Lalchand Mehrumal Jagwani, Pune V. Assistant Commissioner of Income-tax,

ITA 1342/PUN/2014

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 7211 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 14-11-2017
• Assessment Year: 2002-2003
• Appeal Filed On: 23-06-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: HARI KRISHAN
• Keywords: Capital asset; Business income; Search and seizure; Principle of natural justice; Rule of consistency; Bad and doubtful debts
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NO.1342/PUN/2014 / ASSESSMENT YEAR : 2002-03 LALCHAND MEHRUMAL JAGWANI, C/O. KIRAN KANANI & ASSOCIATES, 71A, RASTA PETH, OPP. ISREAL CHURCH, LEKRYA MARUTI ROAD, PUNE 411 011 PAN : ADSPJ8025F . /APPELLANT VS. ACIT, CENTRAL CIRCLE, AURANGABAD . / RESPONDENT ASSESSEE BY : SHRI HARI KRISHAN REVENUE BY : SMT. ACHAL SHARMA, ADDL.CIT / DATE OF HEARING : 14.11.2017 / DATE OF PRONOUNCEMENT: 17.11.2017 / ORDER PER D. KARUNAKARA RAO, AM : THIS IS THE APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF CIT(A)-AURANGABAD DATED 28-03-2014 FOR THE ASSESSME NT YEAR 2002-03. 2. ASSESSEE RAISED 4 GROUNDS IN THE APPEAL AND THE SAME ARE EXTRACTED AS UNDER : 1. THE LD.CIT(A) ERRED ON FACTS & LAW BY DISALLOWI NG THE CLAIM OF BAD DEBTS AMOUNTING TO RS.21,20,000/- BY TREATIN G THE SAME AS CAPITAL LOSS AND NOT A DEDUCTION U/S.36(1)(VII) AS BAD DEBTS IN A.Y. 2002-03. 2. THE LD.CIT(A) ERRED ON FACTS & LAW BY TREATING THE AMOUNT OF RS.21,20,000/- LENT BY THE ASSESSEE TO MR. GANJI AS CAPITAL ASSET INSTEAD OF A BUSINESS LOAN ON THE BASIS OF PRESUMPT ION & SURMISE. ITA NO.1342/PUN/2014 LALCHAND MEHRUMAL JAGWANI 2 3. THE LD.CIT(A) ERRED ON FACT & LAW BY DIRECTING T HE AO TO TREAT THE INTEREST INCOME DECLARED AND RETURNED BY THE ASSESSEE (& ACCEPTED BY THE AO) AS BUSINESS INCOME AS INCOME F ROM OTHER SOURCE BECAUSE THE ASSESSEE HAS NO MONEY LENDING L ICENSE. 4. THE LD.CIT(A) ERRED ON FACTS & LAW (OR THE BASIS OF ASSUMPTION & SURMISE) CONVENIENTLY OVERLOOKED THE R ETURNED INCOME OF RS.10,00,000/- IN A.Y. 2005-06 AS RECOVER Y OUT OF THE SAID BAD DEBTS & ACCEPTED BY THE LD. AO AS INCOME I N HIS ASSESSMENT ORDER U/S.153A W.E.F. 143(3) FOR A.Y. 20 05-06. 3. BEFORE US, DEVIATING FROM THE ISSUES RAISED IN T HE GROUNDS ABOVE, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CORE ISSUE MAY HAVE TO BE REMANDED TO THE FILE OF CIT(A) FOR F RESH ADJUDICATION. REFERRING TO THE FACTS IN BRIEF, LD. COUNSEL SUBMITTED THAT THIS IS A CASE WHERE ASSESSEE WAS NO T DOING ANY ACCOUNTED INVESTMENT ACTIVITY TILL THE SEARCH ACT ION U/S.132 UNEARTHED THE SAME. IT IS BORNE ON THE SEIZED DOCU MENT THAT THE ASSESSEE GRANTED LOANS AND ADVANCES TO CERTAIN CUST OMERS AND THE LOANS GIVEN TO MR. MOHD. ALI GANJI AMOUNTING TO RS.20 LAKHS IS ONE SUCH ADVANCE. ACCORDING TO LD. COUNSEL FOR THE ASSESSEE, THIS BUSINESS ACTIVITY CONSTITUTES AN INVESTMENT AC TIVITY. WHEN THE SAID ADVANCE WAS NOT RETURNED BY THE CUSTOMERS, BEING A BAD DEBT, THE SAME CONSTITUTES AN ALLOWABLE BUSINESS L OSS WHICH IS ALLOWABLE U/S.36 OF THE ACT. REVENUE DID NOT APPRE CIATE THE SAME AND PROCEEDED TO CONSIDER THE SAID BAD DEBT AS OF C APITAL NATURE AND ACCORDINGLY DENIED THE BENEFIT OF DEDUCTION AGA INST THE BUSINESS PROFITS. FURTHER, HE ALSO SUBMITTED THAT ASSESSEE RECEIVED THE SAID DEBT IN SUBSEQUENT ASSESSMENT YEA RS IN PART AND THE SAME WAS OFFERED TO TAX AS A BUSINESS INCOM E. REVENUE ACCEPTED THE SAME AND TAXED UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS OR PROFESSION. ITA NO.1342/PUN/2014 LALCHAND MEHRUMAL JAGWANI 3 4. LD. COUNSEL FOR THE ASSESSEE FURTHER ARGUED THAT THE REVENUE CANNOT TREAT THE ADVANCES LINKED BAD DEBTS AS OF CAPITAL NATURE AND TAX THE RECOVERED BAD DEBTS FROM THE CU STOMERS AS BUSINESS INCOME OF THE ASSESSEE IN THE LATER ASSE SSMENT YEARS. THUS, THE DEPARTMENT HAS TAKEN INCONGRUOUS STAND ON THIS ISSUE WHICH IS UNSUSTAINABLE IN LAW. FAIRLY, LD. COUNSEL SUBMITTED THAT CERTAIN FATS RELATING TO RECOVERIES OF BAD DEB TS ARE NOT AVAILABLE TO THE CIT(A). FOR THIS REASON, LD. COUN SEL FOR THE ASSESSEE SUBMITTED THAT ALL THE GROUNDS RAISED BY T HE ASSESSEE IN APPEAL MAY BE REMANDED TO THE FILE OF CIT(A) FOR UP HOLDING THE SET PRINCIPLE OF CONSISTENCY IN TREATING THE TRANSACTIO N EITHER AS BUSINESS INCOME OR OTHERWISE. 5. PER CONTRA, LD DR FOR THE REVENUE SUBMITTED THAT THE ASSESSEE NEVER RECORDED HIS INVESTMENT ACTIVITY AS A BUSINESS. IT IS THE DEPARTMENT WHICH UNEARTHED THE UNACCOUNTED A DVANCES GIVEN BY THE ASSESSEE. IN THAT CASE, ASSESSEE CANN OT CLAIM THE BAD DEBTS AS BUSINESS LOSS OF THE ASSESSEE. 6. ON HEARING BOTH THE PARTIES ON THIS LIMITED ISS UE, WE FIND THERE IS NO DISPUTE ON THE FACT OF NON-RECORDING OF THE GIVING LOANS AND ADVANCES AS BUSINESS OF THE ASSESSEE IN THE B OOKS OF ACCOUNT. THE SEARCH AND SEIZURE ACTION CONDUCTED O N THE ASSESSEE ON 23-09-2004 IN THE GROUP CASES OF M/S. R AMDEO OIL INDUSTRIES PVT. LTD. OF JALGAON, DUG OUT THE CONCEA LED UNACCOUNTED BUSINESS OF THE ASSESSEE. THERE IS REQ UIREMENT OF CLEAR CUT FINDING BY THE AUTHORITIES BELOW ON THE E XACT NATURE OF THE BUSINESS ACTIVITIES OF THE ASSESSEE, LEAVING AL ONE UNACCOUNTED BUSINESS ACTIVITIES OF THE ASSESSEE. CIT(A) IS DIR ECTED TO EXAMINE (1) UNACCOUNTED BUSINESS OF GIVING LOANS & ADVANCES FOR EARNING INTEREST, (2) THE CIRCUMSTANCES UNDER WHICH THE REC OVERIES OF THE ITA NO.1342/PUN/2014 LALCHAND MEHRUMAL JAGWANI 4 BAD DEBTS OUT OF SAID LOANS AND ADVANCES GIVEN BY T HE ASSESSEE AND (3) TAXING OF THE SAID RECOVERIES AS BUSINESS INCOME OF THE ASSESSEE IN THE LATER ASSESSMENT YEARS. 7. TO OUR MIND, REVENUE CANNOT TREAT THE SAID LOANS AND ADVANCES AS OF CAPITAL IN NATURE FOR DENYING THE DEDUCTION AND TAX THE RECOVERIES AS BUSINESS INCOME OF THE ASSE SSEE STATING THAT THE SAME FALLS IN THE REVENUE FIELD. WITH THE SE OBSERVATIONS, WE REMAND ALL THE GROUNDS RAISED BY THE ASSESSEE BE FORE US TO THE FILE OF CIT(A) FOR FRESH ADJUDICATION IN ACCORDANCE WITH THE SET PRINCIPLES OF NATURAL JUSTICE. ACCORDINGLY, ALL TH E GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSE S. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 17 TH DAY OF NOVEMBER, 2017. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 17 TH NOVEMBER, 2017. / COPY OF THE ORDER FORWARDED TO : BY ORDER // TRUE COPY // //TRUE COPY// SENIOR PRIVATE SECRETARY , / ITAT, PUNE THE APPELLANT THE RESPONDENT THE CIT(A) , AURANGABAD CIT , AURANGABAD % , , A BENCH PUNE; / GUARD FILE.