BIRDY HOLDINGS P. LTD, MUMBAI V. ITO WD 6(1)(3), MUMBAI

ITA 5273/MUM/2011

• Counselvise Citation: 527319914 RSA 2011
• Duration Of Justice: 2 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 04-03-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 11-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Assessee Lawyers: KAPIL K JAIN
• Keywords: Business expenditure; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI . . , ! , ' # BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI VIVEK VARMA, JUDICIAL MEMBER . : 5273 / / 2011 2006-07 ITA NO. 5273/MUM/2011 (ASSESSMENT YEAR: 2006-07) M/S. BIRDY HOLDINGS PVT. LTD., 314, BHARAT INDUSTRIAL ESTATE, AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI .: PAN: AAACB 1649 M VS INCOME TAX OFFICER- 6(1)(3), AAYAKAR BHAVAN, MAHARSHI KARVE MARG, MUMBAI (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI KAPIL K. JAIN RESPONDENT BY : SHRI SURENDRA KUMAR !' /DATE OF HEARING : 28-08-2013 #$ !' / DATE OF PRONOUNCEMENT : 30-08-2013 & O R D E R ! , : PER VIVEK VARMA, JM: THE INSTANT APPEAL IS FILED BY THE ASSESSEE AGAINST THE OR DER OF CIT(A)-14, MUMBAI, DATED 11.04.2011, WHEREIN, THE FOLLOWING GR OUNDS HAVE BEEN RAISED: THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) I S NOT JUSTIFIED IN CONFIRMING THE DISALLOWANCE OF THE BAD DEBTS OF RS. 12,39,438/- WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE APPELLANT W ITHOUT APPRECIATING THAT THE M/S. BIRDY HO LDINGS PVT. LTD. ITA NO. 5273/MUM/2011 2 CONDITIONS LAID DOWN UNDER THE PROVISION OF SECTION 36(1)(VII) AND SECTION 36(2) OF THE INCOME TAX ACT ARE FULFILLED. THE LD. COMMISSIONER OF INCOME TAX (APPEAL) FAILED TO APPRECIATE THE FACT THAT APPELLANT IS NON BANKING FINANCIAL COMPANY (NB FC) ENGAGED IN THE BUSINESS OF FINANCING AND BILL DISCOUNTING AND THAT THE LOANS ADVANCED TO THE PARTIES (IN RESPECT OF WHICH BAD DEBTS CLAIMED) WERE IN THE COURSE OF FINANCE BUSINESS AND THE INTEREST INCOME HAS DULY O FFERED IN THE EARLIER YEARS. 2. THE SOLITARY ISSUE INVOLVED IN THE DISALLOWANCE OF CLAIM O F BAD DEBTS OF RS. 12,39,438/-, MADE BY THE ASSESSEE, IN ITS BOOKS. 3. THE FACTS ARE THAT THE ASSESSEE ENGAGED IN THE BUS INESS OF FINANCING AND TRADING SECURITIES. IN THE ASSESSMENT PROCEE DINGS, THE AO CALLED FOR DETAILS, WHICH WERE CONSIDERED BY THE AO. THE AO, ON CONSIDERATION CONCLUDED THAT THE ASSESSEE WAS NOT FULLY IN THE BUSINESS OF MONEY LENDING AND HAS HARDLY DECLARED ANY IN COME FROM INTEREST. THE AO, ON THIS BASIS, CONCLUDED THAT THE DEBTS CLAIMED TO BE BAD COULD NOT BE ALLOWED. 4. THE ASSESSEE BEING AGGRIEVED, APPROACHED THE CIT(A), B EFORE WHOM THE FACTS WERE REITERATED, WHICH ARE REPRODUCED AS UNDER, DURING THE APPEAL PROCEEDINGS, THE APPELLANT SUBMI TTED THAT THE APPELLANT COMPANY IS NBFC AND IS IN THE BUSINESS OF FINANCE A ND BILL DISCOUNTING AND TRADING IN SHARES & SECURITIES. DURING THE YEAR, TH E COMPANY HAS NOT EARNED INTEREST INCOME BECAUSE THE PARTIES TO WHOM THE LOA NS HAVE BEEN GIVEN HAVE DEFAULTED IN INTEREST PAYMENT AS WELL AS PRINCIPLE REPAYMENT OF LOAN. THE APPELLANT FURTHER SUBMITTED THAT THE APPELLANT COMP ANY FILED SUITS AGAINST THOSE PARTIES FOR RECOVERING DUES FROM THEM. THE AP PELLANT SUBMITTED THAT THE LOWER INTEREST INCOME IS DUE TO THE DEFAULT MADE BY LOAN PARTIES AND THE LOWER INTEREST INCOME IN ONE YEAR CANNOT BE A CRITERIA FO R DISALLOWING BAD DEBTS AS PER SEC. 36. IT HAS FURTHER BEEN SUBMITTED THAT THE DUE S WERE OUTSTANDING FROM LOAN GIVEN TO M/S. ELECTRIX INDIA LTD., FROM 1998-1999 A ND AFTER THE LEGAL PROCEEDINGS ALSO THE APPELLANT WAS UNABLE TO RECOVE R THE SAME AND HENCE THE SAME WAS WRITTEN OFF FROM BOOKS. THE APPELLANT OF T HE APPELLANT RELIED ON THE VARIOUS JUDICIAL PRONOUNCEMENTS IN THIS REGARD, INC LUDING DIT VS. OMAN INTERNATIONAL BANK SAOG (HIGH COURT BOMBAY) (2009) 223 CTR (BOM) 382 AND STAR CHEMICALS PVT. LTD. VS. CIT (BOMBAY HIGH COURT ) (2008) 220 CTR (BOM) 319. 6. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLAN T AND THE OBSERVATIONS MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT ORD ER. AS IS EVIDENT FROM THE P&L A/C., THAT THE APPELLANTS MAIN SOURCE S OF INCOME IS PROFIT ON SALE OF SHARES AND DIVIDEND INCOME. DURING THE Y EAR, THE APPELLANT HAS CREDITED ITS P&L A/C., PROFIT ON SALE OF SHARES OF RS. 13,61,111 AND DIVIDEND INCOME OF RS. 22,522 WHEREAS THE INTEREST AND DISCOUNT RECEIVED IS SHOWN AT RS. 347/- ONLY AS AGAINST PREV IOUS YEAR INCOME ON M/S. BIRDY HO LDINGS PVT. LTD. ITA NO. 5273/MUM/2011 3 THIS ACCOUNT OF RS. 8,835/-. THUS, THE APPELLANTS MAIN BUSINESS CANNOT BE CONSTRUED AS MONEY LENDING/NBFC, WHICH IS THE MA IN CONDITION TO BE FULFILLED FOR CLAIMING DEDUCTION FOR BAD DEBTS U NDER THE PROVISIONS OF SEC. 36(2). THE APPELLANT, IN ITS SUBMISSION MADE B EFORE THE A.O. ON 02.06.2008 HAS SUBMITTED THAT THAT THE DEBTORS WRIT TEN OFF IN P&L A/C., IS IN RESPECT OF IRRECOVERABLE OUTSTANDING BALANCE OF M/S. ELECTRIX INDIA LTD., IT HAS FURTHER BEEN SUBMITTED THAT THE COMPAN Y HAS GIVEN LOAN TO THE ABOVE PARTY IN NORMAL COURSE OF FINANCE BUSINES S IN THE YEAR 1998- 1999 AND SUBSEQUENTLY, THE SAID PARTY HAS BECOME SI CK AND HAS BEEN REFERRED TO BIFR. SINCE THE INCOME HAS BEEN OFFERED IN THE EARLIER YEARS, THE AMOUNT WRITTEN OFF HAS BEEN CLAIMED AS BUSINESS EXPENDITURE. IT IS CLEAR FROM THE ABOVE SUBMISSION THAT THE AMO UNT WRITTEN OFF WAS NOT THE DEBTS BUT ARE THE ADVANCES AND CONSIDERING THE ABOVE FACTUAL POSITION THAT THE APPELLANT COMPANY IS NOT IN THE R EGULAR BUSINESS OF ADVANCING LOANS, THE VERY CONDITION LAID DOWN U/S 3 6(2) IS NOT FULFILLED. IN VIEW OF THE SAME, I HOLD THAT THE ASSESSING OFFI CER WAS CORRECT IN CONCLUDING THAT THE AMOUNT WRITTEN OFF AS BAD DEBTS IS NOT MAINTAINABLE AND THUS RIGHTLY DISALLOWED THE CLAIM MADE BY THE A PPELLANT OF RS. 12,39,438/-, UNDER THE HEAD BAD DEBTS. 5. THE CIT(A), THUS SUSTAINED THE FINDINGS OF THE AO AND D ISMISSED THE APPEAL OF THE ASSESSEE. 6. ONCE AGAIN, THE ASSESSEE IS AGGRIEVED AND IS NOW BEFOR E THE ITAT. 7. BEFORE US, THE AR SUBMITTED THAT THE ASSESSEE IS A N BFC AS PER THE CERTIFICATE ISSUED BY THE RBI DATED 27.02.1998, ALLOWING THE ASSESSEE TO CARRY ON THE BUSINESS OF NBFC (PLACED IN TH E APB). THE AR SUBMITTED THAT THE ASSESSEE HAD BEEN CARRYING ON THE BUSINESS OF LENDING AND FINANCE SINCE LONG AND WHICH HAS BEEN ACCEPTED BY THE AO AS BACK AS ASSESSMENT YEAR 1998-99 IN THE ASSESSMENT FRAMED U/S 143(3). THE AR FURTHER SUBMITTED THAT THE FUNDS ADVANCED AS LOAN TO M/S ELECTRIX INDIA LTD. WAS FOR THE PURPOSE OF BUSINESS. H E FURTHER POINTED OUT THAT THE ASSESSEE HAS TAKEN RECOURSE OF LE GAL PROCEEDINGS AND ALSO RELIED UPON CERTAIN DECISIONS, AS MENTIONED BY THE CIT(A) IN HIS ORDER (AS EXTRACTED HEREABOVE). 8. THE AR SUBMITTED THAT THE ASSESSEE HAD RIGHTLY CLAIM ED THE DEBTS, HAVING GONE BAD AND UNRECOVERABLE. 9. THE DR RELIED ON THE ORDERS OF THE REVENUE AUTHORITIES. M/S. BIRDY HO LDINGS PVT. LTD. ITA NO. 5273/MUM/2011 4 10. WE HAVE HEARD THE ARGUMENTS OF EITHER SIDE AND FROM THE EVIDENCE AND AS PER THE ASSESSMENT ORDER FOR ASSESSME NT YEAR 1998- 99, IT IS PROVED THAT THE ASSESSEE IS IN THE BUSINESS OF LE NDING AND FINANCE, QUANTUM OF WHICH MAY BECOME SMALL OR BIG, BUT THE FACT IS THAT THE APPROPRIATE AUTHORITY, I.E. RBI, RECOGNIZES THE AS SESSEE TO BE NBFC. THE FACT THAT THE ASSESSEE HAD ADVANCED BUSINESS LOAN TO ELECTRIX INDIA LTD. IS ALSO UNCONTROVERTED., WHICH HAS BECO ME BAD. IN THAT BACKGROUND, LEGISLATURE PROVIDES THAT ONLY A CLAIM CA N SUFFICE, WITHOUT THE EVIDENCE. IN THE PRESENT CASE, THE ASSESSEE HAS PROVIDED EVIDENCE TO SHOW THAT THE FUNDS ADVANCED ARE IRRECOVER ABLE AND FOR WHICH, THE ASSESSEE HAS BEEN FORCED TO TAKE LEGAL RECOUR SE. THE AR HAS ALSO PLACED THE COPY OF LEDGER ACCOUNT OF ELECTRIX TO PRO VE THAT THE FUNDS WERE NOT FORTH COMING. 11. IN THE LIGHT OF THESE FACTS, WE HOLD THAT THE ASSESSE E HAS RIGHTLY CLAIMED THE BAD DEBTS. 12. WE, THEREFORE, SET ASIDE ORDER OF THE CIT(A) AND DIREC T THE AO TO ALLOW THE CLAIM OF BAD DEBTS OF RS. 12,39,438/-, AS CLAIMED BY THE ASSESSEE. 13. THE APPEAL FILED BY THE ASSESSEE, IS THEREFORE, ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 30 TH AUGUST, 2013. SD/- SD/- ( . . ) ( ! ) (R.S. SYAL) (VIVEK VARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 30 TH AUGUST, 2013 !/ COPY TO:- 1) / THE APPELLANT. M/S. BIRDY HO LDINGS PVT. LTD. ITA NO. 5273/MUM/2011 5 2) / THE RESPONDENT. 3) (! ( ) 14, MUMBAI / THE CIT (A)-14, MUMBAI. 4) (! 6 , MUMBAI / THE CIT6, MUMBAI, 5) )*+ ! , , ' , , - / THE D.R. B BENCH, MUMBAI. 6) +. / COPY TO GUARD FILE. 01 / BY ORDER / / TRUE COPY / / [ 2 / 3 4 ' , , - DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI *673 . . * CHAVAN, SR. PS