MANOJ MOOLCHAND SHAH, MUMBAI V. ITO WD 4(3)(3), MUMBAI

ITA 561/MUM/2009

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71002 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 7 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2013
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-01-2013
• Assessment Year: 2004-2005
• Appeal Filed On: 28-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS
• Assessee Lawyers: DEEPAK TRALSHAWALA
• Keywords: Capital asset; Business income; Rule of consistency; Bad and doubtful debts
• Section: 11; 143(3)

Judgement Text

, , , , , IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B, MUMBAI .. , ! ' , # !, $ BEFORE SHRI R.S.SYAL, AM AND SHRI VIVEK VARMA, JM ITA NO.561/MUM/2009 : ASST.YEAR 2005-2006 SHRI MANOJ MOOLCHAND SHAH CRESCENT CHAMBERS, GROUND FLOOR HOMI MODI CROSS STREET, FORT MUMBAI 400 001 PAN : AAFPS9212F. THE INCOME TAX OFFICER WARD 4(3)(3) MUMBAI. ( %& / // / APPELLANT) ( ( ( ( / VS. ( )*%&/ RESPONDENT) ITA NO.888/MUM/2010 : ASST.YEAR 2006-2007 THE INCOME TAX OFFICER WARD 4(3)(3) MUMBAI. SHRI MANOJ MOOLCHAND SHAH CRESCENT CHAMBERS, GROUND FLOOR HOMI MODI CROSS STREET, FORT MUMBAI 400 001 ( %& / // / APPELLANT) ( ( ( ( / VS. ( )*%&/ RESPONDENT) + + + + , ,, , - - - - / REVENUE BY : SHRI PITAMBAR DAS (ADDL.CIT-DR) #( ./ #( ./ #( ./ #( ./ , - , - , - , - / ASSESSEE BY : SHRI DEEPAK TRALSHAWALA ( , / / / / / DATE OF HEARING : 26.08.2013 012 , / / DATE OF PRONOUNCEMENT : 28.08.2013 !3 !3 !3 !3 / / / / O R D E R PER R.S.SYAL (AM) : THESE TWO APPEALS ONE BY THE ASSESSEE FOR THE ASS ESSMENT YEAR 2005-2006 AND THE OTHER BY THE REVENUE FOR THE ASSE SSMENT YEAR 2006-2007 ARE BASED ON SOME COMMON FACTS. WE ARE, TH EREFORE, PROCEEDING TO DISPOSE THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. ITA NO.561/MUM/2009 & 888/M/2010 : SHRI MANOJ MOOLCHAND SHAH 2 ASSESSMENT YEAR 2005-2006 2. IT IS A RECALLED MATTER INASMUCH AS THE EA RLIER EX PARTE ORDER PASSED BY THE TRIBUNAL ON 19.11.2010 WAS SUBSEQUENT LY RECALLED BY ITS LATTER ORDER DATED 18.05.2012. 3. FIRST GROUND OF THE APPEAL IS AGAINST UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN TREATING THE AMOUNT OF ` 26,76,525 AND ` 5,61,708 AS LONG TERM CAPITAL GAIN AND SHORT TERM CAPITAL GAIN RESPECTIVELY AS AGAINST THE ASSESSEES CLAIM OF SUC H AMOUNTS AS BUSINESS INCOME. BRIEFLY STATED THE FACTS OF THIS G ROUND ARE THAT THE ASSESSEE SOLD SHARES WORTH ` 95.14 LAKH AND THE PROFIT FROM THE SALE OF SUCH SHARES WAS TREATED AS CAPITAL GAIN SPLIT INTO TWO PARTS, VIZ., ` 26.76 LAKH AS LONG TERM CAPITAL GAIN EXEMPT U/S 10( 38) AND ` 5.61 LAKH AS SHORT TERM CAPITAL GAIN CHARGEABLE TO TAX A T THE RATE OF 10%. ON BEING CALLED UPON TO EXPLAIN AS TO WHY THE PROFI T SHOWN UNDER THE HEAD `CAPITAL GAINS SHOULD NOT BE TAKEN AS `BUSINE SS INCOME, THE ASSESSEE TENDERED HIS EXPLANATION STATING THAT THE LONG TERM CAPITAL GAIN HAS RESULTED FROM THE SHARES HELD FOR A LONG T IME EXCEEDING MORE THAN ONE YEAR AND THE SHORT TERM CAPITAL GAIN HAS R ESULTED FROM THE SHARES HELD AS INVESTMENT FOR LESS THAN ONE YEAR. T HE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD SHOWN PROFIT FROM SALE OF SHARES AS `BUSINESS INCOME IN THE PRECEDING YEARS AND HENCE THERE WAS NO REASON TO DEVIATE FROM THE EARLIER STAND. TH IS WAS SOUGHT TO BE REBUTTED BY THE ASSESSEE STATING THAT THE SHARES W ERE HELD AS `INVESTMENT THROUGH OUT THE EARLIER YEARS AND WERE CONSEQUENTLY VALUED AT COST. IT WAS ONLY FOR THE PURPOSE OF THE HEAD UNDER WHICH ITA NO.561/MUM/2009 & 888/M/2010 : SHRI MANOJ MOOLCHAND SHAH 3 THE INCOME FALLS, THAT THE ASSESSEE TREATED IT AS `BUSINESS INCOME. NOT CONVINCED WITH THE ASSESSEES SUBMISSIONS, THE ASSESSING OFFICER REJECTED THE ASSESSEES STAND AND HELD THAT THE ENT IRE PROFIT FROM SALE OF SHARES SHOULD BE TREATED AS `BUSINESS INCOME CH ARGEABLE TO TAX AT NORMAL RATES. THE LEARNED CIT(A) UPHELD THE ASSESSM ENT ORDER ON THIS POINT, AGAINST WHICH THE ASSESSEE HAS COME UP IN AP PEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. INSOFAR AS THE POSITION IN THE EARLIER YEARS IS CONCERNED, IT IS SEEN THAT THE ASSESSEE WAS REGULAR LY SHOWING THE SHARES AS HIS INVESTMENT IN THE BALANCE SHEETS AN D ALSO VALUING THEM AS `INVESTMENT AT `COST PRICE AND NOT AS `S TOCK IN TRADE IN WHICH CASE THE VALUATION SHOULD HAVE BEEN DONE AT ` COST OR MARKET PRICE, WHICHEVER IS LESS. AT THE SAME TIME, IT IS EQUALLY TRUE THAT IN THE EARLIER YEARS THE ASSESSEE OFFERED PROFIT FROM SALE OF SHARES AS `BUSINESS INCOME, WHICH STOOD ACCEPTED AS SUCH. HE RE IT IS RELEVANT TO MENTION THAT THE FINANCE (NO.2) ACT, 2004 CAME O UT WITH THE CONCEPT OF SECURITIES TRANSACTION TAXES WITH EFFE CT FROM ASSESSMENT YEAR 2005-2006. WITH THE LEVY OF STT, T HE LONG TERM CAPITAL GAIN ON SALE OF SHARES WHICH HAVE SUFFERED STT BECAME EXEMPT U/S 10(38). WE ARE CONCERNED WITH ASSESSMENT YEAR 2005- 2006 IN THE PRESENT APPEAL WHICH IS THE FIRST YEAR OF THE LEVY OF STT AND THE CONSEQUENTIAL EXEMPTION OF SUCH LONG TERM C APITAL GAIN U/S 10(38). AS THE ASSESSEE HAD PAID STT ON THE SHARES SOLD BY HIM HELD FOR A PERIOD OF MORE THAN ONE YEAR, HE CONSIDERED I NCOME FROM SALE OF SUCH SHARES AS LONG TERM CAPITAL GAIN. IN THE EARLI ER YEARS, THE ASSESSEE ITA NO.561/MUM/2009 & 888/M/2010 : SHRI MANOJ MOOLCHAND SHAH 4 WAS SHOWING INCOME FROM TRANSFER OF SHARES AS `BUSI NESS INCOME, ALBEIT REFLECTING SUCH SHARES AS `INVESTMENT IN HIS BALANCE SHEETS. THIS IS DUE TO CHANGE IN LAW TAKING PLACE IN THE P REVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION THAT THE ASSESSEE SET THE THINGS STRAIGHT BY SHOWING PROFIT FROM SALE OF SHARES HELD AS `INVESTMENTS AS LONG TERM CAPITAL GAIN. AT THIS J UNCTURE IT IS CRUCIAL TO NOTE THAT THE ASSESSEE SHOWED LONG TERM CAPITAL GAIN FROM THE SALE OF 9 SCRIPS. A CHART HAS BEEN PLACED AT PAGE 1 OF T HE PAPER BOOK WHICH SHOWS THE DATES OF ACQUISITION AND DATES OF T RANSFER OF SUCH SHARES. THE PERIOD OF HOLDING IS NOT LESS THAN 400 DAYS IN ANY CASE BUT EXTENDS TO 5063 DAYS. FOR EXAMPLE, THE SHARES OF WE LLAN INCANDES CENT INDIA LIMITED WERE PURCHASED ON 16.04.1991 AN D SOLD ON 24.02.2005. SIMILARLY SHARES OF UNIVERSAL CANS & CO NTAINERS LIMITED WERE PURCHASED IN 1994 AND SOLD IN THE PREVIOUS YEA R RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION GIVING PROFIT O R LOSS ON THE TRANSFER, AS THE CASE MAY BE. SHARES OF RITESH INDU STRIES LIMITED WERE PURCHASED IN 1995 AND SOLD ON 24.02.2005. SIMILAR I S THE POSITION ABOUT CERTAIN OTHER SHARES. THE SHARES OF HUGHESTEL E COM INDIA LIMITED WERE PURCHASED IN THE CALENDAR YEAR 2003 A ND SOLD IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION WITH HOLDING PERIOD NOT LESS THAN 400 DAYS IN ANY CASE. NOW THE QUESTION ARISES AS TO WHETHER THE SHARES HELD FOR A MINIMUM PERIOD 400 (I.E. MORE THAN A YEAR) DAYS AND MAXIMUM UP TO 5063 DAY (I.E. MORE THAN THIRTEEN YEARS) CAN BE CONSIDERED AS `I NVESTMENT OR `STOCK IN TRADE? WHEREAS, STOCK IN TRADE IS USUALL Y SOLD AT EARLIEST TO REAP THE IMMEDIATE PROFIT SO THAT THE SALE PROCEEDS MAY BE TURNED ITA NO.561/MUM/2009 & 888/M/2010 : SHRI MANOJ MOOLCHAND SHAH 5 OVER TIME AND AGAIN, INVESTMENT IS MADE WITH A VIEW TO GAIN FROM APPRECIATION IN ITS VALUE OVER A RELATIVELY LONGER PERIOD RATHER THAN REALIZING IMMEDIATE PROFIT ON SALE. IT IS AXIOMATI C THAT PROFIT RESULTING FROM THE TRANSFER OF STOCK IN TRADE IS `BUSINESS IN COME, BUT FROM INVESTMENTS IS `CAPITAL GAIN. WHEN THE FACTS OF TH E INSTANT CASE ARE TESTED ON THE TOUCHSTONE OF ABOVE TEST FOR DETERMIN ING AS TO WHETHER THE SHARES WERE HELD AS INVESTMENT OR STOCK IN TRAD E, WE HARDLY ENCOUNTER ANY DIFFICULTY IN CONCLUDING THAT THE ASS ESSEE HAD PURCHASED THESE SHARES WITH THE INTENTION OF CAPITA L APPRECIATION AND NOT FOR HARVESTING THE IMMEDIATE PROFIT FROM THEIR SALE. THE FACT THAT THESE SHARES WERE HELD FOR SUCH A LONG PERIOD AMPLY DEMONSTRATES THAT THE INTENTION OF THE ASSESSEE WAS TO KEEP SUCH SHAR ES AS `INVESTMENT. THE FURTHER FACT THAT THE ASSESSEE CONSISTENTLY SHO WED SUCH SHARES AS INVESTMENT IN HIS BALANCE SHEETS OF THE EARLIER Y EARS CLEARLY BRINGS OUT HIS INTENTION OF RETAINING THE SHARES AS `INVES TMENTS AND NOT AS `STOCK IN TRADE. IF SUCH SHARES HAD BEEN HELD AS S TOCK IN TRADE, NATURALLY THESE WOULD HAVE BEEN VALUED AT `COST OR MARKET PRICE, WHICHEVER IS LESS AND NOT AT `COST PRICE. THESE F ACTS INDICATE THAT INSOFAR AS PROFIT FROM TRANSFER OF SHARES HELD FOR SUCH A LONG PERIOD IS CONCERNED, IT CANNOT BE CLASSIFIED AS `BUSINESS INC OME BUT HAS TO BE HELD AS LONG TERM CAPITAL GAIN. ANOTHER SALIENT FEA TURE, WHICH IS RELEVANT BUT NOT DECISIVE, IS THAT THE ASSESSEE HA D PURCHASED THE SHARES WITH HIS OWN CAPITAL AND THERE IS NO OUTSTAN DING LOAN IN HIS BALANCE SHEET. THESE FACTS AMPLY SHOW THAT THE PROF IT FROM SALE OF SUCH SHARES CANNOT BE CONSIDERED AS `BUSINESS INCOM E AS HAS BEEN HELD BY THE AUTHORITIES BELOW. ITA NO.561/MUM/2009 & 888/M/2010 : SHRI MANOJ MOOLCHAND SHAH 6 5. THE LEARNED DEPARTMENTAL REPRESENTATIVE CANVASSE D THE VIEW POINT THAT THE PRINCIPLE OF CONSISTENCY SHOULD BE F OLLOWED AND HENCE PROFIT FROM SALE OF SUCH SHARES BE HELD AS `BUSINES S INCOME. IN PRINCIPLE, WE ALSO AGREE WITH IT AND APPRECIATE THE PREVALENCE OF THE RULE OF CONSISTENCY. AT THE SAME TIME, IT IS IMPORT ANT TO NOTE THAT THE PRINCIPLE OF CONSISTENCY PRE-SUPPOSES SIMILARITY IN THE FACTS AND LAW FOR TWO YEARS. THE RULE OF CONSISTENCY BECOMES INAP PLICABLE IF THERE IS CHANGE IN THE FACTUAL OR LEGAL POSITION IN TWO Y EARS. NO DOUBT THE ASSESSEE SHOWED PROFIT FROM SALE OF SHARES AS `BUSI NESS INCOME IN THE EARLIER YEARS BUT DUE TO CHANGE IN LAW, AS DISC USSED ABOVE, TAKING PLACE IN THE YEAR RELEVANT TO THE ASSESSMENT YEAR U NDER CONSIDERATION, THE DEPARTURE IN THE HEAD UNDER WHICH INCOME FROM S UCH SALE OF SHARES SHOULD BE CLASSIFIED, IS JUSTIFIED. IT IS NO T A MERE CHANGE OF LAW WHICH PROMPTED THE ASSESSEE TO TAKE ADVANTAGE OF A BENEFICIAL PROVISION, BUT SUCH SHARES WERE ALREADY HELD AS LO NG TERM CAPITAL ASSETS, THOUGH PROFIT FROM THEIR TRANSFER IN PAST, IF ANY, WAS INADVERTENTLY SHOWN AS BUSINESS INCOME. IT IS A CAS E OF SETTING THE POSITION RIGHT RATHER THAN NEEDLESSLY EXPLOITING A BENEFICIAL PROVISION. AT THE COST OF REPETITION, WE WANT TO ACCENTUATE TH AT THE ASSESSEE HAS TAKEN CONSISTENT STAND IN THE EARLIER YEARS THAT TH ESE SHARES WERE HIS `INVESTMENT AND SHOWED THE SAME IN HIS EARLIER BAL ANCE SHEETS AS `INVESTMENTS. IT WAS ONLY FOR THE PURPOSE OF OFFER ING OF INCOME FROM SALE OF SUCH SHARES THAT THE SAME WAS SHOWN AS `BUS INESS INCOME INSTEAD OF `CAPITAL GAINS. WHEN WE CONSIDER THE TO TALITY OF FACTS AND CIRCUMSTANCES PREVAILING IN THE INSTANT CASE, SUCH AS, HOLDING OF SHARES IN SOME CASES FOR A PERIOD OF MORE THAN 13 Y EARS, NO UTILIZATION ITA NO.561/MUM/2009 & 888/M/2010 : SHRI MANOJ MOOLCHAND SHAH 7 OF BORROWED FUNDS IN THE ACQUISITION OF SUCH SHARES , TREATMENT OF SUCH SHARES AS `INVESTMENTS IN EARLIER BALANCE SHEETS A ND VALUING THESE SHARES AS LIKE `INVESTMENT AND NOT AS `STOCK IN T RADE, WE REACH AN IRRESISTIBLE CONCLUSION THAT INCOME FROM SALE OF SU CH SHARES WAS RIGHTLY CLAIMED AS LONG TERM CAPITAL GAIN. THE IMPU GNED ORDER ON THIS ISSUE IS OVERTURNED. 