DCIT CIR 6(1), MUMBAI vs. BRIGGS TRADING CO, P. LTD, MUMBAI

ORDER PER OM PRAKASH KANT, AM PER OM PRAKASH KANT, AM

These appeals by the assessee and Revenue are directed These appeals by the assessee and Revenue are directed These appeals by the assessee and Revenue are directed against two separate orders dated 23.01.2014 and 15.01.2014 separate orders dated 23.01.2014 and 15.01.2014 separate orders dated 23.01.2014 and 15.01.2014 passed by the Ld. Commissioner of Income passed by the Ld. Commissioner of Income-tax (Appeals) tax (Appeals)-14, Mumbai [in short ‘the Ld. CIT(A)’] for assessment years 2008-09 Mumbai [in short ‘the Ld. CIT(A)’] for assessment years 2008 Mumbai [in short ‘the Ld. CIT(A)’] for assessment years 2008 and 2009-10 respectively. As common issue tively. As common issue-in-dispute is involved dispute is involved in these appeals, therefore, same were heard together and disposed erefore, same were heard together and disposed erefore, same were heard together and disposed off by way of this consolidated order for convenience. off by way of this consolidated order for convenience. off by way of this consolidated order for convenience.

1. The Ld Commissioner of Income tax (Appeals) 1. The Ld Commissioner of Income tax (Appeals) - 14, Mumbai 14, Mumbai (Hereinafter referred to as "Ld CIT(A) ) has erred on facts, in law and (Hereinafter referred to as "Ld CIT(A) ) has erred on facts, in law and (Hereinafter referred to as "Ld CIT(A) ) has erred on facts, in law and in the circumstances of the case in confirming the action of the Ld in the circumstances of the case in confirming the action of the Ld in the circumstances of the case in confirming the action of the Ld Assessing Officer (Ld A.O.) in disallowing Rs.132,86,85,561/ Assessing Officer (Ld A.O.) in disallowing Rs.132,86,85,561/ Assessing Officer (Ld A.O.) in disallowing Rs.132,86,85,561/- including Interest of Rs.7,96,85,561/ including Interest of Rs.7,96,85,561/- as bad debts or write offs bad debts or write offs under Section 36 of the Income Tax Act 1961 (Hereinafter referred to under Section 36 of the Income Tax Act 1961 (Hereinafter referred to under Section 36 of the Income Tax Act 1961 (Hereinafter referred to as "the Act").

2. The Ld CIT(A)) has erred on facts, in law and in the circumstances 2. The Ld CIT(A)) has erred on facts, in law and in the circumstances 2. The Ld CIT(A)) has erred on facts, in law and in the circumstances of the case in confirming the disallowane of notional interest of of the case in confirming the disallowane of notional interest of of the case in confirming the disallowane of notional interest of Rs.95,21,457 / / - on investments in equity shares worked out under on investments in equity shares worked out under Rule 8D of the Income tax Rules 1962 r w Section 14A of the Act. Rule 8D of the Income tax Rules 1962 r w Section 14A of the Act. Rule 8D of the Income tax Rules 1962 r w Section 14A of the Act. 3. Briefly stated facts of the assessee for assessment year 2008 Briefly stated facts of the assessee for assessment year 2008 Briefly stated facts of the assessee for assessment year 2008- 09 are that it filed return of income on 29 filed return of income on 29-09.2008 declaring loss of 09.2008 declaring loss of Rs.(-) 141,02,70,137/ ) 141,02,70,137/-. The return of income filed by the assessee . The return of income filed by the assessee was selected for scrutiny was selected for scrutiny assessment and statutory notices under and statutory notices under the Income-tax Act, 1961 (in short ‘the Act’) were issued and tax Act, 1961 (in short ‘the Act’) were issued and tax Act, 1961 (in short ‘the Act’) were issued and complied with. The assessee company claimed to be a non-banking complied with. The assessee company claimed to be complied with. The assessee company claimed to be ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 3 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd.

financial company. The assessee financial company. The assessee claimed that it was engaged claimed that it was engaged in the business of financing, financing, trading of securities, lending and borrowing lending and borrowing of money etc. In the assessment completed u/s 143(3) of the Act on money etc. In the assessment completed u/s 143(3) of the Act on money etc. In the assessment completed u/s 143(3) of the Act on 30.12.2010, the Assessing Officer rejected the claim of deduction 30.12.2010, the Assessing Officer rejected the claim o 30.12.2010, the Assessing Officer rejected the claim o for bad debt u/s 36(1)(vii) of the Act in respect of bad debt u/s 36(1)(vii) of the Act in respect of bad debt u/s 36(1)(vii) of the Act in respect of three parties namely (i) M/s Digital Super High Digital Super High-way (Rs.575,259,040/ way (Rs.575,259,040/-) ; (ii) M/s Classic Credit Ltd. (Rs.74,90,000/ Classic Credit Ltd. (Rs.74,90,000/-) and (iii) M/s Classic Share & Classic Share & Stocking Broking Services Ltd. (Rs.44,26,521/ Stocking Broking Services Ltd. (Rs.44,26,521/-). In this manner ). In this manner total total claim claim of of deduction deduction for bad bad debt debt amounting to Rs.132,86,85,561/- was disallowed by the Assessing officer was disallowed by the Assessing officer. Further, the Assessing Officer also made disallowance u/s 14A of Further, the Assessing Officer also made disallowance u/s 14A of Further, the Assessing Officer also made disallowance u/s 14A of the Act and for certain amount of income certain amount of income mismatched with data of mismatched with data of Annual Information R Annual Information Return (AIR). On further appeal, the Ld. CIT(A) eturn (AIR). On further appeal, the Ld. CIT(A) allowed part relief to the assessee. Aggrieved both the assessee and allowed part relief to the assessee. Aggrieved both the assessee and allowed part relief to the assessee. Aggrieved both the assessee and the Revenue are before the Income the Revenue are before the Income-tax Appellate Tribunal (in short tax Appellate Tribunal (in short ‘the Tribunal’) by way of raising grounds as reproduced above. e Tribunal’) by way of raising grounds as reproduced above. e Tribunal’) by way of raising grounds as reproduced above.

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 4 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd. amounting to Rs.575,259,040/ amounting to Rs.575,259,040/-, which consist of principle amount which consist of principle amount of Rs.50 crores and interest of Rs.7.50 crores, (ii) and interest of Rs.7.50 crores, (ii) advance to M/s advance to M/s Classic Credit Ltd. amounting to Rs.74,90,00,000/ Classic Credit Ltd. amounting to Rs.74,90,00,000/- - for acquisition of shares of ABCL Ltd, (iii) of ABCL Ltd, (iii) the interest amount in respect of the interest amount in respect of M/s Classic Share & Stocking Broking Services Ltd. amounting to Classic Share & Stocking Broking Services Ltd. Classic Share & Stocking Broking Services Ltd. Rs.44,26,521/-. The facts in respect of each . The facts in respect of each party being different party being different therefore, we are taking up claim of bad debt in respect of each therefore, we are taking up claim of bad debt in respect of each therefore, we are taking up claim of bad debt in respect of each party separately as under: eparately as under:

Digital Super Highway Pvt. Ltd. Digital Super Highway Pvt. Ltd. 5.1 The facts mentioned by the facts mentioned by the Assessing Officer in in respect of the party are as under:

“a) Assessee company had made advance (loan) of Rs. 50.00 a) Assessee company had made advance (loan) of Rs. 50.00 a) Assessee company had made advance (loan) of Rs. 50.00 crores on 31.03.2001 to Digital Super Highway Pvt. Ltd. crores on 31.03.2001 to Digital Super Highway Pvt. Ltd. (DSHPL) (DSHPL) Le. on the last date of Financial year and thereafter credited the Le. on the last date of Financial year and thereafter credited the Le. on the last date of Financial year and thereafter credited the interest for 1 day of Rs. 1,59,040/ interest for 1 day of Rs. 1,59,040/- on the said loan and also on the said loan and also issued TDS certificates to the assessee company, which the issued TDS certificates to the assessee company, which the issued TDS certificates to the assessee company, which the assessee company has offered for taxation. From the next fi assessee company has offered for taxation. From the next fi assessee company has offered for taxation. From the next financial year i.e. A.Y. 2002 year i.e. A.Y. 2002-03, asssessee has provided interst @15% in its 03, asssessee has provided interst @15% in its books of Accounts on accrual basis of Rs. 7.64 crores and shown books of Accounts on accrual basis of Rs. 7.64 crores and shown books of Accounts on accrual basis of Rs. 7.64 crores and shown the same in the Balance Sheet. the same in the Balance Sheet. The said company neither paid interest nor issued TDS certificate to The said company neither paid interest nor issued TDS certificate to The said company neither paid interest nor issued TDS certificate to the assessee comp the assessee company. After A.Y. 2002 After A.Y. 2002-03, assessee company came to know that 03, assessee company came to know that DSHPL is in critical condition. Now the question arises: is in critical condition. Now the question arises: (i) Whether the assessee entered into any agreement with the Whether the assessee entered into any agreement with the Whether the assessee entered into any agreement with the DSHPL before giving loan to them. DSHPL before giving loan to them. ii) Whether the assessee had analysed the credit Whether the assessee had analysed the creditworthiness of worthiness of DSHPL by examining the B/s, P & L A/c, portfolio, modus operandi, DSHPL by examining the B/s, P & L A/c, portfolio, modus operandi, DSHPL by examining the B/s, P & L A/c, portfolio, modus operandi, goodwill etc. (iii) Whether the assessee had tried to verify the credentials of Whether the assessee had tried to verify the credentials of Whether the assessee had tried to verify the credentials of DSHPL.

