GUJARAT INSECTICIDES LIMITED,ANKLESHWAR vs. THE ADDL.CIT.,BHARUCH RANGE, BHARUCH

We have heard the submission of learned authorised representative (AR) of assessee and the learned departmental representative (DR) for revenue and perused the orders of lower authorities carefully. The learned AR of the assessee submits that assessee made intercorporate deposit with Nippon investment Private Limited. The assessing officer made the addition of notional interest income in six assessments from 2000-01 to 2005- 06, by taking view that in two assessment years in 1998-99 and 1999-2000, the assessee had accounted for the accrued interest. The assessee furnished the detail of such additions, which are referred by assessing officer in para 5 of the assessment order. During the relevant period under consideration the assessee received back the intercorporate deposits; however, they did not pay any interest to the assessee out of the above notional interest. The assessee claimed this amount of interest as deductible amount either as a bad debts or business loss under section 36(1)(vii) and/or section 28 by filing revised return. The assessing officer rejected the claim of assessee on the ground that principal amount is recovered. The learned AR for the assessee further submits that amount of ₹ 1.73 crore has already been taxed by the department in earlier years on the ground that it is accrued interest on Gujarat Insecticides Limited intercorporate deposit. During this year under consideration the assessee has been able to recover only principal amount and no amount is received towards such accrued interest, thus, the assessee had put its claim for deduction of amount as business loss. The learned AR for the assessee further submits that the last six assessment years the interest amount is taxed as a business income, thus, accepted position is that advance is being given in ordinary course of business of lending money, therefore, the assessee is entitled for such deduction.

In alternative submission the learned AR for the assessee submits that if the claim is not considered as bad debts, the same having been assessed at the business income in the past, is also considered to be allowable as a business loss under section 28 as the same has become irrecoverable and unrealized during the year under consideration, only principal amount could be recovered. In support of his submission the learned AR of the assessee relied upon the following decisions:  Deoniti Prasad Singh Versus CIT -15 ITR 165 (Patna),  CT Naraiyan Chettiar Versus CIT -60 ITR 690(Madras),  Dinesh Mills Ltd Versus CIT (122 Taxman 384 (Gujarat),  Shiv Narayan Karmendra Narayan cs Versus CIT 277 ITR 27(Allahabad).

On the other hand the learned DR for the revenue supported the order of lower authorities. The learned AR further submits that the assessee has not shown and income from the intercorporate deposit. The assessee has not fulfilled the condition prescribed under section 36 (2) for claiming bad debts. The business of assessee is not of money lending, therefore, the assessee cannot claim that the assessee made intercorporate deposit in the course of his business. During the earlier years the assessee never 4 Gujarat Insecticides Limited claimed as a business loss on account of non-receipt of interest on such intercorporate deposit, therefore, the assessee is also not entitled for business loss as claimed. The learned DR for the revenue further submits that before the first appellate stage the assessee itself admitted that issue is covered by the decision of Tribunal in earlier years against the assessee. The learned DR prayed for dismissal of the appeal.

We have considered the rival submission of both the parties and have gone through the orders of lower authorities carefully. The assessing officer rejected the revised claim of bad debts of bad debts /business loss of ₹ 1.73 crore by taking view that the assessee never charged any interest from Nippon investment Private Limited and are now the claim of deduction of notional interest of ₹ 1.73 crore cannot be allowed. The learned Commissioner (Appeals) upheld the action of the assessing officer on the ground that the authorized representative of assessee fairly conceded that this issue of notional interest is covered against the assessee by the order of Tribunal. We have noted that for claiming the said amount the assessee has not fulfilled the condition prescribed under section 36 (2) for claiming bad debts meaning thereby the assessee has not offered the said notional income as its income in earlier years. Hence, the assessee is not eligible for deduction of bad debts. Similarly, it was never the claim of the assessee that the intercorporate deposit was given for business purpose. Even otherwise, the assessee is not in money lending, therefore, the assessee cannot claim that the assessee made intercorporate deposit in the course of his business. During the earlier years the assessee never claimed as a business loss on Gujarat Insecticides Limited account of non-receipt of interest on such intercorporate deposit, therefore, the assessee is also not entitled for business loss as well.

The case laws relied by learned AR for the assessee is not helpful to him as the facts in all cases are at variance. In Deoniti Prasad Singh Vs CIT(supra) as well as in C T Chettiar Vs CIT (supra), the assessee was in the business of money lending business. In Dinesh Mills Ltd Vs CIT (supra), the assessee discovered loss on account of misappropriation by it employee, which was treated as incidental to the business. Similarly, in case of Shiv Narayaan Karmendra Narayan Vs CIT (supra) the claim was based on account of embezzlement was made by its employee. Therefore, none of the case law is applicable on the facts of the present case.

Hence, the ground of appeal