Shri Sunilkumar Vinubhai Patel, Baroda V. The Dy.CIT (Intl. Taxn. ), Vadodara

ITA 3567/AHD/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 0908 (ITAT-AHMEDABAD)
• Duration Of Justice: 7 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-08-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 08-07-2016
• Assessment Year: 2012-2013
• Appeal Filed On: 21-12-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ANTONY PARIATH
• Assessee Lawyers: N M DARJI
• Keywords: Business income; Business expenditure; Reasonable cause; Competent authority; Revised return
• Section: 143(3); 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, AHMEDABAD BEFORE SHRI R.P. TOLANI, JUDICIAL MEMBER ./ ITA NO. 3567/AHD/2015 / ASSESSMENT YEAR : 2012-13 SUNILKUMAR VINUBHAI PATEL, 16, ARUNODAY SOCIETY, NR. OLD TELEPHONE EXCHANGE, V.V. NAGAR, ANAND-388 120 PAN : AEIPP 4464 P VS THE DCIT (INTL. TAXN), VADODARA / (APPELLANT) / (RESPONDENT) ASSESSEE BY : SHRI N.M. DARJI, AR REVENUE BY : SHRI ANTONY PARIATH, SR DR / DATE OF HEARING : 08/07/2016 / DATE OF PRONOUNCEMENT: 03/08/2016 / O R D E R THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-13, AHMEDABAD DATED 04.11.2015 FOR AY 2012-2013. 2. FOLLOWING GROUNDS ARE RAISED:- 1. THE LD. CIT (A) HAS ERRED IN LAW AND IN FACTS, IN C ONFIRMING THE DISALLOWANCES OF BAD-DEBTS RS.8,00,000/- AND OTHER EXPENSES RS.3,61,489/- MADE BY THE A.O. HOLDING THAT THE ASSE SSEE IS NOT RUNNING THE BUSINESS OF MONEY LENDING DURING THE YEAR UNDER CONSIDERATION AND APPLIED THE EXPLANATION 1 TO SECTION 37 (1) OF THE AC T THAT THE BUSINESS OF MONEY LENDING WITHOUT LICENSE IS ILLEGAL BUSINESS. IF THE BUSINESS DONE BY THE APPELLANT IS ILLEGAL BU SINESS THE AMOUNT OF RS.8,00,000/- SHALL BE ALLOWED AS TRADING LOSS SINC E THE INCOME EARNED FROM ILLEGAL BUSINESS IS TAXABLE INCOME AS ESTABLIS HED PRINCIPLE OF LAW. THE EXPENSES OF RS. 3,61,489/- HAVE BEEN INCURRED F OR LEGITIMATE PURPOSE TO RUN THE BUSINESS. IT IS NOT THE EXPENSES INCURRE D IN RESPECT OF THE PAYMENT OF FINE OR PENALTY ON ACCOUNT OF OFFENCE CO MMITTED AS PER THE RELEVANT PROVISIONS OF THE MONEY LENDERS ACT, 2011. IT SHALL BE ALLOWED AS EITHER BAD-DEBTS WRITTEN OFF U/S.36(1) (VII) R.W.S. 36(2) OF THE ACT OR TRADING LOSS. SMC-ITA NO. 3567/AHD/2015 SUNILKUMAR VINUBHAI PATEL VS. DCIT AY : 2012-13 2 2. WITHOUT PREJUDICE TO THE GROUNDS OF APPEAL NO.1, TH E LD. CIT (A) HAS ERRED IN LAW AND IN FACTS, IN CONFIRMING THE DISALL OWANCES OF THE EXPENSES INCURRED RS.3,61,489/-, IF THE INTEREST INCOME RS.1 4,90,974/- IS BEING ASSESSED UNDER THE HEAD OF INCOME FROM OTHER SOURC ES'. 