In a major setback to the Aditya Birla Power Company Limited, the Mumbai bench of Income Tax Appellate Tribunal (ITAT ) held that investment in the project which fails to take off cannot be written off as bad debt and therefore, no deduction can be granted.
In instant case, Assessee earlier known as Birla Project Development Co. Ltd. assessed its income as nil income after set-off of brought forward losses around 10 crores. During the assessment proceedings assessee debited an amount on account of advances written off and 36 lakhs as investment written off in P&L account.
During the proceedings, Assessee defended the same and submitted that they acquired the right, title, interest and obligation of a power project. Assessee decided to write off the project expenditure since no progress could take place in that.
However, the Assessing officer opinioned that the claim of Assessee to write off of advances is not maintainable in law since the share of expenses was incurred on power project and was not in the business of advancing loan. Finally, AO disallowed the amount and added to the income of Assessee.
Thereafter Assessee contested the same without any success before CIT (A) and the matter was concluded as the claim off appellant to write off the advance is not possible since the project was a joint venture and appellant paid one of the share of his part and the same was terminated in the middle.
On second appeal before the Tribunal, the assessee placed reliance on many judicial pronouncements. The bench including Judicial Member C.N Prasad and Accountant Member Manoj Kumar Aggarwal heard the rival submission and observed that the matter as Assessee undertook a project and met all the expenses which might reimbursed on the ending of project financial year, unfortunately the same was terminated. The Assessee and the management decided to write off stated expenditure from the books of account.
The bench held that according to Section 36(i)(vii) read with Section 36(2) since the amount written-off is in not in the nature of bad debts for the assessee, the income of which has been taken into account by Assessee. Accordingly, bench restored the decision of CIT (A) and held that write off of such losses as bad debt in case of terminated project is not maintainable in law.
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