DCIT Vs Santosh Shivaji Lad (ITAT Bangalore)
Advances written off & interest claims not false- No Penalty for mere disallowance of claims: ITAT Bangalore
Assessee claimed a loss of ₹38.19 lakhs in AY 2013-14. In the P & L a/c, Assessee claimed an expenditure of ₹5,55,20,973 under the head “investment in companies written off.” Assessee also claimed interest expenses u/s 57. Assessee stated that he had promoted two companies, namely M/s Lad’s Technologies Pvt. Ltd. in 2009 & M/s Connect Films Media Pvt. Ltd. in 2008. These companies were not generating sufficient revenue to meet their day-to-day operations; therefore, he extended financial support in the form of advances to sustain their operations. It was agreed that these advances would be converted into share capital. As the companies failed to generate business, the advances given became irrecoverable. Boards of Directors both the companies decided to write off the liabilities arising from the amounts lent by Assessee, recognizing them as income of ₹3 crores & ₹2.5 crores, respectively. Assessee also wrote off the investment amount of ₹5,55,20,973, which had been given as advances to these companies, & claimed it as an expenditure in his profit & loss account.
AO disallowed Assessee’s claim, holding that the advances made were not for the purpose of carrying out any business of Assessee & did not constitute a trade advance. AO also noted that Assessee is not engaged in the money-lending business & therefore, cannot claim the write-off of advances as a trading loss. AO observed that the advances given to these two companies were meant to cover their expenses & were in the nature of a capital outlay. AO treated the advances as an investment in the hands of Assessee & capital in nature rather than a trade advance, making them ineligible to be claimed as a business loss. AO found that Assessee had not charged any interest on these advances in any financial year, indicating that Assessee did not comply with the provisions of sec 36(1)(vii) r.w.s. 36(2) & thus, could not be claimed as bad debts.
