M/s. Ratna Commercial Enterprises Pvt. Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 3796/DEL/2015

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 3506 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 5 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 10-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Opportunity of being heard; Rule of consistency; Earning of tax free income; Additional evidence; Bad and doubtful debts; Commercial expediency; Rule 8D; Set aside
• Section: 143(3); 14A; 115JB; 143(1); 250; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D : NEW DELHI BEFORE SHRI R.K. PANDA, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO.3796/DEL/2015 ASSESSMENT YEAR: 2010-11 RATNA COMMERCIAL ENTERPRISES PVT. LTD., 4 TH FLOOR, PUNJABI BHAWAN, 10, HOUSE AVENUE, NEW DELHI. PAN: AAACR0354B VS ADDL. CIT, RANGE-15, NEW DELHI. ITA NO.4574/DEL/2015 ASSESSMENT YEAR: 2010-11 DCIT, CIRCLE 21(1), NEW DELHI. VS. RATNA COMMERCIAL ENTERPRISES PVT. LTD., 4 TH FLOOR, PUNJABI BHAWAN, 10, HOUSE AVENUE, NEW DELHI. PAN: AAACR0354B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.P. RASTOGI, ADVOCATE REVENUE BY : SHRI J.K. MISHRA, CIT, DR DATE OF HEARING : 05.09.2019 DATE OF PRONOUNCEMENT : 13.11.2019 ORDER PER R.K. PANDA, AM: THESE ARE CROSS APPEALS. THE FIRST ONE IS FILED BY THE ASSESSEE AND THE SECOND ONE BY THE REVENUE AND ARE DIRECTED AGAINST THE ORD ER DATED 22 ND APRIL, 2015 OF THE CIT(A)-11, NEW DELHI, RELATING TO ASSESSMENT YEAR 2 010-11. ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 2 ITA NO.4574/DEL/2015 (BY THE REVENUE) 2. THE GROUNDS RAISED BY THE REVENUE READ AS UNDER:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.54,08,93,2 73/- ON ACCOUNT OF BAD DEBTS CLAIMED IN COMPUTATION OF INCOME, WITHOUT APP RECIATING THE FACT THAT THE ASSESSEE IS NBFC REGISTERED WITH RBI UNDER THE CATE GORY OF INVESTMENT COMPANY AND THE LOAN ADVANCE TO M/S. VTL WAS NOT IN THE ORDINARY COURSE OF BUSINESS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, THE LD. CIT(A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.54,08,93,2 73/- BY ACCEPTING THE ADDITIONAL EVIDENCE AND OTHER SUBMISSIONS FILED BY THE ASSESSEE WITHOUT A REASONABLE OPPORTUNITY BEING ALLOWED TO THE AO UNDE R 46A(3) OF THE INCOME TAX RULES : A) TO EXAMINE THE EVIDENCE OR DOCUMENTS SUBMITTED BY T HE ASSESSEE; B) TO PRODUCE ANY EVIDENCE OR DOCUMENT IN REBUTTAL OF THE ADDITIONAL EVIDENCE PRODUCED BY THE APPELLANT. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN NOT TAKING COGNIZANCE NOR DISTINGUISHED TH E INSTANT CASE ON THE FACTS AND IN LAW IN PLACING RELIANCE ON SA BUILDERS CASE AS IN THE INSTANT CASE THE ISSUE INVOLVED IS NOT RELATED TO CLAIM OF EXPENDITU RE BUT RELATED TO CLAIM OF BAD DEBTS. 4. THE APPELLANT CRAVES TO BE ALLOWED TO ADD ANY F RESH GROUNDS(S) OF APPEAL AND/OR DELETE OR AMEND ANY OF THE GROUND(S) OF APPEAL. 3. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A DOMESTIC COMPANY TRADING IN UNITS OF MUTUAL FUNDS AND MAKING INVESTM ENT IN SHARES, DEBENTURES, ETC. IT FILED ITS RETURN OF INCOME ON 28 TH MARCH, 2012 DECLARING LOSS OF RS.42,49,69,592/- AND UNDER MAT OF RS.17,04,96,123/ -. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THAT ASSESSEE HAS WRITTEN OFF RS.55.08 CRORE AS BAD DEBTS AND AFTER CREDITING , PROVISION FOR DOUBTFUL DEBTS OF RS.54,08,93,273/- AGAINST THIS, WHICH WAS CREATED I N THE ASSESSMENT YEAR 2008-09, ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 3 DEBITED A NET AMOUNT OF RS.L CRORE TO THE P & L ACC OUNT UNDER THE HEAD BAD DEBT. FROM THE COMPUTATION STATEMENTS THE ASSESSING OFFIC ER NOTED THAT THE AMOUNT OF RS.54.08 CRORE WAS ADDED BACK BOTH TO THE TOTAL INC OME AS WELL AS TO THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE IT A CT WHICH HAS RESULTED IN REDUCING THE TAX LIABILITY. CONSIDERING THIS FACT, AO VIDE O RDER SHEET ENTRY DATED 13.12.2012 ASKED THE ASSESSEE TO FURNISH THE DETAILS IN THIS R EGARD. IN RESPONSE TO THE SAME IT WAS SUBMITTED THAT ASSESSEE HAD ADVANCED A SUM OF R S.54,08,93,273/- TO M/S. VASU TECH LTD. AND OUT OF THIS A SUM OF RS. 21.20 CRORE WAS RECOVERED UNDER A WRITTEN LOAN AGREEMENT DATED 15.04.2005 AND SUM OF RS.32,88 ,93,272/- WAS ADVANCED FROM TIME TO TIME AFTER THE EXECUTION OF ABOVE LOAN AGREEMENT. AS PER THE TERMS OF THE AGREEMENT, THE LOAN WAS LIABLE TO BE REPAID ALO NG WITH INTEREST @12% P.A. THE LOAN WAS CLAIMED TO BE ADVANCED TO M/S. VASU TECH L TD. AND MR. DHRUV VERMA AND MR. R.L. VERMA AND M/S. R.L VERMA & SONS (HUF) STOOD SURETY FOR REPAYMENT OF LOAN IN TERMS OF ABOVE AGREEMENT. WITH REGARD TO REPAYMENT OF LOAN, M/S. VASU TECH LTD. ISSUED POST DATED CHEQUES I.E. 01.01.2007 AND 01.04.2007. HOWEVER, WHEN REPRESENTED, EXCEPT A FEW CASES, ALL THESE CHEQUES WERE RETURNED DISHONOURED, THEREFORE, ASSESSEE COMPANY INITIATED PROCEEDINGS U/S. 138 R.W.S. 142 OF THE NEGOTIABLE INSTRUMENTS ACT WHICH WAS PENDING IN THE COURT OF MAGISTRATE AT PATIALA HOUSE, NEW DELHI. IT WAS FURTHER MENTIONED THAT APART FROM THE ABOVE PROCEEDINGS, ASSESSEE COMPANY HAD ALSO FILED TWO CI VIL SUITS FOR RECOVERY OF A SUM OF RS.26,26,91,544/- AND RS.41,64,47,667/- AND THES E SUITS WERE PENDING BEFORE THE HONBLE DELHI HIGH COURT BEING CS (OS) NO. 850/2007 AND CS (OS) NO. ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 4 1093/2008. IT WAS FURTHER EXPLAINED THAT BOTH THE A BOVE SUITS WERE DECREED BY THE HONBLE COURT IN FAVOUR OF THE ASSESSEE COMPANY VID E ORDER DATED 26.11.2009 AGAINST WHICH APPEAL WAS FILED BY THE DEFENDANTS. I T WAS FURTHER SUBMITTED THAT ASSESSEE COMPANY INITIATED PROCEEDINGS FOR EXECUTIO N OF THE DECREE BEING EXECUTION PETITION NO. 160/2011 AND ACCORDINGLY TWO OF THE PROPERTIES BELONGING TO THE DEFENDANTS WERE INITIALLY DIRECTED TO BE ATT ACHED BUT IT WAS DISCOVERED LATER THAT ONE OF THE PROPERTY WAS TENANTED AND THE OTHER PROPERTY WAS MORTGAGED WITH THE BANK AGAINST FINANCIAL ASSISTANCE AVAILED BY M/ S. VASU TECH LTD. ASSESSEE COMPANY FILED AN APPLICATION BEFORE THE HIGH COURT FOR EXAMINATION OF THE JUDGMENT DEBTOR FOR DISCLOSURE OF THEIR PROPERTIES AND ASSETS. BEFORE THE HONBLE COURT MR. DHRUV VERMA AND MR. R.L. VERMA FILED AFFI DAVITS STATING THAT THERE WAS NO IMMOVABLE PROPERTIES UNDER THEIR OWNERSHIP AND C ONTROL. ASSESSEE COMPANY FILED WINDING UP PETITION U/S. 433 OF THE COMPANIES ACT AGAINST VASU TECH LTD. IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH WH ICH WAS ADMITTED UNDER PETITION NO. 13/2007 AND PROVISIONAL LIQUIDATOR WAS APPOINTED IN RESPECT OF THE ASSETS OF M/S. VASU TECH LTD. 4. CONSIDERING THE ABOVE SUBMISSIONS, THE AO SPECIFICA LLY ASKED THE ASSESSEE ON 13.02.2013 TO FURNISH THE LOAN AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE COMPANY AND M/S. VASU TECH LTD. ALONG WITH YEAR WIS E LEDGER ACCOUNTS OF M/S. VASU TECH LTD. IN THE BOOKS OF ASSESSEE. ON 26.02.2 013, LOAN AGREEMENT WAS FURNISHED BEFORE THE AO AND AO NOTED THE FOLLOWING POINTS: ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 5 LOAN AGREEMENT WAS MADE ON 15.04.2005 WHEREAS AN AMOUNT OF RS. 19.20 CRORE HAD ALREADY BEEN EXTENDED TO M/S. VASU TECH LTD. EVEN PRIOR TO ENTERING OF THIS LOAN AGREEMENT. THE ABOVE LOAN WAS ADVANCED ON MONTHLY/FORTNIGHT LY BASIS W.E.F. NOV, 2003 TO NOV, 2005 IN THE INSTALLMENTS OF