The DCIT, Circle-12, Ahmedabad V. Shri Kamlesh Raghuvirprasad Agarwal, Ahmedabad

ITA 2309/AHD/2009

• Counselvise Citation: [2011] 119 COUNSELVISE.COM (IT) 6883 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-12-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 17-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 28-07-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: D V SINGH
• Assessee Lawyers: VIJAY RANJAN
• Keywords: Business income; Bad and doubtful debts
• Section: 69C

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A AHMEDABAD BEFORE S/SHRI D.K.TYAGI, JM AND A. MOHAN ALANKAMON Y, AM. DY. CIT, CIRCLE-12, AHMEDABAD. VS. SHRI KAMLESH RAGHUVIRPRASAD AGARWAL, RAMKUMAR MILL COMPOUND, SARASPUR, AHMEDABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI D. V. SINGH, SR.DR RESPONDENT BY:- SHRI VIJAY RANJAN, AR DATE OF HEARING :17/11/2011 DATE OF PRONOUNCEMENT : 9/12/11. O R D E R PER D. K. TYAGI, JUDICIAL MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT(A) DATED 1.6.2009 WHEREIN THE FOLLOWING GROUNDS HAVE BEEN RAISED :- 1. THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN DELETING THE ADDITION OF RS.12,00,865/- MADE BY THE AO BY DISALLOWING INTEREST U/S 36(1)(III) OF THE ACT, WIT HOUT PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. 1.2 IN DOING SO, THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT THERE WAS NO COMMERCIAL ITA NO.2309/AHD/2009 ASST. YEAR :2006-07 ITA NO.2309/AHD/2009 ASST. YEAR 2006-07 2 EXPEDIENCY INVOLVED IN ADVANCING THE SAID INTEREST FREE LOANS AND ADVANCES TO ASSOCIATE/GROUP CONCERNS AND RELATE D PARTIES. 1.3 IN DOING SO, THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THE RATIO OF THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF S.A. BUILDERS REPORTED IN 288 ITR 1(SC). 2. THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN RESTRICTING THE ADDITION OF RS.4,10,000/- MADE B Y THE AO U/S 69C OF THE ACT BY DIRECTING THE AO TO CONSIDER THE TOTAL HOUSEHOLD EXPENDITURE AT RS.5 LACS ONLY AS AGAINST RS.6,10,000/- ESTIMATED BY THE AO WITHOUT PROPERLY APPRECIATING T HE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. 2.2 IN DOING SO THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT CONSIDERING T HE SIZE OF THE FAMILY OF THE ASSESSEE WHICH CONSISTED OF 13 MEMBER S, HIS HIGH SOCIAL STATUS AND THAT EXPENDITURE OF RS.1,97,856/- WAS INCURRED ON ELECTRICITY EXPENSES ALONE, THE ESTIMATE OF HOUS EHOLD EXPENSES OF RS.6,10,000/- BY THE AO WAS VERY REASON ABLE. 3. THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND O N FACTS IN DELETING DISALLOWANCE OF RS.23,65,850/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF BAD DEBTS, WITHOUT PROPE RLY APPRECIATING THE FACTS OF THE CASE AND THE MATERIAL BROUGHT ON RECORD BY THE AO. 3.2 IN DOING SO, THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT SINCE INTERES T INCOME RECEIVED BY THE ASSESSEE WAS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES THE CLAIM OF INTEREST RECEIVABL E OF RS.23,65,850/- AS A BAD DEBT WAS NOT ALLOWABLE U/S 36(1)(VI) OF THE ACT, SINCE THE SAID DEDUCTION IS ADMISSIBLE ONL Y AGAINST BUSINESS INCOME AND NOT AGAINST INCOME FROM OTHER S OURCES. 