Assistant Commissioner of Income Tax,Akola Circle, Akola V. Shri. Rajeev Kamakishor Biyani, Akola

ITA 154/NAG/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1915 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2006-2007
• Appeal Filed On: 14-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR M BHUSARI
• Keywords: Business expenditure; Bad and doubtful debts; Notional interest
• Section: 6

Judgement Text

, - IN THE INCOME TAX APPELLATE TRIBUNAL NAGPUR BENCH , ( E - COURT), MUMBAI , BEFORE SHRI R.K.GUPTA , J M & SHRI RAJENDRA , A M ITA NO. 154 & 155 / N AG / 20 1 1 ( ASSESSMENT YEAR S : 200 6 - 0 7 & 2007 - 08 ) ACIT, AKOLA CIRCLE, 1 ST FLOOR, AAYAKAR BHAVAN, MURTIZAPUR ROAD, AKOLA (MS) VS. SHRI RAJEEV KAMALKISHORE BIYANI, PROP. OF SUJATA PLASTIC, H - 65, MIDC AREA, AKOLA - 444 104 PAN/GIR NO. : A BBPB 5702 A ( APPELLANT ) .. ( RESPONDENT ) /REVENUE BY : DR. M. BHUSARI /ASSESSEE BY : MR. K.P.DEWANI DATE OF HEARING : 2 2 ND JAN ., 201 3 DATE OF PRONOUNCEMENT : 01/02/ 201 3 O R D E R P ER SHRI R.K.G UPTA, JM : TH E SE TWO APPEALS HAVE BEEN PREFERRED BY THE DEPARTMENT BEFORE THE ITAT NAGPUR BENCH, NAGPUR, AGAINST THE ORDER OF LEANED CIT (A) - I , NAGPUR (MAHARASHTRA) RELATING TO THE ASSESSMENT YEAR 200 6 - 0 7 AND 2007 - 08, RESPECTIVELY , WHICH HAVE BEEN HEARD THROUGH E - COURT, MUMBAI . 2 . THE DEPARTMENT IN BOTH THE AFORESAID APPEALS IS OBJECTING IN DELETING THE ADDITION ON ACCOUNT OF ACCRUED IN TEREST OF RS. 46,04,155/ - AND RS.58,09,573/ - RELATING TO ASSESSMENT YEARS 2006 - 07 & 2007 - 08, RESPECTIVELY. ITA NO S . 154 & 155 /20 1 1 2 3 . SINCE COMMON ISSUES ARE INVOLVED IN BOTH THE CASES, THEREFORE, FOR THE SAKE OF CONVENIENCE , BOTH THESE CASES HAVE BEEN HEARD AND DISPOSED OF BY TH IS CONSOLIDATED ORDER TOGETHER. 4 . THE ASSESSEE FILED RETURN OF INCOME FOR BOTH THE AFORESAID ASSESSMENT YEARS. DURING THE ASSESSMENT PROCEEDING, THE AO NOTED THAT THE ASSESSEE IS DOING BUSINESS OF FINANCING IN THE NAME OF UTKARSHA PRATISTHAN. THE AO FURT HER NOTED THAT THE ASSESSEE HAS NOT CHARGED INTEREST FROM SEVERAL DEBTORS, THEREFORE, HE PROPOSED TO INCLUDE SUCH INTEREST ON DUE BASIS AS THE ASSESSEE WAS FOLLOWING MERCANTILE SYSTEM OF ACCOUNT. THE AO FURTHER NOTED THAT THE ASSESSEE FIRM HAS PAID INTERES T TO VARIOUS PARTIES FROM WHOM THE AMOUNTS WERE BORROWED. ACCORDINGLY, THE AO WAS OF THE VIEW THAT THE ASSESSEE WOULD NOT BE ENTITLED TO DEDUCTION ON ACCOUNT OF INTEREST PAID AS INTEREST PAID CANNOT BE CONSIDERED AS BUSINESS EXPENDITURE WITHIN THE PROVISIO NS OF SECTION 36(I)(III) OF THE ACT. THEREAFTER THE AO HELD THAT SINCE THE ASSESSEE HAS NOT CHARGED ANY INTEREST IN SPITE OF FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, HE CALCULATED THE INTEREST ON THE AMOUNT WHICH WAS DUE TO ASSESSEE FROM VARIOUS PARTIES. IN THIS REGARD, HE MADE ADDITION OF RS. 46,04,155/ - FOR ASSESSMENT YEAR 2006 - 07 AND RS.58,09,573/ - FOR ASSESSMENT YEAR 2007 - 08 , RESPECTIVELY. 5 . THE ASSESSEE PREFERRED APPEAL BEFORE THE LEARNED CIT(A) , BEFORE WHOM IT WAS SUBMITTED THAT THE ASSESSEE IS ENG AGED IN THE BUSINESS OF FINANCING AND EARNS COMMISSION INCOME INCLUDING GUARANTEE COMMISSION. ON CERTAIN ADVANCES GIVEN IN THE COURSE OF BUSINESS OF ITA NO S . 154 & 155 /20 1 1 3 FINANCING WHICH WERE NOT GOOD, NO INTEREST WAS PROVIDED IN BOOKS OF ACCOUNT IN RESPECT TO SUCH ADVANCES. IT WAS FURTHER SUBMITTED THAT IN RESPECT TO CERTAIN DEBTORS RECOVERY OF AMOUNT ADVANCED DURING THE COURSE OF ACTIVITY OF FINANCING ITSELF IS DOUBTFUL. THE ASSESSEE CONSIDERING THE ABOVE FACTUAL POSITION HAS NOT PROVIDED FOR ANY INTEREST RECEIVABLE ON SUCH A DVANCES IN THE BOOKS OF ACCOUNTING CONSIDERING THE CONCEPT OF REAL INCOME. IT WAS FURTHER SUBMITTED THAT NO INTEREST IS LIKELY TO BE RECEIVED OR RECEIVABLE ON VARIOUS ADVANCES IN AS MUCH AS RECOVERY OF THE SAME ITSELF IS DOUBTFUL. ACCORDINGLY, IT WAS SUBMI TTED THAT THERE IS NO AC CRUAL OF INCOME AND THEREFORE THE QUESTION OF LEVY OF TAXES ON NOTIONAL AMOUNT DOES NOT ARISE. IT WAS ALSO SUBMITTED THAT THE AO HAS NOT DISPUTED THE FACTUAL POSITION THAT THE ADVANCE ON WHICH NO INTEREST IS PROVIDED IN BOOKS OF ACCO UNT ARE BAD AND DOUBTFUL. COPY OF THE ACCOUNTS OF THESE PARTIES WERE ALSO FURNISHED WHERE IT WAS CLEAR THAT NO INTEREST W AS PROVIDED NEITHER OTHER PARTY HAS CLAIMED ANY DEDUCTION ON ACCOUNT OF INTEREST PAYABLE TO THE ASSESSEE. COPY OF THE ACCOUNTS OF DEBTORS DUL Y CONFIRMED BY SUCH DEBTORS WERE ALSO FILED BEFORE THE CIT(A) AND IT WAS SUBMITTED THAT THESE COPIES WERE ALSO FILED BEFORE THE AO. IT WAS SUBMITTED THAT IN CASE OF BANKING INDUSTRY, WHICH ALSO FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING AND AS PER NPA NORMS, THE NPA ASSET IN FINANCE INDUSTRY IS ONE WHICH DOES NOT GENERATE ANY REVENUE/INTEREST. IN CASE OF BANKS, IF INTEREST OR OTHER CHANGES LEVIED IN AN ADVANCE ACCOUNT, ARE NOT RECEIVED FOR A PERIOD OF 90 DAYS, THE ASSET HAS TO BE CLASSIFIED AS NPA. VARIOUS DET AILS IN ITA NO S . 154 & 155 /20 1 1 4 RESPECT TO DOUBTFUL DEBTS WERE ASKED FOR AND WERE FILED BEFORE THE LEARNED CIT(A) . LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSION AND PERUSING THE MATERIAL ON RECORD FOUND THAT A SUM OF RS. 2,38,32,747/ - ON ACCOUNT OF BAD DEBTS HAS BEEN WRITTEN OFF IN SUBSEQUENT YEARS, WHICH HAS BEEN ALLOWED ALSO. ACCORDINGLY, HE HELD THAT ON THE SAME VERY AMOUNT OF WHICH RECOVERY WAS ITSELF IN DOUBTFUL, CHARGING OF NOTIONAL INTEREST WAS NOT JUSTIFIED AT THE END OF THE LEARNED AO. ACCORDINGLY, THE ADDITION MADE BY T HE AO ON ACCOUNT OF NOTIONAL INTEREST ON ACCOUNT OF DEBT WHICH WAS RECOVERABLE AT THE END OF THE ASSESSEE WAS DELETED. WHILE HOLDING SO, LEARNED CIT(A) , PLACED RELIANCE ON THE DECISIONS OF THE HON BLE DELHI HIGH COURT IN THE CASE REPORTED IN 330 ITR 420 , W HEREIN IT WAS HELD THAT WHEN AN ICD HAS BECOME AN NPA AND ON SUCH NPA WHEN NO INTEREST WAS RECEIVED AND THE POSSIBILITY OF RECOVERY WAS NIL, NO INTEREST CAN BE SAID TO HAVE ACCRUED. ACCORDINGLY, THE APPEAL OF THE ASSESSEE FOR BOTH OF THE YEARS WAS ALLOWED. 6 . AGGRIEVED THEREBY, THE DEPAR TM ENT IS IN APPEAL S HERE BEFORE THE TRIBUNAL. 7 . LEARNED DR PLACED RELIANCE ON THE ORDER OF THE AO. ON THE OTHER HAND LEARNED AR OF THE ASSESSEE PLACED RELIANCE ON THE ORDER OF THE CIT(A) . 8 . AFTER CONSIDERING THE ORDER S OF THE AO, LEARNED CIT(A) AND THE SUBMISSIONS OF BOTH THE PARTIES, WE FOUND NO INFIRMITY IN THE FINDING OF THE LEARNED CIT(A) . LEARNED CIT(A) HAS GIVEN CATEGORICALLY FINDING THAT ITA NO S . 154 & 155 /20 1 1 5 EVEN THE DEBT WHICH WAS DOUBTFUL AND WAS NOT RECOVERABLE, THEREFORE, INTEREST ON THAT AMOUNT CHARGED BY THE AO WAS NOT JUSTIFIED. THERE IS NO DISPUTE THAT THE LOAN GIVEN BY THE ASSESSEE WAS ITSELF IN DOUBTFUL AND ULTIMATELY THE SAME HAS BEEN WRITTEN OFF IN SUBSEQUENT YEAR AS THE AMOUNT WAS NOT RECEIVED. THEREFORE, WE FEEL THAT CHAR GING OF NOTIONAL INTEREST ON DOUBTFUL DEBT WAS NOT JUSTIFIED. 9 . THE HON BLE DELHI HIGH COURT IN THE CASE OF CIT VS. GOYAL M.G. GASES (P) LTD., REPORTED IN (2008) 303 ITR 159 (DEL.) , HAS HELD THAT , THERE WAS NO REAL ACCRUAL OF INCOME BY WAY OF INTEREST WHEN EVEN THE REALIZATION OF PRINCIPAL AMOUNTS OF LOANS WAS IN JEOPARDY AND THE SAME WERE EVENTUALLY WRITTEN OFF AS BAD DEBTS AND ALLOWED AS SUCH BY THE AO IN SUBSEQUENT YEARS. THE FACTS ARE SIMILAR IN THE CASE IN HAND AS IN THIS CASE ALSO THE AMOUNT OF LOAN WAS JEOPARDY AND THE SAME WAS ACTUALLY WRITTEN OFF IN SUBSEQUENT YEAR AND HAS BEEN ACCEPTED BY THE AO HIMSELF. THEREFORE, NO INTEREST HAS BEEN ACCRUED ON THE LOAN ADVANCED BY THE ASSESSEE. 10 . IN THE CASE OF UCO BANK VS. CIT, REPORTED IN (1999) 237 ITR 889 (SC) , THE HONBLE SUPREME COURT HAS HELD THAT , THE INTEREST ON LOAN WHOSE RECOVERY IS DOUBTFUL AND WHICH HAS NOT BEEN RECOVERED BY THE ASSESSEE - BANK FOR THE LAST THREE YEARS BUT HAS BEEN KEPT IN A SUSPENSE ACCOUNT AND HAS NOT BEEN BROUGHT TO THE P & L A/C OF THE ASSESSEE, COULD NOT BE INCLUDED IN THE INCOME OF THE ASSESSEE . FACTS OF THE PRESENT CASE ARE SIMILAR AS THE AMOUNT OF LOAN COULD NOT BE ITA NO S . 154 & 155 /20 1 1 6 RECOVERED BY THE ASSESSEE AND, THEREFORE, NO INCOME HAS ACCRUED ON THE LOAN ADVANCED BY THE ASSESSEE. 1 1 . IN VIEW OF THESE FACTS AND CIRCUMSTANCES AND IN VIEW OF VARIOUS CASE LAWS DISCUSSED ABOVE, WE HOLD THAT LEARNED CIT(A) WAS JUSTIFIED IN HOLDING THAT NO INTEREST ACCRUED TO THE ASSESSEE ON THE LOAN ADVANCED BY THE ASSESSEE. ACCORDINGLY, WE CONFIRM THE ORDER OF THE LEARNED CIT(A) FOR BOTH OF THE YEARS. 1 2 . IN THE RESULT , BOTH THE APPEAL S OF THE DEPARTMENT ARE DISMISSED . ORDER PRONOUNCED IN THE E - COURT ON THIS 1 ST DAY OF FEB. , 201 3 . - 201 3 SD/ - SD/ - ( ) ( RAJENDRA ) ( ) ( R.K.GUPTA ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED : 0 1 / 0 2 / 201 3 . /PKM , PS COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) , MUMBAI / NAGPUR . 4. / CIT 5. / DR, ITAT, MUMBAI / NAGPUR . 6. GUARD FILE. //TRUE COPY// / BY ORDER, ( DY./ASSTT. REGISTRAR) / ITAT, MUMBAI