D.C.I.T., CIRCLE-4, KOLKATA, KOLKATA vs. M/S. MEGA RESOURCES LTD., KOLKATA

2. For that your petitioner craves the right to put additional grounds and/or to alter/amend/modify the present grounds before or at the time of hearing.”

3. First issue raised by Revenue is that Ld. CIT(A) erred in deleting the addition made by the Assessing Officer for ₹48,76,650/- on account of bad debts written off.

4. Briefly stated facts are that the assessee is a limited company and engaged in the business of share dealings and money lending as principal business activity. The assessee during the year has debited its profit and loss & CO 103/Kol/2013 A.Y. 2008-09 DCI, Cir-4(2), Kol. Vs. M/s Mega Resources Ltd. Page 3 account for ₹1,10,50,904//- under the head bad debts. The relevant details of bad debt written off stand as under:- Sl.no Name of the parties Amount Remrk(s) 1 Indiabulls securities 13,924 Sale of securities 2 Karvey stock broking 1,36,519 -do- 3 BP securities pvt. Ltd 47,26,207 -do- 4 Willards India Ltd. 59,28,712 Loan given on interest (amount comprises of principal & interest i.e. Rs. 30 lacs plus 29,28,712) 5 Advance of staff 1,28,042 Advance to staff 6 Advance to staff 62,500 -do- 7 Legal advance 55,000 Advance against the legal expenses The assessee claimed to have written off all the advances in the course of business therefore, all the bad debts are eligible for deduction. However, AO disagreed with the contention of the assessee on the ground that assessee has shown debts outstanding for more than six months only for ₹60,91,791/- and ₹13,65,504/- as on 31.03.2007 and 31.03.2008 respectively. Therefore the question claiming the bad debts for Rs. 1,10,50,904.00 does not arise. Thus, the AO opined that the amount of advance written off does not actually represent the bad debt. Accordingly, the AO disallowed the claim of ₹1,10,50,904/- and added to the total income of assessee.

5. Aggrieved, assessee preferred an appeal before Ld. CIT(A). The assessee before ld. CIT-A submitted that amount of Rs. 13,924.00, 1,36,519.00 & 47,26,207.00 represents the amount due from Indiabulls securities, Karvey stock broking and BP securities pvt. ltd on account of sale of shares. The sale amount of the above transactions were duly accounted for in the books of accounts of accounts and offered to tax. The ld. CIT-A after considering the submission of the assessee deleted the addition made by the AO by observing as under:- & CO 103/Kol/2013 A.Y. 2008-09 DCI, Cir-4(2), Kol. Vs. M/s Mega Resources Ltd. Page 4 “the ld. AR has placed on record relevant documents in support of his contentions. In this factual background, I find merit I the claim of the assessee that the above amounts written off in the books of account are allowable as bad debt. The assessee before ld. CIT-A further submitted that sum of Rs.59,28,712/- is inclusive of principal and interest of Rs. 30,00,000.00 and 29,28,712.00 only which was due from Willards India Ltd. The amount of Rs. 29,28,712.00 is representing the amount of unrealised interest prior to the AY 2001-02. The assessee further argued that the amount of loan was given in the course of business therefore the same should be allowable as deduction. However the ld. CIT-A rejected the contentions of the assessee and confirmed the order of AO by observing as under:- “I am not impressed with the argument that he principal amount is allowable as bad debt. Also, the assessee has failed to bring on record any material to show that the unrealized interest of Rs.29,28,712/- prior to the assessment year 2001-02 was actually considered as income in the relevant years. In view of the above, the AO was justified in not accepting the claim of Rs.59,28,712/-.” The ld. CIT(A) also confirmed the other additions made by the AO, as discussed above by observing as under : “I find from the submissions of the assessee that the claim of Rs.1,28,042/- and Rs.62,500/- relate to advances to staff whereas that of Rs.55,000/- pertains to advance against legal expenses. I agree with the AO that these claims are not allowable as bad debt. In effect, the claim of bad debt is restricted to Rs.48,76,650/-. The addition of Rs.61,74,254/- is confirmed. Ground no 2 is partly allowed.” The Revenue, being aggrieved is in appeal and assessee also filed CO before us.

of the Revenue

7. The Ld. DR before us vehemently relied on the order of AO and he stated that the matter may be decided on merit. On the other hand, Ld. AR filed paper book which is running pages from 1 to 134 and submitted that the claim for the bad debts was made in respect of following parties:- Name of the party Amount Remarks Indiabulls Securities 13,924/- standing in sundry debtors. this is due against hare purchased/sold from them. Karvey stock broking 1,36,519/- -do- Dinesh KR. Singhania (-) 20,81,850/- Lying since 2002 and related with BPS Securities BP Securities Pvt.Ltd 68,08,057/- Lying since 2002 and related with Dinesh Singhania He further submitted that the shares were sold to the above parties and corresponding sales were duly shown in the IT return which was duly accepted by Revenue. So the bad debt written off was claimed within the provision of law as specified under section 36(1)(vii) of the Act. Ld. AR in support of assessee’s claim drew our attention on pages from 6 to 19 where the ledger copies of all the aforesaid parties were placed. He relied on the order of Ld. CIT(A).

8. We have heard the rival contentions of both the parties and perused the material available on record. In the instant case, the disallowance of bad debt was made by the AO on the ground that the amount of bad debt claimed in the profit and loss account vis-a-vis corresponding opening and closing balance of the debtor are not matching. Therefore, the addition was made by the AO. However, on perusal of the details filed by assessee, we note that the sale of Shares for Rs. 13,924.00, 1,36,519.00 & 47,26,207.00 to Indiabulls securities, Karvey stock broking and BP Securities Pvt. ltd were duly accounted for in the & CO 103/Kol/2013 A.Y. 2008-09 DCI, Cir-4(2), Kol. Vs. M/s Mega Resources Ltd. Page 6 books of accounts of assessee. Therefore, we hold that the assessee is entitled to claim the deduction in respect of bad debt as discussed above. Thus after considering the facts in totality, we do not find any infirmity in the order of Ld. CIT(A). Consequently, ground raised by Revenue is dismissed. Now coming to the ground raised by the assessee in its CO

9. The ld. AR before us submitted that the assessee has claimed deduction under the head bad debts in respect of following items:- Willards India Ltd 59,28,712/- Unrecoverable interest Advances to staff 1,28,042/- Advances given to staff adjustable against dues. A. Chatterjee 55,000/- Advance given for legal expenses Advance for expenses 62,500/- Advance given to staff for company’s expenses, but remain unaccounted due to leaving the organization by the staff. The amount shown in the name of Willards India Ltd. is representing the loan provided to it in the course of business which is inclusive of principal amount of Rs. 30,00,000.00 and interest amount of ₹29,28,312/-. The amount of interest was duly offered to tax in the earlier year. The Ld. AR further submitted that the main business of assessee is dealing in shares and to lend the money as evident from the memorandum of association of company, which reads as under:- “2. To carry on business of an investment company or an investment trust company or to undertake and transact trust and agency investment, financial business, financiers and for that purpose to lend or invest money and negotiate loans in any form or manner, to draw, accept, endorse, discount, buy, sell and deal in bills of exchange.” Thus, Ld. AR also submitted that the amount of interest has already been offered to tax in the earlier year for ₹29,28,712/-, therefore it is very much eligible for deduction in the year under consideration. The ld. AR also submitted that the balance amount representing the principle amount for ₹ 30 lakh which was given in the course of assessee’s business. Therefore, the principal amount should be allowed as deduction u/s 28 of the Act. & CO 103/Kol/2013 A.Y. 2008-09 DCI, Cir-4(2), Kol. Vs. M/s Mega Resources Ltd. Page 7 Ld. AR further submitted that the amount of advance given to the staff and the amount of advance for legal expenses represent the transaction in the course of assessee’s business and therefore, the same is eligible for deduction u/s 28 of the Act. On the other hand, Ld. DR relied on the order of Authorities Below. He requested the Bench to confirm the same.

10. We have heard rival contentions and perused the material available on record. The issue in the instant case relates to the advance written off in the year under consideration. The necessary and relevant details of advance have already been discussed above. Therefore the same is not repeated herewith for the sake of brevity.

10.1 As far as advance given to the staff and for legal expenses are concerned, we find that it was provided in the course of business therefore these are eligible for deduction u/s 28 of the Act. In holding so, we draw support and guidance from the order of Hon’ble Calcutta High Court in the case of CIT Vs. Dhawan Investment & Trading Co. Ltd. reported in 100 taxman 562 wherein it was held as under : “Whether the premises were taken on rent for the purpose of business or not, the concurrent finding was that it was taken for the purpose of business. Therefore, the questions being raised on findings of fact, findings could not be said to be perverse.” Similarly we draw support and guidance from the order of Hon’ble Gujarat High Court in the case of CIT Vs. Gujarat Narmada Valley Fertilizers Co. Ltd. reported in 218 taxman 122. The following question of law was framed before the Hon’ble Court. (ii) Whether on facts and in the circumstances of the case, Tribunal has erred in law in deleting disallowance of Rs. 21,08,918/- made on account of advance written off without appreciating that provisions of Section 36(1)(vii) were not applicable and the business loss had not crystallized yet?"

The relevant finding of the Hon’ble Court in the above case stands as under: & CO 103/Kol/2013 A.Y. 2008-09 DCI, Cir-4(2), Kol. Vs. M/s Mega Resources Ltd. Page 8 “5. Considering the fact that the amount of Rs.14,22,273/-was advance to the Co-operative Society, whose members are the employees of the assessee- Company, to run the petrol pump for the employees of the assessee, however, the Co-operative Society instead of running the petrol pump gave it to the contractor who defrauded the Society and it was found by the assessee that the aforesaid amount was not recoverable at all, the assessee written off the same as business loss and claimed deduction under Section 36(1)(vii) of the Act. The Assessing Officer disallowed the same, which was confirmed by the CIT(A), which came to be set aside by the learned tribunal and the learned tribunal by impugned order deleted the said disallowance of Rs.21,08,918/-, which was given on advance and, therefore, it cannot be said that the learned tribunal has committed any error and/or it raises any question of law, much less substantial question of law. Under the circumstances, we see no reason to interfere with the said appeal and the said appeal deserves to be dismissed and is accordingly dismissed.” Thus, we are inclined to hold that the addition on account of advance given to the staff and legal expenses are not sustainable in the given facts & circumstances.