I-T - If a project fails to take off due to some reasons, investments made cannot be written off as bad debts: ITAT
By TIOL News Service
MUMBAI, OCT 03, 2018: THE Issue is - Whether If a project fails to take off due to some reasons, investments made can be written off as bad debts. NO is the answer.
Facts of the case
The assessee company, engaged in the business of project development activities, had filed return for relevant AY. During assessment proceedings, it was noted by AO that the assessee had debited an amount of Rs. 324.63 Lacs on account of advances written-off and Rs. 0.36 Lacs as investments written-off in the P&L Account. The assessee defended the same and submitted that it was pursuing LNG power project in consortium with certain other entities as selected by Tamil Nadu Industrial Development Corporation Ltd [TIDCO]. The joint venture was being carried in the name of TN LNG Power Company Private Limited [TNLNG] in consortium with other parties. The assessee acquired the right, title, interest and obligations in the project from one of the consortium partner namely Grasim industries Ltd. vide Memorandum of Understanding [MOU] dated 10/04/2002. Since no progress could take place in the project, it was decided to abandon the project during the impugned AY. Therefore, the assessee decided to write off the project expenditure during impugned AY, which was hitherto been reflected as amount recoverable in the books of accounts. However, not convinced, AO opined that the assessee incurred its share of expenses towards LNG power project and the assessee was not in the business of advancing loan. Therefore the claim of the assessee u/s 36(i)(vii) read with Section 36(2) was not maintainable. The AO further opined that the claim was not allowable even u/s 28 or u/s 37(1), since the expenditure was nothing but assessee's share of expenses in the joint venture, the income where-from would not form part of taxable income. Finally, the amount was disallowed and added to the income of the assessee. On appeal, CIT(A) upheld the order of AO.
Tribunal held that,
++ regarding assessee's claim u/s 37(1) / 28, the assessee has placed reliance on certain judicial pronouncements to submit that the same was allowable as Business Loss. The assessee was engaged in developing various projects and the project activities was the business of the assessee. Therefore, any loss incurred by the assessee on this count, being Business Loss for the assessee and part and parcel of the business activities being carried out by the assessee, was allowable to him in terms of Section 37(1) read with Section 28(1) provided the same was ascertained liability. This view was duly fortified by the judgment of Karnataka High Court rendered in Asia Power Projects Private Ltd. Vs DCIT. It was found that the facts of the case law quite identical to the facts of the present case. Therefore, in principle, it was decided to agree with the submissions of AR that the expenditure, being business loss for the assessee, was allowable to him once it was established that the project could not takeoff and the management considered it prudent to wrote-off the same in the books of accounts;
++ while going through paper book, it was found that the assessee has placed two identical Board Resolutions stated to be passed in two different Board Meetings i.e. 19/02/2007 & 02/07/2007 wherein the Board of Directors of the assessee company has decided to write-off the stated advances in the books of account. The dates of the two Board meetings fall in two different years and it becomes important to ascertain the true factual matrix since the claim of the assessee could be admissible only in the year in which the management finally took a decision to write-off the same in the books of accounts. As a logical consequence, it also become imperative to find out that the claim has not been claimed /allowed to the assessee in any of the other years. Secondly,. CIT(A) has noted that complete details of expenditure could not be filed by the assessee. Keeping in view all these factors, while agreeing with the claim of the assessee in principle, the matter stand remitted back to the file of AO for verification of facts. The appeal stand allowed for statistical purposes.
(See 2018-TIOL-1680-ITAT-MUM)
