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Income Tax Appellate Tribunal, DELHI BENCH ‘B’ : NEW DELHI
Before: SHRI ANIL CHATURVEDI & SHRI KULDIP SINGH
PER KULDIP SINGH, JUDICIAL MEMBER :
Revenue as well as assessee have filed the aforesaid cross appeals emanated from the impugned order dated 17.05.2018 passed by the ld. CIT (Appeals)-3, Delhi.
Appellant, M/s. Dalmia Finance Ltd. (hereinafter referred to as ‘the assessee’) by filing the present appeal sought to set aside the impugned order dated 17.05.2018 passed by the Commissioner of Income-tax (Appeals)-3, Delhi qua the assessment year 2014-15 on the grounds inter alia that :-
“1. The learned CIT(A) erred in law and on facts in confirming assessment of the surplus which arose on sale, through the appellant, of the mortgaged plots of land by the mortgagee of the plots as long term capital gain though the same is not a taxable income under the provisions of the Income-tax Act in view of the judgment of the Hon'ble Kerala High Court in CIT vs Smt Thressiamma Abraham (1994) 227 ITR 802 against which the SLP of the revenue was not admitted by the Hon'ble Supreme Court. Thus, the surplus of Rs.20,40,46,006/- arose on disposal of those plots, taken by the mortgagee as a charge thereon, should be excluded from the taxable income.
2. The learned CIT(A) erred in law and on facts in ignoring the judgments of the Hon'ble Apex Court in UOI vs Kaumudini Narayan Dalal (2001) 249 ITR 219 (SC) and many others that once the revenue has accepted an issue on facts in the case of one assessee, then the revenue cannot agitate the same in the case of another assessee. Thus, the claim of the appellant must be accepted.
The learned CIT(A) despite admitting the additional ground of appeal, yet did not give any reasons as to why the above claim of the appellant is not maintainable in law and on facts placed on record.”
3. Appellant, JCIT, Special Range 3, New Delhi (hereinafter referred to as ‘the assessee’) by filing the present appeal sought to set aside the impugned order dated 17.05.2018 passed by the Commissioner of Income-tax (Appeals)-3, Delhi qua the assessment year 2014-15 on the grounds inter alia that :-
“1. Ld. Commissioner of Income Tax (Appeals) erred in law and on the facts of the case in deleting the addition of Rs.20,71,90,000/- made by the AO on account of bad debts written off not due to business exigencies but due to collusive nature of transaction as provided under section 36(1)(vii) of the Income Tax Act, 1961.”
Briefly stated the facts necessary for adjudication of the controversy at hand are : Assessee company filed return of income declaring loss of Rs.79,76,182/- after setting off long term capital gains of Rs.20,02,53,896/- against a business loss of Rs.20,82,30,078/- derived during the year under assessment.
During the scrutiny proceedings, Assessing Officer (AO) noticed that the assessee has earned capital gain amounting to Rs.20,02,49,657/- by selling land located at Chattarpur, Delhi by virtue of sale deeds dated 07.10.2013, 12.12.2013 & 08.01.2014 but the capital gain was adjusted with business losses of the company. Assessee company had written off bad debts as per return of income amounting to Rs.20,71,90,000/- as per Memorandum of Settlement dated 28.01.2014 signed by the respective parties as under :-
S. Particulars Amount Amount Balance as on No. outstanding written off 31.03.2014 as on 31.03.2013 1 M/s. Altar 7,48,80,000/- 2,98,80,000/- 4,50,00,000/- Investment Pvt. Ltd. 2 M/s. Carissa 30,75,10,000/- 15,75,10,000/- 15,00,00,000/- Investments Pvt. Ltd. 3 M/s. Dalmia 4,48,00,000 1,98,00,000/- 2,50,00,000/- Housing Finance Ltd. 42,71,90,000/- 20,71,90,000/- 22,00,00,000/-
Declining the contentions raised by the assessee, AO proceeded to disallow the amount written off in the profit & loss account to the tune of Rs.20,71,90,000/- and made addition thereof to the total income of the assessee on the ground that the transactions claimed by the assessee were not in the normal and ordinary course of business and loss so incurred was also not a genuine business loss, which could not have avoided or foreseen.
AO also taxed the surplus arising on the sale of mortgaged plots of land by the mortgagee and has made the same part of the taxable income.
Assessee carried the matter before the ld. CIT (A) by way of filing appeal who has partly allowed the same. Feeling aggrieved, the assessee as well as Revenue have come up before the Tribunal by way of filing the present appeals.
We have heard the ld. Authorized Representatives of the parties to the appeal, gone through the documents relied upon and orders passed by the revenue authorities below in the light of the facts and circumstances of the case.
GROUNDS NO.1, 2 & 3 OF ASSESSEE’S APPEAL (
Undisputedly, assessee is into the business of financing including lending, advancing money, standing guarantors etc. and during the ordinary course of business, assessee stood as guarantor in case of loans given to M/s. Altar Investment Pvt. Ltd., M/s.
Carissa Investments Pvt. Ltd. & M/s. Dalmia Housing Finance Ltd. by M/s. India Bulls Finance Services Ltd., who have failed to repay the same and they have entered into a Commitment Agreement dated 18.11.2009. It is also not in dispute that the assessee company has filed three sets of memorandum dated 28.01.2014 with the aforesaid three companies and thereby agreed to accept Rs.15,00,00,000/-, Rs.4,50,00,000/- & Rs.2,50,00,000/- from M/s.
Carissa Investments Pvt. Ltd., M/s. Altar Investment Pvt. Ltd. & M/s. Dalmia Housing Finance Ltd. respectively as final settlement against the earlier mentioned dues and on the basis of memorandum of settlement, assessee claimed a capital loss of Rs.20,71,90,000/- as detailed in the table extracted in preceding para no.4
At the very outset, ld. AR for the assessee fairly conceded that this issue has already been decided against the assessee by the coordinate Bench of the Tribunal in a case of WGF Financial Services Pvt. Ltd. vs. ACIT in for AY 2015-16 Order dated 10.02.2021, which is a subsidiary of assessee company, and referred to paras 13 to 16 of the order (supra). This fact has also not been controverted by the ld. DR for the Revenue.
Assessee has challenged the taxation of surplus arising on sale of mortgage of land by the mortgagee. It is the case of the assessee that it has mortgaged its plots of agricultural land with M/s. India Bulls Finance services Ltd. as a guarantor against the loans given by M/s. India Bulls Finance services Ltd. to the group companies. The said plots of land were sold during the year to repay the lender as the guarantee was invoked by the lender.
Consequently, there arose a surplus on sale of the said plots of land which was declared as long term capital gain by the assessee in its return of income filed for the year under assessment i.e. Assessment Year 2014-15 after taking the benefit of indexation.
However, ld. CIT (A) has not agreed with the contentions raised by the assessee by observing that, “the lender forced the assessee to register the conveyance deeds of the mortgaged properties on their sale and to recover the entire sale consideration through the borrower to avoid invoking the provisions of section 269T and also the other possible legal battles with the buyers. Rather the sales were made at the prevalent market value or approximate value thereto and the sale proceeds were received in the bank account of the assessee, hence surplus arising on the sale of agricultural land declared as capital gain by the assessee is to be treated as taxable income of the assessee.”
This issue has been decided by the coordinate Bench of the Tribunal in case of WGF Financial Services Pvt. Ltd. (supra), which is a group company, against the assessee by returning following findings :-
“13. We have carefully perused the decision relied by the assessee and the Ld. DR. It is true that the decisions relied upon by the Ld. DR have been duly considered by the Tribunal of Delhi Bench in the case of Addl.CIT vs Glad Investments Pvt. Ltd. (supra). In both the cases relied upon by the assessee, the assessee acted as guarantor and since the borrower could not repay the money, the lender sold the mortgaged/pledged property and sale consideration was received by the lendor and adjusted against satisfaction of debt. A perusal of the judicial decisions shows that there is a big difference between the decisions relied upon by the ld. counsel for the assessee and the facts of the case in hand. In all the decisions relied upon by the assessee, the mortgaged property was sold directly by the lender who received the sale consideration, whereas in the case of the assessee, sale deeds were executed by the assessee and the sale consideration was received by the assessee and thereafter, the assessee paid the consideration to the lender to discharge its liabilities.
After carefully perusing the decisions relied upon by the assessee, in our considered opinion, the factors to be considered for deciding as to whether the surplus of sale of mortgaged property is taxable or not and whether it was a forced sale of mortgaged property to pay to the lender or the sale was at free will and whether any benefit actually accrued/received by the assessee.
A careful consideration of the facts on record show that the appellant company received the entire sale consideration and it cannot be said that it was a forced sale due to the pressure mounted by IBFSL. It may be possible that the plot of lands were sold under the vigil and direction of IBFSL but the fact remains that the entire sale consideration was realized by the appellant and thereafter the sale consideration was taken by IBFSL in discharge of its loan.
It may be possible that the buyer desired the transfer of title from the owner to avoid any litigation with the owner in future and therefore, IBFSL, after receiving Rs. 3 crores, released the mortgage in favour of the assessee, thus, facilitating the assessee to sell the land with clear title. We are of the view that the income did accrue to the assessee and it cannot be said that the assessee sold the said plots of land involuntarily as forced sale. Considering the facts of the case relating to sale of mortgaged property, we do not find any force in the claim of the assessee. Ground No. 1 is accordingly, dismissed.”
14. Since this issue has already been decided against the assessee and ld. AR for the assessee has fairly conceded that he has nothing to argue and thereby accepted the findings returned by the coordinate Bench of the Tribunal in assessee’s group company case, so we are of the considered view that assessee company has voluntarily sold the mortgaged property and has received the sale proceeds thereof through banking transactions at the market value, hence surplus arising on the sale of agricultural land declared as capital gain by the assessee has been rightly subjected to taxable income of the assessee for the year under assessment. So, finding no illegality or perversity in the impugned findings returned by the ld. CIT(A), ground nos.1, 2 & 3 are determined against the assessee.
GROUND NO.1 OF REVENUE’S APPEAL (ITA NO.5184/DEL/2018) 15. AO made addition of Rs.20,71,90,000/- on account of bad debts written off on account of business exigency but due to collusive nature of transaction as provided u/s 36(1)(vii) of the Act.
However, ld. CIT (A) deleted the addition by thrashing the facts and settled principle of law on the issue in question.
16. Ld. DR for the Revenue challenging the impugned order passed by the ld. CIT (A) contended that AO has made the addition on failure of the assessee to substantiate its claim. However, this contention of the ld. DR is not sustainable in view of the findings returned by the ld. CIT (A) in para 2.15 of the impugned order wherein all the documentary evidence placed on record by the assessee has been duly perused. Moreover, the short question to be decided by the ld. CIT (A) was, “as to whether loss suffered by the assessee in the normal course of its business in the non-banking activities as a guarantor is a business loss based upon commercial prudent decision?”
This issue has already been decided in favour of the assessee by the coordinate Bench of the Tribunal in assessee’s group company case WGF Financial Services Pvt. Ltd. (supra) by returning following findings:-
“17. Facts relating to the grievance related to Ground No.2 show that the assessee had given guarantees to the lender on behalf of the borrowers as giving guarantee is one of the business objects of the assessee and for which guarantee commission is charged. Seven borrower companies had taken loans from IBFSL and IBFSL required the guarantor to secure its loan. Accordingly, the Commitment Agreement was made on 18.11.2009 which is placed at pages 127 to 131 of the Paper Book wherein the appellant company inter-alia with other three companies became guarantors by mortgaging their respective plots of land in favour of IBFSL. The borrower companies agreed to pay Rs.20 crores as commission in lieu of the guarantee and if the guarantee is invoked by the lender, then the borrowers were to pay additional Rs.20 crores as damages for the hardship the assessee would bear. Subsequently, the borrower companies committed defaults and the assessee company (guarantor) had to repay the loan amounts. Since the borrower companies owned shares of listed companies which were placed with IBFSL as securities, the borrower companies informed the assessee that once the outstanding liability repaid to IBFSL and as and when the shares held as security are released by IBFSL, the shares of the amount equal to the amount paid by the assessee as guarantor would be given to the assessee. Since the shares were sold by the lender company to recover its debts, therefore, borrower companies could not get their shares back and could not transfer the shares to the assessee.
18. Subsequently, a Memorandum of settlement dated 16.03.2015 was entered as per which an amount of Rs.36.50 crores was accepted as full and final settlement against Rs.64,26,92,000/- recoverable from Carissa Investment Private Ltd. (in short “CIPL”) by the assessee. This settlement Deed is placed at pages 465 to 468 of the Paper Book and accordingly, the assessee wrote off the balance loan amount aggregating to Rs.27,76,92,000/-.
19. The Assessing Officer was of the firm belief that the appellant has not fulfilled the conditions of section 36(2) of the Act as the assessee has not received any guarantee commission from CIPL.
CIPL has paid donation of Rs.10 crores and earned Revenue ofRs.15 crores, therefore, it cannot be said that CIPL was not financially sound to repay the loan taken from the assessee. The Assessing Officer went on to make addition of Rs.27,76,90,000/- which was subsequently confirmed by the First Appellate Authority.
As mentioned elsewhere, the assessee is engaged in the business of financing which included lending, advancing money, standing guarantor etc. and in its ordinary course of business, the assessee gave guarantee to the borrowings made by CIPL. As per the Agreement, CIPL was supposed to transfer shares held by it in the listed companies after repayment of its loan from IBFSL. Since IBFSL sold the shares held by it as security, CIPL was not in a position to transfer the shares to the assessee. CIPL was in debt to the assessee to the tune of Rs.64.26 crores and since CIPL defaulted in its obligation, the assessee had to settle the quarrel by way of Memorandum Deed dated 16.03.2015 and could recover only Rs.36.50 crores. The assessee was left with no choice but to write off the balance Rs.27,76,92,000/-.
In our considered view, the entire transaction cannot be considered as the colorable device as the same was never entered with any intent to defraud the Revenue. We find that all the transactions were undertaken with third parties through bank accounts or registered Mortgage Deeds etc. in the regular course of business and were duly recorded in the books of accounts. Nothing could be managed as the transactions were spread over a period of five years.
Due to mayhem in the stock market in the year 2008, the stocks of the listed companies nose-dived and the borrowers suffered huge losses, nothing was recoverable from them and there was no point in filing legal suit. It is true that no guarantee commission has been received by the assessee from CIPL but CIPL was not in a position to make any payment to the assessee. It is true that CIPL made certain donations but that cannot be considered against the assessee as the assessee could not be held responsible for the business module of CIPL. The assessee could recover only Rs.36.50 crores out of Rs.64.26 crores, the balance written off may not fulfill the condition of section 36(2) of the Act but definitely a business loss suffered by the assessee in carrying out its ordinary
course of business. Considering the facts of the case in totality, the write off of Rs.27,76,92,000/- is definitely a business loss and deserve to be allowed. We accordingly direct the Assessing Officer to delete the addition of Rs.27,76,92,000/-, Ground No.2 is accordingly allowed.”
Following the decision rendered by coordinate Bench of the Tribunal in assessee’s group company case (supra) in identical facts and circumstances of the case, we are of the considered view that when the assessee has suffered losses in the ordinary course of business as a guarantor it has to be treated as a business loss which is eligible to be written off as bad debt due to business exigencies.
There is not an iota of evidence in the file if this business loss is due to collusive nature of transaction as provided u/s 36(1)(vii) of the Act. So, finding no illegality or perversity in the deletion of addition made by the ld. CIT (A), ground no.1 is determined against the Revenue.
Resultantly both the appeals filed by the assessee and Revenue are dismissed. Order pronounced in open court on this 29th day of July, 2021.