ACIT 11(2), MUMBAI V. DR. ASHOK J. THAWANI, MUMBAI

ITA 5164/MUM/2010

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71361 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2013
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-09-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 22-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: HARI S RAHEJA
• Keywords: Business income; Depreciation; Tax effect

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUM BAI . . , , BEFORE SHRI B. R. MITTAL, JM AND SHRI SANJAY ARORA, AM ./ I.T.A. NO.5164/M/2010 ( / ASSESSMENT YEAR: 2006-07) ASST. CIT-11(2) ROOM NO.479 4 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 / VS. DR. ASHOK J. THAWANI, 19 AHOORA MAHAL, 93, MARINE DIREVE, MUMBAI - 400 002 ' ./# ./PAN/GIR NO. ABRPT 3902C ( '$ /APPELLANT ) : ( % '$ / RESPONDENT ) '$ & / APPELLANT BY : SHRI P.K. SINGH % '$ ' & / RESPONDENT BY : SHRI HARI S. RAHEJA ( )*+ ' , / DATE OF HEARING : 24.09.2013 -./ ' , / DATE OF PRONOUNCEMENT : 30.09.2013 0 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-3, MUMBAI (CIT(A) FOR SHO RT) DATED 09.04.2010, ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143 (3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 20 06-07 VIDE ORDER DATED 24.11.2008. 2 ITA NO.5164 /MUM/2010 (A.Y. 2006-07) ASST. CIT VS. DR. ASHOK J. THAWANI 2. THE SOLE ISSUE AGITATED BY THE REVENUE PER ITS A PPEAL IS THE VALIDITY IN LAW OF THE DISALLOWANCE IN THE SUM OF RS. 8 LAKHS ON ACCOUNT O F A DEBT WRITTEN OFF AS IRRECOVERABLE IN HIS ACCOUNTS FOR THE YEAR BY THE ASSESSEE. IT WOULD BE RELEVANT TO RECOUNT THE BACKGROUND FACTS OF THE CASE. THE APPEAL WAS DISMISSED IN THE FIRST INSTANCE BY THE TRIBUNAL VIDE ITS ORDER DATED 14.03.2012 (COPY ON RECORD), FOLLOWING THE DECISION BY THE APEX COURT IN THE CASE OF TRF LTD. VS. CIT [2010] 323 ITR 397(SC), SO THAT IT WAS NO LONGER I .E., WITH EFFECT FROM 01.04.1989, NECESSARY FOR THE ASSESSEE TO ESTABLISH A DEBT AS HAVING BECOME BAD, AND ITS WRITE OFF IN ACCOUNTS AS IRRECOVERABLE WAS ITSELF SUFFICIENT TOWARD THE SAME, ENTITLING THE ASSESSEE A CLAIM IN ITS RESPECT U/S. 36(1)(VII) OF THE ACT. THE REVENUE SUBSEQUENTLY MOVED AN APPLICATION U/S. 254(2), CLAI MING THAT AS WOULD BE EVIDENT FROM THE GROUNDS RAISED BEFORE THE TRIBUNAL, THE ISSUE A S TO WHETHER THE DEBT CLAIMED AS BAD HAD BEEN SHOWN AS INCOME FOR ANY EARLIER YEAR/S, SO AS TO SATISFY THE CONDITION OF SECTION 36(2), TO WHICH THE DEDUCTION U/S. 36(1)(VII) IS SU BJECT, HAD NOT BEEN CONSIDERED OR DECIDED BY THE TRIBUNAL. THERE BEING NO FINDING BY THE TRIBUNAL IN THE MATTER, IT ADMITTED ITS MISTAKE AND RECALLED ITS ORDER VIDE ORDER U/S. 254(2) DATED 22.02.2013(COPY ON RECORD). 3. THE APPEAL HAVING BEEN RESTORED THUS, THE SCOPE OF THE PRESENT PROCEEDINGS WOULD BE THE SATISFACTION OR OTHERWISE OF THE CONDITION O F SECTION 36(2)(I); THE LAW HAVING BEEN OTHERWISE SETTLED BY THE APEX COURT PER ITS DECISIO N IN TRF LTD . (SUPRA), RELIED UPON AND EXPLAINED BY THE TRIBUNAL IN THE FIRST ROUND. TOWAR D THIS, THE LD. AR WOULD EXPLAIN THAT THE ASSESSEE IS IN THE BUSINESS OF LENDING MONEY ON INTEREST. AN AGGREGATE OF RS. 13 LAKHS WAS ADVANCED TO M/S. SAAWAN KUMAR PRODUCTIONS, MUMB AI ON INTEREST AT THE RATE OF 18% PER ANNUM, AND TWO CHEQUES, I.E., FOR RS.3 LAKH DAT ED 23.06.1997 AND FOR RS.10 LAKH DATED 12.01.1998, WERE TAKEN AS SECURITY. THE SAID BORROWER HAVING SUFFERED HUGE LOSSES, WAS UNABLE TO REPAY HIS CREDITORS, INCLUDING THE BA NK/S, AND ONLY AFTER A LOT OF PRESSURE WAS THE ASSESSEE ABLE TO RECOVER RS.5 LAKHS. AS IT HAD NO HOPE FOR OR SAW NO CHANCE OF RECOVERY OF THE BALANCE RS. 8 LACS, THE SAME STOOD WRITTEN OFF IN ACCOUNTS. THE ASSESSING OFFICER (AO) HAS EXPRESSED DOUBT WITH REGARD TO THE BONA FIDES OF THE WRITE OFF ON THE BASIS OF THE FINAL ACCOUNTS OF THE DEBTOR-FIRM (SAA WAN KUMAR PRODUCTIONS) FOR RELEVANT 3 ITA NO.5164 /MUM/2010 (A.Y. 2006-07) ASST. CIT VS. DR. ASHOK J. THAWANI YEAR, WHICH DISCLOSE A PROFIT FOR RS.170.04 LAKHS , SO THAT IT WAS NOT POSSIBLE TO SAY THAT THE BORROWER HAD NO CAPACITY TO REPAY THE LOAN, WHI CH STOOD DULY REFLECTED AS A PAYABLE IN ITS ACCOUNTS EVEN AS ON 31.03.2008 (PB PAGES 10-19) . HOWEVER, A MERE BROWSE OF THE COMPUTATION OF TOTAL INCOME FOR THE RELEVANT YEAR ( PB PG. 9) WOULD REFLECT CLAIM/S FOR UNABSORBED BUSINESS LOSS/ES AND DEPRECIATION FOR RS .3.16 CRORES. THE DEBTOR HAS IN FACT CLOSED SHOP AND IS NOT TRACEABLE. AS SUCH, THE CLAI M IS BONA FIDE , AND THE DOUBT ON ITS GENUINENESS, MISPLACED. THE REVENUES CASE, ON THE OTHER HAND, IS THAT THE ASSESSEE HAS NOT BEEN ABLE TO DEMONSTRATE THAT IT IS IN THE BUSINESS OF MONEY LEN DING, AND IT IS ONLY IN THAT CASE THAT THE ASSESSEES WRITE OFF OF A LOAN/ADVANCE, WHICH IS AD MITTED, SO THAT IT IS NOT TAKEN AS INCOME FOR ANY EARLIER YEAR, WOULD YET QUALIFY FOR DEDUCTI ON AS A BAD DEBT U/S. 36(1)(VII). 4. WE HAVE HEARD THE PARTIES, AND PERUSED MATERIAL ON RECORD. OUR FIRST OBSERVATION IS THAT THE REVENUES CASE IS MISPLACED. THIS IS FOR T HE SIMPLE REASON THAT THE AO HAS VIDE HIS ORDER ACCEPTED THE ASSESSEE TO BE ENGAGED IN TH E BUSINESS OF FINANCING; IN FACT, ASSESSING THE INTEREST INCOME FOR THE YEAR (RS.31.5 8 LAKHS) AS BUSINESS INCOME. THIS FINDING HAS NOT BEEN DISTURBED EVEN BY THE LD. CIT( A), SO THAT IT OBTAINS. EVEN AS EXPLAINED BY THE LD. AR DURING THE HEARING, THE ASS ESSEE MAY NOT HAVE A LICENSE FOR THE MONEY LENDING BUSINESS, WHICH IS REQUIRED UNDER THE RBI RULES, YET IT CANNOT BE DENIED AS A MATTER OF FACT, WHICH HAS IN FACT BEEN ACCEPTED, THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MONEY LENDING, WHICH IS UNDERTAKEN THRO UGH THE AGENCY OF THE BROKERS. THE REVENUES SOLE CASE; THE ASSESSEE HAVING ADMITT EDLY WRITTEN OFF THE ADVANCE IN HIS ACCOUNTS AS IRRECOVERABLE, IS THE GENUINENESS O F THE SAID WRITE OFF, I.E., IN VIEW OF THE CASE AS MADE OUT BY THE AO, EVEN AS POINTED OUT BY US DURING THE HEARING. THIS IS IN VIEW OF THE LAW BEING WELL-SETTLED, AND THE FACT OF THE WRITE OFF OF THE DEBT AS IRRECOVERABLE BEING ADMITTED. SO, HOWEVER, EVEN AS EXPLAINED BY T HE HONBLE JURISDICTIONAL HIGH COURT IN DIT VS. OMAN INTERNATIONAL BANK SAOG [2009] 313 ITR 128 (BOM), THE WRITE OFF IS TO BE BONA FIDE . THOUGH THE REVENUE CANNOT CHALLENGE THE COMMERCIA L WISDOM FOR THE WRITE OFF, BUT THE CIRCUMSTANCES MUST EXHIBIT, AT LEAST PRIMA FACIE , THE DEBT TO HAVE BECOME BAD. 4 ITA NO.5164 /MUM/2010 (A.Y. 2006-07) ASST. CIT VS. DR. ASHOK J. THAWANI IN THIS REGARD NO DOUBT THE AO, BY REFERRING TO THE NET PROFIT OF RS.1.70 CRORES FOR THE RELEVANT YEAR, AS WELL AS THE CONTINUING REFLECTION /DISCLOSURE OF THE ASSESSEES DEBT IN ITS ACCOUNTS AS AN OUTSTANDING LIABILITY, WOULD RAISE G ENUINE DOUBTS IN THE MATTER, I.E., OF ITS WRITE OFF BY THE ASSESSEE, IT CANNOT BE DENIED THAT THE ASSESSEE HAS NOT RECEIVED ANY INTEREST SINCE JUNE, 1999, I.E., FOR A GOOD SEVEN Y EARS PRIOR TO THE WRITE OFF. AND NEITHER HAS THE SUM BEEN REPAID TO HIM EVEN UP TO 31.3.2008 . THE BORROWERS BALANCE-SHEET REFLECTS A NEGATIVE CAPITAL BALANCE OF RS.27.77 CRO RES AS ON 31.03.2006 (PB PG. 10), AND WHICH POSITION CONTINUES TO OBTAIN EVEN FOR THE YEA RS SUBSEQUENT THERETO. FURTHER, THE DEBTORS COMPUTATION OF INCOME FOR THE YEAR SHOWS U NABSORBED BUSINESS LOSSES AND DEPRECIATION AT RS.2.34 CRORES AND 0.82 CRORES RESP ECTIVELY. AS SUCH, THE DISCLOSURE OF THE DEBT IN THE BORROWERS ACCOUNTS AS A LIABILITY WOUL D BY ITSELF BE OF NO CONSEQUENCE. 5. IN VIEW OF THE FOREGOING, WE FIND THE DOUBT AS E XPRESSED BY THE AO QUA THE BONA FIDES OF THE WRITE OFF, INASMUCH AS A NON-GENUINE WRITE- OFF WOULD YET DISENTITLE THE ASSESSEES CLAIM, AS MISPLACED. ACCORDINGLY, WE CON FIRM THE DELETION OF THE IMPUGNED DISALLOWANCE. THE LD. AR WOULD BEFORE US ALSO CLAIM OF THE REVENUES APPEAL AS BEING OUSTED IN VIEW OF LOW TAX EFFECT, BEING BELOW RS.3 LAKHS. HOWEVER, THE IMPUGNED ORDER AS WELL AS THE NOTICE OF DEMAND RAISED IN PURSUANCE THEREOF CLEARLY REFLECT THE TAX-EFFECT TO BE OVER RS. 3 LAKHS. ACCORDINGLY, THE SAID PLEA BY THE LD. AR IS NOT MAINTAINABLE. WE DECIDE ACCORDINGLY. 6. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. 1/ 2 * ' 1 ' 34 ORDER PRONOUNCED IN THE OPEN COURT ON SEPTEMBER 30, 2013 SD/- SD/- (B. R. MITTAL) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ( + MUMBAI; 5) DATED : 30.09.2013 )../ A. K. PATEL PS 5 ITA NO.5164 /MUM/2010 (A.Y. 2006-07) ASST. CIT VS. DR. ASHOK J. THAWANI ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. % '$ / THE RESPONDENT 3. ( 6 ( ) / THE CIT(A) 4. ( 6 / CIT - CONCERNED 5. 9*:; % )<= , , <=/ , ( + / DR, ITAT, MUMBAI 6. ;>? @+ / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , ( + / ITAT, MUMBAI