Judgment:
1. This is an appeal by the asscssec against order dated 20-1-1989 passed by the CIT Jalandhar under section 263 of the Income-tax Act, 1961.
2. Briefly the facts arc that the assessce has claimed a sum of Rs. 90,000 as irrecoverable amount written off from its business income in the statement of accounts furnished for the assessment year 1985-86 and this claim was allowed by the Assessing Officer vide order dated 13-11-1986 passed under section 143(3). The Commissioner examined the record and found that the asscssee-company is 100% subsidiary of M/s.
Jagatjit Industries and it owned half-share in property No. S-264, Greater Kailash, New Delhi along wilh Mrs. Usha Chadha W/o Sh. Raj Pal Chadha. Incidentally it may be pointed out that Mrs. Usha Chadha had been the director of M/s. L.P. Investments Ltd. and M/s Jagatjit Industries Ltd. from where she resigned w.e.C. 29-11-1980 and 1-9-1976 respectively. On 20/22-9-1982 the assessee-company sold its 50% share to Mrs. Usha Chadha in property No. S-264, Greater Kailash New Delhi for a consideration of Rs. 4,25,000. In terms of the sale deed it was stipulated that Mrs. Usha Chadha would pay Rs. 2,25,000 at the time of registration of the properly and the balance of Rs. 2,00,000 in 10 annual instalments. At the time of registration of the property in favour of Mrs. Usha Chadha the Sub-Registrar objected to the condition of payment of balance price in instalments and accordingly a cheque of Rs. 2,00,000 was tendered by Mrs. Usha Chadha - the purchaser - by way of payment of balance amount to meet the objections of the Sub-Registrar. The Company, however, did not realise the cheque in view of Board's Resolution dated 20-9-1982, in which the assessee-company decided to realise the amount in 10 annual instalments. Mrs. Usha Chadha expired in July, 1983 and her legal heirs paid a sum of Rs. 1,10,000 only in satisfaction of the amount of Rs. 2,00,000 due. The balance amount of Rs. 90,000 was written off as being irrecoverable.
3. From the above facts, the Commissioner came to the conclusion that the amount of Rs. 90,000 outstanding from Mrs. Usha Chadha, which was written off was not in the ordinary course of business and was not allowable as a deduction, which has been so allowed by the Assessing Officer. He accordingly held that the order passed by the Assessing Officer on 17-11-1986 was erroneous inas much it was prejudicial to the interest of the revenue. He accordingly, after allowing due opportunity to the assessce under section 263 and holding that the amount of Rs. 90,000 was not an allowable deduction for the reasons given in the impugned order, directed the Assessing Officer to recompute the income for the assessment year 1985-86 by making addition of Rs. 90,000.
4. The assesscc is in appeal before us and Sh. G.R. Sethi, Advocate, learned representative of the assessee, submitted that the Commissioner was wrong in directing the Assessing Officer to disallow the claim of Rs. 90,000 which was a normal business loss incurred by the assessee in its day to day business affairs. It was submitted that the transaction of sale of 50% share of property No. S-264, Greater Kailash, New Delhi, took place on 20/22-9-1982 in the assessment year 1983-84 and it was accepted as a normal business transaction by the then Assessing Officer. As per Board's resolution the consideration of Rs. 4,25,000 was stipulated to be paid as under:-- It was submitted that after the death of Mrs. Usha Chadha in July, 1983 the assessec-company thought it proper to realise Rs. 1,10,000 immediately instead of Rs. 2,00,000 which was to be paid in 10 annual instalments and the difference of Rs. 90,000 was rightly claimed and allowed as a business loss in the assessment year under consideration and the CIT was wrong in holding the order passed by the Assessing Officer as erroneous and prejudicial to the interest of Revenue. It was submitted that one of the objects incidental or ancillary to the statement of main objects mentioned in the Memorandum of Association of the company is disposing of and dealing in immovable and movable properties and this amount of Rs. 90,000 written off by the assessee was a trading loss and was rightly allowed as a deduction by the Assessing Officer under section 28 of the Income-tax Act, 1961.
5. Sh. S.S. Kanwal, Ld. DR, supported the order of CIT and further submitted that the property S-264, Greater Kailash, New Delhi was jointly purchased by the assessce-company and Mrs. Usha Chadha on 12-1-1981 and each of them was having 50% share. The above property has been shown under the head fixed assets in the Balance Sheet of the assessec-company for the assessment year 1982-83 and depreciation has been claimed in the books of account. Thus it was pleaded by Sh.
Kanwal, Ld. DR that the property has not been shown as a trading item from which it can be inferred that its sale had taken place in normal course of business of the assessee. It was submitted that the assessee has been showing income from this property under the head 'House Property Income' and as such the alleged loss of Rs. 90,000 cannot be considered as a business loss and the CIT was perfectly justified in directing the Assessing Officer not to allow this claim of Rs. 90,000 to the assessee in the computation of income for the assessment year 1985-86.
6. We have considered the rival submissions. The undisputed facts are that the assessee-company along with Smt. Usha Chadha, who had earlier been a Director of the assessec-company as well as M/s. JagatjH Industries Ltd. purchased 50% share of the property No. S-264, Create]- Kailash, New Delhi on 12-1-1981 for a consideration of Rs. 4,29,125.
The assessee-company also incurred expenditure of Rs. 34,000 by way of execution of sale deed etc, and the net cost to the assessee was Rs. 4,63,125. Share of the asscssec-company in this property is claimed to have been sold to Mrs. Usha Chadha on 20/22-9-1982 for a consideration of Rs. 4,25,000 out of which Rs. 2,25,000 was stipulated to be paid in cash and the remaining Rs. 2 lacs was stipulated to be paid in 10 annual instalments. The above facts clearly indicate that the transaction was for extra commercial consideration as there could not possibly be a fall in the price of immovable property in Greater Kailash-II, New Delhi in one year. Any how whether the transaction was a bona fide business transaction or not is besides the puint but it is important to note that the registralion of immovable property cannot be effected unless the full amount of consideration is paid. In this case the full payment of consideration was made on 22-9-1982 before the Registrar in the form of Rs. 2,25,000 by cash and a cheque of Rs. 2 lacs. It is immaterial that the company did not realise the cheque of Rs. 2 lacs following Board of Director's resolution which seems to have been passed for extra commercial consideration. The sale deed was executed only when full consideration was paid ie., Rs. 2,25,000 by cash and Rs. 2 lacs by cheque. Thus in terms of the Sale Deed nothing was payable to the assessee-company by Mrs. Usha Chadha on account of sale of immovable property after 22-9-1982 in respect of this transaction of sale of immovable property and as such subsequent action of the assessee-company in accepting Rs. 1.10,000 in satisfaction of the debt of Rs. 2 lacs due from Mrs. Usha Chadha cannot be considered as a normal business transaction. In this view of the matter, we are of the opinion that the learned Commissioner of Income-tax was perfectly justified in directing the Assessing Officer not to allow the claim of the assessee with regard to the amount of Rs. 90,000 either as a bad debt or as a business loss.
Accordingly the action of the Commissioner of Income-tax in this regard is upheld and the appeal filed by the assessee is dismissed.
7. In the result, the appeal filed by the assessee is dismissed. I.T.A.No. 460 (ASR)/1989-Asstt. Year 1985-86 8. Per S. Grover, Judicial Member-I have gone through the proposed order of my learned brother Shri R.K. Bali but find myself unable to agree that the addition of Rs. 90,000 made by the learned Commissioner of Income-tax, Jalandhar, hereinafter referred as the CIT, should be retained and the appeal dismissed.
9. Considering the peculiar nature of the case, I would like to state the facts.
10. This second appeal relates to the assessment year 1985-86 and contests the order dated 20-1-1989 for which the hearing was closed on 3-11 -1988, passed by the CIT by invoking his powers under section 263 of the Income-tax Act, 1961, hereinafter referred as the Act, in which addition of Rs. 90,000 came to be made over and above the assessment framed by the Assessing Officer.
11. The appellant is an Investment Company and one of the objects in B-Part of the Object clause of the Memorandum of Association is to deal with movable and immovable property.
12. The Transaction, in question, took place, in accounting year, relevant to the assessment year 1983-84, when the assessee on 20/22-9-1982 sold its 50% share in property No. S-264, Greater Kailash, New Delhi to Smt. Usha Chadha for Rs. 4,25,000 which had been purchased by the assessee on 12-1-1981. The Sale Deed expenses were borne by the 'respective vendors' both at the time when the assessee purchased 50% share in the aforesaid property and at the time when it sold its 50% share (supra). As per Board's resolution dated 10-9-1982 read with Board's resolution dated 20-9-1982 the consideration of Rs. 4,25,000, was to be paid as under :-- 13. The aforesaid Sale of property in the accounting year, relevant to the assessment year 1983-84 resulted in loss of Rs. 38,125 which was mainly on account of the fact that cost of Sale Deed expenses were borne by the assessee and not on account of fall in prices of immovable property in that area. The assessee claimed the loss as business loss in its return of income, which was accepted vide assessment framed under section 143(3), order dated 24-10-1985, pertaining to the assessment year 1983-84.
14. The aforesaid order of 1983-84 has neither been modified nor even sought to be modified by the Income-tax Department in any manner whatsoever till date and the same has thus become final.
15. After having accepted the transaction as business transaction in assessment year 1983-84 the off-shoot of the said transaction in accounting year relevant to the assessment year 1985-86, which resulted in loss of Rs. 90,000 on account of short recovery when the Company accepted vide Board's resolution dated 10-5-1984 lump -sum payment of Rs. 1,10,000 from the legal heir of Smt. Usha Chadha who died in July, 1983 in lieu of Rs. 2,00,000 payable over 10 years in the equal annual instalment of Rs. 20,000 each cannot be viewed in different perspective and the same has (o be accepted as business transaction and resultant short recovery of Rs. 90,000 is, therefore, allowable as (rading/business loss, which was done by the Assessing Officer in the year under appeal.
16. It also cannot be said that no thing was due from Smt. Usha Chadha in view of aforesaid Sale Deed as a sum of Rs. 2.00,000 was shown as recoverable from Smt. Usha Chadha in the books of account for the 'accounting years' ending 31-12-1982 and 31-12-1983 and the same was accepted by the Department. Only thing that has happened during the year under appeal is that the Company accepted lump sum payment of Rs. 1,10,000 in lieu of Rs. 2,00,000 receivable over 10 years in 10 equal r nnual instalments and the said Act represented a sound business decision as net present value of aforesaid amount of Rs. 2,00,000 receivable over the period of 10 years by assuming rate of interest to be 15% would have been Rs. 1,00,380 as is evident from the Chart filed at page 16 of the Paper Book against which the appellant has accepted Rs. 1,10,000.
17. Thus no benefit has been passed out by the Company during the year under appeal. On the other hand, it has realised its future payment, which came under clouds of uncertainty on account of death of Smt. Usha Chadha. Therefore, it cannot be said that the subsequent act of the Company in accepting Rs. 1,10,000 in lieu of Rs. 2,00,000 receivable over a period of 10 years was not a normal business transaction.
18. Main stress laid down by the C1T in his order passed under section 263 of the Act was on the fact lhat Smt. Usha Chadha was a Director of the holding Company which also is uncalled for as she had resigned from the Directorship of M/s. Jagaljit Industries Ltd. which is the holding Company w.e.f. 1-9-1976 and also she was not the Director of M/s. L.P.Investment Ltd., either on the dale of purchase of the aforesaid property nor on the date of sale of aforesaid properly.
19. In view of the above, the learned Commissioner's order deserves to be annulled, which we do.
As there is difference of opinion between us on the following point, we refer the same to the Hon'ble President of the Income-tax Appellate Tribunal for further action as provided under section 255(4) of the Income-tax Act, 1961 :-- "Whether the proposed order of the learned Accountant Member dismissing the assessee's appeal against the order dated 20-1-1989 passed by the Commissioner of Income-tax, Jalandhar under section 263 of , the Income-tax Act, 1961 can be said to be correct or the proposed order of the Judicial Member that the appeal is to be allowed and the CIT's order should be cancelled in which addition of Rs. 90,000 came to be made over and above the assessment can be said to be justified ?" 1. The following point of difference of opinion was referred to me for decision : "Whether, the proposed order of the learned Accountant Member dismissing the assessee's appeal against the order dated 20-1-1989 passed by the CIT, Jalandhar under section 263 of the In come-tax Act, 1961 can be said to be correct or the proposed order of [he Judicial Member that the appeal is to be allowed and the CIT's order should be cancelled in which addition of Rs. 90,000 came to be made over and above the assessment can be said to be justified ?" The facts are that the assessee claimed a sum of Rs. 90,000 as irrecoverable amount written off from its business income in the statement of accounts furnished for the assessment year 1985-86 and this claim was allowed by the Assessing Officer vide order dated 13-11-1986 passed under section 143(3). The Commissioner examined the record and found that the assessee company is 100% subsidiary of M/s.
Jagatjit Industries and it owned half-share in properly No. S-264, Greater Kailash, New Delhi along with Mrs. Usha Chadha w/oShri Raj Pal Chadha. Incidentally it may be pointed out that Mrs. Usha Chadha had been the director of M/s. L.P. Investments Ltd. and M/s. Jagatjit Industries Lid. from where she resigned w.e.f. 29-11-1980and 1-9-1976 respectively. On 20/22-9-1982, the assessee-company sold its 50% share to Mrs. Usha Chadha in property No. S.264, Greater Kailash, New Delhi for a consideration of Rs. 4,25,000. In terms of the sale deed it was stipulated that Mrs. Usha Chadha would pay Rs. 2,25,000 at the time of registration of Ihe property and the balance of Rs. 2,00,000 in 10 annual instalments. At the lime of registration of the property in favour of Mrs. Usha Chadha, the Sub-Registrar objected to the condition of payment of balance price in instalments and accordingly a cheque of Rs. 2,00,000 was tendered by Mrs. Usha Chadha the purchaser by way of payment of balance amount to meet the objections of the Sub-Registrar.
The company, however, did not realise the cheque in view of Board's Resolution dated 20-9-1982 in which the assessee-company decided to realise the amount in 10 annual instalments. Mrs. Usha Chadha expired in July, 1983 and her legal heirs paid a sum of Rs. 1,10,000 only in satisfaction of the amount of Rs. 2,00,000 due. The balance amount of Rs. 90,000 was written off as being irrecoverable.
2. The Commissioner examined the details and came to the conclusion that the amount of Rs. 90,000 outstanding from Mrs. Usha Chadha which was written off was not in the ordinary course of business and was not allowable as deduction. He accordingly held that the order passed by the Assessing Officer was erroneous inasmuch as it was prejudicial to the interest of the revenue. Resorting to the provisions of section 263 ol the Act, he held that the amount of Rs. 90,000 was not an allowable deduction and directed the Assessing Officer to recompute the income for the assessment year 1985-86 by making addition of Rs. 90,000.
3. Aggrieved by the said order, the assessee took up the matter in appeal before the Tribunal. According to the learned Accountant Member, the assessee along with Smt. Usha Chadha who had earlier been a Director of assessee-company as well as M/s. Jagatjit Industries Ltd. purchased 50% of the property No. S-264, Greater Kailash, New Delhi on 12-1-1981 for a consideration of Rs. 4,29,125. The assessee-company also incurred expenditure of Rs. 34,000 by way of execution of Sale Deed etc. and the net cost to the assessee was Rs. 4,63,125. Share of the assessee-company in this property was claimed to have been sold to Mrs. Usha Chadha on 20/ 22-9-1982 for a consideration of Rs. 4,25,000 out of which Rs. 2,25,000 was stipulated to be paid in cash and the remaining Rs. 2 lacs were stipulated to be paid in 10 annual instalments. The learned Accountant Member held that the transaction was for extra commercial consideration. It was also found by him that the registration of the immovable property could not be effected unless the full amount of consideration was paid and in this case the full payment was made on 22-9-1982 before the Registrar in the form of Rs. 2,25,000 by cash and a cheque of Rs. 2 lacs. That the company did not realise the cheque of Rs. 2 lacs was irrelevant. The sale deed was executed only when full consideration was paid. That means Rs. 2,25,000 by cash and Rs. 2 lacs by cheque. Thus in terms of the .sale deed nothing was payable to the assessee-company by Mrs. Usha Chadhaon account of sale of immovable property after 22-9-1982 in respect of this transaction of sale ot immovable properly. Therefore, the subsequent action of the assessee-company in accepting Rs. 1,10,000 in satisfaction to the debt of Rs. 2 lacs due from Mrs. Usha Chadha cannot be considered as normal business transaction. He, therefore, held that the Commissioner was fully justified in directing the Assessing Officer not to allow the claim of the deduction of Rs. 90,000 either as a bad debt or as a business loss.
4. On the other hand the learned Judicial Member held that the transaction as business Iransaction was accepted in the assessment year 198.3-84. Therefore, any off-shoot of the said transaction in the accounting year relevant to the assessment year 1985-86 which resulted in a loss of Rs. 90,000 on account of short recovery when the company accepted, vide Board's resolution dated 10-5-1984 a lump sum payment of Rs. 1,10,000 from the legal heir of Smt. Usha Chadha who died in July, 1983 in lieu of Rs. 2 lacs payable in 10 years in the equal annual instalment of Rs. 20,000 each cannot be viewed in different perspective and the same has to be accepted. Therefore, the short recovery of Rs. 90,000 is allowable as trading/business loss which was done by the Assessing Officer. The learned Judicial Member also found that the amount of Rs. 2 lacs shown as recoverable from Smt. Usha Chadha in the books of account tor the accounting years ending 31-12-1982 and 31-12-1983 was accepted by the revenue. The assessee-company however, accepted a lump sum payment of Rs. 1,10,000 in lieu of Rs. 2 lacs during the year. The assessee-company, therefore, did not give any benefit but only realised the future payment which came under clouds of uncertainly on account of death of Smt. Usha Chadha. It was also found by him that Smt. Usha Chadha was a Director of the holding company which, however, was not correct as she had resigned from the Directorship of M/s. Jagatjit Industries Ltd., w.e.f. 1-9-1976. It is, therefore, held by him that the order of the Assessing Officer was neither erroneous nor prejudicial to the interest of the revenue and, therefore, the Commissioner was not justified in invoking the provisions of section 263 of the Act and further held that the order is liable to be annulled.
5. His on this difference of opinion that the question has been referred to me. At the hearing before me Shri Navneet Sethi, learned counsel appeared for the assesses and vehemently supported the order of the learned Judicial Member. According to him the assessee was to realise Rs. 2 lacs from Smt. Usha Chadha. However, due to her death, there was uncertainty of the future payment. Secondly, by commuting the future payment during the accounting period, relevant to the present assessment year, the assessee did not give any benefit to the other party rather it was beneficial for the assessee as the value of rupee after 10 years would be much less than the current value. Since the loss occurred due to the transaction which was accepted by the revenue in the earlier assessment years, the loss arising therefrom cannot be denied and, therefore, the learned Judicial Member is fully justified in cancelling the order of the learned Commissioner.
6. On the other hand, Shri S.K. Rastogi the learned Sr. D.R. supported the order of the learned Accountant Member. According to him the transaction itself is in the nature of extra commercial consideration as the price fixed itself was not the market value. The nature of the payment also was not according to the normal commercial transactions.
To enable the registration of the property, an amount of Rs. 2,25,000 was paid in cash and a sum of Rs. 2 lacs was paid by means of cheque.
The assessee, however, did not realise the cheque and decided, as per Resolution to pay this amount of Rs. 2 lacs in 10 equal annual instalments of Rs. 20,000 each. The assessee, thereupon commuted the entire amount by accepting Rs. 1,10,000 and claimed the balance uf Rs. 90,000 as bad debt or as business loss. In such a case, the learned Accountant Member has rightly recorded a finding that the claim was not a genuine claim and cannot be considered as normal business transaction. There is, therefore no informity in the order of the learned Accountant Member and the same is liable to be upheld.7. On careful consideration of the rival submissions in the light of the material on record, I am of the view that the view taken by the learned Accountant Member is fully supported by the facts of the case and the findings arc in order. The facts are not disputed. Coming now to the terms of the payment for the immovable property, the assessee was to receive Rs. 4,25,000 from Smt. Usha Chadha for the sale of 50% share of the property to her. To enable the registration of the sale deed, a sum of Rs. 2,25,000 was paid by cash and Rs. 2 lacs by cheque.
After the registration of the sale deed, the Board of Directors further resolved to realise Rs. 2 lacs in 10 equal annual instalments of Rs. 20,000 each. Even this resolution was not complied with and the assessee commuted the said amount of Rs. 2 lacs by accepting Rs. 1,10,000 during the previous year relevant to the present assessment year. The learned Accountant Member considered that the entire transaction was not normal business transaction but an extra commercial transaction. It the assessee has received Rs. 2 lacs by way of cheque, on 22-9-1982 at the time of registration, it is not clear how the same was not realised. Even assuming that the Board of Directors has the right either to realise now or later on, even then the resolution stipulated that the amount would be realised in 10 annual instalments.
In the meanwhile the asscssee commuted and accepted a sum of Rs. 1,10,000 during the previous year relevant to the assessment year. In such a case also, the loss cannot be said to arise during the year.
Even if it is to be treated as normal business loss, it can only be considered at the end of the 10 year period when the final instalment is due. Even if it is admitted that the transaction is a normal business transaction, then the loss can only be considered on the basis of the terms of payment as per the Resolution of the Board and that will arise only at the end of the 10 years period. There is, therefore, no reason to allow the claim during the present assessment year. The learned Commissioner was fully justified in directing the Assessing Officer to disallow the claim of Rs. 90,000 by his order under section 263 of the Act. On these facts, I fully agree with the learned Accountant Member.
8. The matter will go back to the regular Bench for passing consequential order.