RS.25 LAC/ 50 LAC/1 CRORE/5 CRORE ETC. THERE WAS NO PRIOR LOAN AGREEMENT FOR ADVANCING THE ABOVE LOAN NOR THERE WAS ANY SECURITY GUARANTEE IN RESPECT OF REPA YMENT. ON THE DATE OF LOAN AGREEMENT I.E. 15.04.2005 EN TIRE LOAN OF RS. 19.20 CRORE WAS OUTSTANDING. THE ABOVE LOAN AGREEMENT WAS FOR FURTHER LOAN OF RS.2 CRORE PROVIDED TO M/S. VASU TECH LTD. NO INTEREST PAYMENT WAS MADE BY M/S. VASU TECH L TD. TO THE ASSESSEE COMPANY DURING THE PERIOD 2003 TO 2004 DURING WHICH RS.8 CRORE WERE ADVANCED. THOUGH AS PER ABOVE LOAN AGREEMENT, THERE WAS PR OVISION OF INTEREST PAYMENT @12% P.A. BUT AS PER LEDGER ACCOUNT, NO INT EREST WAS EITHER PROVIDED OR PAID DURING THE F.Y. 2005-06. AS PER CLAUSE 2.5 OF THE ABOVE LOAN AGREEMENT, T HERE WAS PROVISION FOR DEFAULT INTEREST @ 2% TO BE PAID BY BORROWER TO THE LENDER BUT THIS PROVISION WAS NOT INVOKED BY THE ASSESSEE COMPANY B UT ON THE CONTRARY IT ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 6 FURTHER ADVANCED A SUM OF RS.33 CRORE WHICH WAS NOT COVERED BY THIS LOAN AGREEMENT. IT WAS FURTHER NOTED BY THE AO THAT THOUGH MR. R .L. VERMA AND M/S. R.L. VERMA & SONS (HUF) STOOD AS SURETY FOR REPAYMENT OF LOAN BUT LOAN AGREEMENT WAS SIGNED ONLY BY ONE PERSON IN ALL FOUR CAPACITIES I.E. MR. DHRUV VERMA FOR M/S. VASU TECH LTD., MR. DHRUV VERM A IN HIS PERSONAL CAPACITY, MR. DHRUV VERMA FOR AND ON BEHALF OF MR. R.L. VERMA, MR. DHRUV VERMA FOR AND ON BEHALF OF M/S. R.L. VERMA & (HUF). IN VIEW OF THESE FACTS, IT WAS HELD BY THE AO THAT LOAN AGREEM ENT WAS ENTERED INTO WITHOUT ANY BASIC PRECAUTION OR DILIGENCE WITHOUT T HE MANDATORY SURETY/GUARANTOR/CO-GUARANTOR WHICH INDICATES THAT THE LOAN AGREEMENT WAS A FARCE WITH COMPLETE DISREGARD FOR ALL PROCEDU RAL REQUIREMENTS. IT WAS FURTHER NOTED BY THE AO THAT ABOVE LOAN AGREEME NT WAS MADE ON STAMP PAPER OF RS.500 AND EVEN WAS NOT NOTARIZED BY NOTARY PUBLIC. ON PERUSAL OF LEDGER ACCOUNTS OF M/S. VASU TECH LTD. IN THE BOOKS OF ASSESSEE, IT REVEALED THAT THERE WAS NO INTEREST IN COME RECEIVED NOR PROVIDED IN THE BOOKS OF THE ASSESSEE FOR FINANCIAL YEAR 2003-04 AND EVEN FOR THE F.Y. 2005-06 WHEN THE ABOVE LOAN AGREEMENT WAS ENTERED INTO ON 15.04.2005 NEITHER THERE WAS INTEREST RECEIVED NOR PROVIDED IN THE BOOKS ON ACCRUAL BASIS THOUGH AS PER AGREEMENT THERE WAS PROVISION FOR INTEREST @ 12% P.A. ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 7 IT WAS FURTHER NOTED BY THE AO THAT AS PER SECTION 36(I)(VII) R.W.S. 36(2) OF THE IT ACT, NO DEDUCTION SHALL BE ALLOWED IN RESPEC T OF BAD DEBTS WHICH HAVE BEEN WRITTEN OFF UNLESS THE SAME HAVE BEEN TAKEN IN TO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE IN ANY EARLIER PREVIOUS YEAR OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF BANKING OR MONEY LENDING WHICH IS CARRIED OUT BY THE ASSESSEE. IT WAS FURTHER OBSERVE D BY THE AO THAT IN THE INSTANT CASE, ABOVE DEBTS WERE NEITHER EVER BEEN A PART OF INCOME OF THE ASSESSEE NOR THE ABOVE TRANSACTIONS CAN BE LABELED AS LENT IN THE ORDINARY COURSE OF MONEY LENDING BUSINESS BECAUSE THERE WERE GLARING LACUNAE/PROCEDURAL IRREGULARITIES WHICH SHOWS THAT THESE CAN BE IN NO WAY CAN BE TREATED AN AMOUNT ADVANCED IN THE NORMAL COU RSE OF MONEY LENDING BUSINESS. 5. APART FROM THE ABOVE, IT WAS FURTHER NOTED BY THE A O THAT AS PER MEMORANDUM OF ASSOCIATION OF THE ASSESSEE COMPANY, THE MAIN OBJECTS WERE DEALING IN STOCKS AND SHARES, ACTING AS COMMISSION AGENTS, STOCKIEST ETC. AND MONEY LENDING WAS NOT INCLUDED IN THE MAIN OBJECTS OF THE COMPANY AS IT WAS APPEARING AS THE 8TH OBJECTIVE UNDER THE INCIDENTAL OR ANCILLAR Y OBJECTS. FURTHER, AO OBSERVED THAT AS PER CLAUSE 8 OF THE LOAN AGREEMENT , THERE WAS OPTION TO CONVERT INTO EQUITY TO THE LENDER AS PER WHICH THE LENDER C AN CONVERT IN PART OR WHOLE, THE OUTSTANDING DUES INTO EQUITY SHARE CAPITAL OF THE B ORROWER. IT WAS NOTED BY THE AO THAT IN THE F.Y. 2005-06, ASSESSEE COMPANY ACQUIRED 738234 SHARES IN M/S. VASU TECH LTD. COVERING AN AMOUNT OF RS.2.25 CRORES WHIC H SHOWS THAT THE ABOVE ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 8 TRANSACTION WAS IN THE NATURE OF INVESTMENT MADE BY THE ASSESSEE OUT OF THE SURPLUS FUND AND NOT PART OF REGULAR BUSINESS OF ADVANCING LOANS. IN THIS REGARD, AO PLACED RELIANCE IN THE CASE OF M/S. DATAMATIC FINANCIAL SE RVICES LTD. VS. DCIT, 2011 TIOL - 124 - ITAT - MUM, WHEREIN IT WAS HELD THAT S UCH DEPOSITS CANNOT BE ALLOWED TO BE WRITTEN OFF AS BAD DEBTS U/S. 36(I)(V II). 6. IT WAS CLAIMED BY THE ASSESSEE BEFORE THE AO THAT S INCE IT IS A REGISTERED NON BANKING FINANCIAL COMPANY, THEREFORE, DEBT SHOULD B E ALLOWED U/S. 36(I)(VII) OF THE IT ACT. THE CLAIM OF THE ASSESSEE WAS EXAMINED BY T HE AO AND IT WAS NOTED BY HER THAT AS PER SECTION 36(I)(VII) R.W.S. 36(2) OF THE IT ACT, SUCH A DEDUCTION IS AVAILABLE ONLY IF DEBT REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF BANKING OR MONEY LENDING WHICH IS CARRIED ON BY THE ASSESSEE. 7. FROM THE PROVISIONS OF SECTION 36(I)(VII) R.W.S.36( 2), IT WAS NOTED BY THE AO THAT FOR MAKING CLAIM AS PER ABOVE PROVISIONS TWO C ONDITIONS ARE REQUIRED TO BE FULFILLED, I.E., FIRSTLY, THE BUSINESS OF THE ASSES SEE SHOULD BE OF BANKING OR MONEY LENDING AND, SECONDLY, THE DEBT SHALL HAVE BEEN ADV ANCED IN THE ORDINARY COURSE OF BUSINESS OR MONEY LENDING. AO FURTHER EXAMINED THE CLAIM OF ASSESSEE THAT IT IS A REGISTERED NBFC AS PER GUIDELINES OF RBI, 1998 WHER EIN NBFC HAS BEEN CATEGORIZED INTO FOUR CATEGORIES NAMELY A LOAN COMP ANY OR AN INVESTMENT COMPANY OR AN ASSET FINANCE COMPANY OR A MUTUAL BENEFIT FIN ANCE COMPANY. CONSIDERING THE ABOVE, AO VERIFIED FROM THE COPY OF RETURN SUBMITTE D BY THE ASSESSEE TO THE RBI TO ASCERTAIN AS TO IN WHICH CATEGORY DOES THE ASSESSEE COMPANY FALLS. IT WAS NOTED BY ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 9 THE AO THAT ASSESSEE COMPANY FALLS UNDER THE CATEGO RY OF INVESTMENT COMPANY AND INVESTMENT COMPANY HAS BEEN DEFINED IN SECTIO N 2(VI) OF THE ABOVE RULES AND GUIDELINES AS MEANING ANY COMPANY WHICH IS FI NANCIAL INSTITUTION CARRYING ON AS ITS PRINCIPAL BUSINESS THE ACQUISITION OF SECURI TIES. IN VIEW OF THE ABOVE EXAMINATION AND PROVISIONS OF LAW AS DISCUSSED ABOV E, IT WAS HELD BY THE AO THAT ASSESSEE COMPANY IS REGISTERED WITH RBI AS AN NBFC IN THE CATEGORY OF AN INVESTMENT COMPANY WHICH IS ALTOGETHER A DISTINCT CATEGORY FROM LOAN COMPANY WHICH HAS BEEN DEFINED IN SECTION 2(VIII) OF THE NB FC DIRECTIONS, 1998 AS A FINANCIAL INSTITUTION CARRYING ON AS ITS PRINCIPAL BUSINESS THE PROVIDING OF FINANCE WHETHER BY MAKING LOAN OR ADVANCES OR OTHERWISE FOR ANY ACTIVITY OTHER THAN ITS OWN. THUS, IT WAS HELD BY THE AO THAT ASSESSEE COM PANY IS NOT IN THE BUSINESS OF MONEY LENDING. FURTHER, IT WAS ALSO NOTED BY THE AO THAT ON THE BASIS OF HER FINDING IN PARA 5.2 OF THE ASSESSMENT ORDER, IT WAS CLEAR THAT DEBT CLAIMED BY THE ASSESSEE COMPANY CANNOT BE TREATED AS ADVANCED IN T HE ORDINARY COURSE OF BUSINESS OF MONEY LENDING. FURTHER, WHILE ASSESSEE IS CLAIMI NG WRITING OFF THE AMOUNT ADVANCED TO M/S VASUTECH LTD. IN THE YEAR UNDER CON SIDERATION, ON THE OTHER THAN LITIGATION HAS BEEN FILED IN THE COURT IN RESPECT O F THIS AMOUNT AND ON 26.11.2009, THE CIVIL SUIT WAS ALSO INSTITUTED BY THE ASSESSEE AND DECREE ORDER WAS PASSED IN FAVOUR OF THE ASSESSEE ALONG WITH FUTURE INTEREST A ND PENDENTELITE AND IN 2011 A SUIT FOR EXECUTION OF DECREE WAS ALSO FILED. ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 10 8. FURTHER, AO REFERRED TO THE RBIS GUIDELINES VIDE N OTIFICATION NO. 115 OF 02.01.1998 FOR NBFCS WHICH PROVIDES AS UNDER: IN RESPECT OF ACCOUNTS WHERE THERE ARE POTENTIAL T HREATS TO THEIR RECOVERY ON ACCOUNT OF EROSION IN THE VALUE/NON-AVAILABILITY OF SECURITY OR EXISTENCE OF OTHER FACTORS SUCH AS FRAUDS COMMITTED BY BORROWERS , IT WILL NOT BE PRUDENT FOR NBFCS TO CLASSIFY THEM FIRST AS SUB-STANDARD ASSETS AND WAIT TILL THE EXPIRY OF TWO YEARS FOR CLASSIFICATION AS DOUBTFUL ASSETS. WE ADVISE THAT SUCH ACCOUNTS SHOULD BE STRAIGHTWAY CLASSIFIED AS DOUBTFUL ASSET S OR LOSS ASSETS , AS APPROPRIATE, IRRESPECTIVE OF THE PERIOD FOR WHICH T HESE HAVE REMAINED AS NPAS. 9. CONSIDERING THE ABOVE, IT WAS NOTED BY THE AO THAT ASSESSEE COMPANY CLEARLY VIOLATED THE ABOVE GUIDELINES AND FURTHER I N THE YEAR 2000, RBI ISSUED COMPREHENSIVE DIRECTIONS AND GUIDELINES TO ALL NBFC S IN THE CATEGORY OF LOAN COMPANIES FOR ESTABLISHMENT OF AN ASSET LIABILITY M ANAGEMENT SYSTEM AS PART OF OVERALL SYSTEM FOR EFFECTIVE RISK MANAGEMENT IN VAR IOUS PORTFOLIOS. IN VIEW OF THE ABOVE FACTS, IT WAS NOTED AND HELD BY THE AO THAT A SSESSEE COMPANY NEVER OBTAINED COLLATERAL SECURITY FOR THE LOAN EXTENDED TO M/S VA SUTECH LIMITED CLEARLY VIOLATING THE GUIDELINES ISSUED BY THE RBI, AS DISCUSSED ABOV E, THEREFORE, IN ANYWAY, THE AMOUNT IN QUESTION GIVEN BY THE ASSESSEE COMPANY TO VASU TECH LIMITED CANNOT BE TREATED AS LOAN GIVEN IN ORDINARY COURSE OF MONE Y LENDING BUSINESS. THEREFORE, IT WAS FINALLY HELD THAT ASSESSEE COMPANY IS NOT ENTIT LED TO DEDUCTION U/S 36(L)(VII) IN RESPECT OF AMOUNT OF RS.54,08,93,273/-, WHICH WAS N OT EVEN DEBITED IN THE PROFIT AND LOSS ACCOUNT BUT IT WAS REDUCED FOR THE TOTAL I NCOME AS WELL AS FROM BOOK PROFIT IN THE STATEMENT OF COMPUTATION OF TOTAL INC OME. THEREFORE, IT WAS HELD BY THE AO THAT BOTH THE TOTAL INCOME AND BOOK PROFIT U /S 115JB ARE LIABLE TO BE ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 11 ENHANCED BY THE ABOVE AMOUNTS. ACCORDINGLY, ASSESSI NG OFFICER DISALLOWED THE AMOUNT OF RS.54,08,93,273/- AND ADDED BACK THE SAME TO THE TOTAL INCOME OF THE ASSESSEE AS WELL AS TO THE BOOK PROFIT U/S 115JB OF THE IT ACT. 10. BEFORE THE CIT(A), THE ASSESSEE FILED DETAILED SUBM ISSIONS ALONG WITH CERTAIN ADDITIONAL EVIDENCES WHICH WERE FORWARDED B Y THE CIT(A) TO THE ASSESSING OFFICER FOR OBTAINING A REMAND REPORT. AFTER CONSID ERING THE REMAND REPORT AND REJOINDER OF THE ASSESSEE TO SUCH REMAND REPORT, TH E LD.CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY OBSERVING AS UNDER :- 4.9 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, THE ASSESSMENT ORDER, THE SUBMISSIONS MADE BY THE APPELLANT. 4.9.1 A.O.S REMARKS THAT AS PER NBFC RULES OF RBI , IT FALLS IN CATEGORY OF INVESTMENT COMPANY THE PRINCIPAL BUSINESS OF WHICH IS ACQUISITION OF SECURITIES CANNOT BE ACCEPTED PRIMA FACIE. THE BUSI NESS PROFILE IS INDICATIVE PER THE RBI DEFINITIONS AND NOT RESTRICTIVE OR LIMI TING. FURTHER, THE MONEY LENDING ACTIVITIES BY THE APPELLANT ARE ACCEPTED BY RBI, AS SEEN FROM ADDITIONAL EVIDENCE AND OTHER SUBMISSIONS FILED. EV EN, THE A.O. SAYS THAT INVESTMENT IS THE PRINCIPAL BUSINESS OF APPELLANT. THAT DOES NOT PRECLUDE ACTIVITIES PERTAINING TO MONEY LENDING. THE DECREE PER THE CIVIL SUIT IN LITIGATION IN APPELLANTS FAVOUR REINFORCES THE MER ITS OF THE APPELLANTS CASE AS THE APPELLANTS POSITION WAS UPHELD BY THE GOVERNIN G HIGH COURT. THE A.OS COMMENTS THAT SUCH MONEY LENT IS NOT IN THE ORDINAR Y COURSE OF MONEY LENDING CANNOT BE ACCEDED TO AS THAT WOULD AMOUNT TO THE AP O STEPPING INTO THE SHOES OF THE APPELLANT TO DECIDE ON THE COURSE OF BUSINES S OF THE ASSESSEE - WHICH IS A PROPOSITION THAT HAS REPEATEDLY BEEN STRUCK DOWN BY VARIOUS COURT JUDGMENTS. 4.9.2 THE CASE OF DATAMATIC FINANCIAL SERVICES LTD . V. DCIT REPORTED IN 2011 TIOL- 124 RELIED UPON BY THE AO IS DISTINGUISH ABLE ON FACTS. IN DATAMATIC CASE THE ASSESSEE MADE NO SPECIFIC CLAIM THAT IT WAS ENGAGED IN MONEY LENDING, ACCORDINGLY, IT WAS HELD THAT THE AS SESSEE WAS NOT ENGAGED IN THE BUSINESS OF MONEY LENDING. IN THE INSTANT APPEA L BEFORE ME, THE FACTS ARE DIFFERENT AS THE ARE MULTIPLE TRANSACTIONS INVOLVIN G SUBSTANTIAL SUMS OF MONEY WITH MANY PARTIES OVER SEVERAL YEARS. THESE APPEAR TO HAVE BEEN ACCEPTED IN PAST RELEVANT AUTHORITIES AND COURTS. 4.9.3 THE AO CANNOT DECIDE ON THE EXTENT PRECAUTION S OR DILIGENCE FOR ADVANCING FUNDS/MONEYS OR LOANS. THIS IS PARTICULAR LY CONSIDERING THAT THE ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 12 DEFAULTING PARTY M/S VTL IS AN UNRELATED PARTY OF A PPELLANT. IT IS NOT THE DUTY OF THE AO TO DECIDE AS TO HOW THE ASSESSEE SHOULD C ONDUCT BUSINESS. THIS IS A SETTLED PROPOSITION. REFERENCE TO THE DECISION OF T HE APEX COURT REPORTED IN 288 ITR 1 (SC) IN THE CASE OF S.A. BUILDERS V. CIT (A) IS PERTINENT HERE, WHEREIN IT WAS HELD THAT THE REVENUE CANNOT JUSTIFI ABLY CLAIM TO PUT ITSELF IN THE ARM-CHAIR OF THE BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABL E EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCES OF THE CASE. 4.9.4 THE AO DISALLOWED THE APPELLANTS CLAIM FOR B AD DEBTS ON THE GROUND THAT THE APPELLANT COMPANY IS NOT IN THE BUSINESS O F MONEY LENDING AND AS SUCH IS NOT COVERED U/S 36(L)(VII) READ WITH SECTION 36( 2) OF THE ACT. FROM PERUSAL OF THE DETAILS OF INTEREST INCOME AND PAST ASSESSMENT ORDERS U/S 143(3), I FIND THAT THE INTEREST FROM LOANS AND ADVANCES GIVEN BY THE A SSESSEE INCLUDING INTEREST ON LOAN TO VTL HAS PREVIOUSLY BEEN ASSESSED AS ITS BUSINESS INCOME. IN THE YEAR OF WRITE OFF OF THE LOAN, IT CANNOT BE DECIDED THAT THE MONEY LENDING IS NOT THE BUSINESS OF THE APPELLANT. THIS INFERENCE OF TH E A.O. IS CONTRARY TO THE JUDICIAL PRINCIPLE OF CONSISTENCY APPROVED BY THE H ONBLE APEX COURT AND HONBLE JURISDICTIONAL HIGH COURT RESPECTIVELY IN T HE CASE OF [RADHASOAMI SATSANG V. CIT 1992] 193 ITR 321 (SC) AND [DALMIA P ROMOTERS PVT. LTD. 2006] 281 ITR 346 (DEL) 4.9.6 THE CONDITION PRECEDENT FOR SUCH AN ACTION BY THE APPELLANT IS THAT THE LOAN OR ADVANCE GIVEN IN THE ORDINARY COURSE OF MON EY LENDING BUSINESS IS WRITTEN OFF DURING THE RELEVANT ASSESSMENT YEAR. TH E ASSESSEE HAS WRITTEN OFF THE LOAN AS BAD DEBT IN THE AY 2010-11 WHICH IS NOT DISPUTED BY THE AO. HONBLE DELHI HIGH COURT IN THE CASE OF ALL GROW FI NANCE AND INVESTMENT P. LTD. V. CIT 338 ITR 496 (DEL) HAS HELD THAT THE AMO UNTS OF DEBTS WERE ADVANCED BY THE ASSESSEE IN THE ORDINARY COURSE OF MONEY LENDING. THE ONLY CONDITION LAID DOWN IN THE SECOND PART OF SUB-SECTI ON(2) OF SECTION 36 OF THE ACT WAS THAT THE AMOUNT SHOULD BE ADVANCED IN THE O RDINARY COURSE OF BUSINESS WHICH BY ITSELF PROVES ITS REVENUE NATURE AND NO FU RTHER CONDITIONS WERE REQUIRED TO BE SATISFIED WHICH WERE ONLY APPLICABLE WITH REGARD TO DEBT QUALIFYING AS BAD DEBT IN THE FIRST PART OF SUB-SEC TION (2). 4.9.7 THE DIVISION BENCH OF JURISDICTIONAL HIGH COU RT IN THE CASE OF CIT V. MORGAN SECURITIES AND CREDITS P. LTD. [2007] 292 IT R 339 (DELHI), WHILE INTERPRETING SECTION 36(L)(VII) AND 36(2)(I), OBSER VED AS UNDER: 'A CONJOINT READING OF SECTION 36(2) AND SECTION 36 (L)(VII) MAKES IT CLEAR THAT THE ASSESSEE WOULD BE ENTITLED TO A DEDU CTION OF THE AMOUNT OF ANY BAD DEBT WHICH HAS BEEN WRITTEN OFF A S IRRECOVERABLE IN ITS ACCOUNTS FOR THE PREVIOUS YEAR. ANY LINGERIN G DOUBT WOULD VANISH ON A CAREFUL READING OF CIRCULAR NO. 551, DA TED JANUARY 23, 1990 ([1990]183 ITR (ST.) 7) (THE RELEVANT PORTION OF WHICH READS AS FOLLOWS : ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 13 'THE OLD PROVISIONS OF CLAUSE (VII) OF SUB-SECTION (1) READ WITH SUB- SECTION (2) OF THE SECTION LAID DOWN CONDITIONS NEC ESSARY FOR ALLOWABILITY OF BAD DEBTS. IT WAS PROVIDED THAT THE DEBT MUST BE ESTABLISHED TO HAVE BECOME BAD IN THE PREVIOUS YEAR . THIS LED TO ENORMOUS LITIGATIONS ON THE QUESTION OF ALLOWABILIT Y OF BAD DEBT IN A PARTICULAR YEAR, BECAUSE THE BAD DEBT WAS NOT NECES SARILY ALLOWED BY THE ASSESSING OFFICER IN THE YEAR IN WHICH THE S AME HAD BEEN WRITTEN OFF ON THE GROUND THAT THE DEBT WAS NOT EST ABLISHED TO HAVE BECOME BAD IN THE YEAR. IN ORDER TO ELIMINATE THE D ISPUTES IN THE MATTER OF DETERMINING THE YEAR IN WHICH A BAD DEBT CAN BE ALLOWED AND ALSO TO RATIONALIZE THE PROVISIONS, THE AMENDIN G ACT, 1987, HAS AMENDED CLAUSE (VII) OF SUB-SECTION (1) AND CLAUSE (I) OF SUB-SECTION (2) OF THE SECTION TO PROVIDE THAT THE CLAIM FOR BA D DEBT WILL BE ALLOWED IN THE YEAR IN WHICH SUCH A BAD DEBT HAS BE EN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. CLAUSES (III) AND (IV) OF SUB-SECTION (2) OF THE SE CTION PROVIDED FOR ALLOWING DEDUCTION FOR A BAD DEBT IN AN EARLIER OR LATER PREVIOUS YEAR, IF THE INCOME-TAX OFFICER WAS SATISFIED THAT THE DEBT DID NOT BECOME BAD IN THE YEAR IN WHICH IT WAS WRITTEN OFF BY THE ASSESSEE. THESE CLAUSES HAVE BECOME REDUNDANT, AS THE BAD DEB TS ARE NOW BEING STRAIGHTWAY ALLOWED IN THE YEAR OF WRITE OFF THE AMENDING ACT, 1987, HAS, THEREFORE, AMENDED THESE CLAUSES TO WITHDRAW THEM AFTER THE ASSESSMENT YEAR 1988-89. IT IS OUR VIEW THAT CIRCULAR NO. 551 LEAVES NO SCOP E FOR DEBATE SINCE IT SPECIFICALLY NOTICES THE PREVIOUS PRACTICE OF HAVING TO ESTABLISH THAT A DEBT HAD BECOME BAD IN THE PREVIOU S YEAR, WHICH HAD GENERATED ENORMOUS LITIGATION ON THE QUESTION O F ALLOWABILITY OF BAD DEBT IN A PARTICULAR YEAR. THE CIRCULAR EXPR ESSED THE HOPE THAT THIS LITIGATION WOULD BE ELIMINATED BY PERMITT ING A DEBT TO BE TREATED AS A BAD OR IRRECOVERABLE NO SOONER IT WAS WRITTEN OFF IN THE BOOKS OF THE ASSESSEE CONCERNED.' 4.9.8 THE CLAIM OF THE ASSESSEE IS FURTHER SUPPORTE D BY THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF TRF LTD. V. CIT R EPORTED IN 323 ITR 397 (SC) WHEREIN IT WAS HELD THAT AFTER THE AMENDMENT O F SECTION 36(L)(VII) OF THE INCOME TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 198 9, IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECES SARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECO VERABLE: IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACC OUNTS OF THE ASSESSEE. IT WOULD BE PERTINENT TO REFER TO THE PROVISIONS OF SE CTION 36(L)(VII) WHICH IS BEING REPRODUCED BELOW: ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 14 36(1) (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF ANY BAD DEBT OR PART THEIR OF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF ASSESSEE FOR THE PREVIOUS YEAR] 4.9.9 IN VIEW OF THE AFORESAID DISCUSSIONS, I AM I N AGREEMENT WITH THE SUBMISSIONS OF LD. AR FOR THE APPELLANT AS REGARDS THE INTERPRETATION OF SECTION 36(L)(VII) READ WITH SECTION 36(2) AND ACCORDINGLY HOLD THAT THE AMOUNT OF RS. 54,08,93,273/- IS ALLOWABLE AS BAD DEBT AND AS SUCH THE ADDITION AS MADE BY THE AO OF THE SAME TO THE TOTAL INCOME IS DELETED. 11. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE REVENU E IS IN APPEAL BEFORE THE TRIBUNAL. 12. THE LD. DR STRONGLY OBJECTED TO THE ORDER OF THE CI T(A) IN DELETING THE ADDITION MADE BY THE ASSESSING OFFICER AMOUNTING TO RS.54.08 CRORES. THE LD. DR SUBMITTED THAT THE ASSESSEE COMPANY HAS ADVANCED A LOAN TO M/S VASU TECH LTD., AND THE COPY OF THE LOAN AGREEMENT DATED 5 TH APRIL, 2005 WAS FURNISHED BEFORE THE ASSESSING OFFICER. HOWEVER, THE ASSESSEE COMPANY H AS ADVANCED A LOAN OF RS.19.20 CRORE BEFORE THE LOAN AGREEMENT WAS ENTERE D WITH M/S VASU TECH LTD.(VTL) NO INTEREST PAYMENT HAS BEEN MADE BY VTL TO THE ASSESSEE COMPANY DURING THE PERIOD 2003-2004. FURTHER, NO INTEREST HAS BEEN PROVIDED DURING F.Y. 2005-06. THE LD. DR, REFERRING TO THE PROVISIONS O F SECTION 36(1)(VII) W.R.S 36(2), SUBMITTED THAT AS PER THE SAID PROVISION, NO DEDUCT ION SHALL BE ALLOWED IN RESPECT OF BAD DEBTS THAT HAS BEEN WRITTEN OFF UNLESS SUCH DEB TS HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE IN ANY EARL IER PREVIOUS YEAR AND REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF BA NKING BY MONEY LENDING WHICH IS CARRIED OUT BY THE ASSESSEE. HE SUBMITTED THAT IN THE INSTANT CASE, DEBTS HAVE ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 15 NEITHER BEEN EVER A PART OF THE INCOME OF THE ASSES SEE NOR THE TRANSACTION CARRIED OUT IN THE ORDINARY COURSE OF MONEY LENDING. SO F AR AS THE CLAIM OF THE ASSESSEE THAT IT IS REGISTERED AS NBFC AND, THEREFORE, THE D EBTS SHOULD BE ALLOWED U/S 36(1)(VII) IS CONCERNED, HE SUBMITTED THAT AS PER T HE RBI GUIDELINES, THE ASSESSEE COMPANY FALLS IN THE CATEGORY OF INVESTMENT COMPANY AND IT IS NOT IN THE BUSINESS OF MONEY LENDING. FURTHER, THE ASSESSEE HAS NOT FO LLOWED THE RBI GUIDELINES SINCE IT HAS NEVER OBTAINED AS MUCH AS COLLATERAL SECURIT Y FOR THE LOAN EXTENDED TO M/S VTL. REFERRING TO CLAUSE 8 OF THE LOAN AGREEMENT D ATED 15 TH APRIL, 2005, HE SUBMITTED THAT THE SAME GIVES THE OPTION TO THE ASS ESSEE COMPANY TO CONVERT INTO EQUITY TO THE LENDER ANY DAY WHICH THE LENDER CAN C ONVERT IN PART OR WHOLE THE OUTSTANDING DUES INTO EQUITY SHARE CAPITAL OF THE B ORROWER. THEREFORE, IT IS IN THE NATURE OF INVESTMENT MADE BY THE ASSESSEE OUT OF SU RPLUS FUNDS AND NOT PART OF REGULAR BUSINESS OF ADVANCING LOANS. FOR THE ABOVE PROPOSITION, HE RELIED ON THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S DATAMATIC FINANCIAL SERVICES LTD. (SUPRA) WHICH HAS BEEN RELIED ON BY THE ASSESSING OFFICER. HE ALSO RELIED ON THE DECISION OF THE HON'BLE ALLAH ABAD HIGH COURT IN THE CASE OF CIT VS. KOHLI BROTHERS COLOUR LAB PVT. LTD. REPORTE D IN 329 ITR 80 AND THE DECISION OF THE HON'BLE RAJASTHAN HIGH COURT IN THE CASE OF KASHMIR TRADING COMPANY VS. DCIT, 291 ITR 228 AND SUBMITTED THAT ORDER OF THE CIT(A) BE REVERSED AND THAT OF THE ORDER OF THE ASSESSING OFF ICER BE RESTORED. ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 16 13. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND , HEAVILY RELIED ON THE ORDER OF THE CIT(A). REFERRING TO THE COPY OF MEMO RANDUM AND ARTICLES OF ASSOCIATION, COPY OF WHICH IS PLACED AT PAGES 1 TO 22 OF THE PAPER BOOK, THE LD. COUNSEL FOR THE ASSESSEE DREW THE ATTENTION OF THE BENCH TO THE OTHER OBJECTS AND SUBMITTED THAT AS PER CLAUSE 8 OF THE OBJECTS INCID ENTAL OR ANCILLARY TO THE ATTAINMENT OF MAIN OBJECTIVES, THE ASSESSEE CAN LEN D AND ADVANCE MONEY EITHER WITH OR WITHOUT SECURITY. SO FAR AS THE ALLEGATION OF THE REVENUE THAT THE ASSESSEE HAS NOT RECEIVED INTEREST IN THE EARLIER YEARS IS C ONCERNED, HE SUBMITTED THAT THE ASSESSEE HAS EARNED INTEREST IN THE PRECEDING YEARS AND THE SAME WAS OFFERED TO TAX AS BUSINESS INCOME. REFERRING TO PAGE 107 OF THE P APER BOOK, THE LD. COUNSEL DREW THE ATTENTION OF THE BENCH TO THE INTEREST RECEIVED OF RS.63,74,489/- FOR THE YEAR ENDED ON 31.03.2008 AND RS.118,24,872/- FOR THE YEA R ENDED ON 31.03.2007. REFERRING TO PAGE 79 OF THE PAPER BOOK, HE SUBMITTE D THAT THE INTEREST RECEIVED FOR THE YEAR ENDED 31.03.2009 WAS RS.5,56,15,601.70. R EFERRING TO PAGE 47 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BENCH TO T HE INTEREST INCOME OF RS.9,76,70,350.26 FOR THE YEAR ENDED 31.03.2010. R EFERRING TO PAGE 296 OF THE PAPER BOOK, HE SUBMITTED THAT THE ASSESSEE HAS RECE IVED INTEREST OF RS.1,67,28,717/- FOR THE FINANCIAL YEAR 2004-05 FROM M/S VASU TECH L TD. WHICH HAS BEEN ASSESSED AS BUSINESS INCOME U/S 143(3). REFERRING TO PAGE 2 97 OF THE PAPER BOOK, HE DREW THE ATTENTION OF THE BENCH TO THE COPY OF INTEREST RECEIVED FROM M/S VTL FOR THE YEAR ENDED 31 ST MARCH, 2007 AT RS.5,57,947/- WHICH HAS BEEN ASSESS ED AS BUSINESS ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 17 INCOME U/S 143(3). HE SUBMITTED THAT THE INTEREST INCOME WAS FORMING PART OF THE BUSINESS INCOME OF THE ASSESSEE WHICH WAS DULY SHOW N IN THE RETURN OF INCOME. 13.1 REFERRING TO THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD., 323 ITR 397 , HE SUBMITTED THAT AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE IT ACT, 1961 W.E.F. 1 ST APRIL, 1989 IN ORDER TO OBTAIN A DEDUCTION IN RELA TION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT HAS, IN FACT, BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 13.2 REFERRING TO THE DECISION OF THE HON'BLE DELHI HI GH COURT IN THE CASE OF ALL GROW FINANCE & INVESTMENT P. LTD. VS. CIT, 338 ITR 496 , HE SUBMITTED THAT THE HON'BLE HIGH COURT IN THE SAID DECISION HAS HELD TH AT WHERE AN AMOUNT ADVANCED BY A NON-BANKING FINANCE COMPANY IN THE ORDINARY CO URSE OF BUSINESS BECOMES BAD, THE ASSESSEE CAN WRITE OFF THE SAME ONCE THE C ONDITION LAID DOWN IN THE SECOND PART OF SUB-SECTION (2) OF SECTION 36 OF THE ACT IS FULFILLED. IT WAS HELD THAT THE ONLY CONDITION LAID DOWN IN THE SECOND PART OF SUB-SECTI ON (2) OF SECTION 36 OF THE ACT WAS THAT THE AMOUNT SHOULD BE ADVANCED IN THE ORDIN ARY COURSE OF BUSINESS WHICH BY ITSELF PROVES ITS REVENUE NATURE AND NO FURTHER CONDITIONS WERE REQUIRED TO BE SATISFIED WHICH WERE ONLY APPLICABLE WITH REGARD TO DEBT QUALIFYING AS BAD DEBT IN THE FIRST PART OF THE SUB-SECTION (2). THE HON'BLE HIGH COURT ACCORDINGLY REVERSED THE ORDER OF THE TRIBUNAL AND ALLOWED THE APPEAL OF THE ASSESSEE. ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 18 13.3 REFERRING TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE CIT VS. GLOBAL CAPITAL LTD., 306 ITR 332 , HE SUBMITTED THAT THE HON'BLE HIGH COURT IN THE SAID DECISION HAS HELD THAT PROOF THAT DEBT HAS BECOME BAD IS NOT NECESSARY AND THE DEBT MUST BE WRITTEN OFF IN ACCOUNTS IN VIEW OF AMENDMENT OF SECTION 36(1)(VII) OF THE IT ACT. SO FAR AS THE DECISION RELIED ON BY THE LD. A.O. AND LD. DR IN THE CASE OF DATAMATIC FINANCIAL SERVICES LTD. (SUPRA) I S CONCERNED, HE SUBMITTED THAT THE SAID DECISION IS NOT APPLICABLE SINCE, IN THAT CASE, THE MONEY LENDING WAS NOT THE BUSINESS OF DATAMATIC FINANCIAL SERVICES LTD. H E ACCORDINGLY SUBMITTED THAT SINCE THE ORDER OF THE CIT(A) IS IN CONSONANCE WITH THE LAW, IT SHOULD BE UPHELD AND THE GROUNDS RAISED BY THE REVENUE SHOULD BE DIS MISSED. 14. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A), AND THE PAPER BOOK FILED ON BEHALF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS CITED BEFORE US. WE FIND THE ASSESSING OFFICER, IN THE INSTANT CASE, DI SALLOWED THE CLAIM OF BAD DEBT OF RS.54,08,93,273/- ON THE GROUND THAT THE ASSESSEE D OES NOT FULFILL THE CONDITIONS OF SUB-SECTION 36(1)(VII) R.W.S. 36(2) OF THE IT ACT. FURTHER, THE MAIN OBJECT OF THE ASSESSEE COMPANY IS THAT OF DEALING IN STOCKS AND S HARES ACTING AS COMMISSION AGENTS, STOCKIST, ETC., AND MONEY LENDING WAS NOT I NCLUDED IN THE MAIN OBJECTS OF THE COMPANY. IT WAS ALSO THE ALLEGATION OF THE ASS ESSING OFFICER THAT THE ASSESSEE ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 19 COMPANY VIOLATED THE GUIDELINES ISSUED BY THE RBI F ROM TIME TO TIME. THE ASSESSING OFFICER ALSO NOTED THAT ALTHOUGH MR. R.L. VERMA AND M/S. R.L. VERMA & SONS (HUF) STOOD AS SURETY FOR REPAYMENT OF LOAN BUT LOAN AGREEMENT WAS SIGNED ONLY BY ONE PERSON IN ALL FOUR CAPACITIES I. E. MR. DHRUV VERMA FOR M/S. VASU TECH LTD., MR. DHRUV VERMA IN HIS PERSONAL CAP ACITY, MR. DHRUV VERMA FOR AND ON BEHALF OF MR. R.L. VERMA AND MR. DHRUV VERMA FOR AND ON BEHALF OF M/S. R.L. VERMA & SONS (HUF). THIS LOAN AGREEMENT WAS EN TERED INTO WITHOUT ANY BASIC PRECAUTION OR DILIGENCE WITHOUT THE MANDATORY SURETY/GUARANTOR/CO-GUARANTOR WHICH INDICATES THAT THE LOAN AGREEMENT WAS A FARCE WITH COMPLETE DISREGARD FOR ALL PROCEDURAL REQUIREMENTS. IN VIEW OF THE ABOVE THE A SSESSING OFFICER DISALLOWED THE CLAIM OF BAD DEBT OF RS.55.08 CRORES. WE FIND THE LD.CIT(A) DELETED THE DISALLOWANCE SO MADE BY THE ASSESSING OFFICER THE R EASONS OF WHICH HAVE ALREADY BEEN REPRODUCED IN THE PRECEDING PARAGRAPHS. IT IS THE SUBMISSION OF THE LD. DR THAT THE LOAN WAS SANCTIONED BY THE ASSESSEE COMPAN Y TO VTL EVEN PRIOR TO THE DATE OF LOAN AGREEMENT WAS ENTERED INTO AND NO INTE REST PAYMENT HAS BEEN MADE BY VTL TO THE ASSESSEE IN THE PERIOD FROM 2003 TO 2004 . FURTHER, NO INTEREST HAS BEEN PROVIDED DURING F.Y. 2005-06. IT IS ALSO THE ALLEG ATION OF THE LD. DR THAT THE ASSESSEE HAS NOT FOLLOWED THE RBI GUIDELINES AS THE ASSESSEE COMPANY HAS NEVER OBTAINED AS MUCH AS COLLATERAL SECURITY AS THE LOAN EXTENDED TO VTL. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT ALTHOUGH MONEY LENDING IS NOT THE MAIN OBJECT OF THE ASSESSEE COMPANY, HOWEVER, A S PER THE OBJECTS INCIDENTAL OR ANCILLARY TO ATTAINMENT OF THE MAIN OBJECT, THE ASS ESSEE IS AUTHORIZED TO LEND AND ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 20 ADVANCE MONEY EITHER WITH OR WITHOUT SECURITY AND G IVE CREDIT TO SUCH PERSONS AND UPON SUCH TERMS AND CONDITIONS AS THE COMPANY MAY T HINK FIT. IT IS ALSO HIS SUBMISSION THAT THE ASSESSEE HAS ALWAYS BEEN SHOWIN G THE INTEREST INCOME AS BUSINESS INCOME FOR THE LAST SO MANY YEARS WHICH HA S BEEN ACCEPTED BY THE DEPARTMENT. IT IS ALSO HIS SUBMISSION THAT IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA), AFTE R THE AMENDMENT OF SECTION 36(1)(VII) OF THE IT ACT W.E.F. 1 ST APRIL, 1989, IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN ACCOUNTS OF THE ASSESSEE. FURTHER , IT IS ALSO HIS SUBMISSION THAT WHERE AN AMOUNT ADVANCED BY A NON-BANKING FINANCE C OMPANY IN THE ORDINARY COURSE OF BUSINESS BECOMES BAD, THE ASSESSEE CAN CL AIM THE SAME ONCE THE CONDITION LAID DOWN IN THE SECOND PART OF SUB-SECTI ON (2) OF SECTION 36 OF THE ACT IS FULFILLED. 14.1 WE FIND MERIT IN THE ABOVE ARGUMENT OF THE LD. COUN SEL FOR THE ASSESSEE. A PERUSAL OF THE PAGE 296 OF THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE SHOWS THAT THE ASSESSEE HAS RECEIVED INTEREST OF RS.1,67,28,71 7/- FROM VTL FOR THE YEAR ENDED 31 ST MARCH, 2005 AND THE SUBMISSIONS OF THE LD. AR THAT THE SAME WAS ASSESSED AS BUSINESS INCOME U/S 143(3) OF THE IT ACT COULD NOT BE CONTROVERTED BY THE LD. DR. SIMILARLY, THE ASSESSEE HAS RECEIVED AN AMOUNT OF R S.5,55,947/- AS INTEREST FROM VTL FOR THE YEAR ENDED 31 ST MARCH, 2007 COPY OF WHICH IS PLACED AT PAGE 297 OF ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 21 THE PAPER BOOK. THE SUBMISSION OF THE LD. COUNSEL THAT THE SAME WAS ALSO ASSESSED U/S 143(3) COULD NOT BE CONTROVERTED BY LD. DR. THE REFORE, THE ALLEGATION OF THE REVENUE THAT THE ASSESSEE HAS NOT RECEIVED ANY INTE REST IN THE EARLIER YEARS IS INCORRECT. FURTHER, AS PER CLAUSE 8 OF MEMORANDUM OF ASSOCIATION WHICH ARE OBJECTS INCIDENTAL OR ANCILLARY TO THE ATTAINMENT O F THE MAIN OBJECTS, THE ASSESSEE IS AUTHORIZED TO LEND AND ADVANCE MONEY EITHER WITH OR WITHOUT SECURITY AND GIVE CREDIT TO SUCH PERSONS AND UPON SUCH TERMS AND COND ITIONS AS THE COMPANY MAY THINK FIT. 14.2 THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA) HAS HELD THAT AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE IT ACT, 1961 W.E.F. 1 ST APRIL, 1989, IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. WE FIND THE HON'BLE DELHI HIGH COURT IN THE CASE OF AL L GROW FINANCE & INVESTMENT P. LTD. (SUPRA) HAS HELD AS UNDER:- 3. THE ASSESSEE IS A NON-BANKING FINANCIAL COMPANY . IT DERIVES ITS INCOME FROM INTEREST ON MONEY LENT TO VARIOUS PARTIES AS A PART OF ITS MONEY LENDING BUSINESS. ON 16TH APRIL, 1999 IT LENT `60 LAKHS TO M/S BHAV PORTFOLIO. AFTER DEDUCTING OPENING CREDIT BALANCE OF `3.10 LAKHS, A SUM OF `56.90 LAKHS BECAME DUE TO BE RECOVERED. HOWEVER, THIS AMOUNT COULD NOT BE RECOVERED EVEN AFTER SEVERAL REQUESTS, REMINDERS AND LEGAL NOTICE. ULTIM ATELY, `28.45 LAKHS (50% OF AMOUNT DUE) WAS WRITTEN OFF IN ASSESSMENT YEAR 2000 -01. THE BALANCE AMOUNT WAS ALSO WRITTEN OFF IN THE YEAR 2004-05 AND THE SA ME STAND ALLOWED IN THE ASSESSMENT MADE UNDER SECTION 143(1) OF THE INCOME TAX ACT (FOR SHORT THE ACT ). SIMILARLY, `6,50,000/- (BEING 50% OF THE AMOUNT DUE) WAS WRITTEN OFF IN THE CASE OF M/S GALLERY IN THE RELEVANT ASSESSMENT YEAR. ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 22 4. THE ASSESSING OFFICER DISALLOWED ASSESSEE S CLAIM FOR BAD DEBTS HOLDING THAT UNDER SECTION 36(2), TO WRITE OFF ANY BAD DEBT , SAME HAS TO BE INCLUDED IN THE INCOME FOR EARLIER YEARS WHICH WAS NOT DONE IN THE CASE OF ASSESSEE. 5. THE FINDINGS OF THE ASSESSING OFFICER WERE CONFI RMED BY BOTH CIT(A) AS WELL AS TRIBUNAL. THE TRIBUNAL ALSO OBSERVED THAT T HE ADVANCES MADE BY THE ASSESSEE WERE WITHOUT COLLATERAL SECURITY OR ANY OT HER TYPE OF SECURITY. SUCH NON-COMPLIANCE OF SAFETY MEASURES IN RESPECT OF SEC URITY OF DEBT SHOWS THAT THE ADVANCE WAS NOT MADE IN THE ORDINARY COURSE OF BUSINESS. THE TRIBUNAL ALSO OBSERVED THAT SINCE THE ASSESSEE FAILED TO PRO VE THAT THE AMOUNT WHICH HAS BEEN ADVANCED WAS EVER SHOWN AS INCOME IN ANY OF TH E PREVIOUS YEARS, THEREFORE, CONDITIONS SET OUT UNDER SECTION 36(2) A RE NOT FULFILLED. .. 13. WE ARE OF THE VIEW THAT THE ONLY CONDITION LAID DOWN IN SECOND PART OF SUB- SECTION 2 OF SECTION 36 OF THE ACT IS THAT THE AMOU NT SHOULD BE ADVANCED IN THE ORDINARY COURSE OF BUSINESS WHICH BY ITSELF PROVES ITS REVENUE NATURE AND NO FURTHER CONDITIONS ARE REQUIRED TO BE SATISFIED WHI CH ARE ONLY APPLICABLE WITH REGARD TO DEBT QUALIFYING AS BAD DEBT IN THE FIRST PART OF SUB-SECTION 2 IN THE MANNER AS INTERPRETED ABOVE. 14. FOR THE AFORESAID REASONS, WE ARE IN AGREEMENT WITH THE SUBMISSIONS OF LEARNED COUNSEL FOR THE APPELLANT/ASSESSEE AS REGAR DS THE INTERPRETATION OF SUB- SECTION 2(I) OF SECTION 36 AND THAT BEING SO, WE AR E OF THE VIEW THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN HOLDING THAT THE AMOUNT OF RS.34,95,000/- WAS NOT ALLOWABLE AS BAD DEBT UNDER SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT. 15. WE FIND THE HON'BLE DELHI HIGH COURT IN THE CASE OF GLOBAL CAPITAL LTD. (SUPRA) HAS HELD THAT UNDER THE PROVISIONS OF SECTI ON 36(1)(VII) OF THE IT ACT, AS AMENDED W.E.F. 1 ST APRIL, 1989, THE ASSESSEE IS NOT REQUIRED TO ESTAB LISH THAT THE CONCERNED DEBT HAS ACTUALLY BECOME BAD IN THE RELEV ANT YEAR FOR THE PURPOSE OF CLAIMING DEDUCTION UNDER THIS SECTION AND THE ONLY REQUIREMENT FOR CLAIMING THE DEDUCTION IS THAT THE ASSESSEE HAS TO WRITE OFF THE RELEVANT DEBT IN ITS BOOKS OF ACCOUNT. THE VARIOUS DECISIONS RELIED ON BY THE LD . DR ARE DISTINGUISHABLE AND NOT ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 23 APPLICABLE TO THE FACTS OF THE PRESENT CASE IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT IN TRF LTD. (SUPRA) AND THE BINDING D ECISIONS OF THE JURISDICTIONAL HIGH COURT CITED SUPRA. IN VIEW OF THE ABOVE DISCU SSION AND IN VIEW OF THE DETAILED REASONING GIVEN BY THE LD.CIT(A) ON THIS ISSUE, WE FIND NO INFIRMITY IN THE ORDER OF THE CIT(A). ACCORDINGLY, THE SAME IS UPHELD AND TH E GROUNDS RAISED BY THE REVENUE ARE DISMISSED. ITA NO. 3796/DEL/2015 (BY THE ASSESSEE) 16. GROUND NOS.1 AND 1.1. RAISED BY THE ASSESSEE READ A S UNDER:- 1. THAT THE LD. COMMISSIONER OF INCOME TAX (APPEAL S) [LD. CIT(A)] HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 1,0 0,00,000/- BEING THE ADVANCE GIVEN TO MRS. ANURADHA SHYAM CHANDANI WHICH WAS WRITTEN OFF AS BAD DEBT ON ITS FORFEITURE BY THE PARTY DURING THE YEAR. THE ADVANCE WAS GIVEN FOR THE PURCHASE OF PROPERTY IN THE COURSE OF APPEL LANTS BUSINESS AS STOCK IN TRADE. THE CLAIM OF THE APPELLANT IF NOT ALLOWABLE AS BAD DEBT U/S 36(1)(VII), IS ALLOWABLE AS BUSINESS/TRADING LOSS UNDER SECTION 37 (1 )/28 OF THE ACT. THE DISALLOWANCE AS MADE BY THE ASSESSING OFFICER AND C ONFIRMED BY THE LD. CIT(A) BEING BASED ON ERRONEOUS VIEWS AND / OR NON- APPRECIATION OF THE FACTS AND LAW DESERVES TO BE DELETED. 1.1. THAT WITHOUT PREJUDICE TO THE ABOVE, IF THE SAID AM OUNT FORFEITED BY MRS. ANURADHA SHYAM CHANDANI BE NOT ALLOWED AS A BA D DEBT OR AS A BUSINESS LOSS/TRADING LOSS, THE SAME IS ALLOWABLE AS A SHORT TERM CAPITAL LOSS. 17. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTED THAT THE ASSESSEE HAS DEBITED A SUM OF RS.1 CRORE IN THE P&L ACCOUNT ON ACCOUNT OF BAD DEBTS. ON BEI NG ASKED BY THE ASSESSING OFFICER, IT WAS EXPLAINED THAT THE ABOVE AMOUNT WAS GIVEN TO MRS. ANURADHA SHYAM CHANDANI FOR PURCHASE OF PROPERTY, BUT, DUE T O SOME REASONS, THE ASSESSEE COULD NOT PURCHASE THE PROPERTY AND THE AMOUNT WAS FORFEITED BY HER, THEREFORE, THE ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 24 SAME WAS CLAIMED AS BAD DEBT IN THE P&L ACCOUNT. H OWEVER, IN ABSENCE OF ANY EVIDENCE TO SUBSTANTIATE THE ABOVE CLAIM OR TO PROV E THAT IT IS A TRADING DEBT AND THE MONEY WAS ADVANCED IN THE ORDINARY COURSE OF BUSINE SS, THE ASSESSING OFFICER REJECTED THE CLAIM OF WRITING OFF THE DEBT AND ADD ED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 18. BEFORE THE CIT(A), IT WAS SUBMITTED THAT THE ASSESS EE INTENDED TO PURCHASE THE PROPERTY IN THE COURSE OF ITS BUSINESS AS STOCK -IN-TRADE. CERTAIN ADDITIONAL EVIDENCES WERE FILED BEFORE THE CIT(A) SUCH AS AGRE EMENT TO SELL DATED 16 TH APRIL, 2009, COMMUNICATION LETTERS LEADING TO FORFEITURE O F ADVANCE, BOARD RESOLUTION REGARDING AGREEMENT TO PURCHASE THE PROPERTY, ETC. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS PAID A SUM OF RS.1 CRORE AS ADVANCE TO MRS. ANURADHA SHYAM CHANDANI FOR PURCHASE OF INDUSTRIAL PLOT IN TERMS O F AGREEMENT TO SELL DATED 16 TH APRIL, 2009 FOR REASONS OF COMMERCIAL EXPEDIENCY AS MARKET WAS WEAK IN THE PREVAILING CIRCUMSTANCES AT THAT TIME. IT WAS NOT CONSIDERED EXPEDIENT TO PURCHASE THAT PROPERTY OR TO COMPLETE THE TRANSACTION. SINC E THE ADVANCE AMOUNT WAS FORFEITED BY THE SELLER AND IT WAS WRITTEN OFF BY T HE ASSESSEE AND SINCE THE AMOUNT WAS EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE, THEREFORE, SUCH WRITE OFF, IF NOT ALLOWED AS BAD DE BT, SHOULD BE ALLOWED U/S 28(1) OF THE IT ACT AND U/S 37 OF THE IT ACT AS BUSINESS LOS S. IT WAS FURTHER ARGUED THAT MERELY BECAUSE THE CLAIM WAS NOT MADE OUT UNDER ONE PARTICULAR PROVISION OF THE ACT, BUT, WAS SO MADE OUT UNDER ANOTHER PROVISION O F THE ACT, THE CLAIM CANNOT BE ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 25 DISALLOWED. VARIOUS DECISIONS WERE ALSO BROUGHT TO THE NOTICE OF THE CIT(A) AND IT WAS SUBMITTED THAT IN CASE THE SAME WAS NOT ALLOWED AS BAD DEBT, IT SHOULD ALLOWED AS A BUSINESS LOSS. 19. HOWEVER, THE LD.CIT(A) WAS NOT SATISFIED WITH THE E XPLANATION GIVEN BY THE ASSESSEE. HE OBSERVED THAT THE ADVANCE GIVEN BY TH E ASSESSEE FOR PURCHASE OF PROPERTY, WHICH WAS LATER WRITTEN OFF, IS NOT ALLOW ABLE U/S 36(1)(VII) AS BAD DEBT AS THE SAME IS NOT A TRADING DEBT WHICH WAS TAKEN AS I NCOME IN EARLIER YEARS OR MONEY ADVANCED IN THE ORDINARY COURSE OF BUSINESS. HE AC CORDINGLY REJECTED THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE. 20. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. 21. THE LD. COUNSEL FOR THE ASSESSEE, REFERRING TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. NEW DELHI HOTELS LTD., REPORTED IN 345 ITR 1 , SUBMITTED THAT THE HON'BLE HIGH COURT IN THE SAID DECISION HAS ALLOWED THE CLAIM OF BUSINESS LOSS WHEN THE AMOUNT WAS ADVANCED FOR P URCHASE OF PROPERTY, BUT, THE PROPERTY WAS NOT TRANSFERRED AND THE AMOUNT WAS NOT REPAID. REFERRING TO THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF MOHAN MEAKIN LTD. VS. CIT, 348 ITR 109, HE SUBMITTED THAT WHEN THE AMOUNT HAS BEEN ADVANCED IN THE COURSE OF BUSINESS AND THE ADVANCE BECOME IRRECOVER ABLE EVEN IF THE CLAIM IS NOT ALLOWED AS BAD DEBT, THE SAME CAN BE ALLOWED AS BUS INESS LOSS. IT WAS HELD THAT THE RIGHT OF THE ASSESSEE TO RELIEF IS NOT RESTRICTED T O THE PLEAS RAISED BY HIM BEFORE THE ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 26 DEPARTMENTAL AUTHORITIES OR BEFORE THE TRIBUNAL. I F, IN RESPECT OF THE CONTENTION RAISED BY THE ASSESSEE, GRANT OF RELIEF TO HIM ON A NOTHER GROUND IS JUSTIFIED, IT WOULD BE OPEN TO THE DEPARTMENT AND THE TRIBUNAL AND INDE ED THEY WOULD BE UNDER A DUTY TO GRANT THAT RELIEF. REFERRING TO THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF HARSHAD J. CHOKSI VS. CIT, 349 ITR 250 , HE SUBMITTED THAT WHERE THE AMOUNT WAS DISALLOWED AS BAD DEBT U/S 36(2), THE AS SESSEE CAN CLAIM FOR DEDUCTION AS BUSINESS LOSS U/S 28. IT WAS HELD THAT THERE IS NO BAR IN CLAIMING A LOSS AS BUSINESS LOSS IF IT IS INCIDENTAL TO CARRYING ON OF A BUSINESS. THE FACT THAT THE CONDITIONS FOR DEDUCTION AS BAD DEBT WERE NOT SATIS FIED BY THE ASSESSEE WOULD NOT PREVENT HIM FROM CLAIMING DEDUCTION AS A BUSINESS L OSS. HE ACCORDINGLY SUBMITTED THAT EVEN IF THE CLAIM OF BAD DEBT WAS REJECTED BY THE ASSESSING OFFICER OR THE CIT(A), THE SAME SHOULD BE ALLOWED AS A BUSINESS LO SS. 22. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED UPON THE ORDER OF THE CIT(A). HE SUBMITTED THAT SINCE THE OBJECT OF THE ASSESSEE WAS NOT TO CARRY ON THE REAL ESTATE BUSINESS, THEREFORE, IT PERTAINS TO CAPITAL AND, TH EREFORE, THE LD.CIT(A) WAS FULLY JUSTIFIED IN UPHOLDING THE ACTION OF THE ASSESSING OFFICER. 23. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES; PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A); AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIO US DECISIONS CITED BEFORE US. WE FIND THE ASSESSING OFFICER, IN THE INSTANT CASE, DISALLOWED AN AMOUNT OF RS.1 CRORE DEBITED BY THE ASSESSEE AS BAD DEBT IN THE PR OFIT & LOSS ACCOUNT ON THE ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 27 GROUND THAT THE ASSESSEE DID NOT FURNISH ANY IOTA O F EVIDENCE TO SUBSTANTIATE THE ABOVE CLAIM NOR WAS THIS IN ANY WAY REFLECTIVE OF E ITHER A TRADING DEBT OR MONEY ADVANCED IN THE ORDINARY COURSE OF MONEY LENDING. WE FIND, THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER ON THE GROUND T HAT THE ADVANCE GIVEN BY THE ASSESSEE FOR PURCHASE OF PROPERTY WHICH WAS LATER W RITTEN OFF IS NOT ALLOWABLE UNDER THE PROVISIONS OF SECTION 36(1)(III) AS BAD DEBT AS THE SAME IS NOT A TRADING DEBT WHICH WAS TAKEN AS INCOME IN EARLIER YEARS OR MONEY ADVANCED IN THE ORDINARY COURSE OF BUSINESS OF MONEY LENDING, HENCE, ALSO NO T IN THE ORDINARY COURSE OF BUSINESS. IT IS THE SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN VIEW OF THE VARIOUS DECISIONS CITED BY HIM, EVEN IF THE SAME IS NOT TREATED AS BAD DEBT, THE SAME SHOULD BE ALLOWED AS BUSINESS LOSS. IT IS AN ADMIT TED FACT THAT THE ASSESSEE DOES NOT FULFILL THE CONDITIONS PRESCRIBED U/S 36(1)(VII) OR 36(2) SO AS TO CLAIM THE AMOUNT AS BAD DEBT. IT IS THE ALTERNATIVE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT THE SAME SHOULD BE ALLOWED AS A BUSINESS LOSS. HOWEVER , THE ASSESSEE HAS TO PROVE BEFORE THE ASSESSING OFFICER THAT THE AMOUNT CAN BE ALLOWED AS A BUSINESS LOSS. CONSIDERING THE TOTALITY OF THE FACTS OF THE CASE A ND IN THE INTEREST OF JUSTICE WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO GRANT AN OPPORTUNITY TO THE ASSESSEE T O SUBSTANTIATE ITS CLAIM THAT IT FULFILLS THE CONDITIONS REQUIRED FOR ALLOWING THE A BOVE AMOUNT OF RS.1 CRORE AS BUSINESS LOSS. THE ASSESSING OFFICER SHALL DECIDE THE ISSUE AS PER FACT AND LAW, AFTER GIVING DUE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE HOLD AND DIRECT ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 28 ACCORDINGLY. THE GROUNDS RAISED BY THE ASSESSEE ON THIS ISSUE ARE ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 24. GROUND OF APPEAL NO.2 READS AS UNDER:- THAT ON THE FACTS AND LAW INVOLVED THE LD. CIT(A)] HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.2,81,051/- BEING THE AMOUNT OF ALLEGED EXPENDITURE IN RELATION TO SHARES HELD AS STOCK IN TRADE COMPUTED BY THE LD. AO UNDER RULE 8D(2)(III). SECTION 14A IS NOT APPLICABLE IN RESPEC T OF SHARES HELD AS STOCK IN TRADE AS THE PROFIT THEREFROM IS TAXABLE AS BUSINES S INCOME AND DIVIDEND IF ANY THEREON IS INCIDENTAL. 25. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTED THAT THE ASSESSEE HAS MADE A DISALLOWANCE OF RS.55,92,603/- U/S 14A. HE FURTHER NOTED THAT THE ASSESSEE HAS NOT INCLUDED THE OPENING STOCK AND CLOSING STOCK OF SHARES AND MUTUA L FUNDS WHILE MAKING DISALLOWANCE U/S 14A. HE OBSERVED THAT THE ASSESSE E RECEIVED DIVIDEND ON ACCOUNT OF THE ABOVE STOCK. IN THE P&L ACCOUNT, THE DIVIDE ND RECEIVED HAS BEEN BIFURCATED INTO TWO HEADS, NAMELY, ON INVESTMENTS AND ON INVES TMENTS HELD AS STOCK-IN-TRADE. THUS, THE ASSESSEE HAS SHOWN DIVIDEND INCOME AT RS. 39,97,165/- AS DIVIDEND ON SHARES HELD AS STOCK-IN-TRADE. SINCE, DISALLOWANCE U/S 14A ARISES OUT OF THE EXEMPT NATURE OF DIVIDEND INCOME, THE FACT OF SHARES BEING INVESTMENT OR STOCK IS NOT MATERIAL. AFTER CONSIDERING THE AVERAGE OF BOTH T HE OPENING AND CLOSING STOCK WHICH WORKS OUT TO 5,62,10,198/-, THE ASSESSING OFF ICER MADE DISALLOWANCE OF RS.2,81,051/- UNDER RULE 8D(2)(III) OF THE IT ACT. IN APPEAL, THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OFFICER. ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 29 26. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. 27. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY CHALLENGE D THE ORDER OF THE CIT(A). HE SUBMITTED THAT WHEN THE ASSESSEE HAS SUO MOTU DISALLOWED AN AMOUNT OF RS.55,32,603/- AND THERE IS NO SATISFACTION RECORDE D BY THE ASSESSING OFFICER THAT THE DISALLOWANCE SO MADE BY THE ASSESSEE IS INCORRE CT, THEREFORE, THE ORDER OF THE CIT(A) SUSTAINING THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER SHOULD BE SET ASIDE. 28. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON TH E ORDER OF THE ASSESSING OFFICER AND THE CIT(A). 29. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES; PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A); AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. AS HELD BY THE ASSESSING OFFICER HIMSELF, THE ASSESSEE HAS RECEIVED A DIVIDEND INCOME OF RS.39,97,165/- ON SHA RES HELD AS STOCK-IN-TRADE WHICH HAS BEEN CLAIMED AS EXEMPT. IT IS ALSO HELD BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS MADE SUO MOTU DISALLOWANCE OF RS.55,32,603/- U/S 14A OF THE ACT. THEREFORE, WE FIND MERIT IN THE ARGUMENT ADVANCED B Y THE LD. COUNSEL THAT WHEN THE ASSESSEE HAS HIMSELF DISALLOWED AN AMOUNT OF RS.55, 32,603/- AND NO SATISFACTION HAS BEEN RECORDED BY THE ASSESSING OFFICER, THEREFO RE, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SUSTAINED BY THE CIT(A) I S NOT CORRECT. WE, THEREFORE, ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 30 SET ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. 30. GROUND OF APPEAL NO.3 RAISED BY THE ASSESSEE READS AS UNDER:- THAT ON THE FACTS AND LAW INVOLVED THE LD. CIT(A)] HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS.4,72,389/- UNDER RULE 8D(2)( I) BEING THE AMOUNT OF CUSTODIAN FEE PAID IN RELATION TO SHARES HELD BOTH AS STOCK IN TRADE AND INVESTMENTS. SECTION 14A IS NOT APPLICABLE IN RESPE CT OF SHARES HELD AS STOCK IN TRADE AS THE PROFIT THEREFROM IS TAXABLE AS BUSINES S INCOME AND DIVIDEND IF ANY THEREON IS INCIDENTAL. 31. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTED THAT THE ASSESSEE HAS PAID A CUSTODY FEE OF RS.4,72,389/- ON ACCOUNT OF DEMAT CHARGES DURING TH E YEAR AND THE SAME RELATED TO INVESTMENTS YIELDING EXEMPT INCOME OR STOCK-IN-TRAD E WHICH YIELD EXEMPT INCOME TO THE ASSESSEE. SINCE THE ASSESSEE HAS NOT DISALL OWED THE SAME IN THE WORKING OF DISALLOWANCE U/S 14A AND SINCE THE ABOVE FORMS DIRE CT NEXUS WITH THE INVESTMENTS AND WOULD FALL UNDER THE PURVIEW OF RULE 8D(2)(I), THEREFORE, THE ASSESSING OFFICER, APPLYING THE RULE 8D(2)(I) MADE DISALLOWAN CE OF RS.4,72,389/-. IN APPEAL, THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OF FICER. 32. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. 33. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES; PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A); AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIO US DECISIONS CITED BEFORE US. ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 31 WE FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL FO R THE ASSESSEE THAT THE PROVISIONS OF SECTION 14A IS NOT APPLICABLE IN RESPECT OF THE SHARES HELD AS STOCK-IN-TRADE AS THE PROFIT THEREFROM IS TAXABLE AS BUSINESS INCOME AND DIVIDEND INCOME THEREON IS INCIDENTAL. FURTHER, THE ASSESSEE ITSELF HAS DISAL LOWED AN AMOUNT OF RS.55,32,603/- AND THE ASSESSING OFFICER HAS NOT RECORDED ANY SATI SFACTION AND THE ASSESSEE HAS RECEIVED DIVIDEND INCOME OF ONLY RS.39,97,165/- ON THE SHARES HELD AS STOCK-IN- TRADE. SINCE NO SATISFACTION HAS BEEN RECORDED BY THE ASSESSING OFFICER, THEREFORE, WE FIND MERIT IN THE ARGUMENT OF THE LD. COUNSEL FO R THE ASSESSEE THAT THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND SUST AINED BY THE CIT(A) IS NOT PROPER. WE ACCORDINGLY SET ASIDE THE ORDER OF THE CIT(A) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION. THE GROUND RAISED BY THE ASSESSEE IS ACCORDINGLY ALLOWED. 34. GROUND OF APPEAL NO.4 TAKEN BY THE ASSESSEE READS A S UNDER:- THAT ON THE FACTS AND LAW INVOLVED THE LD. CIT(A)] HAS ERRED IN CONFIRMING THE ADDITION OF RS.2,81,051/- AND RS. 4,72,389/- TO THE BOOK PROFIT U/S 115JB OF THE ACT BEING THE AMOUNT OF ESTIMATED EXPENDITUR E DISALLOWED UNDER SECTION 14A / RULE 8D. ADDITIONS AND DISALLOWANCES AS MADE IN THE ASSESSED INCOME AS PER THE PROVISIONS OF THE ACT CANNOT BE T HE BASIS OF ADDITION TO BOOK PROFIT FOR THE PURPOSES OF MAT U/S 115JB UNLESS THE SAME ARE COVERED UNDER THE EXPLANATION TO SECTION 115JB OF THE ACT. PROVIS IONS OF SECTION 14A NOWHERE PRESCRIBE THE ADJUSTMENT OF NOTIONAL EXPENS ES DISALLOWED U/S 14A COMPUTED ON ESTIMATE BASIS FOR COMPUTING BOOK PROFI T U/S 115JB. THE ADDITION HAS BEEN MADE ON ERRONEOUS VIEWS AND / OR NON-APPRE CIATION OF THE FACTS AND LAW INVOLVED AND THE SAME IS LIABLE TO BE DELETED. 35. AFTER HEARING BOTH THE SIDES AND PERUSING THE RECOR D, WE FIND THE ASSESSING OFFICER MADE DISALLOWANCE OF RS.2,81,051/- U/S 14A R.W. RULE 8D(2)(III) AND RS. ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 32 4,72,389/- U/S 14A R.W. RULE 8D(2)(I). HE, THEREFO RE, MADE THE ADDITION OF THE ABOVE AMOUNT TO THE TOTAL INCOME OF THE ASSESSEE U/ S 115JB OF THE ACT. IN APPEAL, THE LD.CIT(A) UPHELD THE ACTION OF THE ASSESSING OF FICER. 36. AGGRIEVED WITH SUCH ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. 37. THE LD. COUNSEL FOR THE ASSESSEE STRONGLY OBJECTED TO THE ORDER OF THE CIT(A). THE LD. COUNSEL SUBMITTED THAT THE SPECIAL BENCH, D ELHI, OF THE TRIBUNAL IN THE CASE OF ACIT VS. VEREET INVESTMENT PVT. LTD. REPORTED IN 16 5 ITD 27, HAS HELD THAT THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SE CTION 115JB(2) IS TO BE MADE WITHOUT RESORTING TO THE COMPUTATION AS CONTEMPLATE D U/S 14A R.W. RULE 8D OF THE INCOME-TAX RULES, 1962. HE ACCORDINGLY SUBMITTED T HAT THIS ISSUE BEING A COVERED MATTER IN FAVOUR OF THE ASSESSEE, THE GROUNDS RAISE D BY THE ASSESSEE SHOULD BE ALLOWED. 38. THE LD. DR, ON THE OTHER HAND, HEAVILY RELIED ON TH E ORDER OF THE CIT(A). 39. WE HAVE HEARD THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. WE FIND, THE SPECIAL BENCH, DELHI, OF THE TRIBUNAL IN THE CASE O F VEREET INVESTMENT PVT. LTD. (SUPRA) HAS HELD THAT THE COMPUTATION UNDER CLAUSE (F) IS T O BE MADE WITHOUT RESORTING TO THE COMPUTATION AS CONTEMPLATED U/S 14 A R.W. RULE 8D OF THE INCOME- TAX RULES, 1962. SINCE THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL, THER EFORE, IN ABSENCE OF ANY CONTRARY ITA NO.4574/DEL/2015 ITA NO.3796/DEL/2015 33 MATERIAL BROUGHT TO OUR NOTICE BY THE LD. DR, WE SE T ASIDE THE ORDER OF THE CIT(A) ON THIS ISSUE AND ALLOW THE GROUND RAISED BY THE AS SESSEE. 40. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PU RPOSES AS INDICATED ABOVE. THE DECISION WAS PRONOUNCED IN THE OPEN COURT ON 1 3.11.2019. SD/- SD/- (KULDIP SINGH) (R.K. PANDA) JUDICIAL MEMBER ACCOUN TANT MEMBER DATED: 13 TH NOVEMBER, 2019 DK COPY FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASSTT. REGISTRAR, ITAT, NEW DELHI