Bharti Bhushan Jindal, Ludhiana V. ACIT, Ludhiana

ITA 459/CHANDI/2011

• Counselvise Citation: 45921514 RSA 2011
• Duration Of Justice: 1 year(s) 2 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 09-07-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 03-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JAI SHREE SHARMA
• Assessee Lawyers: TEJ MOHAN SINGH N K AGGARWAL
• Keywords: Business income; Bad and doubtful debts; Capital expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE MS. SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO.459 /CHD/2011 (ASSESSMENT YEAR: 2004-05) BHARTI BHUSHAN JINDAL VS. THE A.C.I.T., PROP.M/S JINDAL ELECTRIC CIRCLE-1, & MACHINERY CORP., LUDHIANA. C-57, FOCAL POINT, LUDHIANA. PAN: ACVPJ3724B (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI TEJ MOHAN SINGH/ N.K.AGGARWAL RESPONDENT BY : SMT. JAISHREE SHARMA, DR DATE OF HEARING : 09.07.2012 DATE OF PRONOUNCEMENT : 13.07.2012 O R D E R PER SUSHMA CHOWLA, J.M. : THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER O F THE COMMISSIONER OF INCOME TAX (APPEALS)-II, LUDHIANA D ATED 07.04.2011 RELATING TO ASSESSMENT YEAR 2004-05 AGAINST THE ORD ER PASSED U/S 143(3) OF INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE ASSESSEE HAS RAISED VARIOUS GROUNDS OF APPEA L BUT ALL ARE AGAINST THE ADDITION OF RS.10,50,000/-. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSEE AS SOLE PROPRIETOR WAS ENGAGED IN THE MANUFACTURING OF STABILIZERS AND RECTIFIERS. IN AD DITION TO THE BUSINESS INCOME DECLARED BY THE ASSESSEE, THE ASSESSEE HAD A LSO DECLARED INCOME FROM CAPITAL GAINS AND INCOME FROM OTHER SOURCES. UNDER THE HEAD INCOME FROM OTHER SOURCES IN ADDITION TO BANK INTER EST, FDRS, INTEREST ON UNSECURED LOANS OF RS.4,17,600/- WAS SHOWN, AGAINST WHICH IT HAD CLAIMED WRITE OFF OF AMOUNT UNREALIZABLE AMOUNTING TO RS.10,50,000/-. WHEN CONFRONTED DURING THE COURSE OF ASSESSMENT PRO CEEDINGS, THE 2 ASSESSEE SUBMITTED THAT IT WAS ENGAGED IN MONEY LEN DING BUSINESS FOR A LONG TIME AND HAD BEEN SHOWING INCOME BY WAY OF INT EREST. THE ASSESSEE FURTHER CLAIMED DEDUCTION ON ACCOUNT OF BAD DEBTS A GAINST THE SAID INCOME FROM MONEY LENDING BUSINESS, ON ACCOUNT OF T HE AMOUNTS UNRECOVERABLE. THE ASSESSING OFFICER NOTED THAT TH E AUDITOR IN THE AUDITORS REPORT IN FORM NO.3CD HAD FAIRLY STATED I T TO BE ENGAGED IN THE MANUFACTURING OF ELECTRIC STABILIZERS AND RECTI FIERS AND THERE WAS NO MENTION OF MONEY LENDING BUSINESS IN THE PRESENT YE AR AND IN ANY OF THE PREVIOUS YEARS. FURTHER IT WAS NOTED BY THE ASSESS ING OFFICER THAT THE ASSESSEE HIMSELF HAD SHOWN INTEREST INCOME AS INCOM E FROM OTHER SOURCES IN THE COMPUTATION OF INCOME. THE ASSESSEE WAS GIVEN SHOW CAUSE NOTICE TO PRODUCE THE SEPARATE BOOKS OF ACCOU NT, IF ANY, MAINTAINED FOR THE PURPOSE OF MONEY LENDING BUSINESS BY LETTER DATED 22.12.2006 ALONGWITH ANY OTHER INFORMATION TO SUBSTANTIATE THE CLAIM. REPLY OF THE ASSESSEE DATED 27.12.2006 IS REPRODUCED UNDER PARA 5.1 AT PAGES 3 AND 4 OF THE ASSESSMENT ORDER UNDER WHICH IT CLAIMED THAT THE SAID AMOUNT WAS ALLOWABLE UNDER THE PROVISIONS OF SECTION 36(2)(I) OF THE ACT AS THE SAID LOANS WERE WRITTEN OFF AS IRRECOVERABLE DURING THE COURSE OF BUSINESS OF MONEY LENDING. THE ASSESSEE ALSO PRODUCED BOOKS O F ACCOUNT INCORPORATING MONEY LENDING BUSINESS. THE TOTAL CA PITAL OF THE ASSESSEE AS ON 1.4.2003 WAS RS.5.95 CRORES WHICH IN TURN WAS INVESTED IN LOANS ADVANCED IN THE COURSE OF MONEY LENDING ACTIVITIES AMOUNTING TO RS.60.47 LACS. FURTHER THE ASSESSEE PLACED ON RECO RD THE COURT DECREE ISSUED IN THE CASE OF M/S SWARAN FASTNERS 3, SHIV M ARKET, SAT SANG ROAD, MILLER GANJ, LUDHIANA WHOSE AMOUNT WAS WRITTE N OFF DURING THE YEAR. THE ASSESSEE CLAIMS TO HAVE WRITTEN OFF THE AMOUNT TOTALING RS.10,50,000/- DUE FROM THE FOUR PARTIES, IN ITS BO OKS OF ACCOUNT, WHICH WERE PRODUCED BEFORE THE ASSESSING OFFICER. THE AS SESSING OFFICER VIDE PARA 5.2 OBSERVED THAT THE ASSESSEE HAD MAINTAINED INDIVIDUAL BOOKS OF ACCOUNT IN WHICH TRANSACTIONS OF MONEY LENDING WERE ALSO INCORPORATED AND NO SEPARATE BOOKS OF ACCOUNT FOR THE BUSINESS O F MONEY LENDING WERE 3 BEING MAINTAINED. THE OBSERVATIONS OF THE ASSESSI NG OFFICER IN THIS REGARD WAS THAT THE MONEY LENDING WAS NOT REGULAR B USINESS OF THE ASSESSEE. HE ONLY LENDS MONEY OUT OF HIS SURPLUS C APITAL FROM TIME TO TIME. IN RELATION TO THE CLAIM OF THE ASSESSEE UND ER SECTION 36(2(I) OF THE ACT THE ASSESSING OFFICER OBSERVED THAT THE WRI TE OFF OF THE AMOUNT WAS NOT RELATED TO ANY INCOME WHICH WAS ALREADY SHO WN IN ANY PREVIOUS YEAR AND AS THE BAD DEBT WAS A LOAN GIVEN BY THE AS SESSEE, NOT ENGAGED IN THE BUSINESS OF MONEY LENDING, IT BEING WRITTEN OFF , COULD NOT BE ALLOWED AS BAD DEBT DURING THE YEAR. 3. THE CIT (APPEALS) UPHELD THE ORDER OF THE ASSESS ING OFFICER AND THE ASSESSEE IS IN APPEAL AGAINST THE SAME. 4. THE LEARNED A.R. FOR THE ASSESSEE STRESSED THAT SIMILAR INCOME AND WRITE OFF OF THE AMOUNT NOT RECOVERABLE HAS BEEN AL LOWED IN THE HANDS OF THE ASSESSEE, HIS HUF, HIS WIFE MRS.MANJU JINDAL. THE LEARNED A.R. FOR THE ASSESSEE REFERRED TO COMPUTATION OF INCOME FILE D BY INDIVIDUAL ASSESSEE/S AND ASSESSMENT ORDER FRAMED UNDER SECTIO N 143(3) OF THE ACT RELATING TO DIFFERENT YEARS IN WHICH THE CLAIM OF T HE DEDUCTION HAD BEEN ALLOWED. THE LEARNED A.R. FOR THE ASSESSEE FAIRLY STATED THAT SAME CLAIM OF THE ASSESSEE IN THE SUCCEEDING YEARS HAS NOT BEE N ALLOWED AS A DEDUCTION. THE LEARNED A.R. FOR THE ASSESSEE FURTHE R POINTED OUT THAT WHERE THE INCOME ASSESSED AS INCOME FROM OTHER SOUR CES, THE DEDUCTION CLAIMED UNDER SECTION 57(III) OF THE ACT IS TO BE R EAD WITH SECTION 59(1) OF THE ACT AND ONCE THE AMOUNT IS CLAIMED AS IRRECO VERABLE, ON ITS RECOVERY THE SAID AMOUNT IS TO BE ASSESSED TO TAX, IN VIEW THEREOF. THE LEARNED A.R. FOR THE ASSESSEE PLACED HEAVY RELIANCE ON THE PRINCIPLES OF CONSISTENCY AND POINTED OUT THAT THIS ALTERNATE PLE A OF MONEY LENDING BUSINESS SHOULD BE CONSIDERED. 5. THE LEARNED D.R. FOR THE REVENUE POINTED OUT THA T IN CASE THE PLEA OF CONSISTENCY PLEADED BY THE LEARNED A.R. FOR THE ASSESSEE IS ACCEPTED 4 THEN DEDUCTION UNDER SECTION 36(1)(II)/36(1)(VII) C OULD NOT BE GIVEN TO THE ASSESSEE. IT WAS FURTHER POINTED OUT BY THE LE ARNED D.R. FOR THE REVENUE THAT UNDER SECTION 57(III) OF THE ACT ONLY EXPENDITURE INCURRED FOR THE EARNING OF INCOME FROM OTHER SOURCES IS TO BE ALLOWED AS A DEDUCTION AND ONLY WHERE THE DEDUCTION IS SO ALLOWE D THEN THE PROVISIONS OF SECTION 59(1) ARE TO BE APPLIED IN RESPECT OF TH E AMOUNT WRITTEN OFF BY THE ASSESSEE; THE SAME WAS HELD TO BE NOT AN EXPEND ITURE BUT A CAPITAL OUTFLOW, WHICH WAS NOT ALLOWABLE AS A DEDUCTION UND ER SECTION 57(III) OF THE ACT. 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD AND ALSO THE WRITTEN SUBMISSIONS FILED BY THE LEARNED A .R. FOR THE ASSESSEE. THE ASSESSEE IS SOLE PROPRIETOR CARRYING ON THE BUS INESS OF STABILIZERS AND RECTIFIERS UNDER THE NAME AND STYLE M/S JINDAL ELECTRIC & MACHINERY CORP. THE ASSESSEE HAS FURNISHED THE COMPUTATION O F INCOME FOR THE YEAR UNDER CONSIDERATION AT PAGE 6 OF THE PAPER BOOK, UN DER WHICH IT HAS DECLARED INCOME FROM BUSINESS, CAPITAL GAINS AND OT HER SOURCES. THE INCOME FROM OTHER SOURCES COMPRISES OF INTEREST INC OME RECEIVED FROM BANKS AND FDRS AND ALSO ON UNSECURED LOANS. THE TO TAL INTEREST RECEIVED ON LOANS BY THE ASSESSEE DURING THE YEAR WAS RS.4,1 7,600/-. THE CLAIM OF THE ASSESSEE IS THAT IT WAS ADVANCING AMOUNTS TO DIFFERENT PARTIES FOR EARNING INTEREST INCOME AGAINST DULY EXECUTED HUNDI /PROMISSORY NOTES. THE ASSESSEE IS FILING HIS RETURN OF INCOME FROM YE AR TO YEAR AND HAS CONSTANTLY SHOWN THE SAID INCOME UNDER THE HEAD INC OME FROM OTHER SOURCES. DURING THE YEAR UNDER CONSIDERATION THE A SSESSEE HAD CLAIMED DEDUCTION OF AMOUNT WRITTEN OFF AS UNREALIZABLE TOT ALING RS.10,50,000/-. THE ASSESSEE HAD CLAIMED SUCH DEDUCTION ON ACCOUNT OF NON RECOVERY OF THE ADVANCES MADE TO THE UNDERMENTIONED PARTIES: A) M/S KAKA AGRO OIL PVT. LTD. RS.3 LACS B) M/S JALDHARA GENERAL INDUSTRIES RS.3 LACS C) M/S SWARAN FASTNERS RS.3 LACS 5 D) M/S YUVRAJ MOTORS RS.1.50 LACS 7. THE ABOVE SAID AMOUNTS DUE FROM THE PARTIES WERE CLAIMED TO BE WRITTEN OFF IN THE BOOKS OF ACCOUNT MAINTAINED BY T HE ASSESSEE. THE ASSESSEE HAS FURNISHED COPIES OF ACCOUNT OF THE RES PECTIVE PARTIES DURING THE FINANCIAL YEAR 2003-04 IN THE BOOKS OF ACCOUNT OF SOLE PROPRIETARY CONCERN OF THE ASSESSEE AT PAGE 35 OF THE PAPER BOO K. THE LOAN OF RS.3 LACS WAS ADVANCED TO M/S KAKA AGRO OIL PVT. LTD. ON 25.5.2001 AND THE ASSESSEE CLAIMS TO HAVE RECEIVED INTEREST UP TO AUG UST, 2002 AND NO INTEREST WAS RECEIVED THEREAFTER. SIMILARLY, THE S UM OF RS.3 LACS WAS ADVANCED TO M/S SWARAN FASTNERS ON 24.11.1997 AND N O INTEREST HAS BEEN RECEIVED AFTER MARCH, 1999. FURTHER SUM OF RS.3 LA CS WAS ADVANCED TO M/S JALDHARA GENERAL INDUSTRIES ON 26.3.1997 AND IN TEREST WAS RECEIVED UP TO SEPTEMBER, 1998 AND NO INTEREST THEREAFTER. A SUM OF RS.2 LACS WAS ADVANCED TO M/S YUVRAJ MOTORS ON 23.6.1997, OUT OF WHICH SUM OF RS.50,000/- WAS RECEIVED BACK ON 6.6.2001 AND THE I NTEREST WAS RECEIVED UP TO MARCH, 2001. THE ASSESSEE HAS PLACED COPIES OF THE ACCOUNTS OF THE RESPECTIVE PARTIES AT PAGES 36 TO 46 OF THE PAP ER BOOK. THE CONSOLIDATED STATEMENT OF INTEREST RECEIVED FROM TH E SAID LOANEES HAS BEEN PLACED AT PAGE 47 AND TOTAL INTEREST RECEIVED FROM THE SAID PARTIES WAS RS.4,43,550/-. IT MAY BE PLACED ON RECORD THAT THE PERUSAL OF THE COPIES OF THE ACCOUNT REFLECT THE PAYMENT OF INTERE ST VIDE CHEQUES BY THE RESPECTIVE PARTIES ON DIFFERENT DATES. BECAUSE OF THE NON-PAYMENT OF THE INTEREST AND NON-RECOVERY OF THE LOAN BY THE ASSESS EE, COURT PROCEEDINGS WERE INSTITUTED AGAINST M/S SWARAN FASTNERS AND CO PY OF THE SUIT FOR RECOVERY OF RS.3 LACS ALONGWITH INTEREST IS PLACED AT PAGES 48 TO 56 OF THE PAPER BOOK. THE DECREE IN THE CASE WAS PASSED ON 2.6.2006 IN FAVOUR OF THE ASSESSEE. THE ASSESSEE HAS ALSO FILE D ANOTHER CIVIL SUIT AGAINST M/S JALDHARA GENERAL INDUSTRIES FOR THE REC OVERY OF RS.3 LACS ALONGWITH INTEREST AND COPY OF THE SUIT IS PLACED A T PAGES 59 TO 69 OF THE PAPER BOOK. THE PLEA OF THE ASSESSEE WAS THAT IN V IEW OF THE ABOVE SAID FACTS THE SAID AMOUNT BEING NOT REALIZED BY THE ASS ESSEE WAS TO BE 6 ALLOWED AS A DEDUCTION AGAINST THE INTEREST INCOME EARNED BY THE ASSESSEE, AS THE ASSESSEE WAS ENGAGED IN THE BUSINE SS OF MONEY LENDING. 8. THE LEARNED A.R. FOR THE ASSESSEE HAS BROUGHT TO OUR ATTENTION THE ASSESSMENT ORDER IN THE CASE OF HUF OF THE ASSESSEE RELATING TO ASSESSMENT YEAR 2004-05 AND ALSO IN THE CASE OF HIS WIFE MRS. MANJU JINDAL RELATING TO ASSESSMENT YEAR 2004-05. COPIE S OF THE COMPUTATION OF INCOME OF THE RESPECTIVE PARTIES ALONGWITH ORDER S PASSED UNDER SECTION 143(3)OF THE ACT HAVE BEEN PLACED ON RECORD . THE PERUSAL OF THE RESPECTIVE YEARS REFLECTS MERE ALLOWANCE OF THE CLA IM WITHOUT ANY DISCUSSION ON THE ISSUE. 9. NOW COMING TO THE ISSUE BEFORE US. THE ASSESSEE IS CARRYING ON THE BUSINESS OF SOLE PROPRIETARY CONCERN. DURING THE C OURSE OF THE SAID CARRYING ON OF BUSINESS CERTAIN AMOUNTS HAVE BEEN A DVANCED BY THE ASSESSEE ON INTEREST AGAINST DULY EXECUTED HUNDI/PR OMISSORY NOTES. THE ASSESSEE HAD FURNISHED PROFIT & LOSS ACCOUNT, BALAN CE SHEET FROM ITS SOLE PROPRIETARY CONCERN, BUT HAD OFFERED THE INCOM E OF INTEREST RECEIVED ON UNSECURED LOANS AS INCOME FROM OTHER SOURCES FRO M YEAR TO YEAR. THE SAID INTEREST IS BEING OFFERED AS INCOME FROM OTHER SOURCES IN THE HANDS OF THE ASSESSEE FROM YEAR TO YEAR. AGAINST THE SAI D INTEREST INCOME ASSESSED UNDER SECTION 56 OF THE ACT, DEDUCTIONS AS PRESCRIBED UNDER SECTION 57(III) OF THE ACT ARE ALLOWABLE. THUS ANY EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING THE INCOME IS ALLOWABLE AS A DEDUCTION UNDER SECTION 57(III) OF THE ACT. ANY EXPENDITURE IN THE NATURE OF CAPITAL EXPENDITURE IS NOT TO BE ALLOWED AS A DEDUCTION AS PRESCRIBED UNDER SECTION 57(III) OF THE ACT. COMING TO THE CLAIM O F ASSESSEE WHEREIN IT HAD TREATED THE AMOUNTS ADVANCED AS LOAN BUT NOT RE ALIZED BY IT, AS A DEDUCTION, WE FIND NO MERIT IN THE SAID CLAIM IN VI EW OF THE PROVISIONS OF SECTION 57(III) OF THE ACT. THE ALTERNATE PLEA OF THE ASSESSEE WAS THAT THE SAID EXPENDITURE IS ALLOWABLE IN THE HANDS OF T HE ASSESSEE IN VIEW OF SECTION 36(2)(I) OF THE ACT I.E. BAD DEBTS. THE SA ID CLAIM OF THE ASSESSEE 7 IS NOT MAINTAINABLE AS FIRSTLY THE SAID AMOUNT IS T O BE OFFERED AS INCOME FROM BUSINESS AND DEDUCTION IS TO BE ALLOWED OF AN AMOUNT WRITTEN OFF WHICH HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE SAID AMO UNT HAS BEEN SO WRITTEN OFF OR IN ANY OF THE PREVIOUS YEAR/S. ADMI TTEDLY, THE ASSESSEE HAS ONLY SHOWN THE INTEREST INCOME ARISING ON THE A DVANCES MADE BY IT AS ITS INCOME AND THE CAPITAL ADVANCED BY THE ASSESSEE IS A CAPITAL OUTFLOW AND HAS NOT BEEN RECOGNIZED AS RECEIPT/INCOME IN IT S HANDS IN THE EARLIER YEARS OR EVEN IN THE YEAR UNDER CONSIDERATION. THE SAID PLEA OF THE ASSESSEE OF ALLOWING LOSS REPRESENTING BAD DEBTS IS THUS DISMISSED. THE ASSESSEE IS ENTITLED TO ANY EXPENDITURE INCURRED BY IT IN RELATION TO THE INTEREST INCOME EARNED BY IT ON THE AMOUNTS ADVANCE D IN VIEW OF THE PROVISIONS OF SECTION 57(III) OF THE ACT AND NO CAP ITAL OUTFLOW IS TO BE ALLOWED AS A DEDUCTION, WHILE COMPUTING THE INCOME IN THE HANDS OF THE ASSESSEE UNDER THE HEAD INCOME FROM OTHER SOURCES. IN THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE WE FIND NO MERI T IN THE CLAIM OF THE ASSESSEE VIS--VIS THE CLAIM OF DEDUCTION OF RS.10, 50,000/-. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE ARE DISMISSED. 10. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DI SMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 1 3 TH JULY, 2012. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 13 TH JULY, 2012 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 8