Southern Auto Finance Limited, CHENNAI V. ACIT, CHENNAI

ITA 2241/CHNY/2012

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 3956 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-11-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 17-10-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 12-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: T N SEETHARAMAN
• Keywords: Reopening of assessment; Bad and doubtful debts
• Section: 147; 148

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , !.. # $%, ' () BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.2241/MDS/2012 + ,+ / ASSESSMENT YEAR : 2005-06 M/S SOUTHERN AUTO FINANCE LTD., C/O SHRI T.N. SEETHARAMAN, ADVOCATE, #384 (OLD NO.196), LLOYDS ROAD, CHENNAI - 600 086. PAN : AAGCS 1092 K V. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(3), CHENNAI. (.// APPELLANT) (01.// RESPONDENT) ./ 2 3 / APPELLANT BY : SHRI T.N. SEETHARAMAN, ADVOCATE 01./ 2 3 / RESPONDENT BY : SHRI SUPRIYO PAL, JCIT # 2 4' / DATE OF HEARING : 17.10.2016 56, 2 4' / DATE OF PRONOUNCEMENT : 23.11.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) V, CHENNA I, DATED 20.09.2012 AND PERTAINS TO ASSESSMENT YEAR 2005-06. 2. SHRI T.N. SEETHARAMAN, THE LD.COUNSEL FOR THE AS SESSEE, SUBMITTED THAT THE FIRST ISSUE ARISES FOR CONSIDERA TION IS REOPENING OF 2 I.T.A. NO.2241/MDS/12 ASSESSMENT UNDER SECTION 147 OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). ACCORDING TO THE LD. COUNSEL, THE RETU RN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. SUBSEQUENTLY, THE ASSESSING OFFICER ISSUED NOTICE U NDER SECTION 148 OF THE ACT ON THE GROUND THAT THE INCOME OTHERW ISE ASSESSABLE TO TAX ESCAPED ASSESSMENT. ACCORDING TO THE LD. CO UNSEL, ONCE THE RETURN OF INCOME WAS ACCEPTED UNDER SECTION 143(1) OF THE ACT, THE REOPENING OF ASSESSMENT IS INVALID. 3. WE HAVE HEARD SHRI SUPRIYO PAL, THE LD. DEPARTME NTAL REPRESENTATIVE ALSO. ADMITTEDLY, THE RETURN FILED BY THE ASSESSEE ON 31.08.2005 WAS PROCESSED UNDER SECTION 143(1) OF TH E ACT. THE ASSESSEE DECLARED LOSS IN THE RETURN FILED. SUBSEQ UENTLY, THE ASSESSING OFFICER FOUND THAT THE INCOME ESCAPED ASS ESSMENT. ACCORDINGLY, HE ISSUED NOTICE UNDER SECTION 148 OF THE ACT ON 25.08.2010. THE CIT(APPEALS), BY PLACING RELIANCE ON THE JUDGMENT OF APEX COURT IN CIT V. RAJESH JHAVERI STOCK BROKER S (P.) LTD. (291 ITR 500), FOUND THAT THE CONDITION FOR REOPENING TH E ASSESSMENT UNDER SECTION 147 OF THE ACT IS SATISFIED. THIS OB SERVATION OF THE CIT(APPEALS) THAT THE CONDITION FOR REOPENING OF AS SESSMENT UNDER SECTION 147 OF THE ACT IS SATISFIED IS NOT DISPUTED BY THE ASSESSEE. THE PROCESSING OF RETURN UNDER SECTION 143(1) OF TH E ACT CANNOT BE 3 I.T.A. NO.2241/MDS/12 EQUATED WITH REGULAR ASSESSMENT UNDER SECTION 143(3 ) OF THE ACT. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE ASSESSING OFFICER HAS RIGHTLY REOPENED THE ASSESSME NT BY ISSUING NOTICE UNDER SECTION 148 OF THE ACT. 4. NOW COMING TO THE MERIT OF THE APPEAL, SHRI T.N. SEETHARAMAN, THE LD.COUNSEL FOR THE ASSESSEE, SUBMI TTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF HIRING AND L EASING APART FROM FINANCING. THE RESERVE BANK OF INDIA BY ITS L ETTER DATED 13.08.2007, DIRECTED THE ASSESSEE NOT TO DO ANY BUS INESS AS NON- BANKING FINANCE COMPANY. THE ASSESSEE, CONSEQUENT TO THE DIRECTION OF RESERVE BANK OF INDIA, STOPPED ACCEPTI NG DEPOSITS FROM PUBLIC, HOWEVER, CONTINUED TO RECOVER THE OUTSTANDI NG DUES. ACCORDING TO THE LD. COUNSEL, MERELY BECAUSE THE RE SERVE BANK OF INDIA DIRECTED THE ASSESSEE NOT TO ENGAGE IN NON-BA NKING FINANCE ACTIVITIES, IT DOES NOT MEAN THAT THE BUSINESS OF T HE ASSESSEE WAS CLOSED DOWN. ACCORDING TO THE LD. COUNSEL, WHAT WA S STOPPED BY THE ASSESSEE IS RECEIVING DEPOSIT FROM PUBLIC. THE ASSESSEE CONTINUED TO RECOVER THE OUTSTANDING LIABILITY, THE REFORE, FOR ALL PRACTICAL PURPOSES, THE ASSESSEE IS CONTINUING ITS BUSINESS. IN THE COURSE OF ITS BUSINESS ACTIVITY, ACCORDING TO THE L D. COUNSEL, THE ASSESSEE WROTE OFF BAD DEBTS WHICH COULD NOT BE REC OVERED AND 4 I.T.A. NO.2241/MDS/12 CLAIMED THE SAME AS DEDUCTION. THE ASSESSING OFFIC ER ALLOWED PART OF THE CLAIM. HOWEVER, THE ASSESSING OFFICER DISAL LOWED A SUM OF ` 83,97,364/- ON THE GROUND THAT THE ASSESSEE HAS STO PPED ITS BUSINESS. 5. REFERRING TO THE ORDER OF THE CIT(APPEALS), THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CIT(APPEALS), WHILE CONFIRMING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THE E XTENT OF ` 83,97,364/-, HAS ALSO ENHANCED THE ASSESSMENT IN RE SPECT OF THE BAD DEBT ALLOWED BY THE ASSESSEE TO THE EXTENT OF ` 84,70,390/-. ACCORDING TO THE LD. COUNSEL, THE CIT(APPEALS) MAIN LY FOUND THAT THE BUSINESS OF THE ASSESSEE WAS STOPPED, THEREFORE , THE ASSESSEE CANNOT CLAIM ANY BAD DEBT. REFERRING TO THE DECISI ON OF MUMBAI BENCH OF THIS TRIBUNAL IN PREIMUS INVESTMENT & FINA NCE LTD. V. DCIT (2015) 171 TTJ 794, THE LD.COUNSEL SUBMITTED T HAT ON IDENTICAL SET OF FACTS, THE MUMBAI BENCH OF THIS TR IBUNAL FOUND THAT DENIAL OF REGISTRATION BY RESERVE BANK OF INDIA AS NON-BANKING FINANCE COMPANY DOES NOT DECIDE THE ISSUE OF CARRYI NG OF BUSINESS OR LEGALITY OF THE ISSUE. THE MUMBAI BENCH OF THIS TRIBUNAL FOUND THAT THE ASSESSEE WAS CARRYING ON ITS BUSINESS ON I DENTICAL SET OF FACTS. THE LD.COUNSEL HAS ALSO PLACED HIS RELIANCE ON ANOTHER DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN KNP SE CURITIES P. LTD. 5 I.T.A. NO.2241/MDS/12 V. ACIT (2010) 1 ITR (TRIB) 130. THEREFORE, THE CI T(APPEALS) IS NOT JUSTIFIED IN NOT ONLY CONFIRMING THE ORDER OF THE A SSESSING OFFICER BUT ALSO ENHANCING THE ASSESSMENT MADE BY THE ASSESSING OFFICER BY DISALLOWING THE CLAIM ALLOWED BY THE ASSESSING OFFI CER. 6. ON THE CONTRARY, SHRI SUPRIYO PAL, THE LD. DEPAR TMENTAL REPRESENTATIVE, SUBMITTED THAT THE ASSESSEE WAS NOT ALLOWED TO CARRY ON THE BUSINESS OF NON-BANKING FINANCE, THERE FORE, THE ASSESSEE CANNOT NOW CLAIM THAT EVEN AFTER THE DIREC TION OF RESERVE BANK OF INDIA, THE ASSESSEE CONTINUED ITS BUSINESS. REFERRING TO THE ASSESSMENT ORDER, THE LD. D.R. SUBMITTED THAT THE A SSESSING OFFICER SPECIFICALLY FOUND THAT THE ASSESSEE HAS STOPPED TH E BUSINESS OF HIRE PURCHASE AND LEASING AS PER THE RESERVE BANK O F INDIA ORDER DATED 13.08.2007. ONCE THE BUSINESS WAS STOPPED, A CCORDING TO THE LD. D.R., THE ASSESSING OFFICER OUGHT TO HAVE D ISALLOWED THE ENTIRE CLAIM OF BAD DEBT. SINCE THE ASSESSING OFFI CER PARTLY ALLOWED THE CLAIM OF THE ASSESSEE, THE CIT(APPEALS) FOUND T HAT THE ASSESSMENT HAS TO BE ENHANCED. ACCORDINGLY, BY FOL LOWING THE STATUTORY REQUIREMENT OF GIVING NOTICE, THE CIT(APP EALS) HAS RIGHTLY ENHANCED THE ASSESSMENT . 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE ASSESSEE 6 I.T.A. NO.2241/MDS/12 CLAIMS THAT EVEN AFTER THE ORDER OF THE RESERVE BAN K OF INDIA DATED 13.08.2007, CONTINUED ITS BUSINESS AND RECOVERED TH E OUTSTANDING LIABILITIES. HOWEVER, THE REVENUE CONTENDS THAT TH E ASSESSEE STOPPED ITS BUSINESS, THEREFORE, THERE CANNOT BE AN Y BAD DEBT AFTER THE BUSINESS WAS CLOSED DOWN. ON A QUERY FROM THE BENCH - WHETHER THE ASSESSEE ADVANCED FUNDS IN THE COURSE O F BUSINESS ACTIVITY AFTER THE ORDER OF THE RESERVE BANK OF IND IA DATED 13.08.2007? THE LD.COUNSEL FOR THE ASSESSEE SUBMIT TED THAT HE HAS TO VERIFY THE RECORDS. THE LD.COUNSEL CLARIFIED TH AT THE ASSESSEE CONTINUED ITS BUSINESS EVEN AFTER THE ORDER OF RESE RVE BANK OF INDIA AND ALSO RECOVERED OUTSTANDING LIABILITY. 8. WE HAVE CAREFULLY GONE THROUGH THE DECISION OF M UMBAI BENCH OF THIS TRIBUNAL IN PREIMUS INVESTMENT & FINA NCE LTD. (SUPRA). IN THE CASE BEFORE MUMBAI BENCH, RESERVE BANK OF INDIA DENIED THE REQUEST OF THE ASSESSEE TO REGISTER AS N ON-BANKING FINANCE COMPANY. THE MUMBAI BENCH FURTHER FOUND TH AT IF THE ASSESSEE VIOLATED THE PROVISIONS OF RESERVE BANK OF INDIA ACT, IT DOES NOT MEAN THAT THE ASSESSEE HAS NOT CARRIED ON ANY BUSINESS ACTIVITIES. IT IS FOR THE RESERVE BANK OF INDIA TO PENALISE THE ASSESSEE FOR VIOLATING THE PROVISIONS OF RESERVE BA NK OF INDIA ACT, AND ACCORDINGLY ALLOWED THE CLAIM OF THE ASSESSEE. A SIMILAR VIEW 7 I.T.A. NO.2241/MDS/12 WAS TAKEN BY ANOTHER BENCH OF THIS TRIBUNAL AT MUMB AI IN KNP SECURITIES P. LTD. (SUPRA). WE FIND THAT CBDT, VID E ITS CIRCULAR DATED 30.05.2016, INSTRUCTED ITS OFFICERS NOT TO FILE ANY APPEAL IN CASE THE BAD DEBT WAS WRITTEN OFF AS IRRECOVERABLE IN THE BO OKS OF ACCOUNT, IF IT FULFILLS THE CONDITION STIPULATED UNDER SUB-SECT ION (2) SECTION 36 OF THE ACT. IN THE CASE BEFORE US, THE CIT(APPEALS) F OUND THAT THE ASSESSEE HAS STOPPED ITS BUSINESS, THEREFORE, NOT E LIGIBLE TO CLAIM THE BAD DEBT. IT IS NOT IN DISPUTE THAT THE BAD DE BT WAS WRITTEN OFF. THE QUESTION ARISES FOR CONSIDERATION IS WHETHER TH E ASSESSEE IS CONTINUING ITS BUSINESS AFTER THE ORDER OF RESERVE BANK OF INDIA DATED 13.08.2007. THOUGH THE ASSESSEE CLAIMS THAT OUTSTANDING LIABILITIES WERE RECOVERED FROM THE RESPECTIVE CUST OMERS, NO MATERIAL IS AVAILABLE ON RECORD TO SUGGEST WHETHER THE ASSES SEE HAS CARRIED ON NON-BANK BUSINESS AFTER THE ORDER OF THE RESERVE BANK OF INDIA ON 13.08.2007. IN OTHER WORDS, WHETHER THE ASSESSE E HAS ADVANCED FUNDS TO ANY OF ITS CUSTOMERS AFTER THE RB I ORDER DATED 13.08.2007 NEEDS TO BE VERIFIED. MOREOVER, THE DEC ISIONS OF MUMBAI BENCH OF THIS TRIBUNAL IN PREIMUS INVESTMENT & FINANCE LTD. (SUPRA) AND KNP SECURITIES P. LTD. (SUPRA) WER E NOT BROUGHT TO THE NOTICE OF BOTH THE AUTHORITIES BELOW. THEREFOR E, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-EXAMINED BY THE ASSESSING OFFICER. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES 8 I.T.A. NO.2241/MDS/12 BELOW ARE SET ASIDE AND THE ENTIRE DISALLOWANCE OF ` 1,68,67,754/- IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE THE MATTER AFRESH IN THE L IGHT OF THE DECISIONS OF MUMBAI BENCH OF THIS TRIBUNAL IN PREIM US INVESTMENT & FINANCE LTD. (SUPRA) AND KNP SECURITIES P. LTD. (SU PRA) AND THE CIRCULAR ISSUED BY CBDT IN CIRCULAR NO.12 OF 2016 A ND THEREAFTER DECIDE THE SAME, IN ACCORDANCE WITH LAW, AFTER GIVI NG A REASONABLE OPPORTUNITY TO THE ASSESSEE. 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 23 RD NOVEMBER, 2016 AT CHENNAI. SD/- SD/- ( ! . . # $% ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) ' / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 8 /DATED, THE 23 RD NOVEMBER, 2016. KRI. 2 04$9 :9,4 /COPY TO: 1. ./ /APPELLANT 2. 01./ /RESPONDENT 3. # ;4 () /CIT(A)-V, CHENNAI-34 4. # ;4 /CIT, CHENNAI-III, CHENNAI 5. 9< 04 /DR 6. !+ = /GF.