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 5 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd. b) There is no doubt that the loan was intentionally given. The There is no doubt that the loan was intentionally given. The There is no doubt that the loan was intentionally given. The earning of interest incom earning of interest income just for one day is just to make one of the e just for one day is just to make one of the eligible crieteria for claiming of Bad Debts, which would arise in eligible crieteria for claiming of Bad Debts, which would arise in eligible crieteria for claiming of Bad Debts, which would arise in future and that was in the mind of the management of the future and that was in the mind of the management of the future and that was in the mind of the management of the company. This advance, as admitted by the company, is towards This advance, as admitted by the company, is towards This advance, as admitted by the company, is towards the project cost and for the project cost and for that purpose SPV (Special Purpose Vehicle) that purpose SPV (Special Purpose Vehicle) was created. This SPV (DSHPL) was promoted by Essel Group, was created. This SPV (DSHPL) was promoted by Essel Group, was created. This SPV (DSHPL) was promoted by Essel Group, which is a sister concern of Briggs Trading. The purpose was to which is a sister concern of Briggs Trading. The purpose was to which is a sister concern of Briggs Trading. The purpose was to float an SPV for the project purpose for which the assessee float an SPV for the project purpose for which the assessee float an SPV for the project purpose for which the assessee company had contributed loans company had contributed loans by way of inter-corporate deposit corporate deposit with the said company and interest was provided only in one year with the said company and interest was provided only in one year with the said company and interest was provided only in one year that too for one day i.e. 31/3/2001 as admitted by the company. that too for one day i.e. 31/3/2001 as admitted by the company. that too for one day i.e. 31/3/2001 as admitted by the company. However, it is confirmed that since 31/3/2002 the Company has However, it is confirmed that since 31/3/2002 the Company has However, it is confirmed that since 31/3/2002 the Company has not received any interest on t not received any interest on the said inter-corporate deposit. corporate deposit. According to the Company, interest was provided only for a day at According to the Company, interest was provided only for a day at According to the Company, interest was provided only for a day at Rs.1,59,040 on Advance of Rs.50 crores, and interest income for Rs.1,59,040 on Advance of Rs.50 crores, and interest income for Rs.1,59,040 on Advance of Rs.50 crores, and interest income for Rs.7,64,29,329 was provided for Asst year 2002 Rs.7,64,29,329 was provided for Asst year 2002-03. d) The assessee The assessee-company has not also provided the copy of the ded the copy of the Agreement and it could be that after 31 Agreement and it could be that after 31-3-2001 or 31-3-2002 the 2002 the SPV was floated for the project. Be that so, the company has also SPV was floated for the project. Be that so, the company has also SPV was floated for the project. Be that so, the company has also not demonstrated as to how after 31/3/2002 the interest was not not demonstrated as to how after 31/3/2002 the interest was not not demonstrated as to how after 31/3/2002 the interest was not receivable nor any profit had accrued to t receivable nor any profit had accrued to the company. It is on record that the company is following record that the company is following mercantile system of mercantile system of accounting and for a period of 6 years, it chose not to offer any accounting and for a period of 6 years, it chose not to offer any accounting and for a period of 6 years, it chose not to offer any income on the advance of Rs.56 crore. Hence, the advance is not in income on the advance of Rs.56 crore. Hence, the advance is not in income on the advance of Rs.56 crore. Hence, the advance is not in normal course of lending business and as inf normal course of lending business and as informed, the advance ormed, the advance was given for the purpose of entering into a Joint Venture with was given for the purpose of entering into a Joint Venture with was given for the purpose of entering into a Joint Venture with HFCL Group. This is more on a capital contribution towards the HFCL Group. This is more on a capital contribution towards the HFCL Group. This is more on a capital contribution towards the project cost and hence any loss or write project cost and hence any loss or write-off of such amount would off of such amount would only be considered as capital loss and not a only be considered as capital loss and not allowable as trading llowable as trading loss, much less bad loss, much less bad-debt. e) The sections which governs the allowability of the bad debts is The sections which governs the allowability of the bad debts is The sections which governs the allowability of the bad debts is Section 36(1)(vii) r.w.s. 36(2). Section 36(1)(vii) r.w.s. 36(2). As per the provisions of the Income As per the provisions of the Income tax Act, no deduction by way of bad debts should be allowed deduction by way of bad debts should be allowed deduction by way of bad debts should be allowed unless such de unless such debt or part there of has been taken into account in bt or part there of has been taken into account in computing the income of the assessee of the previous year in which computing the income of the assessee of the previous year in which computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier the amount of such debt or part thereof is written off or of an earlier the amount of such debt or part thereof is written off or of an earlier previous year or represents money lent in the ordinary course of previous year or represents money lent in the ordinary course of previous year or represents money lent in the ordinary course of business of banking for money lending carried on by the assessee. usiness of banking for money lending carried on by the assessee. usiness of banking for money lending carried on by the assessee. In view of the specific provisions governing the allowability of the In view of the specific provisions governing the allowability of the In view of the specific provisions governing the allowability of the bad debts, the claim of the assessee regarding allowability of bad bad debts, the claim of the assessee regarding allowability of bad bad debts, the claim of the assessee regarding allowability of bad debts in respect of advance is disallowed for the follo debts in respect of advance is disallowed for the following reasons: wing reasons: (i) No part of such debt has been taken into account in computing No part of such debt has been taken into account in computing No part of such debt has been taken into account in computing the income of any previous year. the income of any previous year. (ii) No part of such debt represents money lent in the ordinary No part of such debt represents money lent in the ordinary No part of such debt represents money lent in the ordinary course of the business of banking or money lending as the course of the business of banking or money lending as the course of the business of banking or money lending as the assessee is not engag assessee is not engaged in such business.

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 6 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd. f) Even if we go by the plain reading of clause (vii) of section 36, the f) Even if we go by the plain reading of clause (vii) of section 36, the f) Even if we go by the plain reading of clause (vii) of section 36, the requirement for allowing deduction on account of bad debt is that requirement for allowing deduction on account of bad debt is that requirement for allowing deduction on account of bad debt is that the same has to be taken into account in computing the income of the same has to be taken into account in computing the income of the same has to be taken into account in computing the income of any previous year and the bad d any previous year and the bad debt should be written off as ebt should be written off as irrecoverable. Mere debiting the amount is not sufficient. Writing off irrecoverable. Mere debiting the amount is not sufficient. Writing off irrecoverable. Mere debiting the amount is not sufficient. Writing off bad debts, without charging the same in the profit and loss account bad debts, without charging the same in the profit and loss account bad debts, without charging the same in the profit and loss account is not a write off at all. The assessee has failed to provide details is not a write off at all. The assessee has failed to provide details is not a write off at all. The assessee has failed to provide details with supporting ev with supporting evidences that the same have been taken into idences that the same have been taken into account in computing the income of any previous year. Therefore, account in computing the income of any previous year. Therefore, account in computing the income of any previous year. Therefore, no deduction is allowable u/s 36(1)(vii) of the Income Tax Act 61. no deduction is allowable u/s 36(1)(vii) of the Income Tax Act 61. no deduction is allowable u/s 36(1)(vii) of the Income Tax Act 61. g) The onus to prove any claim made by the assessee is on the The onus to prove any claim made by the assessee is on the The onus to prove any claim made by the assessee is on the assessee himself as assessee himself as is held by the Apex Court in the case of CIT is held by the Apex Court in the case of CIT v/s Calcutta Sales Agency P Ltd v/s Calcutta Sales Agency P Ltd (19 ITR 191). The assessee has (19 ITR 191). The assessee has not discharged his primary onus. not discharged his primary onus. If the object of this loan was for the purpose of making Investment the object of this loan was for the purpose of making Investment the object of this loan was for the purpose of making Investment then the irrecoverability is certainly not al then the irrecoverability is certainly not allowable being a capital lowable being a capital expenditure. Moreover, the assessee has not established by leading expenditure. Moreover, the assessee has not established by leading expenditure. Moreover, the assessee has not established by leading the necessary evidence in the assessment proceedings that the the necessary evidence in the assessment proceedings that the the necessary evidence in the assessment proceedings that the afore mentioned payment/advance was incurred for the business afore mentioned payment/advance was incurred for the business afore mentioned payment/advance was incurred for the business purpose of the assessee. In these circums purpose of the assessee. In these circumstances, it has to be tances, it has to be concluded that the advance was not incurred for the business concluded that the advance was not incurred for the business concluded that the advance was not incurred for the business purpose of the assessee. Hence an amount of Rs.57,66,51,369 is purpose of the assessee. Hence an amount of Rs.57,66,51,369 is purpose of the assessee. Hence an amount of Rs.57,66,51,369 is disallowed as deduction and added back to the total income of the disallowed as deduction and added back to the total income of the disallowed as deduction and added back to the total income of the company. For claiming the incorrect deduction company. For claiming the incorrect deduction of bad-debts which debts which is prima-facie incorrect, Penalty u/s 271(1)(c) of the Act is initiated facie incorrect, Penalty u/s 271(1)(c) of the Act is initiated facie incorrect, Penalty u/s 271(1)(c) of the Act is initiated for this disallowance. for this disallowance. [Addition: Rs. 57,52,59,040]” [Addition: Rs. 57,52,59,040] 5.2 The Ld. CIT(A) upheld the disallowance for principle advance The Ld. CIT(A) upheld the disallowance for principle advance The Ld. CIT(A) upheld the disallowance for principle advance of Rs.50 crores and interest component credited in assessment year and interest component credited in assessment year and interest component credited in assessment year 2001-02 and assessment year 2002 02 and assessment year 2002-03.

5.3 Before us, the Ld. Counsel for the assessee Before us, the Ld. Counsel for the assessee Before us, the Ld. Counsel for the assessee submitted that assessee is registered NBFC ( assessee is registered NBFC (copy of certificate on PB copy of certificate on PB-222). He further referred to the norms of Reserve referred to the norms of Reserve Bank of India for treating Bank of India for treating any loan as non-performing asset (NPA) and submitted that the performing asset (NPA) and submitted that the performing asset (NPA) and submitted that the party M/s Digital Super Highway Pvt. Ltd. failed to pay interest for party M/s Digital Super Highway Pvt. Ltd. failed to pay interest for party M/s Digital Super Highway Pvt. Ltd. failed to pay interest for consecutive two financial year consecutive two financial years and therefore, it was treated as NPA as treated as NPA as per the prudential as per the prudential norms prescribed by the Reserve Bank of prescribed by the Reserve Bank of ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 7 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd.

India in respect of NBFC’s. The Ld. Counsel referred to notification India in respect of NBFC’s. The Ld. Counsel referred to notification India in respect of NBFC’s. The Ld. Counsel referred to notification No. DFC 119/DG/SPT No. DFC 119/DG/SPT-98 dated January 31st, 1998 wherein non , 1998 wherein non- performing asset means asset in respect of which interest had performing asset means asset in respect of which interest had performing asset means asset in respect of which interest had remained due for past past six months. He further referred to clause 3 of . He further referred to clause 3 of said notification wherein it is prescribed that income including said notification wherein it is prescribed that income including said notification wherein it is prescribed that income including interest/discount or discount or any other charges on NPA shall be recognized shall be recognized only when it is actually realized. The Ld. Counsel referred to section actually realized. The Ld. Counsel referred to section actually realized. The Ld. Counsel referred to section 36(1)(vii) and section 36(2) of the Act and submitted that the bad ction 36(2) of the Act and submitted that the bad ction 36(2) of the Act and submitted that the bad debt claimed by the assessee by the assessee represented money represented money lent in the ordinary course of business of money lending carried out by the ordinary course of business of money lending carried out by the ordinary course of business of money lending carried out by the assessee and therefore, assessee is eligible for deduction u/s assessee and therefore, assessee is eligible for deduction u/s assessee and therefore, assessee is eligible for deduction u/s 36(1)(vii) of the Ac 36(1)(vii) of the Act when said bad debt is written off written off as irrecoverable in the accounts of the assessee. The Ld. Counsel irrecoverable in the accounts of the assessee. The Ld. Counsel irrecoverable in the accounts of the assessee. The Ld. Counsel referred to the decision of Hon’ble Supreme Court in the case of referred to the decision of Hon’ble Supreme Court in the case of referred to the decision of Hon’ble Supreme Court in the case of PCIT v. Mahindra Engineering and Chemical Products Ltd. (2022) PCIT v. Mahindra Engineering and Chemical Products Ltd. (2022) PCIT v. Mahindra Engineering and Chemical Products Ltd. (2022) 136 taxmann.com 183 (Bomb 136 taxmann.com 183 (Bombay) and decision of Hon’ble Delhi High decision of Hon’ble Delhi High Court in the case of CIT v. Tulip Star Hotels (2011) 11 taxmann.com Court in the case of CIT v. Tulip Star Hotels (2011) 11 taxmann.com Court in the case of CIT v. Tulip Star Hotels (2011) 11 taxmann.com 209 (Delhi). The Ld. counsel also referred to the CBDT Circular No. 209 (Delhi). The Ld. counsel also referred to the CBDT Circular No. 209 (Delhi). The Ld. counsel also referred to the CBDT Circular No. 12/2016 dated 30.05.2016 to support that once the assessee has 12/2016 dated 30.05.2016 to support that once the assessee has 12/2016 dated 30.05.2016 to support that once the assessee has written off any debt in its bt in its books of accounts, the assessee is eligible the assessee is eligible for deduction u/s 36(1)(vii) of the Act. for deduction u/s 36(1)(vii) of the Act.

5.4 On the contrary the Ld. DR submitted that though the On the contrary the Ld. DR submitted that though the On the contrary the Ld. DR submitted that though the assessee claimed to advance assessee claimed to advanced loan to the party in to the party in ordinary course of business, but the Assessing Officer has held but the Assessing Officer has held the the transaction as ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 8 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd. for the reasons that firstly, sham transaction for the reason , no agreement between parties for advancing said sum between parties for advancing said sum was submitted was submitted before him, secondly, no security was taken against the security was taken against the alleged loan security was taken against the lysis of the loanee was made and thirdly , no transaction, no analysis of the loanee was made and lysis of the loanee was made and measures for recover recovery of loan including any FIR etc. were made on including any FIR etc. were made on the part of the assessee. the part of the assessee. The Ld. DR further submitted that the submitted that the transaction was a colorable colorable device to reduce the tax tax liability of the assessee. He submitted that the He submitted that the company to which the assessee company to which the assessee had advanced money was floated as Special Purpose Vehicle (SPV) had advanced money was floated as Special Purpose had advanced money was floated as Special Purpose by the assessee alongwith alongwith Ketan Parekh group and Essel Group and Essel Group, who were engaged in security scams. He submitted that advance engaged in security scams. He submitted that advance engaged in security scams. He submitted that advance was made on the last day of the financial year for transfer of funds was made on the last day of the financial year for transfer of funds was made on the last day of the financial year for transfer of funds and interest for one day was only paid to the assessee and and interest for one day was only paid to the assessee and and interest for one day was only paid to the assessee and thereafter nothing was paid to the assessee. According to him, nothing was paid to the assessee. According to him, nothing was paid to the assessee. According to him, advance was not in the normal course of business and it was more not in the normal course of business and it was more not in the normal course of business and it was more in the nature of capital towards project cost. He submitted that capital towards project cost. He submitted that capital towards project cost. He submitted that assessee did not file balance sheet for financial years when loan assessee did not file balance sheet for financial years when loan assessee did not file balance sheet for financial years when loan was given. Further, the Ld. DR sub , the Ld. DR submitted that loan loan given to the party was never part of income as never part of income of current previous year previous year or earlier years and not lent in the ordinary course of business in the ordinary course of business in the ordinary course of business of assessee. The Ld. DR referred to the decision in the case of Pr. CIT v. Khyati Pr. CIT v. Khyati The Ld. DR referred to the decision in the case of Realtors (P.) Ltd. [2022] 141 taxmann.com 461 (SC), wherein it Realtors (P.) Ltd. [2022] 141 taxmann.com 461 (SC) Realtors (P.) Ltd. [2022] 141 taxmann.com 461 (SC) is held that advance given not proved to be in ordinary course of is held that advance given not proved to be in ordinary course of is held that advance given not proved to be in ordinary course of business, is not allowable as bad debts. is not allowable as bad debts.

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 9 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd.

5.5 We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. The assessee has made claim for bad relevant material on record. The assessee has made claim for bad relevant material on record. The assessee has made claim for bad debt in terms of section 36(1)(vii) of the Act. For ready reference of section 36(1)(vii) of the Act. For ready reference of section 36(1)(vii) of the Act. For ready reference relevant part of said section is reproduced as under: of said section is reproduced as under:

“36. (1) The deductions provided for in the following clauses shall be (1) The deductions provided for in the following clauses shall be (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the allowed in respect of the matters dealt with therein, in computing the allowed in respect of the matters dealt with therein, in computing the income referred to in referred to in section 28— (i) ………… ………… to (vi) ………………… (vii) subject to the provisions of sub (vii) subject to the provisions of sub-section (2), the amount of any bad debt section (2), the amount of any bad debt or part thereof which is written off as or part thereof which is written off as irrecoverable in the accounts of the irrecoverable in the accounts of the assessee for the previous year: assessee for the previous year: …………………………………………………….. ……………………………………………………..” 5.5.1 Further the section 36(2) Further the section 36(2) of the Act is reproduced as is reproduced as under:

“(2) In making any deduction for a bad debt or part thereof, the following (2) In making any deduction for a bad debt or part thereof, the following (2) In making any deduction for a bad debt or part thereof, the following provisions shall ap provisions shall apply— (i) no such deduction shall be allowed unless such debt or part thereof no such deduction shall be allowed unless such debt or part thereof no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the has been taken into account in computing the income of the assessee of the has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written previous year in which the amount of such debt or part thereof is written previous year in which the amount of such debt or part thereof is written off or of an earlier previou off or of an earlier previous year, or represents money lent in the represents money lent in the ordinary course of the business of banking or money ordinary course of the business of banking or money-lending which lending which is carried on by the assessee is carried on by the assessee; ……………………………………………………. ……………………………………………………..” Thus in view of the above provision, it is clear that no 5.5.2 Thus in view of the above provision, it is clear that Thus in view of the above provision, it is clear that dispute is regarding written off of the loan u/s 36(1)(vii) of the Act. dispute is regarding written off of the loan u/s 36(1)(vii) of the Act. dispute is regarding written off of the loan u/s 36(1)(vii) of the Act. The dispute is regarding applicability of section 36(2) , which The dispute is regarding applicability of section 36(2) The dispute is regarding applicability of section 36(2) should be taken into consideration before invkong section 36(1)(vii) should be taken into consideration before invkong section 36(1)(vii) should be taken into consideration before invkong section 36(1)(vii)

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 10 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd. of the Act. Under section 36(2) of the Act. Under section 36(2) for any claim of the bad debt the bad debt written off, first of all the said amount of debt should the said amount of debt should have have represented as income of the assessee in the relevant previous year or earlier income of the assessee in the relevant previous year or earlier income of the assessee in the relevant previous year or earlier previous years. This condition is however is relaxed in case of the previous years. This condition is however is relaxed in case of the previous years. This condition is however is relaxed in case of the assessee where the debt represent e the debt represents money lent in the ordinary in the ordinary course of the business of the banking or money lending carried out course of the business of the banking or money lend course of the business of the banking or money lend by the assessee. In the case in hand by the assessee. In the case in hand, the assessee is claiming that the assessee is claiming that debt or advances to the party represents money lent the party represents money lent in the ordinary the party represents money lent course of the business o course of the business of the money lending of the assessee. of the assessee. Thus, in the case in hand, the issue in dispute is regarding the issue in dispute is regarding the condition that whether the debt whether the debt or advance represents money lent or advance represents money lent in the ordinary course of the business of the money lending of the ordinary course of the business of the money lend ordinary course of the business of the money lend assessee. According to assessee. According to the Assessing Officer, the money lent ssessing Officer, the money lent was in the nature of capital contribution by the assessee for the project of the nature of capital contribution by the assessee for the project the nature of capital contribution by the assessee for the project DTH/Telecom and for which said company M/s Digital Super DTH/Telecom and for which said company M/s Digital Super DTH/Telecom and for which said company M/s Digital Super Highway p Ltd was floated as special purpose vehicle. In the facts Highway p Ltd was floated as special purpose vehicle Highway p Ltd was floated as special purpose vehicle submitted by the assessee before the Assessing Officer it is assessee before the Assessing Officer it is assessee before the Assessing Officer it is mentioned that on 31.03.2000 i.e. relevant to assessment year mentioned that on 31.03.2000 i.e. relevant to assessment year mentioned that on 31.03.2000 i.e. relevant to assessment year 2001-02, the assessee the assessee company and HFCL Group by mutual company and HFCL Group by mutual understanding floated the company namely Digital Super Highway understanding floated the company namely Digital Super Highway understanding floated the company namely Digital Super Highway Pvt. Ltd. for executing project executing project of DTH/Telecom DTH/Telecom in the field of information, entertainment , entertainment and communication sector. It is further and communication sector. It is further mentioned that both the assessee and HFCL group were to make mentioned that both the assessee and HFCL group were to make mentioned that both the assessee and HFCL group were to make financial participation by way of contribution to project cost and for financial participation by way of contribution to project cost and for financial participation by way of contribution to project cost and for that purpose the Digital the Digital Super Highway Pvt. Ltd. Super Highway Pvt. Ltd. was floated for ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 11 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd. carrying out said project. It is further mentioned that the assessee carrying out said project. It is further mentioned that the assessee carrying out said project. It is further mentioned that the assessee company contributed by way of inter company contributed by way of inter-corporate loan by paying corporate loan by paying Rupees 50.00 crores 50.00 crores to the said Digital Super Highway Pvt. Ltd. and to the said Digital Super Highway Pvt. Ltd. and provided interest of Rs.1,51,040/ of Rs.1,51,040/- @ 15% per annum @ 15% per annum for one day which was considered income for said year by the assessee which was considered income for said year by the assessee which was considered income for said year by the assessee company. In subsequent years i.e. company. In subsequent years i.e. Financial year Financial year 2001-02, the assessee provided interest @ 15% amounting to Rs.7,64,92,329/- assessee provided interest @ 15% amounting to Rs.7,64,92,329/ assessee provided interest @ 15% amounting to Rs.7,64,92,329/ on the outstanding loan and on the outstanding loan and same was offered to tax during the same was offered to tax during the assessment year 2002 assessment year 2002-03 and after the financial year 2002 03 and after the financial year 2002-03 when it was found that said company had critical financial when it was found that said company had critical financial when it was found that said company had critical financial condition and would not be able to pay even the principal amount, condition and would not be able to pay even the principal amount condition and would not be able to pay even the principal amount the assessee stopped stopped charging interest and was pursuing and was pursuing recovery of interest so provided, b of interest so provided, but there was no response from the said ut there was no response from the said company. In subsequent year company. In subsequent year, there was no trace of the company there was no trace of the company in the Register of the company and under the circumstances of the company and under the circumstances of the company and under the circumstances, in March 2008, the management of the management of the assessee company decided to write off assessee company decided to write off the loans and interest thereon as bad debt nd interest thereon as bad debt. In view of the above . In view of the above facts, the assessee claimed facts, the assessee claimed that to loan advanced was advanced was in normal course of business of business of money lending.

5.5.3 During the course of the hearing During the course of the hearing, the Ld. counsel for the was unsel for the was asked to explain as how many loans were advanced as how many loans were advanced by the assessee other than the sum in question, other than the sum in question, in normal course of the business of in normal course of the business of money lending but no such details were provided money lending but no such details were provided. I . In the light of the facts mentioned by the assessee the facts mentioned by the assessee before the Assessing Officer , ore the Assessing Officer , ,

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 12 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd. we are of the opinion that we are of the opinion that the object of the assessee was object of the assessee was to participate in the Special Purpose V Special Purpose Vehicle for entry in DTH/ for entry in DTH/ Telecom business and the advance was and the advance was part of contribution of the contribution of the assessee for the project. Thus assessee for the project. Thus, it cannot be said to be as money lent not be said to be as money lent in the ordinary course of the business of the money lending of the in the ordinary course of the business of the money lending of the in the ordinary course of the business of the money lending of the assessee, more so when the assessee has failed to establish that more so when the assessee has failed to establish that more so when the assessee has failed to establish that money lending was an ordinary business of the assessee. Further, money lending was an ordinary business of the assessee. Further, money lending was an ordinary business of the assessee. Further, the Assessing Officer has q er has questioned the money lent uestioned the money lent as a shame transaction as no written agreement has been presented by the transaction as no written agreement has been presented by the transaction as no written agreement has been presented by the assessee for advancing such a huge loans that too without any assessee for advancing such a huge loans that to assessee for advancing such a huge loans that to security. The Ld. Counsel Counsel for the assessee was asked to produce for the assessee was asked to produce any agreement entered into with entered into with the said company but no such the said company but no such agreement was filed before us. Further agreement was filed before us. Further, the Ld. DR submitted that the Ld. DR submitted that the said SPV was part of the Ketan Parekh Group of companies and the said SPV was part of the Ketan Parekh Group of companies and the said SPV was part of the Ketan Parekh Group of companies and the source of the money received in the hands of the assessee for the source of the money received in the hands of the assessee the source of the money received in the hands of the assessee extending loan to SPV SPV was received from the Ketan Parekh group m the Ketan Parekh group companies and therefore, and therefore, advancing the said sum by the assessee advancing the said sum by the assessee was only a colorable a colorable device to create business loss on account of device to create business loss on account of bad debt in the case of the assessee. bad debt in the case of the assessee. The ld. counsel for the The ld. counsel for the assessee didn’t rebut above factual observation. In the case of assessee didn’t rebut above factual observation. assessee didn’t rebut above factual observation. Mahindra Engineering and Chemical Products Ltd. (supra), the Mahindra Engineering and Chemical Products Ltd. (supra) Mahindra Engineering and Chemical Products Ltd. (supra) Hon’ble Court held that deposits made to the concerns were in the Hon’ble Court held that deposits made to the concern Hon’ble Court held that deposits made to the concern ordinary course of business and therefore ordinary course of business and therefore eligible for deduction u/s eligible for deduction u/s 36(1)(vii) of the Act. However, in the case in hand, the assessee has 36(1)(vii) of the Act. However, in the case in hand, the assessee has 36(1)(vii) of the Act. However, in the case in hand, the assessee has failed to establish that the money lent to establish that the money lent was in ordinary course of ordinary course of ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 13 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd. business of money lend business of money lending of the assessee. Similarly, in the case of of the assessee. Similarly, in the case of Tulip Star Hotels Ltd. Tulip Star Hotels Ltd. (supra), also there was a finding of the also there was a finding of the Tribunal that money was len Tribunal that money was lent in the ordinary course of the business in the ordinary course of the business of the money lending, ing, which was carried out by the assessee. But in which was carried out by the assessee. But in the case in hand, the assessee has not been the case in hand, the assessee has not been able to able to establish that said money was lent as lent in the ordinary course of busin in the ordinary course of business of money se of Khyati Realtors (P.) Ltd. (supra) Khyati Realtors (P.) Ltd. (supra), the lending. In the case of Hon’ble Supreme Court observed Hon’ble Supreme Court observed as under:

17. It is evident from the above rulings of this court, that: 17. It is evident from the above rulings of this court, that: 17. It is evident from the above rulings of this court, that: (i) The amount of any bad debt or par (i) The amount of any bad debt or part thereof has to be t thereof has to be written written-off as irrecoverable in the accounts of the assessee off as irrecoverable in the accounts of the assessee for the previous year; for the previous year; (ii) Such bad debt or part of it written (ii) Such bad debt or part of it written-off as irrecoverable off as irrecoverable in the accounts of the assessee cannot include any in the accounts of the assessee cannot include any in the accounts of the assessee cannot include any provision for bad and doubtful debts ma provision for bad and doubtful debts made in the accounts de in the accounts of the assessee; of the assessee; (iii) No deduction is allowable unless the debt or part of it (iii) No deduction is allowable unless the debt or part of it (iii) No deduction is allowable unless the debt or part of it “has been taken into account in computing the income of “has been taken into account in computing the income of “has been taken into account in computing the income of the assessee of the previous year in which the amount of the assessee of the previous year in which the amount of the assessee of the previous year in which the amount of such debt or part thereof is written off or o such debt or part thereof is written off or of an earlier f an earlier previous year , or represents money lent in the ordinary previous year”, or represents money lent in the ordinary previous year”, or represents money lent in the ordinary course of the business of banking or money course of the business of banking or money-lending which lending which is carried on by the assessee; is carried on by the assessee; (iv) The assessee is obliged to prove to the AO that the (iv) The assessee is obliged to prove to the AO that the (iv) The assessee is obliged to prove to the AO that the case satisfies the ingredients of case satisfies the ingredients of Section 36(1)(vii) Section 36(1)(vii) as well as Section 36(2) Section 36(2) of the Act.

material to substantiate this submission, in respect of payment of material to substantiate this submission, in respect of payment of material to substantiate this submission, in respect of payment of the amount, the time by which the constructed unit was to be the amount, the time by which the constructed unit was to be the amount, the time by which the constructed unit was to be given to it, the area agreed to be purchased, etc. Equally, in n to it, the area agreed to be purchased, etc. Equally, in n to it, the area agreed to be purchased, etc. Equally, in support of its other argument that the amount was given as a support of its other argument that the amount was given as a support of its other argument that the amount was given as a loan, the assessee nowhere established the duration of the loan, the assessee nowhere established the duration of the loan, the assessee nowhere established the duration of the advance, the terms and conditions applicable to it, interest advance, the terms and conditions applicable to it, interest advance, the terms and conditions applicable to it, interest payable, etc. Th payable, etc. The assessee conceded that it had received interest e assessee conceded that it had received interest income for the relevant assessment year. However, it could not income for the relevant assessment year. However, it could not income for the relevant assessment year. However, it could not establish that any interest was paid (or shown to be payable in establish that any interest was paid (or shown to be payable in establish that any interest was paid (or shown to be payable in its accounts) for the sum of its accounts) for the sum of ₹ 10 crores. Furthermore, there is ₹ 10 crores. Furthermore, there is nothing on reco nothing on record to suggest that the requirement of the law that rd to suggest that the requirement of the law that the bad debt was written the bad debt was written-off as irrecoverable in the assessee’s off as irrecoverable in the assessee’s accounts for the previous year had been satisfied. Another accounts for the previous year had been satisfied. Another accounts for the previous year had been satisfied. Another reason why theamount could not have been written reason why theamount could not have been written- -off, is that the assessee’s claim the assessee’s claim was that it was given to M/s Bhansali was that it was given to M/s Bhansali Developers Pvt. Ltd. for acquiring immovable property Developers Pvt. Ltd. for acquiring immovable property Developers Pvt. Ltd. for acquiring immovable property – it therefore, was in the nature of a capital expenditure. It could not therefore, was in the nature of a capital expenditure. It could not therefore, was in the nature of a capital expenditure. It could not have been treated as a business expenditure. have been treated as a business expenditure. In A.V. Thomas In A.V. Thomas and Co. Ltd., Alleppey v. The Commissioner of Income Tax, and Co. Ltd., Alleppey v. The Commissioner of Income Tax, and Co. Ltd., Alleppey v. The Commissioner of Income Tax, (Bangalore) Kerala10 (Bangalore) Kerala10 this court held as follows: “16. Now, a question under “16. Now, a question under s. 10(2)(xi) can only arise if can only arise if there is a bad or there is a bad or doubtful debt. Before a debt can become doubtful debt. Before a debt can become bad or doubtful it must first be a debt. What is meant by bad or doubtful it must first be a debt. What is meant by bad or doubtful it must first be a debt. What is meant by debt in this connection was laid down by Rowlatt J., in debt in this connection was laid down by Rowlatt J., in debt in this connection was laid down by Rowlatt J., in Curtis v. J. & G. Oldfield Ltd., (1925) 9 TC 319 as follows Curtis v. J. & G. Oldfield Ltd., (1925) 9 TC 319 as follows Curtis v. J. & G. Oldfield Ltd., (1925) 9 TC 319 as follows :- “When the Rule speaks of a bad debt it “When the Rule speaks of a bad debt it means a debt means a debt which is a debt that would have come into the balance which is a debt that would have come into the balance which is a debt that would have come into the balance sheet as a trading debt in the trade that is in question and sheet as a trading debt in the trade that is in question and sheet as a trading debt in the trade that is in question and that it is bad. It does not really mean any bad debt which, that it is bad. It does not really mean any bad debt which, that it is bad. It does not really mean any bad debt which, when it was a good debt, would not have come in to swell when it was a good debt, would not have come in to swell when it was a good debt, would not have come in to swell the profits the profits.”

High Court, to the contrary, are therefore, insubstantial and have High Court, to the contrary, are therefore, insubstantial and have High Court, to the contrary, are therefore, insubstantial and have to be set aside. to be set aside.” (emphasis supplied externally) (emphasis supplied externally) 5.5.4 In view of the aforesaid discussion, we are of the opinion w of the aforesaid discussion, we are of the opinion w of the aforesaid discussion, we are of the opinion that the assessee has failed to substantiate that the assessee has failed to substantiate that debt represented that debt represented money lent in the ordinary course of business of money lending of in the ordinary course of business of money lending of in the ordinary course of business of money lending of the assessee. Thus, the assessee failed ssee. Thus, the assessee failed to satisfy the conditions laid to satisfy the conditions laid down u/s 36(2) of the Act and therefore not eligible for deduction down u/s 36(2) of the Act and therefore not eligible for deduction down u/s 36(2) of the Act and therefore not eligible for deduction u/s 36(1)(vii) of the Act in respect of above party Act in respect of above party.

Classic Credit Ltd (CCL) (CCL). Rs.74.90 crores

(a) Agreement has been made on Stamp Paper of Rs. 100/ Agreement has been made on Stamp Paper of Rs. 100/- in just one Agreement has been made on Stamp Paper of Rs. 100/ and half page and the deal of advance had been made of Rs. 75 crore and half page and the deal of advance had been made of Rs. 75 crore and half page and the deal of advance had been made of Rs. 75 crore for acquiring of equity share of ABCL (Amitabh Bachchan Corporation for acquiring of equity share of ABCL (Amitabh Bachchan Corporation for acquiring of equity share of ABCL (Amitabh Bachchan Corporation Ltd.). (b) 2nd page of the said agreement clearly states that "CCL are in a 2nd page of the said agreement clearly states that "CCL are in a 2nd page of the said agreement clearly states that "CCL are in a process of acquiring 20.75% equity shares of AB Corporation Limited process of acquiring 20.75% equity shares of AB Corporation Limited process of acquiring 20.75% equity shares of AB Corporation Limited and CCL agrees to sell the same to the assessee. and CCL agrees to sell the same to the assessee. This is very much evident that CCL had not in possession of the said This is very much evident that CCL had not in possession of the said This is very much evident that CCL had not in possession of the said shares of ABCL, though, BRIGGS had ABCL, though, BRIGGS had paid full amount as per paid full amount as per agreement. (c) Para No. 5 of the agreement states that Para No. 5 of the agreement states that CCL have informed and represented to BRIGGS that CCL are absolute CCL have informed and represented to BRIGGS that CCL are absolute CCL have informed and represented to BRIGGS that CCL are absolute owners of the said shares...., which is contradictory to the earlier owners of the said shares...., which is contradictory to the earlier owners of the said shares...., which is contradictory to the earlier statement. Now the focus point in this case is : Now the focus point in this case is : (i) Here again it is to be noted that whether the assessee company had (i) Here again it is to be noted that whether the assessee company had (i) Here again it is to be noted that whether the assessee company had tried to verify the credentials of CCL. tried to verify the credentials of CCL.

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 16 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd.

(ii) Whether any gurantee were obtained Whether any gurantee were obtained (iii) Whether criminal case of breach of contract filed. Whether criminal case of breach of contract filed. But assessee failed to provide any of the above queries. assessee failed to provide any of the above queries. After having perused the submissions made by the assessee After having perused the submissions made by the assessee After having perused the submissions made by the assessee-company it is transpired that the money was given only for acquisition of the it is transpired that the money was given only for acquisition of the it is transpired that the money was given only for acquisition of the equity shares of ABCL through Classic Credit. Out of Rs.75 crore on equity shares of ABCL through Classic Credit. Out of Rs.75 crore on equity shares of ABCL through Classic Credit. Out of Rs.75 crore only Rs.10 lacs was repaid and no income had been shown since the time Rs.10 lacs was repaid and no income had been shown since the time Rs.10 lacs was repaid and no income had been shown since the time advance was given. There is loss on account of non advance was given. There is loss on account of non-receipt of equity receipt of equity shares of ABCL Corporation that loss can never be equated with trading shares of ABCL Corporation that loss can never be equated with trading shares of ABCL Corporation that loss can never be equated with trading loss. It is also to be borne in mind that this loss. It is also to be borne in mind that this is not yet a stock is not yet a stock-in-trade of the company and it is mere advance for acquisition of equity shares of the company and it is mere advance for acquisition of equity shares of the company and it is mere advance for acquisition of equity shares of ABCL thorough Classic Credit Limited and is nothing but advance for ABCL thorough Classic Credit Limited and is nothing but advance for ABCL thorough Classic Credit Limited and is nothing but advance for capital assets in the nature of shares. capital assets in the nature of shares. Neither there is any transfer, extinguishment, Neither there is any transfer, extinguishment, loss of the existing capital loss of the existing capital asset, hence it can amount to only a capital loss and since there is no asset, hence it can amount to only a capital loss and since there is no asset, hence it can amount to only a capital loss and since there is no transfer of the shares of ABCL Corpn. It cannot even be termed as long transfer of the shares of ABCL Corpn. It cannot even be termed as long transfer of the shares of ABCL Corpn. It cannot even be termed as long- term capital loss as such! term capital loss as such! The company has claimed proposition that this is a NBFC The company has claimed proposition that this is a NBFC company and company and therefore provisions are to be made for irrecoverable advances in therefore provisions are to be made for irrecoverable advances in therefore provisions are to be made for irrecoverable advances in accordance with NBFC guidelines issued by Reserve Bank of India. accordance with NBFC guidelines issued by Reserve Bank of India. accordance with NBFC guidelines issued by Reserve Bank of India. However, BFC guideline do not override the provisions of Income However, BFC guideline do not override the provisions of Income However, BFC guideline do not override the provisions of Income-tax Act. A reference maybe made to ITAT Mumbai de Act. A reference maybe made to ITAT Mumbai decision in the case of cision in the case of Concept Cabled Ltd. V/s Addi.CIT, Special Bench Concept Cabled Ltd. V/s Addi.CIT, Special Bench-28 in an identical 28 in an identical issue wherein the Tribunal has held as under: issue wherein the Tribunal has held as under: Section 36(1)(vii) of the Income Tax Act, 1961 Section 36(1)(vii) of the Income Tax Act, 1961 - Bad Debts Bad Debts - Assessment year 1998 Assessment year 1998-99 - Assessee, a non-banking financial banking financial company(NBFC), claimed deduction on account of provision for company(NBFC), claimed deduction on account of provision for company(NBFC), claimed deduction on account of provision for irrecoverable advances made in accordance with NBFC irrecoverable advances made in accordance with NBFC irrecoverable advances made in accordance with NBFC guidelines issued by RBI guidelines issued by RBI - Whether though assessee was Whether though assessee was required to make such provision as per directions of RBI but required to make such provision as per directions of RBI but required to make such provision as per directions of RBI but there being no direction is there being no direction issued by RBI regarding granting of sued by RBI regarding granting of deduction of such provision from taxation income, Explanation to deduction of such provision from taxation income, Explanation to deduction of such provision from taxation income, Explanation to section 36(1)(vii) would be applicable and, therefore, provision in section 36(1)(vii) would be applicable and, therefore, provision in section 36(1)(vii) would be applicable and, therefore, provision in question would not be allowable either as revenue deduction or question would not be allowable either as revenue deduction or question would not be allowable either as revenue deduction or as business loss as business loss - HELD yes Hence, taking the totality of facts and after taking into account the facts Hence, taking the totality of facts and after taking into account the facts Hence, taking the totality of facts and after taking into account the facts of matters, and having not included any income in respect of advance to of matters, and having not included any income in respect of advance to of matters, and having not included any income in respect of advance to Classic of R574.90 crore, the provisions of section 36(i)(vii) or Section 28 Classic of R574.90 crore, the provisions of section 36(i)(vii) or Section 28 Classic of R574.90 crore, the provisions of section 36(i)(vii) or Section 28 or 37(1) of the Act are appli or 37(1) of the Act are applicable. It is treated as Capital loss; hence bad debts of Rs. 74,90,00,000/ It is treated as Capital loss; hence bad debts of Rs. 74,90,00,000/ It is treated as Capital loss; hence bad debts of Rs. 74,90,00,000/- is not allowable and therefore is added back to the total income of the not allowable and therefore is added back to the total income of the not allowable and therefore is added back to the total income of the assessee. Penalty proceedings u/s 271(1)(c) is initiated for furnishing of assessee. Penalty proceedings u/s 271(1)(c) is initiated for furnishing of assessee. Penalty proceedings u/s 271(1)(c) is initiated for furnishing of inaccurate particulars of income. inaccurate particulars of income.”

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 17 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd.

6.1 The Ld. CIT(A) upheld the disallowance of the claim of the The Ld. CIT(A) upheld the disallowance of the claim of the The Ld. CIT(A) upheld the disallowance of the claim of the assessee. Before us, the Ld. counsel for the assessee submitted that Before us, the Ld. counsel for the assessee submitted that Before us, the Ld. counsel for the assessee submitted that it had paid entire consideration entire consideration of Rs.75 crores to CCL of Rs.75 crores to CCL as advance on 09.03.2001 for acquiring 20.70% equity shares of AB for acquiring 20.70% equity shares of AB for acquiring 20.70% equity shares of AB Corporation Ltd. which was which was valued at Rs.85 crores. According to valued at Rs.85 crores. According to the Ld. counsel for the assessee amount was advanced for the the Ld. counsel for the assessee amount was advanced for the the Ld. counsel for the assessee amount was advanced for the business of trading in in equities on block deals and to earn profits equities on block deals and to earn profits, which could be seen as seen as prior to agreement and and bidding by any prospective buyers since the company was planning rospective buyers since the company was planning to go public at rospective buyers since the company was planning that time. He submitted that company had been carrying on the that time. He submitted that company had been carrying on the that time. He submitted that company had been carrying on the business of dealing in business of dealing in shares, advancing money for acquisition of cing money for acquisition of block shares and agreement block shares and agreement for purchase of shares for purchase of shares was not for acquiring controlling interest cquiring controlling interest /stake in the said company, company, therefore, decision to write off debt as not recoverable was a commercial decision to write off debt as not recoverable was a commercial decision to write off debt as not recoverable was a commercial decision on the part of the assessee company. The Ld. Counsel decision on the part of the assessee company. The Ld. decision on the part of the assessee company. The Ld. further argued as why said debt was considered as non as why said debt was considered as non-recoverable as why said debt was considered as non by the assessee. The Ld. counsel further relied on the decision of by the assessee. The Ld. counsel further relied on the decision of by the assessee. The Ld. counsel further relied on the decision of the Hon’ble Delhi High Court in the case of Mohan Meakin Ltd. v. the Hon’ble Delhi High Court in the case of Mohan Meakin Ltd. v. the Hon’ble Delhi High Court in the case of Mohan Meakin Ltd. v. CIT [2011] 11 taxmann.com 141 (Delhi), decision of the Tribunal CIT [2011] 11 taxmann.com 141 (Delhi), decision of the Tribunal CIT [2011] 11 taxmann.com 141 (Delhi), decision of the Tribunal Mumbai Bench in the case of Jackie Shroff v. ACIT [2019] 101 ench in the case of Jackie Shroff v. ACIT [2019] 101 ench in the case of Jackie Shroff v. ACIT [2019] 101 taxmann.com 455 (Mumbai taxmann.com 455 (Mumbai-Trib.) and decision of Hon’ble Delhi Trib.) and decision of Hon’ble Delhi High Court in the case of High Court in the case of All Grow Finance and Investment (P.) Ltd. All Grow Finance and Investment (P.) Ltd. v. CIT [2012] 20 taxmann.com 260 (Delhi). v. CIT [2012] 20 taxmann.com 260 (Delhi).

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 18 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd.

6.2 On the contrary, the Ld. DR On the contrary, the Ld. DR submitted that assessee failed to submitted that assessee failed to satisfy the conditions of section 36(2) of the Act. He submitted that satisfy the conditions of section 36(2) of the Act. He submitted that satisfy the conditions of section 36(2) of the Act. He submitted that the amount claimed to have been written off as bad debt was never the amount claimed to have been written off as bad debt w the amount claimed to have been written off as bad debt w shown as income in any of the previous year including the current shown as income in any of the previous year including the current shown as income in any of the previous year including the current previous year. Alternatively, the debt did not represent mon rnatively, the debt did not represent money lent rnatively, the debt did not represent mon in the ordinary course of the business of the money lending of the in the ordinary course of the business of the money lending of the in the ordinary course of the business of the money lending of the assessee. Therefore, in absence of either of the conditions of section assessee. Therefore, in absence of either of the conditions of section assessee. Therefore, in absence of either of the conditions of section 36(2) of the Act satisfied by the assessee, t Act satisfied by the assessee, the assessee is not eligi he assessee is not eligible for claim of deduction for bad debt written off u/s 36(1)(vii) of the for claim of deduction for bad debt written off u/s 36(1)(vii) of the for claim of deduction for bad debt written off u/s 36(1)(vii) of the The Ld. DR referred to the decision in the case of Pr. CIT v. Act. The Ld. DR referred to the decision in the case of The Ld. DR referred to the decision in the case of Khyati Realtors (P.) Ltd. [2022] 141 taxmann.com 461 (SC), Khyati Realtors (P.) Ltd. [2022] 141 taxmann.com 461 (SC) Khyati Realtors (P.) Ltd. [2022] 141 taxmann.com 461 (SC)

6.3 We have heard rival submission We have heard rival submissions of the parties on t of the parties on the issue in dispute and perused the relevant material on record. For the dispute and perused the relevant material on record. dispute and perused the relevant material on record. purpose of eligibility of purpose of eligibility of bad debt written off u/s 36(1)(vii) of the Act bad debt written off u/s 36(1)(vii) of the Act the assessee has to the assessee has to fulfill either of the two conditions either of the two conditions of section 36(2) of the Act, firstly firstly, the amount of the bad debt claimed was he bad debt claimed was shown as income in the current previous year or earlier previous shown as income in the current previous year or earlier previous shown as income in the current previous year or earlier previous year or secondly, the debt in qu , the debt in question represents the money lent estion represents the money lent in the ordinary course the ordinary course of business of banking or money lending. Axiomatically, the advance given to CC advance given to CCL for purchase or acquiring L for purchase or acquiring shares of ABCL has not been shown as income in previous year or shares of ABCL has not been shown as income in previous year or shares of ABCL has not been shown as income in previous year or earlier previous year and therefore, first part of the conditions earlier previous year and therefore, first part of the conditions earlier previous year and therefore, first part of the conditions section 36(2) of the Act is not satisfied section 36(2) of the Act is not satisfied. As far as second part s far as second part of section 36(2) is concerned (2) is concerned, the assessee claimed to have have engaged in ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 19 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd. the business of the money lending and therefore, for eligibility of the business of the money lending and therefore, for eligibility of the business of the money lending and therefore, for eligibility of deduction u/s 36(1)(vii) of the Act, t tion u/s 36(1)(vii) of the Act, the assessee is required to he assessee is required to demonstrate whether the said a demonstrate whether the said advance represents the money lent dvance represents the money lent in the ordinary course of the business of the money lending of the rse of the business of the money lending of the rse of the business of the money lending of the assessee. The advance has been claimed to be for purchase he advance has been claimed to be for purchase of he advance has been claimed to be for purchase shares of the ABCL as stock in trade in continuation of the trading shares of the ABCL as stock in trade in continuation of the shares of the ABCL as stock in trade in continuation of the activity in securities, therefore, i activity in securities, therefore, in our opinion such an advance or n our opinion such an advance or debt does not fulfill the conditions of section 36(2) of the Act the conditions of section 36(2) of the Act as it is the conditions of section 36(2) of the Act not the money advanced in the ordinary course of the business of not the money advanced in the ordinary course of the business of not the money advanced in the ordinary course of the business of the money lending of the assessee. In the case of Mohan Meakin the money lending of the assessee. In the case of Mohan Meakin the money lending of the assessee. In the case of Mohan Meakin Ltd. (supra) non-recovery of the trade advances have been held t recovery of the trade advances have been held t recovery of the trade advances have been held to be business loss to be allowed as deduction u/s 28(1) and 37(1) of be business loss to be allowed as deduction u/s 28(1) and 37(1) of be business loss to be allowed as deduction u/s 28(1) and 37(1) of the Act. But in the instant case claim of the assessee is u/s the Act. But in the instant case claim of the assessee is u/s the Act. But in the instant case claim of the assessee is u/s 36(1)(vii) of the Act and therefore, ratio of the said decision is not 36(1)(vii) of the Act and therefore, ratio of the said decision is not 36(1)(vii) of the Act and therefore, ratio of the said decision is not applicable over the facts of the instant case. Similar applicable over the facts of the instant case. Similarly, in the case of ly, in the case of Jackie Shroff (supra) the Tribunal held that advance given by the Jackie Shroff (supra) the Tribunal held that advance given by the Jackie Shroff (supra) the Tribunal held that advance given by the assessee to be allowed as deduction u/s 37(i) of the Act or u/s 28(i) assessee to be allowed as deduction u/s 37(i) of the Act or u/s 28(i) assessee to be allowed as deduction u/s 37(i) of the Act or u/s 28(i) of the Act as business loss. In the case of All Grow Finance and of the Act as business loss. In the case of All Grow Finance and of the Act as business loss. In the case of All Grow Finance and Investment (P.) Ltd. (supra) also Investment (P.) Ltd. (supra) also, the Hon’ble High Court Hon’ble High Court held that when the amount of debts of debts in question were advanced by the in question were advanced by the assessee in ordinary course of money lending same was in ordinary course of money lending same was allowable. in ordinary course of money lending same was In the case in hand, In the case in hand, money has not been advanced in the ordinary money has not been advanced in the ordinary course of the money lending therefor course of the money lending therefore, the said ratio of the decision e, the said ratio of the decision is not applicable in the instant case. In view of the aforesaid is not applicable in the instant case. In view of the aforesaid is not applicable in the instant case. In view of the aforesaid

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 20 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd. discussion, we uphold the disallowance of bad debt in respect of discussion, we uphold the disallowance of bad debt in respect of discussion, we uphold the disallowance of bad debt in respect of advance to Classic Credit Ltd. advance to Classic Credit Ltd. Classic Shares and Stock Broking Services Ltd. Classic Shares and Stock Broking Services Ltd.

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 21 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd.

9.1 We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in We have heard rival submission of the parties on the issue in dispute and perused the relevant material on record. Before us, the dispute and perused the relevant material on record. Before us, the dispute and perused the relevant material on record. Before us, the Ld. counsel for the assessee the assessee submitted that disallowance u/s 14A that disallowance u/s 14A should be limited to the extent of the exempted income in view of should be limited to the extent of the exempted income in should be limited to the extent of the exempted income in the decision of the Hon’ble Delhi High Court in the case of PCIT v. the decision of the Hon’ble Delhi High Court in the case of PCIT the decision of the Hon’ble Delhi High Court in the case of PCIT Caraf Caraf Caraf Builders Builders Builders & & & Construciotn Construciotn Construciotn (P.) (P.) (P.) Ltd. Ltd. Ltd. [2019] [2019] [2019] 101 101 101 taxmann.com 167 (Delhi) taxmann.com 167 (Delhi) . He further submitted that a . He further submitted that a SLP filed against the same by the Revenue has been dismissed by the Hon’ble against the same by the Revenue has been dismissed by against the same by the Revenue has been dismissed by Supreme Court as reported in (2019) 112 taxmann.com 322 (SC). Supreme Court as reported in (2019) 112 taxmann.com 322 (SC). Supreme Court as reported in (2019) 112 taxmann.com 322 (SC). The Ld. DR on the other hand, submitted that before the Ld. CIT(A) The Ld. DR on the other hand, submitted that before the Ld. CIT(A) The Ld. DR on the other hand, submitted that before the Ld. CIT(A) the assessee mainly claimed that the investment was in the nature the assessee mainly claimed that the investment was in the assessee mainly claimed that the investment was in of stock-in-trade and therefore no disallowance should have trade and therefore no disallowance should have been trade and therefore no disallowance should have called for, which has b which has been rejected by the Ld. CIT(A) f een rejected by the Ld. CIT(A) following the decision of the Third Member of the Tribunal in the case of DH Third Member of the Tribunal in the case of DH Third Member of the Tribunal in the case of DH Securities Pvt. Ltd. (supra). Securities Pvt. Ltd. (supra). We find that Hon’ble Supreme Court We find that Hon’ble Supreme Court in the case of Maxopp. Investment Pvt. in the case of Maxopp. Investment Pvt. Ltd. as reporte as reported in (2018) 91 taxmann.com154(SC taxmann.com154(SC) has held that S. 14A applies applies irrespective of whether the shares are held to gain control or as as stock-in-trade, however, where the the shares are held as stock stock-in-trade, the ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 22 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd. expenditure incurred incurred for earning business profits will have to be apportioned and allowed allowed as deduction. However, as far as the claim However, as far as the claim of the assessee for restricting the disallowance to the extent of of the assessee for restricting the disallowance to the of the assessee for restricting the disallowance to the dividend income is concerned, same is concerned, same has been upheld by Hon’ble has been upheld by Hon’ble Delhi High Court in the case of Caraf Bu Delhi High Court in the case of Caraf Builders & Construction (P.) & Construction (P.) Ltd.(supra). The relevant finding of the Hon’ble High Court is (supra). The relevant finding of the Hon’ble High Court is (supra). The relevant finding of the Hon’ble High Court is reproduced as under: reproduced as under:

“25. Total exempt income earned by the respondent 25. Total exempt income earned by the respondent-assessee in this assessee in this year was Rs.19 lakhs. In these circumstances, we are not required year was Rs.19 lakhs. In these circumstances, we are not required year was Rs.19 lakhs. In these circumstances, we are not required to consider the cas to consider the case of the Revenue that the disallowance should be e of the Revenue that the disallowance should be enhanced from Rs. 75.89 crores to Rs.144.52 crores. Upper enhanced from Rs. 75.89 crores to Rs.144.52 crores. Upper enhanced from Rs. 75.89 crores to Rs.144.52 crores. Upper disallowance as held in disallowance as held in Principal Commissioner of Income Tax vs. Principal Commissioner of Income Tax vs. McDonalds India Pvt. Ltd., ITA McDonalds India Pvt. Ltd., ITA 725/2018 decided on 22nd October, 25/2018 decided on 22nd October, 2018 cannot exceed the exempt income of that year. This decision 2018 cannot exceed the exempt income of that year. This decision 2018 cannot exceed the exempt income of that year. This decision follows the ratio and judgment of the Supreme Court in the case follows the ratio and judgment of the Supreme Court in the case follows the ratio and judgment of the Supreme Court in the case of Maxopp Investments Ltd. vs. CIT Maxopp Investments Ltd. vs. CIT (2018) 402 ITR 640 (SC) and 02 ITR 640 (SC) and the earlier judgments of the Delhi High Court in Cheminvest vs. CIT the earlier judgments of the Delhi High Court in Cheminvest vs. CIT the earlier judgments of the Delhi High Court in Cheminvest vs. CIT (2015) 378 ITR 33 and (2015) 378 ITR 33 and CIT vs. Holcim Pvt. Ltd. (2014) 272 CTR (Del.) . (2014) 272 CTR (Del.) 282. Relevant portion of the judgment in McDo 282. Relevant portion of the judgment in McDonalds India Pvt. nalds India Pvt. Ltd.(supra) reads: Ltd.(supra) reads:- "8. The decision in the case of Maxopp Investment Ltd. (Supra) is "8. The decision in the case of Maxopp Investment Ltd. (Supra) is "8. The decision in the case of Maxopp Investment Ltd. (Supra) is significant and does answer the question in issue. This decision does significant and does answer the question in issue. This decision does significant and does answer the question in issue. This decision does not support the Revenue as the Assessing Officer in the case of not support the Revenue as the Assessing Officer in the case of not support the Revenue as the Assessing Officer in the case of Maxopp Investment L Maxopp Investment Ltd. (Supra) had himself restricted the td. (Supra) had himself restricted the disallowance to the extent of exempt income. After referring to disallowance to the extent of exempt income. After referring to disallowance to the extent of exempt income. After referring to Walford Share and Stock Brokers P. Ltd. (Supra) it was held Walford Share and Stock Brokers P. Ltd. (Supra) it was held Walford Share and Stock Brokers P. Ltd. (Supra) it was held- "Axiomatically, it is that expenditure alone which has been incurred "Axiomatically, it is that expenditure alone which has been incurred "Axiomatically, it is that expenditure alone which has been incurred in relation to the inco in relation to the income which is includable in total income that has me which is includable in total income that has to be disallowed. If an expenditure incurred has no causal to be disallowed. If an expenditure incurred has no causal to be disallowed. If an expenditure incurred has no causal connection with the exempted income, then such an expenditure connection with the exempted income, then such an expenditure connection with the exempted income, then such an expenditure would obviously be treated as not related to the income that is would obviously be treated as not related to the income that is would obviously be treated as not related to the income that is exempted from tax, and exempted from tax, and such expenditure would be allowed as allowed as business expenditure. To put it differently, such expenditure would business expenditure. To put it differently, such expenditure would business expenditure. To put it differently, such expenditure would then be considered as incurred in respect of other income which is to then be considered as incurred in respect of other income which is to then be considered as incurred in respect of other income which is to be treated as part of the total income." be treated as part of the total income."

10. The decision of the Delhi High Court 10. The decision of the Delhi High Court in Holcim India Pvt. Ltd in Holcim India Pvt. Ltd (Supra) had referred to the issue whether disallowance of (Supra) had referred to the issue whether disallowance of (Supra) had referred to the issue whether disallowance of expenditure under Section 14A of the Act would be made even when expenditure under Section 14A of the Act would be made even when expenditure under Section 14A of the Act would be made even when

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 23 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd. no exempt income in the form of dividend was earned in the year, no exempt income in the form of dividend was earned in the year, no exempt income in the form of dividend was earned in the year, and it was observed: and it was observed:

"14. On the issue whe "14. On the issue whether the respondent-assessee could have assessee could have earned dividend income and even if no dividend income was earned, earned dividend income and even if no dividend income was earned, earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can yet Section 14A can be invoked and disallowance of expenditure can yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts be made, there are three decisions of the different High Courts be made, there are three decisions of the different High Courts directly on the iss directly on the issue and against the appellant-Revenue. No contrary Revenue. No contrary decision of a High Court has been shown to us. The Punjab and decision of a High Court has been shown to us. The Punjab and decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad Vs. Haryana High Court in Commissioner of Income Tax, Faridabad Vs. Haryana High Court in Commissioner of Income Tax, Faridabad Vs. M/s. Lakhani Marketing Incl., decided on M/s. Lakhani Marketing Incl., ITA No. 970/2008, decided on M/s. Lakhani Marketing Incl., ITA No. 970/2008, decided on 02.04.2014, made refe 02.04.2014, made reference to two earlier decisions of the same rence to two earlier decisions of the same Court in CIT Vs. Hero Cycles Limited, [2010] 323 ITR 518 and CIT Court in CIT Vs. Hero Cycles Limited, [2010] 323 ITR 518 and CIT Court in CIT Vs. Hero Cycles Limited, [2010] 323 ITR 518 and CIT Vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold Vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold Vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was that Section 14A cannot be invoked when no exempt income was that Section 14A cannot be invoked when no exempt income was earned. The second d earned. The second decision is of the Gujarat High Court in ecision is of the Gujarat High Court in Commissioner of Income Tax Commissioner of Income Tax-I Vs. Corrtech Energy (P.) Ltd. [2014] I Vs. Corrtech Energy (P.) Ltd. [2014] 223 Taxmann 130 (Guj.). The third decision is of the Allahabad High 223 Taxmann 130 (Guj.). The third decision is of the Allahabad High 223 Taxmann 130 (Guj.). The third decision is of the Allahabad High Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Tax (Ii) Kanpur, Tax (Ii) Kanpur, Vs. M/s. Shivam Motors (P) Ltd. decided on Vs. M/s. Shivam Motors (P) Ltd. decided on 05.05.2014. In the said decision it has been held: 05.05.2014. In the said decision it has been held:

"As regards the second question, Section 14A of the Act provides that "As regards the second question, Section 14A of the Act provides that "As regards the second question, Section 14A of the Act provides that for the purposes of computing the total income under the Chapter, no for the purposes of computing the total income under the Chapter, no for the purposes of computing the total income under the Chapter, no deduction shall be all deduction shall be allowed in respect of expenditure incurred by the owed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total assessee in relation to income which does not form part of the total assessee in relation to income which does not form part of the total income under the Act. Hence, what Section 14A provides is that if income under the Act. Hence, what Section 14A provides is that if income under the Act. Hence, what Section 14A provides is that if there is any income which does not form part of the income under the there is any income which does not form part of the income under the there is any income which does not form part of the income under the Act, the expenditure which is incurred for earning the income is not the expenditure which is incurred for earning the income is not the expenditure which is incurred for earning the income is not an allowable deduction. For the year in question, the finding of fact an allowable deduction. For the year in question, the finding of fact an allowable deduction. For the year in question, the finding of fact is that the assessee had not earned any tax free income. Hence, in is that the assessee had not earned any tax free income. Hence, in is that the assessee had not earned any tax free income. Hence, in the absence of any tax free income, the corresponding e the absence of any tax free income, the corresponding expenditure xpenditure could not be worked out for disallowance. The view of the CIT(A), could not be worked out for disallowance. The view of the CIT(A), could not be worked out for disallowance. The view of the CIT(A), which has been affirmed by the Tribunal, hence does not give rise to which has been affirmed by the Tribunal, hence does not give rise to which has been affirmed by the Tribunal, hence does not give rise to any substantial question of law. Hence, the deletion of the any substantial question of law. Hence, the deletion of the any substantial question of law. Hence, the deletion of the disallowance of Rs.2,03,752/ disallowance of Rs.2,03,752/- made by the Assessing Officer was in g Officer was in order" .

declared by the company and strictly in legal declared by the company and strictly in legal sense, a shareholder sense, a shareholder has no control and cannot insist on payment of dividend. When has no control and cannot insist on payment of dividend. When has no control and cannot insist on payment of dividend. When declared, it is subjected to dividend distribution tax." d, it is subjected to dividend distribution tax."

1 "On the facts and in the circumstances of the case and in law, the 1 "On the facts and in the circumstances of the case and in law, the 1 "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing Ld. CIT(A) has erred in directing the A.O to verify the claim of the the A.O to verify the claim of the assessee as regards the reconciliation of AIR assessee as regards the reconciliation of AIR data which amounts to amounts to setting aside the matter to the A.O which the Ld.CIT(A) is not setting aside the matter to the A.O which the Ld.CIT(A) is not setting aside the matter to the A.O which the Ld.CIT(A) is not empowered to." empowered to." 2 "The appellant prays that the order of CIT(A) on the above grounds "The appellant prays that the order of CIT(A) on the above grounds "The appellant prays that the order of CIT(A) on the above grounds be set aside to the file of AO or confirm the order of the AO be set aside to the file of AO or confirm the order of the AO. 10.1 The facts in brief qua the iss The facts in brief qua the issue in dispute are that the ue in dispute are that the Assessing Officer observed difference in the amount of interest Assessing Officer observed difference in the amount of interest Assessing Officer observed difference in the amount of interest received from following three parties as compared to the information received from following three parties as compared to the information received from following three parties as compared to the information received by him on the basis of the received by him on the basis of the Annual Information nformation Return:

Name of the parties Amt. of Int as per AIR As per books As per books Uddar Tree Growing P Ltd Uddar Tree Growing P Ltd 32,17,285 33,60,520 Excess 33,60,520 Excess Harnit Cyberways P Ltd.; Harnit Cyberways P Ltd.; 40,31,164 40,31,964 okay. 40,31,964 okay.

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 25 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd.

Aashima Chemicals & Dyechem Aashima Chemicals & Dyechem 27,36,644 Int paid 1,14,10,581 Int paid 1,14,10,581 Received is NIL Received is NIL 10.2 The Ld. CIT(A) directed the Assessing The Ld. CIT(A) directed the Assessing Officer to verify the Officer to verify the claim. Before us, the Ld. DR submitted that efore us, the Ld. DR submitted that as per provisions of as per provisions of law, the Ld. CIT(A) is not authorize the Ld. CIT(A) is not authorized to restore any any matter back to the Assessing Officer for verification. the Assessing Officer for verification.

10.3 We have considered rival submission of the parties on th We have considered rival submission of the parties on th We have considered rival submission of the parties on the issue in dispute. It is a matter of verification whether the assessee issue in dispute. It is a matter of verification whether the assessee issue in dispute. It is a matter of verification whether the assessee has shown income of interest in respect of th has shown income of interest in respect of tho ose parties and therefore, we feel it appropriate to restore this issue back to the therefore, we feel it appropriate to restore this issue back to the therefore, we feel it appropriate to restore this issue back to the Assessing Officer. The direction of the Ld. CIT(A) Assessing Officer. The direction of the Ld. CIT(A) are are accordingly set aside. The ground of appeal of the Revenue is accordingly allowed aside. The ground of appeal of the Revenue is accordingly allowed aside. The ground of appeal of the Revenue is accordingly allowed for statistical purposes. for statistical purposes.

11. Now we take up the appeal of the assessee for assessment year Now we take up the appeal of the assessee for assessment year Now we take up the appeal of the assessee for assessment year 2009-10. The relevant ground raised

is reproduced as under: 10. The relevant ground raised is reproduced as under: 10. The relevant ground raised is reproduced as under:

1. The Hon'ble Commis 1. The Hon'ble Commissioner of Income tax (Appeals)-14 (hereinafter 14 (hereinafter referred to as " the CIT(A)") erred in law, on facts and in the referred to as " the CIT(A)") erred in law, on facts and in the referred to as " the CIT(A)") erred in law, on facts and in the circumstances of the case in upholding the action of the Learned circumstances of the case in upholding the action of the Learned circumstances of the case in upholding the action of the Learned Assessing officer (Hereinafter referred to as "the Ld A.O.") in disallowance Assessing officer (Hereinafter referred to as "the Ld A.O.") in disallowance Assessing officer (Hereinafter referred to as "the Ld A.O.") in disallowance of Rs. 1,82,37,369/ Rs. 1,82,37,369/- u/s 14A rwr 8D of the Act, 11.1 Before us, the Ld. counsel for the assessee has filed a Paper Before us, the Ld. counsel for the assessee has filed a Paper Before us, the Ld. counsel for the assessee has filed a Paper book containing pages 1 to 95. The Ld. counsel referred to page 51 book containing pages 1 to 95. The Ld. counsel referred to page 51 book containing pages 1 to 95. The Ld. counsel referred to page 51 of the Paper Book and submitted that of the Paper Book and submitted that the assessee made the assessee made suo-motu disallowance u/s 14A of the Act of Rs.6,16,923/- towards disallowance u/s 14A of the Act of Rs.6,16,923/ disallowance u/s 14A of the Act of Rs.6,16,923/ investment yielding dividend and Rs.1,24,21,428/- in respect of investment yielding dividend and Rs.1,24,21,428/ investment yielding dividend and Rs.1,24,21,428/

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 26 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd. stock. The relevant note below the computation of income available stock. The relevant note below the computation of income available stock. The relevant note below the computation of income available on page 53 is reproduced as under: on page 53 is reproduced as under:

COMPUTATION OF THE INCOME Amt in Rs. LIST OF LOANS & ADVANCES GIVEN, SHARE APPLICATION MONEY LIST OF LOANS & ADVANCES GIVEN, SHARE APPLICATION MONEY LIST OF LOANS & ADVANCES GIVEN, SHARE APPLICATION MONEY PAID ETC., ON WHICH INTERES DISALLOWABLE IS GIVEN IN THE PAID ETC., ON WHICH INTERES DISALLOWABLE IS GIVEN IN THE PAID ETC., ON WHICH INTERES DISALLOWABLE IS GIVEN IN THE ANNEXURE ATTACHED HERETO FOR THE REASONS BELOW: ANNEXURE ATTACHED HERETO FOR THE REASONS BELOW: ANNEXURE ATTACHED HERETO FOR THE REASONS BELOW: NOTES TO TAX RETURN OF BRIGGS TRADING CO PVT LTD., A Y 2005 NOTES TO TAX RETURN OF BRIGGS TRADING CO PVT LTD., A Y 2005 NOTES TO TAX RETURN OF BRIGGS TRADING CO PVT LTD., A Y 2005- 06:

1.

3. No administrative expenses to earn the 3. No administrative expenses to earn the dividend can be disallowed, dividend can be disallowed, since there is no cost relatable to the e: of dividend, since its either since there is no cost relatable to the e: of dividend, since its either since there is no cost relatable to the e: of dividend, since its either credited directly to the bank account or is received by a cheque without credited directly to the bank account or is received by a cheque without credited directly to the bank account or is received by a cheque without any acl from receipient's end. Hence there is no cost to earn the tax free any acl from receipient's end. Hence there is no cost to earn the tax free any acl from receipient's end. Hence there is no cost to earn the tax free dividend, 4. The investments in equity shares and stock in trade yield both taxable 4. The investments in equity shares and stock in trade yield both taxable 4. The investments in equity shares and stock in trade yield both taxable and non-taxable income and there is provision under Section 14A or taxable income and there is provision under Section 14A or taxable income and there is provision under Section 14A or others to disallow the interest on assumed or notional basis on the funds others to disallow the interest on assumed or notional basis on the funds others to disallow the interest on assumed or notional basis on the funds di for making such investments or sto di for making such investments or stock in trade. Hence, is not ck in trade. Hence, is not considered for such disallowances. considered for such disallowances.

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 27 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd.

5. We further annex hereto a note on the above points and also rely on 5. We further annex hereto a note on the above points and also rely on 5. We further annex hereto a note on the above points and also rely on the decision of the Hon'ble Supreme Court in the case of the decision of the Hon'ble Supreme Court in the case of Hon'ble Supreme Hon'ble Supreme Court decision in the case of Rajasthan Warchousin Court decision in the case of Rajasthan Warchousing Corporation Ltd., g Corporation Ltd., (242 TR 450), Bombay High Court decision in the case General Insurance Bombay High Court decision in the case General Insurance Bombay High Court decision in the case General Insurance Corporation of India as reported in 254 ITR 204, Laxmi Agents Pvt Ltd., Corporation of India as reported in 254 ITR 204, Laxmi Agents Pvt Ltd., Corporation of India as reported in 254 ITR 204, Laxmi Agents Pvt Ltd., 125 ITR 227, 25 ITR 227, Hon'ble High Court, in the case of CIT vs Alok Paper Hon'ble High Court, in the case of CIT vs Alok Paper Industries (1982) 138 ITR 7 tries (1982) 138 ITR 739 (M.P.), Seth Banarsi Das 39 (M.P.), Seth Banarsi Das Gupta c CIT /1977] 106 ITR 559 /1977] 106 ITR 559 , CIT v. Indian Bank Ltd. (1965) 56 ITR 77 (SC). (1965) 56 ITR 77 (SC).CIT v. Devichana Uttamchand (1984) 145 ITR 530 (Bom), Supreme Court in V.M. Devichana Uttamchand (1984) 145 ITR 530 (Bom), Supreme Court in V.M. Devichana Uttamchand (1984) 145 ITR 530 (Bom), Supreme Court in V.M. Salgaonakar and Bros. Pvt .Ltd. [2000] 243 ITR 293 (SC).” Salgaonakar and Bros. Pvt .Ltd. [2000] 243 ITR 293 (SC).” 11.2 The Assessing Officer computed the total disallowance of ing Officer computed the total disallowance of ing Officer computed the total disallowance of Rs.1,76,20,446/- invoking Rule 8D of the Income invoking Rule 8D of the Income-tax Rules, 1962 tax Rules, 1962 which consist of indirect interest disallowance of Rs.1,73,19,924/- which consist of indirect interest disallowance of Rs.1,73,19,924/ which consist of indirect interest disallowance of Rs.1,73,19,924/ under Rule 8D(2)(ii) and administrative disallowance @ 0.5% of under Rule 8D(2)(ii) and administrative disallowance @ 0.5% of under Rule 8D(2)(ii) and administrative disallowance @ 0.5% of average investment amounting to Rs.3,00,522/ ment amounting to Rs.3,00,522/- invoking Rule 8D(2)(iii) of the Rules. However, 8D(2)(iii) of the Rules. However, the Assessing Officer in final the Assessing Officer in final computation of income, reduced computation of income, reduced suo-moto disallowance disallowance by the assessee and made addition to the extent of Rs.51,99,018/- only. assessee and made addition to the extent of Rs.51,99,018/ assessee and made addition to the extent of Rs.51,99,018/ The Ld. CIT(A) following the decision of the Third Member of the wing the decision of the Third Member of the wing the decision of the Third Member of the Tribunal in the case of DH Securities Pvt. Ltd. (supra) rejected the Tribunal in the case of DH Securities Pvt. Ltd. (supra) rejected the Tribunal in the case of DH Securities Pvt. Ltd. (supra) rejected the contention of the assessee for not making disallowance in respect of contention of the assessee for not making disallowance in respect of contention of the assessee for not making disallowance in respect of shares treated as stock in trade. shares treated as stock in trade.

11.3 Before us, the Ld. Before us, the Ld. Counsel for the assessee referred to the e assessee referred to the decisions which were decisions which were referred by him while arguing the relevant referred by him while arguing the relevant ground for assessment year 2008 ground for assessment year 2008-09.

11.4 We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the We have heard rival submission of the parties and perused the relevant material on record. The issue in dispute raised in the year relevant material on record. The issue in dispute raised in t relevant material on record. The issue in dispute raised in t under consideration is identical to the issue of disallowance u/s under consideration is identical to the issue of disallowance u/s under consideration is identical to the issue of disallowance u/s 14A of the Act raised in assessment year 2008 14A of the Act raised in assessment year 2008-09 and therefore, 09 and therefore,

ITA Nos. 2136, 2269 & 2270/Mum/2014 2269 & 2270/Mum/2014 28 M/s Briggs Trading Co. Pvt. Ltd. M/s Briggs Trading Co. Pvt. Ltd. following our finding in assessment year 2008 following our finding in assessment year 2008-09 on the issue in 09 on the issue in dispute, we restore the matter back to the we restore the matter back to the Ld. Assess Ld. Assessing Officer for deciding in accordance with law. The relevant ground of appeal of in accordance with law. The relevant ground of appeal of in accordance with law. The relevant ground of appeal of the assessee is allowed for statistical purposes. the assessee is allowed for statistical purposes.