S. K.K. OVERSEAS CORPORATION, MUMBAI V. ITO WD 20(1), MUMBAI

ITA 560/MUM/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 56324 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-12-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 22-12-2011
• Assessment Year: 2001-2002
• Appeal Filed On: 22-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KAPIL K JAIN
• Keywords: Business income; Opportunity of being heard; Bad and doubtful debts
• Section: 143(3)

Judgement Text

1 M/S S K K OVERSEAS CORPORATION IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI I BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI T R SOOD, AM & SHRI VIJAY PAL RAO, JM ITA NO. 560/MUM/2010 (ASST YEAR 2001-02 ) M/S S K K OVERSEAS CORPORATION PARWSANI HOUSE 113-AB GOVERNMENT INDL. ESTATE CHARKOP KANDIVALI(W) MUMBAI 67 VS THE INCOME TAX OFFICER WARD 20(1), MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAAFK1298E ASSESSEE BY SH KAPIL K JAIN REVENUE BY SH JITENDRA YADAV DT.OF HEARING 22 ND DEC 2011 DT OF PRONOUNCEMENT 30 TH DEC 2011 ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 30.10.2009 OF THE CIT(A) FOR THE AY 2001-02. 2 THE ONLY ISSUE RAISED BY THE ASSESSEE IN THIS APP EAL IS AS UNDER: THE LD CIT(A) IS NOT JUSTIFIED IN CONFIRMING THE D ISALLOWANCE OF THE BAD DEBTS OF `. 6,75,000/- WRITTEN OFF AS IRRECOVER ABLE IN THE ACCOUNTS OF THE APPELLANT WITHOUT APPRECIATING THAT THE CONDITIONS LAID DOWN UNDER THE PROVISION OF SEC. 36(1) (VII) A ND SECTION 36(2) OF THE I T ACT ARE FULFILLED. 3 BRIEFLY STATED THE FACTS IN THIS CASE ARE THAT T HE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF MANUFACTURING AND E XPORT OF GARMENTS, GOLD AND DIAMOND JEWELLERY ETC. THE ASSESSEE CLAIMED BAD DE BTS OF `. 6,75,000/- WHICH WAS DISALLOWED BY THE ASSESSING OFFICER IN THE ORI GINAL ASSESSMENT ORDER PASSED U/S 143(3) DT 28.2.2003. THE MATTER WAS CARRIED TO THE TRIBUNAL AND VIDE ORDER 2 M/S S K K OVERSEAS CORPORATION DATED 1.8.2006, THE TRIBUNAL REMANDED THE MATTER TO THE RECORD OF THE ASSESSING OFFICER FOR EXAMINATION OF THE ISSUE AFRESH IN THE LIGHT OF PAST AND SUBSEQUENT HISTORY OF BUSINESS OF THE ASSESSEE IN FINANCING AND MONEY LENDING. WHILE PASSING THE ORDER IN PURSUANCE TO THE DIRECTIONS O F THE TRIBUNAL, THE ASSESSING OFFICER AGAIN DISALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS SHOWN INTEREST INCOME UNDER THE HEAD INCOME FROM OTHER SOURCES AND CLAIMED THAT THE ASSESSEE IS ALSO IN THE BUSIN ESS OF MONEY LENDING. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE IS IN THE BUSINESS OF MONEY LENDING. HE HAS REFERR ED THE AUDIT REPORT OF THE ASSESSEE AND OBSERVED THAT THE BUSINESS INDICATED IN THE AUDIT REPORT OF THE ASSESSEE WAS OF MANUFACTURERS AND EXPORT OF GARMENT S, GOLD AND DIAMOND JEWELLERY; ACCORDINGLY, THE CLAIM OF BAD DEBTS OF ` . 6.75 LACS WAS DISALLOWED. 3.1 ON APPEAL, THE CIT(A) CONFIRMED THE DISALLOWANC E MADE BY THE ASSESSING OFFICER ON THE GROUND THAT SINCE THE BAD DEBTS ARE REPRESENTING ADVANCES GIVEN BY THE ASSESSEE AND WHEN THE ASSESSEE IS NO T IN THE BUSINESS OF MONEY LENDING, THEN THE PROVISIONS OF SEC. 36(2) ARE NOT COMPLIED WITH. 4 BEFORE US, THE LD AR OF THE ASSESSEE HAS REFERRED THE COPY OF THE RETURN OF INCOME AS WELL AS THE STATEMENT OF INCOME FOR THE E ARLIER AS WELL AS SUBSEQUENT ASSESSMENT YEARS AND STATED THAT THESE LOANS ARE RE GULARLY SHOWN BY THE ASSESSEE AND INTEREST INCOME ALSO RECEIVED BY THE A SSESSEE; THOUGH THE SAME WAS SET OFF AGAINST THE INTEREST PAYMENTS. THE L D AR OF THE ASSESSEE HAS SUBMITTED THAT THE DEPARTMENT HAS ACCEPTED THE INTE REST RECEIVED BY THE ASSESSEE AS BUSINESS INCOME AND ALLOWED THE SAME FO R SET OFF AGAINST THE INTEREST PAYMENTS. 3 M/S S K K OVERSEAS CORPORATION 4.1 THE LD DR, ON THE OTHER HAND, HAS SUBMITTED THA T WHEN THE ASSESSEE IS NOT IN THE BUSINESS OF MONEY LENDING, THE BAD DEBTS REP RESENTING ADVANCES CANNOT BE ALLOWED. HE HAS RELIED UPON THE ORDERS OF THE L OWER AUTHORITIES. 5 WE HAVE CONSIDERED THE RIVAL CONTENTION AS WELL A S THE RELEVANT MATERIAL ON RECORD. IN THE FIRST ROUND OF LITIGATION, THE TR IBUNAL HAS REMANDED THE ISSUE TO THE RECORD OF THE ASSESSING OFFICER VIDE ORDER DATE D 1.8.2006 AS UNDER; 3. AFTER CONSIDERING THE ORDER OF THE ASSESSING OF FICER AND LD CIT(A), WE RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER TO EXAMINE AFRESH. THE ASSESSING OFFICER WILL EXAMINE THE ISSU E IN LIGHT OF PAST AND SUBSEQUENT HISTORY OF THE CASE. IF IT IS FOUND THAT ASSESSEE IS INDULGED IN FINANCING OR MONEY LENDING BUSINESS, TH EN THE ISSUE HAS TO BE DECIDED AFTER TAKING ALL THOSE ASPECTS INTO C ONSIDERATION. ACCORDINGLY, WE RESTORE THE ISSUE TO THE FILE OF TH E ASSESSING OFFICER TO DECIDE AFRESH AFTER AFFORDING PROPER OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 5.1 IT IS CLEAR FROM THE ORDER OF THE TRIBUNAL THAT AFTER CONSIDERING THE CONTENTION OF THE ASSESSEE THAT THE ASSESSEE IS IN THE BUSINESS OF MONEY LENDING AND FINANCING, THE TRIBUNAL DIRECTED THE ASSESSING OFFICER TO VERIFY THIS ASPECT AND IF IT IS FOUND THAT THE ASSESSEE IS REGULARLY D OING THIS ACTIVITY, THEN THE ISSUE SHALL BE DECIDED IN THE LIGHT OF THE SAID FACT. 5.2 WE FIND THAT THE ASSESSEE HAS BEEN ADVANCING MO NEY SINCE AY 1997-98. THE ASSESSEE HAS FILED COPY OF LEDGER ACCOUNT FROM PAGES 20 TO 31 OF THE PAPER BOOK, WHICH SHOWS THAT MONEY LENDING ACTIVITY OF TH E ASSESSEE CONTINUOUS AND THE ASSESSEE RECEIVING INTEREST REGULARLY ON THE AD VANCES GIVEN TO VARIOUS PARTIES. THIS IS NOT A CASE OF STRAY INCIDENT OF AD VANCE BUT NUMBER OF TRANSACTIONS OF ADVANCES CLEARLY SHOWS THAT THE ASS ESSEE IS REGULARLY DOING THIS ACTIVITY OF MONEY LENDING AND EARNING THE INTEREST. THE ASSESSEE HAS ALSO FILED RETURN OF INCOME AND COMPUTATION OF INCOME FOR THE AYS 1999-00, 2001-02, 2002-03, 2003-04, AS WELL AS 2004-05 WHICH ALSO SHO W THAT LOANS AND ADVANCES 4 M/S S K K OVERSEAS CORPORATION AS WELL AS INTEREST RECEIVED BY THE ASSESSEE. IN T HE EARLIER YEARS, THE ASSESSEES INCOME FROM INTEREST WAS ALLOWED TO BE SET OFF OF A GAINST INTEREST PAYMENTS; THEREFORE, THE REVENUE HAS ACCEPTED THE INTEREST IN COME AS BUSINESS INCOME OF THE ASSESSEE. ACCORDINGLY, IN VIEW OF THE FACTS TH AT THE ASSESSEE IS REGULARLY ENGAGED IN THE ACTIVITY OF ADVANCING MONEY AND RECE IVING INTEREST WHICH HAS BEEN TAKEN INTO ACCOUNT IN THE P&L ACCOUNT IN THE E ARLIER YEARS AND SUBSEQUENT YEARS, THEN THE CLAIM OF THE ASSESSEE IS ALLOWABLE IN THE LIGHT OF THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF DC IT VS SHRI SHREYAS S MORAKHIA DECIDED IN 131 TTJ 631 (MUM) 6 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED ON THE 30 TH , DAY OF DEC 2011. SD/ SD/ ( T R SOOD ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 30 TH ,DEC 2011 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI