Lebong Investment Pvt. Ltd., Kolkata V. ACIT, CIR-11(1), KOLKATA, Kolkata

ITA 1036/KOL/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 7324 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2004-2005
• Appeal Filed On: 13-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR P K SRIHARI
• Section: 250

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA C BENCH, KOLKATA (BEFORE SRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER & SRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER) I.T.A. NO. 1036/KOL/2016 ASSESSMENT YEAR: 2004-05 LEBONG INVESTMENTS PVT. LTD.................APPELLANT CAMELLIA HOUSE 14, GURUSADAY ROAD KOLKATA 700 019 [PAN : AAACL 5002 E] VS. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(1), KOLKATA.........RESPONDENT APPEARANCES BY: SHRI RAVI SHARMA, FCA, APPEARED ON BEHALF OF THE ASSESSEE. DR.P. K. SRIHARI, JCIT, SR. D/R APPEARING ON BEHALF OF THE REVENUE. DATE OF CONCLUDING THE HEARING : JULY 8 TH , 2019 DATE OF PRONOUNCING THE ORDER : JULY 24 TH , 2019 ORDER PER J. SUDHAKAR REDDY, AM :- THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 10, KOLKATA, (HEREINAFTER THE LD. CIT (A)), PASSED U/S 250 OF THE INCOME TAX ACT, 1961 (THE ACT), DT. 19/02/2016, FOR THE ASSESSMENT YEAR 2004-05 ON THE FOLLOWING GROUNDS:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.8,58,62,737/- (INCLUDING ACCRUED INTEREST OF RS.1,04,71,087/-) WRITTEN OFF AS IRRECOVERABLE INTEREST BEARING LOANS DUE FROM DOOTERIAH & KALEJ VALLEY TEA ESTATES PVT. LTD. DURING THE PREVIOUS YEAR 2003-04, IN SPITE OF THE FACT THAT LENDING OF MONEY WAS ONE OF THE BUSINESS ACTIVITIES CARRIED ON BY THE APPELLANT AS A REGISTERED NON-BANKING FINANCIAL COMPANY. 1.1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE IN GROUND NO. (1) ON HIS VIEWS NOT CONFORMING TO THE PROVISION OF SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE INCOME TAX ACT, 1961 (THE ACT) AND ALSO REJECTING THE APPELLANT'S ALTERNATE CLAIM OF DEDUCTION OF THE STATED AMOUNT U/S 57(III) OF THE ACT. 2 I.T.A. NO. 1036/KOL/2016 ASSESSMENT YEAR: 2004-05 LEBONG INVESTMENTS PVT. LTD 1.2 THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW AND WITHOUT PREJUDICE TO GROUND NOS. (1) AND (1.1) ABOVE, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE DISALLOWANCE OF ACCRUED INTEREST OF RS.L,04,71,Q87/- DUE FROM THE LOANS GIVEN TO DOOTERIAH & KALEY VALLEY TEA ESTATES PVT. LTD. AND OFFERED TO TAX AS 'INCOME FROM OTHER SOURCES' FROM ASSESSMENT YEARS 1991-92 TO 1995-96 AND INCLUDED IN THE AGGREGATE IRRECOVERABLE AMOUNT OF RS.8,58,62,737/- WRITTEN OFF DURING THE PREVIOUS YEAR 2003-04. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING RS.2,00,000/- OUT OF THE DISALLOWANCE OF RS.6,00,000/- MADE BY THE ASSESSING OFFICER IN RESPECT OF THE 'PROFESSIONAL FEE' PAID BY THE APPELLANT DURING THE PREVIOUS YEAR 2003-04 AS EXCESSIVE, THOUGH SUCH PAYMENTS WERE MADE TO A PERSON NOT COVERED U/S 40A(2) OF THE ACT. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, CANCEL, SUPPLEMENT OR OTHERWISE MODIFY THE GROUNDS STATED ABOVE, BEFORE OR AT THE HEARING OF THE APPEAL AS IT MAY DEEM FIT. 2. THE ASSESSEE IS A COMPANY REGISTERED UNDER THE COMPANIES ACT, 1956 AND IS ENGAGED IN THE BUSINESS OF CONSULTANCY, ATTORNEYS, ADVISORY ETC. IT IS REGISTERED AS A NON- BANKING FINANCIAL COMPANY REGISTERED WITH THE RESERVE BANK OF INDIA. IT ADVANCES LOANS TO GROUP COMPANIES, EARNING INTEREST THEREOF. IT FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING. 3. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT, THOUGH IT HAS A GOOD CASE, DUE TO THE SMALLNESS OF THE AMOUNT AND TO AVOID PROLONGED LITIGATION, HE IS NOT PRESSING GROUND NO. 2. HENCE GROUND NO. 2 IS DISMISSED AS NOT PRESSED. 4. GROUND NO. 3, IS GENERAL IN NATURE. 5. ON GROUND NOS. 1 TO 1.2, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE COMPANY IS A REGISTERED NBFC (NON-BANKING FINANCIAL COMPANY) AND HAS 3 I.T.A. NO. 1036/KOL/2016 ASSESSMENT YEAR: 2004-05 LEBONG INVESTMENTS PVT. LTD ADVANCED MONEY NORMAL COURSE OF BUSINESS AND THAT THE INTEREST EARNED THEREON HAS BEEN OFFERED TO TAX AND HENCE WHEN THE AMOUNTS IN QUESTION HAVE BECOME BAD, THIS AMOUNT WAS WRITTEN OFF IN THE BOOKS OF ACCOUNTS AND HENCE SHOULD HAVE BEEN ALLOWED AS A DEDUCTION IN VIEW OF THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD. VS. CIT [2010] 323 ITR 397 (SC). HE FILED A PAPER BOOK RUNNING INTO 34 PAGES, TO DEMONSTRATE HIS CLAIM THAT THE LENDING WAS IN THE ORDINARY COURSE OF BUSINESS AND THAT THE ASSESSEE HAS MADE SUFFICIENT EFFORTS TO RECOVER THE DEBT AND THAT THE AMOUNT HAS BE TAKEN INTO ACCOUNT WHILE COMPUTING THE INCOME OF THE ASSESSEE IN THE EARLIER YEARS. HE DISPUTED THE GROUNDS ON WHICH THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A) DISALLOWED THE CLAIM OF THE ASSESSEE AND SUBMITTED THAT THEY ARE NOT LEGALLY TENABLE. 5.1. THE LD. D/R, ON THE OTHER HAND, SUBMITTED THAT THE ASSESSEE ADMITTEDLY IS IN THE BUSINESS OF CONSULTANCY AND AGENCY AND MAINLY ENGAGED IN THE BUSINESS OF ATTORNEY. HE SUBMITTED THAT THE AMOUNTS WERE ADVANCED TO GROUP COMPANIES. HE ARGUED THAT THE AMOUNTS WERE NOT ADVANCED DURING THE COURSE OF BUSINESS ACTIVITY AND THAT IT WAS NOT GIVEN WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF BUSINESS AND THAT CERTAIN OTHER CONSIDERATIONS WERE TAKEN INTO ACCOUNT FOR GIVING LOAN TO SUBSIDIARIES. HE ARGUED THAT THE WRITE OFF IS NOT ALLOWABLE U/S 36(2) OR U/S 57(III) OF THE ACT. HE FURTHER RELIED ON THE ORDER OF THE LD. CIT(A) AND SUBMITTED THAT DEDUCTION COULD NOT BE ALLOWED AS, THE DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE FOR THE PREVIOUS YEARS. 6. WE HAVE HEARD RIVAL CONTENTIONS. ON CAREFUL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, PERUSAL OF THE PAPERS ON RECORD, ORDERS OF THE AUTHORITIES BELOW AS WELL AS CASE LAW CITED, WE HOLD AS FOLLOWS:- 7. THE LD. CIT(A) IN HIS ORDER HAS GIVEN THE FOLLOWING FINDINGS OF FACTS:- THE APPELLANT-COMPANY IS UNDOUBTEDLY LENDING MONEY TO ITS GROUP CONCERNS, AND THEREFORE IT WAS ALL THE MORE INCUMBENT UPON THE APPELLANT-COMPANY TO HAVE EXHAUSTED ALL EFFORTS BEFORE THE WRITING-OFF OF THE ADVANCES, LOANS OR INTEREST, AS THIS WOULD AFFECT THEIR PROFITABILITY TO A LARGE EXTENT. THIS DOES NOT APPEAR TO EMERGE FROM THE FACTUAL MATRIX AT HAND. THE TAX DEDUCTIBLE FROM SUCH INTEREST WAS ACCOUNTED FOR SEPARATELY. I HAVE ALSO TAKEN CAREFUL NOTE OF THE ARGUMENTS OF THE LD A.RS THAT THE INTEREST NOT RECEIVED WAS OFFERED TO TAX ON ACCRUAL BASIS. 4 I.T.A. NO. 1036/KOL/2016 ASSESSMENT YEAR: 2004-05 LEBONG INVESTMENTS PVT. LTD 7.1. AT PARA 16 OF ITS ORDER, THE LD. CIT(A) HELD AS FOLLOWS:- 16. I HAVE ALSO EXAMINED THE ARGUMENT THAT THE TRANSACTIONS WERE ENTERED BY AND IN BETWEEN TWO CORPORATE ENTITIES AND THAT IN THAT TRANSACTION THE APPELLANT SUFFERED LOSS. I DO NOT FIND MUCH' MERIT IN THE ARGUMENT, EVEN IF THE SAID TRANSACTION IN THE NATURE OF A BUSINESS LOSS. IN MY CONSIDERED OPINION THIS APPEARS TO BE A CASE OF SINKING GOOD MONEY BY REMAINING INDULGENT TOWARDS A GROUP CONCERN OVER A PROTRACTED PERIOD. I FIND THAT THE AO HAS NOT CONSIDERED THE SAME AS A BUSINESS LOSS, AS IT APPEARS TO BE A CASE OF SINKING GOOD MONEY, AND I AGREE WITH THE OBSERVATIONS AND FINDINGS OF THE AO. NO DOUBT IT WOULD BE THE WISDOM OF THE APPELLANT TO WRIT THE LOAN AMOUNT AS A BAD DEBT RATHER THAN TAKE RECOURSE TO LEGAL PROCEEDINGS, AS BEEN CONTENDED BY LD. A.RS, BUT THE FACT THAT THE BORROWER WAS IN POSSESSION ASSETS SUCH AS TEA GARDENS WAS WELL WITHIN THE KNOWLEDGE OF THE APPELLANT, AS ADMITTEDLY IT WAS ACTING AS THE ATTORNEY FOR THE BORROWER COMPANY, ONE AMONG THE GROUP COMPANIES. 7.2. THESE OBSERVATIONS AND GROUNDS ON WHICH THE DISALLOWANCE WAS MADE ARE NOT BASED ON THE PRINCIPLES AND THE TESTS LAID DOWN BY THE HONBLE SUPREME COURT ON THIS ISSUE, IN THE CASE OF T.R.F. LTD. VS. CIT (SUPRA), WHEREIN IT HAS BEEN HELD AS FOLLOWS:- 4. THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1-4-1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 8. THUS, EVEN IF THE ASSESSEE HAS NOT TAKEN SUFFICIENT STEPS TO RECOVER THE ACCOUNT, THE DISALLOWANCE CANNOT BE MADE AFTER THE AMENDMENT W.E.F. 01/04/1989. BUSINESS PRUDENCE CANNOT BE QUESTIONED BY THE REVENUE AUTHORITIES. THE ASSESSEE IS ADMITTEDLY A REGISTERED NBFC, A COPY OF THE CERTIFICATE WAS PLACED ON RECORD. THE REVENUE AGREES THAT THE ASSESSEE HAS LENT MONEY TO ITS GROUP CONCERNS AND THE INTEREST THEREON WAS OFFERED TO TAX. THE OTHER UNDISPUTED FACT IS THAT THE ADVANCE IN QUESTION HAS BECOME A NON- PERFORMING ASSET (NPA) AND THE ASSESSEE HAS WRITTEN OFF THE SAME IN ITS BOOKS OF ACCOUNTS. ON THESE FACTS, WHEN WE APPLY THE PROPOSITIONS OF LAW LAID DOWN BY THE HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD. (SUPRA) , THE DEDUCTION AS CLAIMED BY THE ASSESSEE HAS TO BE ALLOWED. 8.1. THE LD. CIT(A) WAS WRONG IN COMING TO A CONCLUSION THAT IN THIS CASE, A DEBT OR A PART THEREOF HAS NOT BEEN TAKEN INTO ACCOUNT WHILE COMPUTING THE INCOME OF THE ASSESSEE FOR THE PREVIOUS YEARS. THE INTEREST ON THESE DEBTS HAVE BEEN TAKEN INTO 5 I.T.A. NO. 1036/KOL/2016 ASSESSMENT YEAR: 2004-05 LEBONG INVESTMENTS PVT. LTD ACCOUNT DURING THE PREVIOUS YEARS AND THIS WOULD SATISFY THE REQUIREMENTS OF THE SECTION. HENCE THE CLAIM OF THE ASSESSEE SATISFIES THE REQUIREMENTS OF SECTION 36(1)(VII) R.W.S. 36(2) OF THE ACT. 9. IN VIEW OF THE ABOVE DISCUSSION, WE ALLOW THE CLAIM OF THE ASSESSEE AND ALLOW GROUND NOS. 1 TO 1.2 OF THE ASSESSEE. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED IN PART. KOLKATA, THE 24 TH DAY OF JULY, 2019. SD/- SD/- [ S.S. VISWANETHRA RAVI ] [ J. SUDHAKAR REDDY ] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 24.07.2019 {SC SPS} COPY OF THE ORDER FORWARDED TO: 1. LEBONG INVESTMENTS PVT. LTD CAMELLIA HOUSE 14, GURUSADAY ROAD KOLKATA 700 019 2. ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-11(1), KOLKATA 3. CIT(A)- 4. CIT- , 5. CIT(DR), KOLKATA BENCHES, KOLKATA. TRUE COPY BY ORDER ASSISTANT REGISTRAR ITAT, KOLKATA BENCHES