M/s All Grow Finance & Investment Ltd., New Delhi V. ITO, New Delhi

CO 44/DEL/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6730 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 22 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-12-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 20-10-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 24-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANUSHA KHURANA
• Keywords: Business income; Diversion of income; Additional evidence; Bad and doubtful debts; Notional interest

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH A DELHI ] BEFORE SHRI U. B. S. BEDI, JM AND SHRI K. D. RANJAN, AM I. T. APPEAL NO. 4684 (DEL) OF 2010. ASSESSMENT YEAR : 19992000. THE INCOME-TAX OFFICER, M/S. ALL GROW FI NANCE & INVESTMENT LTD., W A R D : 1 (3), VS. A2 02, OKHLA INDUSTRIAL AREA, PHASE : II, N E W D E L H I. N E W D E L H I. P A N / G I R NO. AAA CA 4941 P. A N D C. O. NO. 44 (DEL) OF 2011. [ IN I. T. APPEAL NO. 4684 (DEL) OF 2010 ]. ASSESSMENT YEAR : 19992000. M/S. ALL GROW FINANCE & INVESTMENT LTD., THE INCOME-TAX OFFICER, A202, OKHLA INDUSTRIAL AREA, PHASE : II, VS. W A R D : 1 (3), N E W D E L H I. N E W D E L H I. P A N / G I R NO. AAA CA 4941 P. ( APPELLANTS ) ( RESPONDENTS ) ASSESSEE BY : SHRI TARUN ROHTAGI, C. A.; DEPARTMENT BY : MS. ANUSHA KHURANA, SR. D. R.; O R D E R. PER K. D. RANJAN, AM : THE APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE FOR ASSESSMENT YEAR 1999-2000 ARISE OUT OF THE ORDER OF THE LD. CIT (AP PEALS), FARIDABAD. THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF, FOR THE SAKE OF CONVENIENCE, BY THIS CONSOLIDATED ORDER. 2 I. T. APPEAL NO. 4684 (DEL) OF 2010 A N D C. O. NO. 44 (DEL) OF 2011 . 2. THE GROUNDS OF APPEAL RAISED BY THE REVENUE READ AS FOLLOWS :- 1. THE LD. CIT (APPEALS) HAS ERRED IN LAW A ND ON FACTS IN DELETING ADDITION OF RS.8,75,000/- ON ACCOUNT OF NOTIONAL INTEREST IG NORING THAT : A) IN A.Y. 1998-99 THE ASSESSEE HAD EARNED INTEREST ON THE SAME ADVANCE TO M/S. ESCORTS LTD. AND THIS YEAR ALSO THE ASSESSE E DEMANDED INTEREST FROM M/S. ESCORTS LTD., HENCE, INTEREST WAS ACCRUED BUT THE SAME WAS NOT ACCOUNTED FOR; B) WHILE ACCOUNTING FOR THE INTEREST ACCRUED, THE ASSE SSEE COULD HAVE OPTED FOR WRITE OFF OF THE SAME IF IT WAS IRRECOVERABLE F ROM M/S. ESCORTS LTD. HOWEVER, THE SAME WAS NOT DONE BY THE ASSESSEE; 2. THE LD. CIT (APPEALS) HAS ERRED IN LAW AND ON F ACTS IN DIRECTING THAT INTEREST UNDER SECTION 234-A IS NOT CHARGEABLE FOR DELAYED F ILING OF RETURN IGNORING THAT : A) ISSUE OF CHARGING OF INTEREST UNDER SECTION 234 -A IS SETTLED IN THE CASE OF CIT VS. ANJUM M. H. GHASAWALA & OTHERS 252 ITR 1 (S C); B) THE RATIOS OF DECISION IN CIT VS. PRONOY ROY (2 009) 222 CTR (SC) 6 ARE DISTINGUISHABLE FROM THE PRESENT CASE AS HERE THE R ETURNED INCOME WAS NOT ACCEPTED AND THE TAX DUE WAS DETERMINED TO BE PAYAB LE BY THE ASSESSEE. 3. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN THE CROSS OBJECTION READ AS FOLLOWS:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANC ES OF THE CASE, THE LD. CIT (APPEALS) WAS NOT JUSTIFIED IN UPHOLDING THE DISALL OWANCE OF PROFESSIONAL FEES OF RS.10 LAKHS PAID TO BHAV PORTFOLIO PRIVATE LIMIT ED; 1.1 THAT THE LD. CIT (APPEALS) OUGHT TO HAVE ADMITTED ADDITIONAL EVIDENCE IN RESPECT OF PROFESSIONAL FEES PAID TO BHAV PORTFO LIO PRIVATE LIMITED. 4. THE FIRST ISSUE FOR CONSIDERATION IN REVENUES A PPEAL RELATES TO DELETING THE ADDITION OF RS.8,75,000/- MADE ON ACCOUNT OF INTEREST EARNED ON ADVANCE MADE TO ESCORTS LTD. THE FACTS OF THE CASE STATED IN BRIEF ARE THAT THE ASSESSEE, A N ON-BANKING FINANCE COMPANY, MADE INTER- CORPORATE DEPOSIT OF RS.1.4 CRORES IN YEAR 1997. T HE AMOUNT HAS BEEN RECEIVED BACK IN AUGUST, 1998. HOWEVER, NO INTEREST WAS SHOWN FOR THE PERIO D FROM 1.4.1998 TO AUGUST, 1998 THOUGH IN THE IMMEDIATE PROCEEDING YEAR, THE ASSESSEE HAD ADM ITTED INTEREST INCOME ON THE LOAN ADVANCED 3 I. T. APPEAL NO. 4684 (DEL) OF 2010 A N D C. O. NO. 44 (DEL) OF 2011 . TO THE ESCORT LTD. THE ASSESSEE WAS FOLLOWING MERC ANTILE SYSTEM OF ACCOUNTING. THE AUDITORS OF THE ASSESSEE COMPANY HAVE OBSERVED THAT THE PAYMENT OF PRINCIPAL AMOUNT AND INTEREST HAD NOT BEEN IN ACCORDANCE WITH THE STIPULATED TERMS IN SOM E CASES. SINCE THE ASSESSEE HAD NOT ADMITTED INTEREST INCOME LOAN SO ADVANCED IN EARLIER YEAR, T HE ASSESSING OFFICER ESTIMATED INTEREST AT THE RATE OF 15 PER CENT ON THE LOAN OF RS.1.4 CRORES FO R FIVE MONTHS AT RS.8,75,000/- WHICH HAS BEEN ADDED BY THE ASSESSING OFFICER. 5. ON APPEAL IT WAS SUBMITTED BY THE ASSESSEE THAT AMOUNT OF RS.1.4 CRORES WAS INITIALLY ADVANCED IN THE YEAR 1997 WHICH HAD BEEN ROLLED OVE R AGAIN ON 1/04/1998. WHEN THE PRINCIPAL AMOUNT WAS RETURNED IN AUGUST, 1998 NO INTEREST WAS PAID IN SPITE OF THE FACT THAT THE ASSESSEE HAD TAKEN UP THE MATTER WITH M/S. ESCORTS LTD. M/S . ESCORTS LTD., IN TURN, HAD TAKEN THE POSITION THAT NO INTEREST WAS BEING PAID ON ACCOUNT OF THE F ACT THAT LOAN HAD BEEN DEMANDED TO BE RETURNED BEFORE THE EXPIRY OF ONE YEAR. TO PROVE THIS POSIT ION, THE ASSESSEE FILED A LETTER FROM ESCORTS LTD. DATED 25 TH AUGUST, 1998 WHICH WAS ADMITTED BY LD. CIT(A) U/R RULE 46A(1) ON THE GROUND THAT THE ADDITIONAL EVIDENCE FILED BEFORE WAS NOT IN POSSESS ION OF ASSESSEE. THE LD. CIT (APPEALS) ON CONSIDERATION OF THESE FACTS OBSERVED THAT THERE WA S NO EVIDENCE ON RECORD WHICH WOULD SUGGEST THAT INCOME HAD ACCRUED OR ARISEN TO THE ASSESSEE. HE PLACED RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CIT VS. SHOORJI BALLAB HDASS & CO. 46 ITR 144 (SC) WHEREIN HONBLE APEX COURT HAS DEALT WITH THE CONCEPT OF RE AL INCOME AND HAS HELD THAT INCOME TAX IS A LEVY ON INCOME. IF INCOME DOES NOT RESULT AT ALL, THERE CANNOT BE A TAX EVEN THOUGH IN BOOK KEEPING AN ENTRIES IS MADE ABOUT A HYPOTHETICAL INC OME WHICH DOES NOT MATERIALIZE. THE LD. CIT (APPEALS) BASED ON THE LETTER WRITTEN BY ESCORTS LT D. DATED 25 TH AUGUST, 1998 OBSERVED THAT M/S. ESCORTS LTD. HAD REFUSED TO MAKE PAYMENT OF INTERES T. HE FURTHER OBSERVED THAT IF AT ALL ANY INTEREST WAS TO BE GIVEN OR HAD BEEN GIVEN, IT WAS THE AO, WHO HAD TO FIND EVIDENCE WITH REGARD TO THE SAME. HE HAS NOT DONE SO. THERE WAS NO OTH ER EVIDENCE THAT INCOME OR INTEREST HAD ARISEN OR ACCRUED TO THE ASSESSEE CONSIDERING THE FACT THA T IT WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. THERE WAS NO PROVISION UNDER THE INCOM E TAX ACT, WHICH WOULD MAKE SUCH AN INCOME TAXABLE. HE ALSO PLACED RELIANCE ON THE DEC ISION OF HONBLE SUPREME COURT IN THE CASE OF 4 I. T. APPEAL NO. 4684 (DEL) OF 2010 A N D C. O. NO. 44 (DEL) OF 2011 . RAMNEEKLAL KOTHARI 74 ITR 57 (SC). THE LD. CIT (A) ACCORDINGLY DELETED THE INTEREST ASSESSED BY THE ASSESSING OFFICER. 6. BEFORE US THE LD. SR. DR SUBMITTED THAT THE ASSE SSEE HAD MADE INTER-CORPORATE DEPOSIT WITH ESCORTS LTD. THE ASSESSEE HAD RECEIVED BACK T HE AMOUNT IN AUGUST, 1998. THE AUDITORS IN THEIR AUDIT REPORT HAVE STATED THAT REPAYMENT OF PR INCIPAL AMOUNT AND INTEREST HAS NOT BEEN IN ACCORDANCE WITH THE STIPULATED TERMS IN SOME CASES. THE INCOME HAS ACCRUED TO THE ASSESSEE AND, THEREFORE, THE AO HAS RIGHTLY ADDED THE AMOUNT OF R S.8,75,000/-. SHE FURTHER SUBMITTED THAT THE LD. CIT (APPEALS) HAD DELETED THE INTEREST WITHOUT APPRECIATING THE FACT THAT INTEREST HAS ACCRUED ON INTER-CORPORATE DEPOSIT AS THE ASSESSEE WAS FOLL OWING MERCANTILE SYSTEM OF ACCOUNTING. SHE, THEREFORE, SUBMITTED THAT THE ORDER PASSED BY THE L D. CIT (APPEALS) IS NOT IN ACCORDANCE WITH THE PROVISIONS OF LAW. ON THE OTHER HAND, THE LD. COUN SEL FOR THE ASSESSEE SUBMITTED THAT FOR ASSESSMENT YEAR 1998-99 THE ASSESSEE HAD RECEIVED I NTEREST ON INTER-CORPORATE DEPOSIT AT THE RATE OF 15 PER CENT. HOWEVER, IN THE YEAR UNDER CONSIDE RATION M/S. ESCORTS LTD. HAD SHOWN INABILITY TO PAY THE INTEREST. THE ASSESSEE IS NBFC. THE IN TEREST HAS NOT ACCRUED TO THE ASSESSEE. THE INCOME-TAX IS CHARGEABLE ON ACTUAL INCOME AND NOT O N NOTIONAL INCOME. THEREFORE, THE LD. CIT (APPEALS) IS RIGHT IN DELETING THE NOTIONAL INTERES T ADDED BY THE ASSESSING OFFICER. HE PLACED RELIANCE ON THE FOLLOWING DECISIONS:- 1. CIT VS. EICHER LTD. [2010] 320 ITR 410 (DEL.); 2. DEVSONS PVT. LTD. VS. CIT [2010] 329 ITR 483 (DE L.); 3. CIT VS. VASISTH CHAY VYAPAR LTD. [2011] 330 ITR 440 (DEL); & 4. SOUTHERN TECHNOLOGIES LTD. VS. JCIT [2010] 320 ITR 577 (SC). 7. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. THE ASSESSEE IS A NON-BANKING FINANCE COMPANY ENGAGED I N LEASING AND FINANCE BUSINESS. THE ASSESSEE ADVANCED INTEREST-BEARING LOAN OF RS.1,40, 00,000/- IN THE YEAR 1997 WHICH WAS AGAIN ROLLED OVER ON 1/04/1998 AND WAS RECEIVED BACK IN AUGUST, 1998. THE ASSESSEE RECEIVED INTEREST 5 I. T. APPEAL NO. 4684 (DEL) OF 2010 A N D C. O. NO. 44 (DEL) OF 2011 . UPTO 31 ST MARCH, 1998 @ 15% WHICH HAS BEEN ADMITTED IN ITS I NCOME. THE CONTENTION OF THE ASSESSEE IS THAT ESCORTS LTD. HAS REFUSED TO PAY IN TEREST, FOR WHICH RELIANCE HAS BEEN PLACED ON THE LETTER DATED 25 TH AUGUST, 1998. WE HAVE GONE THROUGH THE CONTENTS O F THE LETTER, WHICH IS NOT ORIGINAL COPY, BUT TYPED ONE. THE LETTER DOES NOT B EAR THE NAME AND SIGNATURE OF AUTHORIZED SIGNATORY. WORD SD/- HAS BEEN TYPED IN PLACE O F SIGNATURES OF THE AUTHORIZED SIGNATORY. IN THIS LETTER IT HAS BEEN MENTIONED THAT INTEREST COU LD NOT BE PAID AS THE ASSESSEE COMPANY HAD DEMANDED THE ENTIRE LOAN IN LUMP-SUM BEFORE THE END OF THE FINANCIAL YEAR WHEREAS THE ASSESSEE WAS UNDER AN OBLIGATION NOT TO DEMAND THE PAYMENT B EFORE 31 ST MARCH, 1999. NO EVIDENCE WHATSOEVER HAS BEEN FILED BY THE ASSESSEE TO PROVE ITS CONTENTION THAT THE ASSESSEE WAS UNDER OBLIGATION NOT TO ASK FOR THE ENTIRE PAYMENT AS CON TENDED IN THE LETTER BEFORE 31 ST MARCH, 1999. IN THE ABSENCE OF ANY DOCUMENTARY EVIDENCE AND THE ORI GINAL COPY OF THE SAID LETTER, THE CONTENTION OF THE ASSESSEE CANNOT BE ACCEPTED THAT INTEREST WA S NOT PAYABLE BY ESCORTS LTD. BEFORE 31.03.1999. THERE IS NO OTHER EVIDENCE ON RECORD W HICH CAN SUGGEST THAT THE LOAN WAS GIVEN UPTO THE PERIOD ENDING ON 31 ST MARCH, 1999 AND THE AMOUNT WAS DEMANDED BACK CONTR ARY TO SUCH AGREEMENT. THEREFORE, THIS CONTENTION OF THE ASSES SEE, IN OUR CONSIDERED OPINION, DOES NOT HAVE ANY MERIT. THE ASSESSEE IS FOLLOWING MERCANTILE SY STEM OF ACCOUNTING. THE ASSESSEE IS A NON- BANKING FINANCE COMPANY ENGAGED IN THE BUSINESS OF LEASING AND FINANCE. IN CASE OF FINANCE COMPANY, NO FUNDS ARE KEPT IDLE FOR A SINGLE DAY. N O REASON HAS BEEN GIVEN AS TO WHY THE AMOUNT WAS RECEIVED BEFORE THE DETERMINATION OF AGREEMENT. THE AUDITORS HAVE QUALIFIED THAT IN CERTAIN CASE THE PRINCIPAL AND INTEREST AMOUNT WAS NOT RECE IVED AS PER TERMS OF THE AGREEMENT. THE COPIES OF LETTERS EXCHANGED BETWEEN THE ASSESSEE AN D THE ESCORTS LTD ARE NOT ON RECORD. THEREFORE, IT IS DIFFICULT TO BELIEVE THAT ESCORTS LTD HAD REFUSED TO MAKE PAYMENT OF INTEREST ACCRUED FOR THE PERIOD. THE INCOME HAS ACCRUED TO T HE ASSESSEE UNDER MERCANTILE SYSTEM OF ACCOUNTING. IF THE ASSESSEE DID NOT REALIZE THE IN TEREST, HE COULD HAVE CLAIMED THE AMOUNT AS BAD DEBT. THEREFORE, IN OUR CONSIDERED OPINION IT IS N OT A CASE OF NON ACCRUAL OF INTEREST INCOME. 8. THE ASSESSEE HAD RELIED ON THE DECISION OF HONB LE DELHI HIGH COURT IN THE CASE OF CIT VS. VASISTH CHAY VYAPAR LTD. (SUPRA). IN THIS CASE THE ASSESSEE WAS NOT RECEIVING INTEREST SINCE ASSESSMENT YEAR 1996-97 AND LOAN HAD BECOME A NON-P ERFORMING ASSET IN ACCORDANCE WITH THE 6 I. T. APPEAL NO. 4684 (DEL) OF 2010 A N D C. O. NO. 44 (DEL) OF 2011 . PRUDENTIAL NORMS ISSUED BY RBI. THE DEBTOR BECAME B ANKRUPT AGAINST WHOM WINDING UP PETITIONS WERE FILED BY THE CREDITORS. NO INTEREST WAS RECEI VED UNTIL ASSESSMENT YEAR 2006-07. UNDER THESE CIRCUMSTANCES, WHEN THE PRINCIPAL AMOUNT BECAME IRR ECOVERABLE, CHARGING OF INTEREST WAS HELD TO BE UNJUSTIFIED. THIS DECISION OF HONBLE DELHI HIGH COURT IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE ON THE GROUND THAT THE ASSESSEE HAD RECEIVED INTEREST UPTO 31 ST MARCH, 1998 AND THE DEBTOR M/S. ESCORTS LTD. HAD NOT BECOME A BANKR UPT. THEREFORE, THE FACTS OF THE CASE BEFORE US ARE DISTINGUISHABLE FROM THE FACTS OF THE CASE I N THE CASE OF VISHISHT CHAY VYAPAR LTD. (SUPRA). 9. IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JCIT (SUPRA), THE ISSUE BEFORE THE HONBLE SUPREME COURT WAS PROVISION FOR NON-PERFORMING ASSE TS WHICH WAS DEBITED TO PROFIT AND LOSS ACCOUNT. THE HONBLE SUPREME COURT HAS HELD THAT R ESERVE BANK DISCLOSURE NORMS HAVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. IT HAS B EEN HELD THAT THE PROVISION FOR NON- PERFORMING ASSETS IN TERMS OF DIRECTIONS OF 1998 DO NOT CONSTITUTE EXPENSE ON THE BASIS OF WHICH DEDUCTION COULD BE CLAIMED UNDER SECTION 36(1)(VII) OF THE INCOME TAX ACT. THEREFORE, THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF SO UTHERN TECH. LTD. (SUPRA) IS NOT APPLICABLE TO THE FACTS OF THE ASSESSEES CASE. 10. IN THE CASE OF EICHER LTD. (SUPRA) THE LOAN GIV EN BY THE ASSESSEE BECAME IRRECOVERABLE AND SO NO INTEREST COULD BE SAID TO HAVE REALLY ACCRUED THEREUPON. IN THIS CASE LOAN WAS GIVEN ON 17 TH MARCH, 1999 AND THE INTEREST WAS CREDITED IN THE B OOKS OF ACCOUNTS ON YEAR TO YEAR BASIS UPTO 31 ST MARCH, 1999, WHICH WAS DULY ASSESSED TO TAX THOUGH THE INTEREST WAS ACTUALLY RECEIVED ONLY FOR FIRST TWO YEARS AND NO INTEREST WAS RECEIVED TH EREAFTER TILL 31 ST MARCH, 1999. THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY TOOK A DECISION N OT TO ACCOUNT FOR INTEREST INCOME IN THE BOOKS OF ACCOUNTS. UNDER THESE CIRCUMSTANCES, HONBLE DE LHI HIGH COURT HELD THAT THE TRIBUNAL HAD RIGHTLY HELD THAT ACTUAL INCOME IN FACT NEVER ACCRU ED TO THE ASSESSEE AND THE ASSESSEE IN FACT HAD ALREADY PAID TAX ON INTEREST INCOME ACTUALLY RECEIV ED BY IT. THE FACTS OF THIS CASE ARE ALSO DISTINGUISHABLE FROM THE FACTS OF THE ASSESSEES CA SE. THE AMOUNT HAS NOT BECOME IRRECOVERABLE IN THE CASE OF THE ASSESSEE AND IN FACT HAD BEEN RE TURNED BY ESCORTS LTD. IN AUGUST, 1998 AND THE 7 I. T. APPEAL NO. 4684 (DEL) OF 2010 A N D C. O. NO. 44 (DEL) OF 2011 . ASSESSEE HAD ADMITTED INTEREST RECEIVED UPTO 31 ST MARCH, 1998 AS BUSINESS INCOME. THEREFORE, THE FACTS OF THIS CASE ARE ALSO DISTINGUISHABLE. T HE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF DEVSONS PVT. LTD. VS. CIT (SUPRA) IS IN RES PECT OF PENALTY IMPOSED UNDER SECTION 271(1)(C) IN RESPECT OF ACCRUED INTEREST. THEREFOR E, THE FACTS OF THIS CASE ARE ALSO DISTINGUISHABLE AS IN THE CASE BEFORE US THE ISSUE OF LEVY OF INTER EST IS NOT IN THE INSTANT CASE. 11. HONBLE SUPREME COURT IN THE CASE OF CIT VS. SH IV PRAKASH JANAK RAJ & CO. PVT. LTD. [1996] 222 ITR 583 (SC) HAD OCCASION TO EXAMINE THE CONCEPT OF REAL INCOME. HONBLE SUPREME COURT HAS LAID DOWN RULES IN RESPECT OF RE AL INCOME AS BELOW :- THE CONCEPT OF REAL INCOME CANNOT BE EMPLOYED SO AS TO DEFEAT THE PROVISIONS OF THE ACT AND THE RULES. WHERE THE PROVISIONS OF T HE ACT AND THE RULES APPLY IT IS ONLY THOSE PROVISIONS WHICH MUST BE APPLIED AND FOLLOWED . THERE IS NO ROOM- NOR WOULD IT BE PERMISSIBLE FOR THE COURT TO IMPORT THE CONCEPT OF REAL INCOME SO AS TO WHITTLE DOWN, QUALIFY OR DEFEAT THE PROVISIONS OF THE ACT AND THE RULES. THE PRINCIPLES APPLICABLE ARE: (1) IT IS THE INCOME WHICH HAS REALLY ACCRUED OR AR ISES TO THE ASSESSEE THAT IS TAXABLE. WHETHER THE INCOME HAS REALLY ACCRUED OR ARISEN TO THE ASSESSEE MUST BE JUDGED IN THE LIGHT OF REALITY OF THE SITUATION. (2). THE CONCEPT OF REAL INCOME WOULD APPLY WHERE THERE HAS BEEN A SURRENDER OF INCOME WHICH IN THEORY MAY HAVE ACCRUED BUT IN THE REALTY OF THE SITUATION, NO INCOME HAS RESULTED BECAUSE THE I NCOME DID NOT REALLY ACCRUE. (3) WHERE A DEBT HAS BECOME BAD, DEDUCTION IN COMPLIANC E WITH THE PROVISIONS OF THE ACT SHOULD BE CLAIMED AND ALLOWED. (4) WHERE THE ACT AP PLIES, THE CONCEPT OF REAL INCOME SHOULD NOT BE SO READ AS TO DEFEAT THE PROVISIONS O F THE ACT. IS ANY DIVERSION OF INCOME AT SOURCE UNDER ANY STATUTE OR BY OVERRIDING TITLE, THEN THERE IS NO INCOME TO THE ASSESSEE. (6) THE CONDUCT OF THE PARTIES IN TREATIN G THE INCOME IN A PARTICULAR MANNER IS MATERIAL EVIDENCE OF THE FACT WHETHER INCOME HAS AC CRUED OR NOT. (7) MERE IMPROBABILITY OF RECOVERY, WHERE THE CONDUCT OF THE ASSESSEE IS UNEQUIVOCAL, CANNOT BE TREATED AS EVIDENCE OF THE FACT THAT INCOME HAS NOT RESULTED OR ACCRUED TO THE ASSESSEE. AFTER DEBITING THE DEBTORS ACCOUNT AND NOT REVERSI NG THAT ENTRY BUT TAKING THE INTEREST 8 I. T. APPEAL NO. 4684 (DEL) OF 2010 A N D C. O. NO. 44 (DEL) OF 2011 . MERELY IN SUSPENSE ACCOUNT CANNOT BE SUCH EVIDENCE TO SHOW THAT NO REAL INCOME HAS ACCRUED TO THE ASSESSEE OR HAS BEEN TREATED AS SUCH BY THE ASSESSEE. (8) THE CONCEPT OF REAL INCOME IS CERTAINLY APPLICABLE IN JUDGING WHET HER THERE HAS BEEN INCOME OR NOT BUT, IN EVERY CASE, IT MUST BE APPLIED WITH CARE AN D WITHIN WELL RECOGNIZED LIMITS. ON THE PERUSAL OF ABOVE, IT IS CLEAR THAT THE CONCE PT OF REAL INCOME CANNOT BE EMPLOYED SO AS TO DEFEAT THE PROVISIONS OF THE ACT AND THE RULES. WHE RE THE PROVISIONS OF THE ACT AND THE RULES APPLY IT IS ONLY THOSE PROVISIONS WHICH MUST BE APP LIED AND FOLLOWED. THERE IS NO ROOM- NOR WOULD IT BE PERMISSIBLE FOR THE COURT TO IMPORT THE CONCEPT OF REAL INCOME SO AS TO WHITTLE DOWN, QUALIFY OR DEFEAT THE PROVISIONS OF THE ACT AND THE RULES. HOWEVER, THE CONCEPT OF REAL INCOME WILL APPLY WHERE THERE HAS BEEN A SURRENDER OF INCO ME, WHICH IN THEORY MAY HAVE ACCRUED, BUT IN REALITY OF SITUATION, NO INCOME HAS RESULTED BECAUS E THE INCOME DID NOT REALLY ACCRUE. NO EVIDENCE HAS BEEN FILED BY THE ASSESSEE TO PROVE TH AT INCOME HAD NOT REALLY ACCRUED. THEREFORE, AS PER THE DECISION OF HONBLE SUPREME COURT, THE C ONCEPT OF REAL INCOME SHOULD NOT BE SO READ SO AS TO DEFEAT THE PROVISIONS OF THE ACT. IF THE ASSESSEE HAD NOT RECEIVED INTEREST AFTER PERSUASION, THE SAME COULD HAVE BEEN CLAIMED AS BAD DEBTS. THEREFORE, IN OUR CONSIDERED OPINION, THERE IS NO MATERIAL ON RECORD TO PROVE TH AT INCOME HAD NOT ACCRUED TO THE ASSESSEE ON LOAN OF RS.1.4 CRORES RECEIVED BACK FROM ESCORTS LT D. THEREFORE, WE SET ASIDE THE ORDER OF THE LD. CIT (APPEALS) AND RESTORE THE ORDER OF THE ASSESSIN G OFFICER BY HOLDING THAT CONCEPT OF REAL INCOME CANNOT BE APPLIED UNDER THE FACTS AND CIRCUM STANCES OF THE CASE. 12. THE NEXT ISSUE FOR CONSIDERATION RELATES TO CHA RGING OF INTEREST UNDER SECTION 234A OF THE ACT. NO ARGUMENTS HAVE BEEN ADVANCED ON THE ISSUE B Y EITHER OF THE PARTY. SINCE CHARGING OF INTEREST UNDER SECTION 2134-A IS MANDATORY IN VIEW OF THE DECISION OF HONBLE SC IN THE CASE OF ACIT VS. ANJUM M. H. GHASWALA 252 ITR PAGE 1 (SC) W E HOLD THAT THE INTEREST HAS BEEN RIGHTLY CHARGED BY THE AO. 9 I. T. APPEAL NO. 4684 (DEL) OF 2010 A N D C. O. NO. 44 (DEL) OF 2011 . 13. IN THE CROSS OBJECTION FILED BY THE ASSESSEE TH E ONLY ISSUE RELATES TO CONFIRMING THE DISALLOWANCE OF PROFESSION FEE OF RS.10 LAKHS PAID TO BHAAV PORTFOLIO PVT. LTD. THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY PAID RS.10 L AKHS TO BHAAV PORTFOLIO PVT. LTD. FOR MANAGEMENT OF THE FUNDS OF THE COMPANY DURING FINAN CIAL YEAR 1998-99 ON WHICH TDS WAS DEDUCTED AND DEPOSITED AS PER THE PROVISIONS OF THE ACT. THE ASSESSING OFFICER TREATED THE EXPLANATION OFFERED BY THE ASSESSEE SKETCHY AND HEL D THAT THE ASSESSEE HAD FAILED TO JUSTIFY THE PAYMENT OF RS.10 LAKHS TO M/S. BHAAV PORTFOLIO PVT. LTD. HE ALSO NOTED THAT MERE DEDUCTION OF TDS ON AMOUNT PAID WOULD NOT ENTITLE THE ASSESSEE F OR SUCH DEDUCTION. BEFORE THE LD. CIT (APPEALS) IT WAS SUBMITTED THAT : (A) M/S. BHAAV PORTFOLIO PVT. LTD. WAS ENTRUSTED TO PURSUE THE APPLICATION WITH RBI, DEAL WITH THE OBJECTIONS OF T HE RBI AND ENSURE REGISTRATION WITH RBI AS A NBFC AFTER COMPLYING WITH ALL THE CONDITIONS OF RBI ; (B) AFTER REGISTRATION WITH RBI MANAGE THE FUNDS AVAILABLE WITH THE COMPANY IN ACCORDANCE WITH THE RULES OF RBI; & (C) TO ENSURE COMPLIANCE WITH THE STRINGENT COMPLIANCES AS WERE R EQUIRED FOR NBFC. IT WAS, THEREFORE, SUBMITTED THAT THE PAYMENT WAS MADE FOR THE SERVICE S RENDERED BY BHAAV PORTFOLIO PVT. LTD. HOWEVER, THE LD. CIT (APPEALS) CONFIRMED THE ADDITI ON, AFTER OBSERVING AS UNDER :- 19. THE IMPUGNED ORDER AS WELL AS THE SUBMISS IONS MADE BY THE ID AR OF THE ASSESSEE HAD BEEN CAREFULLY VETTED. IT IS UNDISPUTA BLE THAT AN AMOUNT OF RS. 10,00,0001- HAD BEEN MADE TO MIS BHAAV PORTFOLIO PVT. LTD. THE ID. AO DID NOT FIND ANY JUSTIFICATION FOR THE SAID EXPENDITURE. AT THE ASSESSMENT STAGE, THE ASSESSEE TOOK THE STAND THAT MIS BHAA V PORTFOLIO PVT. LTD. HAD BEEN ENGAGED IN THE MANAGEMENT OF FUNDS. IN THE APPEAL BEFORE ME, I T HAS BEEN ADVOCATED THAT THE SAID FIRM PRIMARILY HELPED THE ASSESSEE OBTAIN THE REGISTRATION WITH THE RBI WITH REGARD TO THE NBFC. 20. IF AT ALL, ANY SERVICE HAD BEEN RENDER ED BY MIS BHAAV PORTFOLIO PVT. LTD., THERE WOULD BE ENOUGH EVIDENCES. THESE EVIDENCES CO ULD BE IN THE FORM OF CORRESPONDENCE BETWEEN THE ASSESSEE AND MIS BHAAV PORTFOLIO PVT. LTD.; E-MAIL EXCHANGES; RAISING OF BILL BY THE SAID ASSESSEE ON THE APPELLATE ETC. HOWEVER, APART FROM ADOPTING ALTERING STAND AT THE ASSESSMEN T STAGE AND THE APPELLATE 10 I. T. APPEAL NO. 4684 (DEL) OF 2010 A N D C. O. NO. 44 (DEL) OF 2011 . STAGE, THE ASSESSEE HAS ONLY SUBMITTED A LETTER WRI TTEN TO MIS BHAAV PORTFOLIO PVT. LTD. DATED 1/4/1998, WHICH HAD BEEN REJECTED BY ME, AS AN ADDITIONAL EVI DENCE UNDER RULE 46A(1) FOR THE REASONS MENTIONED ABOVE. EVEN IF WE ARE TO ADMIT THAT EVIDENCE, HYPOTHETICALLY, THIS DOES NOT SERVE THE P URPOSE AS THE SAID LETTER DOES NOT CARRY EVEN THE SIGNATURE OF MIS BHAAV PORTFOLIO PVT. LTD. IT CANNOT BE APPRECIATED THAT WHAT WAS THE PRECISE SERVICE RENDE RED BY THE SAID ENTITY TO THE ASSESSEE TO JUSTIFY A PAYMENT OF RS. 10,00,0001-. THE FACT THAT TDS WAS DEDUCTED ON THE SAID PAYMENT AND IT WAS REGISTERED WITH ROC IS NOT A SUFFICIENT GROUND TO CONCLUSIVELY PROVE THAT INDEED SOME SERVICE WAS REN DERED BY MIS BHAA PORTFOLIO PVT. LTD. TO THE ASSESSEE. DEDUCTION OF TDS AND ROC CERTIFICATE CAN ONLY BE A PERSUASIVE EVIDENCE WHICH HAS NO WEIGHT IN THE BACK DROP OF LACK OF ANY EVIDENCE FILED BEFORE ME OR THE AO WITH REGARD TO RENDERING OF SERVICE. AS SUCH, THE ASSESSEE DESERVES TO FAIL IN GROUNDS OF APPEAL NOS. 2.1, 2.2 & 2.3. 14. BEFORE US THE LD. AR OF THE ASSESSEE SUBMITTED THAT PROFESSIONAL FEE WAS PAID FOR THE PURPOSE OF MANAGEMENT OF THE FUNDS OF THE COMPANY. DURING THE COURSE OF HEARING THE ASSESSEE HAD FILED A COPY OF LETTER WRITTEN TO M/S. BHAAV PO RTFOLIO PVT. LTD. DATED 1/04/1998 WHICH WAS REJECTED AS ADDITIONAL EVIDENCE UNDER RULE 46A(1). IT WAS SUBMITTED THAT THE LD. CIT (A) SHOULD HAVE ADMITTED IT AS ADDITIONAL EVIDENCE. THE LD. CIT (A) REJECTED THE ADDITIONAL EVIDENCE ON THE GROUND THAT LETTER DATED 1/4/1998 ISSUED BY THE ASS ESSEE WAS IN THE POSSESSION OF THE ASSESSEE RIGHT FROM THE BEGINNING. THEREFORE, THE SAME SHOU LD HAVE BEEN FILED BY THE ASSESSEE BEFORE THE ASSESSING OFFICER. THE LD. AR OF THE ASSESSEE, THE REFORE, SUBMITTED THAT THE PAYMENT MADE BY THE ASSESSEE WAS FOR THE SERVICES RENDERED BY THE ASSES SEE. ON THE OTHER HAND, THE LD. SR. DR STRONGLY SUPPORTED THE ORDER OF THE LD. CIT (APPEAL S). HE SUBMITTED THAT BEFORE THE AO THE CONTENTION OF THE ASSESSEE WAS THAT PAYMENT OF RS.1 0 LAKHS TO M/S. BHAAV PORTFOLIO PVT. LTD. WAS MADE FOR MANAGEMENT OF FUNDS OF THE COMPANY DURING FY 1998-99 WHEREAS BEFORE THE LD. CIT (A) IT WAS CONTENDED THAT THE PAYMENT WAS FOR PURSU ING THE APPLICATION FOR REGISTRATION OF THE ASSESSEE BEFORE THE RBI AND MANAGEMENT OF FUNDS. T HEREFORE, THERE IS A CHANGE IN THE STAND OF THE ASSESSEE. 11 I. T. APPEAL NO. 4684 (DEL) OF 2010 A N D C. O. NO. 44 (DEL) OF 2011 . 15. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE MATERIAL AVAILABLE ON RECORD. BEFORE THE ASSESSING OFFICER IT WAS CONTENDED BY TH E ASSESSEE THAT PAYMENT OF RS. 10 LAKHS WAS MADE TO M/S. BHAAV PORTFOLIO PVT. LTD. FOR MANAGEME NT OF FUNDS WHEREAS THE ASSESSEE HAS TAKEN A DIFFERENT STAND BEFORE THE LD. CIT (APPEALS). TH E ASSESSEE HAS FILED COPY OF LETTER WRITTEN BY RBI ADDRESSED TO THE MANAGING DIRECTOR OF THE ASSES SEE IN RESPECT OF ISSUE OF CERTIFICATE OF REGISTRATION. WE HAVE GONE THROUGH THE REGISTRATIO N CERTIFICATE ISSUED BY RBI DATED 6/3/1998. THIS CERTIFICATE HAS BEEN ISSUED BY RBI ON 6/3/1998 UNDER SECTION 45-IA OF RBI ACT, 1934. THE LETTER DATED 1/4/1998 WRITTEN BY THE ASSESSEE IS FO R THE APPOINTMENT OF M/S. BHAAV PORTFOLIO PVT. LTD. FOR PURSUING THE APPLICATION WITH RBI FOR REGI STRATION AS NBFC. HOWEVER, FROM THE CERTIFICATE ISSUED ON 6/3/1998 IT IS CLEAR THAT CER TIFICATE OF REGISTRATION AS NBFC WAS ISSUED MUCH BEFORE THE ISSUE OF LETTER DATED 1/4/1998 I.E. ON 6 /3/1998, WHICH IS EVIDENT FROM THE LETTER OF RBI. THEREFORE, THE CONTENTION OF THE ASSESSEE THAT M/S. BHAAV PORTFOLIO PVT. LTD. WAS APPOINTED FOR PURSUING THE APPLICATION BEFORE THE RBI FOR REGISTR ATION AS NBFC IS CONTRARY TO THE FACTS. THEREFORE, THE LETTER DATED 1/4/1998 IS NOTHING, BU T AN AFTER-THOUGHT. IN VIEW OF ABOVE, IN OUR CONSIDERED OPINION, THE LD. CIT (A) HAS RIGHTLY REJ ECTED THE EVIDENCE AND UPHELD THE DISALLOWANCE. ACCORDINGLY WE DO NOT FIND ANY INFIR MITY IN THE ORDER PASSED BY THE LD. CIT (APPEALS). 16. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON: 16 TH DECEMBER, 2011 . SD/- SD/- [ U. B. S. BEDI ] [ K. D. RANJAN ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 16 TH DECEMBER, 2011 . *MEHTA * 12 I. T. APPEAL NO. 4684 (DEL) OF 2010 A N D C. O. NO. 44 (DEL) OF 2011 . COPY OF THE ORDER FORWARDED TO : - 1. APPELLANT. 2. RESPONDENT. 3. CIT, 4. CIT (APPEALS), 5. DR, ITAT, NEW DELHI. TRUE COPY. BY ORDER. ASSISTANT REGISTRAR, ITAT.