3. BRIEF FACTS ARE THE ASSESSEE IS A NRI, CITIZEN OF USA AND CLAIMED TO HAVE CARRIED ON MONEY LENDING AS BUSINESS ACTIVITY IN INDIA HOLDING ANY MONEY LENDING LICENSE OR RBI APPROVAL FOR THE SAME. THE ASSESSEE FILED RETURN OF INCOME SHOWING INCOME FROM BUSINESS, LTCG AND INCOME FROM OTHER SOURCES. THE CASE WAS SELECTED FOR SCRUTINY A SSESSMENT THROUGH CASS, NOTICE U/S 143(2) WAS ISSUED AND ASSESSMENT WAS FRA MED AFTER DUE OPPORTUNITY OF HEARING TO THE ASSESSEE. LD. AO FOU ND THAT ASSESSEE HAD SHOWN INTEREST INCOME AS INCOME FROM OTHER SOURCES IN THE RETURN OF INCOME, HOWEVER HAD ALSO CLAIMED BUSINESS EXPENDITU RE OF RS.14,90,974/- RESULTING INTO BUSINESS LOSS OF RS.11,61,489/- WHIC H WAS SET OFF AGAINST OTHER HEADS OF INCOME. QUERIES WERE RAISED IN THIS BEHAL F BY ASSESSING OFFICER, ASSESSEE CLAIMED THAT HE WAS NOT INTO ILLEGAL MONEY LENDING BUSINESS AND THESE EXPENSES INCLUDING BAD DEBT WERE ALLOWABLE AS BUSINESS EXPENDITURE. LD. AO HELD THAT THE INTEREST EARNED BY THE ASSESSE E ON LOANS WAS CHARGEABLE UNDER THE HEAD INCOME FROM OTHER SOURCE S, THE EXPENDITURE IN QUESTION CANNOT BE REGARDED AS BUSINESS EXPENDITURE . BESIDES EVEN IF IT ASSUMED THAT ASSESSEE WAS CARRYING ON ILLEGAL MONEY LANDING BUSINESS, NO EXPENDITURE CAN BE ALLOWED QUA ALLEGED ILLEGAL BU SINESS. CONSEQUENTLY, THE BUSINESS LOSSES CLAIMED BY ASSESSEE WERE HELD TO BE NOT ALLOWABLE. AS A RESULT THE INCOME FROM OTHER SOURCES WAS ASSESSED A T RS.14,90,974/-. 4. AGGRIEVED, THE ASSESSEE PREFERRED FIRST APPEAL W HERE THE SOLE GROUND RAISED WAS AS UNDER:- THE LEARNED DCIT HAS ERRED IN MAKING DISALLOWANCES/ ADDITION OF BUSINESS EXPENSES OF RS.11,61,489/-. SAME MAY BE DELETED. SMC-ITA NO. 3567/AHD/2015 SUNILKUMAR VINUBHAI PATEL VS. DCIT AY : 2012-13 3 4.1 LD. CIT(A) CONFIRMED THE ORDER OF LD. ASSESSING OFFICER BY FOLLOWING OBSERVATIONS:- 4. I HAVE PERUSED THE ORDER OF THE AO AND THE WRITT EN SUBMISSIONS MADE IN THIS REGARD. THE APPELLANT IN HIS THREE PAGES WRIT TEN SUBMISSION HAS REPRODUCED SECTION 37 OF THE I.T. ACT. THE APPELLAN T HAS ALSO ANALYZED SECTION 37 OF THE I.T. ACT. I FIND THAT NOWHERE THE FACTUAL AND LEGAL OBSERVATIONS MADE BY THE AO ARE REBUTTED BY THE APPE LLANT. THE AO HAS VERY CATEGORICALLY POINTED OUT THAT ALL THE RECEIPT S OF THE APPELLANT ARE IN THE NATURE OF INCOME FROM OTHER SOURCES AND THIS CLAIM OF EXPENSES BEING BUSINESS EXPENSES IS UNTENABLE. VIDE PARA 5.9(B), THE AO HAS BROUGHT OUT THE ILLEGITIMACY OF THE MONEY LENDING ACTIVITY PURP ORTEDLY CARRIED OUT BY THE APPELLANT. I AM IN AGREEMENT WITH THE OBSERVATIONS OF THE AO WHICH ARE QUITE DETAILED AND EVEN REPRODUCED SUPRA. THE DISA LLOWANCE MADE BY THE AO AMOUNTING TO RS.11,61,489/- IS THEREFORE, SUSTAINED . THE GROUND OF THE APPELLANT IS THEREFORE DISMISSED. 5. AGGRIEVED, THE ASSESSEE IS IN SECOND APPEAL. 6. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE REQUESTED FOR ADMISSION OF ADDITIONAL GROUND AS UNDER:- THE LD. AO IS NOT JUSTIFIED IN MAKING COMPREHENSIVE SCRUTINY ASSESSMENT WHILE PASSING ORDER U/S 143(3) OF THE ACT DTD 20.02. 2015 FOR AY 2012-13. WHEN THE ASSESSMENT ORDER WAS PASSED ON 20.02.2015 THE CBDTS INSTRUCTION NO.7/2014 DTD. 26.09.2014 WAS ALREADY C OMMUNICATED TO THE AO FOR LIMITED INCOME TAX SCRUTINY OF THE CASES SELECT ED UNDER CASS WHICH WAS OPERATIVE FROM 15 TH OCTOBER, 2014. THE INSTRUCTIONS OF CBDT IS RETROSPECTIVE IN NATURE . THE POINT OF SELECTION FOR SCRUTINY UNDER CASS WAS ACCEPTED BY THE AO AS PE R RETURN OF INCOME FILED. THE LD. AO IS THEREFORE NOT JUSTIFIED IN MAK ING COMPREHENSIVE SCRUTINY ASSESSMENT AS THE CASE FOR SCRUTINY ASSESSMENT WAS SELECTED UNDER CASS FOR AY 2012-13. 6.1 IT IS CONTENDED THAT THE ADDITIONAL GROUND IS P URELY LEGAL IN NATURE AND SHOULD BE ADMITTED RELYING ON HONBLE SUPREME C OURT JUDGMENT IN THE CASE OF NTPC, 229 ITR 383 (SC). 6.2 THE LD. DR, ON THE OTHER HAND, VEHEMENTLY OPPOS ED THE ADMISSION OF ADDITIONAL GROUND ON FOLLOWING POINTS:- SMC-ITA NO. 3567/AHD/2015 SUNILKUMAR VINUBHAI PATEL VS. DCIT AY : 2012-13 4 I) THE INTERNAL INSTRUCTIONS ISSUED BY CBDT ARE MEANT FOR THE INTERNAL WORKING OF THE DEPARTMENT AND DO NOT LAY DOWN ANY L AW. THEREFORE, INTERNAL INSTRUCTIONS CANNOT BE HELD AS A LEGAL PRO POSITION. CONSEQUENTLY THE GROUND RAISED CANNOT BE CONSIDERED AS A LEGAL QUESTION. II) INCOME TAX ACT DO NOT PRESCRIBES ANY FETTERS IN THE POWER OF THE ASSESSING OFFICER TO PROCEED WITH ASSESSMENT BY ISS UING NOTICE U/S 143(2) WHERE ANY CLAIM OF THE ASSESSEE MADE IN THE RETURN IS FOUND TO BE NOT IN ORDER. III) THE ASSESSEE WAS WELL AWARE OF THESE INSTRUCTIONS D ATED 26.09.2014. NO OBJECTION WAS RAISED EITHER BEFORE THE ASSESSING OFFICER IN THIS BEHALF, THOUGH THE ASSESSMENT ORDER IS DATED 20.02. 2015 AND LD. CIT(A) WHOSE ORDER IS PASSED ON 04.11.2015. THE AS SESSEE DELIBERATELY DID NOT RAISE ANY OBJECTION BEFORE THE LOWER AUTHORITIES AND TO AVOID THE CONSEQUENCES OF NOTORIOUS FACTS OF HIS CASE THE ADDITIONAL GROUND IS RAISED WITH ULTERIOR MOTIVE TO DISTRACT THE ATTENTION. IV) IN NTPC JUDGMENT (SUPRA) THE ASSESSEE BECAME AWARE OF NEW GROUND AFTER A SPECIAL BENCH JUDGMENT WHEREAS IN CASE ASSE SSEE WAS ALREADY AWARE OF INSTRUCTIONS, NO REASONABLE CAUSE HAS BEEN SPELT OUT FOR ADMISSION OF ADDITIONAL GROUND. 6.3 I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL PLACED BEFORE ME. IN MY CONSIDERED VIEW, THE ASSESSEE HAS NOT BEEN ABLE TO SHOW ANY REASONABLE CAUSE AS TO HOW HE WAS PREVENTED BY SUFFICIENT CAUSE IN NOT RAISING THIS PLEA BEFORE AUTHORITIES BELOW. THEREF ORE, THE APPLICATION FOR ADMISSION OF ADDITIONAL GROUND IS REJECTED. 7. ADVERTING TO THE GROUNDS OF THE APPEAL, LD. COUN SEL FOR THE ASSESSEE CONTENDS THAT THE FREQUENCY OF FINANCE TRANSACTIONS AMOUNT TO BUSINESS OF MONEY LENDING, THOUGH IT MAY BE NOT LICENSED OR LEG AL. THE INCOME-TAX ACT PRESCRIBES TAXATION OF ILLEGAL INCOME ALSO AND THE CORRESPONDING SMC-ITA NO. 3567/AHD/2015 SUNILKUMAR VINUBHAI PATEL VS. DCIT AY : 2012-13 5 EXPENDITURES ARE ALLOWABLE UNDER THE INCOME-TAX LAW . RELIANCE IS PLACED ON FOLLOWING JUDGMENTS FOR CORRESPONDING PROPOSITIONS: - A) ANDHRA PRADESH HIGH COURT JUDGMENT IN THE CASE OF S OMNATH BARMAN VS. JAGNNATH RAO; B) ANDHRA PRADESH HIGH COURT JUDGMENT IN THE CASE OF R AJA DHAN RAJ GIRJI VS. CIT, 79 ITR 0563; C) GUJARAT HIGH COURT JUDGMENT IN THE CASE OF HEMCHAND HIRACHAND SHAH VS.CIT, 206 ITR 55. D) DECISION OF ITAT AHMEDABAD IN THE CASE OF DCIT VS. DEEPABEN AMITBHAI SHAH, 99 ITD 219 7.1 IT IS CONTENDED THAT IN THE STATE OF GUJARAT TH E PRIVATE MONEY LENDING ACTIVITIES ARE GOVERNED BY THE GUJARAT MONEY-LENDER S ACT, 2011. GOING BY THIS DEFINITION, AN INDIVIDUAL ASSESSEE IS ELIGIBLE TO CARRY OUT MONEY LENDING ACTIVITY IN THE STATE OF GUJARAT. THE ASSESSEE BEI NG AN INDIVIDUAL IS ELIGIBLE TO CARRY OUT SUCH ACTIVITY. IF REGISTRATION HAS NO T BEEN TAKEN BY THE MONEY LENDER, THE COMPETENT AUTHORITY MAY PENALIZE THE DE FAULTER AND ON PAYMENT OF PENALTY THE PERSON CAN GET THE REGISTRAT ION. BUT, WITHOUT LICENSE THE BUSINESS IS TO BE TREATED AS ILLEGAL BUSINESS. MONEY LENDING IS NOT A PROHIBITED BUSINESS ONLY NON OBTAINING OF LICENSE I S SUBJECT TO PENAL CONSEQUENCES. 7.2 RBI IN A SERIES OF FREQUENTLY ASKED QUESTIONS O N NBFCS, BY QUESTION AND ANSWER NO.35 HAS CLARIFIED AS UNDER:- QUESTION NO.35 THERE ARE SOME ENTRIES (NOT COMPANIES) WHICH CARRY O N ACTIVITIES LIKE THAT OF NBFCS. ARE THEY ALLOWED TO TAKE DEPOSITS? WHO REGUL ATES THEM? ANSWER : 35 ANY PERSON WHO IS AN INDIVIDUAL OR A FIRM OR UNINCOR PORATED ASSOCIATION OF INDIVIDUALS CANNOT ACCEPT DEPOSITS EXCEPT BY WAY OF LOAN FROM RELATIVES, IF HIS/ITS BUSINESS WHOLLY OR PARTLY INCLUDES LOAN, IN VESTMENT, HIRE-PURCHASE OR SMC-ITA NO. 3567/AHD/2015 SUNILKUMAR VINUBHAI PATEL VS. DCIT AY : 2012-13 6 LEASING ACTIVITY OR PRINCIPAL BUSINESS IS THAT OF R ECEIVING OF DEPOSITS UNDER ANY SCHEME OR ARRANGEMENT OR IN ANY MANNER OR LENDI NG IN ANY MANNER. ONCE IT IS HELD THAT THE ASSESSEE WAS INTO MONEY L ENDING BUSINESS WHETHER LEGAL OR ILLEGAL, ENTIRE EXPENDITURE INCLUD ING THE BAD DEBT OF RS.8 LAKHS QUA M/S. INAYAT TRADERS IS ALLOWABLE AS BUSIN ESS EXPENDITURE. IT IS CONTENDED THAT THE BUSINESS INCOME HAS BEEN EARNED BY THE ASSESSEE FROM INTEREST INCOME AND THE EXPENDITURE HAS BEEN INCURR ED DURING THE COURSE OF CARRYING OUT REGULAR BUSINESS ACTIVITY; THEREFORE T HE RESULTANT LOSS IS ELIGIBLE TO BE ALLOWED AS BUSINESS LOSS TO BE SET OFF AGAINS T OTHER INCOME. FURTHER RELIANCE IS PLACED ON HONBLE SUPREME COURTS JUDGM ENT IN THE CASE OF INDIAN MOLASSES CO. LTD. VS. CIT, (1959) 37 ITR 006 6 (SC). 8. THE LD. DR, ON THE OTHER HAND, CONTENDS THAT IN THE COMPUTATION OF INCOME FILED WITH THE RETURN OF INCOME WHICH IS PLA CED AT PAGE NO. 5 OF THE PAPER-BOOK, THE ASSESSEE HAS HIMSELF OFFERED THE IN TEREST ON LOANS/ ADVANCES AMOUNTING TO RS.12,02,750/- UNDER THE HEAD INCOME F ROM OTHER SOURCES. LIKEWISE, OTHER INTEREST INCOME FROM BANK FDRS & IT REFUND HAS ALSO BEEN SHOWN AS INCOME FROM OTHER SOURCES. AS ASSESSEE HI MSELF HAS RETURNED THE INCOME FROM INTEREST GIVEN TO PRIVATE PARTIES AS IN COME FROM OTHER SOURCES, THE LD. ASSESSING OFFICER ACCEPTED HIS COMPUTATION OF INCOME ONLY. THE ASSESSEE IN ORDER TO AVAIL UNJUSTIFIABLE CLAIM THE EXPENDITURE WANTONLY DEBITED IT TO BUSINESS HEAD AND ENDEAVORED TO REDUC E ITS TAX LIABILITY WHICH IS NOT PERMISSIBLE. BOTH THE AUTHORITIES BELOW HAV E GIVEN CATEGORICAL FINDINGS THAT A US CITIZEN CANNOT BE PERMITTED TO C ARRY OUT ILLEGAL MONEY LENDING BUSINESS WITHOUT PRIOR APPROVAL OF THE RBI OR VALID LICENSE. THE ASSESSEE NEITHER APPLIED FOR LICENSE NOR RBI APPROV AL, IT CLEARLY DEMONSTRATES THAT ASSESSEE WAS NO CARRYING ON ANY A LLEGED ILLEGAL MONEY LANDING BUSINESS WHICH IS CORROBORATED BY COMPUTATI ON OF INCOME FILED SMC-ITA NO. 3567/AHD/2015 SUNILKUMAR VINUBHAI PATEL VS. DCIT AY : 2012-13 7 ALONG WITH RETURN BY ASSESSEE DECLARING THE INTERES T INCOME AS INCOME FROM OTHER SOURCES. 8.1 CARRYING OUT ANY BUSINESS WHICH IS AN OFFENCE O R IS PROHIBITED BY LAW, NO EXPENDITURE IS ALLOWABLE IN THIS REGARD. THE AS SESSEE HIMSELF ADMITS THAT HE WAS INTO ILLEGAL MONEY LENDING BUSINESS. ASSUMI NG BUT NOT ADMITTING THAT THE ASSESSEE WAS INTO LEGAL MONEY LENDING ACTI VITIES, EVEN THEN THE EXPENDITURE CANNOT BE ALLOWED IN VIEW OF EXPLANATIO N 1 TO SECTION 37, WHICH READS AS UNDER:- S. 37 EXPLANATION 1 FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PUR POSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED T O HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCT ION OR ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. THEREFORE, UNDER ANY CIRCUMSTANCES, THE EXPENDITURE IS NOT ALLOWABLE TO THE ASSESSEE. 9. I HAVE HEARD THE RIVAL CONTENTIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. I FIND MERIT IN THE CONTENTIONS OF THE LD. DR. IT IS OBSERVED THAT :- (1) THE ASSESSEE HIMSELF OFFERED THE INTEREST FROM PRIVATE LOANS UNDER THE HEAD INCOME FROM OTHER SOURCES. THE ASSESSEE HAV ING FILED THE RETURN AND NOT FILED THE REVISED RETURNS, THE ASSES SING OFFICER WHILE ACCEPTING HIS INCOME HAS ACTED PERFECTLY IN ACCORDA NCE WITH LAW; (2) THE ASSESSEES CONTENTION THAT IT WAS INTO ILLE GAL MONEY LENDING BUSINESS APART FROM BEING UNBELIEVABLE IS HIGHLY DE PLORABLE AS A US CITIZEN CANNOT BE SUPPOSED TO VIOLATE INDIAN LAWS, I.E., GUJARAT MONEY-LENDERS ACT AND FEMA REGULATIONS. THE ASSESS ING OFFICER HAS BEEN MORE THAN REASONABLE IN NOT INTIMATING THE SE FACTS TO SMC-ITA NO. 3567/AHD/2015 SUNILKUMAR VINUBHAI PATEL VS. DCIT AY : 2012-13 8 CONCERNED AUTHORITIES; OTHERWISE, THE ASSESSEE WOUL D HAVE BEEN IN DEEP TROUBLE. (3) ASSUMING THE ASSESSEE WAS INTO ILLEGAL MONEY LE NDING BUSINESS THEN ALSO IN VIEW OF THE EXPLANATION 1 TO SECTION 37, TH E ASSESSEES BUSINESS BEING AN OFFENCE AND PROHIBITED BY LAW, THE EXPENDI TURE CANNOT BE ALLOWED. IN VIEW OF THE ABOVE, I HAVE NO HESITATION TO UPHO LD THE ORDERS OF THE AUTHORITIES BELOW. ACCORDINGLY, THE ASSESSEES APP EAL IS DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE COURT ON 3 RD AUGUST, 2016 AT AHMEDABAD. SD/- R.P. TOLANI (JUDICIAL MEMBER) AHMEDABAD; DATED 03/08/2016 *BIJU T. / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, TRUE COPY / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD