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TMI Blog2018 (2) TMI 1091X X X X Extracts X X X X X X X X Extracts X X X X ..... n in absence of a money lending clause. Their lordships are of the view that the test in such a case would be as to whether the transaction in question has taken place in ordinary course of business or not. The assessee’s above referred evidence sufficiently indicates that it had proposed to charge interest on the advances in question given through banking channel. We conclude that the money in question advanced as per its above object clause or for that even in absence of object clause amounted to a transaction in its ordinary course of business only. Both the lower authorities corresponding finding by this effect accordingly stand reversed. Treating the impugned write off as a capital loss and not revenue in nature so as to be deposited against income of the impugned assessment year - Held that:- As assessee has advanced the sum in question of ₹ 60lacs and ₹ 40lacs to M/s. Bhagyam Industries Pvt. Ltd. and M/s. Dolphin Metal (India) Ltd. totaling to ₹ 1 crore through banking channel in its ordinary course of business in lieu of charging interest and non recovery thereof for almost three years formed sufficient reason to write them off as sundry balances as re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olds Assessing Officer s action disallowing the above 80G claim as follows: 2.4. Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made the disallowance of claim of donation amounting of ₹ 11, 11, 111/- paid to Shankarsinh Vaghela Bapu Charitable Trust for the reason that the appellant has filed the copy of the approval granted by the CIT u/s. 80G of the IT Act to the said trust but no receipt for payment of donation has been filed before him. The AO also observed that as per the provisions of section 80G(1)and (2) it clearly provides that the deduction u/s. 80G is allowable only in respect of any sum paid during the year under consideration. 2.5. On the other side, the appellant claimed that initially in the year 2008 the appellant has extended the loan to the aforesaid trust with the object to help the trust. However subsequently in the year under consideration the appellant claimed to have donated the above loan to the trust on 14, 08.2011. It also submitted copy of receipt issued by the said trust in respect of the donation made alongwith approval obtained u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Heard rival contentions. Relevant records perused. Learned Authorized Representative and learned Departmental Representative strongly reiterate assessee s and Revenue s respective stands against and in support of the impugned disallowance. Both parties agree that the relevant basic conditions to be satisfied in a Section 80G deduction claim are that it must pertain to an actual sum of money than in kind, it is to be paid to a recognized specified institution through banking channel followed by a necessary payment receipt issued from the donee s end. Learned Departmental Representative submits that the assessee has actually paid the amount in question way back in financial year 2008-09. It thereafter treated the said amount as loans and advances till the relevant previous year wherein it chose to write off the above amount in dispute as a donation. The donee trust has also issued corresponding receipt in relevant previous year only on 14.08.2011. 5. Learned Departmental Representative s case accordingly is that the CIT(A) s order extracted hereinabove has not admitted the above donation receipt since not accompanying the relevant Rule 46A additional evidence application as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seeks to reverse both the lower authorities action in disallowing its claim of sundry balances write off amounting to ₹ 1, 00, 00, 000/- in case of M/s. Bhagyam Industries Pvt. Ltd. and M/s. Dolphin Metal (India) Ltd. involving sums of ₹ 60lacs and ₹ 40lacs; respectively. Its further alternative plea is that the above sundry balances be considered as allowable either u/s.36(1)(vii) as bad debts or u/s.37 of the Act. We notice in this backdrop that the CIT(A) s detailed discussion takes into account the relevant finding in assessment as well as assessee s submissions as under: 3. The second ground of appeal is as under:- The learned assessing officer has erred in law and on facts in making disallowance of ₹ 1, 00, 00, 000/- being sundry balance written off. In this regard your appellant would like to state that the Ld. AO has not appreciated the explanations / submissions made during the course of assessment proceedings. Yours appellant states that amount of Rs.l , 00, 00, 0007- being advance were made in ordinary course of business and thus appellant prays before our honor to kindly delete the disallowance of ₹ 1, 00, 00, 000/- being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and contentions of the assessee company are considered and not found to be acceptable on account of following: ( i) It is seen that assessee company has failed to prove that the amounts claimed to have been advanced by it to the two parties namely Dolphin Metal (I) Ltd. Bhagyam Industries had actually been advanced by assessee company and the amounts were in the nature of loans and advances made in ordinary course of assessee company's business. ( ii) It is pertinent to mention here that it is an admitted fact that where-abouts of the loanee namely M/s. Bhagyam Industries or Bhagyam Industries P. Ltd. are not traceable anywhere in any. database of sales tax department or the MCA site. Further, assessee company's loan agreement shows that no individual is identified as signatory to the same it appears that not even cheque was obtained from the said party as a security indemnity. ( iii) It is seen that there was default in respect of both these advances as soon as the loans were claimed to have been granted to theses parties since assessee Company never received any money including interest income from these parties, which shows that the amounts even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s revenue receipts income taxable for the year under consideration. In this regard, reliance is placed on the following decisions: ( i) In the case of Vijaykumar Mills Ltd Vs CIT(Mad.) 247 ITR 176, it was held that if advance was not made for the purpose of the business, the same was not allowable as a deduction on its write off. ( ii) In the case of Datamatics Financial Services Ltd. Vs. DCIT 2011- TIOL- 124 ITAT Mumbai, It was held that even if assessee advanced loans in the shape of ICDs and offered interest income on such deposits as business income Memorandum of Association permitted assessee company to do business of financing of loans, the same were basically investments made by assessee out of surplus funds. Hence such deposits written off cannot be allowed as bad debt. ( iii) In the case of A.V. Thomas Co. Ltd. Vs. CIT(SC) 48 ITR 67, the disallowance in respect of claim for deduction on account of write off of outstanding debt was upheld on the ground that debt is an outstanding which if recovered would have swelled the profits and it is not money handed over to someone which that person has failed to return hence, claim for write off in resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... engaged in money lending business, which can also be verified from the copy of Memorandum which is enclosed on Page No. 10 to 15 . The Ld. A.O. has stated various objections on Page 4, Para 3.2.1 , which are not at all correct or relevant as under: The A.O. has stated in Point (i) Para, 3.2.1 on Page 4, that the assesse has failed to prove that the advances were actually made to these parties.In thisregard , the Appellant has to state that advancesto both the parties were given in the ordinary course of business and through proper banking channel, which can be verified from the copy bank statement enclosed on Page No 5 and 7 to 9. The A.O. has further stated in Point (ii) in Para 3.2.1 that the assessee company's loan agreement shows that no individual is identified as signatory to the same . it appears that not even cheque was obtained from the said party as a security or indemnity. In this regard , we have to state that the copies of loan agreement made with both the parties i.e. Bhagyam Industries and Dolphin Metal (India) Ltd are enclosed on Page No. 16 to 19 21 to 24 , from which it can be seen that the signatory authorities in both the casesare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een considered. 3.4. Decision : I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made the disallowance of claim of balance written off of ₹ 1, 00, 00, 000/- in respect of loans granted by the appellant to two different parties Bhagyam Industries Pvt Ltd. at ₹ 60, 00, 000/- in the month of June 2009 and Dolphin Metal India Ltd. at ₹ 40, 00, 000/- in April 2010. Since the money could not be recovered since granting the loans to both the parties and hence in the year under consideration these loans were written off as non recoverable. The AO has discussed various reasons for non acceptance of the submission of the appellant in para 3.2.1 to 3.2.5 of the assessment order. 3.5. The appellant has claimed that these loans were granted to the aforesaid parties in the ordinary course of business and therefore the same are allowable u/s. 37 or section 36()(vii) of IT Act. It was also argued that the appellant was engaged in money lending business. For support, it submitted copy of memorandum of association of the appellant. These advances were made through proper banking chan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng, preparing, reconditioning, refining, sizing, sourcing, sanforizing, treating, twisting, thinning, texturising, watering, washing, working, utilizing. B.33 To lend, invest or otherwise employ or deal with money belonging to or entrusted to the company in securities and shares or other movable or immovable property or without security upon such term and In such manner as may be thought from time to time, to very such transactions and investments in such manner as the Directors may think subject to the provision of the Companies Act, 1956. B-38 To carry on business as consignors, consignees and agents and to buy, sell, import, resell, exchange, manufacture otherwise deal in all kinds and classes of cotton, wollen, rayon, silk, art silk, nylon, jute, synthetic, others natural man - made staple fibres, fabrics, yarn, thread and materials made therefrom and other synthetic fabrics, materials and garments. B-46 To carry on all kinds of agency business and as buying and selling agents of all articles, things, commodities and products. 3.7. Thus from the above clauses of the main object nowhere it could be said that the lendings given to the aforesaid two partie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s case neither any terms and condition of lendings have been brought on record, nor it has been proved that those two parties were customers or having any dealing with the appellant company. Therefore, these lendings could not be said to be covered in the ordinary course of business. 3.8. The AO also observed that the loan agreement with Bhagaym Industries was dated 09.07.2009 (correctly 27.07.2009) while the agreement was shown to be executed on 6.6.2009. In other words when the non judicial stamp of ₹ 100/- had been purchased only on 27.07.2009 then how couid this agreement be executed on 06.06.2009, it means this agreement has been backdated. Therefore the authenticity of the said agreement was in doubt. It has also been noticed that the appellant company never deposited the cheque obtained from Dolphin Metal India Ltd. nor any legal proceedings were initiated against both the parties despite being failed to recover even a single rupee out of the money paid to them. On the contrary the AO observed that Dolphin Metal has repaid the rolling charges to another party viz. Gopal Iron and Steel Company Gujarat Ltd. which has proved that the debt could not become bad at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. We now proceed to examine the instant issue in light of relevant factual backdrop as emanating from preceding paragraphs. There does not appear to be much dispute about the basic fact on record. The assessee had actually advanced the two sums in question of ₹ 60lacs and ₹ 40lacs to M/s. Bhagyam Industries Pvt. Ltd. and M/s. Dolphin Metal (India) Ltd. The corresponding loan agreements demonstrate that the parties in question had agreed for interest @ 13 to 14% per annum on reducing balance method. The Assessing Officer and CIT(A) are first of all of the view that the assessee has failed in proving itself to be an entity engaged in money lending business. We find that hon ble Kerla High Court in (2014) 45 taxmann.com 118 (Kerla) Peninsular Plantations Ltd. vs. ACIT holds that such a specific money lending clause is not necessary as it is very much possible for a company to lend money to another entity even in absence of a money lending clause. Their lordships are of the view that the test in such a case would be as to whether the transaction in question has taken place in ordinary course of business or not. The assessee s above referred evidence sufficiently indicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Metal (India) Ltd. is much stronger than that of former one accepted hereinabove. Case records suggest that the said entity had been facing both the civil as well as Section 138 prosecution proceedings for having not discharged its liability in case of M/s. Associated Tradecom. Page 48 of the paper book reveals that this latter entity had held already its Annual General Meeting way back on 29.09.2009. Its authorized signatory details/duly incorporated in the corresponding loan agreement in page 34 para 9. It had also submitted collateral security in the nature of blank cheques. Mr. Singh at this stage vehemently submits that these blank cheques do not form a valid collateral security. We do not see any substance in the instant plea since the issue before us is that of sundry balances write off than that of validity of the said negotiable instruments. We refer to our preceding detailed discussion to once again conclude that all these facts and circumstances constituted sufficient reason for the assessee to write off the impugned sum pertaining to M/s. Dolphin Metal (India) Ltd. amounting to ₹ 40lacs as well as the gross sum of ₹ 1, 00, 000/-. 12. Learned Department ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he balance sheet as well as the advance and loan appearing in the liability side of the balance sheet simultaneously then accepting one of the Act of writing back and not accepting the write off unrecoverable amount is contrary to the Rule of consistency or uniform principle on the part of the AO. The AO should have adopted the same principle while dealing with the identical nature of write off and write back amounts by the assessee as both are representing the advance given and advances received in the ordinary course of the business and it is very well possible that the advances given by the assessee were out of advances received by the assessee. Thus if the write off unrecoverable amounts are treated in capital filed then the write back amount which is corresponding to the write off amount should have also been treated as capital in nature and cannot be taxed as income of the assessee. There is no dispute that the loans taken by the assessee was for business and advances given were also in the course of business. Therefore the same were nothing but representing the same nature of transaction in trading field though opposite to each other. The Hon'ble Madras High Court in cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue loss. We are in entire agreement with that proposition. On the facts of this case, the loss to the assessee being a revenue loss which had been incurred in the course of business, the assessee was entitled to deduct the same under section 37 of the said Act. We answer the question referred to us in favour of the assessee and against the Revenue. 7. It has been held by the Hon'ble High court that it is not necessary that every business should register itself under the Money Lenders Act. In any business, credit is indispensable part of advance of temporary nature with or without interest is common in business. Thus, the Hon'ble High Court has held that the money lent during the business of acquiring, distribution rights in the picture found to become unrecoverable by the reason of picture failing at box office and purchaser being unable to repay his debts, the money so lost by the assessee has rightly held to be a trading loss. In the instant case it cannot be a case of bad debts but it is certainly a trading loss as advances given in the course of business and loss to the assessee in view of the facts and circumstances when the business of the assessee is clos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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