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TMI Blog2020 (8) TMI 805X X X X Extracts X X X X X X X X Extracts X X X X ..... e said case it was held that in order to allow business loss under section 72(1)(i) condition is that assessee should carry on business in year under appeal and it is only against profits of such business that brought forward loss can be set off. Where assessee s profits were assessed under section 41(1) as business income, said profits did not represent profits and gains of any business carried on by assessee and therefore, brought forward business loss was not allowable against profits assessed under section 41(1). In the case in hand the assessee throughout the proceedings is claiming that he is carrying his lottery business under two limbs and is entitled for the deductions of bed debts and other expenses. In the result the Ground No. 1 of the appeal is allowed. Disallowance of Debit balances written off in M/s. Amber Agency - assessee submits that MLPL was acting as a sole stockist of Amber agency in Kolkata for marketing the lotteries through a network of its customer - HELD THAT:- We have noted that the alternative plea of the assessee was not accepted by ld CIT(A) by taking view that no cogent evidence is furnished by the assessee, the assessee not proved that loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and ought to have held, that RA was a part of the same business of running lottery agency carried on by the appellant at different locations, though in different names; and thus, the appellant continued to carry on the business that entitled the appellant to claim the aforesaid legitimate business expenses (including bad debts written off). In view of above, the appellant prays that deduction be allowed for the expenses of ₹ 83,72,085/- (including for bad debts of ₹ 76,11,276/-) in accordance with the law. 2. Disallowance of Debit Balances written off in M/s. Amber Agency: 2.1 On the facts and in the circumstances of the case, and in law, the Ld. CIT(A) erred in sustaining the disallowance of ₹ 1,10,42,315/- out of the debts of ₹ 1,32,41,948/- (wrongly taken as ₹ 56,30,671/- by the Ld. AO) written off by the appellant in the books of account of M/s. Amber Agency, a proprietary concern of the appellant. 2.2 The Ld. CIT(A) erred in holding that the aforesaid debt of M/s. Mainstar Lotteries Pvt. Ltd. ('MLPL') written off was not a debt arising out of sales, but was on account of loan, and therefore, not deductible u/s.36( l)(vii) r /w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d debts in Amber Agency (AA) of ₹ 1,32,41,948/- out of which a sum of ₹ 1,10,42,315/- was in respect of MLPL, a company wherein the assessee hold 95% of shares. The assessing officer after issuing show cause and considering the reply of the assessee also disallowed the entire claim in Amber Agency by taking view that the assessee has substantial interest in MLPL and the assessee developed camouflage device. The assessing officer while disallowing the claim of assessee relied on the decision of Hon ble Supreme Court in McDowell (154 ITR 148 SC). On appeal before first appellate authority / learned CIT(A), the action of the assessing officer on both the claims was confirmed. Thus, further aggrieved by the order of ld CIT(A) the assessee has filed present appeal before this Tribunal. 3. We have heard the submissions of the learned authorised representative (ld. AR) for the assessee and the learned Senior Departmental Representative (ld. DR) for the revenue and with their assistance gone through the order of lower authorities. Ground No. 1 relates to disallowances of expenses claimed in Raunak Agency (RA). The ld. AR for the assessee submits that Raunak agency and Amber ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-11 and 2011-12 reflecting sales made from MLPL. Copy of ledger account of MLPL in the books of Amber agency for FY 2010-11, Copy of ledger account of MLPL in the books of Raunak agency for FY 2010-11 and Copy of various written submissions furnished before assessing officer and ld CIT(A). 4. To buttress his submission, the learned AR of the assessee relied upon the decision of following decisions; Shreyas S Morakhia Vs DCIT (ITA No. 198/Mum/2009) dated 27.11.2011, Gujarat High Court in Bansidhar (P)Ltd versus CIT (1981 5 Taxman 158 Gujarat), DCIT Vs Patidars Ginning and Pressing Company (2000) 108 Taxman 476(Guj), Madras High Court in CIT versus Ranji Investment. Ltd 319 ITR 433 (Madras), CIT versus late TS Srinivasa Iyer 192 ITR 50 (Madras) and CIT versus Western Bengal Coal Fields Ltd 233 ITR 139 (Calcutta). 5. The learned AR for the assessee submits keeping in view the aforesaid decisions of various High Courts the assessee is entitled for all expenses including bad debts written off in the books of Raunak agency while computing business income. 6. On the other hand the learned DR for the revenue submits that the assessee closed its b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares on own account was continued. On these facts, we have to see as to whether it can be said that the assessee is continuing with his business. We examined the case laws relied upon both the parties. 12. The Hon'ble Supreme Court in Standard Refinery Distillery Ltd. (supra), was considering the case of a company which owned distilleries and had also acquired a sugar factory. It had a business of sugar manufacturing and distilleries as well as business of dealing in shares. The assessee sold certain shares and the loss after being set-off was sought to be carry forward as unabsorbed loss in the sale of shares and set-off was claimed against income from sugar manufacturing and distilleries. The Hon ble Supreme Court held as follows:- Held The Tribunal has now submitted the second supplementary statement of case called for by this Court. The facts found by it are as follows: (1) There is a single trading and profit and loss account. In the same account the sales of spirit, sugar and molasses as well as stock and shares appear; (2) The share transactions as well as the business has been dealt with by a common organisation, though the sale of shares is a single transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same business continues and loss and depreciation of the earlier year can be carry forward and set-off. 15. The Hon ble Jurisdictional High Court in Shri Laxmi Printing Dyeing Works Pvt. Ltd. (supra) was considering the case of an assessee which was carrying on the business of processing of cloth with the aid of his own machinery. For the year ended 1957-58, there was carry forward unabsorbed depreciation. In the year 1956, the assessee company entered into an agreement with B Limited for processing the goods of the latter on certain terms and conditions and by use of special kind of machinery. B Limited imported this machinery and installed the same in the business premises of the assessee company. Due to want of space, the assessee company sold its machinery. Thereafter, the entire share capital of the assessee company was purchased by B Limited and, hence, the assessee company became the wholly owned subsidiary of B Limited, the issue was whether the assessee is entitled to claim of set-off of carry forward depreciation. The Hon ble Court held that the activity carried on by the assessee namely the activity of processing remained the same and the business is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and whether different ventures were so inter-laced and so dovetailed into each other as to make them into the same business. 19. In our view, the test is fulfilled in this case and, hence, the claim of the assessee of bad debts from brokering business is to be allowed. Coming to the second limb of disallowance, admittedly, the issue whether the conditions under section 36(2) are fulfilled or not, is decided in favour of the assessee by the decision of Mumbai Special Bench in assessee s own case for earlier assessment year. Respectfully following the same, we set aside the order of the Commissioner (Appeals) and allow this ground of appeal. 9. The Hon ble Gujarat High Court in Bansidhar (P) Ltd Vs CIT (supra) while considered the questions of laws; (i) whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that Steel-O-Style Unit of the assessee and the units ( a ) carrying on business of purchase and sale of cloth ( b ) processing and manufacturing of colours and chemicals in the name o: M/s. Ban Dyes, did not constitute the same business and hence the retrenchment compensation of ₹ 9,603 paid ' to the workers of Steel-O-Styl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of maintaining different identities. The fact that the closure of one business did not affect or lead to the closure of the other businesses was also not of such consequence because no decisive inference could be drawn therefrom. In fact, the closure of two businesses in two years in succession and the third within five years thereafter was circumstance which leads to a reasonable inference that the various businesses were in all probability so closely interconnected that one could not bear the impact of the death of another. Therefore, the conclusion was inevitable that there was complete inter-connection, inter-lacing, interdependence and dovetailing of the different businesses activities carried on by the assessee and that all those activities really constituted one and single business. 10. Further, Hon ble Gujarat High Court in CIT Vs Patidar Ginning Pressing Co.(supra), while considering the facts that the assessee-company had a ginning mill. Due to financial difficulties the assessee stopped its activities of ginning and pressing and before commencement of the year engaged itself in purchasing and selling of cotton. However, the selling of cotton was not different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he control over the business of both the concern by assessee is also not disputed by the lower authorities. No contrary fact that the assessee was not having control over the business of both the concern or the business of both the entity was different was brought on record by the lower authorities. 12. Considering the test of unity of control and common management as held by coordinate bench in Shreyas S. Morakhia (supra), by following the decision of Hon ble Supreme Court in Standard Refinery Distillery Ltd Vs CIT (1971) 79 ITR 589(SC), the assessee is entitled for the deduction expenses in Raunak agency. The case law relied by ld CIT(A) in CL Mehra Vs ITO 59 ITD 99 (Delhi) is not applicable on the facts of the present case. In the said case the business in two entities was not carried by assessee simultaneously, moreover two separate accounts were maintained by assessee in the said case. The case law relied by ld. DR for the revenue in Karnataka Instrade Corporation Ltd. vs. ACIT (supra) is also not helpful to the revenue. In the said case it was held that in order to allow business loss under section 72(1)(i) condition is that assessee should carry on business in year unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made by the assessee towards reimbursement were posted in loan accounts thereby increasing the debit balance in the loan account, which was transferred to ledger account (sales) at the time of write off. When these facts were examined by learned CIT (A), the assessee submitted the recast ledger accounts to bi-furcate the debit balance written off on account of sales transaction and on account of loan account. The learned CIT(A) brushed aside this explanation by taking view that it is an afterthought and self-serving evidence and that assessee did not project the correct balance in these two accounts by projecting rectified ledger accounts before him. 14. The learned AR further submits that there is no dispute that assessee had affected sales to MLPL and therefore the extent debit balance written off was on account of sales, the same was clearly allowable as a bad debts under section 36(1)(vii). 15. With regard to alternative claim for business losses, the learned AR of the assessee submits that there was a close business connection between the assessee s business and MLPL business and therefore where the assessee had advanced loan it was clearly incidental for carrying out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore deduction under section 36(1)(vii) could not be allowed. It was further held that, though MLPL written back this sum as advance in its books, it did not pay any tax thereon because he did not claim similar deduction in written off in the sundry balances to the tune of about ₹ 2.00 crore and thereby has suffered losses thus the assessing officer was rightly invoked the case law in McDowell (supra). 20. The alternative claim of assessee was also not accepted by the learned CIT(A) by taking view that no cogent evidence was furnished by the assessee to substantiate his claim. The assessee has not proved that the loss has occurred in the course of business carried out by him or incidental to such business or that it was a trading loss and not a capital loss. Further there is nothing on record to show that loan advanced was utilised by MLPL for the purpose of business and that assessee has not explain how the said loan was to be treated as business loss incurred during the current year. The learned CIT(A) also held that assessee ought to have ascertained the fair market value of the fixed assets which consist of mainly Computer and Printer of MLPL directly transferred to hi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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