DCIT 5(2), MUMBAI V. LAHOTI OVERSEAS LTD, MUMBAI

ITA 4840/MUM/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 2608 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-12-2009
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2004-2005
• Appeal Filed On: 25-07-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VIRENDRA OZHA
• Assessee Lawyers: VIJAY KOTHARI
• Keywords: Business income; Bad and doubtful debts; TDS
• Section: 80HH

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI R.V. EASWAR, SR. VP & SHRI R.K. PANDA, AM I.T.A. NO. 4840/MUM/08 (ASSESSMENT YEAR 2004-05) DY. CIT-5(2) ROOM NO. 571, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI-400 020 VS. M/S. LAHOTI OVERSEAS LTD. 307, ARUN CHAMBERS, TARDEO ROAD, MUMBAI-400 034 PAN: AAACL2578H APPELLANT RESPONDENT APPELLANT BY: SHRI VIRENDRA OZHA RESPONDENT BY: SHRI VIJAY KOTHARI O R D E R DATE OF HEARING: 01.12.2009 DATE OF ORDER: 08.12.2009 PER R.K. PANDA, AM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER DATED 22 ND MAY, 2008 OF THE CIT(A)-V, MUMBAI RELATING TO ASSESSMENT YEAR 2004-05. 2. GROUNDS OF APPEAL NO. 1 BY THE REVENUE READS AS UND ER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER LAW, THE LD. CIT(A) ERRED IN NOT UPHOLDI NG THE ASSESSING OFFICERS ACTION OF CONSIDERING THE E NTIRE AMOUNT OF PROCEEDS RECEIVED ON SALE OF DEPB FOR DISALLOWANCE FOR THE PURPOSE OF DEDUCTION U/S. 80HH C AS PER THE AMENDED PROVISIONS, ALTHOUGH THERE IS NO COST ATTACHED TO THE DEPB LICENCE GRANTED TO THE ASSESSE E COMPANY. 3. BOTH THE PARTIES FAIRLY CONCEDED THAT THIS ISSUE HA S TO GO BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH ADJU DICATION IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNA L IN THE CASE OF TOPMAN EXPORTS VS. ITO REPORTED IN 33 SOT 337. THE REFORE, THIS GROUND BY THE REVENUE IS RESTORED TO THE FILE OF TH E ASSESSING OFFICER FOR FRESH ADJUDICATION IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH I.T.A. NO. 4840/MUM/08 M/S. LAHOTI OVERSEAS LTD. =================== 2 CITED ABOVE. THE GROUND RAISED BY THE REVENUE IS A CCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. 4. GROUNDS NO. 2 BY THE REVENUE READS AS UNDER: 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND AS PER LAW, THE LD. CIT(A) ERRED IN DIRECTING T O ALLOW THE BAD DEBTS AS BUSINESS LOSS U/S. 36(1)(VII ) IGNORING THE FACT THAT THE ADVANCE MADE WAS NOT IN THE REGULAR COURSE OF ITS MAIN BUSINESS AND THE LOAN ADVANCED WAS FOR INVESTMENT IN PROPERTY, I.E., A CA PITAL ASSET.. 5. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IN ITS PROFIT AND LOSS A/C. HAS DEBITED AN AMOUNT OF RS.33,10,764 ON ACCOUNT OF BAD DEBTS. ON BEING QUESTIONED BY THE ASSESSING OF FICER REGARDING THE ALLOWABILITY AND JUSTIFICATION OF THE SAID BAD DEBT IT WAS SUBMITTED THAT THE ASSESSEE HAS GIVEN A LOAN OF RS. 25 LAKHS TO M/S. MANTRI HOUSING & CONSTRUCTION CO. LTD. (MHCL) DURIN G THE FINANCIAL YEAR 1995-96. ON THE SAID LOAN THE ASSESSEE HAD EA RNED INTEREST AND OFFERED THE SAME FOR TAXATION IN VARIOUS YEARS AS U NDER: F.Y. 1995-96 RS. 86,625 F.Y. 1996-97 RS.4,97,972 F.Y. 1997-98 RS.5,73,230 DURING THE FINANCIAL YEAR 1997-98, THE ASSESSEE PA ID RS. 50 LAKHS TO MHCL FOR BOOKING OF OFFICE AT BANGALORE. IN FINANC IAL YEAR 1998-99 IT WAS DECIDED BY THE ASSESSEE TO TREAT THE OUTSTANDIN G LOAN AS PART OF ADVANCE FOR OFFICE. ACCORDINGLY AN AMOUNT OF RS.35 .51 LAKHS (LOAN OF RS. 25 LAKHS AND ACCUMULATED INTEREST THEREON NET O F TDS) OUTSTANDING IN THE LOAN ACCOUNT WAS TRANSFERRED TO BOOKING OF OFFICE AT BANGALORE. ACCORDINGLY THE TOTAL ADVANCE FOR BO OKING THE FLAT AT BANGALORE WAS RS.85.51 LAKHS. OVER A PERIOD OF TIM E MHCL COULD NOT COME OUT WITH THEIR PROPOSED SCHEME AND THEREFO RE, WANTED TO CANCEL THE DEAL. HOWEVER, THEY COULD NOT RETURN TH E MONEY DUE TO FINANCIAL CRISIS BUT IN CONSIDERATION MHCL HAS GIVE N ONE PLOT OF LAND AT BANGALORE VALUED AT RS.7.20 LAKHS AND ONE RESIDE NTIAL FLAT AT PUNE VALUED AT RS.24.50 LAKHS DURING THE FINANCIAL YEAR 1998-99. DURING I.T.A. NO. 4840/MUM/08 M/S. LAHOTI OVERSEAS LTD. =================== 3 THE FINANCIAL YEAR 1999-2000 MHCL RETURNED RS.20.70 LAKHS BY CHEQUES. AT THE END OF THE YEAR ENDING ON 31.3.200 0 THE NET AMOUNT DUE FROM MHCL WAS RS.33.15 LAKHS. THEREAFTER MHCL COULD NOT PAY ANY SUM DUE TO THEIR FINANCIAL CRISIS AND OTHER INT ERNAL PROBLEMS. IN THE MEANTIME MHCL FILED AN APPLICATION UNDER BIFR I N 2002. ULTIMATELY THE ASSESSEE DECIDED TO WRITE OFF THE BA LANCE AMOUNT OF ADVANCE GIVEN FOR PURCHASE OF OFFICE PREMISES SINCE IT WAS NOT RECOVERABLE AND CLAIMED THE SAME IN THE PROFIT AND LOSS A/C. THE ASSESSEE WAS ALSO PREVENTED FROM TAKING ANY LEGAL A CTION AS MHCL WAS ALREADY REGISTERED UNDER BIFR. IT WAS SUBMITTE D THAT THE ASSESSEE HAS GIVEN THE MONEY FOR BUYING THE BUSINES S ASSET WHICH COULD NOT REACH THE ASSESSEE DUE TO CIRCUMSTANCES B EYOND ITS CONTROL. ACCORDINGLY THE AMOUNT HAS BEEN WRITTEN O FF AS BAD DEBT IN THE BOOKS OF ACCOUNT. 6. HOWEVER, THE ABOVE SUBMISSION OF THE ASSESSEE WAS N OT ACCEPTED BY THE ASSESSING OFFICER. HE OBSERVED THA T THE ADVANCE OF LOAN OF RS.25 LAKHS TO MHCL WAS NOT WITHIN THE REGU LAR COURSE OF ASSESSEES MAIN BUSINESS WHICH IS STATED TO BE TRAD ING/EXPORT OF COTTON YARNS. FURTHER THE ASSESSEE HAS CONVERTED T HE ADVANCE AS INVESTMENT FOR BOOKING OF OFFICE WHICH APPARENTLY I S A CAPITAL GAIN. MHCL HAS ALREADY PROVIDED PLOT OF LAND AT BANGALOR E AND RESIDENTIAL FLAT AT PUNE TO THE ASSESSEE WHICH CUMU LATIVELY ADD UP TO RS.31.70 LAKHS. THUS THE ORIGINAL LOAN AMOUNT OF R S. 25 LAKHS STANDS FULLY REIMBURSED AND THE BALANCE SUM RECEIVABLE BY THE ASSESSEE IS ON CAPITAL ACCOUNT. FURTHER SINCE THE MHCL HAS FIL ED AN APPLICATION UNDER BIFR IN 2002, IT CANNOT BE SAID THAT THE RECO VERY OF THE AMOUNT OUTSTANDING IS LOST TO POSTERITY AND WOULD B E RECOVERABLE IN FUTURE. HE ACCORDINGLY REJECTED THE CLAIM OF BAD D EBTS MADE BY THE ASSESSEE. 7. IN APPEAL, THE LEARNED CIT(A) DELETED THE ADDITION. WHILE DOING SO HE OBSERVED THAT THE AMOUNT RETAINED BY TH E MHCL IS I.T.A. NO. 4840/MUM/08 M/S. LAHOTI OVERSEAS LTD. =================== 4 TOWARDS CANCELLATION OF AGREEMENT FOR SALE OF PROPE RTY TO THE ASSESSEE. THE ASSESSEE HAD INITIALLY PAID AN AMOUN T OF RS.50,00,000 FOR THE PURCHASE OF THE PROPERTY. SUBSEQUENTLY, TH E ASSESSEE UNILATERALLY ADJUSTED THE AMOUNT RECEIVABLE FROM FI NANCE TRANSACTION OF RS.35.51 LAKHS AGAINST THE PROPERTY CONSIDERATION PAYABLE BY THEM. THE ADJUSTMENT WAS MADE TO SECURE THE AMOUNTS DUE AND RECEIVABLE BY THE ASSESSEE FROM MHCL. THUS THE AMOUNT OF RS.52,40,000 RECEIVED BY THE ASSESSEE AGAINST THE C ANCELLATION OF AGREEMENT FOR PURCHASE OF PROPERTY HAS TO BE ADJUST ED AGAINST THE ONLY AMOUNT OF RS. 50 LAKHS PAID BY THE ASSESSEE. THE EXCESS AMOUNT RECEIVED OF RS.2,40,000 HAS THEN TO BE ADJUS TED AGAINST THE AMOUNTS DUE TO THE ASSESSEE ON THE FINANCE TRANSACT ION. THE BALANCE OF RS.33,10,000 HAS TO BE HELD AGAINST THE FINANCE TRANSACTION. SINCE THE ASSESSEE HAD ADVANCED THE A MOUNTS DURING THE REGULAR COURSE OF ITS BUSINESS AND SINCE THE IN TEREST INCOME THEREON WAS ALREADY ASSESSED UNDER THE HEAD INCOME FROM BUSINESS OR PROFESSION THE BALANCE AMOUNT OF RS.33,10,764 W AS ALLOWABLE AS DEDUCTION U/S. 36(1)(VII) AS BAD DEBTS. RELYING ON A NUMBER OF DECISIONS HE DELETED THE ADDITION MADE BY THE ASSES SING OFFICER. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BO TH THE SIDES, PERUSED THE ORDERS OF THE ASSESSING OFFICER AND THE CIT(A) AND THE VARIOUS DECISIONS CITED BEFORE US. THERE IS NO DISPUTE TO THE FACT THAT THE ASSESSEE ADVANCED AN AMOUNT OF RS.25 LAKHS TO MHCL DURING FINANCIAL YEAR 1995-96 AND HAD EARNED INTERE ST DURING FINANCIAL YEAR 1995-96 TO 1997-98, THE DETAILS OF W HICH ARE AS PER PARA NO. 5 OF THIS ORDER AND THE SAME HAS BEEN OFFE RED TO TAX. THERE IS ALSO NO DISPUTE TO THE FACT THAT AN AMOUNT OF RS . 50 LAKHS HAS BEEN GIVEN TO MHCL DURING FINANCIAL YEAR 1997-98 FOR BOO KING OF OFFICE PREMISES AT BANGALORE. THERE IS ALSO NO DISPUTE TO THE FACT THAT DURING THE FINANCIAL YEAR 1998-99, THE ASSESSEE HAS TRANSFERRED THE I.T.A. NO. 4840/MUM/08 M/S. LAHOTI OVERSEAS LTD. =================== 5 LOAN OF RS. 25 LAKHS ALONG WITH ACCUMULATED NET INT EREST OF RS.10.51 LAKHS TO BOOKING OF BANGALORE OFFICE ACCOUNT TAKING THE TOTAL ADVANCE TO RS.85.51 LAKHS. THERE IS ALSO NO DISPUTE TO THE FACT THAT THE ASSESSEE HAS RECEIVED AN AMOUNT OF RS.52.41 LAKHS I N THE SHAPE OF LAND AT BANGALORE (RS.7.20 LAKHS), RESIDENTIAL FLAT AT PUNE (RS.24.50 LAKHS) AND A CHEQUE FOR RS.20.70 LAKHS. IT IS THE CASE OF THE ASSESSEE THAT THE BALANCE AMOUNT OF RS.33.10 LAKHS BEING NOT RECOVERABLE HAS BEEN WRITTEN OFF AS BAD DEBT IN THE PROFIT AND LOSS A/C. AND SUCH WRITE OFF IS DIRECTLY RELATED TO THE BUSINESS OF TH E ASSESSEE. WE FIND THE ASSESSING OFFICER DISALLOWED THE CLAIM OF THE A SSESSEE ON THE GROUND THAT THE PAYMENT OF RS. 25 LAKHS TO MHCL WAS NOT WITHIN THE REGULAR COURSE OF ASSESSEES MAIN BUSINESS. FURTHE R SINCE THE ASSESSEE WAS PROVIDED A PLOT OF LAND AT BANGALORE A ND RESIDENTIAL FLAT AT PUNE WHICH CUMULATIVELY ADDS UP TO RS.31.70 LAKHS, THEREFORE, THE ORIGINAL LOAN OF RS. 25 LAKHS STANDS FULLY REIM BURSED AND THE BALANCE SUM RECEIVABLE BY THE ASSESSEE IS ON CAPITA L ACCOUNT. WE FIND THE CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE O N THE GROUND THAT SINCE THE ASSESSEE HAD ADVANCED THE AMOUNT DURING T HE REGULAR COURSE OF ITS BUSINESS AND SINCE THE INTEREST WAS A SSESSED UNDER THE HEAD BUSINESS INCOME, THEREFORE, THE ENTIRE OUTSTAN DING AMOUNT OF RS.33,10,764 IS ALLOWABLE AS DEDUCTION U/S. 36(1)(V II) AS BAD DEBTS WRITTEN OFF OR BUSINESS LOSS. 9. WE FIND THE CALCUTTA BENCH OF THE TRIBUNAL IN THE C ASE OF HIND MARKETING CORPORATION PVT. LTD. VS. ITO REPORTED IN 43 TTJ 516 AND AS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSE E, HAS HELD THAT ASSETS ACQUIRED IN SATISFACTION OF TRADE DEBT IN TH E COURSE OF MONEY LENDING BUSINESS RETAINS THEIR CHARACTER OF TRADING ASSETS AND LOSS OCCURRED ON SALE OF SUCH ASSETS IS BUSINESS LOSS. WHILE HOLDING SO THE TRIBUNAL HAS FOLLOWED THE DECISION OF THE HONB LE SUPREME COURT IN THE CASE OF PANDIT NARAIN DUTT CHHINWAL VS. CIT (1972) 83 ITR 413 (SC). SINCE IN THE INSTANT CASE THE ASSESSEE A DMITTEDLY HAS ADVANCED A LOAN OF RS. 25 LAKHS, INTEREST ON WHICH WAS ASSESSED AS I.T.A. NO. 4840/MUM/08 M/S. LAHOTI OVERSEAS LTD. =================== 6 BUSINESS INCOME, THEREFORE, THE ASSETS TO BE ACQUIR ED BY THE ASSESSEE COMPANY RETAINED ITS CHARACTER OF MONEY LENDING BUS INESS OF THE ASSESSEE UNTIL IT IS SOLD OR THE DEAL CANCELLED. T HEREFORE, THE ASSESSEE IS ENTITLED TO CLAIM THE LOSS AS BAD DEBT. WE, THEREFORE, UPHOLD THE ORDER OF THE CIT(A) DELETING THE ADDITIO N ALTHOUGH ON DIFFERENT REASONING. ACCORDINGLY THIS GROUND RAISE D BY THE REVENUE IS DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS P ARTLY ALLOWED. ORDER PRONOUNCED ON 8 TH DECEMBER, 2009. SD/- (R.V. EASWAR) SR. VICE PRESIDENT SD/- (R.K. PANDA) ACCOUNTANT MEMBER MUMBAI, DATED 8 TH DECEMBER, 2009 COPY TO: (1) THE APPELLANT, (2) THE RESPONDENT, (3) THE CIT (A)-V, MUMBAI, (4) THE CIT, MC-V, MUMBAI, (5) THE DR, A BENCH, ITAT, MUMBAI. //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI TPRAO