M/S.hotel Sri Lakshmino v. The Assistant Commissioner Of Income-Tax,Circle – Iii,Coimbatore

IN THE HIGH COURT OF JUDICATURE AT MADRASDATED : 28.03.2022CORAM :THE HON'BLE MR. JUSTICE R.MAHADEVANANDTHE HON'BLE MR. JUSTICE J.SATHYA NARAYANA PRASAD T.C.A.NO.260 OF 2012 M/s.Hotel Sri LakshmiNo.292, Big Bazaar Street,Coimbatore – 641 001.PAN: ...Appellant/Appellant Versus The Assistant Commissioner of Income-Tax,Circle – III,Coimbatore. ...Respondent/Respondent Tax Case Appeal filed under Section 260 (A) of the IncomeTax Act, 1961 against the order of the Income Tax AppellateTribunal 'B' Bench, Chennai in I.T.A.No.1314/Mds/2011 dated26.07.2012. Against the order of Commissioner of Income-Tax(Appeals)-I,Coimbatore dated 26.05.2011 in Appeal No.28/2010-2011 andagainst the order of Assistant Commissioner of Income-Tax,Circle III, Coimbatore dated 30.12.2018 in PAN.No.AACFH0357Hfor the Assessment Year 2006-2007. For Appellant :Mr.S.SridharFor Respondent :Mr.M.Swaminathan,Senior Standing Counseland Mrs.K.G.Usharani,Junior Standing Counsel JUDGMENT (Judgment of the court was delivered by R.MAHADEVAN, J.) This Tax Case Appeal has been preferred by theappellant/assessee against the order passed by the Income TaxAppellate Tribunal 'B' Bench, Chennai in I.T.A.No.1314/Mds/2011dated 26.07.2012, relating to the Assessment Year 2006-07. 2.According to the appellant / assessee, they are apartnership firm and they filed their return of income for theassessment year 2006-07, on 31.10.2006 admitting a total incomeof Rs.37,31,370/-, which was originally processed under section143(1) of the Income-tax Act, 1961 (in short, the Act) on11.04,2007. However, while passing the assessment order undersection 143(3) on 30.12.2008, the respondent disallowed theclaim of bad debts to the tune of Rs.22,94,000/-. Challengingthe said assessment order, the appellant preferred an appealbefore the Commissioner of Income Tax (Appeals)-1, Coimbatore,who by order dated 26.05.2011, dismissed the same therebyconfirming the order of the respondent / assessing officer. Thesecond appeal filed by the appellant before the ITAT, Chennaialso ended in dismissal, by order dated 26.07.2012, which isimpugned in this appeal. 3.On 21.11.2012, this appeal was admitted on the followingsubstantial question of law: “Whether the Tribunal is correct in law insustaining the disallowance of the claim of businessloss u/s.28 of the Act which claim was alternativelymade as against the original claim of bad debts u/s.36(1)(vii) of the Act in relation to the transactioninvolving advancing of monies for purchase of propertyin the process of making an attempt to expand thebusiness of the appellant by misreading the facts ofthe case resulting in perversity in the order passed bythem?” 4.The learned counsel for the appellant/assessee submittedthat without assigning proper reasons and justification, theauthorities below disallowed the claim of bad debts ofRs.22,94,000/-, which is erroneous and unsustainable in law.According to him, the misappropriation of funds provided in thecourse of the attempt to expand the business of the appellant /assessee had to be construed as a business loss / bad debts inthe computation of taxable total income, which is eligible for deduction within the scope of the Act. The learned counselfurther submitted that the complaint given to the policedepartment had clearly established the fact of the loss sufferedby the appellant / assessee for the purpose of purchase ofproperty, however, the same was not taken into consideration bythe authorities below. The learned counsel also placed relianceon a decision of the Hon'ble Supreme Court in the case ofBadridas Daga Vs. Commissioner of Income Tax [(1958) 34 ITR 10(SC)], wherein, it was held as follows: deduction within the scope of the Act. The learned counselfurther submitted that the complaint given to the policedepartment had clearly established the fact of the loss sufferedby the appellant / assessee for the purpose of purchase ofproperty, however, the same was not taken into consideration bythe authorities below. The learned counsel also placed relianceon a decision of the Hon'ble Supreme Court in the case ofBadridas Daga Vs. Commissioner of Income Tax [(1958) 34 ITR 10(SC)], wherein, it was held as follows: “In the result, we are of opinion that the losssustained by the appellant as a result ofmisappropriation by Chandratan is one which isincidental to the carrying on of his business, and thatit should therefore be deducted in computing theprofits under Section 10(1) of the Act. In this view,the order of the lower court must be set aside and thereference answered in the affirmative. The appellantwill get his costs of this appeal and of the referencein the Court below.” Ultimately, it is submitted that the loss incurred by theappellant/assessee had to be allowed as business loss or baddebt and hence, the appeal may be allowed by setting aside theorder of the authorities below. 5.On the other hand, the learned standing counsel appearingfor the respondent submitted that after examining the facts andcircumstances of the case, in the light of the materialsavailable before the same, the authorities below uniformly heldthat the loss incurred by the appellant / assessee cannot betreated as business loss for the purpose of deduction under theAct and hence, their well considered findings need not beinterfered with by this court. 6.We have heard both sides and perused the materialsavailable on record. 7.The short issue involved herein is with regard to thedisallowance of claim of the appellant /assessee to the tune ofRs.22,94,000/- under the head 'business loss / bad debts'. Inorder to appreciate the same, it is but necessary to analyse thefindings of the authorities below to that extent alone. 8.The appellant made the claim of bad debts ofRs.22,94,000/- for the assessment year in question, stating that https://hcservices.ecourts.gov.in/hcservices/ they paid money to some persons, who promised to get a loan ofRs.8 crores at a low rate of interest and the deal did notmaterialise and they were duped by the individuals. Tosubstantiate the same, they filed a copy of the complaint withthe police. However, the assessing officer disallowed the saidclaim, on the premise that the same was neither revenue nor wasit a loan or debt incurred in respect of the business carried onby the appellant in the relevant accounting year. 9.The order of the assessment was challenged by theappellant before the appellate authority and it was pleaded thatthey were intending to raise a loan for the purpose of expandingits business by increasing the capacity of the lodge and theneighbouring building owners also intended to offer theirbusiness complex to the appellant; and therefore, the amount wasadvanced in good faith in the course of carrying on the businessof the appellant. However, the said plea was not accepted andthe disallowance made by the assessing officer was confirmed,after having observed that the facts mentioned by the appellantwere entirely different from what were given in the complaintfiled before the police station and the appellant could notestablish any business link or commercial expediency for thecommission of Rs.25 lakhs paid to the agent; and the appellantalso could not produce any agreement or correspondence whichcould show that there was any business purpose behind the sumbeing given and hence, the amount was not advanced in respect ofthe business carried on by the appellant nor has any businessconnection with the firm. 10.The Tribunal also affirmed the findings of the appellateauthority and dismissed the further appeal filed by theappellant in this regard and the detailed findings of theTribunal are quoted below for ready reference: “6... Assessing Officer had come to a conclusionthat a loan was being raised by one of the partners,namely, Shri K.P.S.Prakash for purchase of a land atCoimbatore and the said Shri K.P.S.Prakash had paid toShri Ramar the impugned sum of arranging such loan.This conclusion was arrived from the complaint given byShri K.P.S.Prakash to Police in January, 2002. In theface of the complaint given by Shri K.P.S.Prakash thatthe sum paid to Shri Ramar was for arranging a loan foracquiring land at Coimbatore, the subsequent version ofthe assessee that the proposal was only for executionof its lodging business, by acquiring adjacentproperty, cannot be believed at all. If that was so,Shri K.P.S.Prakash would not have stated in the first instance that the amount was sought for purchase ofland at Coimbatore. He could have very well statedthat it was for the purpose of acquiring the adjacentland. In the complaint filed before the Police, therewas not even a whisper that the proposal was forexpansion of the assessee-firm's business. It is clearthat the amounts were paid for the partner's personalpurpose only. Nothing was produced before the CIT(Appeals) to show that assessee had any intention topurchase any adjacent property for expansion of thebusiness. It would also be naïve to believe thatassessee would have paid a sum of Rs.25 lakhs just likethat without any agreement. Without having producedany records to show that the sum paid was for businesspurpose or for commercial expediency, the claim, in ouropinion, was rightly disallowed. Assessee might haveaccounted the payment made by Shri K.P.S.Prakash in itsbooks. Recording of such transaction by itself wouldnot render it an allowable expense either as bad debtor as a business loss. If it was only a fee paid forarranging loan for the assessee's business, the amountneed not have been shown as debt due from Shri Ramar.Having suffered a personal loss, Shri K.P.S.Prakash wasonly trying to charge such loss in the accounts of theassessee by claiming it as bad debt. Neither it wasallowable as bad debt nor as a business loss. Nobusiness purpose was demonstrated by the assessee atall. As for the decisions of Hon'ble Apex Court in thecase of Badridos Dega (supra) and National Bank Limited(supra) relied on by the learned A.R., both are notapplicable on facts here. In the case of BadridosDaga, the loss was by an agent holding power ofattorney to operate concerned assessee's bank account.In the case of National Bank Limited, cash, which wasthe stock-in-trade of the concerned assessee was lootedand hence, loss was on account of decoity. As for thecase of TRF Ltd., relied on by the learned A.R., nodoubt it was held that a claim of bad debt wasallowable if it was written off as irrecoverable in theaccounts of the assessee. But, the said decision doesnot absolve an assessee from proving that the debt wasincurred during the course of business, for the purposeof its business. We are, therefore, of the opinionthat the authorities below were justified indisallowing the claim of the assessee.” 11.It could be seen from the findings of the authoritiesbelow that after analysing the entire pleadings and thesubmissions made on either side, they have in unequivocal terms, 11.It could be seen from the findings of the authoritiesbelow that after analysing the entire pleadings and thesubmissions made on either side, they have in unequivocal terms, held that there was no material available to prove that the lossincurred by the appellant / assessee was for the purpose ofacquiring the property at Coimbatore for expansion of itsbusiness and hence, the same was not treated as business loss /bad debts. Such a finding rendered by the authorities below,based on the material evidence, does not require any interfereby this court. Further, the decision relied on the side of theappellant as was made before the Tribunal, is of no help to thecase of the appellant / assessee, as it is factuallydistinguishable. 12.At this juncture, it may be useful to refer to thedecision of the Hon'ble Supreme Court in Metroark Ltd. v. CCE[(2004) 12 SCC 505], wherein it was held as under: "8. Even otherwise, the law on the subjectis clear. The Tribunal is the final fact-findingauthority. Unless it is shown that there is somethingperverse in its finding, this Court would notinterfere. No authority is required for this purpose.But as a large number of authorities are cited, werefer to them: Pragati Computers (P) Ltd. v.Collector of Customs [(2000) 10 SCC 150], RelianceSilicon (I) (P) Ltd. v. CCE [(1997) 1 SCC 215], AsianPaints India Ltd. v. CCE [(1988) 2 SCC 470 : 1988 SCC(Tax) 201] and Collector of Customs v. SwasticWoollens (P) Ltd. [1988 Supp SCC 796 : 1989 SCC (Tax)67]." 13.That apart, it is settled law that “a court of appealinterferes not when the judgment under attack is not right, butonly when it is shown to be wrong” [Refer: Dollar Co. v.Collector of Madras, (1975) 2 SCC 730]. 14.In such view of the matter, there is no question of law,much less substantial question of law arisen for considerationherein. Accordingly, this Tax Case Appeal stands dismissed. Nocosts. Sd/- Assistant Registrar(CS III) //True Copy// Sub Assistant Registrar To 1. Income Tax Appellate Tribunal 'B' Bench, Chennai. Chennai. 2. The Commissioner of Income Tax (Appeals)-I, Coimbatore. 3. The Assistant Commissioner of Income-Tax, Company Circle – III, Coimbatore. Company Circle – III, Coimbatore. +1cc to Mr.M.Swaminathan, Senior Standing Counsel, S.R.No.20843 T.C.A.No.260 of 2012 AJS(CO)PM/27/04/2022