6. INSOFAR AS THE SECOND ASPECT OF THE FIRST GROUND ABOUT THE TREATMENT OF ` 5.61 LAKH AS SHORT TERM CAPITAL GAIN IS CONCERNED, WE FIND THAT THERE IS A LIST OF SHARES RESULTING INTO SHORT TERM CAPITAL GAIN, PLACED ON PAGE 2 OF THE PAPER BOOK. FROM THIS LIST IT CAN BE SEEN THAT THE PERIOD OF HOLDING IS SHORT. IN THE CASE OF SHA RES OF STEEL AUTHORITY OF INDIA LIMITED, THE ASSESSEE PURCHASED, SOLD, REP URCHASED AND RESOLD SHARES ON DIFFERENT OCCASIONS. IN CERTAIN OT HER SHARES ALSO, THIS FEATURE CAN BE OBSERVED THAT THERE IS A REPEATED E NTRY AND EXIT INTO/FROM THE SAME SCRIP. WHEN THE ASSESSEE REPEATED LY ENTERS INTO THE SAME SHARES TIME AND AGAIN WITH A VIEW OF REAP THE BENEFIT FROM THE IMMEDIATE INCREASE IN PRICE, THESE CANNOT BE CONSID ERED AS ANYTHING OTHER THAN `STOCK. IT IS WORTH MENTIONING THAT IN THE SUBSEQUENT YEARS ALSO THE ASSESSEE CONSISTENTLY SHOWED PROFIT FROM S ALE OF SHARES HELD FOR LESS THAN ONE YEAR AS SHORT TERM CAPITAL GAIN. THIS POSITION WAS ADMITTED BY THE LEARNED AR DURING THE COURSE OF HEA RING. THESE FACTS INDICATE THAT THE PROFIT OF ` 5.61 LAKH RESULTING FROM THE TRANSFER OF THESE SHARES IS IN THE NATURE OF BUSINESS INCOME AND NOT SHORT TERM CAPITAL GAIN AS CLAIMED BY THE ASSESSEE. IN VIEW OF THE FOREGOING DISCUSSION, WE ARE OF THE CONSIDERED OPINION THAT T HE LEARNED CIT(A) ITA NO.561/MUM/2009 & 888/M/2010 : SHRI MANOJ MOOLCHAND SHAH 8 WAS JUSTIFIED IN CONSIDERING ` 5.61 LAKH AS `BUSINESS INCOME REPELLING THE ASSESSEES CONTENTION OF `SHORT TERM CAPITAL GAIN. THIS GROUND IS PARTLY ALLOWED. 7. SECOND GROUND OF THE ASSESSEES APPEAL IS AGAINS T UPHOLDING THE ACTION OF THE ASSESSING OFFICER IN DISALLOWING THE CLAIM OF BAD DEBTS OF ` 15 LAKH. THE FACTS APROPOS THIS GROUND ARE THAT THE ASSESSEE DEBITED A SUM OF ` 15 LAKH TO HIS PROFIT AND LOSS ACCOUNT CLAIMING IT AS BAD DEBT. ON BEING CALLED UPON TO EXPLAIN ITS JU STIFICATION, THE ASSESSEE CONTENDED THAT A SUM OF ` 40 LAKH WAS LENT TO M/S.AIRCOMMAND LIMITED ON INTEREST IN AN EARLIER YE AR. THE CHEQUES ISSUED BY THE LENDER BOUNCED AND A CASE U/S 138 OF THE NEGOTIABLE INSTRUMENTS ACT WAS FILED AGAINST THE DIRECTORS OF THAT COMPANY. DURING THE YEAR UNDER CONSIDERATION, THE CLAIM WAS FINALLY SETTLED FOR ` 25 LAKH RESULTING INTO A LOSS OF ` 15 LAKH. THE ASSESSEE FURTHER SUBMITTED VIDE ITS LETTER DATED 05.11.2007 THAT HE WAS ENGAGED IN THE MONEY LENDING BUSINESS SINCE PAST SEVERAL YEARS AN D INCOME FROM INTEREST HAS BEEN CONSISTENTLY SHOWN AND ACCEPTED A S `BUSINESS INCOME. THE ASSESSING OFFICER OBSERVED THAT THE AS SESSEE HAD NOT MENTIONED MONEY LENDING AS HIS BUSINESS IN SOME O F THE EARLIER YEARS AND IT WAS DUE TO INADVERTENCE THAT INTEREST INCOME WAS ACCEPTED AS BUSINESS INCOME FOR THE ASSESSMENT YEAR 1999-2000. HE, THEREFORE, REFUSED TO GRANT DEDUCTION OF ` 15 LAKH CLAIMED BY THE ASSESSEE AS LOSS IN MONEY LENDING BUSINESS. NO RELI EF WAS ALLOWED IN THE FIRST APPEAL. ITA NO.561/MUM/2009 & 888/M/2010 : SHRI MANOJ MOOLCHAND SHAH 9 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED T HE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT A SUM OF ` 40 LAKH WAS ADVANCED BY THE ASSESSEE TO M/S.AIRCOMMAND LIMITED IN AN EARLIER YEAR. AFTER SOME LITIGATION, THE ASSESSEE COULD FIN ALLY SUCCEED IN RECOVERING A SUM OF ` 25 LAKH AGAINST THE OUTSTANDING AMOUNT OF ` 40 LAKH. THIS RESULTED INTO LOSS OF ` 15 LAKH. THE CLAIM OF THE ASSESSEE IS THAT THIS LOSS RESULTED FROM MONEY LENDING BUSINESS AND HENCE SHOULD BE CONSIDERED AS BAD DEBT U/S 36(1)(VII). AU CONTRAIRE, THE VIEW POINT OF THE REVENUE IS THAT THIS IS NOT A BUSINESS LOSS AND HENCE NOT DEDUCTIBLE. 9. IT IS NOTICED THAT THE ASSESSEE ADVANCED A S UM OF ` 40 LAKH TO M/S.AIRCOMMAND LIMITED IN THE YEAR 1993-94. APART F ROM THAT, THE ASSESSEE ALSO ADVANCED MONEY TO CERTAIN OTHER ENTIT IES FROM WHICH HE EARNED INTEREST INCOME IN THE EARLIER YEARS AS WELL . THE ASSESSEE LENT A SUM OF ` 1.51 CRORE FOR THE ASSESSMENT YEAR 1999-2000 AND EA RNED INTEREST ON SUCH LOAN AT ` 35.16 LAKH. FOR THE ASSESSMENT YEAR 2000- 2001 THE ASSESSEE EARNED INTEREST INCOME OF ` 22.58 LAKH, FOR THE ASSESSMENT YEAR 2001-2002 EARNED INTEREST INCOME OF ` 23.65 LAKH, FOR THE ASSESSMENT YEAR 2002-2003 EARNED INTEREST INCOM E OF ` 18.30 LAKH, FOR THE ASSESSMENT YEAR 2003-2004 EARNED INTE REST INCOME OF ` 17.55 LAKH, FOR THE ASSESSMENT YEAR 2004-2005 EARNE D INTEREST INCOME OF ` 7.67 LAKH. THE ASSESSEE OFFERED SUCH INTEREST AS `B USINESS INCOME IN ALL THE EARLIER YEARS, WHICH STOOD ACCEP TED BY THE REVENUE AS SUCH. FOR SOME OF THE YEARS, THE ASSESSMENT ORD ERS HAVE BEEN PASSED U/S 143(3) ACCEPTING THE ASSESSEES CLAIM OF INTEREST FALLING ITA NO.561/MUM/2009 & 888/M/2010 : SHRI MANOJ MOOLCHAND SHAH 10 UNDER THE HEAD `BUSINESS INCOME. THE ASSESSMENT OR DER FOR ASSESSMENT YEAR 2001-2002 WAS PASSED U/S 143(3) ON 18.12.2002 IN WHICH THE ASSESSING OFFICER DULY ADMITTED THAT : T HE ASSESSEE IS ENGAGED IN THE BUSINESS OF SHARE TRADING AND FINANCE AND BROKERAGE. THE INTEREST INCOME WAS DULY ACCEPTED AS BUSINESS I NCOME. A COPY OF THE ASSESSMENT ORDER IS PLACED ON PAGE 41 ONWARDS O F THE PAPER BOOK. PAGE 51 OF THE PAPER BOOK IS A COPY OF THE ASSESSME NT ORDER PASSED U/S 143(3) FOR ASSESSMENT YEAR 2002-2003 IN WHICH T HE ASSESSING OFFICER ADMITTED ON PAGE 52 OF THE PAPER BOOK THAT : THE ASSESSEE IS A BSE MEMBERSHIP CARD HOLDER. THE ASSESSEE ALSO INVES TS IN SHARES AND SECURITIES AND IS ALSO IN THE BUSINESS OF LENDING MONEY TO EAR N INTEREST . INTEREST INCOME OF ` 18.30 LAKH WAS OFFERED AS `BUSINESS INCOME AND ACCEPTED AS SUCH BY THE ASSESSING OFFIC ER. ASSESSMENT FOR THE ASSESSMENT YEAR 2003-2004 WAS ALSO DONE U/S 143(3) READ WITH SECTION 147. A COPY OF THE ASSESSMENT ORDER DA TED 23.11.2006 IS AVAILABLE ON PAGE 65 OF THE PAPER BOOK. THE ASSESSI NG OFFICER ADMITTED IN THE SECOND PARA THAT THE ASSESSEE IS ALSO IN THE BUSINESS OF LENDING MONEY TO EARN INTEREST . THE INTEREST INCOME SO SHOWN BY THE ASSESSEE WAS DULY ACCEPTED AS BUSINESS INCOME. THAT IS HOW IN ALL THE EARLIER YEARS THE STAND POINT OF THE ASSESSEE T HAT THE INTEREST WAS EARNED FROM MONEY LENDING BUSINESS CAME TO BE ACCEP TED BY THE ASSESSING OFFICER THROUGH VARIOUS ORDERS PASSED FOR SEVERAL YEARS IN SCRUTINY ASSESSMENT. IN SUCH A SITUATION THE NON-RE COVERY OF ` 15 LAKH OUT OF THE LOAN ADVANCED IN EARLIER YEARS, INTEREST FROM WHICH WAS SHOWN AS BUSINESS INCOME, CANNOT BE CONSIDERED AS A NYTHING OTHER THAN BAD DEBTS OF THE MONEY LENDING BUSINESS. SUB-S ECTION (2) OF ITA NO.561/MUM/2009 & 888/M/2010 : SHRI MANOJ MOOLCHAND SHAH 11 SECTION 36 CLEARLY PROVIDES THAT IN MAKING ANY DEDU CTION FOR BAD DEBT OR PART THEREOF, NO DEDUCTION SHALL BE ALLOWED UNL ESS THE DEBT OR PART THEREOF INTER ALIA REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF MONEY LENDING WHICH IS CARRIED ON BY TH E ASSESSEE. SINCE THE ASSESSEE IS ADMITTEDLY ENGAGED IN THE MONEY LEN DING BUSINESS AND A SUM OF ` 15 LAKH TURNED OUT TO BE IRRECOVERABLE FROM SUCH BU SINESS, THERE IS NO JUSTIFICATION IN DENYING THE DEDUCTION U/S 36(1)(VII) READ WITH SECTION 36(2). WE, THEREFORE, OVERTURN THE IMPU GNED ORDER ON THIS ISSUE. THIS GROUND IS ALLOWED. 10. LAST GROUND IS AGAINST UPHOLDING THE ACTION OF THE A.O. IN TREATING THE INTEREST INCOME EARNED DURING THE YEAR AMOUNTING TO ` 17,391 AS `INCOME FROM OTHER SOURCES. CONSISTENT WITH THE STAND FOR NOT ALLOWING DEDUCTION OF ` 15.00 LACS TOWARDS BAD DEBTS THAT THE MONEY LENDING WAS NOT THE BUSINESS OF THE ASSESSEE, THE AO HELD THAT THE INTEREST INCOME EARNED FROM SUCH MONEY LENDING IN THE INSTANT YEAR WAS CHARGEABLE TO TAX UNDER THE HEAD `INCOME F ROM OTHER SOURCES, WHICH CAME TO BE APPROVED BY THE LD. FIRS T APPELLATE AUTHORITY AS WELL. 11. IN VIEW OF OUR DETAILED DISCUSSION MADE IN RESP ECT TO GROUND NO.2 ABOVE IN WHICH IT HAS BEEN HELD THE ASSESSEE W AS ENGAGED IN THE BUSINESS OF MONEY LENDING BUSINESS AS ACCEPTED BY T HE REVENUE ITSELF IN EARLIER YEARS, THE NATURAL CONSEQUENCE WHICH FOL LOWS IS THAT INTEREST OF ` 17,391 EARNED BY THE ASSESSEE IN THE YEAR IN QUESTI ON SHOULD ALSO BE CONSIDERED AS `BUSINESS INCOME. THIS GROUND IS ALLOWED. ITA NO.561/MUM/2009 & 888/M/2010 : SHRI MANOJ MOOLCHAND SHAH 12 ASSESSMENT YEAR 2006-2007 12. THE ONLY ISSUE RAISED BY THE REVENUE IN ITS APP EAL IS AGAINST TREATING THE PROFIT FROM SALE OF SHARES HELD FOR MO RE THAN ONE YEAR AS LONG TERM CAPITAL GAIN AS AGAINST THE A.O.S ACTION OF BUSINESS INCOME. THE POSITION FOR THE INSTANT YEAR IS MUTATIS MUTANDIS SIMILAR TO THAT FOR THE ASSESSMENT YEAR 2005-2006 DISCUSSE D ABOVE EXCEPT THAT THE LEARNED CIT(A) TREATED PROFIT FROM SALE OF SHARES HELD FOR MORE THAN ONE YEAR AS LONG TERM CAPITAL GAIN FOR TH E INSTANT YEAR AS AGAINST THE A.O.S VIEW OF BUSINESS INCOME. THE ASS ESSEE SHOWED ` 53.86 LAKH AS LONG TERM CAPITAL GAIN APART FROM BUS INESS INCOME IN RESPECT OF SHARES HELD FOR LESS THAN ONE YEAR. THE ASSESSING OFFICER, FOLLOWING HIS VIEW FOR THE EARLIER YEAR, CONSIDERED THE AMOUNT OF LONG TERM CAPITAL GAIN AS BUSINESS INCOME. THE LEARNED C IT(A) DEVIATED FROM THE VIEW TAKEN BY HIS PREDECESSOR FOR THE EARL IER YEAR. IN VIEW OF DETAILED DISCUSSION MADE ABOVE FOR ASSESSMENT YEAR 2005-2006, WE HOLD THAT THE LONG TERM CAPITAL GAIN SHOWN BY THE A SSESSEE FROM SALE OF SHARES HELD FOR A SUBSTANTIAL PERIOD HAS BEEN RI GHTLY HELD BY THE LEARNED CIT(A) AS LONG TERM CAPITAL GAIN. APART FRO M RELYING ON HIS ARGUMENTS FOR THE EARLIER YEAR, THE LD. DR DID NOT ADVANCE ANY FRESH SUBMISSIONS FOR THE YEAR TO DISTINGUISH THE FACTS O F THE INSTANT YEAR. FOLLOWING THE VIEW TAKEN HEREINABOVE FOR THE IMMEDI ATELY PRECEDING YEAR, WE UPHOLD THE IMPUGNED ORDER. 13. . /4 #( ./ , 2005-2006 , 5 63 / 7 , +/ 89 + , 2006-2007 , 5 .+ , +/ 89 IN THE RESULT, THE ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2005-2006 IS PARTLY ALLOWED ITA NO.561/MUM/2009 & 888/M/2010 : SHRI MANOJ MOOLCHAND SHAH 13 AND THE REVENUES APPEAL FOR THE ASSESSMENT YEAR 20 06-2007 IS DISMISSED. ORDER PRONOUNCED ON THIS 28 TH DAY OF AUGUST, 2013. !3 , 012 :!(4 1 , ; SD/- SD/- (VIVEK VARMA) (R.S.SYAL) # ! # ! # ! # ! / JUDICIAL MEMBER ! ! ! ! / ACCOUNTANT MEMBER MUMBAI ; :!( DATED : 28 TH AUGUST, 2013. DEVDAS* !3 , )#/6' <'2/ !3 , )#/6' <'2/ !3 , )#/6' <'2/ !3 , )#/6' <'2// COPY OF THE ORDER FORWARDED TO : 1. %& / THE APPELLANT 2. )*%& / THE RESPONDENT. 3. = () / THE CIT, MUMBAI. 4. = / CIT(A) XIV, MUMBAI. 5. '@; )#/#( , , / DR, ITAT, MUMBAI 6. ;A B / GUARD FILE. !3( !3( !3( !3( / BY ORDER, *'/ )#/ //TRUE COPY// C C C C/ // /8 + 8 + 8 + 8 + ( DY./ASSTT. REGISTRAR) , , , , / ITAT, MUMBAI