SHRI. RAVI ADVANI, MUMBAI V. INT TAX WARD 1 (1)(1), MUMBAI

ITA 261/MUM/2020

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 5815 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2021
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: D
• Assessment Year: 2016-2017
• Appeal Filed On: 08-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MUKESH ADVANI; PRINTED FROM ITATORDERS.INPRINTED FROM ITATORDERS.INPRINTED FROM COUNSELVISE.COM
• Keywords: Business income; Depreciation; Business expenditure; Source of fund; Bad and doubtful debts; Prejudicial to interest; Revised return; Capital expenditure; TDS; Liquidation
• Section: 37; 28; 143(3); 142(1); 37(1); 139(5); 143(2); 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (VIRTUAL COURT) “D” BENCH, MUMBAI BEFORE SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER AND MS. SUCHITRA RAGHUNATH KAMBLE, HON'BLE JUDICIAL MEMBER ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani 11 th Floor, Regency Terrace 17 th Road, Khar (W) Mumbai – 400050 PAN: ADIPA9857C v. Income Tax Officer – 1(1)(1) Room No. 1604, 16 th Floor Air India Building Nariman Point Mumbai – 400 021 (Appellant) (Respondent) Assessee by : Shri Mukesh Advani Department by : Ms. Neha Thakur Date of Hearing : 20.12.2021 Date of Pronouncement : 22.12.2021 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (Appeals)–55, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 28.11.2019 for the A.Y.2016-17. 2. Brief facts of the case are that, assessee filed his return of income on 04.10.2016 declaring total income of ₹.51,56,950/- for the A.Y.2016-17. 2 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani Subsequently assessee revised his return of income on 27.05.2017 declaring total income of ₹.Nil claiming loss of ₹.3,45,57,662/- as bad debts resulting into current year loss of ₹.2,74,55,452/-. The revised return of income was selected for scrutiny under CASS with a direction to examine the issues (i) Low receipt from house property (ii) Taxable income shown in revised return is less than taxable income shown in the original return and large refund was claimed (iii) very low profit before depreciation, interest and tax ratio (iv) large investment in property. Accordingly, notice u/s. 143(2) and 142(1) of the Income-tax Act, 1961 (in short “Act”) were issued and served on the assessee. In response Ld. AR of the assessee attended and submitted the relevant information as called for. 3. Assessee is an NRI and shown income under the head “income from house property”, “business income” and “income from other sources” in original return of income and in the revised return of income, assessee has declared leasing of property as income under the head “business income”. 4. The Assessing Officer observed that assessee has advanced an amount of ₹.3.1 crores to M/s. Rusam Developer Pvt. Ltd., in the earlier 3 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani years and claimed bad debts of ₹.3,45,57,667/- (including interest) and claimed ₹9,23,800/- as stamp duty and registration charges on purchase of property. The assessment was completed u/s. 143(3) of the Act by the Assessing Officer rejecting the claim of the assessee of bad debts, registration charges, and declaring income of leasing of property under the head “business income”. Aggrieved assessee preferred an appeal before the Ld.CIT(A) and made detailed submissions which is reproduced below for the sake of brevity: - “4 Assessee’s Submission Ground No.1 From the above Reconciliation of Income, it can be seen that, when the Assessee wanted to offer the “Rental Income” from the properties under the head “Income from Business and Profession”, which were earlier offered for tax under the head “Income from House Property”, he did not claim any further expenses in the Revised Return. Hence, the learned Assessing Officer, by denying the Assessee, to offer the Rental Income under the head “Income from Business & Profession”, this has been prejudicial to interest of the “Revenue” because, since, the “Rental Income” is taxed under the head “Income from House Property”, then, the Assessee obtained an additional deduction u/s 24 @30% of the Annual Value of the properties which amounts to Rs. 27,72,314/-. Assessee, while filing the Revised Return, he offered for tax the Rental Income of Rs. 92,41,045/- (Net of Muncipal Taxes) under the head “income from Business & Profession”, as compared to Rs. 64,68,732/- which was offered for tax under the head “Income from House Property” at the time of filing the Original Return of Income, In light of the above said facts, the Assessing Officer’s decision to 4 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani deny the Assessee to offer the Rental Income under the head “Income from Business & Profession” is prejudicial to the Revenue. 1) In order to substantiate that the Assessee was doing “Business in Leasing out of the Properties”, we submit herewith following facts which is supported by the documentary evidence. a) Assessee had purchased 12 (twelve) properties since 2011 onwards, which were given on Leave & License basis. b) From the Assessment Year 2011-12 onwards the Rental Income received by the Assessee on all the twelve properties mentioned above were offered for tax under the head "Income from House Properties" mainly due to the deeming provision of section 22 of the Income Tax Act, wherein, even if the Assessee is doing business of Leasing the properties even then, the Income had to be offered u/s 22 of the Income Tax Act. c) Property wise details as well as Lessee wise details of all the Leave & License Agreements executed by the Assessee, along with Annual Rental Income which is received during the financial year ended 31/03/2016 relevant to the above mentioned Assessment Year 2016-17 is as under: - Sr. No. Location of the Property Leasee's Name Annual Rent No. of Units Leased 1 202A-AlphaI Bldg, Giga Space office at Pune TATA Elxsi Rs. 26,10,219/- (Rs.2,15,043/- April to Dec)+(Rs.2,24,94 4/-Jan to Mar) 1 unit 2 Shop No.1,4,6,7 in Solitude Building, Mahim Dena Bank Rs. 22,35,390/- (Rs.1,71,953/- per month 4 Shops 3 Lake City Mall, Kapurwadi Junction, Majiwada, Thana HDFC Bank Rs. 13,21,176/- (Rs.1,10,098/- per month] 6 Units 4 Marathon Nextgen, Parel HDFC Bank Rs. 25,25,868/- (Rs.2,88,377/- from April to July 15) Rs. 1.71.545/- from Aug to March 16) 5 Natasha Shopping Center Shop-Bandra ShivanGaba Rs, 11,25,000/- (Rs.l,25,000/-Aug to Mar 16) 1 Unit 5 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani d) Apart from the 12 properties which were purchased & leased by the Assessee, the Assessee had also purchased in January 2014, 6 more properties which were under construction. Sr. No. Property Details Purchase Date Status 1 The Park - Lodha (Worli) 3 rd May 2013 Under Construction 2 Krishna Business Centre-Shop No. 7 (Bhosari, Pune) 11 th January 2014 Under Construction 3 Krishna Business Centre-Shop No.8 (Bhosari, Pune) 11 th January 2014 Under Construction 4 Krishna Business Centre-Shop No.9 (Bhosari, Pune) 11th January 2014 Under Construction 5 Krishna Business Centre-Shop No.10 (Bhosari, Pune) 11th January 2014 Under Construction 6 Krishna Business Centre-Shop No.19 (Bhosari, Pune) 11th January 2014 Under Construction e) All the properties which were leased or which were under construction has been recorded in the books of accounts of the Assessee. Copies of the purchase agreements for all the 18 (12+6) properties were submitted to the Assessing Officer. f) It would not be out of place to submit here that all the above mentioned properties were purchased from the Assessee’s own funds. The Assessee has not borrowed any amount to purchase these properties. From the Audited Balance Sheet as on 31/03/2016, it can be seen that out of the total capital of INR 20,90,53,251/-, a sum of INR 10,41,24,220/is spent on purchase of properties which are either already given on rent or they are intended to be given on rent once the possession is obtained from the builder. Moreover, out of the total gross receipts of INR 1,25,51,314/- the Assessee has received rent to the extent of INR 98,17,653/-. In light of the above said facts there is no reason why the Rental Income received by the Assessee should not be treated as “Business Income” of the Assessee. g) The only reason why the learned Assessing Officer has not taxed the “Rental Income” under the head “Income from Business & Profession” is because in para 4.3(e) on page 5 of his Assessment Order wherein, he has stated that “the case laws quoted by the Assessee pertains to corporate assessee and is not applicable in this 6 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani case as assessee is an individual engaged in the business of resale of fabrics”. To this, we would like to submit that, Supreme Court's decision is applicable to all the Assessees, who’s main object is to Lease out of Properties and not only to Corporate Assessees. In light of the above said facts, we request your honour to instruct the Assessing Officer to tax Rental Income on Leasing out of the properties under the head “Income from Business & Profession” and not under the head “Income from House Properties”. 2) Taking into consideration Supreme Court’s decision in the case of Chennai Properties & Investment Ltd., which is reported in 373 ITR 673(copy enclosed herewith), wherein, it was held that if the main objects of the company are to lease out the properties”, then, the Income generated from such business will be taxable under the head “Income from Business & Profession” and not under the head “Income from House Property” a) It would not be out of place to submit here that the Assessee had advanced loans to Four parties namely: 1) Rusam Developers Pvt. Ltd 2) Birla Power Solution 2) Birla Power Solution 3) Sunil Mantri Realty Ltd 4) Kohinoor Cargo & Industrial Park private limited b) Assessee had given loans to Rusam Developers Pvt. Ltd. (RDPL) amounting to Rs. 3,10,00,000/- @15% p.a. by executing three (3) separate Memorandum of Understandings (M.O.U) along with three separate Mortgage Deeds (M.D) for three different properties (which were not registered with the Sub-Registrar of Immovable Properties) namely: Sr. No. Memorandum of Understanding Mortgage Deeds Amount Rate of Interest 1 Dt:- 02 Sept, 2010 Property at Andheri Rs.1,00,00,000 15% 2 Dt :-19 th May 2011 Property at Irla Dt:- 19 th May 2011 Rs.1,50,00,000 15% 3 Dt:- 11 th oct, 2011 Property at Vakola Dt. 11*001,2011 Rs. 60,00,000 15% Total Rs.3,10,00,000 7 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani c) Interest on the above mentioned loans were received in the following financial years namely: - Financial Year Interest provided for on which tax is deducted at source Interest Actually received (Rs. ) Shortfall (Rs.) 31/03/2012 1) 21.30.411/- (Net of IDS) (Andheri) 13,50,000/- 7,80,411/- 2) 18,67,142/-(Net of TDS) (Irla) NIL 18.67.142/- 3) 4,30,520/-(Net of TDS) (Vakola) NIL 4,30,520/- Total Rs. 44,28,073/- 13,50,000/- 30,78,073/- 31/03/2013 1)13,52,466/- (Net of TDS) (Andheri) 16,82,877/- Excess by 3.30.411/- 2) 20,25,000/- (Net of TDS) (Irla) 20,25,000/- NIL 3) 8,10,000/- (Net of TDS) (Vakola) NIL 8,10,000/- Total Rs. 41,87,466/- 37,07,877/- 4,79,589/- 31/03/2014 onwards NIL NIL NIL Grand Total Rs. 86,15,539/- 50,57,877/- 35,57,662/- d) Apart from the Memorandum of Understanding and Mortgage Deeds, the Assessee has also received from Rusam Developers Pvt. Ltd., Promissory Notes/Hundis for the Loans advanced to them along with the post-dated cheques. Copies of Memorandum of understanding, Mortgage Deeds & Promissory Notes/Hundis are enclosed herewith for your perusal and records. When all the cheques were bounced and the Assessee came to know the company has gone into Liquidation (copy of the current status from ROC site is enclosed herewith), then, the Assessee realized that, he will not be able to recover any amount. e) It would also not been out of place to submit here that, in the Profit & Loss account which was uploaded on the Income Tax Site, the Assessee had claimed the above expenses of Rs. 3,45,57,662/under the head “Bad Debts”, whereas the Assessee should have claimed only Rs. 35,57,662/- under the head “Bad Debts” u/s 36(i) (vii) and whereas the remaining amount of Rs. 3,10,00,000/- should have been claimed u/s 37(1) under the head “Business Loss”. 8 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani In light of the above said facts we enclose herewith the Analytical Business-wise Profit & Loss Account, wherein the claim for “Bad Debts” is Rs.35,57,662/- and “Business Loss” is Rs.3,10,00,000/-. f) Moreover, it will also not be out of place to submit here that, the reason why these expenses i.e. “Business Loss” amounting to Rs. 3,10,00,000/- and “Bad Debts” amounting to Rs. 35,57,662/pertaining to “Money Lending Business”, were not claimed by the Assessee in its Original Return of Income, is because the post dated cheques (copies enclosed herewith) which were given by “Rusam Developers Pvt. Ltd.” were dated 6% June 2016. These cheques were not deposited by the Assessee on that day as, Rusam Developers Pvt. Ltd. informed him to wait for three months. Hence, these cheques were deposited on 5 September 2016. Moreover, he came to know during the period from 1st October 2016 till 31st December 2016, that the company has gone into Liquidation. and only then, he decided to claim the “Business Loss” of Rs.3,10,00,000/- and “Bad Debts” of Rs. 35,57,662/- as Business expenses. g) We also enclose herewith following documents in order to substantiate the fact that Interest Income which is earned on money lending is Assesse under the head “Income from Business & Profession”. i. Computation of Total Income for the Assessment Year 2012- 2013 (pertains to F.Y. 2011-2012) wherein the Net Profit from Business Income to the extent of Rs. 63,71,747/- has been offered for tax under the head “Income from Business”. The Net Profit includes interest from Money Lending Business from the following four parties has offered for tax under the head “Income from Business”: a. Rusam Developers Pvt. Ltd Rs. 40,57,069/- b. Birla Power Solution Rs. 9,00,000/- c. Sunil Mantri Building Rs. 7,50,000/ d. Kohinoor Cargo Rs. 13,75,000/- Rs. 70,82,069/- Less : Expenses Rs. 7,10,322/ Net Profit Rs. 63,71,747/ 9 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani ii) Audited Balance Sheet of Assessee as on 31.3.2012. iii) Audited Profit & Loss Account of Assessee (Ravi Advani) for the financial year ended 31.3.2012, which includes interest from Money Lending from the above mentioned four parties. iv) Audited Profit & Loss Account of Assessee for the financial year ended 31.3.2012 for Ginnis Collection wherein the Net Profit of Rs. 86,179/also been offered for tax under head “Income from Business & Profession”. v) Audited Capital Account for the financial year ended 31.3.2012. vi) Fixed Assets Schedule ‘A’ as on 31.3.2012. vii) Details of Investment Schedule B as on 31.3.2012. viii) Details of Sundry Creditor as on 31.3.2012. ix) Assessment Order passed u/s 143 (3) dated 20.01.2015 wherein the Return Income filed by the Assessee& the different sources of Income which has offered by the Assessee under various different head of Income namely “Income from House Property”, “Income from Business & Profession” and “Income from Other Sources” has been accepted by the Income Tax Department. x) This proves that Interest Income received from Rusam Developers Pvt. Ltd and other three parties, which is offered for tax under “Income from Business &Profession” has been accepted by the Income Tax Department. xi) As regard Rental Income is concerned we rely on the supreme Court’s decision in the case of Chennai Properties and Investment Ltd vs The Commissioner of Income Tax, Tamilnadu-1. h) As regards allowability of expenses amounting to Rs.3,45,57,662/- under the head “Bad Debts” which is related to the amount paid to Rusam Developers Pvt. Ltd, we would like to submit that Rusam Developers Pvt. Ltd is a ‘Debtor to the extent of Rs.35,57,662/- & the Assessee has rightly claimed the deduction under the head Bad Debts u/s 36 (i)(vii) as this amount pertains to 10 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani “Interest Accrued on loans which is given to RusamDevelopers Pvt. Ltd., was offered for tax in the preceding previous years & corresponding debit entry was passed in Rusam Developers Pvt. Ltd account. Since the assesse has not received this amount then the same will be allowed as bad debts u/s 36 (i) (vii). i) As regards the remaining amount of Rs.3,10,00,000/- the same should be allowed as deduction u/s 37 (i) of Income Tax Act 1961 under the head “Business Loss”. Though in the Profit & loss Account it has been wrongly debited under the head “Bad Debts” only to the extent of Rs.3,10,00,000/- the same cannot be disallowed due to the fact it is debited under “Wrong Head of Expenses” i.e. “Bad Debts” One has to see whether the deduction which is claimed a Business Expenses, If yes, then, it has to be allowed as business expenses. The fact that Income Tax department has already accepted the fact that Interest Income received by the Assessee on account of Money Lending Business is taxable under the head “Income from Business &Profession”, hence any loss in the same business has to be allowed as business expenditure u /s 37 (1). In light of the above said fact no disallowable is called for just because “Business Loss” of Rs. 3,10,10,000/- is debited under the head “Bad Debts”. j) We enclose herewith Honorable ITAT’s Order (Kolkata) in the case of Zen Industrial Services Ltd., wherein the facts of the case are identical to the Assessee, wherein the Appellant had claimed a deduction of Rs. 56,94,685/- as “Bad Debt” in its profit & loss account comprising of Rs. 20,00,000/as ‘principal portion & Rs. 36,94,685/as interest outstanding. In the Preceding previous years, the accrued Interest Income on money lending business was offered for tax under the head “Income from Business & Profession” and the same was accepted by the Income Tax Department while passing the order u/s 143(3) of the Income Tax Act, 1961. Moreover, taking into consideration the amount of money which is invested in Money Lending Business, which is substantial, when compared to the total capital of the Assessee. In light of the above said facts & circumstances of the case, the addition made by the Assessing Officer was deleted. 11 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani k) We also enclosed herewith Honorable Supreme Court Judgment in the case of TRF Ltd reported in 323 ITR 397 (SC), wherein it is held that where the Assessee has satisfied all the conditions prescribed u/s 36(1)(vii) r.w.s. 36(2) of the Income Tax Act 1961 & after the amendment brought w.e.f. 01/04/1989 u/s 36(1)(vii) of the Act, the assessee need not establish the debt is‘ bad & money given to Rusam Developers Private Ltd. in the ordinary course of business will be allowed as deduction u/s 36(1)(vii). l) We also enclose herewith Honorable ITAT’s order (Mumbai) in the case of Kyati Realtors Pvt. Ltd., wherein the Assessing Officer had disallowed bad debts to the extent of Rs. 10 Crores while determining the income under the head “Income from Business & Profession. The company had given an advance to Developer in order to confirm the reservation by way of bookings in an upcoming project, for which the appellant paid Rs. 10 Crores. The developer did not deliver the commercial property nor did they repay the money to appellant. In light of the above said facts, the advance paid of Rs. 10 Crores was allowed as bad debt u/s 36(1)(iii) r.w.s. 36(2), inspite of the fact it was not offered as income in preceding previous years. In light of the above said facts & circumstances of the case, no addition should be made on account of “bad debts” claimed by the Assessee amounting to Rs. 3,45,57,662/- which is debited to profit & loss account. m) It’s a no brainer that, when Assessee offers Interest Income for tax, the department accepts the same as business income, however, when they want to claim a deduction on account of Bad Debts, the Department wants to object that Money Lending is not a business. This stand taken by the Department is not fair. n) Moreover, Loans given to Rusam Developers Pvt Ltd was shown under the head Current Assets in Balance Sheet as on 31/03/2012, wherein, the Loans and Advances given to Rusam Developers Pvt Ltd amounting to &s. 3,40,78,078/is shown under the head “Current Assets and Loans and Advances”. As per the accounting norms, all the “Business Assets” such as “Stock” and “Debtors” has to be shown under the head “Current 12 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani Assets and Loans & Advances”. Since, ~ Loans & Advances given to Rusam Developers Pvt Ltd is also shown under the head “Current Assets and Loan & Advances”, this would clearly indicate that the same is declared as Business Asset and the same has been accepted by the Income Tax Department in A.Y.2012-13 relevant to previous year ended 31/03/2012. o) Finally, the Assessee has also submitted to you the Audited financials, the Loans & Advances given to the parties for “Money Lending Business” is also shown under the head Current Assets and Loans & Advances. This proves the fact that Assessee has been showing the Loans which are given to Rusam Developers Pvt Ltd as “Business Assets” and not as “Investments”, hence, any loss on such business assets should be allowed as “Bad Debts” and not “Capital Loss”. 4. Learned Assessing Officer has disallowed the claim of “Bad Debts” and “Business Loss” amounting to Rs. 3,45,57,662/for the reasons mentioned in para 4.3(a) on page no.4 of the Assessment Order, wherein, it states that “Assessee has failed to produce any supporting documentary evidence OR even letter showing permission from Regulatory Authority related to Money Lending”. To this, we would like to submit that the Assessee has submitted all the documentary evidence stated in para 8(a) to 8(0) above in order to substantiate that assessee is involved in Money Lending Business. What more documentary evidence would the Assessing Officer request in order to substantiate that the Assessee is involved in Money Lending Business. As regards obtaining License from Regulatory Authority for doing Money Lending Business is concerned, to this we would like to submit that, assuming License is required by the assessee to do business, he has not obtained the license, even then, from the Income Tax Act point of view, section 28 which is a charging section, it does states that to charge the Income under the head “Income from Business & Profession” does not put a condition that unless corresponding license is obtained from the Regulatory Authority the income would not be charged under the head “Income from Business & Profession”. We also rely on the Supreme Court's decision in the case of Dr. TA Qureshi reported in 287 ITR 547, wherein, it has held that heroin 13 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani seized from the assessee formed part of the stock-in-trade had to be allowed as a business loss under provisions of section 37(1) of Income Tax Act 1961. We also rely on the judgement of the High Court, wherein, the Income Tax Authorities found that the Assessee was carrying on the business of smuggling, and it was held that the Assessee was therefore liable to Income Tax on Income from that Business under the head “Income from Business & Profession”. From the gist of above two case laws it can be seen that even when the assessee does an illegal business (smuggling), still the Income earned from such illegal business will be taxable under Income Tax Act under the head “Income from Business & Profession”. Obviously, when you do business of smuggling you don’t obtain any license from any Regulatory Authority and still the Income is taxable under the head “Income from Business & Profession”. Hence, even if the Assessee has not obtained any license for doing business in Money Lending it would not mean that such a “business income” would not taxed under the head Income from Business or Profession”. In light of the above said facts and circumstances of the case, the basis on which the learned Assessing Officer has disallowed claim of ‘bad debts & business loss’ is baseless and uncalled for. The second reason stated by the Assessing Officer in para 4.3(c) of the Assessment Order due to which the above claim of “Bad Debts & Business Loss” has been disallowed stating that “Assessing Officer while assessing has not recognized assessee business as Money Lending. Assessee was a proprietor of GINNIS COLLECTION engaged in resale of fabrics upto 31/07/2015” In response to the above said reason due to which the disallowance is made by the Assessing Officer, to this we would like to submit that the Assessee has together been doing three (3) businesses since Financial Year 2010-2011 onwards. The three businesses which the Assessee is doing are as under: a) Renting of Immovable Properties b) Money Lending Business c) Resale of fabrics under the name of Ginnis Collection " 14 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani We see no reason why the bad debts & business loss incurred by the Assessee through money lending business is not recognized by the Assessing Officer, especially when the interest earned by Assessee during Assessment Year 2012-13 was accepted by the Income Tax Department as income earned through Money Lending Business. The third reason stated by the Assessing Officer in para 4.3 (d) of the Assessment Order due to which “Bad Debts & Business Loss” to the extent of Rs. 3,45,57,662/is disallowed is that “M/s Rusam Developers Pvt Ltd. (RDPL) was never a debtor of the Assessee in any of the Financial Years upto 31/03/2015." To this, we would like to submit that the Assessee has shown the loans advanced to RDPL under the head “Current Assets & Loans & Advances”. In para 8(h)& 8(i) above we have already clarified that assessee instead of claiming “Bad Debts” u/s 36(1)(vi) amounting to Rs. 3,45,57,662/-, it should have claimed Bad Debts u/s 36(1)(vi) amounting to Rs. 35,57,662/and the balance amount of Rs. 3,10,00,000/- should be claimed u/s 37(1) of Income Tax Act/ Just because the claim was made under wrong head does not mean that those genuine expenses are not allowable. Hence, RDPL was correctly not shown as a “Debtor” to the extent of Rs. 3,45,57,662/-as the same was shown under the head “Current Assets, Loams & Advances”, Even if it is shown under “Current Assets, Loams & Advances” still, the claim made by the Assessee under the head Bad Debts to the extent of Rs. 3,10,00,000/- cannot be disallowed. The fourth reason why the Assessing Officer has disallowed Bad Debts & Business loss is because the proclaims that loan given to RDPL was on account of Capital Expenditure with a view to purchase the property developed by him, hence, the Assessee has incurred a capital Loss which is not allowed as business expenses. This contention of the Assessing Officer is incorrect because the Assessee paid RDPL in order to purchase a property then a “Sale Deed” would had been executed & registered the same with Sub- Registrar. He would not have executed MOU & Mortgage Deed. The MOU & Mortgage Deed which has been executed clearly states that 15 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani loan has been given & rate of interest is also stated in the MOU. Promissory Notes and Post Dated Cheques are also given by RDPL. In light of all these facts, how come all these documentary evidences have been ignored by the Assessing Officer& disallowed the claim on presumptive basis. The fifth reason why the learned Assessing Officer has disallowed the Bad Debts & Business Loss is because he proclaims that the Assessee is having the nature of doubtful advance and not ascertained, which could not be allowed as a deduction u/s 36(1)(vii) of doubtful debts. The contention of the Assessing Officer is incorrect. The loan given to RDPL is not recoverable as the company has gone into liquidation & hence under no circumstances any one can say that the claim of assessee is having the nature of doubtful advance & not ascertained. Hence, business loss which is claimed by the Assessee amounting to Rs. 3,10,00,000/- is only because of the fact that company is liquidated & the amount is non recoverable. . The sixth reason why the learned Assessing Officer has disallowed the Bad Debts & Business Loss is because of the fact that Assessee has failed to submit any documentary evidence to show that RDPL has denied to pay the outstanding amount or its denial for its liability in any manner which could lead to conclusion that impugned provision crystallized during the year. To this we would like to submit that, the Assessee has submitted the bank statement wherein the cheques have been bounced & secondly we have submitted documentary evidence that company has gone into liquidation & the directors of the company have been arrested. Since the company has been liquidated, what more documentary evidence would any one require to come to a conclusion that amount is no longer recoverable. In view of the above said facts the claim made by the assessee that he is involved in business of money tending & hence claim of “bad debts” amounting to ₹.35,57,662/ -& “business loss” of Rs. 3,10,00,000/- should be allowed. Assessee has claimed expenses of Rs.10,56,000/- on account of amount paid to all the employees for giving them ex-gratia in order 16 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani that the employees had to leave the job as assessee closed the business of “Ginnis Collection”. The entire payment was made by the Assessee through account payee cheques to only to those employees to whom monthly salary were paid. We have submitted all the documentary evidence including the ledger account of the employees to whom these amounts are paid and reconciled the names of these employees with the salary account. Moreover, we also have submitted the bank statements in order to prove the genuineness of the expenses. In light of the above said facts & circumstances of the case we see no reason why these expenses have been disallowed. What more documentary evidence is required to prove the genuineness of the expenses. Finally, Assessee had claimed expenses amounting to Rs.9,23,800/- due to the loss incurred in cancellation of property i.e. flat No.1301 at Bharti Satsang which is located at Malad (W). This flat was purchased in the year 2012 in the order that the same would be given on lease once the property is constructed and occupation certificate is received on the date of completion. At the time of purchase of the property for Rs.75,00,000/- a Stamp duty & Registration charges of Rs.9,23,800/- was paid by the Assessee. Since the property was not constructed since 2012, hence, the assessee cancelled the deal & cancellation agreement was registered & the entire amount of Rs.75,00,000/- was returned by the builder. Hence, the stamp duty & registration charges paid was claimed as a business loss. Since the Assessee is involved in the business of leasing the property hence, the loss of Rs.9,23,800/- incurred by the assessee in purchase of the property, we see no reason as to why these losses should not be allowed. The only reason why the Assessing officer disallowed the loss is because of the fact that Assessee was involved only in one business i.e. Resale of fabrics and no other business. Since the assessee was involved in all the businesses of leasing of property & money lending business hence claiming of these expenses should be allowed. It would not be out of place to submit that the Assessee closed his business of “Ginnis Collection (Resale of Fabrics)’From 1st August 17 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani 2015, and thereafter the shop at Bandra where the Business of Ginnis Collection was done, was given on lease. Hence, the staff (Salesman and others) who were working for Ginnis Collection were given “Retirement Bonus” for the services which they had rendered for so many years. The Retirement Bonus is paid to all 7 (Seven staff) members through Account Payee cheques. The names of each of the staff and the amount which is paid to each one of them, is stated in the Ledger Account Annexed herewith. The Retirement Bonus is paid to all of them on 1 st August, 2015. The Assessee had booked a property(flat) at Bharti Satsang. The property was registered with the Sub-Registrar. Assessee had paid Stamp Duty and Registration Charges, when the property was purchased. Subsequently, this property was cancelled and the entire amount which was paid to the Builder was returned without any interest and compensation. Hence, due to cancellation of Deed, Stamp Duty and Registration Charges paid on such property was a Loss to the Assessee. Hence, such a loss of Rs.9,.23,800/- is claimed as business expenses as per the provisions of the section 37(1) of the I.T.Act, 1961. Two copies of the Cancellation Deeds executed with the Builders which are also registered with the Registrar are also enclosed herewith for your perusal and records. Finally, Assessee had claimed. expenses amounting to Rs. 9,23,800/- due to the loss incurred in cancellation of “property” i.e. flat no.1301 at BhartiSatsang which is located at at Malad (W). This flat was purchased in the year 2012 in the order that the same would be given on lease once the property is constructed and occupation certificate is received on the date of completion. At the time of purchase of the property for Rs.75,00,000/- a Stamp duty & Registration charges of Rs.9,23,800/- was paid by the Assessee. Since the property was not constructed since 2012, hence, the assessee cancelled the deal & cancellation agreement was registered& the entire amount of Rs.75,00,000/- was returned by the builder. Hence, the stamp duty & registration charges paid was claimed as a business loss. Since the Assessee is involved in the business of leasing the property hence, the loss of Rs.9,23,800/- incurred by the assessee in purchase 18 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani of the property, we see no reason as to why these losses should not be allowed. The only reason why the Assessing Officer disallowed the loss is because of the fact that Assessee was involved only in one business i.e. Resale of fabrics & no other business. Since the assessee was involved in all the businesses of leasing of properties & money lending business hence claiming of these expenses should be allowed. In light of the above said facts the claim of Rs.9,23,800/- should be allowed.” 5. After considering the detailed submissions Ld.CIT(A) rejected the grounds raised by the assessee and sustained the addition made by the Assessing Officer. Aggrieved assessee preferred an appeal before us raising the following grounds: - “Ground No. 1 The Honourable Commissioner of Income Tax (Appeal), has erred in confirming with the Assessing Officer that the “Rental Income which is received by the Assessee on account of Leasing Out all the Commercial Properties which was offered by the Assessee in his Revised Return of Income amounting to Rs.92,41,045 under the head Income From Business & Profession” is incorrect, hence the same should be taxed under the head “Income From House Property” to the extent of Rs.64,68,732/-. In spite of the fact that, this case, is identical to the facts of Supreme Court Judgement in case Chennai Properties & Investments Ltd, wherein, the Assessee had acquired 12 (Twelve) properties, in order that he would lease out all of these 12 (Twelve) properties to customers, hence, the Rental Income received there from, was offered for tax in his Return under the head “Income from Business & Profession”, even then, the Honourable C.I.T.