MELAILA RESORTS PRIVATE LIMITED, MUMBAI V. PRINCIPAL COMMISSIONER OF INCOME TAX-2, MUMBAI

ITA 799/MUM/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3092 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 09-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SREEKAR
• Assessee Lawyers: DR P DANIEL
• Keywords: Revision of order; Proportionate interest; Bad and doubtful debts
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B , MUMBAI BEFORE SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI N.K. PRADHAN , HON'BLE ACCOUNTANT MEMBER ITA NO. 799 /MUM/201 8 (A.Y: 201 4 - 15) M/S. MELAILA RESORTS PVT. LTD., BHARAT INSURANCE BUILDING, 3 RD FLOOR, 15 - A , HORNIMAN CIRCLE, FORT, MUMBAI 400 001 PAN: AAECM 9152 E V. PRL . COMMISSIONER OF INCOME - TAX - 2 ROOM NO.344, 3 RD FLOOR, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : DR. P. DANIEL DEPARTMENT BY : SHRI V. SREEKAR DATE OF HEARING : 04.06.2018 DATE OF PRONOUNCEMENT : 27 .08 .2018 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE A GAINST THE ORDER OF THE PRINCIPAL COMMISSIONER OF INCOME - TAX 2, MUMBAI DATED 16.01.2018 PASSED U/S.263 OF THE ACT. 2. BRIEFLY STATED THE FACTS ARE THAT, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONSTRUCTION AND DEVELOPMENT FILED RETURN OF INCOME ON 20.09.2014 DECLARING INCOME OF .7,22,870/ - . ASSESSMENT WAS COMPLETED 2 ITA NO.799/MUM/2018 (A.Y: 2014 - 15) M/S. MELAILA RESORTS PVT. LTD., U/S. 143(3) OF THE ACT ON 31.12.2016 DETERMINING THE INCOME OF .18,94,640/ - . SUBSEQUENTLY, THE PRL. COMMISSIONER ISSUED SHOW CAUSE NOTICE U/S. 263 OF THE ACT ON 13.12.2017 AND PROPOSED TO REVISE THE ASSESSMENT ORDER AS ERRONEOUS IN SO FAR AS IT IS PREJ UDICIAL TO THE INTEREST OF THE R EVENUE OBSERVING THAT , THE BAD DEBTS CLAIMED BY THE ASSESSEE ARE NOT ADMISSIBLE SINCE PROVISION S OF SECTION 36(2)(I) OF THE ACT ARE NOT SATISFIED. ASSESSEE FURNISHED SUBMISSIONS BEFORE THE LD. PRL. COMMISSIONER OF INCOME - TAX STATING THAT ASSESSING OFFICER HAD ALREADY ENQUIRED AND APPLIED HIS MIND AND ALLOW ED THE CLAIM FOR BAD DEBTS. ASSESSEE EARNED MAJOR INCOME BY WAY OF INTEREST AND T HEREFORE IT IS NOT CORRECT TO SAY ASSESSEE IS NOT CARRYING ANY MONEY LENDING BUSINESS. IT WAS CONTENDED THAT SUBSTANTIAL AMOUN T OF .5.69 CRORES WERE ADVANCED AS LOANS AND EARNED INTEREST ON SUCH INCOME. IT WAS CONTENDED THAT THE MONEY ADVANCE D TO MR. SURESH JAIN AND MRS. VIJAYA JAIN WAS GIVEN IN NORMAL COURSE OF BUSINESS TO EARN INTEREST , AS MONEY LENDING IS ALSO A PART OF THE BUSINESS ACTIVITY OF THE COMPANY. MOST SATISFIED WITH THE SUBMISSIONS OF THE ASSESS EE THE LD. PRL. COMMISSIONER OF INCOME - TAX HELD THAT , SINCE THE ASSESSEE WAS NOT IN THE BUSINESS OF MONEY LENDING ASSESSEE IS NOT ENTITLED TO ALLOWANC E OF BAD DEBTS AS THE CONDITIONS OF SECTION 36(2)(I) IN RESPECT OF 50% OF THE AMOUNT OF LOANS ADVANCE D TO MR. SURESH JAIN AND MRS. VIJAYA JAIN IN DECEMBER 2011. BUT ASSESSEE IS 3 ITA NO.799/MUM/2018 (A.Y: 2014 - 15) M/S. MELAILA RESORTS PVT. LTD., ENTITLED TO CLAIM BAD DEBTS IF THE LOANS GIVEN TO THE AFORESAID PERSONS INCLUD ED ANY INTEREST WHICH WAS TAKEN INTO COMPUTATION OF INCOME FOR ANY PREVIOUS YEAR S . THUS, THE ASSESSING OFFICER WAS DIRECTED TO ALLOW ONLY THE PROPORTIONATE INTEREST AMOUNT INCLUDED IN BAD DEBTS WRITTEN OFF TO THE EXTENT WHICH HAS ALREADY BEEN TAKEN INTO C OMPUTATION OF INCOME DURING THE PREVIOUS YEARS AFTER VERIFICATION. 3. BEFORE US, LD. COUNSEL FOR THE ASSESSEE INVITED OUR ATTENTION TO THE MEMORANDUM OF ASSOCIATION AND THE OBJECTS INCIDENTAL AND ANCILLARY TO THE MAIN OBJECT , SUBMITTED THAT CLAUSE 55 OF MEMORANDUM OF ASSOCIATION SPECIFICALLY PROVIDE FOR DO ING MONEY LENDING BUSINESS AND T HEREFORE THE OBSERVATION OF THE LD. PRL. COMMISSIONER OF INCOME - TAX THAT THE ASSESSEE IS NOT INTO THE MONEY LENDING BUSINESS IS NOT CORRECT. HE ALSO INVITED OUR ATTE NTION TO THE NOTICE U/S. 143( 2 ) DATED 14.06.2016 ISSUED BY THE ASSESSING OFFICER IN THE COURSE OF ORIGINAL ASSESSMENT PROCEEDINGS WHEREIN THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO PROVIDE THE DETAILS OF BAD DEBTS WRITTEN OFF AND THE REPLY DATED 08.08. 201 6 WHEREIN DETAILS OF BAD DEBTS WRITTEN OFF WERE FURNISHED TO THE ASSESSING OFFICER . THE LD. COUNSEL FOR THE ASSESSEE BEFORE US SUBMITTED THAT THE ASSESSING OFFICER CALLED FOR THE DETAILS AND EXAMINED THE DETAILS AND ALLOWED THE CLAIM FOR BAD DEBTS AND T HEREFORE HE HAS TAKEN ONE OF THE VIEWS POSSIBLE AND THUS 4 ITA NO.799/MUM/2018 (A.Y: 2014 - 15) M/S. MELAILA RESORTS PVT. LTD., THE ORDER PASSED BY THE ASSESSING OFFICER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INT EREST OF THE R EVENUE. 4. LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE FOLLOWING DECISIONS: - A. CIT V. MAX INDIA LTD., [295 ITR 282 (SC)] B. M ALABAR INDUSTRIAL CO. LTD., V. CIT [243 ITR 83 (SC)] C. GRASIM INDUSTRIES LTD., V. CIT [ 321 ITR 92 (BOM.) ] D. CIT. V. GABRIEL INDIA LTD., [203 ITR 108 (BOM.) ] E. M/S. REAL TRADE TECHNOLOGIES V. PRL. CIT IN ITA.NO. 2929 /MUM/ 2016 DAT ED 22.07.2016 . 5. ON THE OTHER HAND, LD. DR SUBMITTED THAT NO PROPER INQUIRIES WERE MADE BY THE ASSESSING OFFICER AND NOTHING HAS BEEN DEALT WITH BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. LD. DR ALSO SUBMITTED THAT MAIN OBJECT OF THE ASSESSEE DOES NO T PROV IDE FOR MONEY LENDING BUSINESS. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAWS RELIED ON. THE LD. PRL. COMMISSIONER OF INCOME - TAX PASSED ORDER U/S 263 OF THE ACT HOLDING THAT ASSESSEE IS NOT IN THE BUSINESS OF M ONEY LENDING AND T HEREFORE THE DEBTS WRITTEN OFF IN THE CASES OF MR. SURESH JAIN AND MRS. VIJAYA JAIN CANNOT BE ALLOWED AS DEDUCTION AS THE PROVISIONS OF SECTION 36(2)(I) WERE NOT SATISFIED BY THE ASSESSEE , AS THE ASSESSEE HAS NOT OFFERED INC OME FROM SUCH DEBT TO TAX IN EARLIER YEARS. HOWEVER, WE SEE THAT AT THE SAME TIME THE LD. PRL. COMMISSIONER DIRECTED THE ASSESSING OFFICER TO ALLOW ONLY PROPORTIONATE INTEREST AMOUNT INCLUDED IN BAD DEBTS WRITTEN OFF WHICH HAS ALREADY BEEN 5 ITA NO.799/MUM/2018 (A.Y: 2014 - 15) M/S. MELAILA RESORTS PVT. LTD., TAKEN INTO COMP UTATION AS INCOME AFTER VERIFICATION. WE FIND FROM THE MEMORANDUM OF ASSOCIATION AND THE ANCILLARY OBJECTS PROVIDED THEREIN THAT T HE ASSESSEE IS PERMITTED TO DO MONEY LENDING BUSINESS. ON A PERUSAL OF THE PROFIT AND LOSS ACCOUNT AT THE YEAR ENDED 31 ST MA RCH , 2014 THE ASSESSEE EARNED REVENUE OF .53,74,964/ - OUT OF WHICH REVENUE FROM OPERATION IS .15,45,985/ - AND OTHER INCOME IS .38,28,979/ - . SCHEDULE 14 & 15 TO PROFIT AND LOSS ACCOUNT SPECIFY THE NATURE OF REVENUE OPERATIONS AS SALE OF SHARES, SI MILARLY THE OTHER INCOME IS INTEREST INCOME OF .38,27,617/ - AND INTEREST ON IT REFUND OF . 1,362/ - . IN T HIS ASSESSMENT YEAR I.E., 2014 - 15 T HE M AJOR INCOME EARNED BY THE ASSESSEE IS FROM INTEREST ON MONEY LENDING, T HEREFORE IT CANNOT BE SAID THAT THE ASSESSEE IS NOT IN THE BUSINESS OF MONEY LENDING DURING THE ASSESSMENT YEAR 2014 - 15. 7. WE ALSO FIND THAT IN THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER CALLED FOR THE DETAILS OF BAD DEBTS WRITTEN OFF AND THE ASSESSEE HAS PROVIDED DETAILS OF BAD DEBTS WRITTEN OFF. THE ASSESSING OFFICER HAS CONSIDERED THE DETAILS OF BAD DEBTS FILED BY THE ASSESSEE AND TAKEN ONE OF THE POSSIBLE VIEWS AND ALLOWED THE CLAIM OF THE ASSESSEE. THUS, IN OUR VIEW THE ORDER PASSED BY THE ASSESSING OFFICER IS NEITHER E RRONEOUS NOR PREJ UDICIAL TO THE INTEREST OF THE R EVENUE , IN VIEW OF THE DECISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF CIT V . MAX INDIA 6 ITA NO.799/MUM/2018 (A.Y: 2014 - 15) M/S. MELAILA RESORTS PVT. LTD., LTD., (SUPRA) AND MALABAR INDUSTRIAL CO. LTD., V. CIT (SUPRA). THUS, WE SET - ASIDE THE ORDER DATED 16.01.2018 OF THE LD. PRL. COMMISSIONER OF INCOME - TAX PASSED U/S. 263 OF THE ACT . 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 27 TH AUGUST , 2018 SD/ - SD/ - ( N.K. PRADHAN ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 27 / 0 8 / 2018 GIRIDHAR , S R. PS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM