The DCIT(OSD)Circle-8, Ahmedabad V. Santosh Securities Ltd., Ahmedabad

ITA 180/AHD/2007

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63029 (ITAT-AHMEDABAD)
• Duration Of Justice: 5 year(s) 9 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2012
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 29-08-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 10-01-2007
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: RAHUL KUMAR
• Keywords: Bad and doubtful debts

Judgement Text

ITA. NO.180/A HD/2007 ASSESSMENT YEA R 2003- 04 . 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, A HMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO.180/AHD/2007 (ASST. YEAR: 2003-04) DEPUTY COMMISSIONER OF INCOME TAX,(OSD) CIRCLE-8, 4 TH FLOOR, A WING, AJANTA COMMERCIAL CENTRE ASHRAM ROAD, AHMEDABAD. (APPELLANT) VS. SANTOSH SECURITIES LTD., SANSTAR HOUSE, OPP.SUVIDHA SHOPPING CENTER NR.PARIMAL UNDER BRIDGE, PALDI, AHMEDABAD. (RESPONDENT) PAN: AACCS 7445N APPELLANT BY : MR.RAHUL KUMAR SR. D. R. RESPONDENT BY : MR. GAURAV NAHTA. ( )/ ORDER DATE OF HEARING : 29 - 8 -2012 DATE OF PRONOUNCEMENT : 19 -10-2012 PER: SHRI ANIL CHATURVEDI, A.M. IN THIS CASE THE ORIGINAL ORDER WAS PASSED BY THE T RIBUNAL ON 24-2- 2010 AND THEREAFTER THE ASSESSEE FILED MISC. APPLIC ATION NO.10/AHD/2011 DATED 29-12-2010 FOR RECALLING ORDER IN ITA NO.180/ AHD/2007 PASSED ON 24-2-2010. ITA. NO.180/A HD/2007 ASSESSMENT YEA R 2003- 04 . 2 2. BRIEF FACTS ARE THAT THE ASSESSEE IS A COMPANY E NGAGED IN THE BUSINESS OF TRADING IN SHARES AND FINANCE. IT FILED ITS RETURN OF INCOME ON 31- 10-2003 SHOWING TOTAL INCOME OF RS.1,12,130/-.THE C ASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS, A.O. OBSERVED THAT THE ASSESSEE HAD CLAIMED RS.22,25,000/- BEING THE A MOUNT OF BAD DEBTS WRITTEN OFF DURING THE YEAR. THE ASSESSEE SUBMITTED THAT THE AMOUNTS OF RS.22,25,000/- CONSISTED OF LOAN GIVEN TO MR. MANOJ JANI OF RS.15,75,000/- AND RS.6,50,000/- TO MR. B. MUTHUSWAMY. THE AMOUNTS OF AFORESAID LOANS WERE GIVEN DURING THE ORDINARY COURSE OF BUSINESS. THE ASSESSEE STATED THAT THE LOANS WERE GIVEN IN 2001. THE ASSESSEE WAS NOT ABLE TO RECOVER AND THEREFORE IT WAS WRITTEN OFF AS BAD DEBTS. THE A.O. DID NOT AGREE WITH THE CONTENTIONS OF THE ASSESSEE. HE WAS OF THE VIEW THAT THE TRANSACTIONS OF LOAN GIVEN TO THE AFORESAID PARTIES DID NOT FALL IN THE CATEGORY OF BUSINESS TRANSACTIONS AND IT CANNOT BE SAID TO BE TRANSACTIO N IN THE NORMAL COURSE OF BUSINESS. HE FURTHER HELD IT TO BE A BUSINESS ADVAN CE IN THE NATURE OF LOAN ON WHICH THE ASSESSEE DID NOT RECEIVE ANY INTEREST AND NO PART OF IT WAS INCLUDED IN THE INCOME AT ANY POINT OF TIME. HE WAS OF THE VIEW THAT THE LOAN WAS NOT GIVEN IN THE NATURE OF TRADING LOAN BUT IN THE NATURE OF CAPITAL LOAN AND HENCE IT FALLS OUTSIDE THE AMBIT OF SECTION 36, THUS THE AMOUNTS WRITTEN OFF AS BAD DEBTS WERE NOT DEBT AT ALL, BUT WAS IN THE NATURE OF LOAN AS THE TRANSACTION WAS ALSO REFLECTED BY THE ASSESSEE UNDE R THE HEAD LOANS AND ADVANCES. HE ACCORDINGLY DISALLOWED THE CLAIM OF B AD DEBTS OF THE ASSESSEE. AGGRIEVED BY THE ACTION OF A.O. ASSESSEE PREFERRED APPEAL BEFORE THE CIT (A). ITA. NO.180/A HD/2007 ASSESSMENT YEA R 2003- 04 . 3 3. CIT (A) ALLOWED THE APPEAL VIDE HIS ORDER DATED 12-10-2006 BY HOLDING AS UNDER:- 3. THE SECOND AND THIRD GROUNDS OF APPEAL RELATE T O ADDITION OF RS.22,25,000/- ON ACCOUNT OF BAD DEBTS. THE ASSESSE E HAD GIVEN LOAN OF RS.15,75,000/-TO SHRI MANOJ JAIN AND RS.6,5 0,000/- TO SHRI V. MUTHUSWAMY, WHICH WAS NOT REALIZED ADDITION THE ASS ESSEE CLAIMED IT AS BAD DEBT AFTER WRITING OFF THE SAME IN THE BO OKS OF ACCOUNT. THE A.O. HAS DISALLOWED THE CLAIM OF BAD DEBT ON THE GR OUND THAT IT CANNOT BE SAID TO BE TRANSACTIONS IN THE NORMAL COURSE OF BUSINESS AND ALSO ON THE GROUND THAT THE LOAN GIVEN IN RESPECT OF SHR I MANOJ JAIN DOES NOT FIND ANY MENTION IN THE LIST OF LOANS AND ADVAN CES. THE APPELLANT HAS SUBMITTED THAT THE APPELLANT IS A NON-BANKING F INANCIAL COMPANY (NBFC) AND IT IS IN THE BUSINESS OF GIVING LOANS AN D ADVANCES, IN ADDITION TO ITS OTHER BUSINESS OF TRADING IN SHARES . THEREFORE, THE LOAN GIVEN TO THESE PERSONS IN EARLIER YEARS ARE PART OF ITS BUSINESS AND IF THE LOANS GIVEN ARE NOT REALIZED AND WRITTEN OFF, I T IS ALLOWABLE AS BAD DEBT U/S. 36(1)(VII) OF THE ACT. FURTHER, IT WAS SU BMITTED THAT THE LOAN GIVEN TO SHRI MANOJ JAIN WAS INADVERTENTLY GROUPED UNDER THE HEAD ADVANCES IN PLACE OF LOAN IN A.Y. 2002-03, BUT TH E FACT REMAINS THAT THE LOANS GIVEN IN EARLIER YEARS HAVE REMAINED OUTS TANDING TILL A.Y. 2002-03 AND WHEN THE SAME WERE NOT REALIZED, IT WAS WRITTEN OFF IN A.Y. 2003-04. HENCE, THE CLAIM OF BAD DEBT IS ALLOW ABLE. 3.2. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE AND THE SUBMISSIONS AS ADVANCED BY THE APPELLANT. I AM IN A GREEMENT WITH THE VIEWS OF THE APPELLANT. THE APPELLANT IS AN NBF C AND IF ANY LOAN GIVEN IN THE COURSE OF ITS BUSINESS IS NOT REALIZED AND WRITTEN OFF IN THE BOOKS, IT IS ALLOWABLE AS BAD DEBT. THEREFORE, THE A.O. IS HEREBY DIRECTED TO ALLOW THE CLAIM OF APPELLANT IN RESPECT OF BAD DEBT. 4. AGGRIEVED BY THE ORDER OF CIT (A), REVENUE PREFE RRED APPEAL BEFORE THE TRIBUNAL. ITAT VIDE ORDER IN ITA NO.180/AHD/200 7 DATED 24-2-2010 ALLOWED THE APPEAL OF THE DEPARTMENT BY HOLDING AS UNDER:- ITA. NO.180/A HD/2007 ASSESSMENT YEA R 2003- 04 . 4 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND FROM THE CAS E RECORDS AND ARGUMENTS OF BOTH THE SIDES THAT THE AMOUNT WRITTEN OFF IS ON ACCOUNT OF UNSECURED LOANS AND NOT A BUSINESS LOAN AS THESE LOANS WERE INTEREST FREE. WE FIND THAT THESE LOANS WERE NOT RE LATED TO BUSINESS AND FROM THE CASE IT CANNOT BE SAID THAT THE TRANSA CTION OF THE LOAN WAS IN THE NORMAL COURSE OF BUSINESS EVEN THOUGH TH E ASSESSEE HAS WRITTEN IT OFF IN ITS BOOKS OF ACCOUNT. WE FIND FOR CE IN THE ARGUMENTS OF THE LD. D.R. THAT THE AMOUNT WRITTEN OFF PERTAINS T O ADVANCES MADE TO ABOVE PARTIES, WHICH WAS NEVER INCLUDED AT ANY POIN T OF TIME IN THE INCOME BY THE ASSESSEE, SO THE CLAIM IS NOT ADMISSI BLE U/S 36 OF THE ACT, AS THE ASSESSEE HAS NOT FURNISHED ANY EVIDENCE AS TO HOW IT SATISFIES THE CONDITION LAID DOWN BY THE SECTION 36 (2)(I) OF THE ACT. WE FIND THAT THESE LOANS WERE SHOWN BY THE ASSESSEE UN DER THE HEAD LOANS AND ADVANCES WITH RESPECT TO MR. V. MUTHUSW AMY. HOWEVER, THE LOAN IN RESPECT OF MR. MANOJ JAIN DOES NOT FOU ND ANY MENTION IN THE LIST OF LOANS AND ADVANCES VIDE ANNEXURE-10 C ONTAINING DETAILS OF LOANS AND ADVANCES FURNISHED DURING THE ASSESSME NT PROCEEDINGS FOR ASSESSMENT YEAR 2002-03. WE FURTHER FIND THAT T HE ASSESSEE IS IN THE BUSINESS OF TRADING IN SHARES, LEASING, FINANCE AND INVESTMENT, BUT THE TRANSACTION OF GIVING AMOUNT TO MR. V. MUTH USWAMY AND MR. MANOJ JAIN DO NOT FALL IN THE CATEGORY OF BUSINESS TRANSACTION AND IT CAN NOT BE SAID TO BE TRANSACTION IN THE NORMAL COU RSE OF BUSINESS. ACCORDINGLY, WE ARE OF THE VIEW THAT IT IS NOT A BU SINESS ADVANCE IN THE NATURE OF LOAN, FROM WHICH THE ASSESSEE DID REC EIVE ANY INTEREST AND NO PART OF IT WAS INCLUDED IN THE INCOME AT ANY POINT OF TIME. THEREFORE, THE ASSESSEES CLAIM TO CONSIDER THE AMO UNT WRITTEN OFF AS BAD DEBT IS NOT ACCEPTABLE BECAUSE THE AMOUNTS ARE NOT A BUSINESS DEBT AT ALL. ACCORDINGLY, THIS ISSUE OF THE REVENU ES APPEAL IS ALLOWED. 5. AGAINST THE AFORESAID ORDER THE ASSESSEE PREFERR ED M..A.NO.10/AHD/2011 WHEREIN IT WAS PRAYED THAT THE ORDER DATED 24-2- 2010 BE RECALLED ON THE GROUND THAT A MISTAKE OF FA CT HAS CREPT IN WHILE DECIDING THE APPEAL. THE ORDER WAS RECALLED VIDE OR DER DATED 13-7-2012 BY HOLDING AS UNDER:- ITA. NO.180/A HD/2007 ASSESSMENT YEA R 2003- 04 . 5 2. .WHILE DECIDING THE APPEAL THE HONBLE BENCH HA S OBSERVED AS UNDER:- WE FIND FROM THE CASE RECORDS AND ARGUMENTS OF BOTH THE SIDES THAT THE AMOUNT WRITTEN OFF IS ON ACCOUNT OF UNSECU RED LOAN AND NOT A BUSINESS LOAN AS THESE LOANS WERE INTEREST FREE. 3. THERE IS NOTHING ON RECORD TO SUGGEST THAT SAID ADVANCE WAS NOT A BUSINESS ADVANCE. THE A.O. AS WELL AS LD. CIT (A) BOTH HAVE STATED THE FACT THAT ASSESSEE WAS ENGAGED IN BUSINE SS OF GIVING FINANCE. THEREFORE, THE ORDER DATED 24-2-2010 MAY K INDLY BE RECALLED AND THE MATTER MAY KINDLY BE REHEARD AND DECIDED AC CORDINGLY. HOWEVER, LD. D.R. SUBMITTED THAT THERE IS NO MISTAK E APPARENT FROM THE RECORD AND THEREFORE, THE M..A. OF THE ASSESSEE MAY KINDLY BE DISMISSED. 4. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND FORCE IN THE CONTENTION OF LD. COUNSEL OF THE ASSES SEE THAT MISTAKE OF FACT HAS EMERGED IN OUR ORDER DATED 24-2-2010 AS TH E OBSERVATION OF THE BENCH, AS MENTIONED ABOVE, IS AGAINST THE MATE RIAL AVAILABLE ON RECORD AND IS NOT COMING OUT OF THE ORDER OF EITHER FROM THE A.O. OR LD. CIT (A). SINCE A MISTAKE APPARENT FROM, THE REC ORD HAS CREPT IN, IN OUR ORDER, THE SAME IS HEREBY RECALLED. REGISTRY IS DIRECTED TO REFIX THE CASE. 6. BEFORE US THE LD. A.R. SUBMITTED THAT THE ASSESS EE IS ENGAGED IN THE TRADING IN SHARES, LEASING AND FINANCING. HE POINT ED OUT TO THE FACT THAT THE A.O. VIDE PARAGRAPH 6.5 OF THE ASSESSEE ORDER HAS G IVEN A FINDING THAT THE TRANSACTION IS IN THE NATURE OF BUSINESS ADVANCES A ND IS IN THE NATURE OF LOAN. HE FURTHER SUBMITTED THAT CIT (A) IN ITS ORDE R IN PARAGRAPH 3.2 HAS GIVEN A FINDING THAT THE APPELLANT IS AN NBFC AND IF ANY LOAN GIVEN IN THE COURSE OF BUSINESS IS NOT REALIZED AND WRITTEN OFF IN THE BOOKS IS ALLOWABLE AS BAD DEBT. THE ASSESSEE ALSO POINTED OUT TO THE COPIES OF LE TTER SUBMITTED IN THE PAPER BOOK PLACED AT PAGE 12 TO 17 WHEREIN THE CORRESPONDENCE WITH RESPECT TO THE ABOVE SAID LOANS WERE ENTERED. HE ITA. NO.180/A HD/2007 ASSESSMENT YEA R 2003- 04 . 6 THUS SUBMITTED THAT DEBTS ARE A BUSINESS LOSS BE AL LOWED AS A DEDUCTION. HE FURTHER RELIED ON THE DECISION OF TRF LTD. VS. C IT (2010) 323 ITR 397 FOR THE PROPOSITION THAT IF THE BAD IS WRITTEN OFF AS I RRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE THE SAME IS TO BE ALLOWED AS DEDUCT ION. 7. THE LD. D.R. ON THE OTHER HAND SUBMITTED THAT TH E ASSESSEE DID NOT RECEIVE ANY INTEREST AT ANY TIME FROM THESE PARTIES AND THUS LOANS WERE SHOWN UNDER THE HEAD LOANS AND ADVANCE. HE FURTHER POINTED OUT THAT THE AMOUNT OF ADVANCE WRITTEN OFF WAS NEVER INCLUDED AS INCOME BY THE ASSESSEE. HE THUS, SUPPORTED THE ORDER OF A.O. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ON THE BASIS OF MATERIAL ON RECORD WE FIND THAT IN THE PRESENT APPEAL THE DISPUTE IS WHETHER THE ADVANCE WAS IN TH E NATURE OF BUSINESS ADVANCE AND THEREFORE, WHETHER THE BAD DEBTS WRITTE N OFF IS TO BE ALLOWED AS A BAD DEBT. WE FIND THAT THE A.O. IN THE ORDER H AS GIVEN A FINDING THAT THE TRANSACTION WAS IN THE NATURE OF BUSINESS ADVAN CE. CIT (A) HAS GIVEN A FINDING THAT ASSESSEE IS AN NBFC. HOWEVER, FROM THE MATERIAL ON RECORD IT IS NOT CLEAR THAT WHETHER THE ASSESSEE THOUGH BEING AN NBFC HAS IN FACT ADVANCED LOANS TO PARTIES AS PART OF IS BUSINESS. T HUS, WE FEEL THAT IT WOULD BE IN THE FAIRNESS OF THINGS AND IN THE INTEREST OF JUSTICE THAT THE MATTER BE REMITTED BACK TO THE FILE OF A.O. WE ACCORDINGLY RE MIT THE MATTER TO THE FILE OF A.O. WITH A DIRECTION TO HIM TO VERIFY AND PASS AN APPROPRIATE ORDER AS PER LAW AFTER CONSIDERING THE FACTUAL POSITION IN L IGHT OF THE DECISION OF APEX COURT IN THE CASE OF TRF LTD.(2010) 323 ITR 397. TH US THE APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ITA. NO.180/A HD/2007 ASSESSMENT YEA R 2003- 04 . 7 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLO WED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN OPEN COURT ON 19 -10- 2012. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. S.A.PATKI. COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) XIV, AHMEDABAD. 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITAT,AHMEDABAD ITA. NO.180/A HD/2007 ASSESSMENT YEA R 2003- 04 . 8 1.DATE OF DICTATION 29 - 8 -2012 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 12,14 /10 / 2012 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S - -2012. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT - -2012 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S - -2012 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK - -2012. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER