DCIT Vs Hubli Scan Centre Pvt. Ltd. (ITAT Bangalore)
MRI Deposit Write-off Under Scanner: ITAT Restores ₹4.19 Cr Claim to CIT(A) for Fresh Examination u/s 37(1) & 28
Bangalore ITAT has set aside the order of NFAC-CIT(A) deleting disallowance of ₹4.19 crore claimed by Hubli Scan Centre Pvt. Ltd. as business loss/expenditure u/s 37(1) on account of deposit & loan written off given to its associate concern, Suchirayu Health Care Solutions Ltd.
The Assessee, engaged in diagnostic services, had advanced about ₹5 crore as security deposit under agreements (2013, revised 2015) for proposed installation of an MRI machine with revenue-sharing. On Suchirayu being classified as NPA, a settlement agreement dated 30-06-2017 was entered into for ₹80 lakh, and the balance ₹4.19 crore was written off and claimed as business loss.
The AO disallowed the claim holding that:
- the advance was not in the ordinary course of business,
- it was in the nature of capital/loan to an associate concern,
- no evidence of MRI purchase, revenue sharing or business income was produced,
- settlement terms lacked commercial rationale, and
- reliance was placed on PCIT vs. Khyati Realtors Pvt. Ltd. (447 ITR 167, SC).
Though CIT(A) deleted the addition relying on commercial expediency and settled case law, the ITAT held that the CIT(A) failed to examine the substance of transaction, applicability of section 37(1) vs. section 28, capital vs. revenue nature, timing of loss, and the binding relevance of the Supreme Court ruling in Khyati Realtors.
Accordingly, the ITAT restored the entire issue to the file of CIT(A) for de-novo adjudication after examining agreements, business nexus, nature of advance, and judicial precedents. The Revenue’s appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
