TaxTMI 
TaxTMI 
2015 (9) TMI 1238
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....282/-, when the assessee is a Non-Banking Financial Institutions (NBFC). (iii) The Ld. CIT (A) had erred by holding that the business losses cannot be allowed as set off in the case of the assessee due to non filing of return before the due date without considering extraordinary circumstances faced by the assessee in finalizing its accounts. 3. The brief facts of the case are that the assessee is a nonbanking Financial Company, filed its return of income for the assessment year 2003-04 on 31.10.2003 admitting its total loss of Rs. 4,27,61,528/- after claiming expenditure in the nature of rebate and discount of Rs. 3,94,59,120/-. Initially the return was processed u/s.143(1) on 29.11.2003 accepting the return. However during the course of assessment proceedings for the assessment year 2007-08, it was revealed that the assessee had stopped crediting its accrued interest on unrealizable loans and adopted cash method for recognizing such interest income. For the above stated reason the Ld. Assessing Officer opined that the interest waived during the relevant assessment year cannot be claimed as deduction because the same was not offered for income in the earlier years. Since the asse....
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.... or rebate on loans as revenue expenditure was not forthcoming from the records, the Assessing Officer has reopened the assessment and reduced the claim from the losses returned by the appellant in his re-assessment and reduced the claim from the losses returned by the appellant in his re-assessment U/s.147. Further, it is the prerogative of the Assessing Officer to verify the correctness of the claim by reopening the assessment U/s.147 by following due procedure. Therefore, the objection raised by the appellant for reopening the assessment does not merit much. Further the reopening of assessment is considered valid in the following decisions. (i) Hon'ble Gujarat High Court reported in 33 taxman.com 426 (ii) Hon'ble Delhi High Court reported in 358 ITR 144 (iii) Hon'ble Supreme Court reported in 102 ITR 287 (iv) Hon'ble Gujarat High Court reported in 236 ITR 832 (v) ITAT Chennai Tribunal in Chennai Petroleum corpn.(ITA No.66/11-12/LTU(A) dt.8.1.13) (vi) Hon'ble Delhi High Court reported in 197 Taxman 415 (2011) (vii) Hon'ble High Court of Mumbai reported in 30 taxman.com 211(2013), (viii) Above all, it is the prerogative of the Assessing Officer/Revenue to reopen the asse....
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....ce of the claim of set off of unabsorbed business losses of the earlier years as follows:- 6.2. Reopening of assessment U/s.148 of the Act:- The assessment was reopened on the basis of observation in the assessment proceedings of assessment year 2007-08, which is not correct. Moreover the reason given by the Assessing Officer is not applicable to the appellant in view of the provisions of section 36(1)(2) with regard to money lending business. Hence he is not justified in ignoring the objection of the appellant and disallowing expenses claimed invoking the provisions of section 148 assessment made on the basis of wrong reasoning is not valid in law. 6.3. Disallowance of bad debts:- The Ld. A.R. submitted that the interest portion written off during the relevant assessment year was already credited as income in the hands of the assessee for the earlier assessment years and only such interest portion which has become bad and irrecoverable has been written off in the books of account during the relevant assessment year. Therefore the presumption of the Revenue that the interest written off during the relevant assessment year was not treated as income during the earlier years is er....
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.... a probability that the assessee could have claimed bad debts erroneously on the interest that was not offered as income in the earlier years, the Ld.A.O had re-opened the assessment. The fact that the assessee had changed its method by treating the accrued interest on cash basis as against mercantile basis came to light only during the assessment proceeding for the assessment year 2007-08. Therefore, there was a valid reason for the Assessing Officer to believe that the certain income had escaped assessment. In these circumstances, we find that the Ld. CIT (A) was justified to reopen the assessment of the assessee invoking the provisions of section 147 & section 148 of the Act. Since the Ld. CIT (A) had upheld the view of the Ld. Assessing Officer by judiciously relying on the various decisions of the Hon'ble High Courts and Tribunal cited in his order, we do not find it necessary to interfere in his decision. Therefore, this ground raised by the assessee is decided against it. 8.2 Ground No.2 - Disallowance of bad debts The assessee had claimed bad debts on account of accrued interest for Rs. 2,32,15,838/- and loss of advances made during the course of its money lending busines....
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....conditions under sub-section (2) of section 36 are not fulfilled and therefore, the amount could not be taken as bad debt. The contention raised by both the learned counsel centered around the interpretation of sub-section 2(1) of section 36, which reads as under: "(2) In making any deduction for a bad debt or part thereof the following provisions shall apply-[(i) No such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of business of banking or money lending which is carried on by the assessee;l" 7. Learned counsel for the appellant/assessee has tried to interpret the section in two parts. He submitted that the requirement of the first part of the section would not be applicable to the second part of the section which relates to money lent in the ordinary course of business of banking or money lending carried on by the assessee. The second part of the section, as pointed out, has been highlighted by us in the clause (i) of sub-section (2)....
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....auses have become redundant, as the bad debts are now being straightway allowed in the year of write off. The Amending Act, 1987 has, Therefore, amended these clauses to withdraw them after the assessment year 1988- 89. 7. It is our view that the Circular Number 551 leaves no scope for debate since it specifically notices the previous practice of having to establish that a debt had become bad in the previous year, which had generated enormous litigation on the question of allowability of bad debt in a particular year. The Circular expressed the hope that this litigation would be eliminated by permitting a debt to be treated as a bad or recoverable no sooner it was written off in the books of the assessed concerned." 10. There is no dispute with regard to the above mentioned proposition of law as interpreted by the decision of our High Court in the case of Morgan Securities (supra). However, the present case relates to assessee which is undisputedly a NBFC and is in the business of money lending and has been making advances to different concerns, two of them being those to whom advances were made and which are claimed as bad debts as noted above. In the manner the learned counsel ....
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.... have been money lent in the course of the business of the assessee. Therefore, taking the provision in s. 36(2)(i)(a) as a whole, it is necessary in every case to find if a debt in a money- lending or banking business or a debt in a non-money-lending or a non-banking business must have been incurred in the course of the assessee's business. The second limb is that in the case of non-moneylending or non-banking business, a debt in order to be a bad debt must have been taken into account in the computation of the income of the assessee. This particular requirement takes care to exclude what may be called capital debts from qualifying for write-off as bad debts" 11. In the present case there is no dispute that the amounts of debts in question 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 for taking the debt into account while computing the income can be read in the second limb also and whether that can be done despite the construction of the second limb in the manner which is separated from the first limb by use of "comma" preceding the word "or" which clearly di....
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....mount of Rs. 34,95,000I- was not allowable as bad debt under Section 36(1)(vii) read with Section 36(2) of the Act.." From the above it is evident that the assessee is entitled to the claim of deduction on account of bad debts even for the loss incurred due to irrecoverable loans and advances made during the course of money lending business of the assessee. Therefore respectfully following the decision of the Hon. High Court cited supra we hereby direct the Ld. Assessing Officer to allow deduction to the assessee for its claim of bad debts on account of irrecoverable interest income which was treated as the income of the assessee during the earlier years and loss incurred due to irrecoverable loans and advances made by the assessee during the course of its money lending business subject to verification of the fact that the interest income were actually offered to the income of the assessee during the earlier years and the loans and advances were made during the course of the money lending business of the assessee. Accordingly, this issue is remitted back to the file of the Ld. Assessing Officer. 8.3 Ground No.3 - Disallowance of the claim of set-off of unabsorbed business losses ....