3.3 IN DOING SO THE LD. CIT(A)-XX, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN NOT APPRECIATING THAT THE FACTS OF THE DECISION OF THE HONBLE MUMBAI HIGH COURT REPORTED IN 182 ITR 6 RELIED UPON IN THE APPELLATE ORDER ARE DISTINGUISHABLE FRO M THE FACTS OF THE ASSESSEES CASE. ITA NO.2309/AHD/2009 ASST. YEAR 2006-07 3 2. THE FIRST GROUND RELATES TO DELETION OF ADDITION OF RS.12,00,863/- MADE BY THE AO BY DISALLOWING INTEREST U/S 36(1)(II I) OF THE ACT. THE ASSESSEE FILED ITS RETURN OF INCOME ON 26/12/2006 D ECLARING TOTAL INCOME OF RS.7,77,890/-. THE AO FINALIZED THE ASSESSMENT O RDER ON 30.12.2008 DETERMINING TOTAL INCOME AT RS.49,54,603/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED THAT ASSESSE E HAS CLAIMED INTEREST EXPENDITURE OF RS.12,00,863/-. THE AO HAD FURTHER OBSERVED THAT THE ASSESSEE HAD ADVANCED RS.2,54,10,051/- AS LOANS AND ADVANCES ON WHICH NO INTEREST IS CHARGED BY THE ASSESSEE. THE A O FURTHER CONTENDED THAT BORROWED MONEY HAD BEEN USED TO GIVE INTEREST FREE ADVANCES I.E. FOR NON BUSINESS PURPOSES AND ON THE BASIS OF SAME, THE AO DISALLOWED RS.12,00,863/- U/S 36(1)(III) OF THE ACT. 3. DURING APPELLATE PROCEEDINGS BEFORE THE FIRST AP PELLATE AUTHORITY, THE ASSESSEE SUBMITTED THAT AS PER SECTION 36(1)(II I) FOR THE PURPOSE OF GETTING DEDUCTION OF INTEREST THE ASSESSEE MUST HAV E BORROWED MONEY FOR THE PURPOSE OF BUSINESS AND INTEREST SHOULD HAVE BE EN PAID THEREON. IT WAS SUBMITTED THAT THE AO HAD NOT POINTED OUT ANY NEXUS BETWEEN BORROWED FUND WITH THE ALLEGED INTEREST FREE ADVANCES NOR TH E AO HAS ESTABLISHED THE BORROWED FUNDS WERE NOT UTILIZED FOR THE PURPOS E OF ASSESSEES BUSINESS. THEREFORE, THERE IS NO REASON FOR DISALLO WANCE OF ANY PART OF ITA NO.2309/AHD/2009 ASST. YEAR 2006-07 4 INTEREST. GIVING DETAILS, THE LD. AR OF THE ASSESSE E SUBMITTED THAT ASSESSEE WAS HAVING MORE INTEREST FREE FUNDS AVAILABLE WITH IT WHICH FAR EXCEEDS ALLEGED INTEREST FREE ADVANCES. THE DETAILS ARE AS UNDER :- PARTICULARS AMOUNT AS ON 31.3.2006 CAPITAL ACCOUNT 7,98,857 UNSECURED LOAN 80,27,463 CREDITORS FOR GOODS 3,77,65,496 TOTAL 4,65,91,816 THE ASSESSEE RELIED ON FOLLOWING CASE LAWS IN SUPPO RT OF ITS VIEW THAT NO DISALLOWANCE OF INTEREST EXPENDITURE WAS CALLED FOR AS IT HAD INTEREST FREE FUNDS AVAILABLE WITH IT.: I) TORRENT FINANCIERS VS. ACIT 73 TTJ 624 (AHD)(TRIB) II) CIT VS. RADICO KHAITAN LTD. 142 TAXMAN 681 (ALL HC ) III) CIT VS. PREM HEAVY ENGG. WORKS P. LTD. 285 ITR 554 (ALL HC) IV) MUNJAL SALES CORPN. VS. CIT 298 ITR 298 V) DECISION OF AHMEDABAD TRIBUNAL IN GROUP CASE OF ASS ESSEE BEING RAGHUVIR SYNTHETICS (P) LTD. FOR ASST. YEAR 2 002-03 (ORDER DATED 23/1/2009. 3.1 THE LD. CIT(A) AFTER CONSIDERING THE CONTENTION S OF AO AND THE SUBMISSIONS OF THE ASSESSEE DELETED THE IMPUGNED AD DITION BY OBSERVING AS UNDER :- I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND I HAVE ALSO PERUSED THE ORDER OF AO ON THIS ISSUE. TH E APPELLANT HAD SUFFICIENT INTEREST FREE FUNDS AVAILABLE IN THE FOR M OF SHARE CAPITAL, UNSECURED LOAN, INTEREST FREE CREDITORS OF THE AGGR EGATE AMOUNT OF RS.4.65 CRORES AS AGAINST INTEREST FREE ADVANCES OF RS.2.54 CRORES. ON THIS ISSUE, AHMEDABAD TRIBUNAL IN THE CASE OF TO RRENT FINANCIERS VS. ACIT 73 TTJ 624 HAS HELD THAT THE EN TIRE INTEREST ITA NO.2309/AHD/2009 ASST. YEAR 2006-07 5 FREE FUNDS INCLUDES OWNERS OWN CAPITAL, ACCUMULATE D PROFITS AND OTHER INTEREST FREE CREDITORS AND LOANS AND IF TOTA L INTEREST FREE ADVANCES DO NOT EXCEED THE TOTAL INTEREST FREE FUND S AVAILABLE WITH THE ASSESSEE, NO INTEREST IS DISALLOWABLE ON ACCOUN T OF UTILIZATION OF FUND FOR NON-BUSINESS PURPOSE. FURTHER, HONBLE APE X COURT IN THE CASE OF MUNJAL SALES CORPORATION (SUPRA) ON IDENTIC AL FACTS HAS HELD THAT WHEN OPENING INTEREST FREE FUNDS WAS IN E XCESS OF INTEREST FREE LOANS GRANTED BY ASSESSEE NO DISALLOWANCE OF I NTEREST UNDER SECTION 36(1)(III) IS CALLED FOR. RESPECTIVELY FOLL OWING AFORESAID DECISIONS, I HOLD THAT DISALLOWANCE OF INTEREST IS NOT JUSTIFIED. HENCE THIS GROUND OF APPEAL IS ALLOWED. AGGRIEVED BY THIS ORDER OF LD. CIT(A), THE REVENUE IS IN APPEAL BEFORE US. 4. THE LD. DR SUPPORTED THE ORDER OF AO AND SUBMITT ED THAT DURING THE ASSESSMENT PROCEEDINGS THE AO NOTED THAT ASSESS EE HAD ADVANCED RS.2,54,10,051/- AS LOANS AND ADVANCES ON WHICH NO INTEREST WAS CHARGED BY THE ASSESSEE. THE AO FURTHER NOTED THAT BORROWED MONEY HAD BEEN USED TO GIVE INTEREST FREE ADVANCES I.E. FOR NON-BU SINESS PURPOSES AND ON THIS BASIS THE AO DISALLOWED RS.12,00,863/- U/S 36( 1)(III) OF THE ACT. THE LD. CIT(A) WITHOUT APPRECIATING THE FACTS OF THE CA SE HAS DELETED THE DISALLOWANCE WHICH IS NOT CORRECT. THEREFORE, THE O RDER OF LD. CIT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 5. ON THE OTHER HAND, THE LD. COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THERE IS NO WORD IN THE ASS ESSMENT ORDER TO ESTABLISH THAT THE FUNDS BORROWED FOR THE PURPOSE O F BUSINESS WERE NOT FOR THE PURPOSE OF ASSESSEES BUSINESS. THE AO HAD WRON GLY MADE THE ADDITION WITHOUT PROPERLY CONSIDERING THE FACTS OF THE CASE. THE LD. ITA NO.2309/AHD/2009 ASST. YEAR 2006-07 6 COUNSEL REITERATING THE SUBMISSIONS MADE BEFORE THE LD. CIT(A) CONTENDED THAT THE LD. CIT(A) AFTER PROPERLY APPRECIATING THE FACTS OF THE CASE AND THE CASE LAWS CITED BEFORE HIM, HAS RIGHTLY DELETED THE ADDITION. THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A). THE ORDER OF LD. CIT(A) MAY KINDLY BE UPHELD. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE RECORD INCLUDING THE ORDERS OF LOWER AUTHORITIES. WE FIND THAT ASSESSEE HAD FURNISHED THE DETAILS OF INTEREST FREE FUNDS AVAILA BLE WITH IT WHICH AGGREGATES TO RS.4,65 CRORES AS AGAINST INTEREST FR EE ADVANCES OF RS.254 CRORES. THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE TRIBUNAL, AHMEDABAD IN THE CASE OF TORRENT FINANCIERS VS. ACIT 73 TTJ 624 AND ALSO BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPN. VS. CIT (SUPRA) WHE REIN ON IDENTICAL FACTS IT HAS BEEN HELD THAT WHEN OPENING INTEREST FREE FU NDS WAS IN EXCESS OF INTEREST FREE LOANS GRANTED BY ASSESSEE, NO DISALLO WANCE OF INTEREST U/S 36(1)(III) IS CALLED FOR. THE ORDER OF LD. CIT(A) I N CONFORMITY WITH THE ABOVE DECISIONS. IN OUR VIEW, THERE IS NO INFIRMITY IN THE ORDER OF LD. CIT(A). WE UPHOLD THE SAME. THIS GROUND OF REVENUE FAILS. 7. THE SECOND GROUND RELATES TO RESTRICTING ADDITIO N OF RS.4,10,000/- OUT OF ESTIMATED ADDITION OF RS.6,10,000/- MADE BY THE AO. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO OBSERVED TH AT FAMILY OF ITA NO.2309/AHD/2009 ASST. YEAR 2006-07 7 ASSESSEE CONSISTS OF 13 MEMBERS COMPRISING OF 8 ADU LTS AND 5 CHILDREN AND TOTAL WITHDRAW OF RS.2 LAKHS IS INSUFFICIENT. T HE AO FURTHER OBSERVED THAT AS IN THE MONTH OF MARCH WITHDRAWAL OF THE FAM ILY WAS SHOWN AT RS.60,000/- HENCE FOR THE FIRST 11 MONTHS, HOUSEHOL D WITHDRAWAL WAS ESTIMATED AT RS.50,000/- P.M. CONSIDERING THIS POSI TION, THE AO ESTIMATED HOUSEHOLD WITHDRAWAL AT RS.6,10,000/- (50,000/- X 1 1 + 60,000/-) AS ASSESSEE HAD SHOWN WITHDRAWAL OF RS.2 LAKHS, ADDITI ON OF RS.4,10,000/- WAS MADE. 8. THE ASSESSEE WENT IN APPEAL BEFORE THE FIRST APP ELLATE AUTHORITY WHEREIN THE LD. COUNSEL OF THE ASSESSEE SUBMITTED T HAT THE ENTIRE ADDITION HAD BEEN MADE ON ESTIMATE HENCE NO ADDITION WAS CAL LED FOR. IT WAS SUBMITTED BY THE LD. COUNSEL THAT EVEVEN WHILE COMP UTING WITHDRAWAL OF RS.2 LAKHS, WITHDRAWALS MADE BY CHEQUE FROM PERSONA L ACCOUNTS SUCH AS ELECTRICITY BILLS OF RS.1,97,856/-, MUNICIPAL TAX O F RS.9,397/- AND FOREIGN TRAVEL EXPENDITURE INCURRED WERE NOT CONSIDERED. EV EN TELEPHONE EXPENDITURE AND VEHICLE EXPENDITURE WERE BORNE BY B USINESS FIRMS OF ASSESSEE GROUP. THEREFORE, THERE IS NO BASIS FOR MA KING ANY ADDITION ON ESTIMATE BASIS. 8.1 THE LD. CIT(A) AFTER TAKING INTO CONSIDERATION THE CONTENTIONS OF THE AO AND THE SUBMISSIONS OF THE ASSESSEE RESTRICT ED THE ADDITION WITH THE FOLLOWING OBSERVATIONS :- ITA NO.2309/AHD/2009 ASST. YEAR 2006-07 8 I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND I HAVE ALSO PERUSED THE ORDER OF THE AO ON THIS ISSUE . THE ASSESSEE IS LIVING IN JOINT FAMILY CONSISTING OF HIS PARENTS AN D FAMILY OF HIS THREE BROTHERS. THE AO HAS ESTIMATED HOUSE HOLD EXP ENSES OF RS.50,000/- FOR FIRST ELEVEN MONTHS ON THE BASIS OF ACTUAL HOUSE HOLD EXPENDITURE OF RS.60,000/- WHICH IS ON HIGHER SIDE. LOOKING TO THE FACTS OF APPELLANT, THE AO IS DIRECTED TO CONSI DER HOUSEHOLD EXPENSES @ RS.40,000/- P.M. FOR FIRST ELEVEN MONTHS AND RS.60,000/- FOR THE MONTH OF MARCH AS CLAIMED BY AP PELLANT. TOTAL HOUSEHOLD EXPENDITURE IS CONSIDERED AT RS.5,00,000/ - AS AGAINST RS.6,10,000/- ESTIMATED BY THE AO. FURTHER, ASSESSE E HAS SHOWN CASH WITHDRAWALS OF RS.2 LAKHS AND CLAIMED THAT AO HAS NOT ALLOWED CREDIT OF EXPENDITURE LIKE ELECTRICITY AND MUNICIPAL TAX PAID BY THEM. THE AO IS DIRECTED TO VERIFY THE CLAI M OF APPELLANT AND IF FOUND PROPER, CREDIT FOR HOUSEHOLD EXPENDITU RE LIKE ELECTRICITY, MUNICIPAL TAX PAID THROUGH CHEQUE SHOU LD BE GRANTED TO ASSESSEE IN ADDITION TO RS.2,00,000/- ALLOWED IN AS SESSMENT ORDER FROM TOTAL ESTIMATE OF HOUSEHOLD EXPENDITURE FOR RS .5,00,000/-. THIS GROUND OF APPEAL IS ALLOWED ACCORDINGLY. AGAINST THIS ORDER OF THE LD. CIT(A) REVENUE IS IN APPEAL. 9. THE LD. DR OPPOSING THE ORDER OF LD. CIT(A) SUBM ITTED THAT DURING THE ASSESSMENT PROCEEDINGS THE AO NOTED THAT THERE WERE 13 MEMBERS IN THE FAMILY AND ACTUAL WITHDRAWAL MADE WORKS OUT TO RS.897/- PER FAMILY MEMBER PER MONTH WHICH WAS VERY MUCH ON THE LOWER S IDE. CONSIDERING THE SOCIAL STATUS OF THE ASSESSEE AND THE INCOME EA RNED BY THE ENTIRE FAMILY IT WOULD BE BOTH FAIR AND REASONABLE TO AT L EAST ESTIMATE THE WITHDRAWAL FOR HOUSEHOLD EXPENSES AT RS.5,000/- PER MONTH FOR EACH ADULT FAMILY MEMBER. THE AO WORKED OUT RS.40,000/- PER MO NTH FOR ALL 8 ADULT FAMILY MEMBERS AND FOR THE FIVE CHILDREN THE WITHDR AWAL WAS ESTIMATED AT RS.10,000/- PER MONTH. THE TOTAL WITHDRAWAL FOR THE ENTIRE FAMILY PER ITA NO.2309/AHD/2009 ASST. YEAR 2006-07 9 MONTH THEREFORE WORKED OUT TO RS.50,000/- WHICH WAS VERY FAIR AND REASONABLE. IT WAS NOTED BY THE AO THAT THE WITHDRA WALS WERE EVEN LOWER THAN THE ELECTRICITY EXPENSES INCURRED BY THE ASSES SEE. INSPITE OF THIS THE HOUSE HOLD EXPENSES WAS ESTIMATED AT RS.5,50,000/- FOR THE FIRST ELEVEN MONTHS OF THE PREVIOUS YEAR (AS WITHDRAWAL OF RS.60 ,000/- HAS BEEN MADE IN MARCH, 2006) WHICH WORKS OUT TO RS.3.08 TIMES TH E ELECTRICITY EXPENSES INCURRED BY THE ASSESSEE. THE YEARLY HOUSE HOLD EXPENSES THEREFORE WORKED OUT TO RS.6,10,000/-. THE DIFFEREN CE OF RS.4,10,000/- WOULD THEREFORE BE EXPENDITURE COVERED BY S.69C OF THE ACT AND ACCORDINGLY THE AO HAD MADE THE ADDITION OF RS.4,10 ,000/- WAS MADE. THE LD. CIT(A) HAS WRONGLY RESTRICTED THE ADDITION WITHOUT APPRECIATING THE FACTS OF THE CASE. HIS ORDER BE SET ASIDE AND T HAT OF THE AO BE RESTORED. 10. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE RELIED ON THE ORDER OF LD. CIT(A). 11. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND GOI NG THROUGH THE MATERIAL ON RECORD, WE FIND THAT THE UNDISPUTED FAC TS ARE THAT THE FAMILY OF ASSESSEE CONSISTS OF 13 MEMBERS 8 ADULTS AND 5 CH ILDREN. THE ASSESSEE HAS WITHDRAWN RS.60,000/- IN CASH ON 11/01/2006 AND ASSESSEES BROTHER SHRI SUNIL R. AGRAWAL WITHDREW RS.80,000/- IN CASH ON 5/4/2005 AND RS.60,000/- IN CASH ON 8/3/2006. THUS CASH AVAILABL E WITH THE ASSESSEE FOR MEETING THE HOUSEHOLD EXPENSES FOR THE FIRST ELEVEN MONTHS OF THE ITA NO.2309/AHD/2009 ASST. YEAR 2006-07 10 PREVIOUS YEAR WAS RS.1,40,000/- IN ALL AS RS.60,000 /- WAS WITHDRAWN IN THE MONTH OF MARCH 2006 ITSELF AND FAMILY OF 13 MEM BERS SURVIVED ON RS.80,000/- ONLY FOR 9 MONTHS OF THE YEAR I.E. FROM APRIL TO DECEMBER, 2005 WHICH IS JUST UNBELIEVABLE. FURTHER IT WAS ALS O OBSERVED THAT THE EDUCATION FEES OF THREE CHILDREN AMOUNTING TO RS.27 ,000/- WERE MET FROM THESE EXPENSES. ELECTRICITY EXPENSES OF RS.1,97,856 /- AND MUNICIPAL TAX OF RS.9,397/- ARE SEPARATELY PAID BY THEM. THE AO H AD FURTHER OBSERVED THAT FOR MEETING OTHER EXPENSES LIKE ENTERTAINMENT EXPENSES, PERSONAL TRAVEL AND HOLIDAY EXPENSES ON SERVANTS, BUYING OF PERSONAL ITEMS ETC. THERE IS NO SEPARATE WITHDRAWALS. IT WAS STATED BEF ORE THE AO THAT ALL THESE EXPENSES WERE MET FROM THE WITHDRAWALS MADE FOR HOU SEHOLD EXPENSES. KEEPING IN VIEW THE SIZE AND STATUS OF THE FAMILY I N SOCIETY, LIVING STANDARD OF THE FAMILY AND THE TIMING OF WITHDRAWAL S, THE ESTIMATE BY THE AO SEEMS TO BE MORE THAN REASONABLE TO US. IN OUR C ONSIDERED VIEW THE LD. CIT(A) HAS NOT PROPERLY APPRECIATED THE FACTS A ND RESTRICTED THE EXPENSES OF SUCH A LARGE FAMILY TO RS.5,00,000/- WH ICH CANNOT BE UPHELD. IN VIEW OF ABOVE, WE SET ASIDE THE ORDER OF LD. CIT (A) AND RESTORE THAT OF THE AO. THIS GROUND OF THE REVENUE IS ALLOWED. 12. THE GROUND NO.3 RELATES TO DELETION OF RS.23,65 ,850/- CLAIMED AS BAD DEBT. DURING THE COURSE OF ASSESSMENT PROCEEDIN GS THE AO FOUND THAT ITA NO.2309/AHD/2009 ASST. YEAR 2006-07 11 FOLLOWING BAD DEBITS WERE WRITTEN OFF DURING THE YE AR FOR RS.25,65,850/- WHICH WERE NOT ALLOWABLE AS DEDUCTION: (I) INTEREST RECEIVABLE WRITTEN OFF RS.23,65,850/- AND (II) ADVANCE AGAINST COMMISSION FOR DEFENSE CONTRACT RS. 2,00,000/- THE AO OBSERVED THAT INTEREST RECEIVABLE WRITTEN OF F WAS NOT ALLOWABLE AS BAD DEBT ON FOLLOWING GROUNDS :- (I) THE ASSESSEE IS ENGAGED IN BUSINESS ACTIVITY OF TRA DING & MANUFACTURING OF FABRICS AND THE ASSESSEE IS NOT EN GAGED IN MONEY LENDING OR INVESTMENT BUSINESS. (II) THE ACTIVITY OF ADVANCING MONIES TO VARIOUS PARTIES MAINLY GROUP CONCERNS IS NOT AN ORGANIZED ACTIVITY UNDERTA KEN BY THE ASSESSEE AND HENCE THE INTEREST RECEIPTS ARE NO T TAXABLE AS BUSINESS INCOME BUT AS INCOME FROM OTHER SOURCES. (III) THE CLAIM OF BAD DEBT FALLS U/S 36(1)(VII) OF THE I T ACT. DEDUCTION U/S 36 IS AVAILABLE FROM PROFITS AND GAIN S FROM BUSINESS. THIS DEDUCTION IS NOT ALLOWABLE UNDER THE HEAD OTHER SOURCES. THE INTEREST INCOME IN CASE OF ASSES SEE IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES HE NCE CONDITIONS OF SECTION 36(1)(VII) HAVE NOT BEEN SATI SFIED AND ACCORDINGLY THE CLAIM OF THE ASSESSEE IS REJECTED. THE AO FURTHER OBSERVED THAT BALANCE AMOUNT OF RS.2 LAKHS PERTAINING TO ADVANCE AGAINST COMMISSION FOR DEFENSE CONTRACT, SU CH AMOUNT WAS NOT ALLOWABLE AS BAD DEBT AS SUCH AMOUNT IS NOT OFFERED FOR TAX IN EARLIER YEARS. 13. IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY THE ASSESSEE MADE DETAILED SUBMISSIONS WHICH HAS BEEN NARRATED BY THE LD. CIT(A) IN HIS ITA NO.2309/AHD/2009 ASST. YEAR 2006-07 12 ORDER FROM PAGES 6 TO 9 WHEREIN IT HAS BEEN STATE D THAT FOR ASST. YEAR 2003-04 INTEREST CHARGED TO THE OUTSTANDING DEBIT B ALANCE OF M/S RAGHUVIR FINANCE CORPORATION CAME TO RS.23,65,850/- AND THE SAID INTEREST INCOME WAS OFFERED TO TAXATION AS INCOME F ROM BUSINESS AND PROFESSION IN THE RETURN OF INCOME FILED BY THE ASS ESSEE IN ASST. YEAR 2003-04. HOWEVER, THE FINANCIAL POSITION OF THE DEB TOR PARTY HAD WORSENED AND IT CLOSED ITS BUSINESS AFFAIRS IN F.Y. 2003-04. THE PRINCIPAL AMOUNT WAS FULLY RECOVERED BY THE ASSESSEE BUT IT C OULD NOT RECOVER THE INTEREST ON THE SAME. THE ASSESSEE STATED THAT AS P ER PROVISIONS OF INCOME- TAX ACT, INCOME WAS REQUIRED TO BE TAXED ON REAL IN COME AND NOT ON NOTIONAL INCOME. SINCE THE ASSESSEE HAD NOT EARNED ANY REAL INCOME IN ASST. YEAR 2003-04 INCOME FOR SAID YEAR MAY BE REDU CED. THE LD. CIT(A) CONSIDERED THE CONTENTIONS OF THE AO AND THE SUBMIS SIONS OF THE ASSESSEE AND DELETED THE IMPUGNED ADDITION BY OBSERVING AS U NDER :- I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT AND I HAVE ALSO PERUSED THE ORDER OF THE AO. THE AO HAS D ISALLOWED BAD DEBT OF RS.23,65,850/- MAINLY ON THE GROUND THAT IN TEREST INCOME EARNED OUT OF ADVANCING MONEY TO VARIOUS PARTIES IN CLUDING GROUP COMPANIES ARE ASSESSABLE AS INCOME FROM OTHER SOURC ES AND NOT AS BUSINESS INCOME HENCE WHEN SUCH AMOUNTS ARE NOT REC EIVED, SAME CANNOT BE CLAIMED AS DEDUCTION UNDER THE HEAD INCO ME FROM OTHER SOURCES AS THERE IS NO PROVISION FOR GRANTING DEDU CTION U/S 57 OF THE ACT LIKE WHAT IS PROVIDED U/S 36(1)(VII) OF THE ACT. IN THE CASE OF ASSESSEE, AMOUNT WAS ADVANCED TO M/S RAGHUVIR FINAN CE CORPORATION SINCE ASST. YEAR 1998-99 AND INTEREST E ARNED ON SUCH INCOME HAS BEEN CONSISTENTLY SHOWN BY THE APPELLANT AS BUSINESS INCOME. THE APPELLANT WAS UNABLE TO RECOVER INTERES T INCOME OF RS.23,65,850/- CHARGED IN ASST. YEAR 2003-04 AND SH OWN AS ITA NO.2309/AHD/2009 ASST. YEAR 2006-07 13 BUSINESS INCOME DUE TO CLOSURE OF BUSINESS AFFAIRS OF M/S RAGHUVIR FINANCE CORPORATION. HENCE, SUCH AMOUNT WAS CLAIMED AS BAD DEBT IN CURRENT YEAR. WHETHER INTEREST INCOME IS CH ARGEABLE AS BUSINESS INCOME OR INCOME FROM OTHER SOURCES, IT HA S TO BE DECIDED IN THE YEAR OF ACCRUAL OF INTEREST INCOME AND NOT I N SUBSEQUENT ASSESSMENT YEAR OR IN THE YEAR OF WRITE OFF OF SUCH DEBT. AS IN THE CASE OF THE ASSESSEE, ENTIRE INTEREST INCOME HAS BE EN OFFERED TO TAX IN ASST. YEAR 2003-04 AND IN EARLIER YEARS AS BUSIN ESS INCOME, NON- RECOVERY OF SUCH AMOUNT DUE TO CLOSURE OF BUSINESS OF OTHER PARTY IS ALLOWABLE DEDUCTION UNDER SEC.36(1)(III) OF THE ACT. EVEN THE CASE OF THE ASSESSEE IS COVERED BY THE DECISION OF BOMBAY HIGH COURT IN CASE OF CIT VS. BYRAMJEE JEEJEEBHOY (P) LT D. 182 ITR 6 REFERRED SUPRA. ON THE BASIS OF SUCH FACTS, ASSESSE E IS ENTITLED TO CLAIM DEDUCTION OF RS.23,65,850/- AS DEDUCTION UNDE R SECTION 36(1)(VII) OF THE ACT. AGGRIEVED BY THIS ORDER OF THE LD. CIT(A) THE REVEN UE IS IN APPEAL BEFORE THE TRIBUNAL. 14. THE LD. DR SUPPORTED THE ORDER OF AO AND SUBMIT TED THAT THE CLAIM OF BAD DEBT FALLS U/S 36(1)(VII) OF THE IT ACT DEDU CTION U/S 36 IS AVAILABLE FROM PROFITS AND GAINS FROM BUSINESS. THIS DEDUCTIO N IS NOT ALLOWABLE UNDER THE HEAD OTHER SOURCES. THE INTEREST INCOME I N CASE OF ASSESSEE IS TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES HE NCE CONDITIONS OF SECTION 36(1)(VII) HAVE NOT BEEN SATISFIED AND ACCO RDINGLY THE CLAIM OF ASSESSEE WAS REJECTED BY THE ASSESSING OFFICER. THE LD. CIT(A) HAS WRONGLY DELETED THE ADDITION. HIS ORDER MAY KINDLY BE SET ASIDE AND THAT OF THE AO BE RESTORED. 15. ON THE OTHER HAND THE LD. COUNSEL OF THE ASSESS EE SUBMITTED THAT FOR THE ASST. YEAR 2003-04 INTEREST CHARGED TO THE OUTS TANDING DEBIT BALANCE OF M/S RAGHUVIR FINANCE CORPORATION CAME TO RS.23,6 5,850/- AND THE SAID INTEREST INCOME WAS OFFERED TO TAXATION AS INC OME FROM BUSINESS AND PROFESSION IN THE RETURN OF INCOME FILED BY ASSESSE E IN ASST. YEAR 2003- ITA NO.2309/AHD/2009 ASST. YEAR 2006-07 14 04. THE FINANCIAL POSITION OF THE DEBTOR PARTY HAD WORSENED AND IT CLOSED ITS BUSINESS AFFAIRS IN FY 2003-04. THE PRINCIPAL A MOUNT WAS FULLY RECOVERED BY THE ASSESSEE BUT IT COULD NOT RECOVER INTEREST ON THE SAME. SO IT WAS CONSIDERED AS BAD AND WAS WRITTEN OFF IRRECO VERABLE IN THE BOOKS OF ACCOUNTS. RAGHUVIR FINANCE CORPORATION HAS NOT CLAI MED AFORESAID INTEREST PAYMENT AS EXPENDITURE IN ASST. YEAR 2003- 04 OR AFTERWARDS. THE LD. COUNSEL FURTHER SUBMITTED THAT THE ISSUE IS NOW COVERED BY THE DECISION OF HON. SUPREME COURT IN THE CASE OF TRF LTD. VS. C IT (2010) 35 DTR (SC) 156 WHEREIN IT IS HELD THAT IF AMOUNT IS WRITT EN OFF IN THE BOOKS THEN THE CLAIM SHOULD BE ALLOWED UNDER SECTION 36(1)(VII ). ALL THE CONDITIONS FOR CLAIMING DEDUCTION U/S 36(1)(VII) ARE SATISFIED . THEREFORE, THE AMOUNT SHOULD BE ALLOWED AS BAD DEBT TO THE ASSESSEE. 16. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE ARE OF THE CONSIDERED VIEW THAT SINCE NOW THE ISSUE IS SETTLED AS A RESUL T OF DECISION OF HON. APEX COURT IN TRF LTD. VS. CIT (SUPRA) WHEREIN IT I S HELD THAT IF AMOUNT IS WRITTEN OFF IN THE BOOKS THEN THE CLAIM SHOULD B E ALLOWED UNDER SECTION 36(1)(VII). THE AMOUNT HAS BEEN WRITTEN OFF BY THE ASSESSEE IN THE BOOKS OF ACCOUNT AND ALL THE CONDITIONS LAID DOWN U/S 36( 1)(VII) READ WITH SECTION 36(2) ARE SATISFIED. THIS CONTENTION OF THE LD. COUNSEL COULD NOT BE CONTROVERTED BY THE LD. DR. ACCORDINGLY WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A). WE UPHOLD THE SAME. THUS THIS GROUND OF REVENUE IS REJECTED. 17. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 9/12/11. SD/- SD/- (A. MOHAN ALANKAMONY) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICI AL MEMBER AHMEDABAD, ITA NO.2309/AHD/2009 ASST. YEAR 2006-07 15 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 28/11/2011. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER .OTHER MEMBER 2/12/2011 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 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..