ACIT, Circle - 4, Kolkata V. M/s. Apex Enterprises (I) Ltd., Kolkata

ITA 285/KOL/2008

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 4877 (ITAT-KOLKATA)
• Duration Of Justice: 8 year(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 26-08-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 06-03-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TANUJ NEOGI JCITSRDR
• Assessee Lawyers: S D DAMLE
• Keywords: Depreciation; Speculation loss; Bad and doubtful debts
• Section: 133(6); 147; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH A KOLKATA BEFORE SHRI N.V.VASUSDEVAN, JUDICIAL MEMBER AND SHRI WASEEM AHMED, ACCOUNTANT MEMBER ITA NO. 1796 & 285 / KOL / 2008 ASSESSMENT YEARS :2001-02 & 2002-03 ACIT, CIRCLE-4, 8 TH FLOOR, P7, CHOWRINHEE SQURE, KOLKTA-700 069 V/S . M/S APEX ENTERPRISES (I) LTD., 4, MANGO LANE, KOLKATA-700 001 [ PAN NO.AADCA 7387 A ] /APPELLANT .. / RESPONDENT /BY ASSESSEE SHRI S.D.DAMLE, FCA /BY REVENUE SRI TANUJ NEOGI, JCIT, SR-DR /DATE OF HEARING 11-02-2016 ! /DATE OF PRONOUNCEMENT 18-03-2016 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:- BOTH APPEALS BY THE REVENUE ARE AGAINST SEPARATE O RDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-IV, KOLKATA DA TED 06.12.2007. SEPARATE ASSESSMENTS WERE FRAMED BY DCIT, CIRCLE-4 KOLKATA AND ITO WARD- 4(3) KOLKATA U/S 143(3)/147 R.W.S 144A OF THE INCOM E TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VIDE THEIR O RDERS DATED 13.01.2006 AND 31.03.2004 FOR ASSESSMENT YEARS 2001-02 & 2002-03 R ESPECTIVELY. SHRI D.S. DAMLE, LD. AUTHORIZED REPRESENTATIVE APPE ARING ON BEHALF OF ASSESSEE AND SHRI TANUJ NEOGI, LD. DEPARTMENTAL REP RESENTATIVE APPEARING ON BEHALF OF DEPARTMENT. ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 2 2. AT THE TIME OF HEARING LD. DR STATED THAT BOTH A PPEALS CAN BE HEARD FOR THE SAKE OF CONVENIENCE. HENCE, WE HEARD THEM TOGET HER AND DEEM IT APPROPRIATE TO DISPOSE OF BY THIS COMMON ORDER. FIRST WE TAKE UP ITA NO.1796/KOL/08 A.Y. 01-02. 3. FIRST OF ALL, IT IS OBSERVED THAT THERE IS A DEL AY OF 191 DAYS ON THE PART OF THE REVENUE IN FILING THE APPEAL BEFORE THIS TRIBUNAL. IN THIS REGARD, APPLICATION HAS BEEN FILED BY THE REVE NUE SEEKING CONDONATION OF THE SAID DELAY AS MENTIONED IN THE A PPLICATION. 4. LET US TO DEAL WITH LIMITATION ISSUE PRIMARILY B EFORE GOING TO THE MERITS OF THE CASE AS THE CONTOURS OF THE AREA OF DISCRETION OF THE COURTS IN THE MATTER OF CONDONATION OF DELAYS IN FI LING APPEALS ARE SET OUT IN A NUMBER OF APEX COURT AND SPECIALLY IN CASE TITLED AS COLLECTOR LAND ACQUISITION, ... VS....... MST. KATIJI & ORS ( 1987 AIR 1353, 1987 SCR (2) 387 ) ANALYZED THE SITUATION WHILE DEALING WITH THE DELAY ON BEHALF OF THE GOVERNMENT AND OBSERVED AS ENUMERATED BELOW: 'WHEN SUBSTANTIAL JUSTICE AND TECHNICAL CONSIDERATI ONS ARE PITTED AGAINST EACH OTHER, CAUSE OF SUBSTANTIAL JUSTICE DE SERVES TO BE PREFERRED FOR THE OTHER SIDE CANNOT CLAIM TO HAVE V ESTED RIGHT IN INJUSTICE BEING DONE BECAUSE OF A NON DELIBERATE DE LAY.' 'IT MUST BE GRASPED THAT JUDICIARY IS RESPECTED NOT ON ACCOUNT OF ITS POWER TO LEGALISE INJUSTICE ON TECHNICAL GROUND S BUT BECAUSE IT IS CAPABLE OF REMOVING INJUSTICE AND IS EXPECTED TO DO SO.' CONSIDERING THE JUDGMENT (SUPRA) WE FEEL THAT IN LI TIGATIONS TO WHICH GOVERNMENT IS A PARTY THERE IS YET ANOTHER ASPECT W HICH, PERHAPS, CANNOT BE IGNORED, IF APPEALS BROUGHT BY GOVERNMENT ARE LOST FOR SUCH DEFAULTS, NO PERSON IS INDIVIDUALLY AFFECTED BUT WHAT, IN THE UL TIMATE ANALYSIS, SUFFERS IS PUBLIC INTEREST. THE DECISIONS OF GOVERNMENT ARE CO LLECTIVE AND INSTITUTIONAL DECISIONS AND DO NOT SHARE THE CHARACTERISTICS OF D ECISIONS OF PRIVATE INDIVIDUALS. ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 3 5. IN THE INSTANT CASE AS THE GOVERNMENT IS APPELL ANT AS SUBMITTED THAT BEFORE FINALIZATION OF APPEAL, THE CASE HAS TO CRO SS MANY CHANNEL AND WE FEEL THAT THERE IS SUFFICIENT CAUSE FOR CONDONING THE DE LAY IN THE INSTITUTION OF THE APPEAL HENCE WE ARE INCLINED TO CONDONE THE DELAY O F 191 DAYS IN PREFERRING THE INSTANT APPEAL. NOW LET US PROCEED WITH THE CAS E ON MERITS. 6. GROUNDS RAISED BY REVENUE ARE BELOW:- 1) THAT ORDER OF LD. CIT(A) IS BAD IN LAW, HENCE N OT ACCEPTABLE. 2) THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE CA SE, LD. CIT(A) HAD ERRED IN LAW AS WELL AS ON FACTS BY DIRECTING THE A O TO ASSESS LOSS IN BUSINESS OF PURCHASE AND SALE OF SHARES AS BUSINESS LOSS. 3) THAT LD. CIT(A) HAD ERRED ON FACTS BY OBSERVING THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE WAS GRANTING OF LOANS AND ADVANCES AND THE SAME IS BASED ON MISCONCEPTIONS. 4) THAT LD. CIT(A) HAD ERRED IN LAW AND AS WELL ON FACTS BY DIRECTING THE AO TO DELETE THE INTEREST OF RS.3,04,18,767/- RECEI VABLE FROM M/S BOLTEN PROPERTIES LTD AND M/S APR PROPERTIES LTD. DURING T HE PREVIOUS YEAR 200-01 FROM THE TOTAL INCOME OF THE ASSESSEE WHEN T HE ASSESSEE ITSELF HAD SHOWN THE SAID SUM OF INTEREST AS ITS INCOME IN ITS RETURN AND IT FOLLOWS THE MERCANTILE SYSTEM OF ACCOUNTING. 5) THAT LD. CIT(A) HAD ERRED IN LAW AND AS WELL ON FACTS IN NOT APPRECIATING THE FACTS THAT THE ASSESSEE IS NOT ENT ITLED TO MAINTAIN MERCANTILE SYSTEM OF ACCOUNTING FOR INTEREST EXPEND ITURE AND CASH SYSTEM OF ACCOUNTING FOR INTEREST INCOME. 7. FIRST ISSUE RAISED IN THIS APPEAL OF REVENUE IN GROUND NO. 2 & 3 IS THAT LD. CIT(A) ERRED IN TREATING THE SPECULATION LOSS B Y VIRTUE OF EXPLANATION TO SEC. 73 OF THE ACT AS BUSINESS LOSS ON ACCOUNT OF HOLDING PRINCIPAL BUSINESS OF ASSESSEE AS GRANTING LOAN AND ADVANCE. 7.1 FACTS OF THE CASE IN BRIEF ARE THAT ASSESSEE IN THE PRESENT CASE IS A LIMITED COMPANY REGISTERED WITH RESERVE BANK OF IND IA (RBI) AS NON-BANKING FINANCE CORPORATION (NBFC FOR SHORT) ENGAGED IN THE BUSINESS OF MONEY ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 4 LENDING, INVESTMENT IN SHARE AND DEALING IN SHARE. DURING THE YEAR ASSESSEE HAS SHOWN FOLLOWING INCOME:- A) SHARE TRADING (-) RS.7,30,88,822/- B) INTEREST (NET) (+) RS.6,68,25,887/- C) DIVIDEND (+) RS. 31,63,652/- D) OTHER INCOME (+) RS. 2,41,210/- E) CAPITAL GAINS (-) RS. 41,14,395/- F) SHARE DEALING (SPECULATION) (-) RS.3,27,55,782/ - G) ADMINISTRATIVE EXPENSES (-) RS. 14,25,064/- H) DEPRECIATION (-) RS. 26,185/- THE POSITION OF THE AVAILABILITY OF FUNDS AS STOOD ON 31 ST MARCH, 2001 IS AS UNDER:- SL.NO PARTICULARS AMOUNT ( ) 1 SHARE CAPITAL 4,36,89,700.00 2 UNSECURED LOAN 100,68,04,058.00 THE DEPLOYMENT OF FUND AS ON 31-03-2001 STAND AS UN DER:- SL.NO PARTICULARS AMOUNT ( ) % FUND DEPLOYMENT 1 INVESTMENT IN SHARES 35,37,98,204 36.5% 2 INVESTMENT IN STOCK-IN-TRADE 18,54,43,915 17.65% 3 INVESTMENT IN LOANS 33,58,26,810 31.97% DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AS MAD E A REFERENCE BEFORE LD. ACIT, RANGE-4 KOLKATA DATED 18.12.2003 FOR THE INTERVENTION IN RESPECT OF PENDING ASSESSMENT PROCEEDING ON THE REQUEST OF ASS ESSEE U/S 144A OF THE ACT AND ACCORDINGLY THE LD. CIT(A) DIRECTED THE AO TO TREAT THE LOSS OF 7,30,88,822/- AS SPECULATION LOSS BY VIRTUE OF PROV ISION OF EXPLANATION TO SEC. 73 OF THE ACT. AS PER THE SAID EXPLANATION THE LOSS FROM SHARE DEALING BUSINESS SHALL BE TREATED AS SPECULATION IF THE INC OME UNDER HEAD FROM SHARE DEALING BUSINESS IS MORE THAN THE INCOME FROM HOU SE PROPERTY, CAPITAL GAINS, INTEREST ON SECURITIES AND OTHER SOURCE. IN THE CASE ON HAND THE LOSS ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 5 FROM SHARE DEALING BUSINESS IS OF 7,30,88,822/- AND ON THE OTHER HAND THE CAPITAL GAINS INCOME IS OF 41,14,395/-. THEREFORE, THE LOSS FROM SHARE DEALING THE BUSINESS WAS TREATED THE LOSS FROM SHARE SPECUL ATION BUSINESS. LD. ACIT WHILE GIVING THE DIRECTION TO AO U/S 144A OF THE AC T RELIED IN THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. PARK VIEW PROPERTIES PVT. LTD. 261 ITR 473 (CAL ). ACCORDINGLY, AO TREATED THE LOSS FROM SHARE DEALING BUSINESS OF ASSESSEE AS SPECULATION LOSS BY VIRTUE OF THE PROVISION OF EXPLANATION TO SEC. 73 OF THE ACT. 8. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) AND SUBMITTED THAT THERE ARE TWO EXCEPTIONS PROVIDED IN THE EXPLA NATION TO SEC. 73 OF THE ACT THAT THE PROVISIONS OF EXPLANATION TO SEC. 73 OF TH E ACT WILL NOT BE APPLICABLE. FIRSTLY IN TERMS OF GROSS TOTAL INCOME AND SECONDLY IS THE PRINCIPAL BUSINESS OF ASSESSEE WAS GRANTING OF LOAN. IN THE INSTANT CASE, AO HAS NOT CONSIDERED THE SECOND EXCEPTION I.E. GRANTING OF LOAN AND ADVANCE WHILE APPLYING THE PROVISION OF EXPLANATION TO SEC. 73 OF THE ACT. LD. AR FURTHER SUBMITTED THAT THE PRINCIPAL BUSINESS OF ASSESSEE IS OF GRANTING L OAN AND ADVANCE WHICH CAN BE EASILY WORKED OUT FROM THE FOLLOWING DETAILS:- FINANCIAL YEAR ASSESSMENT YEAR TOCK-IN-TRADE IN SHARES (RS. IN LACS) LOANS & ADVANCES (RS. IN LACS) 1999-00 2000-01 3369.96 8239.19 200-01 2001-02 1854.44 3358.27 2001-02 2002-03 838.04 2817.49 2002-03 2003-24 304.03 3225.21 ACCORDINGLY, LD. CIT(A) DELETED THE ADDITION MADE B Y AO BY OBSERVING AS UNDER:- 9. IN THE IMPUGNED ORDER THE AO AND THE ADDL. COM MISSIONER CONSIDERED THE APPLICABILITY OF EXPLANATION TO SEC. 73 ONLY IN THE CONTEXT OF TEST LAID DOWN RELATING TO COMPOSITION OF GROSS TOTAL INCOME. THE RATIO LAID DOWN BY THE CALCUTTA HIGH COURT IN THE CASE OF CIT VS. PARK VIEW PROPERTIES PVT LTD. (SUPRA) WAS APPLIED BECAUSE THEY APPLIED TEST OF ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 6 COMPOSITION OF GROSS TOTAL INCOME. IN THE DECIDED C ASE THE ASSESSEE CLAIMED EXEMPTION FROM THE EXPLANATION, ON THE GROU ND THAT WHOLE OF ITS INCOME CONSISTED, INCOME FROM OTHER SOURCES. NO CAS E WAS MADE OUT BY THAT ASSESSEE THAT THE EXPLANATION WAS NOT APPLI CABLE BECAUSE ITS PRINCIPAL BUSINESS WAS GRANTING OF LOANS. IN THIS C ASE HOWEVER THE ASSESSEE HAS CLAIMED EXEMPTION WITH REFERENCE TO TH E TEST OF PRINCIPAL BUSINESS. THE ASSESSEE CARRIED ON BUSINESS OF NON-B ANKING FINANCIAL COMPANY AND WAS REGISTERED WITH RBI AS NBFC. AS AN NBFC THE ASSESSEE ARRIVED ON BUSINESS OF FINANCING AND DERIV ED SUBSTANTIAL INTEREST. IT ALSO CARRIED ON SHARE TRADING BUSINESS . HOWEVER, WHEN THE ASSESSEE CARRIED ON MORE THAN ONE BUSINESS; IT WAS NECESSARY TO ASCERTAIN THE PRINCIPAL BUSINESS WITH REFERENCE TO REGULARITY OF THE ACTIVITIES AND PREDOMINANT DEPLOYMENT OF FUNDS IN D IFFERENT BUSINESS SEGMENTS. FROM THE COMPARATIVE CHART OF DEPLOYMENT OF FUNDS DURING THE RELEVANT YEAR IN PRECEDING AND SUBSEQUENT YEARS I FIND THAT FUNDS DEPLOYED IN BUSINESS OF GRANTING LOANS AS ON 31 ST MARCH 2000, 2001, 2002 & 2003 WERE RS.8239.19 LACS, RS.3358.27 LACS, RS.2817.49 LACS & RS.3225.21 LACS RESPECTIVELY. CORRESPONDING INVES TMENT OF FUNDS IN STOCK-IN-TRADE OF SHARES ON THESE DATES WAS RS.3369 .96 LACS, RS.1854.44 LACS, RS.838.04 LACS & RS.304.03 LACS RE SPECTIVELY. IT THUS APPEARED THAT ON THE ABOVE BALANCE SHEET DATES FUND S DEPLOYED IN GRANTING OF LOANS WERE SUBSTANTIALLY MORE THAN IN S TOCK-IN-TRADE OF SHARES. I FURTHER NOTE THAT THERE HAD BEEN CONSISTE NT AND SUBSTANTIAL DECREASE IN DEPLOYMENT OF FUNDS IN SHARE TRADING BU SINESS OVER THE 4 YEARS. THE FUNDS INVESTED IN STOCK-IN-TRADE OF SHAR ES AS ON 31 ST MARCH 2000 WERE RS.3369.96 LACS WHICH CAME DOWN SUBSTANTI ALLY TO RS.304.03 LACS BY 31 ST MARCH 2003. DEPLOYMENT OF BUSINESS FUNDS IN SHARE TRADING BUSINESS GOT PROGRESSIVELY REDUCED BE TWEEN F.Y 1999-00 TO 2002-03 AND DEPLOYMENT OF FUNDS IN BUSINESS OF G RANTING OF LOANS WAS ALWAYS MORE. APPLYING DEPLOYMENT OF FUND CRITER IA THEREFORE IT APPEARED THAT THE ASSESSEES PRINCIPAL BUSINESS WAS GRANTING OF LOANS. 10. THE EXPRESSION PRINCIPAL BUSINESS HAS NOT BEEN DEFINED IN THE INCOME TAX ACT. IN THE CONTEXT OF APPLICATION OF EX PLANATION TO SEC. 73; THIS EXPRESSION WAS INTERPRETED BY THE SPECIAL BENC H OF THE ITAT KOLKATA IN THE CASE OF DCIT VS. VENKATESHWARA INVESTMENT & FINANCE PVT. LTD. (93 ITD 177) WHEREIN THE TRIBUNAL MADE THE FOLLOWI NG OBSERVATIONS: WE HOLD THAT TO DECIDE WHETHER THE CASE OF AN ASSE SSEE FALLS IN EXCEPTIONS PROVIDED IN EXPLANATION TO SECTION 73 OF THE ACT OR NOT AND TO DECIDE WHETHER THE PRINCIPAL BUSINESS OF THE ASSESSEE IS THAT OF GRANTING OF LOANS AND ADVANCES, THE DECISIV E FACTOR IS THE NATURE OF THE ACTIVITIES OF THE ASSESSEE AND NOT TH E ACTUAL INCOME FROM SUCH ACTIVITIES DURING A PARTICULAR YEAR. MERE LY BECAUSE THE ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 7 NUMERICAL VALUE OF THE PROFIT/LOSS IN PURCHASE AND SALE OF SHARES IS MORE THAN THE INTEREST INCOME DURING THE RELEVANT P ERIOD, DOES NOT MEAN THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE CE ASES TO BE THAT OF GRANTING OF LOANS AND ADVANCES. WHAT CONSTI TUTES THE PRINCIPAL BUSINESS HAS NOT BEEN DEFINED ANYWHERE IN THE ACT. WHAT CONSTITUTES THE PRINCIPAL BUSINESS DEPEND ON T HE FACTS AND CIRCUMSTANCES OF EACH CASE. THE MEMORANDUM AND THE ARTICLES OF ASSOCIATION OF THE COMPANY, PAST HISTORY OF THE ASS ESSEE, CURRENT AND PAST YEARS DEPLOYMENT OF THE CAPITAL OF THE A SSESSEE, BREAK- UP OF THE INCOME EARNED DURING THE RELEVANT AND PAS T YEARS AND THE NATURE OF THE ACTIVITIES OF THE ASSESSEE WILL A LL HELP IN DETERMINING THE PRINCIPAL BUSINESS OF THE ASSESSEE. IF IN ANY PARTICULAR YEAR, THE ASSESSEE HAS NOMINAL BUSINESS SINCE AND HAS SUBSTANTIAL INTEREST INCOME, IT DOES NOT IMPLY THAT THE ASSESSEES PRINCIPAL BUSINESS IS OF FIANC OR GRANTING OF LOAN S AND ADVANCES. SIMILARLY THE ASSESSEE, THE PRINCIPAL BUSINESS OF W HICH IS THE GRANTING OF LOANS AND ADVANCES, MAY EARN A COMPARAT IVELY HIGH INCOME FROM OTHER ACTIVITIES IN ANY PARTICULAR YEAR AND STILL THE PRINCIPAL BUSINESS OF THE ASSESSEE MAY REMAIN GRANT ING OF LOANS AND ADVANCES. THE EXPLANATION TO SECTION 73 IS IN T HE NATURE OF A DEEMING PROVISION AND AS SUCH HAS TO BE STRICTLY CO NSTRUED. THE DECISIVE FACTOR IS THE TRUE NATURE OF ACTIVITIES OF THE RELEVANT PERIOD AS WELL AS IN THE PAST OR SUCCEEDING PERIODS. 11. APPLYING RATIO LAID DOWN IN THIS DECISION I FIN D THAT THE ASSESSEE REGULARLY CARRIED ON BUSINESS OF GRANTING OF LOANS & EARNED SUBSTANTIAL INTEREST. DEPLOYMENT OF FUNDS IN THE BUSINESS OF GR ANTING OF LOANS WAS PREDOMINANTLY MORE THAN SHARE TRADING BUSINESS AND THEREFORE APPLYING FUND DEPLOYMENT CRITERIA ASSESSEES PRINCIPAL BUSI NESS COULD BE SAID TO BE GRANTING OF LOANS AND THEREFORE THE EXPLANATION TO SEC. 73 WAS NOT APPLICABLE. THE AO IS ACCORDINGLY DIRECTED TO A SSESS LOANS IN BUSINESS OF PURCHASE & SALE OF SHARES AS BUSINESS LOSS AND ALLOW ITS SET OFF AS PER LAW. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 9. WE HAVE HEARD RIVAL CONTENTIONS OF BOTH THE PART IES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. DR SUB MITTED WRITTEN SUBMISSION WHICH IS RUNNING PAGES 1 TO 4 AND SUBMITTED THAT AO RELIED ON THE FACTS THAT SHARE TRADING LOSS WHICH WAS RS.10,58,44,604 (7,30, 88,822/-PLUS RS.3,27,55,782/-) WAS MUCH MORE THAN THE OTHER INCO ME, THEREFORE, EXPLANATION TO SEC. 73 WAS APPLICABLE. THE AO ALSO RELIED UPON JURISDICTIONAL ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 8 HIGH COURTS DECISION IN THE CASE OF CIT VS. PARK V IEW PROPERTIES. HOWEVER, BEFORE LD. CIT(A) ASSESSEE ARGUED THAT EXPLANATION TO SEC. 73 PROVIDES EXCEPTIONS CLAUSES. THE AO HAS RELIED UPON THE ONE EXCEPTION ONLY WHICH SAYS IF THE COMPANY GROSS TOTAL INCOME CONSISTS MAI NLY OF INCOME FOR HOUSE PROPERTY, CAPITAL GAIN AND OTHER SOURCES THEN THE E XPLANATION TO SEC. 73 OF ACT DOES NOT APPLY, BUT AO HAS NOT CONSIDERED THE OTHER CONDITION WHICH SAYS IF COMPANY PRINCIPAL BUSINESS IS OF GRANTING OF LOAN A ND ADVANCES THEN THE EXPLANATION TO SEC. 73 WILL ALSO NOT APPLY. THE ASS ESSEE, ACCORDINGLY DRAWN OUR ATTENTION ON PAGE 6 OF CIT(A)S ORDER WHERE THE FUND DEPLOYED POSITION WAS RECORDED AND STATED THAT FUNDS DEPLOYED IN STOC K-IN-TRADE OF SHARES ARE MORE THAN THE CAPITAL EMPLOYED IN LOANS AND ADVANCE S. ACCORDINGLY THE LD. CIT(A) ORDERED THAT LOSS MAY BE TREATED AS BUSINESS LOSS. LD. DR STATED THAT ASSESSEE SHOWED A WRONG PICTURE, FIRST OF ALL, LET US SEE THE BALANCE SHEET AS ON 31.03.2001 THE ASSESSEE HAS 4.37 CRORES OF SHARE CAPITAL AND 7.15 CRORES RESERVES AND 100.68 CRORES OF UNSECURED LOANS (CRED IT) I.E. TOTAL 112.20 CRORES. THIS FUND IS APPLIED TOWARDS LOAN AND ADVAN CES OF 3.73 CRORES, 18.5 CRORES IN STOCK-IN-TRADE OF SHARES AND 38.37 CRORES IN INVESTMENT. IN THE GIVEN CHART PRODUCED BEFORE THE LD. CIT(A) THE ASSESSEE V ERY CONVENIENTLY FORGOT TO SHOW THE FUNDS APPLIED TOWARDS INVESTMENT WHICH IS AT 38.37 CRORES. INVESTMENT HAS BEEN MADE UPON SHARE SCRIPT OF ADANI EXPORTS & VIKAS WSP LTD. THUS THE TOTAL FUNDS APPLIED TOWARDS SHARE STO CK AND SHARE INVESTMENT ARE 58.87 CRORES AS AGAINST LOAN AND ADVANCE OF 36.73 CRORES. EVEN THE SUNDRY DEBTORS WHICH ARE OUT OF SHARE TRADING BUSIN ESS CONSTITUTE FURTHER FUND OF 4.01 CRORER. THUS ASSESSEES STATEMENT THAT MAJOR FUND IS LOCKED UP IN LOANS AND ADVANCE IS WRONG AND MISCHIEVOUSLY PLACED . LD. DR SUBMITTED THAT THE ASSESSEES TURNOVER OF 121 CRORES IN SHARE TRADING. THUS, ASSESSEES MAIN ENGAGEMENT WAS TRADING IN SHARES AND INVESTMEN T IN SHARES AND ASSESSEE IS NO MORE AN NBFC COMPANY AS RBI HAS CANC ELLED ITS CERTIFICATE. THEREFORE, EXCEPTIONS TO EXPLANATION TO SEC. 73 OF THE ACT DO NOT APPLY AND REQUESTED TO TREAT THE LOSS IN SHARE TRADING AS SPE CULATIVE AND RELIED ON THE ORDER OF AO. ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 9 FROM THE AFORESAID DISCUSSION, WE UNDERSTAND THAT T HE AO HAS INVOKED THE PROVISIONS OF EXPLANATION TO SEC. 73 OF THE ACT FOR TREATING THE LOSS FROM SHARES TRADING BUSINESS AS SPECULATION LOSS ON THE GROUND THAT LOSS FROM SHARE TRADING BUSINESS WAS GREATER THAN THE INCOME FROM O THER SOURCES AND CAPITAL GAIN. HOWEVER THE LD. CIT(A) REVERSED THE ORDER OF THE AO BY HOLDING THAT AO HAS IN HIS ORDER HAS OVERLOOKED THE CRITERIA FOR TH E EXCEPTION TO THE EXPLANATION TO SEC. 73 OF THE ACT I.E. THIS EXPLANATION TO SEC. 73 OF THE ACT DOES NOT APPLY TO A COMPANY THE PRINCIPAL BUSINESS OF WHICH IS THE GRANTING OF LOANS AND ADVANCES. ACCORDINGLY THE LD. CIT(A) GRANTED THE RE LIEF TO THE ASSESSEE FROM THE PROVISIONS OF EXPLANATION TO SEC. 73 OF THE ACT . THE LD. AR HAS FILED A PAPER BOOK WHICH IS RUNNING IN PAGES FROM 1 TO 52. WE FIND FROM THE PAPER BOOK FILED BY THE ASSESSEE THAT THE COMPANY IS A NB FC REGISTERED WITH RBI VIDE REGISTRATION NO. 05.01076 ON DATED 20.3.1998. THE COPY OF CERTIFICATE FROM RBI IS PLACED ON PAGE 29 OF THE PAPER BOOK. WE FIND THAT THIS CERTIFICATE WOULD BE ISSUED BY RBI ONLY WHEN THE ASSESSEE IS ENGAGED IN THE LENDING ACTIVITIES. WE FURTHER FIND THAT THE LEARNED AO HAD NOT CONSIDE RED AT ALL THE POSITION OF FUND DEPLOYMENT WHICH MAKES IT CLEAR THAT THE PRINC IPAL BUSINESS OF THE ASSESSEE IS GRANTING OF LOANS AND ADVANCES. THEREFO RE THE PROVISIONS OF EXPLANATION TO SEC. 73 OF THE ACT CANNOT BE APPLIED TO THE FACTS OF THE CASE. FOR THE BETTER UNDERSTANDING OF THE CASE, THE DETAI LS OF FUNDS DEPLOYED BY THE ASSESSEE IN EACH OF THE YEARS ARE GIVEN BELOW:- FINANCIAL YEAR ASSESSMENT YEAR TOCK-IN-TRADE IN SHARES (RS. IN LACS) LOANS & ADVANCES (RS. IN LACS) 1999-00 2000-01 3369.96 8239.19 200-01 2001-02 1854.44 3358.27 2001-02 2002-03 838.04 2817.49 2002-03 2003-24 304.03 3225.21 WE OBSERVE THAT THE LEARNED AO HAS DECIDED THE IMPU GNED ISSUE ON THE BASIS OF INCOME COMPOSITION OF THE ASSESSEE. ACCORDINGLY THE AO HELD THAT THE INCOME FROM SHARE TRADING IS MORE THAN THE INCOME FROM CAP ITAL GAIN AND OTHER SOURCES. ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 10 SO THE AO APPLIED THE PROVISIONS OF EXPLANATION TO SECTION 73 OF THE ACT. NOW LET US UNDERSTAND THE EXPLANATION TO SECTION 73 OF THE ACT AT THIS JUNCTURE :- SECTION 73 LOSSES IN SPECULATION BUSINESS EXPLANATION WHERE ANY PART OF THE BUSINESS OF A C OMPANY ([OTHER THAN A COMPANY WHOSE GROSS TOTAL INCOME CONSISTS MAINLY OF INCOME WHICH IS CHARGEABLE UNDER THE HEADS INTEREST ON SECURITIES , INCOME FROM HOUSE PROPERTY , CAPITAL GAINS AND INCOME FROM OTHER SOURCES ], OR A COMPANY [THE PRINCIPAL BUSINESS OF WHICH IS THE B USINESS OF BANKING] OR THE GRANTING OF LOANS AND ADVANCES) CONSISTS IN THE PURCHASE AND SALE OF SHARES OF OTHER COMPANIES, SUCH COMPANY SHALL, FOR THE PURPOSES OF THIS SECTION, BE DEEMED TO BE CARRYING ON A SPECULATION BUSINESS TO THE EXTENT TO WHICH THE BUSINESS CONSISTS OF THE PURCHASE AND SALE OF SUCH SHARES. FROM THE ABOVE, IT IS VERY CLEAR THAT THE PROVISION S OF EXPLANATION TO SEC. 73 OF THE ACT WILL NOT BE APPLIED WHERE THE PRINCIPAL BUSINES S OF THE ASSESSEE IS THAT OF GRANTING LOANS AND ADVANCES AND SUCH COMPANY IS ALS O IN THE BUSINESS OF PURCHASE AND SALE OF SHARES, THEN THE ACTIVITY OF P URCHASE AND SALE OF SHARES WOULD NOT ATTRACT THE PROVISIONS OF EXPLANATION TO SEC. 73 OF THE ACT. WE HAVE ALREADY HELD THAT THE FUND DEPLOYED IN LENDING ACTI VITY EXCEEDS THE FUND DEPLOYED IN SHARE TRADING ACTIVITY ON A CONSISTENT BASIS OVE R A PERIOD OF TIME. HENCE THE PRINCIPAL BUSINESS OF ASSESSEE IS THAT OF GRANTING LOANS AND ADVANCES AND THEREBY OUTSIDE THE AMBIT OF EXPLANATION TO SEC. 73 OF THE ACT. HENCE, THE SHARE TRADING LOSS OF CLAIMED BY THE ASSESSEE CANNOT BE CONSTRUED AS SPECULATION LOSS AND ACCORDINGLY WE HAVE NO HESITATION IN UPHOLDING THE ORDER OF THE LEARNED CIT(A). ACCORDINGLY, THE GROUND RAISED BY THE REVENUE IS DI SMISSED. 10. COMING TO NEXT GROUND OF REVENUES APPEAL IS TH AT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF INTEREST INCOME OF 3,04,18,767/-. DURING THE YEAR, ASSESSEE HAS CREATE D ITS PROFIT AND LOSS ACCOUNT BY INTEREST INCOME FROM THE FOLLOWING PARTIES:- A) M/S BOLTONO PROPERTIES LTD. 2,49,63,287/- B) M/S APR PROPERTIES LTD. 55,54,480/- ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 11 DURING THE COURSE OF ASSESSMENT PROCEEDING ASSESSEE SUBMITTED THAT ABOVE INTEREST INCOME SHOWN IS HYPOTHETICAL INCOME WHICH WAS NEVER EARNED. THE ASSESSEE IS A NBFC AND REGISTERED WITH RBI. IN TERM S OF PRUDENTIAL GUIDELINES ISSUED BY RBI REGARDING RECOGNITION OF INCOME BY WA Y OF INTEREST WHERE THE INTEREST ON LOAN GRANTED IS NOT PAID FOR A PERIOD N OT EXCEEDING SIX MONTHS THEN THE INCOME BY WAY OF INTEREST SHOULD NOT BE RECOGNI ZED. DURING THE YEAR UNDER CONSIDERATION, LOANS WERE PROVIDED TO THE ABOVE PAR TIES WITHOUT ANY AGREEMENT BETWEEN THE COMPANY AND THE DEBTOR. THERE WAS NO MENTIONED FOR CHARGING OF ANY INTEREST AT A SPECIFIC RATE FOR ANY SPECIFIC PERIOD IN THE AGREEMENT. THE LOAN DEBTOR NEITHER ACKNOWLEDGED ITS LIABILITY TO PAY INTEREST NOR PROVIDED ANY CONFIRMATION FOR THE PAYMENT OF IN TEREST. THE ASSESSEE HAS RECOGNIZED INTEREST INCOME UNILATERALLY WITHOUT ANY CONFIRMATION FROM THE PARTY CONCERNED. BESIDES THE LOAN DEBTOR NEVER DEDUCTED A NY TDS ON THE INTEREST EXPENDITURE. THE ASSESSEE WAS ALSO NOT SURE WHETHER THE LOAN DEBTOR HAS EVER RECOGNIZED THE LIABILITY TO PAY INTEREST IN IT S BOOKS OF ACCOUNT. THE ASSESSEE HAS PROVIDED THE ADDRESSES OF THE ABOVE CO MPANY BEFORE AO FOR SEEKING CONFIRMATION FROM THE PARTY CONCERNED. FINA LLY, ASSESSEE PRAYED THAT THIS INCOME IS NOTHING BUT HYPOTHETICAL INCOME AND THEREFORE SHOULD BE DELETED FROM THE TOTAL INCOME. HOWEVER, AO DISREGARDED THE CLAIM OF ASSESSEE BY OBSERVING THAT IT IS AMAZING TO NOTE THAT ASSESSEE HAS ADVANCED MONEY TO THE ABOVE PARTIES WITHOUT ANY WRITING AGREEMENT FOR CHA RGING INTEREST. BESIDES THE LOAN DEBTOR HAS REPAID THE PRINCIPAL AMOUNT OF LOAN . THE ASSESSEE HAS NOT SHOWN ANY EFFORTS FOR RECOVERY OF INTEREST AMOUNT F ROM THE PARTIES. FINALLY, AO DISREGARDED THE PLEA OF THE ASSESSEE BY CONFIRMING THE ADDITION OF 3,04,18,767/- TOWARDS THE INTEREST ON THE ABOVE LOA N IN THE TOTAL INCOME OF ASSESSEE. 11. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A) WHO DELETED THE ADDITION MADE BY AO BY OBSERVING AS UNDER:- 15. THE PRESENT ASSESSEE REGULARLY FOLLOWED MERCAN TILE SYSTEM OF ACCOUNTING. IN MERCANTILE SYSTEM OF ACCOUNTING ASSE SSMENT OF INCOME IS MADE ON ACCRUAL BASIS. ACCRUED INCOME IS REQUIRED T O BE ASSESSED ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 12 IRRESPECTIVE OF THE DIFFICULTIES; IN REALIZATION OF THE ACCRUED INCOME. THE CONCEPT OF REAL INCOME CANNOT THEREFORE BE BROUGHT INTO PLAY IN EVERY CASE OF NON REALIZATION OF INCOME TO POSTPONE ASSES SMENT OF ACCRUED INCOME. THIS PROPOSITION IS LAID DOWN BY THE SUPREM E COURT IN CIT VS. SHIV PRAKASH JANAK RAJ & CO PVT. LTD. (222 ITR 583) . IN THAT CASE ASSESSEE FOLLOWED MERCANTILE SYSTEM OF ACCOUNTING. IT HAD ADVANCED LOANS TO A FIRM WHOSE PARTNERS WERE SHAREHOLDERS/DI RECTORS. AFTER THE EXPIRY OF THE RELEVANT YEAR INTEREST ON LOAN WAS GI VEN UP. THE TRIBUNAL FOUND THAT SUCH WAIVER WAS NOT BASED ON COMMERCIAL CONSIDERATION & THEREFORE THE SUPREME COURT UPHELD THE ASSESSMENT O F ACCRUED INTEREST REJECTING ASSESSEES PLEA THAT ON THE PRINCIPLE OF REAL INCOME; TAXATION OF INTEREST ACCRUED CANNOT BE POSTPONED. IN ITS DECIS ION IN THE CASE OF GODHRA ELECTRICITY CO. LTD VS. CIT (225 ITR 746) HO WEVER THE SUPREME COURT HELD THAT INCOME TAX IS LEVY ON INCOME. NO DO UBT, INCOME TAX ACT TAKES INTO ACCOUNT 2 POINTS OF TIME AT WHICH LIABIL ITY TO TAX IS ATTRACTED VIZ ACCRUAL OF INCOME OR ITS RECEIPT; BUT THE SUBSTANC E OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL; THERE CAN NOT BE A TAX; EVEN THOUGH IN BOOK KEEPING; AN ENTRY IS MADE ABOUT A HY POTHETICAL INCOME, WHICH DOES NOT MATERIALIZE. IN THE DECIDED CASE THE ASSESSEE COMPANY HAD ACCOUNTED FOR REVISED ELECTRICITY TARIFF AFTER THE REVISION WAS UPHELD BY THE SUPREME COURT. NEITHER THE CONSUMERS NOR THE STATE GOVERNMENT HOWEVER ACCEPTED REVISION IN POWER TARIF F AND THE ELECTRICITY UNDERTAKING WAS TAKEN OVER BY THE GOVER NMENT AND THE REVISED TARIFFS WERE NEVER REALIZED. THE AO ASSESSE D REVISED POWER TARIFF AS ASSESSEES INCOME BECAUSE THE ASSESSEE HA D ACCOUNTED FOR SUCH INCOME IN ITS BOOKS. THE SUPREME COURT, HOWEVE R, HELD THAT WHEN THE REVISED POWER TARIFFS WERE NEVER REALIZED, INCO ME ACCOUNTED BY THE ASSESSEE IN ITS BOOKS WAS ONLY A HYPOTHETICAL INCOM E AND NOT REAL INCOME AND THEREFORE COULD NOT BE ASSESSED TO TAX. THE RATIO LAID DOWN IN THESE TWO JUDGMENTS NEED TO BE CONSIDERED IN THE PRESENT APPEAL AS THE ASSESSEE HAS DENIED ITS LIABILITY TO TAX ON THE PLEA THAT IT HAD ACCOUNTED IN ITS BOOKS ONLY HYPOTHETICAL INCOME & N OT REAL INCOME. 16. IN THIS CASE, ASSESSEE ACCOUNTED FOR INTEREST O N THE AMOUNTS ADVANCED TO BOLTEN PROPERTIES LTD. & APR PROPERTIES LTD BUT SUCH INTEREST WAS NEVER ACTUALLY RECEIVED & AS ULTIMATEL Y WRITTEN OFF. AS PER SEC. 194A THE PAYER OF INTEREST WAS LIABLE TO DEDUC T TAX; FROM SUCH INTEREST. IF THE DEBTORS HAD ACKNOWLEDGED THEIR LIA BILITY TO PAY INTEREST THEN THERE WOULD HAVE BEEN TAX DEDUCTION U/S. 194A. IT DOES NOT APPEAR THAT THE REVENUE TOOK ANY STEPS AGAINST THE DEBTORS FOR THE DEFAULT COMMITTED IN NON DEDUCTION OF TAX. ON THESE FACTS T HEREFORE, I FIND FORCE IN SUBMISSIONS OF THE A/R THAT THE DEBTORS DID NOT EVER ACCEPT THEIR LIABILITY TO PAY INTEREST AND WHAT WAS ACCOUNTED IN ASSESSEES BOOKS WAS A HYPOTHETICAL INCOME BEING UNILATERAL CLAIM FO R INTEREST. I ALSO NOTE THAT IN RETURN FOR A.Y 2007-08 THE ASSESSEE DID NOT CLAIM DEDUCTIONS FOR BAD DEBTS AS ASSESSEE IS AGITATING THE ASSESSMENT O F SUCH INCOME IN ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 13 APPEAL FOR AY 2001-02. CONSIDERING THE TOTALITY OF THE FACTS I AM THEREFORE INCLINED TO ACCEPT SUBMISSIONS OF THE A/R THAT RS.3,04,18,767/- DID NOT REPRESENT ASSESSEES REAL INCOME AND THEREFORE NOT CHARGEABLE TO TAX IN AY 2001-02. THE AO IS ACCORDINGLY DIRECTED TO EXCLUDE INTEREST OF RS.3,04,18,767/- FR OM ASSESSEES TOTAL INCOME. GROUND NOS. 3 TO 6 ARE ALLOWED. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 12. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. DR SUBMITTED THAT ASSESSEE IS NOT A CHARITABLE ORGANIZATION TO PROVIDE THE INTEREST FREE LOANS TO THE PARTIES. THERE IS NO SUBSTANCE IN THE ARGUMENT OF THE ASSESSEE THAT THER E IS NO CLAUSE IN WRITING IN THE AGREEMENT BETWEEN THE TWO PARTIES REGARDING CHA RGING OF INTEREST. THE BUSINESS OF THE ASSESSEE IS OF A MONEY LENDER AND E ACH LOAN WAS GIVEN TO EARN INTEREST. HENCE IT WAS THE CORRECT PROCEDURE W HICH THE ASSESSEE HAS DONE BY SHOWING INTEREST INCOME IN ITS BOOKS OF ACC OUNT AS MAINTAINED ON MERCANTILE BASIS. EVEN IF THE ASSESSEE THOUGHT THAT INTEREST WAS UNRECOVERABLE THEN IT SHOULD WRITE IT OFF IN THE BOOKS OF ACCOUNT . IF THE THEORY OF REAL INCOME IS APPLIED SO LIBERALLY THEN ASSESSEE WOULD CLAIM FOR EVERY UNREALIZED INCOME IN THE FIRST INSTANCE THAT IT IS NOT A REAL INCOME. LD . DR RELIED ON THE ORDER OF AO. 13. ON THE OTHER HAND LD AR RELIED ON THE ORDER OF LD. CIT(A) AND SUBMITTED THAT THE ASSESSEE HAS RECOGNIZED INTEREST INCOME IN ITS BOOKS OF ACCOUNTS. ACCORDING TO LD. DR, ASSESSEE IS A MONEY LENDER AND LOANS WERE GIVEN TO EARN INTEREST. HOWEVER TO TAX INTEREST AS INCOME IT WAS NECESSARY FOR REVENUE TO PROVE THAT IN THE FIRST INSTANCE INTERES T WAS REAL INCOME AND IT WAS NOT HYPOTHETICAL INCOME. IN THE PAPER BOOK THE ASSESSEE HAS FURNISHED COPIES OF LEDGER ACCOUNTS OF BOTH DEBTORS APPEARING IN THE ASSESSEES BOOKS. IT IS EVIDENT FROM THE SAID ACCOUNT THAT EXCEPT REP AYMENT OF THE PRINCIPAL SUMS THE DEBTOR COMPANIES DID NOT PAY ANY FURTHER SUMS T OWARDS INTEREST THROUGHOUT THE FY 1999-00 RELEVANT TO AY 2000-01. T HE ASSESSEE WAS AN NBFC AND AS SUCH IT WAS BOUND TO FOLLOW INCOME REC OGNITION NORMS ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 14 CONTAINED IN PRUDENTIAL ACCOUNT GUIDELINES ISSUED B Y THE RBI. AS PER THE SAID PRUDENTIAL GUIDELINES WHERE THE INTEREST REMAINED I N ARREARS FOR CONSECUTIVE PERIOD OF SIX MONTHS THEN THE ASSESSEE WAS NOT PERM ITTED TO RECOGNIZE ANY INCOME. LD. AR RELIED THE CASE LAW OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. VASHIST CHAI VAYAPAR LTD AND OTHERS 330 ITR 440 (DEL) HAS HELD THAT WHERE AN NBFC DOES NOT REALIZE INTEREST AND ACCOUNT HAS BECOME NPA THEN INTEREST CANNOT BE TAXED MERELY BECAUSE AN ASSESSEE FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. THE HON'BLE HIGH COURT ACCORD INGLY HELD THAT ACCRUED INTEREST ON THE LOANS CONSIDERED TO BE NPA WAS NOT CHARGEABLE TO TAX. IT IS FURTHER MATERIAL TO SUBMIT THAT TILL DATE I.E. 2012 THE ASSESSEE HAS NOT REALIZED A SINGLE PENNY FROM THE TWO DEBTORS COMPANIES TOWAR DS ALLEGED ACCRUED INTEREST UNILATERALLY ACCOUNTED BY THE ASSESSEE IN ITS BOOKS. IN FACT IN THE ACCOUNTS FOR THE YEAR ENDED 31.03.2007, ASSESSEE AC TUALLY WRITTEN OFF THE INTEREST EARLIER ACCOUNTED. HOWEVER, IN THE AY FOR 2007-08 NO DEDUCTION WAS ALLOWED FOR THE BAD DEBTS WRITTEN OFF EVEN THOUGH I N AY 2001-02 THE INCOME WAS ASSESSED BY THE AO. IT WILL THUS BE APPRECIATED THAT THE YEAR IN WHICH THE INTEREST WAS WRITTEN OFF AS BAD DEBT DEDUCTION HAS NOT BEEN ALLOWED BY THE REVENUE. IN THE CIRCUMSTANCES, ASSESSEE SUBMITTED T HAT THE RELIEF ALLOWED BY LD. CIT(A) FOLLOWING THE JUDGMENT OF HON'BLE SUPREM E COURT IN THE CASE OF GODHRA ELECTRICITY CO. LTD. 225 ITR 746 (SC) FROM THE ABOVE DISCUSSION, WE UNDERSTAND THAT ASSES SEE HAS SHOWN INTEREST INCOME IN ITS BOOKS OF ACCOUNT BUT WHILE FRAMING OF ASSESSMENT BEFORE AO REQUESTED TO EXCLUDE THE INCOME FROM ASSESSMENT ON THE GROUND THAT IT WAS NEVER REALIZED BY ASSESSEE. FROM THE SUBMISSION OF LD. AR WE FIND THAT ASSESSEE WAS ABLE TO RECOVER THE PRINCIPAL AMOUNT D URING FINANCIAL YEAR IN WHICH LOAN WAS GIVEN TO ABOVE PARTIES CONCERNED. BU T AO DID NOT AGREE WITH THE PLEA TAKEN BY ASSESSEE AND AO ADDED IT TO THE T OTAL INCOME OF ASSESSEE. IN OUR CONSIDERED VIEW THERE HAS TO BE REAL INCOME BEFORE CHARGING THE TAX. IN THE PRESENT CASE THE LD. DR HAS NOT BROUGHT ANYTHIN G ON RECORD TO CONTROVERT THE FINDINGS OF THE LD. CIT(A). THE AO HAS NOT TAKE N THE CONFIRMATION BY ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 15 EXERCISING HIS POWER UNDER SECTION 133(6) OF THE AC T FROM THE LOAN PARTIES. WE ARE ALSO PUTTING OUR RELIANCE IN THE SIMILAR CASE W HERE THE HONBLE SUPREME COURT HAS HELD IN THE CASE OF CIT V. SHOORJI VALLABHADAS AND CO. (1962) 46 ITR 144 (SC) AS UNDER:- INCOME-TAX IS A LEVY ON INCOME. THOUGH THE INCOME- TAX ACT TAKES INTO ACCOUNT TWO POINTS OF TIME AT WHICH THE LIABILITY T O TAD IS ATTRACTED, VIZ., THE ACCRUAL OF THE INCOME OR ITS RECEIPT, YET THE S UBSTANCE OF THE MATTER IS THE INCOME. IF INCOME DOES NOT RESULT AT ALL, TH ERE CANNOT BE A TAX, EVEN THOUGH IN BOOK-KEEPING, AN ENTRY IS MADE ABOUT A HYPOTHETICAL INCOME, WHICH DOES NOT MATERIALISE. WHERE INCOME H AS, IN FACT, BEEN RECEIVED AND IS SUBSEQUENTLY GIVEN UP IN SUCH CIRCU MSTANCES THAT IT REMAINS THE INCOME OF THE RECIPIENT, EVEN THOUGH GI VEN UP, THE TAX MAY BE PAYABLE. WHERE, HOWEVER, THE INCOME CAN BE SAID NOT TO HAVE RESULTED AT ALL, THERE IS OBVIOUSLY NEITHER ACCRUAL NOR RECEIPT OF INCOME, EVEN THOUGH AN ENTRY TO THAT EFFECT MIGHT, IN CERTA IN CIRCUMSTANCES, HAVE BEEN MADE IN THE BOOKS OF ACCOUNT. 14. WE FIND THAT AS PER THE GUIDELINES OF RBI IF AS SESSEE DOES NOT PAY INTEREST FOR A PERIOD OF EXCEEDING SIX MONTHS THEN INTEREST INCOME SHOULD NOT BE RECOGNIZED IN ITS BOOKS OF ACCOUNT. THE GUIDELIN E OF RBI IS VERY MUCH APPLICABLE TO ASSESSEE AS IT IS NBFC AND GOVERNED B Y REGULATIONS OF RBI. WE ALSO FIND THAT VARIOUS COURTS HAS DECIDED THAT REAL INCOME SHOULD BE BROUGHT TO TAX MERELY ASSESSEE HAS BOOKED THE INCOME IN ITS BO OKS OF ACCOUNT. IT DOES NOT MEAN THAT IT HAS BECOME THE INCOME OF ASSESSEE. FOLLOWING THE PROPOSITION OF CASE (SUPRA), WE HAVE NO HESITATION IN UPHOLDING THE ORDER OF LD. CIT(A). THIS GROUND OF REVENUES APPEAL IS DISMISSE D. 15. IN THE RESULT, REVENUES APPEAL IS DISMISSED. COMING TO THE ITA 285/KOL/2008 A.Y 02-03 . 16. REVENUE HAS RAISED FOLLOWING GROUNDS:- 1. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS BY DIRECTING THE ASSESSING OFFICE TO ASSESS LOSS IN BUSINESS OF PURCHASES & SALE OF SHARES AS BUSINESS LOSS. ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 16 2. THAT THE LD. CIT(A) HAS ERRED ON FACTS BY OBSERV ING THAT THE PRINCIPAL BUSINESS OF THE ASSESSEE WAS GRANTING OF LOANS AND ADVANCES AND THE SAME IS BASED ON MISCONCEPTIONS. 3. THAT THE LD. CIT(A) HAS ERRED IN LAW AS WELL AS ON FACTS BY DELETING THE ADDITION OF RS.8,40,000/- ON ACCOUNT OF INTERES T RECEIVABLE FROM M/S SHAW WALLACE & CO. LTD. 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS BY DELETING THE ADDITION OF RS.8,40,000/- ON ACCOUNT OF INTEREST RECEIVABLE WHEN THE ASSESSEE HA S CLAIMED THE CREDIT OF TAX DEDUCTED AT SOURCE ON SUCH INTEREST INCOME. 17. ISSUE NO. 1 AND 2 ARE INTER-CONNECTED AND SAME FACTS WE HAVE ALREADY DISCUSSED IN ITA NO. 1796/KOL/2008 FOR AY 2001-02 IN PARA-7 TO 14 OF THIS ORDER AND TAKING A CONSISTENT VIEW IN THIS MATTER, HENCE, WE DISMISS ISSUE NO 1 AND 2 OF THIS APPEAL OF REVENUE ACCORDINGLY. 18. NEXT ISSUES RAISED IN GROUND NO. 3 AND 4 IN THI S APPEAL BY REVENUE IS THAT LD. CIT(A) ERRED IN DELETING THE ADDITION MADE BY AO FOR RS.8.40 LACS ON ACCOUNT OF INTEREST RECEIVABLE FROM SHAW WALLACE & CO. LTD. 18.1 THE ASSESSEE HAS CLAIMED TDS ON RECEIPT OF INT EREST FROM SHAW WALLACE & CO. DURING THE AY 2003-04. ON QUESTION BY THE AO, ASSESSEE SUBMITTED THAT THIS INTEREST INCOME RELATES TO THE AYS 1999-00 TO 2002-03 AND THE SUIT FOR RECOVERY OF LOAN WAS PENDING IN THE CO URT OF LAW THAT IS WHY ASSESSEE DID NOT ACCOUNT FOR ANY INTEREST INCOME IN ITS BOOKS OF ACCOUNT IN EARLIER YEARS. SO, THE AO OPINED THAT THE INCOME OF RS. 8.40 LACS FOR THE AY 2001-02 HAS ESCAPED ASSESSMENT AND ACCORDINGLY FRAM ED ASSESSMENT UNDER SECTION 147 OF THE ACT. 19. AGGRIEVED ASSESSEE PREFERRED AN APPEAL BEFORE L D. CIT(A) WHO DELETED THE ADDITION BY OBSERVING AS UNDER:- 5. IN GROUND NO.S 4 TO 10 THE ASSESSEE HAS OBJECTE D TO THE ASSESSMENT OF RS.8,40,000 BEING ACCRUED INTEREST ON ICDS GRANTED TO SHAW WALLACE & CO. LTD. THE REASONS GIVEN BY THE AO FOR THE SAID ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 17 ADDITION ARE SAME AS DISCUSSED IN THE ASSESSMENT FO R A.Y 1999-2000. IN MY APPELLATE ORDER OF THE EVEN DATE IN APPEAL NO . 144/CIT(A)-IV/05- 06 FOR THE AY 1999-2000 I HAVE DELETED THE SAID ADD ITION ON THE GROUND THAT DURING THE PENDENCY OF CIVIL SUIT NO INTEREST ACCRUED TO THE ASSESSEE. FOLLOWING MY APPELLATE ORDER FOR THE AY 1 999-2000 I DIRECT THE AO TO DELETE THE ADDITION OF RS.8,40,000. BEING AGGRIEVED BY THIS ORDER OF LD. CIT(A) REVENUE IS IN APPEAL BEFORE US. 20. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. BEFORE US LD. DR VEHEMENTLY RELIED ON THE O RDER OF AO WHEREAS LD. AR RELIED ON THE ORDER OF LD. CIT(A). FROM THE AFOR ESAID DISCUSSION WE UNDERSTAND THAT ASSESSEE HAS GIVEN LOAN TO M/S SHAW WALLACE & CO. ON INTEREST BUT ASSESSEE DID NOT ACCOUNT FOR THE INTER EST INCOME DUE TO THE DISPUTE WHICH THEN WAS PENDING IN THE COURT OF LAW. M/S SHAW WALLACE & CO. PAID THE INTEREST AMOUNT AFTER DEDUCTING TDS IN AY 2003-04 AND ACCORDINGLY ASSESSEE HAS BOOKED THE INCOME IN THAT YEAR. HOWEVE R, AO DISAGREED THE VIEW OF ASSESSEE ON THE GROUND THAT THE INCOME WAS ACCRUED IN THE AY 2001- 02 SO IT WAS TO BE OFFERED FOR TAX IN THAT YEAR. BE FORE US LD. AR SUBMITTED THAT THIS ISSUE IS ALREADY COVERED IN FAVOUR OF ASSESSEE BY THIS TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO. 282-283/KOL/2008 FOR AY 1999-00 AND 2000- 01, DATED 26.09.2008, WHERE THE TRIBUNAL HAS HELD:- 13. IN VIEW OF THE ABOVE, WE HOLD THAT THE LD. CIT (A) WAS JUSTIFIED TO DELETE THE INTEREST OF RS.17,50,000/- IN THE ASSESS MENT YEAR 1999-2000 AND OF RS.17,48,81/- IN THE ASSESSMENT YEAR 2000-01 AS IN THESE ASSESSMENT YEARS NEITHER THE ASSESSEE CLAIMED TDS B ENEFIT NOR THE INTEREST WAS CREDITED TO THE ASSESSEES A/C AND ON THE OTHER HAND, THE SUIT WAS PENDING BEFORE THE HONBLE KOLKATA HIGH CO URT. HOWEVER, WE HOLD THAT THE SAID INTEREST IS LIABLE TO BE ASSESSE D IN THE ASSESSMENT YEAR 2003-04, THE ASSESSMENT YEAR 2003-04, THE ASSE SSMENT YEAR IN WHICH THE INTEREST WAS CREDITED TO THE ASSESSEES A /C AND THE TDS CERTIFICATE WAS ISSUED TO THE ASSESSEE AND THE ASSE SSEE ALSO CLAIMED THE TDS IN THE RETURN FILED FOR THAT ASSESSMENT YEA R IRRESPECTIVE OF THE FACT THAT THE SUIT WAS PENDING BEFORE THE HONBLE K OLKATA HIGH COURT. 14. IN VIEW OF THE ABOVE, THE GROUNDS OF APPEALS TA KEN BY THE DEPARTMENT FOR BOTH THE ASSESSMENT YEARS UNDER CONS IDERATION ARE REJECTED WITH THE ABOVE OBSERVATION THAT THE AMOU NT OF INTEREST OF ITA NO.1796 & 285/KOL/2008 A.YS 01-02 & 02-03 ACIT CIR-4 KOL. V. M/S APEX ENTERPRISES (I) L TD. PAGE 18 RS.17,50,000/- AND OF RS.17,48,801/- ARE BOTH LIABL E TO BE TAXED IN THE ASSESSMENT YEAR 2003-04 AND NOT IN THE ASSESSMENT Y EARS UNDER CONSIDERATION. 15. BEFORE WE PART WITH THESE APPEALS, WE MAY SATE THAT OUR ABOVE DIRECTIONS FOR CHARGING OF INTEREST OF RS.17,50,000 /- AND OF RS.17,48,801/- ARE TO BE CHARGED IN THE ASSESSMENT YEAR 2003-04 ARE NECESSARY AS IT WAS STATED AT THE TIME OF HEARING O F THESE APPEALS THAT THE ABOVE INTERESTS HAVE BEEN CHARGED ON SUBSTANTIV E BASIS BY THE AO IN THESE ASSESSMENT YEARS UNDER CONSIDERATION AND O N PROTECTIVE BASIS IN THE ASSESSMENT YEAR 2003-04. ACCORDINGLY, THE AO WHILE GIVING EFFECT TO OUR ORDER WILL TAKE NECESSARY ACTION AS PER LAW AND CONSIDERING OUR ABOVE OBSERVATIONS. TAKING A CONSISTENT VIEW IN ASSESSEES OWN CASE (SU PRA), THIS GROUND OF REVENUES APPEAL IS DISMISSED. 20. IN THE RESULT, REVENUES APPEAL IS DISMISSED. 21. IN THE COMBINED RESULT, BOTH APPEALS OF REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT 18/ 03/2016 SD/- SD/- (N.V.VASUDEVAN) (WASEEM AHMED) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) KOLKATA, *DKP '#$- 18 / 03 /201 6 / COPY OF ORDER FORWARDED TO:- 1. / ASSESSEE-M/S APEX ENTERPRISES (I) LTD., 4, MANGO LA NE, KOLKATA-700 001 2 /REVENUE-ACIT, CIRCLE-4, P7, CHOWRINGHEE SQUARE, 8 TH FLOOR, KOLKATA-69 3.#,#-. / / CONCERNED CIT KOLKATA 4. /- / CIT (A) KOLKATA 5.2 3455-., -.!, / DR, ITAT, KOLKATA 6.489:; / GUARD FILE. BY ORDER/ , /TRUE COPY/ /# -.!,