Punjab Information & Communication Technology Corporation Ltd v. Commissioner Of Income Tax, Chandigarh

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision: April 10, 2013 ITA No. 65 of 2012 (O&M) Punjab Information & Communication Technology Corporation Ltd. …Appellant Versus Commissioner of Income Tax, Chandigarh …Respondent CORAM:HON'BLE MR. JUSTICE HEMANT GUPTA HON’BLE MS. JUSTICE RITU BAHRI Present:Mr.Pankaj Jain, Advocatefor the appellant. Ms. Urvashi Dhugga, Advocatefor the respondent. 1To be referred to the Reporters or not?2Whether the Judgment should be reported in theDigest2Whether the Judgment should be reported in theDigest HEMANT GUPTA, J. (ORAL) The present appeal under Section 260-A of the IncomeTax Act, 1961 (for short 'the Act') is directed against an orderdated 26.04.2011 passed by the Income Tax Appellate Tribunal(for short 'the Tribunal') in respect of the assessment year 2005-06. The assessee has claimed following substantial questions of law: “i)Whether on the facts and circumstances ofthe case, Tribunal order is sustainable, byreturning the findings of the amounts being acapital loan, the amounts advances (written off),to the wholly owned Subsidiary Companies underthe control and management of the appellant inpursuance to the Main Object of the appellant?the case, Tribunal order is sustainable, byreturning the findings of the amounts being acapital loan, the amounts advances (written off),to the wholly owned Subsidiary Companies underthe control and management of the appellant inpursuance to the Main Object of the appellant? ii)Whether on the facts and circumstances ofthe case, the loans and advances to theSubsidiary Companies be termed as payments onaccount of Business Exigency and CommercialExpediency therefore is of Revenue Nature? iii)Whether on the facts and circumstances ofthe case, the disclosure of income accruing oryielding from the debt, in the Books of Accountas well as Return of Income, will entitle theappellant to claim the whole debt write off is tobe restricted to the income accruing or yieldingtherefrom.” The assessee company was incorporated on 07.03.1976 with an object to develop and promote theelectronics, telecommunication and I.T. etc. in the State of Punjab.Subsequently, three subsidiary companies were incorporated.The assessee has advanced loans to the said subsidiarycompanies, which were written off as bad debts. The assesseeclaimed the amount written off as a revenue expense which theAssessing Officer treated as capital loss vide order dated26.12.2007. In an appeal against the said order, the claim of theassessee to treat the written off bad debts, as revenue expenses,was not accepted. The Commissioner of Income Tax recorded thefollowing findings: “5.6. I have gone through the facts of the case,assessment order and counsel's contentions in thisregard and after careful consideration find that as theloans were advanced by the assessee company to itssubsidiary companies for their promotion and now thesesubsidiary companies have not repaid these loans to theassessee company. The claim of the assessee to writeof capital loans as revenue expenses is not entertainable as per provisions of law as in regard to these bad debtsno income has been shown in earlier year by theassessee. As far as judicial pronouncement relied uponby the counsel are concerned there are entirelydistinguishable to the facts of the instant case.” “5.6. I have gone through the facts of the case,assessment order and counsel's contentions in thisregard and after careful consideration find that as theloans were advanced by the assessee company to itssubsidiary companies for their promotion and now thesesubsidiary companies have not repaid these loans to theassessee company. The claim of the assessee to writeof capital loans as revenue expenses is not entertainable as per provisions of law as in regard to these bad debtsno income has been shown in earlier year by theassessee. As far as judicial pronouncement relied uponby the counsel are concerned there are entirelydistinguishable to the facts of the instant case.” In further appeal at the instance of the assessee, theTribunal returned a finding that the amounts advanced by theassessee have been written off after the said companies havebeen closed and the employees retrenched. The amounts soadvanced are clearly capital loss in the hands of the assesseewhich are not allowable as a revenue expenditure. After returningthe said finding, the Tribunal found merit in the arguments raisedby the assessee that the amount received by way of interest onloan and dividend income on the amounts advanced by theassessee, reflected by the assessee in its return of income in therespective assessment year, is to be allowed as a deduction underthe provision of Section 36(1)(vii) read with section 36(2) of theAct. Therefore, the Assessing Officer was directed to allow theclaim of the assessee only in respect of interest on loan anddividend income, which is part of the amounts written off andfulfills the condition of Section of 36(2) of the Act. The Tribunalalso directed the Assessing Officer to examine the issue andreturn a finding whether the amount advanced is in the course ofbusiness and the same being irrecoverable have been written offby the assessee, is to be considered as revenue expenditureunder Section 37(1) of the Act. We have heard learned counsel for the parties and find no merit in the present appeal. Since the appellant has advancedloan to its subsidiary companies, the same has to be treated as ITA No. 65 of 2012 (O&M) capital loss. The assessee has not shown any increase in theprevious years, therefore, the assessee has been rightly found notentitled to claim such written off amount as revenue expenses.We do not find any error in the findings recorded by theauthorities under the Act. In respect of the interest and the otherexpenses, the matter has been remanded back to the AssessingOfficer to examine the nature of transaction claimed by theassessee as revenue loss. Since the facts are yet to be examined,therefore, no argument can be examined at this stage. Consequently, we do not find that any substantialquestion of law arises for consideration of this Court.Dismissed. (HEMANT GUPTA) JUDGE 10.04.2013Atul/Vimal (RITU BAHRI) JUDGE