Dy. CIT, Circle-2, Kolhapur V. Shri Anilpant Prabhakarpant Korgaonkar (HUF), Kolhapur

ITA 694/PUN/2013

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1150 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 5 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 31-08-2015
• Assessment Year: 2003-2004
• Appeal Filed On: 18-03-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B C MALAKAR
• Keywords: Unexplained investment; Business income; Depreciation; Search and seizure; Bad and doubtful debts; Block assessment
• Section: 69C; 28

Judgement Text

] IQ.KS ] IQ.KS ] IQ.KS ] IQ.KS IQ.KS IQ.KSIQ.KS IQ.KS IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . . , , ' # BEFORE SHRI R.K. PANDA, AM AND SHRI VIKAS AWASTHY, JM . / ITA NOS.693 & 694/PN/2013 $ / BLOCK PERIOD : 1997-98 TO 2003-04 DY.CIT, CIRCLE-2, KOLHAPUR . / APPELLANT V/S SHRI ANILPANT PRABHAKARPANT, KORGAONKAR (HUF) 345-E, KORGAONKAR COMPOUND, STATION ROAD, KOLHAPUR PAN NO.AAEHK4407R . / RESPONDENT &'# . / CO NOS.90 & 91/PN/2014 $ / BLOCK PERIOD : 1997-98 TO 2003-04 SHRI ANILPANT PRABHAKARPANT, KORGAONKAR (HUF) 345-E, KORGAONKAR COMPOUND, STATION ROAD, KOLHAPUR PAN NO.AAEHK4407R . / CROSS OBJECTOR V/S DY.CIT, CIRCLE-2, KOLHAPUR . / RESPONDENT / ASSESSEE BY : SHRI M.K. KULKARNI / DEPARTMENT BY : SHRI . B.C. MALAKAR / DATE OF HEARING :31.08.2015 / DATE OF PRONOUNCEMENT:04.09.2015 2 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 / ORDER PER R.K. PANDA, AM : ITA NO.693/PN/2013 FILED BY THE REVENUE AND CO NO.90/PN/2014 FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 30-12-2005 OF THE CIT(A), KOLHAPUR RELATING T O BLOCK PERIOD 1997-98 TO 2003-04. ITA NO.694/PN/2013 FILED BY T HE REVENUE AND CO NO.91/PN/2014 FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER PASSED U/S.154 OF THE I.T. AC T, 1961 BY THE CIT(A), KOLHAPUR RELATING TO BLOCK PERIOD 1997-98 TO 20 03-04. FOR THE SAKE OF CONVENIENCE THE APPEALS AND THE CROSS OBJECTIONS WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THIS C OMMON ORDER. 2. EARLIER THE REVENUE HAD FILED ITA NOS. 1022/PN/2006 AN D ITA NO.499/PN/2006 WITHOUT CONTAINING GROUNDS OF APPEAL EXCEPT THE AUTHORIZATION MEMO. THEREFORE, THE TRIBUNAL DISMISSED TH E APPEALS FILED BY THE REVENUE BEING DEFECTIVE. HOWEVER, TH E TRIBUNAL HAD GIVEN LIBERTY TO THE REVENUE TO FILE THE APPE ALS AFTER REMOVING THE DEFECTS WITHIN A REASONABLE TIME. ACCORDINGLY , THE REVENUE HAS FILED THE ABOVE APPEALS. ITA NO.693/PN/2013 : 3. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A), KOLHAPUR IS NOT JUSTIFIED IN GRANTING FU RTHER RELIEF OF RS.25,26,000/ - OUT OF THE AMOUNT OF RS.37,17,000 / - DISALLOWED BY THE ASSESSING OFFICER BEING BAD DEBTS CLAIMED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A), KOLHAPUR IS NOT JUSTIFIED IN GRANTING RE LIEF OUT OF BAD DEBTS CLAIMED BY ASSESSEE AS BUSINESS LOSS ON ACCOUNT OF 'NO RECOVERY SINCE 1999', 'PARTIES ABSCONDING' AND 'CRIMIN AL CASES AGAINST PARTIES' ACCEPTING THAT THE LOANS GIVEN TO THE SE PARTIES ARE ACTUALLY NOT RECOVERABLE WHEN THE AO HAS RIGHTLY DISA LLOWED THE CLAIM OF THE ASSESSEE AS THE REASONS GIVEN FOR NON RECOVE RY ARE VAGUE 3 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 AND NO DETAILS REGARDING ASSETS OWNED BY EACH OF THE DE BTORS COULD BE FURNISHED. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A), KOLHAPUR ERRED IN TREATING THE BAD DEB TS AS BUSINESS LOSS U/S 28 IGNORING THE FACT THAT THE BLOCK ASSESSMENT HAS BE EN COMPLETED BY APPLYING DEEMING PROVISIONS AND DESPITE A GREEING THAT CONDITIONS LAID DOWN U/S 36(1) (VII) ARE NOT SATISFIED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A), KOLHAPUR FAILED TO APPRECIATE THAT THE BASIC REQUIREMENT BY WHICH ANY BAD DEBTS BECOMES ELIGIBLE FOR DEDUCTION U/S 36(1) OF THE ACT HAS NOT BEEN SATISFIED BY IN THE CASE OF ASSESSEE. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A), KOLHAPUR HAS IGNORED THE FACT THAT SEIZE D LEDGER ACCOUNTS OF SUCH PERSONS DO NOT CONTAIN ANY MENTION WHAT SO EVER , TO INDICATE THAT SUCH LOANS HAVE BEEN 'WRITTEN OFF AS IRRECOVERABL E'. 6. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE CIT (A), KOLHAPUR IS NOT JUSTIFIED IN ALLOWING FU RTHER CLAIM OF DEPRECIATION BY THE ASSESSEE ON ASSETS PURCHASED OUT OF UN DISCLOSED INCOME DURING THE BLOCK PERIOD, AS THE ASSESSMENT HAS COM PLETED AN ASSET AND EXPENDITURE BASIS. 7. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A), KOLHAPUR IS NOT JUSTIFIED IN DIRECTING T HE ASSESSING OFFICER TO REDUCE AN AMOUNT OF RS. 3,64,309/- FROM T HE UNEXPLAINED INVESTMENT COMPUTED BY THE ASSESSING OFFICER. 7-A IN ALLOWING THE ABOVE RELIEF, THE HON'BLE CIT (A) FAILED TO CONSIDER THE FACT THAT AS PER THE ASSESSMENT ORDERS, NO SUC H CLAIM WAS MADE BEFORE THE ASSESSING OFFICER. 8. THE APPELLANT PRAYS THAT THE ORDER OF THE COMMISSIO NER OF INCOME TAX (APPEALS), KOLHAPUR BE VACATED AND THAT O F THE ASSESSING OFFICER BE RESTORED. 9. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, RAISE, ANY OF THE ABOVE, OR ANY OTHER GROUNDS RAISED. 4. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS T HE KARTA OF THE HUF WHICH CAME INTO EXISTENCE AFTER PARTITION OF HUF OF FATHER OF THE ASSESSEE. A SEARCH AND SEIZURE ACTION U/S .132 OF THE I.T. ACT WAS CARRIED OUT IN THE RESIDENTIAL PREMISES OF TH E ASSESSEE AS WELL AS VARIOUS BUSINESS PREMISES ON 25-07-2002. DURIN G THE COURSE OF SEARCH AND SEIZURE IT WAS REVEALED THAT THE A SSESSEE IS MAINLY ENGAGED IN MONEY LENDING BUSINESS AS WELL AS DEAL ING IN 4 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 PROPERTIES. THE GODOWNS HAVE BEEN SOLD. HOWEVER, THESE TRANSACTIONS WERE NEVER REFLECTED IN REGULAR RETURNS FURN ISHED. SIMILARLY, THE ASSESSEE HAS MADE HUGE INVESTMENTS IN FDRS IN VARIOUS PAT SANSTHAS, COOPERATIVE BANKS WHICH ARE NOT R EFLECTED IN REGULAR RETURNS NOR INTEREST INCOME HAS BEEN SHOWN. 5. IT IS MENTIONED IN THE ASSESSMENT ORDER THAT IT IS FOUN D AS A RESULT OF SEARCH THAT THE ASSESSEE WAS ENGAGED IN THE MONEY LENDING ACTIVITY. BOOKS OF ACCOUNT WERE FOUND TO HAVE BEE N MAINTAINED FOR THIS ACTIVITY. THE INCOME FROM MONEY LENDING BUSINESS WAS, HOWEVER, TOTALLY KEPT OUT OF THE BOOKS. AFT ER THE SEARCH, THE ASSESSEE DECLARED UNDISCLOSED INCOME OF RS.59.5 9 LAKHS AND AN ADDITIONAL AMOUNT OF RS.74.69 LAKHS TO COVER UP ANY OTHER LIABILITY ON ACCOUNT OF ADDITIONS, DISALLOWANCES, ETC. WHILE COMPUTING THE UNDISCLOSED INCOME, IT WAS FOUND BY THE ASSE SSING OFFICER THAT AN AMOUNT OF RS 1,68,84,468/- WAS CLAIMED AS BA D DEBTS. THIS CLAIM WAS NOT SUPPORTED BY ENTRIES IN THE BOO KS. THE INCOME OF THE ASSESSEE WAS COMPUTED ON THE BASIS OF AGG REGATING OF ASSETS AND EXPENSES INCURRED DURING THE BLOCK PERIOD. INVESTMENTS, ACCORDING TO THE TABLE AT PAGE 4 OF THE AS SESSMENT ORDER AGGREGATED TO RS 4,88,35,412/-. THE ASSESSEE, HOWE VER, SUBMITTED A RECONCILIATION STATEMENT POINTING OUT CERTAIN MISTAKES IN THE CALCULATION, BAD DEBTS WRITTEN OFF IN THE REG ULAR BOOKS NOT TAKEN INTO ACCOUNT, FUNDS OBTAINED AS A RESULT OF SALE OF ASSETS NOT TAKEN INTO ACCOUNT ETC. THE RECONCILIATION GIV EN BY THE ASSESSEE IS SHOWN IN THE TABLE AT PAGES 4 AND 5 OF THE ASSESSMENT ORDER. THE ASSESSING OFFICER HAS DEALT WITH EACH ITEM OF TH E RECONCILIATION STATEMENT GIVEN BY THE ASSESSEE. THE TOTAL ACCRETION 5 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 TO THE LOANS GIVEN DURING THE BLOCK PERIOD IS COMPUTED AT RS.2,11,70,108/- AS UNDER : UNDISCLOSED LOSS AS ON 25-07-02 RS.3,92,40,739/- UNDISCLOSED LOSS AS ON 01-04-96 AS PER SEIZED BOOKS RS.1,80,70,631/- --------------------- BALANCE RS.2,11,70,108/- --------------------- 6. THE NET ACCRETION OF RS.2,11,70,108/- WAS FINALLY REDUCED TO RS.1,39,29,108/- ON ACCOUNT OF THE FOLLOWING : A) BAD DEBTS WRITTEN OFF IN THE REGULAR BOOKS RS.24,18,0 00/- B) POST DATED CHEQUES TAKEN FROM DEBTORS INCLUDED IN THE GROSS FIGURE RS.36,03,000/- C) BAD DEBTS RS.7,30,000/- D) AMOUNT FROM UNEXPLAINED SOURCES SALE OF FLAT RS.4,90,000/- 7. THE UNEXPLAINED INVESTMENT IN LOANS WAS COMPUTED AT RS.1,39,29,108/. 8. AS REGARDS BAD DEBTS CLAIMED BY THE ASSESSEE, IT IS MENTIONED THAT THE ASSESSEE HAD CLAIMED BAD DEBTS/BUSIN ESS LOSS AMOUNTING TO RS.59,47,000/- INCLUDING THE AMOUNT OF RS 15 LAKHS PERTAINING TO FIXED DEPOSITS KEPT WITH HANUMAN NAG ARI PAT SANSTHA. IN THE ASSESSMENT ORDER AT PAGES 7 AND 8, A DETAILED LIST OF BAD DEBTS, SHOWING THE NAMES OF THE DEBTORS, AMOUNT , DATE OF LOAN AND THE REASON FOR WRITE OFF HAS BEEN GIVEN. AT PAGE 9 OF THE ASSESSMENT ORDER, THE LIST HAS BEEN RECASTED ACCORDING REASONS GIVEN FOR WRITE OFF. THE AMOUNT OF LOANS AS PER REASONS GIVEN IS AS FOLLOWS: I) PERSONS DECEASED RS.7,30,000/- II) PERSONS INCAPABLE OF REPAYMENT RS.10,70,000/- III) PERSONS ABSCONDING RS.12,60,000/- IV) PERSONS IN FINANCIAL DIFFICULTY DUE TO LOSSES IN BUSINESS RS.4,60,000/- 6 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 V) AMOUNT BORROWED BY CHEATING RS.3,31,000/- VI) NO RECOVERY SINCE MANY YEARS RS.50,000/- 9. IN ADDITION, THE LIST MENTIONS THE FOLLOWING AMOUNTS : I) LOAN GIVEN PRIOR TO 01-04-95 RS.6,00,000/- II) FDRS WITH HANUMAN NAGARI PAT SANSTHA RS.15,00,000/- 10. IT IS MENTIONED THAT NO LEGAL STEPS HAD BEEN TAKEN BY THE ASSESSEE FOR RECOVERY OF DEBTS BY FILING OF CIVIL SUITS ETC. T HE REASONS GIVEN FOR NON-RECOVERY ARE VAGUE AND NO DETAILS REGARDING ASSETS OWNED BY EACH OF THE DEBTORS COULD BE FURNISHED . CONSIDERING THE ABOVE ASPECTS, THE ASSESSING OFFICER ALLOWED ONLY AN AMOUNT OF RS 7,30,000/- AS BAD DEBTS/BUSINESS LOSS IN RESPECT OF LOANS WHERE THE DEBTOR HAD EXPIRED. IN EFFECT, THE DISALLOWANCE OF CLAIM OF BAD DEBT WAS MADE AT RS.37,17,000/- , EXCLUDING THE FDRS WITH THE PAT SANSTHA OF RS 15 LAKHS. 