ITO 13(3)(1), MUMBAI V. RANCHHODDAS BHAICHAND & CO (GRAIN DEPT), MUMBAI

ITA 4036/MUM/2009

• Counselvise Citation: 403619914 RSA 2009
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 11-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 29-06-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: KUBAL
• Keywords: Capital asset; Business income; Reasonable cause; Bad and doubtful debts; Condonation of delay

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES D, MUMBAI BEFORE SHRI R.S.SYAL, AM AN D SHRI R.S.PADVEKAR, JM ITA NO.4036/MUM/2009 : ASST.YEAR 2005-2006 THE INCOME TAX OFFICER WARD 13(3)(1) MUMBAI. VS. M/S.RANCHHODDAS BHAICHAND & CO. (GRAIN DEPT.), 199A NARSI NATHA STREET MUMBAI 400 009. PAN : AAFFR6470G. (APPELLANT) (RESPONDENT) ITA NO.1854/MUM/2010 : ASST.YEAR 2005-2006 M/S.RANCHHODDAS BHAICHAND & CO. (GRAIN DEPT.), 199A NARSI NATHA STREET MUMBAI 400 009. VS. THE INCOME TAX OFFICER WARD 13(3)(1) MUMBAI. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI M.R.KUBAL ASSESSEE BY : SHRI JIGNESH SHAH O R D E R PER R.S.SYAL, AM : THESE TWO CROSS APPEALS ONE BY TH E ASSESSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ON 16.04.2009 IN RELATION TO THE ASSESSMENT YEAR 2005-2006. 2. THE APPEAL FILED BY THE ASSESSEE IS TIME BARRED BY 221 DAYS. THE LEARNED COUNSEL FOR THE ASSESSEE ARGU ED THAT THERE WAS A REASONABLE CAUSE IN FILING THE APPEAL BELATEDLY. AFFIDAVI T OF SHRI HEMANT H.CHOKHAWALA, PARTNER OF THE ASSESSEE- FIRM HAS BEEN FILED. IN PARA 4 IT HAS BEEN STATED THAT TH E BUSINESS OF THE FIRM REDUCED CONSIDERABLY IN RECENT PAST AS THE ASSESSEE WAS SUFFERING LO SSES SINCE LAST FEW YEARS. IT HAS FURTHER BEEN STATED THAT THE FIRM HAD NO EMPLOYEES LEFT WORKING WITH IT AND THEREFORE, THERE WAS NO PERSON TO LOOK AFTE R THE FINANCIAL, AC COUNTING AND TAXATION MATTERS ON A DAY TO DAY BASIS. IT HAS STILL FURTHER BEEN MENTIONED IN THE SAME PARA THAT SINCE NOBODY BROUGHT THE IMPLICATIONS OF THE APPELLATE OR DER TO THE NOTICE OF THE CONCERNED PARTNERS FOR A LONG TIME, THE SAME CAME TO HIS NOTICE ONLY WHEN HE APPROACHED M/S. M. A. PARIKH & CO., CHARTERED ACCOUNTANTS, WHO PREPARED THE ITA NOS.4036/MUM/2009 & 1854/MUM/2010 M/S.RANCHHODDAS BHAICHAND & CO. 2 APPEAL. IT WAS, THEREFORE, PRAYED THAT THE DELAY BE CONDONED AND THE APPEAL BE ADMITTED FOR HEARING. 3. IN THE OPPOSITION, THE LEARNE D DEPARTMENTAL REPRESENTATIVE STRONGLY OPPOSED THE DELAY PETITION BY BRINGI NG TO OUR NOTICE A COPY OF LETTER OF AUTHORITY DATED 15.01.2008 ISSUED BY THE A SSESSEE IN FAVOUR OF M/S. M. A. PARIKH & CO. FOR REPRESENTING THE ASSESSEE. THE LEARNED DE PARTMENTAL REPRESENTATIVE SUBMITTED THAT THE ASSESSEE WAS DULY ASSISTED BY A REPUTED FIRM OF CHARTERED ACCOUNTANTS, WHO WERE REGULARLY LOOKING AFTER THE AFFAIRS OF THE FIRM OVER THE PERIOD. IT WAS, THEREFORE, PRAYED THAT THE DE LAY SHOULD NOT BE CONDONED. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSI NG THE RELEVANT MATERIAL ON RECORD IT IS NOTED THAT M/S.M.A.PARI KH & CO. WAS AUTHORIZED BY THE ASSESSEE- FIRM TO APPEAR BEFORE THE AUTHORITIES WAY BACK ON 15.01.2008. THE IMPUGNED ORDER WAS PASSED ON 16.04.2009 AND THE ASSESSEE IS AGAIN REPRESENTED BEFORE US BY THE SAME FIRM OF CHARTERED ACC OUNTANTS. IT SHOWS THAT THE ASSESSEE WAS NOT DEVOID OF ANY LEGAL ASSISTANC E AS STATED IN THE AFFIDAVIT. ON A SPECIFIC QUESTION ASKED FROM THE BENCH, THE LEARNED A.R. COUL D NOT FILE ANY EVIDENCE TO SHOW THAT THE ASSESSEE WAS SUFFERING LOSS AS MENTIONED IN PARA 4 OF THE AFFIDAVIT AT THE TIME WHEN THE IMPUGNED ORDER WAS PASSED AND AS SUCH IT WAS LEFT WITHOUT ANY EM PLOYEE AS STATED IN PARA 4(B) OF THE AFFIDAVIT. DELAY CAN BE CONDONED IF TH ERE IS A REASONABLE CAUSE. HOWEVER IT IS NECESSARY FOR THE PARTY PRAY ING FOR THE CONDONATION OF DELAY TO PROVE THAT IT WAS ACTING DILIGENTLY AND WAS NOT GUILTY OF ANY NE GLIGENCE WHATSOEVER. IF THE DELAY IS CAUSED DUE TO ANY REASON BEYOND THE CONTROL OF THE ASSESSEE, THAT WOULD MERIT ITS CONDONATION. IF HOWEVER THE ASSE SSEE FAILS TO EXERCI SE DUE CARE REQUIRED FOR THE PURPOSE, HE CANNOT BE ALLOWED TO ARGUE SUBSEQ UENTLY THAT THERE WAS A REASONABLE CAUSE IN DELAY. HERE IS A CASE IN WHICH THERE HAS BEEN A DELAY OF 221 DAYS. IN OUR CONSIDERED OPINION, THE ASSESSEE HAD FAILED TO DEMONSTRATE THE REASONABLENESS OF CAUSE IN PRESENTING THE APP EAL BELATEDLY. WE, THEREFORE, REFUSE TO ITA NOS.4036/MUM/2009 & 1854/MUM/2010 M/S.RANCHHODDAS BHAICHAND & CO. 3 CONDONE THE DELAY. OUR VIEW IS FORTIFIED BY SURINDER KUMAR BOVE JA VS. CWT (2006) 287 ITR 52 (DEL) AND THE THIRD MEMBER ORDER PASSED IN JCIT VS. TAFE LTD. (2007) 104 ITD 149 (CHENNAI)(TM). 5. IN VIEW OF OUR ABOVE DECISION ON THE LIMITATION ISSUE, THE APPEAL CANNOT BE ADMITTED AND CONSEQUENTLY THERE IS NO NEED TO CONSIDER THE GROUNDS RAISED BY THE ASSESSEE IN THE APPEAL. 6. GROUND 1 OF THE REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION OF RS.6,50,000 MADE ON ACCOUNT OF DISALLOWANCE OUT OF BAD DEBTS. BRIEFLY STATED THE FACTS OF THE CASE AR E THAT THE ASSESSEE DEBITED A SU M OF RS.13,12,971 ON ACCOUNT OF BAD DEBTS. ON BEING CALLED UPON TO FURNISH DE TAILS OF BAD DEBTS, THE ASSESSEE STATED THAT IT ENTERED INTO BUSINESS OF LENDING AN D ADVANCING LOAN WITH INTEREST BY WAY OF INVESTING SURPLUS FUND IN 1996-97 WHEN A SUM OF RS.6,50,000 WAS ADVANCED TO SHRI PRADIP POPAT, INTEREST ON WHICH WAS OFFERED FOR TAXATION IN THE ASSESSMENT YEARS 1997-98 TO 2001-2002. TH E ASSESSING OFFICER, ON VERIFICATION OF RETURNS FOR ASSESSMENT YEAR 2000-2001 AND 2001-2002, OBSERVED TH AT THE ASSESSEE HAD NOT MENTIONED THAT IT WAS CARRYING ON ANY M ONEY LENDING BUSINESS IN ADDITION TO DEALERSHIP OF GRAIN WHICH WAS ITS MAIN BUSINESS. HE FURTHER NOTICED THAT THE ASSESSEE ADVANCED ITS SURPLUS FUNDS TO ONLY ONE PERSON A ND THAT TOO WITHOUT OBTAINING ANY SECURITY FOR LOAN ADVANCE. AS THE ASSESSEE WAS NOT FOUND TO BE HAVING ANY LICENSE TO DO M ONEY LENDING BUSINESS, THE ASS ESSING OFFICER HELD THAT THE CONDITION LAID DOWN IN SECTION 36(2) WA S NOT SATISFIED. HE, THEREFORE, DISALLOWED THE PRINCIPAL AMOUNT OF RS.6,50,000. THE L EARNED CIT(A) OBSERVE D IN PARA 3.3 OF THE IMPUGNED ORDER THAT THE ASSESSEE WAS E NGAGED IN MONEY LENDING BUSINESS AS THE INTEREST INCOME WAS REGULARLY SHOWN AND ASSESSED IN EARLIER AS SESSMENT YEARS. IN HIS OPINION THE FACT OF LE NDING MONEY TO ONLY ONE PERS ON WAS OF NO CONSEQUENCE. HE, THEREFORE, ORDERED FOR THE DELETION OF ADDITION. ITA NOS.4036/MUM/2009 & 1854/MUM/2010 M/S.RANCHHODDAS BHAICHAND & CO. 4 7. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD, IT IS SEEN THAT TH E ASSESSEE CLAIMED DEDUCTION OF RS.6.50 LAKHS AS BAD DEBTS. SECTION 36(1)(VII) PERMITS DEDUCTION ON ACCOUNT OF BAD DEBT S IF THE CONDITIONS LAID DOWN U/S.36(2) ARE FULFILLED. SECTION 36(2) , IN TURN, PROVIDES TH AT NO DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART TH EREOF HAS BEEN TAKE N INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OR MONEY LENDING WHICH IS CARRIED ON BY THE ASSESSEE. IT IS NOTICED THAT THE MAIN BUSINESS OF THE ASSESSEE IS THAT OF TRADING IN GRAIN AND PULSES. HENCE THE DEDUCTION U/S.36(1)(VII) BECOMES ALLOWABLE ONLY IF THE ASSESS EE ENGAGED ITSELF IN THE MO NEY LENDING BUSINESS. ON A SPECIFIC QUERY, THE LEARNED A. R. COULD NOT SHOW ANY LICEN SE ISSUED TO THE ASSESSEE PERMITTING TO CARRY ON THE MONEY LENDING BU SINESS. ADMITTEDLY THE ASSESSEE IS NOT A COMPANY AND THE PROVISIONS OF RBI REGI STERING ANY COMPANY AS NON- BANKING FINANCE COMPANY FOR CARRYIN G ON FINANCE BUSINESS WERE NOT APPLICABLE. HOWEVER IN ORDER TO CARRY ON THE BUSINESS OF MONE Y LENDING BY THE FIRM, IT IS NECESSARY TO HAVE LICENSE FROM THE GOVERN MENT, WHICH IS NOT AVA ILABLE WITH THE ASSESSEE. TURNING TO THE FACTS OF THE INSTANT CASE IT IS SEEN THAT SUM OF RS.6.50 LAKHS WAS ADVANCED TO SHRI PRADIP POPAT WAY BACK IN 1996-97 `BY INVE STING SURPLUS FUND. THIS IS WHAT THE ASSESSEE ITSELF STATED BEFORE THE ASS ESSING OFFICER VIDE ITS LETTER DATED 14.12.2007. APART FROM THIS SOLITARY TR ANSACTION THERE IS NO OTHER TRANSACTION OF ADVANCING LOAN BY THE ASSESSEE TO ANY OTHER PERSON OR CARRYING ON MONEY LENDING BUSINESS. IN SUCH A SITUATION IT IS DI FFICULT TO ACCEPT THE PROPOSITION THAT THE ADVANCING OF LOAN TRANSACTI ON BE TREATED AS BUSINESS. IT IS TRITE LAW THAT WHEN SURPLUS FUNDS OF A BUSINESS ARE INVESTED, THE INTEREST INCOME WHICH RESULTS THERE FROM IS TAXABLE UNDER THE HEAD INCOME FR OM OTHER SOURCES. THE HONBLE SUPREME COURT IN THE CASE OF TOTGARS CO-OPERATIVE SALE SOC IETY LTD. VS. ITO [(2010) 322 ITR 283 (SC)] HAS HELD THAT THE INTEREST ON SURPLUS FUNDS WOULD COME IN THE ITA NOS.4036/MUM/2009 & 1854/MUM/2010 M/S.RANCHHODDAS BHAICHAND & CO. 5 CATEGORY OF `INCOME FROM OTHE R SOURCES. THE HONBLE JURI SDICTIONAL HIGH COURT IN THE CASE OF CIT VS. SWANI SPICE MILLS P. LT D. [(2011) 332 ITR 288 (BOM.)] HAS ALSO HELD THAT INTEREST ON INVESTMENT OF SURPLU S FUND IS CHARGEABLE TO TAX UNDER THE HEAD INCOME FROM OTHER SOURCES. THE SAME VIEW HAS BEEN TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN TOPMAN EXPORTS VS. ITO [( 2009) 318 ITR (AT) 87 (MUMBAI) (SB)] . IN VIEW OF THESE PRECEDENTS, IT BECOME S APPARENT THAT TH E ASSESSEE ADVANCED LOAN OF RS.6.50 LAKHS TO SHRI PRADIP PO PAT MANY YEARS BACK OUT OF ITS SURPLUS FUND AND HENCE SUCH ACT OF ADVANCING CANNOT BE CHARACTERIZED AS CARRYING ON THE MONEY LENDING BUSINESS. THE CONTENTION OF THE LD. AR THAT SUCH INTERE ST HAS BEEN TAXED UNDER THE HEAD `BUSINESS INCOME IN EARLIE R YEARS AND HENCE THE ACT OF ADVANCING THE LOAN SHOULD ALSO BE C ONSIDERED AS MONEY LENDING BUS INESS, IS DEVOID OF ANY MERIT AND HENCE CANNOT BE ACCEPTED. FIRSTLY THE LD. AR COULD NO T SHOW ANY DIRECT CREDIT OF INTEREST TO THE PROFIT AND LOSS AC COUNT OF EARLIER YEAR. ON CONFRONTED, IT WAS STATED THAT THE INTEREST INCOME WAS SET O FF AGAINST THE INTEREST EXPENDITURE AND THE NET RESULTANT AMOUNT OF INTEREST WAS DEBITED TO TH E PROFIT AND LOSS ACCOUNT. BE THAT AS IT MAY, WHEN THE HONBLE SUPREME COURT, THE HONBLE JURISDICTIONAL HIGH COURT AND THE SPECIAL BENCH OF THE TR IBUNAL IN THE AFORENOTED CASES HAVE HELD THAT INTEREST INCOME ON INVESTMENT OF SURPLUS FUNDS IS CHARGEABLE TO TAX U NDER THE HEAD `INCOME FROM OTHER SOURCES, THERE CANNOT BE ANY QU ESTION OF APPROVING ANY CONTRARY VIEW. ONCE IT IS HELD THAT THE ASSESSEE WAS NOT ENGAGED IN TH E BUSINESS OF MONEY LENDING, NON- RECOVERY OF ANY LOAN WOULD NOT ENTITLE THE ASSESSEE TO CLAIM DEDUCTION OF BAD DEBTS U/S.36(1)(VII) IN VIEW OF THE PROH IBITION CONTAINED IN SECTION 36(2). WE, THEREFORE, OVERTURN THE IMPUGNED ORDER ON TH IS ISSUE AND RESTORE THE ACTION OF THE ASSESSING OFFICER. THIS GROUND IS ALLOWED. 8. GROUND 2 IS AGAINST THE DIRECTION OF THE LEARNED CIT(A) TO ALLOW EXPENDITURE OF RS.1,41,300 IN CONNECTION WITH TRANSFER OF CAPITAL ASSET. THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE TRANSFERRED SO ME GODOWN ON WHICH CAPITAL GAIN WAS COMPUTED. THE ASSESSING OFFICER REFUSED TO ALLOW DEDUCTION OF EXPENDITURE OF ITA NOS.4036/MUM/2009 & 1854/MUM/2010 M/S.RANCHHODDAS BHAICHAND & CO. 6 RS.1,41,300 INCURRED BY THE ASSESSEE IN CONNECT ION WITH THE TRANSFER OF CAPITAL ASSET I.E. GODOWN. THE LEARNED CIT(A) HOWEVER OVERTURNED THE ASSESS MENT ORDER ON THIS ISSUE. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RE LEVANT MATERIAL ON RECORD. COPY OF AGREEMENT FOR TRANSFER OF GODOWN IS AVAILABLE IN THE PAPER BOOK. IT CAN BE SEEN THAT THE ASSESSEE AS ASSIGNOR UNDE RTOOK TO BEAR THE COST OF REGISTRATION. THIS EXPENDITURE OF RS.1,41,300 IS NOTH ING BUT THE EXPENDITURE INCURRED IN CONNECTION WITH THE TRANSFER OF PROPERTY. INSTEAD OF SHOWING GROSS AMOUNT AS SALE CONSIDERATION, THE ASSESSEE SHOWED NE T CONSIDERATION AFTER DEDUCTION OF RS.1,41,300, AS ITS FULL VALUE OF CONSIDER ATION FOR THE PURPOSE OF COMPUTING CAPITAL GAIN. IN OUR CONSIDERED OPINION, THE LEARNE D CIT(A) WAS JUSTIFIED IN DIRECTING TO ALLOW THE EXPENDITURE OF RS .1,41,300 IN CONNECTION WITH THE TRANSFER OF CAPITAL ASSET. THIS GROUND IS NOT ALLOWED. 10. IN THE RESULT, THE APPEAL OF THE ASSES SEE IS DISMISSED AND THAT OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THIS 30 TH DAY OF JUNE, 2011. SD/- SD/- ( R.S.PADVEKAR ) ( R.S.SYAL ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI : 30 TH JUNE, 2011. DEVDAS*` COPY TO : 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT CONCERNED ITA NOS.4036/MUM/2009 & 1854/MUM/2010 M/S.RANCHHODDAS BHAICHAND & CO. 7 4. THE CIT(A) - XIII, MUMBAI. 5. THE DR/ITAT, MUMBAI. 6. GUARD FILE. TRUE COPY. BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.