The DCIT, Gandhinagar Circle, Gandhinagar V. Gujarat Gas Financial Services Ltd., Ahmedabad

ITA 2951/AHD/2016

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 5301 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-02-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 31-03-2020
• Assessment Year: 2001-2002
• Appeal Filed On: 11-11-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L P JAIN
• Assessee Lawyers: S N SOPARKARSR
• Keywords: Business income; Business expenditure; Bad and doubtful debts; Set aside
• Section: 143(3); 64; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD C BENCH (VIRTUAL COURT) BEFORE: SHRI RAJPAL YADAV, VICE PRESIDENT AND SHRI AMARJIT SINGH, ACCOUNTANT MEMB ER DY/JT CIT, GANDHINAGAR CIRCLE, GANDHINAGAR (APPELLANT) VS M/S. GUJARAT GAS FINANCIAL SERVICES LTD. 2, SHANTI SADAN SOCIETY, NR. PARIAL GARDEN, ELLISBRIDGE, PAN: AAACG5584E AHMEDABAD-380006 (RESPONDENT) REVENUE BY: SHRI L.P. JAIN, SR. D.R. ASSESSEE BY: SHRI S.N. SOPARKAR, SR . A.R. & MS. URVASHI SHO DHAN, A.R. DATE OF HEARING : 05-01-2021 DATE OF PRONOUNCEMENT : 01-02-202 1 /ORDER PER : AMARJIT SINGH, ACCOUNTANT MEMBER:- THESE TWO APPEALS FILED BY REVENUE FOR A.Y. 2001-02 & 2002-03, ARISE FROM ORDER OF THE CIT(A)-2, AHMEDABAD, IN PR OCEEDINGS UNDER SECTION 143(3) R.W.S. 254 OF THE INCOME TAX ACT, 1961; IN S HORT THE ACT. ITA NOS. 2951/AHD/2016 & 939/AHD/2018 ASSESSMENT YEAR 2001-02 & 2002-03 I .T.A NO. 2951/AHD/2016 & 939/RJT/2018 A.Y. 2001 -02 & 2002-03 PAGE NO DY/JT. CIT VS. GUJARAT GAS FINANCIAL SERVICES LTD. 2 2. SINCE COMMON ISSUES ON IDENTICAL FACTS INVOLVED IN BOTH THE APPEALS, THEREFORE, FOR THE SAKE OF CONVENIENCE THESE APPEAL S ARE ADJUDICATED TOGETHER BY THE TAKING ASSESSMENT YEAR 2001-02 AS THE LEAD C ASE. A.Y. 2001-02 2. THE SOLITARY GROUND OF APPEAL OF THE REVENUE IS DIRECTED AGAINST THE DECISION OF LD. CIT(A) IN ALLOWING CLAIM OF REDUCTI ON OF BAD DEBT OF RS. 2,52,41,464/-. 3. THE FACT IN BRIEF IS THAT RETURN OF INCOME OF RS . 3,74,34,040/- WAS FILED ON 30 TH OCTOBER, 2001. THE ORIGINAL ASSESSMENT WAS COMPLE TED U/S. 143(3) ON 6 TH FEB, 2004 DETERMINING TOTAL INCOME AT RS. 6,64,10, 88/-0 AFTER MAKING VARIOUS ADDITIONS INCLUDING DISALLOWANCE OF BAD DEB T WHICH IS CONTESTED IN THE INSTANT APPEAL OF THE REVENUE. OUT OF TOTAL D ISALLOWANCE OF BAD DEBIT OF RS. 2,64,93,888/-, THE LD. CIT(A) HAS ALLOWED THE C LAIM OF THE ASSESSEE COMPANY FOR RS. 12,52,424/- AND UPHELD THE REMAININ G DISALLOWANCE OF RS. 2,52,41,464/-. THE ITAT AHMEDABAD VIDE COMPOSITE O RDER FOR ASSESSMENT YEAR 2001-02 AND 2002-03 IN ITA NO. 35/AHD/2015, IT A NO. 515/AHD/2005 AND ITA NO. 1059/AHD/2016 DATED 31 ST OCTOBER, 2013 SET ASIDE THE ISSUE OF BAD DEBT TO THE FILE OF ASSESSING OFFICER FOR FRESH ADJUDICATION BY THE ASSESSING OFFICER AS TO WHETHER THE RATIO LAID DOWN IN THE CASE LAWS RELIED BY THE ASSESSEE IS APPLICABLE TO THE FACTS OF THE CASE OR NOT. THE BAD DEBT AMOUNT WAS CONSISTED OF RS. 1,15,17,780/- PERTAININ G TO BILL DISCOUNTING AND AN AMOUNT OF RS. 1,37,23,684/- PERTAINING TO INTER- CORPORATE DEPOSITS. THEREAFTER, DURING THE COURSE OF ASSESSMENT MADE U/ S. 143(3) R.W.S. 254 OF THE ACT, THE ASSESSING OFFICER STATED THAT THE FACT S OF THE CASES RELIED UPON I .T.A NO. 2951/AHD/2016 & 939/RJT/2018 A.Y. 2001 -02 & 2002-03 PAGE NO DY/JT. CIT VS. GUJARAT GAS FINANCIAL SERVICES LTD. 3 BY THE ASSESSEE ARE DISTINGUISHABLE FROM THE FACTS OF THE CASE IN RESPECT OF BAD DEBT OF RS. 1,15,17,780/- ON ACCOUNT OF DISCOUN TING OF BILLS. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE MAIN BUS INESS OF THE ASSESSEE IN THE REFERRED CASES WAS SHARE BROKER ACTIVITY WHEREA S IN THE CASE OF THE ASSESSEE THE MAIN BUSINESS ACTIVITIES WAS DISCOUNTI NG OF BILLS. AFTER REFERRING THE FINDING OF LD. CIT(A), THE ASSESSING OFFICER HAS STATED THAT BILL DISCOUNTING CANNOT BE EQUATED WITH THE BUSINESS OF BANKING AND IT IS SEPARATE CATEGORY OF BUSINESS AND THE BUSINESS OF BILL DISCO UNTING CAN NEVER BE CONSIDERED AS MONEY LENDING BUSINESS AS IN THE CASE OF BILL DISCOUNTING THE MONEY IS NOT CONSIDERED AS STOCK IN TRADE. THEREFOR E, A SUM OF RS. 1,15,17,780/- PERTAINING TO BAD DEBT ON ACCOUNT OF BILL DISCOUNTING WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASS ESSEE. IN RESPECT OF BAD DEBT WRITTEN OFF IN RESPECT OF INTER CORPORATE DEPO SIT OF RS. 1,37,23,689/-, THE ASSESSING OFFICER HAS STATED THAT AS DIRECTED BY TH E ITAT THE DECISION OF DELHI TRIBUNAL IN THE CASE OF POYSHA OXYGEN PVT. LT D. VS. ACIT IN ITA 3457/DEL/2004 WAS CONSIDERED AND OBSERVED THAT THE CASE RELIED UPON BY THE ASSESSEE ARE DISTINGUISHABLE FROM THE FACTS OF THE ASSESSEE. THE ASSESSING OFFICER HAS STATED THAT IN THE AFORESAID CASES RELI ED UPON BY THE ASSESSEE THE BAD DEBT WAS CLAIMED IN RESPECT OF TRANSACTION IN O RDINARY COURSE OF MONEY LENDING BUSINESS WHEREAS IN THE CASE OF ASSESSEE TH E BAD DEBT IN RESPECT OF INTER CORPORATE DESPOT WAS NOT ALLOWABLE AS THE MAI N BUSINESS ACTIVITY OF THE ASSESSEE WAS NOT MONEY LENDING BUSINESS. THEREFORE , A SUM OF RS. 1,37,23,684/- PERTAINING TO BAD DEBIT ON ACCOUNT OF INTER CORPORATE DEPOSIT WAS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. I .T.A NO. 2951/AHD/2016 & 939/RJT/2018 A.Y. 2001 -02 & 2002-03 PAGE NO DY/JT. CIT VS. GUJARAT GAS FINANCIAL SERVICES LTD. 4 4. AGGRIEVED ASSESSEE HAS FILED APPEAL BEFORE THE L D. CIT(A). THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE ASSESSEE. THE RELEVANT PART OF THE DECISION OF LD. CIT(A) IS AS UNDER:- 3.3. DECISION: I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER AND THE WRITTEN SUBMISSION OF THE APPELLANT. THE AO HAS MADE THE DISALLOWANCE OF THE BAD DEBTS OF RS.2,52,41,464/- CLAIMED BY THEM APPELLANT IN THE YEAR UNDER CONSIDERATION I N RESPECT OF THREE PARTIES OF WHICH DETAILS ARE NOTED AS UNDER:- SR. NO. PARTICULARS NATURE AMOUNT (RS.) 1 OVERSEAS SYNTHETICS LTD BILL DISCOUNTING 1,15,17,780 2 MAFTATLAL INDUSTRIES LTD. INTERCORPORATE DEPOSIT 83,53,684 3 PRECESSION FASTENERS LTD: INTERCORPORATE DEPOSIT 53,70,600 TOTAL 2,52,41,464 3.4. SUBSEQUENTLY, IN THE FIRST GROUND OF APPEAL TH E HON'BLE' ITAT AHMEDABAD VIDE ITS ORDER IN !TA NO.35/AHD/2005, 515/AHD/2005 DTD. 31.10.2013 HAS SE T-ASIDE THE APPEAL OF THE APPELLANT AND THE REVENUE FOR FRESH ADJUDICATION WITH THE FOLLOWING O BSERVATIONS:- '8. AGGRIEVED NOW BOTH THE PARTIES ARE BEFORE US. A SSESSEE IS IN APPEAL IN RESPECT OF CONFIRMING THE DISALLOWANCE OF RS.2,52,41,464/-FOR BAD DEBT WRITTEN OFF THAT WERE IN THE NATURE OF BILL DISCOUNTING AND INTER-CORPORATE DEPO SITS WHILE REVENUE 'IS IN APPEAL IN RESPECT OF BAD DEBT ALLOWED BY LD.CIT(A) OF RS. 12, 52,424/- IN RESPECT OF ASSESSEE'S BUSINESS OF HIRE PURCHASE. AT THE TIME OF HEARING L EARNED COUNSEL OF THE ASSESSEE AT THE OUTSET SUBMITTED THAT ISSUE IN RESPECT OF CLAIM OF ASSESSEE OF BOD DEBT IN RESPECT OF ITS BUSINESS OF HIRE PURCHASE IS NOW COVERED IN FAVOUR OF ASSESSEE BY THIS TRIBUNAL'S DECISION IN THE CASE OF ASSESSEE FOR A. Y. 2004-05 THEREFORE L.D. CIT(A) ORDER DESERVES TO BE CONFIRMED ON THIS ISSUE. AS FAR AS CLAIM OF ASSESSE E OF BAD DEBT OF RS. 1,21,58,127/- RELATING TO BILL DISCOUNTING WAS CONCERNED, RELIANC E WAS PLACED ON THE SAME DECISION OF TRIBUNAL. AS FAR AS BAD DEBT WRITTEN OFF RS.1,37,23 ,684/- IN RESPECT OF M7S. MAFATLAL INDUSTRIES AND PRECISION FOSTERS WHICH WERE IN THE NATURE OF INTER-CORPORATE DEPOSITS WAS CONCERNED, RELIANCE WAS PLACED ON THE DECISION OF DELHI TRIBUNAL (THIRD MEMBER) IN THE POYSHA OXGEN PVT. LTD. VS. ACIT IN IT APPEAL NO . 3457 (DELHI) OF 2004 A. Y. 2001-2 [19 SOT 711 (DELHI)]. LD. DR ON THE OTHER HAND RELI ED ON THE ORDER OF AO. . . . 9. AFTER HEARING BOTH THE PARTIES AND PERUSIN G THE RECORD, WE FIND THAT THE ISSUE IN RESPECT OF BAD DEBT CLAIM OF THE ASSESSEE OF RS. 12,52,424/- IN THE NORMAL COURSE OF ASSESSEE'S BUSINESS OF HIRE PURCHA SE IS COVERED IN ASSESSEE'S FAVOUR BY THE DECISION OF THIS TRIBUNAL IN ASSESSEE'S OWN CAS E FOR THE ASSESSMENT YEAR 2004-05 THEREFORE RELIEF GIVEN BY LD.CIT(A) IS HEREBY UPHEL D. AS FOR AS BAD DEBT CLAIM OF REMAINING AMOUNT OF RS.2,52,41,464/- WHICH IS IN TH E NATURE OF BILL DISCOUNTING AND INTER- CORPORATE DEPOSITS IS CONCERNED, THE MATTER REQUIRE S FRESH ADJUDICATION BY THE AO AS TO WHETHER THE RATIO AS LAID DOWN IN THE CASE LOWS NOW RELIED BY ASSESSEE IS APPLICABLE TO THE FACTS OF THIS CASE OR NOT. FOR THIS PURPOSE MAT TER IS RESTORED BACK TO THE FILE OF AO. 10. IN THE RESULT ASSESSEE'S GROUND NO. 1 IS ALLOWE D FOR STATISTICAL PURPOSE WHILE THAT OF REVENUE'S APPEAL IS DISMISSED.' I .T.A NO. 2951/AHD/2016 & 939/RJT/2018 A.Y. 2001 -02 & 2002-03 PAGE NO DY/JT. CIT VS. GUJARAT GAS FINANCIAL SERVICES LTD. 5 3.5. THEREAFTER, THE AO HAS NOT ACCEPTED THE CONTEN TIONS OF THE APPELLANT AND THE DISALLOWANCE OF THE BAD DEBT IN RESPECT OF THE BILL DISCOUNTING BUS INESS AND ALSO WITH REGARD TO INTERCORPORATE DEPOSIT WERE 'FULLY DISALLOWED WITH THE FINDINGS IN PARA NO.3.5.1 AND 3.5.2 OF THE ASSESSMENT ORDER. THE AO HAS MENTIONED THAT THE APPELLANT'S RELIANCE UPON THE DECISION OF HON'BLE BOMBAY HIGH COURT AND DELHI HIGH COURT WAS NOT IDENTICAL OF THE FACTS OF THE CASE. IT HAS BEEN OBSERVED THAT THE MAIN BUSINESS OF THE ASSESSEE IN THOSE CASES WA S SHARE BROKING ACTIVITIES WHEREAS IN APPELLANT'S CASE BILL DISCOUNTING WAS NOT THE MAIN ACTIVITY. FURTHER HELD THAT THE LD.CIT(A) HAD ADJUDICATED THE FIRST GROUND BY SAYING THAT THE BIL L DISCOUNTING CANNOT BE EQUATED WITH THE BUSINESS OF BANKING AND A SEPARATE CATEGORY OF BUSI NESS AND IT WAS ADMITTED THAT VARIOUS BILLS WHICH WERE DISCOUNTED FOR WERE NOT APPEARING IN THE PROFIT AND LOSS ACCOUNT ITEMS AS ON 31.3.2011. 3.6. FURTHER WITH REGARD TO THE BAD DEBTS WRITTEN O FF IN RESPECT OF INTERCORPORATE DEPOSIT IT WAS OBSERVED BY THE AO THAT THE ICD WAS NOT THE MAIN BU SINESS OF THE ASSESSEE AND HENCE BAD DEBT WRITTEN OFF CANNOT BE ALLOWED AS DEDUCTION U/S.28 O R 26(L)(VII) R.W.S. 37{2)(1) OF THE I.T. ACT. THUS THE RATIO LAID DOWN IN THE CASE LAW RELIED UPON BY THE APPELLANT I.E. POYSHA OXYGEN PVT. LTD. OF HON'BLE DELHI ITAT IS FOUND NOT ACCEPTABLE OVER THE FACTS OF THE CASE. 3.7. ON THE OTHER SIDE THE APPELLANT HAS GIVEN A WR ITTEN SUBMISSION WHICH HAS BEEN REPRODUCED IN THE PRECEDING PARAS OF THIS ORDER. HAVING CONSIDERE D THE FACTS AND SUBMISSION, IT IS NOTICED THAT THE APPELLANT HAS CLAIMED THE BAD DEBT WRITTEN OFF OF RS. 1,15,17,780/- IN RESPECT OF THE BILL DISCOUNTING BUSINESS FOR OVERSEAS SYNTHETICS LTD. S INCE THE APPELLANT COMPANY WAS A FINANCE COMPANY ENGAGED IN THE BUSINESS OF FINANCING INDUST RIAL COMMERCIAL ENTERPRISES AND OTHER CUSTOMERS BY WAY OF HIRE PURCHASING, BILL DISCOUNTI NG, INTER CORPORATE DEPOSIT ETC. THE INCOME OF THE COMPANY THEREFORE COMPRISES OF HIRE CHARGES, BI LL DISCOUNTING CHARGES, INTEREST AND DIVIDEND ETC. WHICH HAS BEEN OFFERED AS BUSINESS INCOME IN T HE PROFIT AND LOSS ACCOUNT. THE APPELLANT HAS BEEN GRANTED AND REGISTERED AS NON-BANKING FINANCIA L COMPANY (NBFC) BY THE RBI. ON FURTHER VERIFICATION OF THE FACTS, IT HAS BEEN NOTICED THAT THE APPELLANT HAS DERIVED A TOTAL BILL DISCOUNTING CHARGES OF RS. 1,00,79,155/- AND PROCESSING FEE OF RS.9,00,555/- TOTALLING TO RS.L,09,79,710/- FROM OVERSEAS SYNTHETICS LTD. WHICH HAS BEEN OFFERED AS BUSINESS INCOME IN THE PRECEDING YEARS AND DURING THE YEAR AS UNDER:- . A. Y. 2001 -02 SR . N O. NAME AMOUNT W OFF AMOUNT OFFERED AS INCOME 95- 96 96-97 97-98 98-99 99-00 00-01 HEAD OF INCOME TOTAL 1 OVERSEA S SYNTHETI CS 1,21,88.12 7 11.47,83 5 28,61,533 27,32.734 23,91,170 9,43.883 BILL DISC OUNT CHARGES 1,00, 79,15 5 1,16,743 2,52,336 2,55,482 2,11, 41 9 64,575 PROCESSING FEES 9,00, 555 12,66,57 8 31,13,569 29,86,216 26,02,589 10,08,458 1,09, 79,71 0 3.8. FURTHER ON VERIFICATION OF THE PROFIT AND LOSS ACCOUNT FOR THE YEAR UNDER CONSIDERATION IT HAS BEEN NOTICED THAT THE APPELLANT HAS SHOWN THE INCOM E FROM OPERATIONS AT RS.L 9,27,86,096/- AS PER I .T.A NO. 2951/AHD/2016 & 939/RJT/2018 A.Y. 2001 -02 & 2002-03 PAGE NO DY/JT. CIT VS. GUJARAT GAS FINANCIAL SERVICES LTD. 6 THE SCHEDULE-14 TO THE PROFIT AND LOSS ACCOUNT. FUR THER THE DETAILS OF INCOME FROM OPERATIONS UNDER THE SCHEDULE-14 OF THE VARIOUS INCOMES AS PER THE PROFIT AND LOSS ACCOUNT IS ALSO REPRODUCED AS UNDER:- SCHEDULE 14 FOR THE YEAR ENDED ON 31/03/2001 (RS.) FOR THE YEAR ENDED ON31/03/2000(RS.) INCOME FROM OPERATIONS INCOME FROM LEASE LESS: LEASE EQUALIZATION 148038287 117678417 INCOME FROM HIRE PURCHASE 37763888 59975815 INCOME FROM BILL DISCOUNTING 1303356 7426667 INTEREST ON GOVERNMENT SECURITIES 3765701 4171710 INTERCORPORATE DEPOSITS 591653 5202737 TERM DEPOSIT 391039 10548 OTHERS 833456 1621428 DIVIDEND 98716 253543 PROFIT ON SALE OF INVESTMENTS (NET) 2216749 TOTAL 192786096 198757614 3.9. THUS FROM THE ABOVE, IT IS APPARENT THAT THE A PPELLANT HAD SHOWN THE INCOME FROM BILL DISCOUNTING AT RS.13,03,356/- IN THE YEAR UNDER CON SIDERATION WHICH ALSO INCLUDED THE AFORESAID, INCOME OF RS.10,08,458/-RECEIVED FROM OVERSEAS SYNT HETICS LTD. AND HENCE THE APPELLANT HAS SHOWN THE INCOME FROM BILL DISCOUNTING BUSINESS AS INCOME FROM OPERATIONS UNDER THE PROFIT AND LOSS ACCOUNT AND THE SAME HAS BEEN OFFERED AS BUSIN ESS INCOME WHICH HAS NOT BEEN DOUBTED BY THE ASSESSING OFFICER. THEREFORE, THE AO'S OBSERVATIONS AND THE CIT(A)'S OBSERVATIONS IN THE FIRST ROUND IS FACTUALLY INCORRECT TO THIS EXTENT. 3.10. SINCE THE INCOME FROM OPERATIONS INCLUDING TH E BILL DISCOUNTING INCOME HAS BEEN OFFERED AS INCOME FROM BUSINESS THUS IT IS APPARENT THAT BILL DISCOUNTING WAS ALSO THE ONE OF THE BUSINESS ACTIVITIES OF THE APPELLANT AS PER THE MEMORANDUM O F ASSOCIATION. THE RELEVANT CLAUSE OF THE MEMORANDUM OF ASSOCIATION IS REPRODUCED HEREUNDER:- 14. TO MAKE DRAW, ACCEPT, ENDORSE, DISCOUNT, EXECUT E, NEGOTIATE, ASSIGN AND ISSUE CHEQUES, PROMISSORY NOTES, DRAFTS, BUNDLES, BONDS, RAILWAY R ECEIPTS, BILLS OF EXCHANGE, BILLS OF LADING, WARRANTS, DEBENTURES AND OTHER NEGOTIABLE OR TRANSF ERRABLE INSTRUMENT.' ' 3.11. EVEN OTHERWISE ALSO NO COMPANY CAN UNDERTAKE ANY BUSINESS ACTIVITY WHICH IS NOT ENVISAGED IN THE MEMORANDUM OF ASSOCIATION. THEREFORE, OBVIOU SLY THE BILL DISCOUNTING ACTIVITIES WERE PART OF ITS BUSINESS APPROVED AS PER THE MEMORANDUM OF A SSOCIATION. THEREFORE, AS PER THE PROVISIONS I .T.A NO. 2951/AHD/2016 & 939/RJT/2018 A.Y. 2001 -02 & 2002-03 PAGE NO DY/JT. CIT VS. GUJARAT GAS FINANCIAL SERVICES LTD. 7 OF SECTION 36(2) (I). THE APPELLANT HAS ALREADY OFFERED THE BILL DIS COUNTING INCOME IN ITS RETURN OF INCOME FOR THE PRECEDING YEARS AS BUSINESS INCOME T HEREFORE THERE IS NO QUESTION OF NOT GRANTING THE BAD DEBTS TO THE APPELLANT AS PER THE PROVISIONS OF SECTION 36(L)(VII) OF IT. ACT. THE AO'S FURTHER OBSERVATION THAT THE BILL DISCOUNTING WAS N OT THE MAIN ACTIVITY RATHER IT WAS A SECONDARY ACTIVITY WOULD NOT THE MATERIAL TO DECIDE THE NATURE OF THE BUSINESS ACTIVITIES WHEN THE INCOME DERIVED EITHER FROM MAIN ACTIVITY OR FROM SECONDARY ACTIVITY ARE ASSESSED TO TAX UNDER THE HEAD OF BUSINESS INCOME ONLY. IN FACT THE APPELLANT HAD MUL TI ACTIVITIES AND THEREFORE, IT CANNOT BE SAID THAT ONE ACTIVITY WAS THE MAIN ACTIVITY AND OTHER WAS THE SE CONDARY ACTIVITY. 3.12. THE HON'BLE ITAT HAS DIRECTED TO VERIFY THE R ATIO LAID DOWN IN TWO DECISIONS I.E. HON'BLE BOMBAY HIGH COURT IN THE CASE OF SHREYAS S. MORAKHI A AND HON'BLE DELHI HIGH COURT IN THE CASE OF C1T VS. BONANZA PORTFOLIOS LTD. (SUPRA). FO R READY REFERENCE THE HEAD NOTES OF ABOVE DECISIONS ARE REPRODUCED AS UNDER:- CIT VS. SHREYAS S. MORAKHIA DEDUCTION U/S. 36(1)(VII) - CONDITION FOR ALLOWABIL ITY OF BAD DEBT -ASSESSEE, CLAIM FOR DEDUCTION OF BAD DEBTS WAS DISALLOWED ON GROUND THAT CONDITION S TIPULATED IN S. 36(2) WAS NOT SATISFIED) - SPECIAL BENCH OF THE TRIBUNAL ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE - VALUE OF THE SHARES TRANSACTED BY THE ASSESSEE IN A MUCH A PART OF THE DEBT AS IS THE BROKERAGE CHARGED BY THE ASSESSEE ON THE TRANSACTION - SINCE BOTH FORM A COM PONENT PART OF THE DEBT, REQUIREMENTS OF SECTION 36(2) (I) WERE FULFILLED WHERE A PART THERE OF WAS TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSE'SSEE -VIEW TAKEN BY THE SPECIAL BENCH WAS IN ACCORDANCE WITH LAW. CIT VS. BONANZA PORTFOLIO LTD. : BUSINESS EXPENDITURE - BAD DEBT - IRRECOVERABLE AMO UNT FROM CLIENTS WRITTEN OFF - MERELY BECAUSE THE ASSESSEE SHARE BROKER MADE PAYMENTS AGAINST SHA RES PURCHASED BY IT ON BEHALF OF ITS CLIENT WOULD NOT MAKE IT AN INVESTMENT BY THE ASSESSEE ON HIS OWN BEHALF - ASSESSEE HAS SHOWN BROKERAGE INCOME IN ITS BOOKS OF ACCOUNT -MONEY REC EIVABLE FROM THE CLIENT HAS SHOWN BROKERAGE INCOME IN ITS BOOKS OF ACCOUNT - MONEY RECEIVABLE F ROM THE CLIENT HAS TO BE TREATED AS 'DEBT' AND SINCE IT BECAME BAD, IT WAS RIGHTLY CLAIMED AS BAD DEBT. 3.13. ON GOING THROUGH THE DECISION OF BOMBAY HIGH COURT REFERRED ABOVE IT HAS BEEN MENTIONED THAT THE TEST IS WHETHER THE DEBT OR PART THEREOF H AS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE. THE ANSWER TO THAT TEST HAS TO BE IN THE AFFIRMATIVE. THAT BEING THE POSITION THE REQUIREMENT OF SECTION 36(2)(I) ARE DULY FULFIL LED. IN THE CITED CASE THE BROKERAGE ON THE VALUE OF SHARE TRANSACTIONS BY THE ASSESSEE HAD BEEN ACCO UNTED FOR AS INCOME AND THEREFORE THE PAYABLES BY THE CUSTOMERS OF A PART OF THEIR DEBT W AS HELD TO BE ALLOWED AS BAD DEBT IN VIEW OF SECTION 36(2) (I) OF THE ACT. SIMILARLY IN THE CASE OF HON'BLE DELHI HIGH COURT ON IDENTICAL FACTS AS CITED IN THE CASE OF SHREYAS S. MORAKHIA THE CLAIM OF BAD DEBT WAS HELD TO BE ALLOWABLE. 3.14. TAKING INTO ACCOUNT THE RATIO LAID DOWN BY BO TH THE HON'BLE COURTS THE RATIO IS FOUND APPLICABLE ON THE FACTS OF THE CASE IN THE FORM THAT THE APPELLANT HAS OFFE RED THE BILL DISCOUNTING INCOME AND PROCESSING CHARGES INCOME IN THE PROFIT AND LOSS ACCOUNT OF THE YEAR UNDER CONSIDERATION AND OF THE PRECEDING YEARS AS BUSINES S INCOME IN THE PROFIT AND LOSS ACCOUNT AND THEREFORE THE CLAIM OF BAD DEBT WRITTEN OFF IS FULL Y COVERED IN VIEW OF SECTION 36(2)(I) OF I.T. ACT. EVEN THE APPELLANT COMPANY HAS RECOVERED A SUM OF R S.40 LAKHS AGAINST THE ABOVE BAD DEBTS IN THE SUBSEQUENT' YEAR I.E. IN F.Y. 2004-05 RELEVANT TO A.Y. 2005-06 AND THE SAME HAS BEEN SHOWN AS OTHER INCOME IN THE PROFIT AND LOSS ACCOUNT OF THAT YEAR. SINCE THE RECOVERY OF BAD DEBT OF RS.40 LAKHS HAS ALREADY BEEN OFFERED FOR TAXATION IN A.Y. 2005-06, THEREFORE, THE SAME WOULD CAUSE THE DOUBLE TAXATION OF THE SIMILAR AMOUNT. IT IS WORTH HERE TO MENTION THAT THE APPELLANT WAS. ASSESSED IN THE SAME TAX BRACKET IN THE YEAR UNDER CONSIDERATION AND IN THE AFORESAID ASSESSMENT YEAR, THEREFORE, IT WAS TAX NEUTRAL. MOREOVER THE. INCOME SHOWN BY THE APPELLANT TOWARDS BAD DEBT RECOVERY OF RS.40 LAKHS HAS BEEN ACCEPTED AS INCOME . THEREFORE, WITHOUT DISTURBING THE SAME NO DISALLOWANCE OF THE SAME IS WARRANTED IN THE YEAR U NDER CONSIDERATION. IN VIEW OF THE AFORESAID DISCUSSION, THE CLAIM OF BAD DEBT IN RESPECT OF BIL L DISCOUNTING PERTAINING TO OVERSEAS SYNTHETICS LTD. IS HELD TO BE ALLOWED. 3.15. NOW WITH REGARD TO THE CLAIM OF BAD DEBT IN R ESPECT OF INTERCORPORATE DEPOSITS FOR THE PARTIES NAMELY MAFATLAL INDUSTRIES LTD. AT RS.83,53,684/- A ND PRECISION FASTNERS LTD. AT RS.5370,000/- THE APPELLANT HAS CLAIMED THAT IT WAS ALSO ITS BUSINESS ACTIVITIES AS A NBFC BY INCOME DERIVED BY THE I .T.A NO. 2951/AHD/2016 & 939/RJT/2018 A.Y. 2001 -02 & 2002-03 PAGE NO DY/JT. CIT VS. GUJARAT GAS FINANCIAL SERVICES LTD. 8 APPELLANT HAVE BEEN DULY OFFERED AS BUSINESS INCOME IN THE YEAR UNDER CONSIDERATION AND THE PRECEDING YEARS ALSO. THEREFORE, THE CLAIM OF THE A PPELLANT U/S.36(L)(VII) R.W.S. 36(2)(I) WAS IN ORDER. AS PER THE HON'BLE ITAT, AHMEDABAD'S DIRECTI ON TO EXAMINE THE FACTS OF THE CASE OF POYSHA OXYGEN PVT. LTD. GIVEN BY ITAT DELHI BENCH WITH THE FACTS OF THE CASE IT HAS BEEN NOTICED THAT THE RATIO LAID DOWN BY THE HON'BLE ITAT WAS FULLY APPLI CABLE OVER THE FACTS OF THE CASE. IN THE ABOVE CITED CASE, THE HON'BLE ITAT HAS GRANTED THE BAD DE BT WRITTEN OFF BY SAYING THAT WHERE MONIES ARE LENT IN THE ORDINARY COURSE OF BUSINESS THE CONDITI ON STIPULATED IN 36(2)(I) IS SATISFIED IF THE INTER EST FROM THE MONEY LENT WAS ASSESSED AS BUSINESS INCOME IN EARLIER YEARS OR EVEN IN THE YEAR IN WHICH THE BAD DEBT IS WRITTEN OFF. MERELY THE FACT THAT T HE ADVANCE WAS DESCRIBED BY THE ASSESSEE INTER- CORPORATE DEPOSIT WOULD NOT BE DECISIVE OF THE QUES TION WHETHER IT WAS GIVEN IN THE COURSE OF MONEY LENDING BUSINESS OF THE ASSESSEE OR PURPOSE O F INCOME TAX PROCEEDINGS. IT IS APPARENT FROM THE VERY NATURE OF THE BUSINESS OF THE APPELLANT MO RE PARTICULARLY HAVING REGARD TO THE MEMORANDUM OF ASSOCIATION THAT THE INTER-CORPORATE DEPOSIT IS THE MONEY LENDING BUSINESS ONLY AND ON WHICH THE APPELLANT HAS CHARGED THE INTEREST AND OFFERED THE SAME AS BUSINESS INCOME IN THE PRECEDING YEARS. EVEN IN THE YEAR UNDER CONSIDE RATION, THE P & L ACCOUNT THE APPELLANT HAS SHOWN THE INTEREST OF RS.5,91,653/- AS INTERCORPORA TE DEPOSITS UNDER THE HEAD OF 'INCOME FROM OPERATIONS AS PER SCHEDULE 14 TO THE P & L ACCOUNT. SO THE FACTS OF THE CITED CASES ARE IDENTICAL AND RATIO IS FULLY APPLICABLE. IT HAS ALSO BEEN NOT ICED THAT FROM MAFATLAL INDUSTRIES THE APPELLANT HAS DERIVED THE INTEREST INCOME OF RS.44,11,036/-AN D FROM PRECISIONS FASTNERS THE INTEREST INCOME WAS AT RS. 17,00,248/- IN THE PRECEDING YEARS. NOT ONLY THAT THE APPELLANT HAS ALSO RECOVERED RS.83 LAKHS FROM MAFATLAL INDUSTRIES AGAINST THE AB OVE BAD DEBT IN F.Y. 2011-12 I.E. A.Y. 2012-13 AND THE SAME HAS BEEN OFFERED FOR TAXATION IN THE P ROFIT AND LOSS ACCOUNT. SIMILARLY IN THE CASE OF PRECISIONS FASTNERS ALSO THE APPELLANT HAS RECOVERE D RS.32,22,000/- IN JUNE, 2003 AND THE SAME HAS BEEN DULY OFFERED AS INCOME OF A.Y. 2004-05. 3.16. THE INTERCORPORATE DEPOSITS IS ONE OF THE BUS INESS ACTIVITY OF THE APPELLANT AS PER THE MEMORANDUM OF THE ASSOCIATION OF THE APPELLANT COMP ANY OF WHICH RELEVANT CLAUSE IS REPRODUCED AS UNDER. - '18. TO OPEN AND OPERATE CURRENT, OVERDRAFTS, LOAN, CASH CREDIT OR DEPOSIT OR ANY TYPE OF ACCOUNTS WITH ANY BANKS, COMPANY, FIRM, ASSOCIATION OR PERSON,' 3.17. AS PER THE BUSINESS ACTIVITIES THE RECOVERIE S OF THE BAD DEBT HAVE BEEN SHOWN, AS BUSINESS INCOME IN THE PROFIT AND LOSS ACCOUNT OF THE RESPEC TIVE YEARS AND OFFERED FOR TAXATION. THEREFORE THE ADDITION MADE BY THE AO WOULD CAUSE THE DOUBLE TAXATION OF THE SAME AMOUNT WHICH IS UNCOILED FOR AS PER THE SETTLED POSITION OF LAW. 3.18. IN VIEW OF THE AFORESAID DISCUSSION, SINCE TH E BILL DISCOUNTING CHARGES INCOME AND THE INTEREST INCOME ON ICDS HAVE BEEN DULY RECORDED AS BUSINESS INCOME IN THE RETURN OF INCOME FILED FOR THE PRECEDING YEARS AND HENCE THE CONDITION OF SECTION 36(2)(1) IS DULY SATISFIED. MOREOVER THESE BUSINESS ACTIVITIES ARE AS PER THE MEMORANDUM OF ASSOCIATION OF THE COMPANY THEREF ORE THE PROVISIONS OF SECTION 36(1)(VII) ARE DULY APPLICABL E FOR THE APPELLANT. THE AO'S OBSERVATION THAT THESE WERE NOT THE MAIN BUSINESS ACTIVITIES OF THE APPELLANT IS IRRELEVANT FOR CONSIDERATION OF THE ALLOWABILITY OF THE WRITTEN OFF OF THE BAD DEBT. IN VIEW OF THE AFORESAID DISCUSSION AND THE SUBMISSION, THE DISALLOWANCE OF THE CLAIM OF BAD DE BT IN RESPECT OF ALL THE THREE PARTIES MADE BY THE AO IS FOUND NOT CORRECT AND HENCE THE SAME IS D ELETED. THUS THE GROUNDS OF APPEAL ARE PARTLY ALLOWED. 5. DURING THE COURSE OF APPELLATE PROCEEDINGS BEFOR E US, LD. COUNSEL HAS CONTENDED THAT IDENTICAL ISSUE ON SIMILAR FACT IN T HE CASE OF THE ASSESSEE ITSELF HAS BEEN ADJUDICATED BY THE CO-ORDINATE BENCH OF TH E ITAT VIDE ITA NO. 149/AHD/2008 FOR ASSESSMENT YEAR 2004-05 IN FAVOUR OF THE ASSESSEE. FURTHER THE LD. COUNSEL HAS REFERRED PAGE NO. 17 AN D 18 OF THE FINDING OF THE I .T.A NO. 2951/AHD/2016 & 939/RJT/2018 A.Y. 2001 -02 & 2002-03 PAGE NO DY/JT. CIT VS. GUJARAT GAS FINANCIAL SERVICES LTD. 9 LD. CIT(A) WHEREIN THE DETAILS OF INCOME FROM BILL DISCOUNTING AND INTER CORPORATE DEPOSIT IN THE P & L A/C OF THE ASSESSEE AS ON 31-03-2000 AND 31- 03-2001 WERE SHOWN. THE LD. COUNSEL SUPPORTED THE ORDER OF THE LD. CIT(A). ON THE OTHER HAND, LD. DEPARTMENTAL REPRESENTATIVE HAS RELIED UPON THE ORDER OF ASSESSING OFFICER. 6. HEARD BOTH THE SIDES AND PERUSED THE MATERIAL ON RECORD. WE HAVE GONE THROUGH THE FINDING OF CO-ORDINATE BENCH OF TH E ITAT IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2004-05 AS MENTION ED ABOVE. IT IS NOTICED THAT SIMILAR ISSUE ON IDENTICAL FACT HAS BEEN ADJUD ICATED IN FAVOUR OF THE ASSESSEE BY THE CO-ORDINATE BENCH OF THE ITAT AFTER REFERRING THE DECISION OF MUMBAI HIGH COURT RENDERED IN THE CASE OF SHREYA S S. MORAKHIA (2012) 19 TAXMANN. COMMISSIONER 64 (MUMBAI) AND THE DECISI ON OF HONBLE DELHI HIGH COURT RENDERED IN THE CASE OF BONANZA PORTFOLI O LTD. (2010) 320 ITR 178 (DELHI). THE RELEVANT PART OF THE DECISION OF THE CO-ORDINATE BENCH AS REFERRED SUPRA IS REPRODUCED AS UNDER:- 5. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E MATERIALS AVAILABLE ON RECORD, GONE THROUGH THE ORDERS OF AUTHORITIES BELOW AND JUDGMENTS CITED BY LD. AR OF THE ASSESSEE. WE FIND THAT BASIS OF DISALLOWANCE OF BAD DEBT MADE BY ASSESSING OFFIC ER IS THIS THAT DEDUCTION IS ALLOWABLE TO THE ASSESSEE U/S. 36(2) R.W.S. 36(1)(VII) OF THE ACT IN RESPECT OF INTEREST PORTION ONLY AND NOT FOR THE PRINCIPAL PORTION. ACCORDINGLY, OUT OF THE TOTAL AM OUNT OF RS.7,45,968/-, HE HAS ALLOWED THE DEDUCTION OF RS.1,1 1,895/- BEING INTEREST PORTION OF HIRE CHARGES AND LEASE CHARGES AND DISALLOWED THE PRINCIPAL PORTION OF RS.6,34,073/-. IN PARA-3.2 OF THE ORDER OF LD. CIT(A) ALSO, IT IS NOTED BY HIM THAT THE AO HAS DISALLOWED RS.6,34,073 /- PERTAINING TO PRINCIPAL PORTION OF LEASE TRANSACTION BECAUSE THE SAID AMOUNT HAS NEVER BEEN OFFERED AS INCOME BY THE ASSESSEE. NOW, IN THE LIGHT OF THIS FACT, WE EXAMINE THE APPLICABILIT Y OF THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF SHREYAS S MORAKHIA (SUPRA) AND WE FIND THAT IN THIS JUDGMENT, HON'BLE BOMBAY HIGH COURT HAS FOLLOWED THE DECISION OF HON' BLE DELHI HIGH COURT RENDERED IN THE CASE OF CIT V. BONANZA PORTFOLIO LTD. (2010) 320 ITR 178 (DEL) AND THE RELEVANT PORTION OF THE JUDGMENT OF HON'BLE DELHI HIGH COURT IS AS UNDER:- '... THE MONEY RECEIVABLE FROM THE CLIENT HAS TO BE TREATED AS 'DEBT' AND SINCE IT BECAME BAD, IT WAS RIGHTLY CONSIDERED AS 'BAD DEBT' AND CLAIMED AS SUCH BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. SINCE THIS BAD DEBT OCCURRED IN T HE YEAR IN QUESTION, IT WAS SHOWN BY THE ASSESSEE IN THAT MANNER. SINCE THE BROKERAGE PA YABLE BY THE CLIENT IS A PART OF THE DEBT AND THAT DEBT HAD BEEN TAKEN INTO ACCOUNT IN T HE COMPUTATION OF THE INCOME, THE CONDITIONS STIPULATED IN SUB-SECTION (2) OF SECTION 36 READ WITH SECTION 36(1)(VII) STAND SATISFIED IN THIS CASE. I .T.A NO. 2951/AHD/2016 & 939/RJT/2018 A.Y. 2001 -02 & 2002-03 PAGE NO DY/JT. CIT VS. GUJARAT GAS FINANCIAL SERVICES LTD. 10 6. WE ARE OF THE CONSIDERED OPINION THAT IN THE FAC TS OF THE PRESENT CASE AS NOTED ABOVE, SOME PORTION THAT IS INTEREST PORTION OF LEASE RENTAL IN COME WERE DULY OFFERED TO TAX BY THE ASSESSEE AND THEREFORE, AS PER THESE TWO JUDGMENTS OF HON'BLE BO MBAY HIGH COURT AND HON'BLE DELHI HIGH COURT CITED BY LD. AR OF THE ASSESSEE, THE ASSESSEE IS ELIGIBLE FOR DEDUCTION ON ACCOUNT OF BAD DEBTS, AS CLAIMED BY THE ASSESSEE BECAUSE THE INTER EST INCOME OFFERED TO TAX BY THE ASSESSEE OUT OF LEASE RENTAL INCOME IS A PART OF THE DEBT AND THERE FORE, A PART OF THE DEBT HAS BEEN TAKEN INTO ACCOUNT IN THE COMPUTATION OF INCOME AND AS A RESUL T, THE CONDITIONS STIPULATED IN SUB-SECTION-2 OF SECTION 36 OF THE ACT STAND SATISFIED IN THE PRESEN T CASE. RESPECTFULLY FOLLOWING THESE TWO JUDGMENTS OF HON'BLE BOMBAY HIGH COURT AND HON'BLE DELHI HIGH COURT, WE DELETE THE DISALLOWANCE OF PART OF BAD DEBT MADE BY THE ASSESS ING OFFICER AND CONFIRMED BY THE LD. CIT(A). THIS GROUND OF ASSESSEE'S APPEAL IS ALLOWED. WITH THE ASSISTANCE OF LD. REPRESENTATIVES WE HAVE ALSO PERUSED THE DECISION OF LD. CIT(A) AS CITED ABOVE IN THIS ORDER DEMONSTRATING THAT ASSESSEE HAS SHOWN INCOME FROM BILL DISCOUNTING AND INTER CORPORATE DEPOSIT IN ITS P & L A/C FOR THE YEAR UNDER CONSIDERATION A ND FOR THE PRECEDING YEAR. WITH THE ASSISTANCE OF THE LD. REPRESENTATIVES, WE HAVE ALSO GONE THROUGH THE FINDINGS OF THE CO-ORDINATE BENCH IN THE CASE OF TH E ASSESSEE ITSELF FOR ASSESSMENT YEAR 2004-05 AS DISCUSSED SUPRA AND CON SIDER THAT IDENTICAL ISSUE ON SAME FACT HAS BEEN ADJUDICATED IN FAVOUR OF THE ASSESSEE. IN THE LIGHT OF THE DECISION OF CO-ORDINATE BENCH AND ELABORATELY D ISCUSSED COMPREHENSIVE FINDINGS OF THE LD. CIT(A), WE DO NOT FIND ANY MERI T IN THE GROUND OF APPEAL OF THE REVENUE. ACCORDINGLY, THIS APPEAL OF THE RE VENUE IS DISMISSED. ITA NO. 939/AHD/2018 A.Y. 2002-03 7. WITHOUT REITERATING THE FACTS AS DISCUSSED ABOVE FOR ASSESSMENT YEAR 2001-02, THE LD. CIT(A) HAS DELETED THE DISALLOWANC E OF CLAIM OF BAD DEBIT AMOUNTING TO RS. 2,71,07,143/- WITH REFERENCE TO HI RE PURCHASES AND RS. 1,20,45,621/- WITH REFERENCE TO BILL DISCOUNTING. THE LD. CIT(A) IN HIS FINDINGS GIVEN AT PAGE NO. 20 AND 21 OF HIS ORDER H AS PRODUCED THE DETAILS DEMONSTRATING THAT ASSESSEE HAS OFFERED THE INCOME FROM HIRE PURCHASE AND INCOME FROM BILL DISCOUNTING IN THE PRECEDING YEAR AND IN THE YEAR UNDER I .T.A NO. 2951/AHD/2016 & 939/RJT/2018 A.Y. 2001 -02 & 2002-03 PAGE NO DY/JT. CIT VS. GUJARAT GAS FINANCIAL SERVICES LTD. 11 CONSIDERATION. THE LD. CIT(A) HAS ALSO HELD THAT T HE FACTS OF THE CASE ARE SIMILAR TO THE FACT OF A.Y. 2004-05 WHEREIN THE BAD DEBT WRITTEN OFF IN THE CASE OF BUSINESS OF HIRE PURCHASE WERE ALLOWED. AS THE FACTS AND ISSUE INVOLVED IN GROUND OF APPEAL VIDE ITA NO. 2951/AHD/ 2016 ASSESSMENT YEAR 2001-02 ARE SIMILAR AS IN ITA NO. 939/AHD/2018 ASSESSMENT YEAR 2002-03 THEREFORE AFTER APPLYING TH E DECISION ADJUDICATED VIDE ITA NO. 2951/AHD/2016 AS SUPRA IN THIS ORDER, THIS APPEAL OF THE REVENUE STANDS DISMISSED. 8. IN THE RESULT, BOTH THE APPEALS FILED BY TH E REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 02-01-2021 SD/- SD/- (RAJPAL YADAV) (AMARJIT SINGH) VICE PRESIDENT AC COUNTANT MEMBER AHMEDABAD : DATED 02/01/2021 / COPY OF ORDER FORWARDED TO:- 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,