ITO, Ward-4(3), Kolkata, Kolkata V. M/S. Aachman Vanijya Pvt. Ltd., Kolkata

ITA 112/KOL/2015

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 0672 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 10 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-12-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 22-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAURABH KUMAR CIT LD
• Assessee Lawyers: GIRISH SHARMA LD
• Keywords: Capital asset; Business expenditure; Bad and doubtful debts
• Section: 143(3); 142(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL : B BE NCH, KOLKATA BEFORE : SHRI P.M. JAGTAP,ACCOUNTANT MEMBE R AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER ITA NO. 112/KOL/2015 A.Y 2010-11 I.T.O., WARD 4(3),KOLKATA VS. M/S. AACHMAN VANIJYA PVT.LTD PAN AACCA 5165H [APPELLANT ] [RESPONDENT ] APPELLANT BY : SHRI SAURABH KUMAR, ADDL.CIT, LD.DR RESPONDENT BY : SHRI GIRISH SHARMA, ADVOCATE, LD.AR DATE OF HEARING : 09-10-2017 DATE OF PRONOUNCEMENT : 20-12-2017 ORDER SHRI S.S.VISWANETHRA RAVI, JM: THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER DT. 13-11-2014 OF THE CIT-A, IV, KOLKATA FOR THE A.Y 2010-11. 2. THE ONLY ISSUE IS TO BE DECIDED AS TO WHETHER TH E CIT-A JUSTIFIED IN DELETING THE IMPUGNED ADDITION MADE ON ACCOUNT OF BAD DEBT WRITTEN OFF IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS RELATING TO THE ISSUE IN HAND AR E THAT THE ASSESSEE IS A NON-BANKING FINANCE COMPANY, IN SHORT NBFC HEREINAFTER AND DEALING IN GIVING LOANS, ADVANCES A ND INVESTMENTS. THE ASSESSEE FILED ITS RETURN OF INCOME SHOWING INC OME AT RS. NIL. NOTICES U/S. 143(2) AND 142(1) OF THE ACT WERE ISSU ED. IN RESPONSE TO WHICH, THE LD.AR OF THE ASSESSEE APPEARED FROM TIM E TO TIME AND PRODUCED NECESSARY DOCUMENTS AND EVIDENCES, BOOKS O F ACCOUNT, LEDGER, CASH BOOK, PURCHASE AND SALE REGISTER AND B ANK STATEMENTS ETC. THE AO FOUND THAT THE ASSESSEE CLAIMED EXPENDI TURE UNDER THE HEAD BAD DEBT WRITTEN OFF TO AN EXTENT OF RS.2,59 ,67,905/- IN ITS PROFIT & LOSS ACCOUNT AND REQUESTED THE ASSESSEE TO FURNISH THE DETAILS OF SAID EXPENDITURE. THE ASSESSEE FILED A L ETTER DT. 21-05-2012 ITA NO. 112/KOL/2015 M/S.ACHMAN VANIJYA PVT.LTD 2 STATING THAT IT HAD GIVEN LOAN TO MR. KALPESH NAVIN CHANDRA DAFTARI IN SHORT K.D HEREINAFTER @ 18% INTEREST P.A AND THE S AID PERSON TURNED OUT TO BE A SCRUPULOUS AND FRAUDULENT ELEMENT, WHIC H RESULTED IN BAD DEBT OF RS.2,59,67,905/- FOR NON RECOVERY OF THE SA ME. 4. ON EXAMINATION OF LEDGER ACCOUNT OF MR. K.D, THE AO FOUND THAT THE PAYMENTS TOTALING TO RS. 9,67,00,000/- WERE MAD E TO VANI EXPORTS BETWEEN 12-03-2010 TO 31-03-2010 AND ASSESS EE RECEIVED PAYMENTS TO AN EXTENT OF RS.7,07,32,095/- FROM M/S. SHIVANGI ENTERPRISES. THE AO DOUBTED THE EXPORT TRANSACTION THAT IT HAPPENED IN THE SHORT SPAN OF 07 DAYS AND ASKED THE ASSESSEE VIDE A LETTER DT. 06-12-2012 WHETHER ANY LEGAL STEP HAS BEEN TAKEN TO REALIZE THE DEBT AND TO GIVE NAMES OF ALL COMPANIES OR FIRMS, I N WHICH MR. K.D WAS MAJOR SHAREHOLDER. THE ASSESSEE FILED REPLY DT . 17-12-2012 STATING THAT IT HAS NO INFORMATION IN RESPECT OF PR OVISION FOR MR. K.D. 5. THEREAFTER, THE AO ISSUED SHOW CAUSE NOTICE DT. 31-12-2012 TO ASSESSEE TO EXPLAIN THE NEXUS BETWEEN MR. K.D WITH THAT OF SAID TWO COMPANIES I.E M/S.VANI EXPORTS & M/S. SHIVANGI ENTE RPRISES AND ASKED THE ASSESSEE HOW AN AMOUNT WHICH HAS NEVER BE EN CREDITED IN THE PROFIT & LOSS ACCOUNT IN ANY YEAR CAN BE DEBITE D IN THE PROFIT & LOSS ACCOUNT AS BAD DEBT AND HOW THE BALANCE AMOUNT OF RS.2,59,67,905/- CAN BE WRITTEN OFF AS BAD DEBT, WH EN PART PAYMENT OF RS.4,90,000/- RECEIVED ON 31-03-2010. 6. IN RESPONSE TO WHICH, THE ASSESSEE FILED WRITTE N SUBMISSION DT. 18-02-2013 STATING THAT THE SAID TWO COMPANIES AS A BOVE, WERE CREDITORS AND DEBTORS OF MR. K.D AND STATED THAT MO NEY WAS ADVANCED TO SAID MR. K.D IN THE COURSE OF MONEY LEN DING BUSINESS AND BOARD DECIDED TO WRITE OFF THE SAME (BAD DEBT) AS THERE WAS NO CHANCE OF IMMEDIATE RECOVERY, AS MR. K.D WAS ABSCON DING. THE AO FOUND THAT THE SUBMISSIONS OF THE ASSESSEE WAS NOT ACCEPTABLE AND ITA NO. 112/KOL/2015 M/S.ACHMAN VANIJYA PVT.LTD 3 DISALLOWED THE AMOUNT OF RS.2,59,67,205/- UNDER THE HEAD BAD DEBT WRITTEN OFF AND ADDED THE SAME TO THE TOTAL INCOM E OF THE ASSESSEE BY AN ORDER DT. 04-03-2013 PASSED U/S. 143(3) OF TH E ACT BY STATING AS UNDER:- 3.3. IN VIEW OF THE ABOVE FACTS THE ASSESSE WAS ISS UED A LETTER DATED 06-12-2012, REQUIRING HIM TO FURNISH THE DETAILS IN RESPECT OF A) WHETHER ANY LEGAL STEPS WAS TAKEN TO REALIZE THE DEBT AND WHETHER ANY MONEY SUIT AS FILE D IN THIS CASE. B ) TO GIVE THE NAMES OF ALL THE COMPANIES OR FIRMS IN WHICH SHRI KALPESH DAFTARI WAS THE MAJOR SHARE HOLDER , DIRECTOR OR PARTNER/ PROPRIETOR DURING THE RELEVANT PERIOD. IN RESPONSE TO THE ABOVE QUERY THE ASSES SE COMPANY FILED A WRITTEN RE PLY DATED 17-12-2012 STATING THAT' A) WE HAVE NO INFORMATION AVAILABLE WITH RESPECT TO DIRECTORSHIPS IN OTHER COMPANIES AS WELL AS HIS ASSOCIATION AS PARTNER/ PROPRIETOR WITH OTHERS B) THAT NO LEGAL STEPS OR MONEY SUIT WAS FILED AS THE PERSON WAS ABSCONDING AND LAT ER BEHIND BARS ON GETTING ARRESTED. 3.4. THEREAFTER A SHOW CAUSE NOTICE DATED 31-12-201 2 WAS ISSUED TO THE ASSESSE REQUIRING HIM TO EXPLAIN THE FOLLOWING ' A) ON VERI FICATION OF THE LEDGER FILED BY YOU, IT IS SEEN THAT AMOUNT OF RS. 9,67,00,0001- WAS PAID TO V ANI EXPORTS TOWARDS LOAN FROM 12- 03-2010 TO 31-03-2010, IN A SHORT SPAN OF 19 DAYS A ND OUT OF WHICH YOU RECEIVED PAYMENT OF RS. 7,07,32,0951- FROM SHIVANGI ENTERPRI SES FROM THE PERIOD OF 25-03-2010 TO 31-03-2010 (6 DAYS). PLEASE EXPLAIN THE NEXUS OF MR. KALPESH NAVIN CHANDRA DAFTARI WITH THE ABOVE TWO CONCERNS. B ) IT WAS ALSO NOTICE D BY THE UNDERSIGNED THAT THE ASSESSE COMPANY HAD GIVEN LOAN WHICH IS A CAPITAL ASSETS TO MR. KALPESH NAVIN CHANDRA DAFTARI AND AT THE END OF THE FINANCIAL YEAR THE AMOUNT OF RS. 2,59,67,905/- WHICH WAS DUE FROM HIM HAD BEEN WRITTEN OFF AS BAD DEBT. BUT THE AMOUN T OF RS. 2,59,67,9051- WHICH HAS BEEN WRITTEN OFF AS BAD DEBT HAS NEVER BEEN OFFERED FOR TAXATION IN THE EARLIER YEAR. YOU ARE THEREFORE REQUESTED TO EXPLAIN AS TO HOW AN AMO UNT WHICH HAS NEVER BEEN CREDITED IN THE PROFIT & LOSS ACCOUNT IN ANY YEAR CAN BE DEB ITED IN THE P& L ACCOUNT AS BAD DEBT. C) IT IS ALSO OBSERVED FROM THE LEDGER ACCOUNT OF M R. KALPESH NAVIN CHANDRA DAFTARI THAT TRANSACTION WITH HIM STARTED ON 12-03-2010 AND EVEN AFTER RECEIVING RS. 4,90,00,000/- ON 31-03-2010 FROM THAT PERSON, HOW CAN THE BALANCE AMOUNT BE WRITTEN OFF AS BAD DEBT FROM THE BOOKS ? YOU ARE REQUESTED TO EXPLAIN THE REASON FOR DOING SO. D) YOU HAVE ALSO STATED VIDE LETTER DATED 17-12-2012 THAT NO LE GAL STEPS OR MONEY SUITS WAS FILED BY YOU AGAINST THE ABOVE PERSON OR NO STEPS WERE TAKEN BY YOUR COMPANY FOR THE RECOVERY OF THE GIVEN LOAN. KEEPING IN CONSIDERATION ALL THE ABOVE FACTS, YOU ARE HEREBY REQUESTED TO SHOW CAUSE IN WRITING AS TO WHY THE ENTIRE AMOUN T OF RS. 2,59,67,9051- DEBITED IN PROFIT & LOSS ACCOUNT UNDER THE HEAD BAD DEBT WRITT EN OFF, SHALL NOT BE DISALLOWED AND ADDED THE TOTAL INCOME OF THE RELEVANT YEAR. ' IN RESPONSE TO THE ABOVE MENTIONED SHOW CAUSE NOTI CE, THE ASSESSE FURNISHED A WRITTEN SUBMISSION DATED 18-0 1- 2013, STATING THAT IT WAS ON INSTRUCTION OF SHRI KALPESH NAVIN CHANDRA DAFTARI AND ON HIS BEHALF THE AMOUNT WAS PA ID TO VANI EXPORTS. AS PER INFORMATION THE VANI EXPORTS ANDSHIVANGI ENTERPRISE S WERE BOTH CREDITORSL DEBTORS OF KALPESH DAFTARI. FURTHER THE ASSESSE ARGUED THAT TH E ASSESSE COMPANY IS A NBFC CARRYING ON THE MAIN BUSINESS OF ADVANCEMENT OF LOA NS AND THE AMOUNT LENT TO KALPESH DAFTARI WAS ABSOLUTELY IN THE ORDINARY COURSE OF MO NEY LENDING BUSINESS AND AS NO MONEY WAS RECOVERED AFTER 31-03-2010 AND AS KALPESH DAFTARI WAS ABSCONDING THE BOARD TOOK THE DECISION TO WRITE OFF IN THE SAME YE AR AS THERE WAS NO CHANCE OF IMMEDIATE RECOVERY. 3.5. AFTER GOING THROUGH THE SUBMISSION FILED BY TH E ASSESSE AND THE DETAILS AND DOCUMENTS AVAILABLE ON RECORD, IT HAS BEEN OBSERVED THAT DURING THE RELEVANT FINANCIAL YEAR THE ASSESSE HAD MADE PAYMENTS ON VARIOUS DATES FROM 12-03-2010 TO 31-03- 2010 , TOTAL AMOUNTING TO RS. 9,67,00,000/- TO VANI EXP ORTS AS PER THE INSTRUCTION OF SHRI KALPESH DAFTARI . BUT THE ASSES SE COMPANY ALSO REC EIVED THE PAYMENTS FROM 25-03-2010 TO 31-03-2010 TOTAL AMOUNTING TO RS. 7,07,32,095 1- FROM SHIVANGI ENTERPRISES. THE WAS ALSO NOTED THAT IN SPITE OF RECEIVING BACK AMOUNT O F RS. 7,07,32,0951- IN THE SHORT SPAN OF 07 DAYS AND THE PAYMENT OF RS. 4,90,00,0001- BEI NG RECEIVED ON 31-03-2010 ITSELF, THE ASSESSE DECLARED THE REMAINING LOAN OF RS. 2,59 ,67,905/- ON 01-04-2010 AS THE BAD DEBT WRITTEN OFF FROM ITS ACCOUNT. FURTHER THE ASSE SSE HAS ALSO NOT TAKEN ANY LEGAL STEPS FOR RECOVERY OF THE LOAN GIVEN BUT HAS IN THE SAME YEAR WRITTEN IT OFF AS BAD DEBT. HENCE THE MERE FACT THAT KALPESH NAVIN CHANDRA DAFTARI TO WHOM THE LOAN WAS GIVEN AT THE FAG END OF THE FINANCIAL YEAR IS BEHIND BARS DOES NOT P ROVE THAT THE LOAN HAS BECOME IRRECOVERABLE AND CAN BE WRITTEN OFF FROM THE ACCOU NTS OF THE SAME FINANCIAL YEAR IN WHICH IT WAS GIVEN IN SPITE OF RECEIVING THE PAYMEN T OF RS. 4,90,00,000/- ON 31-03-2010 . DURING THE COURSE OF THE SCRUTINY PROCEEDING THE ASSESSE WAS UNABLE TO EXPLAIN THE NEXUS BETWEEN SHRI KALPESH DAFTARI AND THE TWO COMP ANIES NAMED VANI EXPORTS AND ITA NO. 112/KOL/2015 M/S.ACHMAN VANIJYA PVT.LTD 4 SHIVANGI ENTERPRISES WHO RECEIVED AND PAID THE LOAN S RESPECTIVELY. FURTHER TO WRITE OFF A DEBT, THERE SHOULD BE AN EXISTING DEBT , BUT IN THI S CASE NO SUCH LOAN TO SHRI KALPESH DAFTARI HAS BEEN REFLECTED IN THE BALANCE SHEET OF THE ASSESSE COMPANY AS ON 31-03- 2010. THE ASSESSE WAS ALSO UNABLE TO FURNISH THE I. T. DETAILS SUCH AS , I.T. RETURN FILING DETAILS, AND DETAILS OF THE BUSINESS ACTIVITIES OF SHRI KALPESH DAFTARI , VANI EXPORTS AND SHIVANGI ENTERPRISES, HENCE THE GENUINENESS OF THE LOAN TRANSACTION IS DOUBTFUL AND UNVERIFIABLE DUE TO ASSESSEE'S INABILITY TO FURNISH THE ABOVE DETAILS. 3.6. IN VIEW OF THE ALL THE ABOVE FACTS, THE EXPLAN ATION OF THE ASSES SE IS NOT AT ALL TENABLE AND THE ASSES SE HAS FAILED TO ESTABLISH TH E FACT THAT THE LOAN HAS BECOME A BAD DEBT IN THE RELEVANT FINANCIAL YEAR. THEREFORE THE CLAIM OF THE ASSESSE IS REJECTED AND THE ENTIRE AMOUNT OF RS.2,59,67,905/- DEBITED IN PROFIT & LOSS ACCOUNT UNDER THE HEAD BAD DEBT WRITTEN OFF, IS HEREBY ,DISALLOWED AND ADDED T O THE TOTAL INCOME OF THE ASSESSEE COMPANY OF THE RELEVANT YEAR.' 7. AGGRIEVED, THE ASSESSEE BEFORE THE CIT-A CONTEND ED THAT THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT PROVIDE S DEDUCTION THAT IF ANY BAD DEBT OR PART THEREOF WRITTEN OFF IN THE ACC OUNT IS SUFFICIENT FOR CLAIMING IT AS DEDUCTION. BEFORE HIM, THE ASSESSEE SUBMITTED THAT THE ASSESSEE ADVANCED SAID LOAN TO MR. K.D AND HAVING E NTANGLED IN ECONOMIC IRREGULARITIES, WHICH WARRANTED HIS ARREST AND COULD NOT RECOVER THE SAID LOAN. THE SAID LOAN WAS GIVEN IN T HE ORDINARY COURSE OF ASSESSEES BUSINESS AND, THE ASSESSEE IS ENTITLE D TO CLAIM THE SAME AS DEDUCTION U/S. 36(1)(VII) OF THE ACT. IN SU PPORT OF THE CONTENTION, THE ASSESSEE RELIED ON FOLLOWING CASE L AWS:- A. ALL GROW FIN. & INV. P.LTD 338 ITR 496(DEL) B. P.C.DHARMALINGA MUDALIAR 152 ITR 588(MAD.) C. MORGAN SECURITIES & CREDIT P.LTD 162 TAXMANN 12 4(DEL) D. AND OTHER CASE LAWS, WHICH AVAILABLE/MENTIONED IN THE ORDER OF THE CIT-A. 8. THE CIT-A CONSIDERING THE SUBMISSIONS AS WELL AS THE VARIOUS CASE LAWS AVAILABLE IN HIS ORDER HELD THAT BAD DEBT OF RS.2,59,67,905/- IS AN ALLOWABLE BUSINESS EXPENDITU RE BY OBSERVING AND STATING AS UNDER:- 4.2 I HAVE EXAMINED THE ASSESSMENT ORDER AS WELL AS THE WRITTEN SUBMISSION OF THE A.R. OF THE APPELLANT. ON EACH OF THE QUERIES RAISE D BY THE A.D. THROUGH HIS SHOW CAUSE LETTER DATED 31.12.2012, THE A.R. OF THE APPELLANT HAS GIVEN POINT-WISE REPLY. DURING THE ASSESSMENT PROCEEDINGS, DOCUMENTS LIKE LOAN APPLICA TION PAPERS OF MR. K.D. ALONG WITH A PHOTOCOPY OF HIS PAN CARD AND PASSPORT WERE ALSO PR OVIDED. M/S. VANI EXPORTS HAD ALSO GIVEN A CERTIFICATE CONFIRMING THE RECEIPT OF TOTAL PAYMENT OF RS. 9,67,00,000/-. THE A.O. WAS ALSO PROVIDED WITH INSTRUCTIONS OF MR. K.D. TO MAKE PAYMENT TO M/S. VANI EXPORTS. FURTHERMORE, ALL THE LEGAL PAPERS LIKE WARRANT OF A RREST OF MR. K.D. ISSUED BY THE DRI, THE BAIL PETITION OF MR. K.D. AND AFFIDAVIT FROM THE DR I CHALLENGING THE BAIL PETITION WAS ALSO MADE AVAILABLE TO THE A.O. ALL THESE PAPERS MAKE IT CLEAR THAT MR. K.D. WAS INVOLVED IN LARGE SCALE FINANCIAL IRREGULARITIES AND FORGERY, T HE QUANTUM OF WHICH AS ESTIMATED BY THE DRI WAS MORE THAN RS.60 CRORES. BEFORE HIS ARREST, MR. K.D. WAS ALSO ABSCONDING. IT WAS UNDER THESE CIRCUMSTANCES THAT THE BOARD OF DIRECTO RS OF THE APPELLANT COMPANY CONSIDERED IT PRUDENT TO PASS A RESOLUTION ON 30.08 .2010 GIVING APPROVAL TO THE WRITE OFF. THE RELEVANT EXTRACTS FROM THE BOARD RESOLUTION IS AS BELOW:- 'THE CHAIRMAN PLACED BEFORE THE MEETING THE FIFTEEN TH ANNUAL ACCOUNT OF THE COMPANY FOR THE YEAR ENDED 31ST MARCH, 2010. THE BOARD HERE BY APPROVES THE FOLLOWING WRITE OFF ITA NO. 112/KOL/2015 M/S.ACHMAN VANIJYA PVT.LTD 5 IN ACCOUNTS FOR THE YEAR: (A) BAD DEBTS RS, 2,59,67 ,905/- (B) DEFERRED REVENUE EXPENSES OF RS. 11,300/-. THEREFORE A GENERAL DISCUSSION TOOK PLACE ON THE AC COUNTS AND THE BOARD UNANIMOUSLY: 'RESOLVED THAT THE WRITE OFF OF BAD DEBTS OF RS. 2, 59,67,905/- AND DEFERRED REVENUE EXPENSES OF RS. 11,300/- INTO THE PROFIT & LOSS ACC OUNT FOR THE YEAR ENDED 31ST MARCH, 2010 BE AND IS HEREBY APPROVED. ' THE A.O. HAS ARGUED THAT UNLESS THE DEBT IS TAKEN I NTO ACCOUNT IN COMPUTING THE INCOME OF THE APPELLANT FOR THE PREVIOUS YEAR, IT CANNOT B E ALLOWED AS A DEDUCTION FOR BAD DEBT. THE A.O. HAS FAILED TO RECOGNIZE THAT THE PRIMARY B USINESS OF THE APPELLANT COMPANY IS MONEY LENDING AND IN SUCH CASES THE ONLY REQUIREMEN T IS THAT THE MONEY SHOULD HAVE BEEN LENT IN THE NORMAL COURSE OF BUSINESS. IT HAS BEEN HELD IN THE CASE OF P.C. DHARMALINGA MUDALIAR VS. CIT (1985) 152 ITR 588 BY THE HON'BLE HIGH COURT OF MADRAS THAT IN THE MONEY LENDING BUSINESS, THE MONEY LENT IS REGARDED AS STOCK-IN- TRADE AND WOULD BE TAKEN INTO REVENUE ACCOUNT. SIMILAR JUDGEM ENT HAS BEEN GIVEN BY THE HON'BLE HIGH COURT OF DELHI AT 338 ITR 496 IN THE CASE OF A N NBFC COMPANY. 4.3 REGARDING THE ARGUMENT OF THE A.O. THAT NO LEGA L STEPS HAVE BEEN TAKEN TO RECOVER THE MONEY, THE APEX COURT HAS ALREADY HELD THAT W.E .F 01.04.1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, H AS BECOME IRRECOVERABLE. RELEVANT ACCOUNTING ENTRIES ARE SUFFICIENT FOR MAKING CLAIM OF BAD DEBT. THE HON'BLE KOLKATA HIGH COURT IN THE CASE OF A.W.FIGGIS AND CO.(P) LTD. VS CIT (2002) REPORTED AT 123 TAXMAN 361 (CAL) HAS HELD THAT FILING OF CIVIL SUIT FOR RE COVERY OF DEBT IS NOT NECESSARY TO CLAIM THE BAD DEBT. FURTHERMORE, IT IS NOT EVEN NECESSARY FOR THE ASSESSEE TO PROVE THE YEAR IN WHICH THE DEBT ACTUALLY BECAME BAD [ITAT, KOLKATA I N THE CASE OF J.D CASTINGS AND FORGING (P) LTD VS ACIT REPORTED AT (1998) 100 TAXM AN 109)]. 4.4 IT HAS BEEN ARGUED BY THE A.D. THAT WHEN THE AP PELLANT IS RECEIVING BACK AN AMOUNT OF RS. 4,90,00,000/- EVEN AS ON 31.03.2010, HOW CAN THE BALANCE AMOUNT OF RS. 2,59,67,905/- BE CLAIMED AS BAD DEBT WRITTEN OFF ON THE SAME DATE. THE QUESTION THAT ARISES IS WHETHER THERE IS ANYTHING IN THE LANGUAGE OR THE ACT WHICH GIVES A TIME PERIOD FOR DECLARING A DEBT TO BE BAD. TO MY MIND THERE IS NOTHING IN THE LANGUAGE OF THE ACT TO SUGGEST THAT A DEBT CAN BE CALLED BAD ONLY AFTER A LAPSE OF CERTAIN TIME PERIOD. ON THE OTHER HAND, THE A.R. OF THE APPELLANT HAS CITED SEV ERAL CASES WHERE IT HAS BEEN HELD THAT THERE IS NO TIME PERIOD FOR A DEBT TO BECOME BAD. S OME OF THESE CASES CITED ARE:- 1) CIT VS. MORGAN SECURITIES AND CREDIT (P) LTD. 16 2 TAXMAN 124 (DELHI) 2) ACIT VS. PULLEN PUMP INDUSTRIES (2012) 20 TAXMAN 389GUJ) 3) JINDAL IRON & STEEL CO. LTD. VS. DCIT (2013) 33 'TAXMAN 96 (MUMBAI ITAT) 4.5 FROM THE ABOVE DISCUSSION IT IS CLEAR THAT NEIT HER THE TIME PERIOD FOR A LOAN TO BE CONSIDERED AS BAD DEBT NOR THE LACK OF LEGAL STEPS TO RECOVER THE MONEY ARE OF ANY RELEVANCE IN THE CASE OF THE APPELLANT. IT IS NOT E VEN NECESSARY FOR THE APPELLANT TO ESTABLISH THAT THE DEBT HAS BECOME IRRECOVERABLE [T RF LTD. VS. CIT 190 TAXMAN 391 (SC)]. IN MY OPINION, ONE VERY IMPORTANT ISSUE IS T O CONSIDER AND ASCERTAIN /WHETHER THE LOAN WAS GIVEN IN THE NORMAL COURSE OF BUSINESS OF THE APPELLANT. THIS ASPECT HAS BEEN OVERLOOKED BY THE A.O. WHILE CONSIDERING THE MERITS OF ALLOWABILITY OF BAD DEBTS. IT HAS BEEN HELD IN VARIOUS JUDICIAL PRONOUNCEMENTS THAT T HE LOANS MUST BE GIVEN IN THE NORMAL COURSE OF BUSINESS. I WILL, THEREFORE, ALSO EXAMINE ON THIS ASPECT WHILE DECIDING THE CASE OF THE APPELLANT. THE APPELLANT IS A NBFC AND ITS M AIN BUSINESS IS GIVING LOANS AND ADVANCES AND MAKING INVESTMENTS IN SHARES. I HAVE E XAMINED THE BALANCE SHEET OF THE APPELLANT COMPANY FOR THE YEAR ENDING ON 31.03.2010 . I FIND THAT LOANS AND ADVANCES DURING THE YEAR AMOUNT TO RS. 59.45 CRORES AND INVE STMENTS IN SHARES AMOUNT TO RS. 26.72 CRORES. CLEARLY FROM THE BALANCE SHEET OF THE COMPANY, GIVING LOANS AND ADVANCES APPEARS TO BE THE MAIN BUSINESS ACTIVITY. SIMILARLY , IN THE P & L A/E. FOR THE YEAR ENDING ON 31.03.2010, INCOME FROM FINANCIAL ACTIVITIES HAS THE LION'S SHARE AT RS. 4,35,79,437/-. THEREFORE, WHETHER WE CONSIDER THE QUANTUM OF FUND DEPLOYED FOR AN ACTIVITY OR THE INCOME FROM THAT ACTIVITY, IT BECOMES APPARENT THAT GIVING LOANS AND ADVANCES IS THE MAIN BUSINESS ACTIVITY OF THE APPELLANT. THE ISSUE THAT THEN ARISES IS AS TO WHETHER GIVING LOAN TO MR. K.D. WAS IN THE NORMAL COURSE OF BUSINE SS OF THE APPELLANT. THIS IS THE FIRST TIME THAT THE APPELLANT HAS GIVEN LOAN TO MR. K.D. AND MR. K.D. IS BASED AT MUMBAI WHEREAS THE APPELLANT IS BASED AT KOLKATA. DETAILS OF LOAN GIVEN OVER THE EARLIER YEAR AND SUBSEQUENT YEAR WAS CALLED FOR FROM THE A.R. OF THE APPELLANT AND IT WAS ALSO ASKED FROM THE A.R. OF THE APPELLANT AS TO HOW MR. K.D APPROAC HED THE APPELLANT FOR LOAN AS HE WAS BASED AT MUMBAI. THE A.R. OF THE APPELLANT HAS STAT ED THAT MUMBAI BEING THE FINANCIAL CAPITAL OF THE COUNTRY, LARGE PART OF HIS LOANS OVE R THE YEARS HAVE BEEN GIVEN TO VARIOUS PARTIES AT MUMBAI. A COMPLETE LIST OF LOAN GIVEN TO VARIOUS PARTIES ON CITY-WISE BASIS WITH FULL ADDRESS WAS PROVIDED FOR A.Y. 2009-10, A.Y. 20 10-11 AND A.Y. 2011-12. THIS LIST HAS BEEN ANALYZED AND MADE INTO A CHART AS BELOW:- ITA NO. 112/KOL/2015 M/S.ACHMAN VANIJYA PVT.LTD 6 PARTICULARS A.Y.2009-10 A.Y.2010-11 A.Y.2011- 12 TOTAL AMOUNT OF LOANS GIVEN 2907.42 5707.35 5920.87 AMOUNT OF LOAN TO PARTS IN MUMBAI 1431.17 3450.41 2 628.63 TOTAL NO. OF PARTIES TO WHOM LOAN GIVEN 27 38 36 TOTAL NO. OF PARTIES IN MUMBAI TO WHOM GIVEN 12 22 18 % OF NO. OF PARTIES IN MUMBAI TO WHOM GIVEN 44% 58% 50% FROM THE ABOVE CHART IT CAN BE OBSERVED THAT SUBSTA NTIAL AMOUNT OF THE LOAN OF THE APPELLANT HAS BEEN GIVEN TO VARIOUS PARTIES AT MUMB AI. IN FACT, DURING THE A.Y. 2010-11 WHICH IS UNDER CONSIDERATION, THE APPELLANT DISBURS ED 60%OF ITS TOTAL LOANS AMOUNTING TO RS. 34.50 CRORES TO VARIOUS PARTIES AT MUMBAI. IN T HE EARLIER YEAR AS WELL AS IN THE SUBSEQUENT YEAR TOO, SUBSTANTIAL AMOUNT OF THE LOAN HAS BEEN GIVEN TO VARIOUS PARTIES AT MUMBAI. THEREFORE, IT CAN BE CONCLUDED, THAT GIVING LOANS TO VARIOUS PARTIES AT MUMBAI WAS IN THE NORMAL COURSE OF THE BUSINESS OF THE APP ELLANT. ONE OF THE PERSONS AT MUMBAI TO WHOM LOAN HAS BEEN PROVIDED BY THE APPELLANT IS MR. PANKAJ VORA. MR. PANKAJ VORA'S GROUP COMPANIES HAVE BEEN PROVIDED LOANS TO THE EXT ENT OF RS.7.83 CRORES DURING A.Y. 2009-10, RS.10.23 CRORES DURING A.Y. 2010-11 AND RS . 3.62 CRORES DURING A.Y. 2010-11. THEREFORE, WITH MR.PANKAJ VORA THE APPELLANT HAD SU STAINED BUSINESS RELATIONSHIP OVER THE YEARS. IT WAS MR. PANKAJ VORA WHO HAD INTRODUCE D THE LOAN DEFAULTER MR. K.D. THE APPELLANT. SUCH DOCUMENTARY EVIDENCE IN THE FORM OF LETTER OF RECOMMENDATION FROM MR. PANKAJ VORA ABOUT MR. K.D. ADDRESSED TO THE APPELLA NT HAS BEEN PLACED ON RECORD. IN NUTSHELL, THE APPELLANT WAS IN A SUSTAINED BUSINESS OF ADVANCING LOANS AND SUBSTANTIAL PART OF ITS BUSINESS WAS GIVING LOANS TO PARTIES AT MUMBAI. ONE SUCH PARTY TO WHOM LOAN WAS GIVEN DURING A.Y.2010-11 WAS THE LOAN DEFAULTER MR. K.D. WHO WAS RECOMMENDED BY AN OLD CLIENT OF THE APPELLANT MR. PANKAJ VORA WITH WHOM THE APPELLANT HAD LONG BUSINESS RELATIONSHIP. THEREFORE, I WILL CONCLUDE THAT THE A PPELLANT HAD GIVEN LOAN TO MR. K.D. IN THE ORDINARY COURSE OF BUSINESS. THE HON'BLE SUPREM E COURT IN THE CASE OF INDIAN ALUMUNIUM CO. LTD. VS. CIT 79 ITR 514 HAS HELD THAT THE DEBT TO BE WRITTEN OFF SHOULD DIRECTLY SPRING FROM THE CARRYING ON OF A BUSINESS OR TRADE AND SHOULD BE INCIDENTAL TO IT. IN THE CASE OF THE APPELLANT, MONEY LENDING IS THE MAIN BUSINESS ACTIVITY AND IT IS ON ACCOUNT OF MONEY LENT TO MR. K.D. THAT THE BAD DEBT HAS ARISEN. I, THEREFORE, HOLD THAT THE APPELLANT HAD ADVANCED LOAN TO MR. K.D.IN THE O RDINARY COURSE OF HIS BUSINESS. THE ACTION OF THE A.O. TO DISALLOW BAD DEBT AMOUNTING T O RS. 2,59,67,905/- AND ADDING IT BACK TO THE INCOME OF THE APPELLANT CAN NEITHER BE SUSTAINED ON FACTS NOR ON LAW. BAD DEBT CLAIMED BY THE APPELLANT FOR RS. 2,59,67,905/- IS HELD TO BE AN ALLOWABLE BUSINESS EXPENDITURE. GROUND NO.2 OF THE APPEAL IS ALLOWED. 9. THE LD.DR SUBMITS THAT THE SAID AMOUNT WAS NOT D ECLARED AS INCOME OF EARLIER YEAR AND THE ASSESSEE IS NOT ENTI TLED TO CLAIM AS DEDUCTION. HE ALSO SUBMITS THAT THE ASSESSEE CLAIME D THE SAME AS EXPENDITURE SHOWN IN THE RETURN OF INCOME. THE CIT- A HAS GIVEN RELIEF BY OBSERVING THAT EXPENDITURE INCURRED DURING THE C OURSE OF ORDINARY BUSINESS, WHICH IS WRONG IN THE FACTS AND CIRCUMSTA NCES OF THE CASE. IN SUPPORT OF HIS CONTENTION, HE RELIED ON THE ORDE R OF THE AO IN DISALLOWING THE SAME. ON THE OTHER HAND, THE LD.AR OF THE ASSESSEE SUBMITS THAT THE LOAN WAS ADVANCED TO MR. K.D IN TH E ORDINARY COURSE OF BUSINESS AND FILED A DETAILED PAPER BOOK OF PAGE S 1-134, WHEREIN VARIOUS DETAILS AND EVIDENCES IN SUPPORT OF THE CLA IM OF ASSESSEE ON THIS ISSUE. THE LD.AR SUPPORTED THE ORDER OF CIT-A. ITA NO. 112/KOL/2015 M/S.ACHMAN VANIJYA PVT.LTD 7 10. HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIA L AVAILABLE ON RECORD INCLUDING THE DETAILED PAPER BOOK. THE ASSE SSEE IS A NBFC, WHICH IS CLEAR FROM PAGE NO. 63 OF PAPER BOOK. BEFO RE THE CIT-A THE ASSESSEE STATED THAT ITS OLD CUSTOMER, MR. PANKAJ V ORA INTRODUCED MR. K.D AND THE ASSESSEE ADVANCED RS. 10 CRORES TO SAID MR. K.D AND TO THAT EFFECT A LOAN APPLICATION OF MR. K.D IS AT PAG E 82 OF THE PAPER BOOK. IT IS OBSERVED THAT AT PAGE 81 OF THE PAPER B OOK, MR. K.D REQUESTED THE ASSESSEE TO ISSUE CHEQUES IN FAVOUR O F M/S. VANI EXPORTS. IT IS ALSO ON RECORD THAT OUT OF SAID AMOU NT THE ASSESSEE RECEIVED AN AMOUNT OF RS. 7,07,32,095/-AS ON 31-03- 2010. THE ASSESSEE FILED A COPY OF PETITION FILED BY THE CONC ERNED AUTHORITIES BEFORE THE ADDITIONAL CHIEF METROPOLITAN MAGISTRATE , WHICH ARE AVAILABLE AT PAGES 91-99 OF THE PAPER BOOK, SEEKIN G REMAND OF MR. K.D TO SHOW THAT MR. K.D IS ABSCONDING AND IT IS DI FFICULT TO RECOVERY THE AMOUNT LENT TO HIM. THE ASSESSEE PLACED RELIA NCE ON CBDT CIRCULAR NO. 12/2016 DT. 30-05-2016 AND TO THAT EF FECT THE ASSESSEE FILED P & L ACCOUNT AS ON 31-03-2010 AVAILABLE AT P AGE 53 OF THE PAPER BOOK, WHICH CLEARLY SHOWS THE BAD DEBT WAS W RITTEN OFF AT RS.2,59,67,905/-. ON PERUSAL OF THE CIRCULAR NO. 1 2/2016 AS RELIED ON BY THE ASSESSEE SHOWS THAT IT WAS ISSUED IN PUR SUANCE OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F TRF LTD REPORTED IN 190 TAXMAN. 391(SC). IT IS OBSERVED THAT THE MAI N INGREDIENTS TO CLAIM THE BAD DEBT WRITTEN OFF IN ACCORDANCE WITH T HE DECISION OF HONBLE SUPREME COURT IS THAT THE ASSESSEE HAS TO W RITE OFF BAD DEBT IN ITS BOOKS OF ACCOUNT AS IRRECOVERABLE AND THEN T HE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION FULFILLING THE CONDITIO NS AS PROVIDED IN SUB- SECTION (2) OF SECTION 36 OF THE ACT. 11. IN THE PRESENT CASE, THE CONDITION STIPULATED I N SEC 36(2) OF THE ACT WAS SATISFIED IN AS MUCH AS THE AMOUNT OF DEBT REPRESENTING MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF MO NEY LENDING, WHICH IS CARRIED ON BY THE ASSESSEE WAS WRITTEN OFF IN TH E BOOKS OF ACCOUNT AS ITA NO. 112/KOL/2015 M/S.ACHMAN VANIJYA PVT.LTD 8 IRRECOVERABLE. ON PERUSAL OF THE ORDER OF THE CIT- A, WE FIND THAT THE CHAIRMAN OF THE ASSESSEE COMPANY VIDE ITS BOARD MEE TING/BOARD RESOLUTION HAS APPROVED THE BAD DEBT OF RS.2,59,67, 905/-. WE FURTHER FIND THAT THE IMPUGNED LOAN, ON WHICH IMPUGNED BAD DEBT ARISEN, WAS GIVEN IN THE NORMAL COURSE OF BUSINESS, WHICH CANNO T BE IGNORED IN THE FACTS AND CIRCUMSTANCES OF THE CASE. THE CIT-A WAS JUSTIFIED THAT THE BAD DEBT CLAIMED BY THE ASSESSEE FOR AN AMOUNT OF R S.2,59,67,905/- IS HELD TO BE AN ALLOWABLE BEING BUSINESS EXPENDITURE. THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT-A IN HOLDING T HE SAME. ACCORDINGLY, WE DIRECT THE AO TO DELETE THE SAME. T HE GROUND RAISED BY THE REVENUE IN THE APPEAL IS DISMISSED. 12. IN THE RESULT, THE APPEAL FILED BY THE REV ENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 0-12-2017 SD/- SD/- P.M. JAGTAP S.S. VISWANETHRA RAVI ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 20-12-2017 PP(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT/REVENUE: THE INCOME TAX OFFICER, WARD 4(3 ), AAYKAR BHAWAN, 8 TH FLOOR, P-7, CHOWRINGHEE SQUARE, KOLKATA-69. 2 RESPONDENT/ASSESSEE: M/S. AACHMAN VANIJYA PVT. LTD MAIN BUILDING, 19 R.N MUKHERJEE ROAD, 2 ND FLOOR, KOLKATA-1. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER SR.P.S, HEAD OF OFFICE ITAT KOLKATA