M/s. M.B.Sons, Ahmedabad V. The Income tax Officer, Ward-2, Anand

ITA 2929/AHD/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 8250 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 10 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 23-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 11-12-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N P PATEL
• Assessee Lawyers: ANIL R SHAH
• Keywords: Business income; Depreciation; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD SMC BENCH AHMEDABAD BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ITA NO. 2929/AHD/2013 (ASSESSMENT YEAR:2009-10) M/S. M. B. SONS POST BOX NO.1, PO. CHIKHODRA, TAL: ANAND 388 320 APPELLANT VS. INCOME TAX OFFICER, WARD- 2, ANAND RESP ONDENT PAN: AAEFM0155G /BY ASSESSEE : SHRI ANIL R. SHAH, A.R. /BY REVENUE : SHRI N. P. PATEL, SR. D.R. /DATE OF HEARING : 03.08.2017 /DATE OF PRONOUNCEMENT : 01.11.2017 ORDER PER S. S. GODARA, JUDICIAL MEMBER THIS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2009-10 ARISES AGAINST THE CIT(A)-IV, BARODAS ORDER DATED 12.09.2013, PASSED IN APPEAL NO. CAB/IV- A-401/2011-12, AFFIRMING ASSESSING OFFICERS ACTION DISALLOWING ASSESSEES BAD DEBTS CLAIM OF RS.12,43,228/- (CORRECT AMOUNT A S RS.11,06,714/-) IN ITA NO. 2929/AHD/2013 (M/S. M. B. SONS VS. ITO) A.Y. 2009-10 - 2 - ASSESSMENT ORDER DATED 16.12.2011, IN PROCEEDINGS U NDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT. 2. THE SOLE ISSUE EMANATING FROM ASSESSEES PLEADIN GS IN THE INSTANT CASE IS THAT OF CORRECTNESS OF BOTH THE LOWER AUTHORITIE S ORDERS DISALLOWING ASSESSEES BAD DEBTS CLAIM HEREINABOVE. THE ASSESS EE IS STATED TO BE A FIRM TRADING AND PROCESSING OF TOBACCO. IT CLAIMED BAD DEBTS RELIEF IN QUESTION IN CASE OF ONE OF ITS DEBTOR M/S. N. SHANTILAL PATEL & CO. THE ASSESSING OFFICER APPEARS TO HAVE DISALLOWED THE SAME BY ADOPTING VAR IOUS REASONS. HE OBSERVED FIRST OF ALL THAT THE ASSESSEE WAS ENGAGED IN TOBACCO BUSINESS ONLY WITHOUT HAVING CARRIED OUT ANY MONEY LENDING BUSINE SS ACTIVITY OR ANY SUCH INCOME BEING DECLARED UNDER SUCH A HEAD. HE TREATE D THE PRINCIPAL AMOUNT IN QUESTION NOT AS A TRADING DEBT BUT DEPOSITS MADE WI TH THE DEBTOR. THE ASSESSING OFFICER WAS FURTHER OF THE VIEW THAT THE ASSESSEE HAD NOT SHOWN ANY CORRESPONDING INCOME AS WELL. ALL THIS REASONI NG RESULTED IN THE IMPUGNED DISALLOWANCE BEING MADE IN ASSESSEES CASE . 3. THE CIT(A) AFFIRMS THE ABOVE ASSESSMENT FINDINGS AS UNDER: 4.3. I HAVE GONE THROUGH THE FACTS OF THE CASE, OBSERVATION OF THE AO AS WELL AS THE SUBMISSION MADE BY THE AR. THE APPELLANT'S MAIN CONTENTION IS THAT THE APPELLANT WAS ENGAGED IN THE ACTIVITY OF FINANCING AND THE INTEREST RECEIVED FROM SUCH ACTIVITY HAS BEEN TAXED UNDER THE HEAD BUSINES S INCOME AND HENCE THE AMOUNT OF LOAN WRITTEN OFF AS BAD DEBT SHOULD BE ALLOWED A S DEDUCTION U/S 35(1)(VII) OF THE IT ACT 1961. IN THIS REGARD, THE APPELLANT HAS SUBM ITTED COPY OF ASSESSMENT ORDER FOR A.Y. 1998-99 IN WHICH THE INTEREST RECEIVED OF RS.10,81,158/- WAS REDUCED FROM THE INTEREST PAID OF RS.19,33,935/-AND THE BALANCE AMOUNT WAS ALLOWED AS A DEDUCTION IN THE COMPUTATION OF BUSINESS INCOME. BU T FROM A PERUSAL OF THE ASSESSMENT ORDER, IT IS SEEN THAT THE AO HAS GIVEN FOLLOWING FINDINGS:- '4. FROM THE PERUSAL OF ADMINISTRATIVE EXPENSES, GE NERAL EXPENSES, INTEREST EXPENSES AND DEPRECIATION, IT IS NOTICED THAT ADMIN ISTRATIVE EXPENSES, GENERAL EXPENSES AND DEPRECIATION REMAINS ALMOST UNCHANGED. HOWEVER, INTEREST EXPENSES IS RAISED FROM 11,01,577/- TO 19,33,765/-. THE ASSE SSEE HAS EXPLAINED THAT THIS IS BECAUSE OF REDUCED VOLUME OF THE BUSINESS AND THERE FORE FAMILY FUND HAD TO BE KEPT WITH THE BANKS INSTEAD OF EMPLOYING THE SAME FOR MO RE GAINFUL BUSINESS. THE MAIN ITA NO. 2929/AHD/2013 (M/S. M. B. SONS VS. ITO) A.Y. 2009-10 - 3 - REASON ATTRIBUTABLE TO LOWER RETURNED INCOME IS ON ACCOUNT OF INTEREST EXPENSES. THE SAME FOUND TO BE OF GENUINE LOANS OBTAINED IN T HE PRECEDING YEARS AND MAINLY ASSESSED DEPOSITORS'. 4.3.1 THUS, AO HAS NOWHERE EXAMINED THE NATURE OF I NTEREST RECEIVED IN HIS ORDER. BESIDES BEFORE THE AO, IN THE PROCEEDINGS FOR CURRE NT A.Y, THE APPELLANT HAD STATED THAT N SHANTILAL AND COMPANY IS A FINANCIER AND FOR THE SAFEGUARD OF FUND, THE APPELLANT FINANCED THE MONEY TO THIS FIRM WHO MANAG E TO FINANCE THE SAME IN THE MARKET. THUS, FROM APPELLANT'S OWN SUBMISSION, IT I S EVIDENT THAT THE APPELLANT IS DEPOSITING ITS SURPLUS MONEY WITH THIS FINANCIER AN D EARNING INTEREST ON THEM. THE APPELLANT HAD NOWHERE STATED OR ESTABLISHED THAT TH E GIVEN BY HIM TO THIS FINANCIER HAS BEEN UTILIZED FOR FINANCING THE PERSONS FROM WH OM THE APPELLANT IS MAKING TRADING TRANSACTIONS AND THUS IN ORDER TO BOOST ITS PROFIT. DEPOSITING OF MONEY WITH A FINANCIER TO EARN INTEREST ON THAT CANNOT BE TREA TED AS PART OF ANY MONEY LENDING BUSINESS. THUS, IT IS HELD THAT THE APPELLANT IS NO T IN THE BUSINESS OF MONEY LENDING AND HENCE THE ENTIRE AMOUNT WRITTEN OFF AS BAD DEBT CANNOT BE ALLOWED AS A DEDUCTION IN COMPUTATION OF ITS INCOME. 4.3.2 ANOTHER IMPORTANT FACTOR IS THE FACT THAT APP ELLANT HAS NOWHERE FURNISHED THE DETAILS OF THE YEARS IN WHICH THE DEPOSIT WAS MADE WITH N. SHANTILAL AND COMPANY, HOW MUCH INTEREST WAS EARNED FROM SUCH PARTY ON A CCOUNT OF SUCH DEPOSIT, HOW MUCH INTEREST WAS ACTUALLY RECEIVED AND HOW MUCH INTEREST REMAINED TO BE RECEIVED AS ON THE DATE ON WHICH THE AMOUNT WAS WR ITTEN OFF AS BAD DEBT. ALONGWITH IT SUBMISSION, THE APPELLANT HAS GIVEN TH E LEDGER ACCOUNT OF THIS PARTY FOR THE FINANCIAL YEARS 2005-06 AND 2006-07. DURI NG THE FINANCIAL YEAR 2005-06, THE APPELLANT HAD EARNED INTEREST OF RS.2,15,891/- FROM THIS PARTY AND HAD RECEIVED AMOUNT OF RS.3,00,000/- FROM THIS PARTY. THUS, THE INTEREST CHARGED WAS LESS THAN AMOUNT RECEIVED. IT IS A SETTLED PRI NCIPLE THAT ANY REPAYMENT OF LOAN IS ADJUSTED FIRST AGAINST THE INTEREST AND THEN AGA INST PRINCIPLE. IN THE FINANCIAL YEAR 2006-07, THE INTEREST IS RS.1,36,514/- AGAINST WHICH NO PAYMENT WAS RECEIVED. ' THUS, OUT OF THE BAD DEBT WRITTEN OFF FROM THE DE TAILS SUBMITTED BY THE APPELLANT THE AMOUNT OF RS.1,36,514/- IS THE ONLY AMOUNT WHIC H HAS BEEN TAKEN INTO CONSIDERATION FOR COMPUTATION OF INCOME O F THE APPELLANT FOR A.Y. 2006-07 AND WHICH IS ALSO OUTSTANDING AS ON THE DATE OF WRI TING OFF BAD DEBT. THE BALANCE AMOUNT IS THE CAPITAL AMOUNT GIVEN AS DEPOSIT BY TH E APPELLANT. THE WRITE OFF OF SUCH AMOUNT AS BAD DEBT IS ALSO NOT ALLOWABLE AS A DEDUCTION IN THE COMPUTATION OF TOTAL INCOME. 4.3.3 THUS, EVEN IF APPELLANT'S SUBMISSION THAT THE INTEREST ON THE DEPOSIT HAS BEEN TAXED AS BUSINESS INCOME AND HENCE SHOULD BE ALLOWE D AS A DEDUCTION AS BAD DEBT IS ACCEPTED, THE AMOUNT OF RS.1,36,514/- CAN ONLY B E ALLOWED AS A DEDUCTION FOR BAD DEBT WRITTEN OFF.: THE BALANCE AMOUNT HAS BEEN GIVEN AS PRINCIPLE TO THE FINANCIER FOR EARNING OF INTEREST AND HENCE THE NON -RECOVERY OF THE SAME RESULTS INTO CAPITAL LOSS WHICH IS NOT ALLOWABLE AS A DEDUC TION IN THE COMPUTATION OF TOTAL INCOME OF THE APPELLANT. IT IS ALSO POINTED OUT HER E THAT IN THE ASSESSMENT ORDER U/S 143(3) FOR THE A.Y 2006-07, A COPY OF WHICH HAS BEE N FURNISHED BY THE APPELLANT, THE AO HAS TAXED THE AMOUNT OF RS.1,35,514/- UNDER HEAD BUSINESS INCOME FROM BUSINESS AND PROVISION AND NOT AS INCOME FROM OTHER SOURCES. HENCE, THE AO IS ITA NO. 2929/AHD/2013 (M/S. M. B. SONS VS. ITO) A.Y. 2009-10 - 4 - DIRECTED TO ALLOW A DEDUCTION OF RS. 1,36,514/- AS BAD DEBT WRITTEN OFF AND DISALLOWANCE OF BALANCE AMOUNT IS UPHELD. 4. HEARD BOTH SIDES. CASE FILE PERUSED. LEARNED R EPRESENTATIVES REITERATE THEIR RESPECTIVE STANDS DURING THE COURSE OF HEARIN G. THE FIRST AND FOREMOST QUESTION THAT ARISES FOR OUR APT ADJUDICATION IS AS TO WHETHER THE ASSESSEE FIRM CAN BE TAKEN TO BE ENGAGED IN MONEY LENDING BUSINES S OR NOT. CASE FILE REVEALS THAT ASSESSEES PARTNERSHIP DEED MADE ON 06 .04.1992 CONTAINS CLAUSE NO.3 TO THE EFFECT THAT IT WOULD CARRY SHARAFI BUSI NESS. THERE IS NO CHANGE IN THE SAID PARTNERSHIP DEED CLAUSES POINTED OUT FROM REVENUES END. WE FURTHER FIND THAT THE ASSESSEE HAD BEEN DECLARING I TS INTEREST INCOME FROM THE ABOVE DEBTOR ENTITY (SUPRA) AS BUSINESS INCOME IN P RECEDING ASSESSMENT YEARS. RELEVANT FIGURES BEFORE US ARE AVAILABLE FR OM ASSESSMENT YEAR 2003-04 TO 2008-09 INDICATING ITS OPENING BALANCE, CLOSING BALANCE, INTEREST RECEIVED, TDS DEDUCTED THEREUPON ALONGWITH RATE OF DEDUCTION. THE SAME FORMS SUFFICIENT MATERIAL TO OBSERVE THAT THE ASSESSEE HA D BEEN DECLARING INTEREST RECEIVED FROM M/S. N. SHANTILAL PATEL & CO. UNDER T HE HEAD BUSINESS. THE ASSESSEES BALANCE SHEET IS PAGE 8 OF THE PAPER BOO K STATING ADVANCES RECOVERABLE TO THE TUNE OF RS.47,29,426/- IN ITS BU SINESS. NEXT PAGE 9 (P&L ACCOUNT) RECOGNIZES INTEREST INCOME OF RS.3,16,441/ - TO BE NOT FROM OTHER SOURCES. RELEVANT DETAILS OF THIS INTEREST INCOME ARE AT PAGE 51. THE ASSESSEE CHOSE TO WRITE OFF THE IMPUGNED BAD DEBTS AMOUNT ON 05.04.2008 AS PER ITS DOUBTFUL RESERVES ACCOUNT AT PAGE 56. THE SAID PARTIES ACCOUNT IS AT PAGE(S) 57 TO 58 SHOWING THE ACTUAL WRITE OFF. ALL THIS MAKES US TO CONCLUDE THAT INTER ALIA THE ASSESSEE TO HAVE BEEN CARRYING MONEY LENDING BUSINESS AS PER ITS PARTNERSHIP DEED, RECOGNIZING INTEREST INCO ME ARISING THEREFROM UNDER THE HEAD BUSINESS IN CASE OF M/S. N. SHANTILAL & CO. GIVEN PRINCIPAL AMOUNT AS TRADING DEBT. LEARNED DEPARTMENTAL REPRE SENTATIVE FAILS TO DISPUTE ALL THESE FACTS. THE ISSUE AS TO WHETHER THE RELEV ANT AMOUNT HAS TO BE PROVED TO HAVE BECOME ACTUALLY BAD IS NO MORE RES INTEGRA IN SUCH A CASE AS ADMITTED ITA NO. 2929/AHD/2013 (M/S. M. B. SONS VS. ITO) A.Y. 2009-10 - 5 - BY BOTH THE LEARNED REPRESENTATIVES. WE THEREFORE ACCEPT ASSESSEES CONTENTION TO DELETE THE IMPUGNED BAD DEBT DISALLOW ANCE. 5. THIS ASSESSEES APPEAL IS ACCORDINGLY ALLOWED. [PRONOUNCED IN THE OPEN COURT ON THIS THE 1 ST DAY OF NOVEMBER, 2017.] SD/- SD/- ( PRADIP KUMAR KEDIA ) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD: DATED 01/11/2017 S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE 2 / ASSESSEE ! / CONCERNED CIT 4 !- / CIT (A) ( )*+ ,--. . /0 / DR, ITAT, AHMEDABAD 1 +23 45 / GUARD FILE. BY ORDER / . // . /0