Classone Exports Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 5617/DEL/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61733 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-06-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 13-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKAS SURYAVANSHI
• Section: 37; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH B: NEW DELHI BEFORE SHRI S.V. MEHROTRA, ACCOUNTANT MEMBER AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO. 5617/DEL/2011 ASSESSMENT YEAR: 2006-2007 CLASSONE EXPORTS PVT. LTD., FLAT NO. 10, C-1/2, MODEL TOWN, NEW DELHI. AAACC3806H VS. ITO, WARD 3(2), C.R. BLDG., I.P. ESTATE, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SH. PRAVEEN KUMAR, ADV. RESPONDENT BY : SH. VIKAS SURYAVANSHI, SR. DR O R D E R PER S.V. MEHROTRA, A.M. THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAI NST THE ORDER OF LD. CIT(A) DATED 12.10.2011 FOR A.Y. 2006-07. GROUNDS OF APPEAL READS AS UNDER: - 1. THAT THE LD. CIT(A) HAS ERRED BOTH IN THE EYES OF LAW AND FACTS WHEREIN DISALLOWING THE BAD DEBT WRITE OFF BY THE ASSESSEE OF RS. 930902/- WHEREAS THE SAME BAD DEBT WRITE OFF IS DONE DURING THE COURSE OF MONEY LENDING ACTI VITIES OF THE COMPANY HENCE THE SAME MAY BE ALLOWED AS ALLOWA BLE EXPENDITURE. 2. THAT THE LD. CIT(A) HAS ERRED BOTH IN THEEYES OF LA W AND ON FACTS BY NOT CONSIDERING THE RATIO OF CASE LAW OF JURISDICTIONAL HONBLE DELHI HIGH COURT ALL GROW F INANCE AND IVNESTMENT PVT. LTD. VS. CIT THE FACTS OF WHICH ARE IDENTICAL TO THE FACTS OF THE ASSESSEE FOR ALLOWANC E OF BAD DEBT WRITE OFF WHICH WERE PART OF MONEY LENDING ACT IVITIES OF THE COMPANY AND RATIO OF SUCH CASE SUGGEST THAT THE CLAIM OF ASSESSEE FOR BAD DEBT WRITTEN OFF MAY BE ALLOWED. ITA NO . 5617/D/2011 2 3. THAT THE LD. CIT(A) ERRED BOTH IN EYES OF LAW AND O N FACTS BY IGNORING THE EVIDENCES I.E., AUDITED PROFIT AND LOS S ACCOUNT JUSTIFYING THAT THE ASSESSEE IS VERY MUCH IN THE BU SINESS OF MONEY LENDING AND ALSO EARNED SUBSTANTIAL INCOME OF RS. 898086/- AS INTEREST HENCE AS PER PROVISIONS OF SEC . 36(I)(VII) SUCH BAD DEBT WRITTEN OFF MAY BE ALLOWED. 4. THAT THE LD. CIT(A) ERRED BOTH IN THE EYES OF LAW A ND ON FACTS WHEREIN HE DID NOT CONSIDER THE CONTENTION OF THE ASSESSEE THAT INGREDIENTS OF SECTION 36(I)(VII) IS FULLY MET OUT WHILE (PART OF SUCH DEBT HAS BEEN TAKEN INTO ACCOUN T IN COMPUTING THE INCOME IN PREVIOUS YEAR AND THE COMPA NY IS ENGAGED IN MONEY LENDING ACTIVITIES). HENCE THE CL AIM OF THE ASSESSEE MAY BE ALLOWED AS PER PROVISION OF SEC TION 36(I)(VII). 5. THAT THE AO AS WELL AS LD. CIT(A) ERRED BY NOT ALLO WING THE BAD DEBT BEING MONEY WAS ADVANCED DURING THE NORMAL COURSE OF BUSINESS OF MONEY LENDING AND THE LOSS AR ISEN TO THE ASSESSEE ON ACCOUNT OF THOSE ADVANCES BECOMING BAD IS ALLOWABLE AS BUSINESS LOSS IF NOT U/S 36(I)(VII) TH EN U/S 28 OR U/S 37 OF THE ACT. 2. THE ASSESSEE COMPANY HAD FILED ITS RETURN OF IN COME DECLARING LOSS OF RS. 37,507/-. THE ASSESSEE HAD PURCHASED AND SO LD SHARES OF FEW ENTITIES. THE ASSESSING OFFICER NOTICED THAT ASSES SEE HAD CLAIMED EXPENSE OF RS. 9,30,902/- ON ACCOUNT OF WRITING OFF LOAN ADVANCED TO M/S HLON HOSIERY LTD. IN EARLIER YEAR. THE AO OBSERVED THAT ASSESSEE DID NOT SUBMIT ANY DETAILS TO SHOW THAT INTEREST INCOME ON SUCH LOAN HAD BEEN TAKEN INTO ACCOUNT AS INCOME IN EARLIER YEARS. HE FURTHER OBSERVED THAT THOUGH ASSESSEE CLAIMED TO BE IN BUSINESS OF MONEY LENDING BUT THE INTEREST INCOME WAS NOT THE SUBSTANTIAL PART OF INC OME AND FURTHER NO INTEREST INCOME HAD BEEN SHOWN IN RESPECT OF SUCH L OAN. HE, THEREFORE, DENIED THE DEDUCTION CLAIMED BY THE ASSESSEE, IN VI EW OF THE PROVISIONS CONTAINED IN SEC. 36(I)(VII) READ WITH 36(2) OF THE INCOME TAX ACT. 3. LD. CIT(A) CONFIRMED THE ADDITION FOR THE FOLLOW ING REASONS: - ITA NO . 5617/D/2011 3 I) ASSESSEE COMPANY HAD NOT ADDUCED ANY EVIDENCE T O REBUT THE FINDING OF THE AO THAT IT WAS NOT ENGAGED/CARRYING ON MONEY LENDING BUSINESS. II) THE ASSESSEE COMPANY HAD NOT ESTABLISHED THAT L OAN ADVANCED TO M/S HLON HOSIERY LTD. HAD EVER YIELDED ANY INTEREST INCOME. III) MERE WRITING OFF OF DEBT IS NOT SUFFICIENT TO ALLOW DEDUCTION UNLESS AFOREMENTIONED CONDITIONS WERE FULFILLED. 4. LD. REPRESENTATIVE OF ASSESSEE, SHRI PRAVEEN KUM AR, MANAGER OF THE COMPANY, AS PER AUTHORIZATION LETTER DATED 16.06.20 12, SUBMITTED THAT AO NEVER AFFORDED ANY OPPORTUNITY TO THE ASSESSEE TO S UBMIT THE DETAILS FOR PROVING INTEREST INCOME ON THE IMPUGNED LOAN HAVING EVER BEEN TAKEN INTO ACCOUNT IN ANY EARLIER YEARS. HE FURTHER REFERRED TO PAGE 23 OF PAPER BOOK TO DEMONSTRATE THAT ASSESSEE HAD RETURNED INTEREST INCOME OF RS. 8,98,086/- TO REBUT THE FINDINGS OF AO THAT ASSESSE E HAD NOT SUBSTANTIAL INTEREST INCOME. HE FURTHER CLARIFIED THAT ASSESSE E WAS CARRYING ON MONEY LENDING BUSINESS AND THE FORMALITIES REGARDING REGI STRATION OF COMPANY AS NBFC WERE PENDING. LD. REPRESENTATIVE SUBMITTED TH AT IT IS NOT NECESSARY THAT THERE SHOULD BE REGISTRATION OF ASSESSEE UNDER LAW FOR CARRYING OUT MONEY LENDING ACTIVITIES. HE SUBMITTED THAT THE ON LY REQUIREMENT IS THAT ASSESSEE SHOULD HAVE EARNED INTEREST INCOME. IN TH IS REGARD LD. REPRESENTATIVE RELIED ON THE DECISION OF HONBLE DE LHI HIGH COURT IN THE CASE OF CIT VS. REALEST BUILDERS & SERVICES LTD., I TA NO. 329/2007 DECIDED ON 28 TH AUGUST, 2008, WHEREIN IN PARA 6 THE HONBLE HIGH C OURT HAS OBSERVED AS UNDER: - 6. A CONTENTION WAS SOUGHT TO BE RAISED BEFORE TH IS COURT BY THE LD. COUNSEL FOR THE APPELLANT THAT THE PRINC IPAL AMOUNT OF RS. 17.50 LACS WHICH HAD BEEN WRITTEN OFF AS BAD DEBT REPRESENTED A CAPITAL LOSS, INASMUCH AS, THE A SSESSEE WAS NOT IN THE BUSINESS OF MONEY LENDING. HOWEVER, SUCH A PLEA CANNOT BE RAISED AT THIS STAGE, PARTICULARLY , WHEN THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS RETURN ED A ITA NO . 5617/D/2011 4 CLEAR FINDING THAT THE ASSESSEE WAS IN THE BUSINESS OF MONEY LENDING AND THERE WAS NO QUESTION OF TREATING THE PRINCIPAL AMOUNT WRITTEN OFF AS CAPITAL IN NATURE. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAD ALSO NOTED THAT THE INTEREST RECEIVED BY THE ASSESSEE FROM THE SAID SAHNI SILK MILLS PVT. LTD. HAD BEEN TAXED AS BUSINESS INC OME IN THE ASSESSMENT YEARS 1997-98 TO 1999-2000. AS A CONSEQUENCE, THERE IS NO DOUBT THAT THE ASSESSEE WA S ENGAGED IN THE BUSINESS OF MONEY LENDING. 5. HE FURTHER REFERRED TO THE DECISION OF ITAT OF M UMBAI BENCH IN THE CASE OF B.N. KHANDELWAL VS. ITO DATED 30 TH MAY, 2007 TO BUTTRESS HIS AFOREMENTIONED ARGUMENTS. HE POINTED OUT THAT IN P ARA 8 TRIBUNAL HAS NOTICED THE DECISION OF HONBLE SUPREME COURT IN TH E CASE OF SOLE TRUSTEE, LOKA SHAIKSHANA TRUST, WHEREIN IT HAS BEEN HELD THA T REGULAR COURSE OF DEALING IN MONEY LENDING COULD NOT BE BRUSHED ASIDE MERELY FOR THE REASON THAT THE ASSESSEE WAS NOT HAVING ANY MONEY LENDING LICENSE. HE, THEREFORE, SUBMITTED THAT THE ORDER OF LD. CIT(A) S HOULD BE SET ASIDE. 6. LD. DR RELIED ON THE ORDER OF LOWER REVENUE AUTH ORITIES. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND HAV E PERUSED THE RECORD OF THE CASE. 8. IN VIEW OF THE VARIOUS DECISIONS CITED SUPRA, WE ARE IN AGREEMENT WITH THE ARGUMENT OF LD. REPRESENTATIVE THAT FOR CARRYIN G ON MONEY LENDING BUSINESS, IT IS NOT NECESSARY THAT ASSESSEE SHOULD HOLD MONEY LENDING LICENSE. THE CONTENTION OF LD. REPRESENTATIVE IS T HAT ASSESSEE HAD RETURNED SUBSTANTIAL INTEREST INCOME DURING THE ASSESSMENT Y EAR UNDER CONSIDERATION BUT AO HAD NOT PROVIDED OPPORTUNITY T O THE ASSESSE TO ESTABLISH THIS FACT AND ALSO THE FACT THAT IN EARLI ER YEARS ON THE IMPUGNED LOAN ASSESSEE HAD DECLARED INTEREST INCOME. WE FIN D THAT THE AO HAS RECORDED CONTRARY FINDINGS WITHOUT PROPERLY CONFRON TING THE ASSESSEE AND, ITA NO . 5617/D/2011 5 THEREFORE, IT WOULD BE IN THE INTEREST OF JUSTICE T HAT THE MATTER BE RESTORED BACK TO THE FILE OF AO FOR LIMITED PURPOSE OF VERIF ICATION OF FOLLOWING TWO FACTS: - I) THAT THE ASSESSEE HAD DECLARED INTEREST INCOME ON THE IMPUGNED LOAN IN EARLIER YEAR; II) THE ASSESSEES CLAIM THAT IT HAD RETURNED INTER EST INCOME AGGREGATING TO RS. 8,98,086/- DURING ASSESSMENT YEA R UNDER CONSIDERATION. 9. IN CASE THE ANSWER TO ABOVE TWO ISSUES IS IN POS ITIVE THEN AO WILL ALLOW THE ASSESSEES CLAIM OF WRITING OFF OF BAD DE BT TO THE TUNE OF RS. 9,30,902/-. 10. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20.06.2012 SD/- SD/- (A.D. JAIN) JUDICIAL MEMBER (S.V. MEHROTRA) ACCOUNTANT MEMBER DATED: 20.06.2012 *KAVITA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. TRUE COPY BY ORDER DEPUTY REGISTRAR