2013 (3) TMI 533

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.... facts pertaining to the issue are as under. The assessee filed the return of income for the A.Y. 2001-02 declaring total income at 'nil' on 18.10.2001. The return was initially accepted and there was no regular assessment u/s.143(3). But subsequently the A.O. issued notice u/s.148 and assessment was completed by determining the total income at Rs. 3,37,543/-. The major addition was in respect of the disallowance of interest of 'badla' profit. It was noticed by the A.O. that the assessee company was not in the business of money lending. The assessee has claimed the write off of the bad debts to the extent of Rs. 14,09,525.39 which was claimed to have been pertaining to the A.Y. 2001-02. As noted by the A.O. the said bad debt was in respect....

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....and the badla interest "arising thereon is payable to the assessee company from the funds deployed in the market and not from the HRS to whom the money was advanced. When money is advanced for specific purpose and as soon as the specific purpose is served the monies so advanced along with incremental Income earned or loss suffered should normally be returned to the lender. It is amply clear from the above that in this case there s no borrower lender relationship. HRS Insight Financial Services intermediary is not a borrower it is just an intermediatery between the assessee company and the persons who needs the funds to invest in the share market. In view of the above said position, it is difficult to understand as to how the funds so advanc....

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.... from other sources." On the basis of this analogy, the badla interest in the assessee company's case should be taxed as "income from other sources". Reliance is placed on the following decision: "a) When the question is whether a receipt of money is taxable or not or whether certain deductions from that receipt are permissible in law or not, the question has to be decided according to the principles of law and not in accordance with accountancy practice. Accounting practice cannot override section 56 or any other provision of (ho Act- Tuticorin Alkali chemicals & Fertilizers Ltd. v. CIT[1997] 93 Taxman 502,227 ITR 172(SC)" 7. Vide para (b) of the assessee's representative's letter dated 20.08.2005 it is stated as under: " If the foregoi....

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.... on it) in the share market." 3. In sum and substance, the badla interest was assessed under the head "Income from other sources" and hence the A.O. disallowed the claim of the entire bad debts to the extent of Rs. 14,09,525/-. It is pertinent to note here that the quantum was confirmed by the CIT (A). The A.O. initiated the penalty proceedings u/s.271(1)(c) of the Act and levied the penalty of Rs. 5,57,466/- by giving the finding that the assessee has deliberately filed inaccurate particulars of its income in order to conceal the income to the extent of Rs. 14,09,525/-. The assessee challenged the penalty order before the Ld. CIT (A) but without success as the penalty was confirmed. Now, the assessee is in appeal before us.   4. We....