CIT v. Epsilon Advisers (P.) Ltd.

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The Tax PublishersIT Appeal No. 23 of 2006 2012 TaxPub(DT) 2374 (Karn-HC) : (2012) 048 (I) ITCL 0141 : (2012) 208 TAXMAN 0332 : (2012) 080 DTR 0366 IN THE KARNATAKA HIGH COURT D.V. SHYLENDRA KUMAR & B. MANOHAR, JJ. CIT v. Epsilon Advisers (P.) Ltd. IT Appeal No. 23 of 2006 13 June, 2012 Appellantby : M. Thirumalesh, Respondent by : Malhara Rao and S. Partha Sarathi, JUDGMENT *Shylendra Kumar, J. Appeal by the revenue under section 260A of the Income Tax Act, 1961 (for short, the Act). 2. Revenue has raised the following two questions: 1. Whether the Tribunal was correct in holding that the sum of Rs. 5,34,00,000 can be written off as bad debt which had been advanced by the assessee in favour of one of its group companies M/s. BWTL on the ground that the assessee was carrying on money lending business without basing that finding on any material and consequently recorded a perverse finding. 2. Whether the assessee carrying on the profession of consultancy service having advanced a sum of Rs. 5,34,00,000 in favour of one of its group companies M/s BWTL to tide over its financial situation can be treated as bad debt and written off as expenses even when the assessee does not carrying on money lending business or having lent this amount in the course of business activity of the assessee. as arising out of the order dated 26-8-2005, passed by the Income Tax Appellate Tribunal, Bangalore Bench A, in ITA No 3613 /Bang/2004*, whereby the tribunal had allowed the appeal of the assessee and had reversed the orders of the assessing officer and the appellate commissioner relating to the question as to whether a sum of Rs 5.34 crore can be allowed as a deduction by way of bad debts written off by the assessee during the accounting period corresponding to the assessment year 2001-02, being an amount that had been advanced to another company in which the assessee company being a substantial shareholder and that the other company virtually fading out of business, the assessee had advanced the amount to the other company for its revival, but revival not taking place and the company who had received this amount closing its business activities, had claimed this amount as an irrecoverable debt or bad debt and being the amount advanced during the course of business activity of the assessee company and can be claimed as deductible expenditure in the accounting year in which, had been written off in the books of account of the assessee-company. 3. The assessing officer and the appellate authority had opined that it cannot be so claimed, as the amount was neither being an advance in the course of business activity of the assessee nor the amount can be treated as part of the business of money lending and therefore cannot be described as a loss incurred or a debt which had become irrecoverable in the activity of money lending and accordingly does not qualify for deduction under section 36(1)(vii) of the Act. 4. The assessee is a private limited company and as its name suggests, its business was one of providing consultancy services in electronic and telecommunications. In the return filed for the assessment year 2001-02, the assessee had claimed a total amount of Rs 6.09 crore as advances paid by the assessee company, but which had become not recoverable and therefore written off in the books of account of the assessee-company during the accounting period corresponding to this assessment year. SUBSCRIBE FOR FULL CONTENT

The Tax PublishersIT Appeal No. 23 of 2006
2012 TaxPub(DT) 2374 (Karn-HC) : (2012) 048 (I) ITCL 0141 : (2012) 208 TAXMAN 0332 : (2012) 080 DTR 0366

IN THE KARNATAKA HIGH COURT

D.V. SHYLENDRA KUMAR & B. MANOHAR, JJ.

CIT v. Epsilon Advisers (P.) Ltd.

IT Appeal No. 23 of 2006

13 June, 2012

Appellantby : M. Thirumalesh,

Respondent by : Malhara Rao and S. Partha Sarathi,

JUDGMENT

Shylendra Kumar, J.

Appeal by the revenue under section 260A of the Income Tax Act, 1961 (for short, the Act).

2. Revenue has raised the following two questions:

1. Whether the Tribunal was correct in holding that the sum of Rs. 5,34,00,000 can be written off as bad debt which had been advanced by the assessee in favour of one of its group companies M/s. BWTL on the ground that the assessee was carrying on money lending business without basing that finding on any material and consequently recorded a perverse finding.

2. Whether the assessee carrying on the profession of consultancy service having advanced a sum of Rs. 5,34,00,000 in favour of one of its group companies M/s BWTL to tide over its financial situation can be treated as bad debt and written off as expenses even when the assessee does not carrying on money lending business or having lent this amount in the course of business activity of the assessee.

as arising out of the order dated 26-8-2005, passed by the Income Tax Appellate Tribunal, Bangalore Bench A, in ITA No 3613 /Bang/2004, whereby the tribunal had allowed the appeal of the assessee and had reversed the orders of the assessing officer and the appellate commissioner relating to the question as to whether a sum of Rs 5.34 crore can be allowed as a deduction by way of bad debts written off by the assessee during the accounting period corresponding to the assessment year 2001-02, being an amount that had been advanced to another company in which the assessee company being a substantial shareholder and that the other company virtually fading out of business, the assessee had advanced the amount to the other company for its revival, but revival not taking place and the company who had received this amount closing its business activities, had claimed this amount as an irrecoverable debt or bad debt and being the amount advanced during the course of business activity of the assessee company and can be claimed as deductible expenditure in the accounting year in which, had been written off in the books of account of the assessee-company.

3. The assessing officer and the appellate authority had opined that it cannot be so claimed, as the amount was neither being an advance in the course of business activity of the assessee nor the amount can be treated as part of the business of money lending and therefore cannot be described as a loss incurred or a debt which had become irrecoverable in the activity of money lending and accordingly does not qualify for deduction under section 36(1)(vii) of the Act.

4. The assessee is a private limited company and as its name suggests, its business was one of providing consultancy services in electronic and telecommunications. In the return filed for the assessment year 2001-02, the assessee had claimed a total amount of Rs 6.09 crore as advances paid by the assessee company, but which had become not recoverable and therefore written off in the books of account of the assessee-company during the accounting period corresponding to this assessment year.