the receipt of a benefit or perquis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys treated as a liability and it gets reflected in the balance sheet as such. When a repayment is made in monthly, quarterly, half yearly or yearly installments, the installment is divided into two components, one relating to interest and another relating to a portion of the principal. To the extent of the principal repaid, the liability as reflected in the balance sheet gets reduced. The interest paid on the principal amount of loan, will be allowed as deduction, in computing the income under the head profits and gains of business or profession , as per the provisions of the Act. 42. But, Section 36(1)(iii) makes a distinction. The amount of interest paid in respect of capital borrowed for the purpose of business or profession is allowed as deduction under Section 36(1)(iii), in computing the income referred to in Section 28. But, the proviso there under states that any amount of interest paid in respect of capital borrowed for acquisition of an asset for extension of existing business or profession, whether capitalized in the books of account or not for any period beginning from the date on which the capital was borrowed for the acquisition of the asset, till the date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich was comprising of principal amount of ₹ 2,64,54,856/- only and unpaid interest amount of ₹ 3,66,14,552/- only. The assessee offered the entire written off amount as business income for the year under consideration. However the assessee raised the issue 1st time before the learned CIT(A) that it has shown the principal amount of loan for ₹ 2,64,54,856.00 from the bank which was written in the year under consideration has been shown as business income of due to inadvertent mistake. As such the principal amount written off is not the income of the assessee. The assessee before the ld. CIT(A) has prayed for not to include the said amount as business income by way of raising the additional grounds of appeal. However the ld. CIT(A) dismissed the grounds of appeal of the assessee by observing as under :- 4. Additional Grounds No. 1 2: In these additional grounds of appeal, the appellant has claimed for deduction of ₹ 2,64,54,856/- on account of Liabilities no longer required written back . I have carefully considered above two additional grounds of appeal. In the P/L A/c, the appellant has credited the amount of ₹ 2,64,54,856/- as liabi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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