M/S MONARCH NETWORTH FINSERVE PVT LTD., MUMBAI V. ITO 13 (3)(1), MUMBAI

ITA 6485/MUM/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 1059 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2014-2015
• Appeal Filed On: 11-10-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SMITA VERMALD
• Assessee Lawyers: NEHA PARANJPE LD
• Keywords: Bad and doubtful debts; TDS
• Section: 143(3)

Judgement Text

ITA NO.6485/MUM/2019 M/S. MONARCH NETWORTH FINSERVE PVT.LTD. ASSESSMENT YEAR: 2014-15 1 - IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH, MUMBAI , , BEFORE HONBLE SHRI AMARJIT SINGH, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM (HEARING THROUGH VIDEO CONFERENCING MODE) ./ I.T.A. NO.6485/MUM/2019 ( / ASSESSMENT YEAR: 2014-15) M/S. MONARCH NETW O RTH FINSERVE PRIVATE LIMITED (EARLIER KNOWN AS M/S RAVISHA FINANCIAL SERVICES PRIVATE LTD.) 901/902, ATLANTA CENTRE SONAWALA LANE, OPP. UDYOG BHAVAN, GOREGAON EAST MUMBAI-400 063 / VS. INCOME T AX OFFICER - 13(3)(1) 2 ND FLOOR, AAYKAR BHAVAN M.K. ROAD, CHURCHGATE MUMBAI-400 020 '# ./ ./PAN/GIR NO. AAACR-4982-K ( #% /APPELLANT ) : ( &'#% / RESPONDENT ) ASSESSEE BY : MS. NEHA PARANJPE - LD. AR REVENUE BY : MS. SMITA VERMA - LD. DR / DATE OF HEARING : 07/07/2021 / DATE OF PRONOUNCEMENT : 12/07/2021 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER) 1. AFORESAID APPEAL BY ASSESSEE FOR AY 2014-15 CONT EST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-2 1, MUMBAI [CIT(A)] ORDER DATED 18/06/2019 ON FOLLOWING GROUND S OF APPEAL. 1. THE LD.CIT (A) ERRED CONFIRMING THE DISALLOWANCE OF RS.11,67,645/- MADE BY THE LD. A.O. UNDER SECTION 36(1)(VII) OF THE ACT WITHOUT APPRECIATING THAT THE SAID AMOUNT PERTAINS TO THE INTEREST RECEIVABLE ON THE LOAN GIVEN TO ITA NO.6485/MUM/2019 M/S. MONARCH NETWORTH FINSERVE PVT.LTD. ASSESSMENT YEAR: 2014-15 2 RAJHOO BHAROT AND THE SAME WAS WRITTEN OFF AS BAD D EBT AS THE SAID PARTY SHOWN INABILITY TO REPAY THE SAID INTEREST. THUS, T HE DISALLOWANCE OF RS.11,67,645/- MADE U/S 36(1)(VII) IS NOT JUSTIFIED AND THE SAME MAY BE DELETED. 2. THE LD.CIT (A) ERRED IN CONFIRMING THE DISALLOWA NCE OF RS.17,14,430/- BEING REFERRAL FEES PAID TO NETWORTH STOCK BROKING LTD. ALLEGING THAT THERE NO TDS COMPLIANCE WITHOUT APPRECIATING THAT THE ASSESS EE HAS BEEN PAYING REFERRAL FEES TO THE SAID COMPANY SINCE MANY YEARS AFTER DUE COMPLIANCE OF TDS. THUS, THE DISALLOWANCE OF RS.17,14,430/- IS UN JUSTIFIED. AS EVIDENT, THE ASSESSEE IS AGGRIEVED BY CONFIRMATI ON OF DISALLOWANCE OF BAD DEBTS AND ANOTHER DISALLOWANCE OF REFERRAL FEES PAID BY THE ASSESSEE. 2. WE HAVE CAREFULLY HEARD THE RIVAL SUBMISSIONS, O RAL AS WELL AS WRITTEN AND PERUSED RELEVANT MATERIAL ON RECORD INC LUDING DOCUMENTS PLACED IN THE PAPER-BOOK. OUR ADJUDICATIO N TO THE SUBJECT MATTER OF APPEAL WOULD BE AS GIVEN IN SUCCE EDING PARAGRAPHS. 3. THE MATERIAL FACTS ARE THAT THE ASSESSEE BEING R ESIDENT CORPORATE ASSESSEE IS REGISTERED AS NON-BANKING FIN ANCE COMPANY (NBFC). ACCORDINGLY, GRANTING OF LOANS AND EARNING OF INTEREST WOULD BE THE BUSINESS OF THE ASSESSEE. AN ASSESSMEN T WAS FRAMED FOR THE YEAR U/S 143(3) ON 30/12/2016 WHEREI N CERTAIN ADDITIONS / DISALLOWANCE WERE MADE. THE BRIEF FACTS AS WELL AS ADJUDICATION TO DISALLOWANCES WHICH ARE SUBJECT MAT TER OF APPEAL WOULD BE AS FOLLOWS. 4. DISALLOWANCE OF BAD DEBTS 4.1 DURING ASSESSMENT PROCEEDINGS, IT TRANSPIRED TH AT THE ASSESSEE CLAIMED REVERSAL OF INTEREST FOR RS.11.67 LACS WITH RESPECT TO A PERSON NAMELY RAJHOO BAROT. IT WAS SUB MITTED THAT THE SAID PARTY WAS GRANTED LOAN AND IT REPAID RS.137 LA CS IN FULL AND ITA NO.6485/MUM/2019 M/S. MONARCH NETWORTH FINSERVE PVT.LTD. ASSESSMENT YEAR: 2014-15 3 FINAL SETTLEMENT. ACCORDINGLY, THE OUTSTANDING AMOU NT WAS WRITTEN- OFF AS BAD DEBTS BY WAY OF INTEREST REVERSAL IN THE BOOKS OF ACCOUNTS. THE INTEREST INCOME EARNED FROM THE SAID PARTY WAS STATED TO BE OFFERED TO TAX IN EARLIER YEARS AS SUP PORTED BY THE LEDGER EXTRACT OF THE SAID PARTY. HOWEVER, FINDING THAT THE ASSESSEE CHARGED INTEREST EVEN AFTER THE DATE OF SETTLEMENT LETTER DATED 13/01/2014 ISSUED BY THE BORROWER, LD. AO CONCLUDED THAT THE ASSESSEE FAILED TO ESTABLISH THE GENUINENESS OF THE WHOLE TRANSACTION. 4.2 THE LD. CIT(A) NOTED THAT THE ASSESSEE ADVANCED SUM OF RS.136.98 LACS TO MR. RAJOO BAROT ON 24/01/2013. ON THE SAID SUM, THE ASSESSEE WAS CHARGING INTEREST ON DAILY BA SIS. THE BORROWER REPAID AMOUNT OF RS.137 LACS IN INSTALLMEN T BUT DID NOT PAY THE INTEREST. ACCORDINGLY, OUTSTANDING AMOUNT O F RS.11.67 LACS WAS WRITTEN-OFF IN THE BOOKS OF ACCOUNTS. THE BORRO WER WROTE A LETTER FOR WAIVER OF ENTIRE AMOUNT OF INTEREST. THU S THE OUTSTANDING AMOUNT OF INTEREST OF RS.11.67 LACS WAS NOT ACKNOWL EDGED AS DEBT BY THE BORROWER EVEN THOUGH THE RELEVANT ENTRIES WE RE MADE BY THE ASSESSEE IN THE LOAN /ADVANCES ACCOUNT. SECTION 36( 1)(VII) OF THE INCOME TAX ACT, 1961 PRESCRIBES CONDITIONS FOR THE WRITE OFF OF A DEBT WHICH WAS DUE TO IT AND THESE CONDITIONS HAVE TO BE COMPLIED IN TOTALITY TO CLAIM DEDUCTION U/S 36(1)(VII). FIRS T OF ALL THE AMOUNT SHOULD BE CLASSIFIABLE AS A DEBT AND IF THE AMOUNT IS NOT ACKNOWLEDGED AS A DEBT, THE SAME CANNOT BE CLAIMED AS A REVENUE DEDUCTION U/S. 36(1)(VII) OF THE IT ACT, 19 61. PRIMA FACIE THE AMOUNT OF INTEREST WAS NOT ACKNOWLEDGED AS A DE BT BY RAJOO BAROT AND THEREFORE WRITE-OFF OF THE SAME COULD NOT BE CLAIMED U/S ITA NO.6485/MUM/2019 M/S. MONARCH NETWORTH FINSERVE PVT.LTD. ASSESSMENT YEAR: 2014-15 4 36(1)(VII). THE ALTERNATIVE CLAIM THE AT THE WRITE- OFF WOULD BE ALLOWABLE AS BUSINESS LOSS WOULD ALSO NOT BE TENABL E ON THE FACTS OF THE CASE. THE ASSESSEE FAILED TO PROVIDE REASONA BLE CAUSE FOR WRITING-OFF THE AMOUNT. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 5. UPON DUE CONSIDERATION, WE FIND THAT GRANTING OF LOAN WAS ASSESSEES BUSINESS AND INTEREST INCOME WOULD BE BU SINESS INCOME FOR THE ASSESSEE. IF THE INTEREST WAS OFFERE D TO TAX AND THE SAME COULD NOT BE SUBSEQUENTLY RECOVERED THEN IN SU CH A CASE THE ASSESSEE WOULD BE ENTITLE FOR CLAIM OF BAD-DEBTS U/ S 36(1)(VII) PROVIDED THE AMOUNT WAS WRITTEN-OFF AS IRRECOVERABL E IN THE BOOKS OF ACCOUNT. PRIMA FACIE, THE ASSESSEE HAS FULFILLED THE CONDITIONS LAID DOWN U/S 36(1)(VII). THEREFORE, WE DIRECT LD. CIT(A) TO ASCERTAIN THE FACT THAT THE INTEREST WAS OFFERED TO TAX BY TH E ASSESSEE AND WRITE-OFF OF THE SAME WAS CLAIMED AS BAD-DEBTS IN T HE BOOKS DURING THE YEAR. IF SO, THE CLAIM WOULD BE ALLOWABLE U/S 3 6(1)(VII) IN TERMS OF DECISION OF HONBLE APEX COURT IN TRF LTD. V/S CIT (323 ITR 397) . THE GROUND STAND ALLOWED FOR STATISTICAL PURPOSES . 6. DISALLOWANCE OF REFERRAL FEE : 6.1 THE ASSESSEE PAID REFERRAL FEE OF RS.17.14 LACS TO A GROUP ENTITY NAMELY M/S NETWORTH STOCK BROKING LIMITED (N SBL). TO VERIFY THE SAME, NOTICES / SUMMONS WAS ISSUED TO VA RIOUS BORROWERS / CLIENTS. HOWEVER, ONLY TWO CLIENTS RESP ONDED AND FURNISHED DOCUMENTS. IN THE REPLY, IT WAS SUBMITTED BY THE BORROWER THAT THE LOANS WERE SANCTIONED DIRECTLY THROUGH ONE OF THE SALES REPRESENTATIVES OF THE ASSESSEE. THUS, IT WAS CONCL UDED BY LD. AO THAT THE ASSESSEE FAILED TO PRODUCE EVIDENCES TO SU PPORT THE ITA NO.6485/MUM/2019 M/S. MONARCH NETWORTH FINSERVE PVT.LTD. ASSESSMENT YEAR: 2014-15 5 REFERRAL FEES PAID BY IT. IT WAS ALSO NOTED THAT PU RSUANT TO MOU BETWEEN THE ASSESSEE AND M/S NSBL, THE ASSESSEE WAS PAYING SEPARATE CHARGES FOR INFRASTRUCTURAL FACILITIES FOR UTILIZING THE SPACE AND STAFF AND THEREFORE, THE ADDITIONAL PAYMENT COU LD NOT BE ALLOWED. FURTHER, THE FEE WAS PAID TO PARENT COMPAN Y WHICH WAS LOSS-MAKING ENTITY AND THEREFORE THE PAYMENT WAS TO AVOID THE INSTANCE OF TAX IN THE HANDS OF THE ASSESSEE. FINAL LY, THE SAME WAS DISALLOWED AND ADDED BACK TO ITS INCOME. 6.2 THE LD. CIT(A) OBSERVED THAT M/S NSBL WAS IN T HE BUSINESS OF TRADING OF SHARES WHEREAS THE ASSESSEE WAS IN TH E BUSINESS OF FINANCING AGAINST PLEDGE OF SHARES. THE BUSINESS BE ING INTER-LINKED, TRANSFER OF FUNDS BETWEEN THE PARENT COMPANY AND AS SESSEE COULD NOT BE RULED OUT. WHEN BOTH THE ENTITIES WERE INTER CONNECTED, IT WAS INCUMBENT UPON THE ASSESSEE TO JUSTIFY WITH THE FAC TS LIKE NATURE OF SERVICES RENDERED, LOANS GRANTED, QUANTUM OF INTERE ST EARNED ON SUCH REFERRALS AND REASONS JUSTIFYING PAYMENT AT TH E RATE OF 15 % OF THE INTEREST EARNED. THE ASSESSEE COULD NOT JUSTIFY ANY SUCH THINGS DURING ASSESSMENT PROCEEDINGS OR DURING APPELLATE P ROCEEDINGS AND THEREFORE, THE CLAIM WAS RIGHTLY DISALLOWED PAR TICULARLY WHEN THE ASSESSEE COULD NOT FURNISH PROOF OF DEDUCTION OF TA X AT SOURCE U/S 194H. AGGRIEVED, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 7. THE LD. AR HAS PLACED ON RECORD LEDGER EXTRACTS FOR AY 2013- 14, 2014-15 & 2015-16 TO SUBMIT THAT PAYMENT OF REF ERRAL FEES WAS REGULAR FEATURE. IN FACT, NO SUCH ADDITION WAS MADE EVEN IN ASSESSMENT ORDER PASSED U/S 143(3) FOR AY 2016-17. IT WAS SUBMITTED THAT THE PAYMENT WAS AS PER MEMORANDUM OF UNDERSTANDING DATED 21/03/2011 WHICH SPECIFY THE TE RMS OF ITA NO.6485/MUM/2019 M/S. MONARCH NETWORTH FINSERVE PVT.LTD. ASSESSMENT YEAR: 2014-15 6 REFERENCE. THE REFERRAL FEE THUS RECEIVED BY M/S NS BL WAS OFFERED TO TAX. THE PAYMENT WAS AFTER DEDUCTION OF TAX AT S OURCE WHICH IS SUPPORTED BY TDS CERTIFICATES. 8. KEEPING IN VIEW THE SUBMISSIONS MADE BEFORE US, WE DEEM IT FIT TO RESTORE THIS ISSUE BACK TO THE FILE OF LD. C IT(A) FOR FRESH ADJUDICATION. THE LD. CIT(A) IS DIRECTED TO APPRECI ATE ALL THESE EVIDENCES / DOCUMENTARY EVIDENCES AND RE-ADJUDICATE THE ISSUE AFTER PROVIDING REASONABLE OPPORTUNITY OF HEARING T O THE ASSESSEE. THE ASSESSEE, IN TURN, IS DIRECTED TO SUBSTANTIATE ITS CLAIM. THIS GROUND STAND ALLOWED FOR STATISTICAL PURPOSES. CONCLUSION 9. THE APPEAL STANDS ALLOWED FOR STATISTICAL PURPOS ES. ORDER PRONOUNCED ON 12TH JULY, 2021. SD/- SD/- (AMARJIT SINGH) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 12/07/2021 SR.PS, JAISY VARGHESE !'#' / COPY OF THE ORDER FORWARDED TO : 1. !#% / THE APPELLANT 2. &'#% / THE RESPONDENT 3. - ( ! ) / THE CIT(A) 4. - / CIT CONCERNED 5. ./&0 , !0 , / DR, ITAT, MUMBAI 6. /123 / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.