THE ACIT 18(3), MUMBAI V. M/S. SHRI NAZIM S. MANEKIA, MUMBAI

ITA 1059/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 55537 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Next Hearing Date: 29-09-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 12-02-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Bad and doubtful debts; Corroborative evidences
• Section: 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL 'I' BENCH, MUMBAI BEFORE SHRI D.K. AGARWAL, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER ITA NO. 1059/MUM/2008 (ASSESSMENT YEAR: 2003-04) A C I T - 18(3) SHRI NAZIM S. MANEKIA ROOM NO. 209, 2ND FLOOR 3, LANDMARK, SENAPATI BAPAT PIRAMAL CHAMBERS, LALBAUG VS. MARG, MAHIM (W), MUMBAI 400016 MUMBAI 400012 PAN - AACPM 9913 K APPELLANT RESPONDENT APPELLANT BY: SHRI SUNIL KUMAR SINGH RESPONDENT BY: SHRI HIRO RAI DATE OF HEARING: 29.09.2011 DATE OF PRONOUNCEMENT: 14.10.2011 O R D E R PER B. RAMAKOTAIAH, A.M. THIS IS A REVENUES APPEAL AGAINST THE ORDER OF TH E CIT(A)-XXVIII, MUMBAI, DATED 05.11.2007. THE APPELLANT HAS SINCE D ECEASED, THE LEGAL HEIRS WERE BROUGHT ON RECORD. 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS CON TESTING THE ACITS ORDER ON VARIOUS ISSUES : - (I) THE ORDER OF THE CIT(A) IS OPPOSED TO LAW AND FACTS OF THE CASE. (II) IN THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE AD DITION OF RS.58,25,654/- WITHOUT APPRECIATING THE FACT THAT T HE ASSESSEE HAS NOT FULFILLED HE CONDITION OF MONEY LENDING BUS INESS AND THE ASSESSING OFFICER HAS CORRECTLY HELD THAT IT IS A CAPITAL LOSS. (III) THE LD. CIT(A) ERRED IN DIRECTING THE ASSESS ING OFFICER TO ALLOW INTEREST EXPENDITURE OF RS.1,48,313/- TO MAKE THE A GGREGATE ALLOWANCE OF RS.3,20,000/- WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE FAILED TO PRODUCE CONFIRMATION FROM TH E CREDITORS BEFORE THE ASSESSING OFFICER. (IV) THE LD. CIT(A) ERRED IN RESTRICTING THE DISALL OWANCE TO RS.40,000/- BEING 50% OF TOTAL DISALLOWANCE OF RS.8 0,000/- WITHOUT APPRECIATING THE FACT THAT THE EXPENSES ARE PERSONAL IN ITA NO.1059/MUM/2010 SHRI NAZIM S. MANEKIA . 2 NATURE AND NOT ALLOWABLE AS FOR EARNING GROSS INCOM E FROM OTHER SOURCES OFRS.17,97,791/- WHICH INCLUDES DIVID END OF RS.16,18,104/-, AS THE CASE RENTAL EXPENSES OF RS.8 0,000/- ARE NOT JUSTIFIABLE. 3. THE FIRST ISSUE CONTESTED BY THE REVENUE IS AGAI NST THE DIRECTION IN ALLOWING BAD DEBT CLAIM TO THE EXTENT OF ` 58,25,654/-. THE A.O. NOTICED THAT THE ASSESSEE CLAIMED AN EXPENDITURE OF ` 58,25,655/- AS AMOUNT NOT RECOVERABLE. THE A.O. WAS OF THE VIEW THAT AS THE A SSESSEE WAS NOT IN MONEY LENDING BUSINESS, THE CLAIM CANNOT BE ALLOWED, AS T HE PROVISIONS OF SEC. 36(2) HAVE NOT BEEN SATISFIED. HE FURTHER HELD THAT THE L OSS IS A CAPITAL LOSS, THE SAME CANNOT BE ALLOWED TO THE ASSESSEE. THE ASSESSE E SUBMITTED BEFORE THE CIT(A) THAT THE ASSESSEE IS IN THE MONEY LENDING BU SINESS AND FILED DETAILED EXPLANATION ON FACTS AS WELL AS LEGAL ISSUES WITH N ECESSARY SUPPORTING EVIDENCE TO CONTEST THAT MONEYS WERE ADVANCED IN TH E COURSE OF ORDINARY COURSE OF BUSINESS, THE INTEREST THEREON WAS OFFERE D AS INCOME FROM BUSINESS IN EARLIER YEARS, AND THE ASSESSEE TOOK STEPS TO RE COVER THE AMOUNT AND FURNISHED THE POLICE COMPLAINTS GIVEN. IT WAS FURTH ER SUBMITTED THAT THESE AMOUNTS HAVE BECOME BAD. THEREFORE, THEY WERE WRITT EN OFF. AFTER CONSIDERING THE ISSUE FACTUALLY SUPPORTED BY VARIOUS LEGAL DECI SIONS, THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE. THE REVENUE IS AGGRIEVED . 4. BEFORE US, THE LEARNED D.R. SUBMITTED THAT THE A SSESSEE WAS NOT IN MONEY LENDING BUSINESS AND HAS NEVER OFFERED THE IN COME AS BUSINESS INCOME AND HAS RELIED ON THE DECISION OF THE HONBL E ALLAHABAD HIGH COURT IN THE CASE OF ROOP NARAIN RAM CHANDRA VS. ADDL. CIT 1 12 ITR 890 (ALL) AND FURTHER IN THE CASE OF CIT VS. MURLI INVESTMENT CO. 65 CTR 5 (RAJ). 5. THE LEARNED A.R., HOWEVER, SUBMITTED THAT THE AS SESSEE WAS ADVANCING FUNDS IN THE COURSE OF BUSINESS AND HAS OFFERED THE INTEREST INCOME THEREON. IT WAS ALSO FURTHER HIS CONTENTION THAT IN MONEY LE NDING ACTIVITY THERE IS NO LICENCE REQUIRED FOR INDIVIDUALS AND NEED NOT BE A BUSINESS ACTIVITY IN THE STRICT SENSE AS THE PROVISIONS ARE APPLICABLE IF IT IS SATISFIED THAT MONEYS ARE LENT IN THE COURSE OF BUSINESS. HE RELIED ON THE FI NDINGS OF THE CIT(A) AND MORE PARTICULARLY THE DECISION OF THE HONBLE SUPRE ME COURT IN THE CASE OF B.D. BHARUCHA VS. CIT (65 ITR 403) (SC). THE LEARNE D COUNSEL ALSO FURTHER ITA NO.1059/MUM/2010 SHRI NAZIM S. MANEKIA . 3 SUBMITTED THAT THIS ISSUE WAS ALSO CONSIDERED BY TH E SPECIAL BENCH OF ITAT IN THE CASE OF SHREYAS S. MORAKIA REPORTED IN 3 ITD (TRIB) 1 (SB) WHICH, IN TURN, RELIED ON THE DECISION OF HONBLE SUPREME COU RT IN THE CASE OF CIT VS. T. VEERABHADRA RAO, K. KOTESWARA RAO & CO. 155 ITR 152. 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE FA CTS AND LEGAL PROVISIONS. THERE IS A FINDING BY THE CIT(A) THAT T HE ASSESSEE HAS ADVANCED FUNDS TO M/S. CIGS MARKETING (INDIA) P. LTD., S.G. ENTERPRISES AND MRS. SUDHA SARAF TOTALING ` 58,25,624/- AND INTEREST HAS BEEN OFFERED ON THE ABOVE AMOUNTS IN THE EARLIER YEARS. IT IS ALSO ON R ECORD THAT THE ASSESSEE WAS OFFERING INTERESTS IN ASSESSMENT YEAR 1999-2000 ONW ARDS WHICH HAS BEEN ACCEPTED BY THE REVENUE. IT IS ALSO ON RECORD THAT THIRD PARTIES ARE ABSCONDING AND EFFORTS WERE MADE TO TRACE THE PARTI ES BY FILING COMPLAINT WITH THE CRIME BRANCH OF MUMBAI POLICE AND THE MATT ER WAS ALSO CONSIDERED BY THE HONBLE ADDL. METROPOLITAN MAGISTRATE, 19 TH COURT, ESPLANADE, MUMBAI. IN VIEW OF THE STEPS TAKEN IN RECOVERING TH E AMOUNTS, THERE IS NO DOUBT THAT THE AMOUNTS ADVANCED TO THE ABOVE PARTIE S HAVE BECOME BAD. 7. THE NEXT ISSUE TO BE CONSIDERED IS WHETHER THE A BOVE AMOUNT CAN BE ALLOWED TO BE WRITTEN OFF. SINCE THERE IS A FINDING THAT THE ASSESSEE HAS ADVANCED MONEYS IN THE COURSE OF BUSINESS ACTIVITY, THE MONEY LENT IN THE COURSE OF BUSINESS ACTIVITY, IF IT IS NOT RECOVERED , CAN BE CLAIMED BAD DEBT BY VIRTUE OF THE PROVISIONS OF SEC. 36(2). THE LEARNED CIT(A) ELABORATELY DISCUSSED THE ISSUE VIDE PARAS 2.27 TO 2.37 OF HIS ORDER. HIS ULTIMATE FINDINGS ON THE ISSUE AFTER CONSIDERING THE FACTS AND LEGAL ISSUES ARE AS UNDER: - 2.36 IN VIEW OF THE ABOVE DISCUSSION, THE ASSESSIN G OFFICER IS NOT JUSTIFIED IN NOT ALLOWING CLAIM OF BAD DEBT OF RS.5 8,25,624/- AGAINST BUSINESS INCOME AS THE MONEY WAS ADVANCED DURING TH E COURSE OF BUSINESS AS MONEY LENDER AND THE AMOUNT HAS BEEN WR ITTEN OFF IN THE BOOKS OF ACCOUNTS AS BAD DEBTS WHICH HAS BEEN ADMIT TED BY THE ASSESSING OFFICER ALSO. THE ASSESSING OFFICER IS DI RECTED TO DELETE THE ADDITION OF RS.58,25,654/-. THE APPELLANT WOULD GET RELIEF OF RS.58,25,654/-. THE LEARNED CIT(A) EXAMINED THE ISSUE IN DETAIL. WE DO NOT INTEND TO REPEAT HIS FINDINGS AGAIN. SUFFICE IT TO SAY THAT THERE IS NO NEED TO DISTURB HIS ORDER. ITA NO.1059/MUM/2010 SHRI NAZIM S. MANEKIA . 4 THE CASE LAW RELIED UPON BY THE LEARNED COUNSEL ARE ALSO SUPPORTING THE ASSESSEES CASE. IN VIEW OF THIS, THE REVENUES GRO UND IS REJECTED. 8. THE NEXT ISSUE FOR CONSIDERATION IS THE CLAIM OF INTEREST ALLOWED BY THE CIT(A). THE A.O. RESTRICTED THE CLAIM OF INTEREST O F ` 3,28,000/- TO ` 1,79,687/- TO THE EXTENT OF INCOME RECEIVED. THE LEARNED CIT(A ), AFTER CONSIDERING THE DETAILED SUBMISSIONS OF THE ASSESSEE, GAVE THE FOLL OWING FINDING WHILE ALLOWING THE AMOUNTS: - 3.4 I HAVE CAREFULLY CONSIDERED THE REPLY GIVEN BY THE APPELLANT AND PERUSED THE ASSESSMENT ORDER. THE APPELLANT HAS RAISED LOAN FOR THE PURPOSE OF BUSINESS AND INTEREST INCOME OF RS.1 ,79,687/- HAS BEEN SHOWN DURING THE YEAR. THE APPELLANT HAD GIVEN LOAN TO THE DEBTORS WHICH HAS BEEN CLAIMED AS BAD DEBTS. THE AS SESSING OFFICER HAS ACCEPTED THE PRINCIPAL AMOUNT OF LOAN RECEIVED AS GENUINE THERE IS NO REASON IN DISALLOWING PART INTEREST CLAIMED. THE ASSESSING OFFICER DIRECTED TO ALLOW INTEREST EXPENDITURE TO T HE EXTENT OF RS.3,28,000/-.THE APPELLANT WOULD GET RELIEF OF RS. 1,48,313/-. 9. IT WAS THE CONTENTION OF THE LEARNED D.R. THAT T HE ASSESSEE HAS NOT FILED CONFIRMATIONS WITH REFERENCE TO INTEREST PAYMENTS A ND, THEREFORE, THE CIT(A) ERRED IN ALLOWING THE AMOUNT AS CONTESTED IN THE GR OUND RAISED. 9.1 THE LEARNED A.R. SUBMITTED THAT THE A.O. ASKED ONLY FOR THE DETAILS OF NEW LOANS TAKEN DURING THE YEAR AND NEVER ASKED FOR CONFIRMATIONS OF INTEREST PAID ON THE LOANS OBTAINED IN EARLIER YEAR S BUT THE ASSESSEE HAS FILED COMPLETE DETAILS BEFORE THE CIT(A) WHICH WERE SENT ON REMAND TO THE A.O. THEREFORE, THERE IS NO NEED FOR DIFFERING FROM THE FINDING OF THE CIT(A). 10. AFTER CONSIDERING THE RIVAL ARGUMENTS AND EXAMI NING THE FACTS ON RECORD, WE ARE OF THE OPINION THAT THERE IS NO MERI T IN THE REVENUES CONTENTION. AS SEEN FROM THE QUESTIONNAIRE ISSUED B Y THE A.O., PLACED IN THE PAPER BOOK, THE ASSESSEE WAS ASKED FOR CONFIRMATION WITH REFERENCE TO THE NEW LOANS AND THERE WAS ENQUIRY OR FURNISHING OF CO NFIRMATION/DETAILS OF INTEREST PAID. THE ASSESSEE FURNISHED COMPLETE DETA ILS OF INTEREST PAID AND RECEIVED FROM ASSESSMENT YEAR 2001-02 TO ASSESSMENT YEAR 2003-04 AND ON THE BASIS OF THE THESE THE CIT(A) ALLOWED THE AMOUN TS. WE DO NOT FIND ANY REASONS TO DIFFER FROM THE FINDING OF THE CIT(A) AS THE ASSESSEE HAS PAID HAD PAID THE INTEREST AND WAS ALSO OFFERING THE INTERES T. THEREFORE, THERE IS NO ITA NO.1059/MUM/2010 SHRI NAZIM S. MANEKIA . 5 REASON TO DISALLOW PART INTEREST RESTRICTING TO THE AMOUNT OF INTEREST RECEIVED. THE ACTION OF THE A.O. CANNOT BE JUSTIFIED. IT IS A LSO ON RECORD THAT THE ASSESSEE FURNISHED THE DETAILS OF INTEREST PAID. TH EREFORE, THE GROUND RAISED IS ALSO NOT CORRECT. FOR THESE REASONS, THE REVENUE S GROUND IS REJECTED. 11. THE LAST ISSUE FOR CONSIDERATION IS THE ACTION OF THE A.O. IN DISALLOWING RENTAL EXPENSES TO THE EXTENT OF ` 80,000/- WHICH WAS RESTRICTED TO 50% BY THE CIT(A). THE A.O. NOTICED THAT OUT OF TOTAL AMOU NT OF ` 17,97,791/- REPRESENTING INCOME FROM OTHER SOURCES, AN AMOUNT OF ` 16,18,104/- WAS FROM DIVIDEND INCOME AND ONLY AN AMOUNT OF ` 1,79,687/- WAS FROM INTEREST INCOME. THEREFORE, WHILE DISALLOWING PART OF THE IN TEREST PAID, CONSIDERED IN ISSUE NO. 2 ABOVE, HE ALSO DISALLOWED THE CAR RENTA L EXPENSES OF ` 80,000/- AS PERSONAL EXPENDITURE. BEFORE THE CIT(A), IT WAS SUB MITTED THAT THE ASSESSEE CLAIMED CAR RENTAL EXPENSES AS IT WAS NECESSARY FO R THE ASSESSEE TO VISIT VARIOUS PARTIES TO ASSESS THEIR ESTABLISHMENT AND T O CRYSTALLIZE AND DEMONSTRATE THE STATUS OF CUSTOMERS, AND SINCE THE ASSESSEE IS IN THE BUSINESS OF MONEY LENDING, MAINTENANCE OF CAR IS RE QUIRED, WHICH WAS TAKEN ON HIRE. CONSIDERING THE EXPLANATION OF THE ASSESSE E, THE CIT(A) ALLOWED PARTLY RESTRICTING TO 50% OF THE CLAIM AS THE BALAN CE IS CONSIDERED TO BE NOT FOR THE PURPOSE OF BUSINESS. 12. AFTER CONSIDERING THE ARGUMENTS OF THE LEARNED D.R. AND THE LEARNED COUNSEL, WE ARE OF THE OPINION THAT THERE IS NO NEE D TO DISTURB THE FINDING OF THE CIT(A) AS THE ASSESSEE HAS NOT CONTESTED THE 50% DI SALLOWANCE. CONSIDERING THE NATURE OF ACTIVITIES CARRIED ON BY THE ASSESSEE AND THE FACT THAT THE ASSESSEE OFFERED INCOME FROM ADVANCING LOANS, THE CLAIM OF C AR RENTAL EXPENSES ALLOWED BY THE CIT(A) IS REASONABLE. THEREFORE, THE REVENUE S GROUND IS REJECTED. 12. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH OCTOBER 2011. SD/- SD/- (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 14 TH OCTOBER 2011 ITA NO.1059/MUM/2010 SHRI NAZIM S. MANEKIA . 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXVIII, MUMBAI 4. THE CIT XVIII, MUMBAI CITY 5. THE DR, I BENCH, ITAT, MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI NG: