GOLDMAN SCHS (I) FINANCE P.LTD, MUMBAI V. ITO RG 1(2)(4), MUMBAI

ITA 4060/MUM/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2111 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 28-04-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 21-05-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B D NAIK
• Assessee Lawyers: J D MISTRY
• Keywords: Business income; Additional evidence; Bad and doubtful debts
• Section: 143(3); 37(1)

Judgement Text

GOLDMAN SACHS (INDIA) FINANCE PRIVATE LIMITED ITA NO. 4060 /MUM/20 1 3 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G , MUMBAI BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI RAJESH KUMAR , ACCOUNTANT MEMBER ITA NO. : 4060 /MUM/20 1 3 ( ASSESSMENT YEAR: 200 2 - 0 3 ) GOLDMAN SACH S (INDIA) FINANCE PRIVATE LIMITED , (FORMERLY KNOWN AS PRATHAM INVESTMENT AND TRADING PVT LTD) 951 A RATIONAL HOUSE, APPASHEB MARATHE MARG, PRABHADEVI, MUMBAI - 400 025 .: PAN: BLFPS 8341 K VS INCOME TAX OFFICER RANGE 1(2)(4), ROOM NO. 527, 5 TH FLOOR, AAYAKAR BHAVAN, M K ROAD, MUMBAI - 400 0 2 0 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI J D MISTRY RESPONDENT BY : SHRI B D NAIK /DATE OF HEARING : 0 3 - 09 - 20 1 5 / DATE OF PRONOUNCEMENT : 30 - 11 - 201 5 ORDER , . . : PER AMIT SHUKLA, J M : THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST IMPUGNED ORDER DATED 1 5 .0 1 .201 3 , PASSED BY CIT(A) - 1 3, MUMBAI FOR THE Q UANTUM OF ASSESSMENT PASSED U/S 14 3(3) R.W.S. 25 4 FOR THE ASSESSMENT YEAR 200 3 - 0 4. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - IN PASSING THE AFOREMENTIONED ORDER, THE LEARNED CIT(A) ERRED ON THE FOLLOWING GROUNDS : - 1 . IN UPHOLDING THE CONTENTIO N OF THE LEARNED AO OF DISALLOWING THE CLAIM OF DEDUCTION OF BAD DEBTS WRITTEN OFF UNDER SECTION 36(1)(VII) READ WITH SECTION 36(2)(I) OF THE ACT (IN RESPECT OF LOANS GRANTED TO BUBNA MAJOR BIOTECH LIMITED) IN THE ORDINARY COURSE OF MONEY LENDING BUSINESS AMOUNTING TO RS. 4,329,928/ - . 2 . WITHOUT PREJUDICE TO THE ABOVE, IN UPHOLDING THE CONTENTION OF THE LEARNED AO OF DISALLOWING THE DEDUCTION OF BAD DEBTS WRITTEN OFF (IN RESPECT OF LOANS GRANTED TO GOLDMAN SACHS (INDIA) FINANCE PRIVATE LIMITED ITA NO. 4060 /MUM/20 1 3 2 BUBNA MAJOR BIOTECH LIMITED) UNDER SECTION 37(1) OF THE ACT. 3 . IN UPHOLDING THE CONTENTION OF THE LEARNED AO OF TAXING THE INTEREST OF RS. 939,095/ - ON LOANS GRANTED BY THE APPELLA NT AND OFFERING TO TAX UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFESSION AS INCOME FROM OTHER SOURCES. 2. THE ASSESSEE C OMPANY ( F ORMERLY KNOWN AS M/S PRATHAM INVESTMENT AND TRADING PVT. LTD ) WAS INCORPORATED WITH AN OBJECT OF CARRYING ON THE BUSINESS OF AN INVESTMENT COMPANY ; TRADING IN SHARES & SECURITIES ; CARRYING ON THE BUSINESS OF FINANCING AND ADVANCING SHORT - TERM AND LONG - TERM LOANS WITH OR WITHOUT SECURITY. IN THE RETURN OF INCOME, THE ASSESSEE HAD CLAIMED DEDUCTION OF RS. 43,29,928/ - ON ACCOUNT OF BAD DEBTS WRITTEN OFF PERTAINING TO LOAN GRANTED TO M/S BUBNA MAJOR BIOTECH LTD. , A RELATED COMPANY (IN SHORT BMBL). IN THE FIRST ROUND, ASSESSMENT ORDER WAS PASSED U/S 143(3) WHEREIN SUCH A CLAIM OF BAD DEBT WAS NOT ALLOWED BY THE AO ON THE GROUND THAT LOAN WAS NOT GRANTED IN THE ORDINARY COURSE OF MONEY LENDING BUSINESS. THE LD. CIT(A) TOO HAD CONFIRMED THE ORDER OF AO . B EFORE THE TRIBUNAL IN THE SECOND APPEAL, THE ASSESSEE HA D FILED VARIOUS ADDITIONAL EVIDENCES. THE TRIBUNAL IN THE INTEREST OF JUSTICE, REMANDED BACK THE MATTER TO THE FILE OF THE AO TO ADJUDICATE THE ISSUE AFRESH. AS REGARDS THE ISSUE OF TREATING THE INTE REST INCOME AS INCOME FROM OTHER SOURCES BY THE AO IN THE ORIGINAL ASSESSMENT ORDER, THE TRIBUNAL SET ASIDE THIS ISSUE ALSO TO THE AO. 3. IN THE SET ASIDE PROCEEDINGS BEFORE THE AO, IT WAS SUBMITTED THAT, AS PER CLAUSE 44 OF THE MOU THE ASSESSEE WAS ENTIT LED TO MAKE ADVANCES O F SUCH SUM OR MONEY TO THE PARTY OR PARTIES . THAT IS ASSESSEE WAS AUTHORIZED TO GIVE LOANS AND EARN INTEREST. FURTHER, IT WAS REGISTERED WITH THE RBI AS NBFC , VIDE CERTIFICATE OF REGISTRATION DATED 23.03.1998 BY WHICH THE ASSESSEE WAS PERMITTED TO UNDERTAKE ACTIVITIES OF NON - BANKING FINANCIAL INSTITUTIONS. THUS, IT WAS SUBMITTED THAT GRANTING OF LOAN AND ADVANCES WAS PART OF ITS GOLDMAN SACHS (INDIA) FINANCE PRIVATE LIMITED ITA NO. 4060 /MUM/20 1 3 3 ORDINARY COURSE OF FINANCE BUSINESS AND INTEREST INCOME EARNED ON LOAN WAS OFFERED AS A BUSINESS INCOME. IN PURSUANCE OF SUCH BUSINESS OF GRANT ING OF LOANS AND ADVANCES, THE ASSESSEE HA D GRANTED LOAN TO BMBL , IS A PUBLIC LIMITED COMPANY FOR VARIOUS PROJECTS UNDERTAKEN BY IT . ASSESSEES DETAILED SUBMISSIONS IN THIS REGARD BEFORE THE AO HAS BEEN INCORPORATED BY TH E AO FROM PAGES 3 TO 22 OF THE ASSESSMENT ORDER. HOWEVER, THE LD. AO REJECTED THE ASSESSEES CONTENTIONS FIRSTLY , ON THE GROUND THAT CLAUSE 44 OF THE MOU IS NOT THE MAIN OBJECT OF THE COMPANY AND THE ASSESSEE GOT THE REGISTRATION AS N B FC AFTER 30.03.1988 A ND MONEY WAS LENT TO THE BMBL IN AY 1996 - 97 AND, THEREFORE, MONEY WAS NOT LENT DURING THE ORDINARY COURSE OF MONEY LENDING BUSINESS. FURTHER, THE ASSESSEE S CONTENTION THAT IT WAS HOLDING ONLY 3.49% TO 6.50% OF SHARES IN THE M/S BMBL AND THEREFORE, IT WAS NOT A RELATED CONCERN CANNOT BE ACCEPTED AND THIS ALSO DOES NOT ESTABLISH THAT THERE IS NO CLOSE RELATIONSHIP WITH THIS COMPANY , BECAUSE, T HE CONSTITUTION OF BOARD OF DIRECTORS OF BOTH THE COMPANIES SHOW THAT THEY WERE COMMON. HENCE, MONEY WAS GIVEN TO A R ELATED PARTY AND NOT DURING THE COURSE OF MONEY LENDING BUSINESS OR FINANCING. ACCORDINGLY, HE DISALLOWED THE CLAIM OF BAD DEBT AGAIN. THE LD. CIT(A) TOO HAS CONFIRMED THE ACTION OF THE AO. 4. BEFORE US, LD. SENIOR COUNSEL, SHRI J D MISTRY, SUBMITTED THAT ASSESSEE BEING A NBFC AND OTHERWISE AS PER ITS OBJECTS IT WAS AUTHORIZED TO GIVE ADVANCES AND LOANS TO THE PARTIES. IF THE ASSESSEE HAD LENT THE MONEY IN PURSUANCE OF ITS OBJECTS, THEN SUCH AN ADVANCING OF LOAN IS IN THE ORDINARY COURSE OF THE BUSINESS. SECONDLY , THE ASSESSEE HAD OFFERED INTEREST INCOME FROM SUCH LOANS AS ITS INCOME IN THE PROFIT AND LOSS ACCOUNT WHICH HAS BEEN OFFERED TO TAX I.E. IT HAS BEEN TAKEN INTO ACCOUNT WHILE COMPUTING THE INCOME IN THE PREVIOUS YEAR. THUS, THE WRITE OFF OF THE A MOUNT OF ADVANCE GIVEN IS TO BE TREATED AS A BAD DEBT IN VIEW OF THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS SHREYAS S MORAKHIA, REPORTED IN [2012] 342 ITR 385 , WHEREIN IN THE CASE OF GOLDMAN SACHS (INDIA) FINANCE PRIVATE LIMITED ITA NO. 4060 /MUM/20 1 3 4 THE STOCK BROKER, THE HONBLE HIGH COURT HELD THAT I F THE BROKERAGE IS TAKEN TO PROFIT & LOSS ACCOUNT THEN UNREALIZED VALUE OF SHARES FROM THE CLIENTS IS DEDUCTIBLE AS BAD DEBT U/S 36(1)(VII). HE ALSO REFERRED TO THE DETAILS OF LOANS GIVEN TO BMBL IN THE EARLIER YEARS AND ALSO THE DETAILS OF INTEREST SHOWN BY THE ASSESSEE AND OFFERED FOR INCOME WHICH HAS BEEN ASSESSED IN VARIOUS ASSESSMENT YEARS. THUS, HE SUBMITTED THAT ALL THE CONDITIONS FOR ALLOWABILITY OF BAD DEBT STANDS FULFILLED. 5. ON THE OTHER HAND, LD. DR STRONGLY RELIED UPON THE ORDER OF THE AO AN D CIT(A). 6. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND ALSO PERUSED THE RELEVANT FINDING IN THE IMPUGNED ORDER AS WELL AS MATERIAL PLACED ON RECORD. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF TRADING OF SECURITIES AND FINANCING. ONE OF ITS KEY ACTIVITIES HAD BEEN ADVANCING OF LOANS ON INTEREST , WHICH IS EVIDENT FROM THE INCOME/PROFIT SHOWN FROM OPERATIONS IN THE PROFIT AND LOSS ACCOUNT . IN THE YEAR 19 98 , IT WAS ALSO GRANTED REGISTRATION AS NBFC BY THE RBI. IT HAS GIVEN LOAN TO BMBL FOR SUMS AGGR EGATING TO RS. 43,29,00,928/ - DURING THE FINANCIAL YEARS 1995 - 96 TO 1997 - 98. THE INTEREST CHARGED ON THE SAID LOAN WAS OFFERED FOR TAX AS BUSINESS INCOME. FROM THE ASSESSMENT YEAR 1997 - 98 ONWARDS THE INTEREST INCOME HAS BEEN OFFERED AS BUSINESS INCOME WHIC H HAS BEEN ACCEPTED BY THE DEPARTMENT EITHER U/S 143(3) OR U/S 143(1). THE DETAILS OF SUCH ASSESSMENT HAS BEEN INCORPORATED IN THE ORIGINAL ASSESSMENT ORDER DATED 16.03.2005. FROM THE PERUSAL OF THE COPY OF THE LEDGER ACCOUNT FROM 1 ST APRIL, 1995 TO 31 ST M ARCH, 2003, IT IS SEEN THAT ASSESSEE HAS BEEN RECEIVING INTEREST ON SUCH LOANS AND ADVANCES. FROM DECEMBER, 1997 ONWARDS NOT MUCH TRANSACTION HAD UNDERTAKEN AND ON 31 ST MARCH, 2003 THE ASSESSEE HAD WRITTEN OFF THE SUNDRY BALANCE. ONCE THE ASSESSEE HAS WRIT TEN OFF ANY BAD DEBT OR ANY PART THEREOF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE, THEN SAME HAS TO BE ALLOWED AS GOLDMAN SACHS (INDIA) FINANCE PRIVATE LIMITED ITA NO. 4060 /MUM/20 1 3 5 DEDUCTION WHILE COMPUTING THE INCOME. THE CONDITIONS LAID DOWN IN 36(1)( VII ) AND 36(2) STANDS FULFILLED, BECAUSE, THE ASSESSEE HAS TAK EN INTO ACCOUNT THE INTEREST INCOME WHILE COMPUTING THE INCOME OF THE ASSESSEE FOR PREVIOUS YEAR AND ALSO THE DEBT REPRESENTS THE MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS, BECAUSE THE ASSESSEES INCOME HAS BEEN FROM INTEREST ON ACCOUNT OF LOANS AN D ADVANCES TO VARIOUS PARTIES. THUS, ON THE SE FACTS, THE ENTIRE CONDITION S AS STIPULATED IN 36(1)( V II) AND 36(2) ARE FULLY MET, THEREFORE, SUCH A CLAIM OF BAD DEBT IS CLEARLY ALLOWABLE. AS POINTED OUT BY LD. COUNSEL, THE RATIO AS LAID DOWN BY BOMBAY HIGH C OURT IN THE CASE OF SHREYAS S MORAKHIA ( SUPRA ) IS CLEARLY APPLICABLE IN THIS CASE ALSO . THUS, GROUND RAISED BY THE ASSESSEE IS TREATED AS ALLOWED. 7. IN VIEW OF THE FINDING WITH REGARD TO GROUND NO. 1, GROUND NO. 2 BECOMES PURELY ACADEMIC. 8. NOW, COMIN G TO THE TREATMENT OF INTEREST INCOME OF RS. 9,39,095/ - , WHETHER IS TAXABLE UNDER THE HAD INCOME FROM OTHER SOURCES OR UNDER THE HEAD PROFITS AND GAINS FROM BUSINESS AND PROFESSION, WE FIND THAT IN THE PAST THE ASSESSEES INCOME HAD BEEN ASSESSED AS BU SINESS INCOME, WHICH FACT HAS BEEN NOTED BY THE AO IN THE ORIGINAL ASSESSMENT. THE RELEVANT HISTORY OF ASSESSMENT WHEREIN, THE INTEREST INCOME HAS BEEN ASSESSED AS BUSINESS INCOME IS REPRODUCED HEREUNDER: - A Y RETURNED INCOME SOURCE INTEREST OFFERED AS A SSESSMENT U/S 1997 - 98 469,500 INTEREST BUSINESS INCOME 143(3) 1998 - 99 521,290 INTEREST BUSINESS INCOME 143(1) 1999 - 00 299,470 INTEREST & SHARE TRADING BUSINESS INCOME 143(1) 00 - 2001 - 187,459 INTEREST & SHARE TRADING BUS INESS INCOME 143(1) 2001 - 02 - 683,440 INTEREST & INTEREST RELATED BUSINESS BUSINESS INCOME 143(3)(I) (LIMITED SCRUTINY WHERE THIS WAS NOT THE ISSUE) 2002 - 03 - 853,990 INTEREST BUSINESS INCOME 143(1) GOLDMAN SACHS (INDIA) FINANCE PRIVATE LIMITED ITA NO. 4060 /MUM/20 1 3 6 NOT ONLY THAT, THE ASSESSEE HAS BEEN GR ANTED REGISTRATION AS NBFC BY THE RBI ON 23.03.1998. THERE IS A SYSTEMATIC ACTIVITY OF LENDING OF MONEY OR LOAN ON LONG - TERM / SHORT - TERM BY WHICH ASSESSEE IS DERIVING INCOME / PROFIT FROM SUCH LENDING OF MONEY. HENCE, SUCH AN INCOME FROM SYSTEMATIC OPERAT IONS OF LENDING OF MONEY IS TO BE RECKONED AS BUSINESS INCOME AND CONSISTENT WITH THE PAST HISTORY, WE HOLD THAT INTEREST INCOME I S TO BE TREATED AS BUSINESS INCOME AND NOT INCOME FROM OTHER SOURCES. ACCORDINGLY, GROUND NO.3 IS ALLOWED. 9. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH NOVEMBER , 2015. SD/ - SD/ - ( RAJESH KUMAR ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 30 TH NOVEMBER , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - 7 , MUMBAI. 4 ) THE CIT 1 , MUMBAI. 5 ) , , / THE D.R. G BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS