TaxTMI 
TaxTMI 
2019 (11) TMI 863
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....e loan advance to M/s. VTL was not in the ordinary course of business. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 54,08,93,273/- by accepting the additional evidence and other submissions filed by the assessee without a reasonable opportunity being allowed to the AO under 46A(3) of the Income tax Rules : a) To examine the evidence or documents submitted by the assessee; b) To produce any evidence or document in rebuttal of the additional evidence produced by the appellant. 3. On the facts and in the circumstances of the case, Ld. CIT(A) has erred in not taking cognizance nor distinguished the instant case on the facts and in law in placing reliance on SA Builders case as in the instant case the issue involved is not related to claim of expenditure but related to claim of bad debts. 4. The appellant craves to be allowed to add any fresh grounds(s) of appeal and/or delete or amend any of the ground(s) of appeal." 3. Facts of the case, in brief, are that the assessee is a domestic company trading in units of mutual funds and making investment in shares, debentures, e....
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.... that assessee company initiated proceedings for execution of the decree being Execution Petition No. 160/2011 and accordingly two of the properties belonging to the defendants were initially directed to be attached but it was discovered later that one of the property was tenanted and the other property was mortgaged with the Bank against financial assistance availed by M/s. Vasu Tech Ltd. Assessee company filed an application before the High Court for examination of the Judgment Debtor for disclosure of their properties and assets. Before the Hon'ble Court Mr. Dhruv Verma and Mr. R.L. Verma filed affidavits stating that there was no immovable properties under their ownership and control. Assessee company filed winding up Petition u/s. 433 of the Companies Act against Vasu Tech Ltd. in the High Court of Punjab & Haryana at Chandigarh which was admitted under Petition No. 13/2007 and Provisional Liquidator was appointed in respect of the assets of M/s. Vasu Tech Ltd. 4. Considering the above submissions, the AO specifically asked the assessee on 13.02.2013 to furnish the loan agreement entered into between the assessee company and M/s. Vasu Tech Ltd. along with year wise ledger a....
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.... books of assessee, it revealed that there was no interest income received nor provided in the books of the assessee for financial year 2003-04 and even for the F.Y. 2005-06 when the above loan agreement was entered into on 15.04.2005 neither there was interest received nor provided in the books on accrual basis though as per agreement there was provision for interest @ 12% p.a. * It was further noted by the AO that as per section 36(i)(vii) r.w.s. 36(2) of the IT Act, no deduction shall be allowed in respect of bad debts which have been written off unless the same have been taken into account in computing the income of the assessee in any earlier previous year or represents money lent in the ordinary course of business of banking or money lending which is carried out by the assessee. It was further observed by the AO that in the instant case, above debts were neither ever been a part of income of the assessee nor the above transactions can be labeled as lent in the ordinary course of money lending business because there were glaring lacunae/procedural irregularities which shows that these can be in no way can be treated an amount advanced in the normal course of money len....
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....hich category does the assessee company falls. It was noted by the AO that assessee company falls under the category of "Investment Company" and "Investment Company" has been defined in section 2(vi) of the above Rules and guidelines as " meaning any company which is financial institution carrying on as its principal business the acquisition of securities. "In view of the above examination and provisions of law as discussed above, it was held by the AO that assessee company is registered with RBI as an NBFC in the category of an "Investment Company" which is altogether a distinct category from loan company which has been defined in section 2(viii) of the NBFC Directions, 1998 as "a financial institution carrying on as its principal business the providing of finance whether by making loan or advances or otherwise for any activity other than its own". Thus, it was held by the AO that assessee company is not in the business of money lending. Further, it was also noted by the AO that on the basis of her finding in para 5.2 of the assessment order, it was clear that debt claimed by the assessee company cannot be treated as advanced in the ordinary course of business of money lending. Fu....
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....unt of Rs. 54,08,93,273/- and added back the same to the total income of the assessee as well as to the book profit u/s 115JB of the IT Act. 10. Before the CIT(A), the assessee filed detailed submissions along with certain additional evidences which were forwarded by the CIT(A) to the Assessing Officer for obtaining a remand report. After considering the remand report and rejoinder of the assessee to such remand report, the ld.CIT(A) deleted the addition made by the Assessing Officer by observing as under:- "4.9 I have carefully considered the facts of the case, the assessment order, the submissions made by the appellant. 4.9.1 A.O.'s remarks that as per NBFC rules of RBI, it falls in category of Investment Company the principal business of which is acquisition of securities cannot be accepted prima facie. The business profile is indicative per the RBI definitions and not restrictive or limiting. Further, the money lending activities by the appellant are accepted by RBI, as seen from additional evidence and other submissions filed. Even, the A.O. says that Investment is the principal business of appellant. That does not preclude activities pertaining to money l....
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....ellant. This inference of the A.O. is contrary to the judicial principle of consistency approved by the Hon'ble Apex Court and Hon'ble Jurisdictional High Court respectively in the case of [Radhasoami Satsang v. CIT 1992] 193 ITR 321 (SC) and [Dalmia Promoters Pvt. Ltd. 2006] 281 ITR 346 (Del) 4.9.6 The condition precedent for such an action by the appellant is that the loan or advance given in the ordinary course of money lending business is written off during the relevant Assessment Year. The assessee has written off the loan as bad debt in the AY 2010-11 which is not disputed by the AO. Hon'ble Delhi High Court in the case of All Grow Finance and Investment P. Ltd. v. CIT 338 ITR 496 (Del) has held that the amounts of debts were advanced by the assessee in the ordinary course of money lending. The only condition laid down in the second part of sub-section(2) of section 36 of the Act was that the amount should be advanced in the ordinary course of business which by itself proves its revenue nature and no further conditions were required to be satisfied which were only applicable with regard to debt qualifying as bad debt in the first part of sub-section (2). 4.9....
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....wability 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 irrecoverable no sooner it was written off in the books of the assessee concerned." 4.9.8 The claim of the assessee is further supported by the decision of the Honb'le Apex Court in the case of TRF Ltd. v. CIT reported in 323 ITR 397 (SC) wherein it was held that after the amendment of section 36(l)(vii) of the Income Tax Act, 1961, with effect from April 1, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable: it is enough if the bad debt is written off as irrecoverable in the accounts of the assessee. It would be pertinent to refer to the provisions of section 36(l)(vii) which is being reproduced below: "36(1) ......(vii) Subject to the provisions of sub-section (2), the amount of any bad debt or part their of which is written off as irrecoverable in the accounts of assessee for the previous year]" 4.9.9 In view of the aforesaid discussions, I am in agreement with the submissio....
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....ment made by the assessee out of surplus funds and not part of regular business of advancing loans. For the above proposition, he relied on the decision of the Mumbai Bench of the Tribunal in the case of M/s Datamatic Financial Services Ltd. (supra) which has been relied on by the Assessing Officer. He also relied on the decision of the Hon'ble Allahabad High Court in the case of CIT vs. Kohli Brothers Colour Lab Pvt. Ltd. reported in 329 ITR 80 and the decision of the Hon'ble Rajasthan High Court in the case of Kashmir Trading Company vs. DCIT, 291 ITR 228 and submitted that order of the CIT(A) be reversed and that of the order of the Assessing Officer be restored. 13. The ld. counsel for the assessee, on the other hand, heavily relied on the order of the CIT(A). Referring to the copy of Memorandum and Articles of Association, copy of which is placed at pages 1 to 22 of the paper book, the ld. counsel for the assessee drew the attention of the Bench to the other objects and submitted that as per clause 8 of the objects incidental or ancillary to the attainment of main objectives, the assessee can lend and advance money either with or without security. So far as the a....
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....ld be advanced in the ordinary course of business which by itself proves its revenue nature and no further conditions were required to be satisfied which were only applicable with regard to debt qualifying as bad debt in the first part of the sub-section (2). The Hon'ble High Court accordingly reversed the order of the Tribunal and allowed the appeal of the assessee. 13.3 Referring to the decision of the Hon'ble Delhi High Court in the case CIT vs. Global Capital Ltd., 306 ITR 332, he submitted that the Hon'ble High Court in the said decision has held that proof that debt has become bad is not necessary and the debt must be written off in accounts in view of amendment of section 36(1)(vii) of the IT Act. So far as the decision relied on by the ld. A.O. and ld. DR in the case of Datamatic Financial Services Ltd. (supra) is concerned, he submitted that the said decision is not applicable since, in that case, the money lending was not the business of Datamatic Financial Services Ltd. He accordingly submitted that since the order of the CIT(A) is in consonance with the law, it should be upheld and the grounds raised by the Revenue should be dismissed. 14. We have cons....
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....inment of the main object, the assessee is authorized to lend and advance money either with or without security and give credit to such persons and upon such terms and conditions as the company may think fit. It is also his submission that the assessee has always been showing the interest income as business income for the last so many years which has been accepted by the Department. It is also his submission that in view of the decision of the Hon'ble Supreme Court in the case of TRF Ltd. (supra), after the amendment of section 36(1)(vii) of the IT Act w.e.f. 1st April, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact, has become irrecoverable. It is enough if the bad debt is written off as irrecoverable in accounts of the assessee. Further, it is also his submission that where an amount advanced by a non-banking finance company in the ordinary course of business becomes bad, the assessee can claim the same once the condition laid down in the second part of sub-section (2) of section 36 of the Act is fulfilled. 14.1 We find merit in the above argument of the ld. counsel for the assessee. A....
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.... off in the case of M/s Gallery in the relevant assessment year. 4. The Assessing Officer disallowed assessee‟s claim for bad debts holding that under Section 36(2), to write off any bad debt, same has to be included in the income for earlier years which was not done in the case of assessee. 5. The findings of the Assessing Officer were confirmed by both CIT(A) as well as Tribunal. The Tribunal also observed that the advances made by the assessee were without collateral security or any other type of security. Such non-compliance of safety measures in respect of security of debt shows that the advance was not made in the ordinary course of business. The Tribunal also observed that since the assessee failed to prove that the amount which has been advanced was ever shown as income in any of the previous years, therefore, conditions set out under Section 36(2) are not fulfilled. ............................................................................................. ............................................................................................... 13. We are of the view that the only condition laid down in second part....
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....e Act. The disallowance as made by the Assessing Officer and confirmed by the Ld. CIT(A) being based on erroneous views and / or non-appreciation of the facts and law deserves to be deleted. 1.1. That without prejudice to the above, if the said amount forfeited by Mrs. Anuradha Shyam Chandani be not allowed as a bad debt or as a business loss/trading loss, the same is allowable as a short term capital loss." 17. Facts of the case, in brief, are that the Assessing Officer, during the course of assessment proceedings, noted that the assessee has debited a sum of Rs. 1 crore in the P&L account on account of bad debts. On being asked by the Assessing Officer, it was explained that the above amount was given to Mrs. Anuradha Shyam Chandani for purchase of property, but, due to some reasons, the assessee could not purchase the property and the amount was forfeited by her, therefore, the same was claimed as bad debt in the P&L account. However, in absence of any evidence to substantiate the above claim or to prove that it is a trading debt and the money was advanced in the ordinary course of business, the Assessing Officer rejected the claim of writing off the debt and added t....
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....he property was not transferred and the amount was not repaid. Referring to the decision of the Hon'ble Delhi High Court in the case of Mohan Meakin Ltd. vs. CIT, 348 ITR 109, he submitted that when the amount has been advanced in the course of business and the advance become irrecoverable even if the claim is not allowed as bad debt, the same can be allowed as business loss. It was held that the right of the assessee to relief is not restricted to the pleas raised by him before the Departmental authorities or before the Tribunal. If, in respect of the contention raised by the assessee, grant of relief to him on another ground is justified, it would be open to the Department and the Tribunal and indeed they would be under a duty to grant that relief. Referring to the decision of the Hon'ble Bombay High Court in the case of Harshad J. Choksi vs. CIT, 349 ITR 250, he submitted that where the amount was disallowed as bad debt u/s 36(2), the assessee can claim for deduction as business loss u/s 28. It was held that there is no bar in claiming a loss as business loss if it is incidental to carrying on of a business. The fact that the conditions for deduction as bad debt were not....
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....ant an opportunity to the assessee to substantiate its claim that it fulfills the conditions required for allowing the above amount of Rs. 1 crore as business loss. The Assessing Officer shall decide the issue as per fact and law, after giving due opportunity of being heard to the assessee. We hold and direct accordingly. The grounds raised by the assessee on this issue are accordingly allowed for statistical purposes. 24. Ground of appeal No.2 reads as under:- "That on the facts and law involved the Ld. CIT(A)] has erred in confirming the disallowance of Rs. 2,81,051/- being the amount of alleged expenditure in relation to shares held as stock in trade computed by the Ld. AO under Rule 8D(2)(iii). Section 14A is not applicable in respect of shares held as stock in trade as the profit therefrom is taxable as business income and dividend if any thereon is incidental." 25. Facts of the case, in brief, are that the Assessing Officer, during the course of assessment proceedings, noted that the assessee has made a disallowance of Rs. 55,92,603/- u/s 14A. He further noted that the assessee has not included the opening stock and closing stock of shares and mutual funds whil....
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....cts and law involved the Ld. CIT(A)] has erred in confirming the disallowance of Rs. 4,72,389/- under Rule 8D(2)(i) being the amount of custodian fee paid in relation to shares held both as stock in trade and investments. Section 14A is not applicable in respect of shares held as stock in trade as the profit therefrom is taxable as business income and dividend if any thereon is incidental." 31. Facts of the case, in brief, are that the Assessing Officer, during the course of assessment proceedings, noted that the assessee has paid a custody fee of Rs. 4,72,389/- on account of demat charges during the year and the same related to investments yielding exempt income or stock-in-trade which yield exempt income to the assessee. Since the assessee has not disallowed the same in the working of disallowance u/s 14A and since the above forms direct nexus with the investments and would fall under the purview of Rule 8D(2)(i), therefore, the Assessing Officer, applying the Rule 8D(2)(i) made disallowance of Rs. 4,72,389/-. In appeal, the ld.CIT(A) upheld the action of the Assessing Officer. 32. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal. 33....