11. BEFORE CIT(A) IT WAS SUBMITTED THAT THE ASSESSEE HAD MAINTAINED MEMORANDUM BOOKS RELATING TO THE BUSINESS OF MONEY LENDING. THESE BOOKS CONTAINED LEDGER ACCOUNTS OF VARIOUS BORROWERS. ON THE BASIS OF THESE BOOKS, A COMPLETE SET OF BOOKS WERE WRITTEN FOR THE BLOCK PERIOD 01-04-92 TO 25-07-02 . THE BOOKS WERE AUDITED BY A CHARTERED ACCOUNTANT. ACCORDING TO T HESE BOOKS, UNDISCLOSED INCOME OF RS59,59,971/- WAS DECLARED. A FURTHER AMOUNT OF RS 76,40,029/- WAS ALSO DECLARED ON AD HOC BASIS TO PROVIDE FOR ANY OMISSION/ DISALLOWANCE IN THE ASSESSMENT. THE ASSESSING OFFICER WAS NOT CORRECT IN DISCA RDING THESE BOOKS AND COMPLETING THE ASSESSMENT ON THE BASIS OF INVESTMENTS AND EXPENSES. THE ASSESSING OFFICER HAD OBSER VED THAT THE UNDISCLOSED INCOME AS SHOWN IN THESE BOOKS WAS VERY 7 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 LOW COMPARED TO THE ASSETS. HE ALSO OBSERVED THAT THE ASSESSEE HAD CLAIMED HUGE DEDUCTION ON ACCOUNT OF BAD DEBTS AND DEPRECIATION. THE ALLOWABILITY OF BAD DEBTS AND DEPRECIATION WAS A LEGAL ISSUE. THE ASSESSING OFFICER COULD HAVE DISALLOWED THE CLAIMS WITH RESORTING TO REJECTING THE BOOKS AND COMPUT ING INCOME ON ASSET BASIS AND THEREBY TREATING THE BUSINESS INVESTMENT AND INCOME AS UNEXPLAINED INVESTMENTS. THE AS SESSEE REFERRED TO TWO DECISIONS ON THIS ISSUE REPORTED IN 72 IT D 306 AND 74 ITD 25. 12. AS REGARDS BAD DEBTS, IT WAS STATED THAT ALL THE CON DITIONS LAID DOWN UNDER SECTION 36(1)(VII) OF THE ACT WERE SATISFIED AND , THEREFORE, THE CLAIM SHOULD HAVE BEEN ALLOWED. THE AMOUNTS WRITTEN OFF AS BAD DEBTS WAS LENT IN THE ORDINARY COURSE OF MONEY LENDING BUSINESS AND WERE ACTUALLY WRITTEN OFF IN THE BOOK S. THE DECISION OF THE HONBLE SUPREME COURT DECISION IN THE CAS E OF P.K. NOORJAHAN 237 ITR 570 WAS RELIED UPON. 13. IT WAS FURTHER ARGUED THAT COMPUTATION OF UNDISCLOSED INCOME WAS MADE IN TERMS OF SECTION 158BB, WHICH STATES THAT THE COMPUTATION HAD TO BE MADE BY APPLYING ALL THE PROV ISIONS OF THE INCOME-TAX ACT. THEREFORE, THE INCOME SHOULD BE COMP UTED BY ALLOWING EXEMPTIONS, DEDUCTIONS, ETC., PERMITTED BY THE ACT. T HE ASSESSEE WAS ENTITLED FOR DEDUCTION OF BUSINESS LOSS UNDER SECTION 29 AND BAD DEBTS UNDER SECTION 36(1)(VII). THE LOANS ARE STO CK IN TRADE OF A MONEY LENDING BUSINESS. AT THE END OF EACH YEA R, THE ACTUAL REALIZABLE VALUE OF THE STOCK IN TRADE SHOULD BE TA KEN INTO ACCOUNT. THE CONCEPT OF 'REAL INCOME' IS APPLICABLE EVEN IN 8 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 COMPUTATION OF UNDISCLOSED INCOME IN A BLOCK ASSESSMENT. I N THE CASE OF FERTILIZER TRADERS 83 TTJ 519, THE ALLAHABAD BENCH OF THE ITAT HELD THAT THE CLAIM OF BAD DEBTS IS ADMISSIBLE IN THE B LOCK ASSESSMENTSS. IN THAT CASE, THE COMPUTATION WAS BASED ON DEBITS IN COMPUTER PRINTOUTS WHICH WAS CONSIDERED AS UNDISCLOSED ASSETS. 14. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE THE LD.CIT(A) ALLOWED AN AMOUNT OF RS.25,26,000/- OUT OF THE DISALLOWANCE OF RS.37,17,000/- ADDED BY THE AO. THE RELEV ANT OBSERVATIONS OF THE CIT(A) FROM PARA 13 TO 23 ARE AS UNDER : 13. I HAVE CONSIDERED THE SUBMISSION OF THE APPELLANT. THE ASSESSING OFFICER HAS ACCEPTED THAT THE APPELLANT CARRIE D ON A BUSINESS OF MONEY LENDING. IT IS MENTIONED IN THE ASSESSME NT ORDER THAT SEPARATE BOOKS OF ACCOUNT HAD BEEN OPERATED FOR THIS BUSINESS, WHICH WERE NOT DECLARED IN THE RETURNS. BOOKS OF ACC OUNTS IN THE FORM OF LEDGER ACCOUNTS GIVING DETAILS OF LOANS GIVEN, INTEREST RECEIVED, REPAYMENT OF LOANS HAD BEEN RECORDED IN TH ESE BOOKS OF ACCOUNT AND LEDGERS. ONCE IT WAS DISCOVERED THAT A MO NEY LENDING BUSINESS HAD BEEN CARRIED OUT AND BOOKS OF ACCOUNT REL ATING TO THIS BUSINESS WERE MAINTAINED, THE COMPUTATION OF UNDISCLOSED INCOME HAS TO BE DONE ON THE BASIS OF SUCH EVIDENCE. ACCORDING TO SECTION 158BB, THE TOTAL INCOME SHOULD BE COMPUTED IN ACCORD ANCE WITH THE PROVISIONS AND ON THE BASIS OF EVIDENCE FOUND AS A RESULT OF SEARCH OR REQUISITION OF BOOKS OF ACCOUNT OR OTHER DOCUMENTS OR INFORMATION AVAILABLE WITH THE ASSESSING OFFICER AND RELATABLE TO SU CH EVIDENCE. THE BOOKS OF ACCOUNT RELATING TO MONEY LENDING BUSINE SS ARE IN THE NATURE OF EVIDENCE FOUND AS A RESULT OF SEARCH. THESE, THEREFORE, FORM THE BASIS OF COMPUTATION OF UNDISCLOSED INCOME ACCORDIN G TO THE PROVISIONS LAID DOWN IN THE ACT. THE PROVISIONS OF THE ACT ALLOW FOR CERTAIN DEDUCTION AND EXEMPTIONS AS WELL AS ALLOWANCE S IN ARRIVING AT THE TAXABLE INCOME. UNDER THE PROVISIONS OF SECTION 36(1), THERE IS A SPECIFIC PROVISION FOR ALLOWANCE OF BAD DEBTS SUBJECT TO CERTAIN CONDITIONS IN COMPUTING TOTAL INCOME. THE PROVISION O F SECTIONS 69, 69A, 69B AND 69C ARE APPLICABLE IN THE CASE OF BLOCK ASSESSMENT BY VIRTUE OF SPECIAL MENTION IN SECTION 158BB. IN THE C ASE OF THE APPELLANT, HOWEVER, THE LOANS GIVEN ARE A PART OF RE GULAR BUSINESS OF MONEY LENDING. THEY ARE NOT ISOLATED TRANSACTIONS. THE TRANSACTIONS ARE EXPLAINABLE WITH REFERENCE TO THE BUSINESS CARRIED ON. NEW LOANS ARE GIVEN FROM FUNDS SECURED OUT OF LOANS RECEIVED BAC K, INTEREST INCOME AND IN GENERAL, THE FUNDS IN CIRCULATION. IT WOULD NOT BE JUSTIFIED TO TREAT EACH TRANSACTION AS AN UNEXPLAINED INVESTMENT OR ASSET UNDER SECTION 69. THERE BEING RELIABLE EVIDENCE FOUND DURING THE SEARCH THAT A BUSINESS OF MONEY LENDING WAS CARRIED ON AND 9 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 BOOKS OF ACCOUNT INCLUDING LEDGERS WERE MAINTAINED, T HE TRANSACTIONS OF LOANS SHOULD BE EXPLAINED WITH REFEREN CE TO THE BUSINESS AND THE BOOKS MAINTAINED THEREFOR. 14. IN THE CASE OF CONTROL TOUCH ELECTRONICS (P) LTD . 77 ITD 522, THE HONOURABLE PUNE BENCH OF THE ITAT HELD THAT SECT ION 158BB REFERS TO COMPUTATION OF TOTAL INCOME AND NOT GROSS IN COME. LEGISLATURE HAD INTENDED TO COMPUTE THE TOTAL INCOM E, WHICH CAN ONLY BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. A COMBINED READING OF ALL THE SECTIONS, PARTICULARLY WI TH REFERENCE TO SECTION 158BH, CLEARLY SHOWS THAT THE TOTAL INCOME UND ER SECTION 58BB SHOULD BE COMPUTED AFTER ALLOWING DEDUCTION UND ER CHAPTER VI A. SIMILAR VIEWS HAVE BEEN TAKEN BY THE CHANDIGARH BENCH IN SAT PAL SINGH VS. ACIT 67 TTJ 602 AND S.S. GEMS INTERNATIONAL VS. DCIT, 120 TAXMAN 18 DECIDED BY THE JAIPUR BENCH. 15. ONCE THE ABOVE POSITION IS ACCEPTED, THERE CAN B E NO DOUBT THAT THE UNDISCLOSED INCOME FROM MONEY LENDING BUSINESS WOULD FALL UNDER THE HEAD OF 'BUSINESS INCOME'. THUS, ALL DEDUCTIO NS FROM SECTIONS 28 TO 44 WOULD BE AVAILABLE TO THE APPELLANT IN COMPUTING THE TOTAL UNDISCLOSED INCOME FROM THE MONEY LENDING B USINESS. BAD DEBTS, WHICH ARE ALLOWED UNDER SECTION 36(1)(VII) SHOU LD ALSO BE ALLOWED. IT CAN BE ARGUED THAT ONE OF THE CONDITION S FOR ALLOWABILITY OF BAD DEBTS IS THAT IT SHOULD HAVE BEEN WRITTEN OFF I N THE BOOKS OF ACCOUNT AND INCOME FROM SUCH DEBTS SHOULD HAVE BEEN OF FERED FOR TAX IN AN EARLIER YEAR. BOTH THESE CONDITIONS ARE NOT FULFILLED IN THE APPELLANT'S CASE. THE BAD DEBTS ARE NOT WRITTEN OFF IN THE REGULAR BOOKS MAINTAINED UPTO THE DATE OF SEARCH. SINCE THE D EBTS THEMSELVES HAVE NOT BEEN DECLARED IN THE RETURNS, THER E IS NO DOUBT THAT THE INCOME FROM SUCH LOANS ETC. HAVE NOT BEEN OF FERED TO TAX EARLIER. IN THE CASE OF THE APPELLANT, THEREFORE, T HE PROVISIONS OF SECTION 36(1)(VII) ARE NOT STRICTLY APPLICABLE. 16. HOWEVER, THE FACT IS THAT THE APPELLANT HAS CAR RIED ON A MONEY LENDING BUSINESS AS STATED EARLIER. A LOAN OR ADVANCE, W HICH IS NOT RECOVERED IS A REVENUE LOSS IN SUCH BUSINESS. THE LOAN FU NDS ARE THE STOCK IN TRADE OR WORKING CAPITAL. WHEN A LOAN IS NOT RECOVERED, IT IS A BUSINESS LOSS, WHICH IS ALLOWABLE UNDER SECTION 28. IN THE APPELLANT'S CASE, LOANS NOT RECOVERED WOULD, THEREFORE, BE ALLOWE D AS BUSINESS LOSS. IT IS PERTINENT TO NOTE THAT THE ASSESSING OFFICER HAS ALSO ACCEPTED THIS PRINCIPLE SINCE HE HAS ALLOWED A JOSS TO T HE EXTENT OF RS 7,30,000/- IN CASE OF LOANS GIVEN WHERE THE BORROWERS HAD EXPIRED. THE ASSESSING OFFICER HAS TAKEN A DIFFERENT VIEW IN TAXI NG THE NET ACCRETION TO THE LOANS GIVEN BY THE APPELLANT DURING THE BLOCK PERIOD AS UNDISCLOSED INCOME. IF THE ACCRETION TO THE LOANS IS TAKEN INTO CONSIDERATION, LOSS SUFFERED AS A RESULT OF NON-RECOVERY OF LOANS SHOULD ALSO BE ALLOWED TO ARRIVE AT THE REAL UNDISCLOSE D INCOME. THE AGGREGATE LOANS AND ADVANCES ON THE DATE OF SEARCH, H AS BEEN TAKEN AS THE BASIS TO COMPUTE THE NET ACCRETION DURING THE BLACK PERIOD. THE AGGREGATE OF LOANS AND ADVANCES INCLUDES THE ADVA NCES SOME OF WHICH ARE CLAIMED TO BE DOUBTFUL OF RECOVERY. IN AL L FAIRNESS, EITHER THE AMOUNT OF SUCH ADVANCES SHOULD BE REDUCED FROM TH E AGGREGATE AMOUNT FOR THE PURPOSE OF CALCULATION OR THE AMOUNT FOUND ACTUALLY DOUBTFUL OF RECOVERY, ALLOWED AS A BUSINESS LOSS. 10 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 17. THE FIRST ISSUE AT GROUND NUMBER 4 REGARDING DEDU CTION ON ACCOUNT OF BAD DEBTS IS THAT THE ASSESSING OFFICER ONLY C ONSIDERED THE AMOUNT OF RS.59,47,000/- INSTEAD OF THE TOTAL CLAIM O F RS 1,68,84,468/-. THE AMOUNT CONSIDERED BY THE ASSESSING OF FICER, IT IS SEEN, RELATES TO BAD DEBTS/BUSINESS LOSS ON ACCOUNT OF NON- RECOVERY OF SUCH LOANS, WHICH HAVE BEEN ADVANCED DURING THE BL OCK PERIOD. THE REMAINING AMOUNT CLAIMED BY THE APPELLANT PERTA INED TO LOANS, WHICH HAD BEEN ADVANCED PRIOR TO THE BLOCK PERIOD B UT IN WHICH CASE THERE WERE CERTAIN TRANSACTIONS DURING THE BLOCK PERI OD AFTER WHICH THE LOANS WERE TREATED AS NOT RECOVERABLE. 18. I AGREE WITH THE ASSESSING OFFICER ON THIS COUNT. T HE LOANS GIVEN PRIOR TO THE BLOCK PERIOD ARE NOT BEING TAXED AS INCOME IN THIS ASSESSMENT. THE ASSESSING OFFICER HAS ONLY TAXED AS UNDISCLOSE D INCOME, THE NET ACCRETION TO THE TOTAL LOANS ADVANCE D BY THE APPELLANT. SINCE THE INCOME ITSELF IS NOT TAKEN INTO CONSIDERATION, THERE IS NO QUESTION OF ALLOWING ANY DEDUCTION WITH R ESPECT TO SUCH ASSETS. 19. AS REGARDS THE OTHER LOANS, THE ASSESSING OFFICER HAS ALLOWED ONLY AN AMOUNT OF RS.7,30,000/ - IN CASE OF LOANS WHER E THE BORROWER HAD BEEN DECEASED. THE REASON GIVEN BY THE A SSESSING OFFICER FOR NOT ALLOWING THE OTHER CLAIMS IS MAINLY T HAT THE APPELLANT COULD NOT GIVE ANY EVIDENCE WITH RESPECT TO THE CLAI M THAT THE LOANS WERE NOT RECOVERABLE OR THERE WAS NO EVIDENCE THAT T HE APPELLANT HAD TAKEN ADEQUATE STEPS TO RECOVER THE AMOUNT. THE A PPELLANT WAS ASKED DURING APPELLATE PROCEEDINGS TO FURNISH A FRESH CHART SHOWING DETAILS OF LOANS, WHICH HAD BEEN ADVANCED DURING THE BLOCK PERIOD AND WHICH HAD BECOME IRRECOVERABLE ALONG WITH THE A MOUNT ADVANCED IN CASH AND THE AMOUNT ADVANCED BY CHEQUE. IN THE STATEMENT FURNISHED BY THE APPELLANT, IT IS FOUND THAT THE AMOUNT ADVANCED BY CHEQUE WORKS OUT TO RS.30,38,000/- AND TH E AMOUNT ADVANCED TO THE SAME PERSONS BY CASH IS RS.1,33,000/-. TH ERE IS NO PROOF THAT THE AMOUNT IN CASH HAD BEEN ADVANCED DURI NG THE BLOCK PERIOD. HOWEVER, THE AMOUNTS ADVANCED BY CHEQUE ARE PROVED TO HAVE BEEN GIVEN DURING THE BLOCK PERIOD. 20. IN THE CURRENT LIST GIVEN BY THE APPELLANT, THER E STILL OCCUR SOME LOANS, WHICH HAVE BEEN GIVEN PRIOR TO THE BLOCK PERIOD. THEY ARE AS FOLLOWS : I) PARAG DESHMUKH 01/01/96 CHEQUE NO.23945 GADHINGLAJ URBAN A. BAJIRAO SHELKE 26/03/96 CO-OP. BANK CHEQUE NO.23510 IN BOTH THE ABOVE CASES, THE LOANS HAVE BEEN GIVEN IN INSTALMENTS WHERE ONE OF THE INSTALMENTS FALLS PRIOR TO THE BLOCK PERIOD ALTHOUGH THE OTHER INSTALMENTS HAVE BEEN GIVEN DURING THE BLOC K PERIOD. IN THE LIST FURNISHED, THE AMOUNT WHICH IS ADVANCED PRIOR TO THE BLOCK PERIOD, HAS NOT BEEN GIVEN. THE ASSESSING OFFICER SHOULD , VERIFY THE AMOUNT, WHICH IS GIVEN PRIOR TO THE BLOCK PERIOD AND EXCLUDE THE AMOUNT FROM THE BAD DEBTS/BUSINESS LOSS TO BE ALLOWED. T HE LOANS GIVEN TO THE ABOVE TWO INDIVIDUALS DURING THE BLOCK PERIOD WILL BE 11 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 DEALT WITH SEPARATELY LATER IN THIS ORDER. IT IS SEEN THAT IN THE FINAL LIST GIVEN BY THE APPELLANT, LOAN TO SHRI ASHOK CHIPRE HA S BEEN SHOWN AT RS.2 LAKHS. THIS AMOUNT HAS BEEN GIVEN DURING THE BLOC K PERIOD. IN THE EARLIER LIST, THE LOAN WAS SHOWN AT RS.8 LAKHS, WHIC H INCLUDED RS.6 LAKHS GIVEN PRIOR TO THE BLOCK PERIOD. 21. IT IS SEEN FROM THE LIST THAT IN CASE OF THE FOLLOW ING LOANS, THERE HAS NOT BEEN ANY RECOVERY FOR THE LAST FEW YEARS AFTER 1999. NAME AMOUNT OF LOAN YEAR LAST RECOVERY I) L. KAPASE RS.45,000/ - 1997 II) V.V. PATIL RS.4,00,000/ - 1998 III) S.PATIL RS.60,000/ - 1999 IV) S. BERDE RS.2,30,000/ - 1999 V) A. BAGWAN RS,20,000/ - 1999 VI) S.V. BHOGATE ** RS.60,000/ - 1999 VII) B.K. REDEKAR RS.55,000/ - 1999 VIII) SHIVAJI PATIL RS.50,000/ - 1999 TOTAL RS.9,20,000/ - ** THE AMOUNT IN THE CASE OF S.V. BHOGATE INCLUDES AM OUNT GIVEN PRIOR TO THE BLOCK PERIOD, WHICH IS TO BE EXCLUDED. --------------------------------------------------- ------------------------------------- IN CASE OF THE ABOVE LIST, THERE DOES NOT SEEM TO HAVE BEEN ANY RECOVERY SINCE THE LAST FEW YEARS. THIS IS SUFFICIENT EV IDENCE THAT THE LOAN HAS BECOME PRACTICALLY IRRECOVERABLE. IN SOME C ASES, THE APPELLANT HAS ALSO GIVEN OTHER REASONS FOR THE NON-RECO VERY. IN CASE OF SHRI KAPASE AND SHRI PATIL, AFFIDAVITS HAVE BEEN FILED STATING THAT THEY HAVE SUFFERED TREMENDOUS LOSSES IN THE BUSINESS AND, THEREFORE, NOT IN A POSITION TO REPAY ANY LOAN. IN CASES OF S. P ATIL, S. BERDE AND A. BAGWAN, IT IS STATED THAT THE PARTIES ARE NOT TRACEABL E. 22. THE FOLLOWING PARTIES ARE STATED TO BE ABSCONDING : I) R. NHAVELKAR RS.4,50,000/- II) A. NAYAR RS.2,00,000/- ------------------ TOTAL RS.6,50,000/- ------------------ IN BOTH THE CASES, ARREST WARRANTS HAVE BEEN ISSUED BUT C OULD NOT BE EXECUTED, WHICH IS ADEQUATE PROOF THAT THE PERSONS AR E NOT TRACEABLE. 23. IN THE FOLLOWING CASES, THE APPELLANT HAS FILED CR IMINAL CASES AGAINST THE PARTIES FOR RECOVERY I) P. DESHMUKH RS.2,50,000/- II) S. SHELKE RS.98,000/- III) SHELKE RS.2,33,000/- IV) DHARANGUTTI RS.3,25,000/- V) JOSHI RS.50,000/- ------------------- TOTAL RS.9,56,000/- ------------------- 12 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 IN THE CASE OF SHRI P. DESHMUKH, THE APPELLANT HAS FIL ED A COPY OF PLAINT, FILED IN THE COURT BY ONE OF THE BANKS FOR R ECOVERY OF ITS DUES. IT IS FURTHER STATED THAT SHRI P. DESHMUKH IS ABSCONDING . IN THE CASE OF LOANS GIVEN TO SHRI S. SHELKE AND SHRI B. SHELKE, IT IS STATED THAT THE LOANS HAD BEEN OBTAINED IN FICTITIOUS NAMES. IT IS A CA SE OF FRAUD COMMITTED ON THE APPELLANT. THE APPELLANT HAS FILED A COPY OF THE LETTER FROM THE ADVOCATE, EXPLAINING THE FRAUD AND STATING THAT BOTH THE LOANS HAD BEEN OBTAINED ACTUALLY BY SHRI B. SHEL KE, WHO HAS ABSOLUTELY NO MEANS TO REPAY. THE APPELLANT HAS FILED CASES IN THE COURT AGAINST THE PERSONS AND A WARRANT HAS BEEN ISSUED. AS REGARDS SHRI DHARANGUTTI, A CRIMINAL CASE HAS BEEN FILED FOR RECOVERY OF DUES. SHRI R. JOSHI IS ABSCONDING. THE ABOVE DETAILS WOULD SH OW THAT THE LOANS GIVEN TO THE PARTIES ARE ACTUALLY NOT RECOVERAB LE. THE TOTAL AMOUNT REPRESENTED BY THESE LOANS IS RS.25,26,000/-. TH IS AMOUNT SHOULD BE ALLOWED AS A BUSINESS LOSS WHILE COMPUTING THE UNDISCLOSED INCOME FROM THE MONEY LENDING BUSINESS CONDU CTED BY THE APPELLANT DURING THE BLOCK PERIOD. 15. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 16. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF THE AO AND THE CIT(A) AND T HE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE FIND THE ASSESSEE BEFORE THE TRIBUNAL HAD CHALLENGED THE ORDER OF THE CIT(A) RESTRIC TING THE BAD DEBTS TO RS.25,26,000/- AS AGAINST THE CLAIM OF RS.1,46,54,468/-. WE FIND THE TRIBUNAL WHILE DECIDING THE APPE AL FILED BY THE ASSESSEE HAS HELD THAT REVENUE AUTHORITIES A RE NOT JUSTIFIED IN RESTRICTING THE CLAIM OF BAD DEBTS/BUSINESS LOSS TO RS.25,26,000/- AS AGAINST THE CLAIM OF RS.1,46,54,468/- MADE B Y THE ASSESSEE. IT WAS HELD THAT THE DEBT IN QUESTION H AS BEEN ADVANCED IN ASSESSEES ORDINARY COURSE OF MONEY LENDING BUSINESS. THE RELEVANT OBSERVATION OF THE TRIBUNAL FROM PARA 18 TO 21 OF THE ORDER READS AS UNDER : 18. AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATERIAL ON RECORD, WE FIND THAT THE ADDITION OF RS. 1,39,29,108/- WAS MA DE BY ASSESSING OFFICER. THIS WAS ARRIVED AT BY DEDUCTING AN AMOUNT OF RS. 72,41,000/- COMPRISED OF LOANS ADVANCED BY POST-DATED CHEQUES OF 13 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 RS. 36,03,000/-; BAD DEBTS OF RS. 24,18,000/-; RS. 7,30 ,000/-, RS. 4,90,000/- SALE OF FLAT AT MUMBAI. THE MAIN THRUST F OR ALLOWING THE BAD DEBTS FROM MONEY LENDING BUSINESS WAS ON IRRECOVERAB ILITY OF LOANS ADVANCED AND OUTSTANDING BECAUSE OF THAT REASON. THE CIT(A) FURTHER GRANTED RELIEF OF RS. 25,26,000/- (RS. 9,20,0 00/- OBSERVING IN THESE ACCOUNTS THERE WAS NO RECOVERY FROM THE PERSONS; RS. 6,50,000/- PERSONS STATED TO BE ABSCONDING; RS.9,56,0 00/- WHERE IT WAS HELD THE CRIMINAL CASES WERE FILED AGAINST THESE PERSONS. THE CIT(A) HAS CONSIDERED MAINLY THE ISSUE FROM THE ANGLE O F THE IRRECOVERABILITY OF LOANS. NONE OF THE AUTHORITIES BE LOW CONSIDERED THE SECOND PART; DEALING WITH MONEY LENDING BUSINESS AL ONE OF S. 36(1)(I) OF THE ACT. THE ASSESSING OFFICER OBSERVED TH AT ASSESSEE IS MAINLY ENGAGED IN THE MONEY LENDING BUSINESS AS WELL AS DEALING IN PROPERTIES. THE ASSESSEE HAS BEEN OPERATING VARIOUS BANK ACCOUNTS FOR THE BUSINESS OF MONEY LENDING BUT THESE WERE NEVER SHOWN IN THE REGULAR RETURNS FURNISHED. BOOKS OF ACCOUNT OF MONEY LENDING BUSINESS HAVE BEEN MAINTAINED IN THE FORM LEDGER ACCOU NT AND ENTRIES REGARDING LOANS GIVEN, INTEREST RECEIVED, REP AYMENT OF LOANS ETC. HAVE BEEN RECORDED IN THESE BOOKS. IN APPEAL, TH E CIT(A) OBSERVED THAT ON THE BASIS OF THESE BOOKS A COMPLETE SET OF BOOKS WERE WRITTEN FOR THE BLOCK PERIOD 1-4-92 TO 25-07-2 002. THE BOOKS WERE AUDITED BY CHARTERED ACCOUNTANT. IN THIS BACKGR OUND, CIT(A) OBSERVED THAT THE ASSESSING OFFICER WAS NOT CORRECT IN DI SCARDING THESE BOOKS AND COMPLETING THE ASSESSMENT ON THE BASIS OF INVESTMENTS AND EXPENSES. THE ASSESSING OFFICER HAS ACCEPTE D THAT THE APPELLANT CARRIED ON THE BUSINESS OF MONEY LENDING . THE BOOKS OF ACCOUNT RELATING TO MONEY LENDING BUSINESS ARE IN THE NATURE OF EVIDENCE FOUND AS A RESULT OF SEARCH. THESE, THEREFOR E, FORM THE BASIS OF COMPUTATION OF UNDISCLOSED INCOME ACCORDING TO THE PROVISIONS LAID DOWN IN THE ACT. THERE BEING RELIABLE EVIDENCE FOUND DURING THE SEARCH THAT A BUSINESS OF MONEY LENDING WAS CARRIED ON A ND BOOKS OF ACCOUNT INCLUDING LEDGERS WERE MAINTAINED. HAVING SA ID SO THAT THE INCOME FROM MONEY LENDING WAS BUSINESS INCOME 'THE ASSESSE E WAS ENTITLED TO DEDUCTIONS AS ENVISAGED BY S. 28 TO 44 OF THE ACT AND BAD DEBTS, WHICH ARE ALLOWED UNDER S. 36(1)(VII) SHOULD ALSO BE ALLOWED. IT CAN BE ARGUED THAT ONE OF THE CONDITIONS OF ALLOW ABILITY OF BAD DEBTS IS THAT IT SHOULD HAVE BEEN WRITTEN OFF IN THE B OOKS OF ACCOUNT AND INCOME FROM SUCH DEBTS SHOULD HAVE BEEN OFFERED FO R TAX IN AN EARLIER YEAR. BOTH THESE CONDITIONS ARE NOT FULFILLED IN THE APPELLANT'S CASE. THE BAD DEBTS ARE NOT WRITTEN OFF IN REGULAR BO OKS MAINTAINED UPTO THE DATE OF SEARCH. SINCE THE DEBTS THEMSELVES HAV E NOT BEEN DECLARED IN THE RETURNS, THERE IS NO DOUBT THAT THE I NCOME FROM SUCH LOANS ETC. HAVE NOT BEEN OFFERED TO TAX EARLIER. IN CASE OF APPELLANT, THEREFORE, THE PROVISIONS OF S. 36(1)(III) ARE NOT PR ACTICALLY APPLICABLE IN ITS STRICT SENSE. 19. IT IS UNDISPUTED FACT THAT BOTH THE AUTHORITIES BE LOW HAVE ADMITTED THAT APPELLANT WAS CARRYING ON THE MONEY LE NDING BUSINESS. BUT BOTH THE AUTHORITIES FAILED TO INTERPRET THE PRO VISIONS OF S. 36(1)(VII) R/W S. 36(2) IN ITS PROPER PERSPECTIVE WHE N IT COMES TO THE MONEY LENDING BUSINESS. THE INTERPRETATION OF THE PROV ISION CONTAINED IN CI. (I) OF SUB. S. (2) OF S. 36 AND SEC OND PART OF THIS CLAUSE STARTING FROM 'OR REPRESENTS MONEY LENT IN THE ORDINAR Y COURSE OF BUSINESS OF BANKING OR MONEY LENDING WHICH IS CARRIED O N BY THE ASSESSEE' LEADS TO ONLY CONCLUSION THAT IT DEALS WITH DIFF ERENT TYPES OF 14 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 ACTIVITIES NOT AT ALL RELATED TO THOSE WITH THE FIRST PART OF BUSINESS ACTIVITIES. IN OTHER WORDS THE SUBMISSION IS THAT IN THE CASE OF ADVANCES/ LOANS MADE BY ANY CONCERN DOING BUSINESS OF B ANKING OR MONEY LENDING IT WAS NOT OBLIGATORY THAT SUCH ADVANCE S/LOANS OR PART THEREOF SHOULD BE SHOWN TO HAVE BECOME IRRECOVER ABLE AND CONSEQUENTLY WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE IN THE PREVIOUS YEAR. THE MONEY LENT AS PART OF MONEY LENDIN G BUSINESS BEING STOCK-IN-TRADE AUTOMATICALLY COMES INTO REVENUE ACCOUNT. IN OTHER WORDS IT NEED NOT BE TAKEN INTO ACCOUNT IN CO MPUTING THE INCOME AS REQUIRED IN THE FIRST LIMB IN RELATION TO M ONEY LENDING BUSINESS TO PROVE THAT IT IS ON REVENUE ACCOUNT. AS PER SECOND LIMB IT SHOULD BE FOUND OUT IN RELATION TO MONEY LENDING BUSI NESS THAT DEBT IS ADVANCED IN THE ORDINARY COURSE OF MONEY LENDING B USINESS. IF THIS DEBT IS NOT ADVANCED IN THE ORDINARY COURSE OF BUSINESS, IT WOULD NOT QUALIFY FOR DEDUCTION AS BAD DEBT. THE ONLY CONDITIO N LAID DOWN IN SECOND PART OF SUB. S. (2) OF S. 36 OF THE ACT IS THA T THE AMOUNT SHOULD BE ADVANCED IN THE ORDINARY COURSE OF BUSINESS WHICH B Y ITSELF PROVES ITS REVENUE NATURE AND NO FURTHER CONDITIONS AR E REQUIRED TO BE SATISFIED WHICH ARE ONLY APPLICABLE WITH REGARD TO DEBTS QUALIFYING AS BAD DEBTS IN THE FIRST PART OF SUB. S. (2). 20. THIS LEGAL PREPOSITION IS FORTIFIED BY THE RATIO L AID DOWN BY HON'BLE DELHI HIGH COURT IN THE CASE OF ALL GROW FIN ANCE & INVESTMENTS (P) LTD. V. CIT (2012) 66 DTR (DEL) 131 C ONCURRING WITH THE HON'BLE MADRAS HIGH COURT JUDGMENT IN THE CASE OF P. C. DHARMALINGA MUDALIAR V. CIT (1985) 152 ITR 568 (MAD ), HELD AS UNDER: 'THERE IS NO DISPUTE THAT THE AMOUNTS OF DEBTS IN QUESTI ON WERE ADVANCED BY THE ASSESSEE IN THE ORDINARY COURSE OF MONEY LENDING. THE QUESTION FOR CONSIDERATION WOULD BE AS TO WHETHER THE CONDITION PRESCRIBED IN THE FIRST LIMB. OF S 36(2)(I) FOR TAKIN G THE DEBT INTO ACCOUNT WHILE COMPUTING THE INCOME CAN BE READ IN T HE SECOND LIMB ALSO AND WHETHER THAT CAN BE DONE DESPITE THE CONSTRUC TION OF THE SECOND LIMB IN THE MANNER WHICH IS SEPARATED FROM THE FIRST LIMB BY USE OF 'COMMA' PRECEDING THE WORD 'OR' WHICH CLEARLY DIVIDES THE PROVISION IN TWO PARTS, VIZ., (I) FIRST PART, DEALING WITH NON-MONEY LENDING BUSINESS; AND (II) SECOND PART, DEALING WITH MO NEY LENDING BUSINESS ALONE AND THE DIVISION IS INTENDED TO ENSURE THE FULFILMENT OF CONDITIONS FOR ALLOWANCE OF BAD DEBTS PECULIAR TO EACH LIMB CONCERNED. THE ONLY CONDITION LAID DOWN IN SECOND PA RT OF SUB-SO (2) OF S. 36 IS THAT THE AMOUNT SHOULD BE ADVANCED IN THE ORDINARY COURSE OF BUSINESS WHICH BY ITSELF PROVES ITS REVENUE NATURE AND NO FURTHER CONDITIONS ARE REQUIRED TO BE SATISFIED WHICH ARE ONLY APPLICABLE WITH REGARD TO DEBT QUALIFYING AS BAD DEBT IN THE FIRST PA RT OF SUB-SO (2). THE AUTHORITIES BELOW ARE NOT JUSTIFIED IN HOLDING TH AT THE AMOUNT OF RS. 34,95,000 WAS NOT ALLOWABLE AS BAD DEBT UNDER S. 36 (1)(VII) R/W SECOND LIMB OF SUB-SECTION (2) OF S. 36.' 21. IN VIEW OF THE ABOVE LEGAL DISCUSSIONS WE HOLD THAT REVENUE AUTHORITIES WERE NOT JUSTIFIED IN RESTRICTING THE CLAI M OF BAD DEBTS/BUSINESS LOSS TO RS.25,26,000/- AS AGAINST CLAIM OF ASSE SSEE FOR RS.1,46,54,468/-, BECAUSE DEBT IN QUESTION HAVING BEEN UNDISPUTEDLY ADVANCED IN ASSESSEES ORDINARY COURSE OF MONEY LENDING BUSINESS, SO THIS PART OF CLAIM OF BAD DEBT OF RS. 1,46,54,468/- IS ALLOWABLE 15 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 U/S.36(1)(VII) READ WITH SECOND LIMB OF SUB-SECTION 2 O F SECTION 36 OF THE ACT. THE ASSESSING OFFICER IS DIRECTED ACCORDINGLY . 17. SINCE THE TRIBUNAL HAS ALREADY TAKEN A VIEW THAT THE ENTIRE CLAIM OF RS.1,46,54,468/- MADE BY THE ASSESSEE HAS TO BE ALLOWED, THEREFORE, THE GROUNDS RAISED BY THE REVENUE DOE S NOT SURVIVE. IT WAS ALSO BROUGHT TO OUR NOTICE THAT THE RE VENUE IS ALREADY IN APPEAL BEFORE THE HONBLE HIGH COURT AGAINST TH E ORDER OF THE TRIBUNAL AND THE SAME IS PENDING. THE REVENUE HAS FILED THE APPEAL ONLY TO KEEP THE MATTER ALIVE. THEREFORE, FO LLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AND IN ABS ENCE OF ANY CONTRARY MATERIAL BROUGHT TO OUR NOTICE THE GROUN DS RAISED BY THE REVENUE ARE DISMISSED. ITA NO.694/PN/2013 : 18. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A), KOLHAPUR IS NOT JUSTIFIED IN GRANTING FU RTHER RELIEF OF RS.50,000/ - IN ADDITION TO HIS EARLIER RELIEF OF RS.2 5,26,000/- GRANTED VIDE ORDER DATED 30-12-2005 TO THE ASSESSEE BEING BAD DEBTS CLAIMED WHIC H WERE RIGHTLY DISALLOWED BY THE ASSESSING OFFICER. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE CIT (A), KOLHAPUR ERRED IN TREATING THE BAD DEB TS AS BUSINESS LOSS U/S.28 WITHOUT CONSIDERING THAT THE BASIC CONDITION AS IS PRESCRIBED U/S.36(1)(VII) OF THE I.T. ACT, 1961, IS NOT SATISFIED IN THE CASE OF ASSESSEE. 3. THE APPELLANT PRAYS THAT THE ORDER OF THE COMMISSIO NER OF INCOME TAX (APPEALS), KOLHAPUR BE VACATED AND THAT O F THE ASSESSING OFFICER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND, RAISE, ANY OF THE ABOVE, OR ANY OTHER GROUNDS RAISED. 19. AFTER HEARING BOTH THE SIDES, WE FIND THE ASSESSEE ON RECEIPT OF THE APPEAL ORDER OF THE CIT(A) FILED AN APPLICATION U/S.154 IN WHICH IT WAS SUBMITTED THAT THE FOLLOWING 6 PARTIES TO WHOM THE 16 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 MONEY HAD BEEN LENT IN THE COURSE OF BUSINESS AND THE D EBTS HAD SUBSEQUENTLY TURNED BAD HAD NOT BEEN CONSIDERED IN T HE APPELLATE ORDER : NAME OF THE PARTY AMOUNT (RS.) KHAVARA VASANT S. GANDHINGLAJ 50,000/ - CHIPARE ASHOK/PRAKASH, LAXMIPURI, KOLHAPUR 2,00,000/ - LINGRAJ MANGAL, RAJARAMPURI, KOLHAPUR 35,000/ - LINGRAJ MANGAL, RAJARAMPURI, KOLHAPUR 25,000/ - GAIKWAD SHANKAR KERLI, KOLHAPUR 3,00,000/ - KARANJKAR RAMESH (BHUSHAN RANG BHANDAR) 35,000/ - TOTAL 6,45,000/ - 20. IT WAS SUBMITTED THAT THE ACCOUNT EXTRACTS WHICH WAS A PA RT OF THE SEIZED MATERIAL WERE ALREADY PRODUCED AT THE TIME OF HEARING OF THE APPEAL. IT WAS SUBMITTED THAT AN AMOUNT OF RS.8 LAKHS WAS ADVANCED TO SHRI ASHOK CHIPARE OUT OF WHICH RS .6 LAKHS WAS OUTSIDE THE BLOCK PERIOD. THE INABILITY OF THE PER SON TO PAY BACK DEBT WAS FURNISHED THROUGH THE AFFIDAVIT. SIMILARL Y, IN THE CASE OF SHRI SHANKAR GAIKWAD TO WHOM A SUM OF RS.3 LAKHS WAS ADVANCED WAS ALSO PLACED ON RECORD ALONG WITH COPY OF CRIMINAL COMPLAINT ASKING FOR NON-BAILABLE WARRANT. 21. BASED ON THE ARGUMENTS ADVANCED BY THE ASSESSEE AND THE VARIOUS SUBMISSIONS MADE THE LD.CIT(A) GRANTED FURTHER RELIE F OF RS.3,50,000/-, THE DETAILS OF WHICH ARE AS UNDER : 1. VASANT KHAVARE GANDHINGLAJ RS.50,000/- 2. GAIKWAD SHANKAR KERLI RS.3,00,000/- 22. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVENUE IS IN APPEAL BEFORE US. 17 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 23. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES. AS MENTIONED IN ITA NO.693/PN/2013, THE TRIBUNAL IN ASSESSEES OWN CASE HAS ALREADY ALLOWED THE ENTIRE CLAIM OF BAD DEBT OF RS.1,46,54,468/-. THEREFORE, THE GROUNDS RAISED BY THE REVENUE IN THE IMPUGNED APPEAL DO NOT SURVIVE AND ARE ACCORDINGLY DISMISSED. CO NOS. 90 & 91/PN/2014 : 24. THE CROSS OBJECTIONS RAISED BY THE ASSESSEE IN BOTH THE APPEALS ARE IDENTICAL AND WHICH READ AS UNDER : 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE APPEAL FILED BY THE REVENUE HAS NOT BEEN SO FILED WIT HIN REASONABLE TIME AS DIRECTED BY HONBLE TRIBUNAL IN ITS APPEAL OR DER DECIDED ON 31-08-2012 WHICH JUDGMENT WAS ALSO PRONOUNCED IN THE OPEN COURT ON THE SAME DAY THAT IS ON 31-08-2012. THE DEPART K NEW ON 31-08- 2012 ITSELF THE REASON FOR DISMISSAL OF THEIR APPEAL. I N VIEW OF THIS, THE APPEAL FILED ON 18-03-2013 CANNOT BE CONSIDERED AS FILED WITHIN REASONABLE TIME. THE APPEAL THEREFORE, BE DISMISSED AS BARRED BY LIMITATION. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE BUSINESS OF THE ASSESSEE BEING MAINLY OF MONEY-LENDING THE PROVISIONS OF S.36(2) VIZ OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY THE ASSESSEE APPLY. IN VIEW OF THIS, LD.CIT(A) HA S CORRECTLY DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND IT BE HEL D ACCORDINGLY. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE FILING OF THIS C.O. IN F.NO.36A IS DELAYED DUE TO UNA VOIDABLE CIRCUMSTANCES. THE DETAILED AFFIDAVIT WILL BE FILED WITH A PRAYER TO CONDONE THE DELAY. IN VIEW OF THIS, THE DELAY OCCUR RED BE CONDONED AND THE C.O. BE ADMITTED FOR ADJUDICATION AS THEY CO NTAIN PURE QUESTIONS OF LAW. 4. THE APPELLANT CRAVES/LEAVE TO ADD, AMEND OR ALTER ANY OF THE ABOVE GROUNDS OF APPEAL. 25. THE ASSESSEE FILED THE CROSS OBJECTIONS ON 19-09-201 4 WHEREAS THE REVENUE HAS FILED THE APPEALS ON 18-03-2013 . ON VERIFICATION OF THE FORM NO.36A IT IS NOTICED THAT THE DATE OF RECEIPT OF NOTICE OF APPEAL FILED BY THE DEPARTMENT BEFORE THE 18 ITA NOS.693 & 694/PN/2013 & CO NOS. 90 & 91/PN/2014 TRIBUNAL HAS NOT BEEN FILLED UP AND HAS BEEN KEPT BLANK B Y THE ASSESSEE. NO APPLICATION FOR EXPLAINING THE REASONS FOR DE LAY IN FILING THE CROSS OBJECTIONS HAS BEEN FILED. EVEN DURING THE COURSE OF HEARING ALSO, THE LD. COUNSEL FOR THE ASSESSEE DID NOT E XPLAIN THE REASONS FOR DELAY IN FILING OF THE CROSS OBJECTIONS. THE REFORE, BOTH THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISM ISSED ON ACCOUNT OF LIMITATION. 26. IN THE RESULT, THE APPEALS FILED BY THE REVENUE AS WELL AS THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 04-09-2015. SD/- SD/- ( VIKAS AWASTHY ) ( R.K. PANDA ) JUDICIAL MEMBER ACCOUNTANT MEMBER IQ.KS PUNE ; $ DATED : 04 TH SEPTEMBER, 2015. LRH'K ) &'+ , / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ) ( ) S / THE CIT(A), KOLHAPUR 4. ) S / THE CIT, KOLHAPUR 5. 6. , /, /, IQ.KS / DR, ITAT, B PUNE; / GUARD FILE. / BY ORDER , , , //TRUE COPY// , //TRUE COPY// 3 / / SR. PRIVATE SECRETARY /, IQ.KS / ITAT, PUNE