SHASHI CHOUDHARY, MUMBAI V. JCIT 21(2), MUMBAI

ITA 1477/MUM/2009

• Counselvise Citation: 147719914 RSA 2009
• Duration Of Justice: 2 year(s) 7 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 05-10-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-03-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: G P TRIVEDI
• Assessee Lawyers: M SUBRAMANIAN
• Keywords: Business income; Bad and doubtful debts

Judgement Text

1 ITA 1477/ M/2009, SHRI SHASHI CHOUDHARY ARUNODAYA IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E BEFORE SHRI R.S. PADVEKAR, J.M. AND SHRI R.K. PANDA , A.M. ITA NO. 1477/MUM/2009 ASSESSMENT YEAR 2005-06 SHRI SHASHI CHOUDHARY ARUNODAYA, BAPUBHAI VASHI ROAD, VILE PARLE (WEST), MUMBAI - 400 056. PAN ABDPS 8373 G VS. JCIT 21(2) MUMBAI. APPELLANT RESPONDENT APPELLANT BY MR. M. SUBRAMANIAN RESPONDENT BY MR. G.P. TRIVEDI DATE OF HEARING 5.10.2011 DATE OF PRONOUNCEMENT 12.10.2011 ORDER PER R.K. PANDA A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER DT. 29.12.2008 OF THE CIT(A)- XXI, MUMBAI RELATING TO A.Y. 2005-06. 2. AT THE TIME OF HEARING OF THE APPEAL, THE LD. CO UNSEL FOR THE ASSESSEE DID NOT PRESS GROUND NO. 1 FOR WHICH THE LD. D.R. HAS N O OBJECTION. ACCORDINGLY THE SAME IS DISMISSED. GROUNDS OF APPEAL NO. 3 & 4 BEI NG GENERAL IN NATURE HENCE DISMISSED. 3. IN GROUNDS OF APPEAL NO. 2 THE ASSESSEE HAS CHAL LENGED THE ORDER OF THE LD. CIT(A) IN CONFIRMING THE ADDITION OF ` 14,20,801/- MADE BY THE A.O. 2 ITA 1477/ M/2009, SHRI SHASHI CHOUDHARY ARUNODAYA 3.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E IS AN INDIVIDUAL AND AN AGENT OF LIC. THE COMMISSION INCOME FROM LIC IS DIS CLOSED UNDER THE HEAD BUSINESS INCOME. THE ASSESSEE ALSO HAS A PROPRIET ARY CONCERN BY NAME M/S SHASHIS BOUTIQUE. THE ASSESSEE HAS ALSO SHOWN INC OME FROM SALE OF SHARES, INCOME FROM OTHER SOURCES IN THE FORM OF BANK INTER EST, DEBENTURE INTEREST AND INCOME FROM KVP AND MONTHLY INCOME PLAN OF POST OFF ICE. THE ACCOUNTS OF THE ASSESSEE ARE AUDITED AND THE AUDITORS REPORT HAS M ENTIONED THE NATURE OF BUSINESS OF THE ASSESSEE AS LIC AGENT AND INVESTME NT. THE ASSESSEE IS FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE A.O. NOTED THAT THE ASSESSEE HAS W RITTEN OFF AN AMOUNT OF ` 14,23,811/- UNDER THE HEAD MISCELLANEOUS BALANCES W RITTEN OFF. ON BEING QUESTIONED BY THE A.O., THE ASSESSEE SUBMITTED THE DETAILS OF PERSONS TO WHOM THE ASSESSEE HAD GIVEN CERTAIN AMOUNTS ON INTEREST IN EARLIER YEARS WHICH HAS NOT BEEN RECOVERED. THE DETAILS OF SUCH PERSONS ARE AS UNDER:- I) ASIA TELEVISION NETWORK 2,50,000/- II) SHRI GAUTAM NEMANI 1,91,302 III) MANASI DEVELOPERS 28,750/- IV) RAS BROKERAGE P. LTD. 2,25,000/- V) S. JAGANNATH TIBREWALA 6,00,000/- VI) STALLION 1,00,000/- VII) VOAGE EXPORTS 28,759/- TOTAL 14,23,811/- IT WAS SUBMITTED THAT THE ASSESSEE EARNED INTEREST INCOME FROM THE ABOVE SAID PARTIES. THE INTEREST SO RECEIVED FROM THE SAID PAR TIES WAS OFFERED AS BUSINESS INCOME IN RESPECTIVE ASSESSMENT YEARS. THE ASSESSE E IS CARRYING ON MONEY LENDING BUSINESS AND THE INTEREST ON ACCOUNT OF THI S ACTIVITY HAS ALWAYS BEEN CONSIDERED UNDER THE HEAD BUSINESS INCOME. THE A SSESSEE HAS ADVANCED MONEY TO THE ABOVE PARTIES IN THE ORDINARY COURSE O F HIS MONEY LENDING BUSINESS FROM TIME TO TIME ON INTEREST BASIS. THE ASSESSEE HAS RECEIVED 3 ITA 1477/ M/2009, SHRI SHASHI CHOUDHARY ARUNODAYA INTEREST FOR SOME YEARS BUT DUE TO BAD FINANCIAL CO NDITIONS OF THE PARTIES TO WHOM LOAN WAS GIVEN DID NOT RECEIVE INTEREST. THERE FORE, THE ASSESSEE DECIDED TO WRITE OFF THE ABOVE AMOUNTS AND CLAIMED DEDUCTIO N U/S 36(1)(VII) R.W.S. 36(2) OF THE I.T. ACT. 3.2 HOWEVER, THE A.O. WAS NOT CONVINCED WITH THE AR GUMENTS ADVANCED BEFORE HIM. RELYING ON A COUPLE OF DECISIONS, THE A.O. CAME TO THE CONCLUSION THAT THE ASSESSEE WAS NOT IN THE BUSINESS OF MONEY LENDING AT ALL AND THE VARIOUS LOANS GIVEN TO VARIOUS PARTIES ARE IN HIS P ERSONAL CAPACITY. THEREFORE, NON-RECEIPT OF SUCH AMOUNT CAN ONLY BE A CAPITAL L OSS AND NOT A BUSINESS LOSS. THE A.O., THEREFORE, REJECTED THE CLAIM AS AN EXPENDITURE AGAINST TAXABLE INCOME AND MADE ADDITION OF ` 14,20,801/- TO THE TOTAL INCOME OF THE ASSESSEE. 3.3 ON APPEAL, THE LD. CIT(A) UPHELD THE ACTION OF THE A.O. BY HOLDING AS UNDER:- AFTER DUE CONSIDERATION OF THE FACTS ON THIS ISSUE , IT CLEARLY EMERGES OUT THAT THE APPELLANT HAS ADVANCED CERTAIN LOANS A MOUNTING TO ` 14,20,801/- ON WHICH THE INTEREST RECEIVABLE HAS NO T BEEN CREDITED TO THE ACCOUNT IN THE PAST YEARS. PURPORTED REASON FOR THE SAME HAS BEEN THAT SINCE LOANS BECAME STICKY, THE INTEREST ITSELF WERE NOT CHARGED. THIS HAS LED TO DIFFERENT INTERPRETATIONS OF THE EVENT BY THE APPELLANT AND THE A.O. THE APPELLANT CLAIMED THAT H E IS INTO MONEY LENDING ACTIVITY AND INTERESTS WERE NOT CHARGED ONL Y BECAUSE THE LOAN MOUNTS ITSELF BECAME STICKY. THE A.O., ON THE OTHER HAND, FELT IF THE ASSESSEE HAD ANY INTENTION OF RECOVERING THE LOAN A ND THE INTEREST, THE INTEREST SHOULD HAVE BEEN CHARGED AND AS AND WH EN THE AMOUNTS BECOME IRRECOVERABLE, THE SAME COULD HAVE BEEN WRIT TEN OFF ALONG WITH THE INTEREST ACCRUED SO FAR. WHETHER THE APPEL LANT IS INTO MONEY LENDING ACTIVITY AS A BUSINESS OR NOT, HAS TO BE CO NSTRUED FROM THE ENTIRETY OF FACTS. IT IS SEEN FROM THE ENTIRETY OF FACTS THAT THE APPELLANT HAS NOT BEEN RUNNING ANY MONEY LENDING BU SINESS IN A SYSTEMATIC AND ORGANIZED MANNER. THE LENDING OF MON EY ONCE IN A WHILE MAY BE A NECESSITY FOR ANY BUSINESS ACTIVITY, WHERE BORROWING AND LENDING ARE REQUIRED DEPENDING ON ME LIQUIDITY OF FUNDS WITH A BUSINESS. ON THE OTHER HAND, BORROWING AND LENDING MONEY BEING A BUSINESS IN ITS OWN RIGHT REQUIRES REGISTRATION BY THE BUSINESSMAN TO THIS EFFECT. IN THE CASE OF A COMPANY, THIS REGISTR ATION RESULTS IN THE FORM OF NBFC REGISTRATION. IN THE CASE OF INDIVIDUA L, THERE IS MONEY LENDERS LICENCE. EVEN OTHERWISE, THE EXTENT OF ACT IVITY OF BORROWINGS AND LENDING AND THE SYSTEM OF KEEPING OF BOOKS OF A CCOUNTS IN THIS 4 ITA 1477/ M/2009, SHRI SHASHI CHOUDHARY ARUNODAYA CASE DOES NOT CONFORM TO THE STANDARD SET UP FOR MO NEY LENDING BUSINESS. THE APPELLANT HIMSELF HAS NOT CREDITED TH E INTEREST RECEIVABLE AND HAS NOT MAINTAINED ITS INFRASTRUCTUR E FOR CARRYING OUT THE BUSINESS OF MONEY LENDING. NO EVIDENCE HAS BEE N PRODUCED TO PROVE THAT THE APPELLANT HAS TAKEN ADEQUATE STEPS T O RECOVER THE MONEY ADVANCED BY HIM. UNDER THE CIRCUMSTANCES AND FOR THE DETAILED REASONS GIVEN BY THE A.O., HE HAS CORRECTL Y HELD THAT THE APPELLANT IS NOT ENGAGED IN THE MONEY LENDING ACTIV ITY. MERE TREATMENT OF INTEREST AS BUSINESS INCOME WILL NOT T ANTAMOUNT TO ACCEPTANCE OF APPELLANTS STATUS AS MONEY LENDER. T HE SURPLUS FUNDS IN A BUSINESS MAY BE ADVANCED TO ASSOCIATE AND OTHE R PERSONS AND THE INTEREST RECEIVED THEREON MAY BE TREATED AS BUS INESS INCOME BUT SUCH FEW LOANS AND ADVANCES DO NOT LEAD TO CONFERME NT OF MONEY LENDERS STATUS ON THE BUSINESS. ONCE THE ACTION OF THE A.O. OF NOT TREATING THE APPELLANT AS A MONEY LENDER IS APPROVE D, THE BAD DEBTS CLAIMED CAN NOT BE APPROVED. THE ADVANCE OF LOANS A ND RESULTING LOSS TAKES CHARACTER OF CAPITAL LOSS, WHICH IS NOT ALLOW ABLE AS BAD DEBTS. THIS GROUND OF APPEAL IS, ACCORDINGLY, DISMISSED. AGGRIEVED WITH SUCH ORDER OF THE LD. CIT(A) THE ASS ESSEE IS IN APPEAL BEFORE US. 4. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY B OTH THE SIDES, PURRSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. FROM THE VARIOUS DETAILS FILED BY THE AS SESSEE IN THE PAPER BOOK, WE ARE OF THE CONSIDERED OPINION THAT THE AMOUNT WRITT EN OFF BY THE ASSESSEE AS BAD DEBT UNDER NO CIRCUMSTANCES CAN BE ALLOWED AS B AD DEBT. THE PROVISIONS OF SECTION 36(1)(VII) R.W.S. 36(2) ARE APPLICABLE TO B AD DEBT IN CASE OF AN ASSESSEE ENGAGED IN THE BUSINESS OF MONEY LENDING, THE INCOM E OF WHICH IS OFFERED TO TAX IN THIS YEAR OR IN THE PRECEDING ASSESSMENT YEAR/YE ARS. IN THE INSTANT CASE, THE ASSESSEE IS AN LIC AGENT AND THERE IS NO BUSINESS O F MONEY LENDING. EVEN IN THE AUDIT REPORT THE AUDITORS ALSO DO NOT SAY ABOUT THE MONEY LENDING BUSINESS CARRIED ON BY THE ASSESSEE. UNLESS THE INTEREST IN COME BY THE ASSESSEE IS HELD AS BUSINESS INCOME THE QUESTION OF ALLOWING BAD DEB T DOES NOT ARISE. WE DO NOT FIND ANY FORCE IN THE SUBMISSION OF THE LD. COU NSEL FOR THE ASSESSEE THAT THE ASSESSEE HAS REGULARLY TREATED THE INCOME AS BUSINE SS INCOME. IN THIS VIEW OF THE MATTER AND IN VIEW OF THE DETAILED ORDER PASSED BY THE LD. CIT(A), WE DO NOT 5 ITA 1477/ M/2009, SHRI SHASHI CHOUDHARY ARUNODAYA FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) A ND ACCORDINGLY UPHOLD THE SAME. THE GROUND RAISED BY THE ASSESSEE IS DISMISS ED. 5 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED ON 12.10.2011. SD/- SD/- (R.S. PADVEKAR) (R.K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED 12.10.2011. RK COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXI, MUMBAI 4. THE CIT CITY - 21, MUMBAI 5. THE DR BENCH, E 6. MASTER FILE // TUE COPY// BY ORDER DY/ASSTT. REGISTRAR ITAT, MUMBAI 6 ITA 1477/ M/2009, SHRI SHASHI CHOUDHARY ARUNODAYA DATE INITIALS 1 DRAFT DICTATED ON 5.10.2011,10.10.2011 SR. PS 2 DRAFT PLACED BEFORE THE AUTHOR 7.10.2011,10.10.20 11 SR. PS 3 DRAFT PLACED BEFORE THE SECOND MEMBER 4 APPROVED DRAFT COMES TO THE SR. PS SR. PS 5 KEPT FOR PRONOUNCEMENT ON SR. PS 6 FILE SENT TO THE BENCH CLERK SR. PS 7 DATE ON WHICH FILE GOES TO THE HEAD CLERK 8 DATE ON WHICH FILE GOES TO THE AR 9 DATE OF DISPATCH OF ORDER