(A) has dismissed the above case under the pretext that case of Chennai Properties & Investments Ltd cannot be applied with the facts of the appellant’s case. 19 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani Taking into consideration the facts & circumstances of the case, the Income which is received by the Assessee on Leasing Out of all the Properties which are purchased should be taxed under the head “Income From Business & Profession” Ground No. 2 a) The Honourable Commissioner of Income Tax (Appeal), C.I.T.(A) has also erred in confirming the disallowance which was made by the Assessee Officer on account of Bad Debts amounting to Rs. 3,45,57,662/- due to two reasons namely (i) The expenses which were claimed by the Assessee are “Business Losses” & not “Bad Debts” & (ii) The Money Lending Business was not claimed by the Assessee in his Original Return of Income. b) (i) Even though the Assessee claimed these expenses in his Revised Return of Income which was filed within the time specified as per the provision of Section 139(5) of the Income Tax Act, then the loss claimed in the Revised Return of Income will be deemed to be claimed in the Original Return of Income. Hence the provisions of Section 139(3) are complied with. (ii) Moreover, out of Rs. 3,45,57,662/- even though the Assessee has claimed Rs.3,10,00,000/- i.e. principal amount given to borrower under the head “Bad Debts” & not under the head “Business Loss” still the Honourable ITAT (Mumbai) in the case of Khyati Realtors Pvt Ltd has allowed as expenses as Bad Debts u/s 36(1)(iii) r.w.s. 36(2), in spite of the fact, that the same amount was not offered as Income in the preceding previous years. (iii) Finally, the balance amount of Rs.35,57,662/- which pertains to interest on the principal amount of Rs.3,10,00,000/- which was given on loan, the same interest was offered for tax in the preceding previous years,hence, if the same is claimed as “bad debts” in the above mentioned Assessment year, then there is no reason as why the same should be disallowed. Hence, the entire amount of Rs.3,45,57,662/- should be allowed as Business Expenses u/s 36(1)(iii) r.w.s. 36(2) of the Income Tax Act, 1961. Ground No. 3 The Honourable Commissioner of Income Tax (Appeal), C.I.T.(A) has also erred in confirming with the Assessing Officer in disallowing business loss which was incurred by the Assessee amounting to 20 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani Rs.9,23,800/- due to cancellation of property booked by the Assessee with the Builder. In spite of the fact the Builder returned the entire money back to the Assessee which was given to him as an advance, nevertheless, the stamp duty & registration charges which was paid by the Assessee was the loss incurred by the Assessee. Since, the main object of the Assessee is to buy the property & lease it to the outsiders & the Income is offered under the head Income from Business & Profession, hence any business loss incurred in running such business should be allowed u/s 37(1) of Income Tax Act. Hence, the disallowances of Rs.9,23,800/- ought to be deleted.” 6. Before us, Ld. AR of the assessee made the submissions with regard to Ground No. 1 similar to the submissions made before First Appellate Authority i.e., he opposed the observation of the Assessing Officer that the case law relied by the assessee pertains to corporate assessee not applicable in this case as assessee is an individual engaged in the business of resale of fabrics and he further submitted that Hon'ble Supreme Court decision is applicable to all the assessees whose main object is to lease out of properties and not only to corporate assessee. 7. Further he submitted that considering Hon'ble Supreme Court decision in the case of Chennai Properties & Investment Ltd., [373 ITR 673] wherein it was held that if the main objects of the company are to lease out properties, then the income generated from such business is 21 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani only lease of the property which is the dominate income from the assessment year then the income generated from such business will be taxable under the head “income from business and profession” and not under the head “income from house property”. 8. With regard to bad debts he submitted that assessee has given loan to M/s. Rusam Developer Pvt. Ltd., amounting to ₹.3.1 crores with the return at 15% P.A by executing three separate memorandums of understanding along with three separate mortgage deeds for three different properties (details are part of the submissions made by the assessee before the Ld.CIT(A) which is reproduced in Para No. 4 above). He submitted that assessee has declared the interest income earned by the assessee in the earlier Assessment Years from A.Y. 2013-14 to 2015- 16 wherein assessee has declared the loan given to M/s. Rusam Developer Pvt. Ltd., in all the respective balance sheet and as well as declared the income earned from them. He objected to the observations made by the Assessing Officer and the Ld.CIT(A) for rejecting the plea of the assessee. 9. Further, he brought to our notice Page Nos. 202 and 203 of the Paper Book wherein the M/s. Rusam Developer Pvt. Ltd., has gone into 22 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani liquidation and he prayed that the loss claimed by the assessee in revised return of income should be allowed. 10. With regard to Ground No. 3, Ld. AR of the assessee submitted that assessee is into the business of leasing out the properties and in that process assessee has purchased a property and registered the property by paying stamp duty and registration charges. He brought to our notice Page No. 211 & 214 of the Paper Book and he submitted that the construction of the property was not completed and assessee by mutual agreement with the builder taken back the advance paid to them. He submitted that this property as well as advance paid to the builder are recorded in the Books of Accounts and brought to our notice Page No. 203M of the Paper Book ad submitted that it is a genuine loss to the business carried by the assessee and it should be allowed as business expenditure. 11. On the other hand, Ld. DR agreed with the observations made by the Ld.CIT(A) and the Assessing Officer wherein the facts are distinguishable, the facts relied on by the assessee in the case of Chennai Properties & Investment Ltd., (supra) are distinguishable as the assessee 23 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani is an individual. With regard to Ground No. 2 and 3 she relied on the orders passed by the lower authorities. 12. Considered the rival submissions and material placed on record, with regard to Ground No. 1 we observed that assessee is earning income from leasing of the properties consistently from past several years and declaring the same under the head "Income from House Property". Even in the original return of income assessee has declared the same under the head "Income from House Property" However, in revised return of income assessee has changed the head of income to “business income” by heavily relying on the case of Hon'ble Supreme Court decision in the case of Chennai Properties & Investment Ltd., (supra). 13. After considering the detailed submissions of the assessee and the orders passed by the tax authorities we observed that the decision relied on by the assessee which is relating to the corporate assessee wherein the intention of the assessee is understood from the objects in the memorandum of association, documented by the corporate assessees, considering the fact that these are artificial persons created by the law. Whereas the intention of the assessee can be understood only by its actions. Considering the fact that assessee is an individual and over the 24 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani years assessee has declaring the income only under the head "Income from House Property" and it is far-fetched for the assessee to rely on the decision of the Hon'ble Supreme Court in the case of Chennai Properties & Investment Ltd., (supra) with the assessee’s case. Therefore, we do not find any reason to entertain the grounds raised by the assessee. Accordingly, it is dismissed. 14. We observe from the record that assessee has given loan to M/s. Rusam Developer Pvt. Ltd., amounting to ₹.3.1 crores against three properties viz., Andheri, Irla, Vakola with the interest rate of 15% in Financial Year 2010-11. These transactions were properly recorded by the assessee in its balance sheet as well as declared income under Profit and Loss Account as well as in the return of income. This information was clearly brought to our notice by the Ld. AR by taking us through the Paper Book at Page No. 203A to 203N and 203AE. This clearly indicates that assessee has earned the property for the purpose of earning interest income and assessee has declared the source of income in the return of income. From the record we observed that the company M/s. Rusam Developer Pvt. Ltd., has gone into liquidation and assessee could not recover anything from them including loan amount and the interest. Since the assessee has already declared the interest income as business income 25 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani and revenue has accepted the source of income therefore the bad debts incurred by the assessee is certainly an expenditure allowable deduction u/s. 37 of the Act. Therefore, we direct the Assessing Officer to allow the bad debts claimed by the assessee. Accordingly, Ground No. 2 is allowed. 15. With regard to Ground No. 3, we observed that assessee has purchased a flat in the year 2012 in order to earn lease income. The property purchased by the assessee was properly declared in his Books of Accounts. The assessee has paid for the property ₹.75 lakhs and incurred stamp duty and registration charges of ₹.9,23,800/- since the property was not constructed and an agreement was reached with the builder to cancel the agreement and recover the entire amount paid by the assessee. Accordingly, assessee recovered the entire amount paid for the property. However, could not recover stamp duty and registration charges, the reasons known to the assessee for not recovering these charges from the builder who had ultimately defaulted. However, assessee recovered the cost of the property based on the agreement with the builder and the cost incurred by the assessee for registration are remained as expenditure. Since the property is clearly bought for the purpose of lease and this income will be charged to tax under the head "Income from House Property" and the cost incurred by the assessee by 26 ITA NO. 261/MUM/2020 (A.Y: 2016-17) Shri Ravi Advani not recovery of registration charges can be a loss claimable under the head "Income from House Property". Accordingly, we direct the Assessing Officer to allow the loss claimed by the assessee. 16. In the net result, appeal filed by the assessee is partly allowed. Order pronounced on 22.12.2021 as per Rule 34(4) of ITAT Rules by placing the pronouncement list in the notice board. Sd/- Sd/- (SUCHITRA RAGHUNATH KAMBLE) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 22.12.2021 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum