TaxTMI 
TaxTMI 
2021 (12) TMI 1208
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....rn is less than taxable income shown in the original return and large refund was claimed (iii) very low profit before depreciation, interest and tax ratio (iv) large investment in property. Accordingly, notice u/s. 143(2) and 142(1) of the Income-tax Act, 1961 (in short "Act") were issued and served on the assessee. In response Ld. AR of the assessee attended and submitted the relevant information as called for. 3. Assessee is an NRI and shown income under the head "income from house property", "business income" and "income from other sources" in original return of income and in the revised return of income, assessee has declared leasing of property as income under the head "business income". 4. The Assessing Officer observed that assessee has advanced an amount of Rs..3.1 crores to M/s. Rusam Developer Pvt. Ltd., in the earlier years and claimed bad debts of Rs..3,45,57,667/- (including interest) and claimed Rs.9,23,800/- as stamp duty and registration charges on purchase of property. The assessment was completed u/s. 143(3) of the Act by the Assessing Officer rejecting the claim of the assessee of bad debts, registration charges, and declaring income of leasing of property ....
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....ong with Annual Rental Income which is received during the financial year ended 31/03/2016 relevant to the above mentioned Assessment Year 2016-17 is as under: - Sr. No. Location of the Property Leasee's Name Annual Rent No. of Units Leased 1 202A-AlphaI Bldg, Giga Space office at Pune TATA Elxsi Rs. 26,10,219/-(Rs. 2,15,043/-April to Dec)+(Rs. 2,24,944/-Jan to Mar) 1 unit 2 Shop No.1,4,6,7 in Solitude Building, Mahim Dena Bank Rs. 22,35,390/-(Rs. 1,71,953/- per month 4 Shops 3 Lake City Mall, Kapurwadi Junction, Majiwada, Thana HDFC Bank Rs. 13,21,176/-(Rs. 1,10,098/- per month] 6 Units 4 Marathon Nextgen, Parel HDFC Bank Rs. 25,25,868/-(Rs. 2,88,377/- from April to July 15) Rs. 1.71.545/- from Aug to March 16) 5 Natasha Shopping Center Shop-Bandra ShivanGaba Rs, 11,25,000/-(Rs.l,25,000/-Aug to Mar 16) 1 Unit d) Apart from the 12 properties which were purchased & leased by the Assessee, the Assessee had also purchased in January 2014, 6 more properties which were under construction. Sr. No. Property Details Purchase Date Status 1 The Park - Lodha (Worli) ....
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....usiness & Profession" and not under the head "Income from House Properties". 2) Taking into consideration Supreme Court's decision in the case of Chennai Properties & Investment Ltd., which is reported in 373 ITR 673(copy enclosed herewith), wherein, it was held that if the main objects of the company are to lease out the properties", then, the Income generated from such business will be taxable under the head "Income from Business & Profession" and not under the head "Income from House Property" a) It would not be out of place to submit here that the Assessee had advanced loans to Four parties namely: 1) Rusam Developers Pvt. Ltd 2) Birla Power Solution 2) Birla Power Solution 3) Sunil Mantri Realty Ltd 4) Kohinoor Cargo & Industrial Park private limited b) Assessee had given loans to Rusam Developers Pvt. Ltd. (RDPL) amounting to Rs. 3,10,00,000/- @15% p.a. by executing three (3) separate Memorandum of Understandings (M.O.U) along with three separate Mortgage Deeds (M.D) for three different properties (which were not registered with the Sub-Registrar of Immovable Properties) namely: Sr. No. Memorandum of Underst....
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....ess Loss". In light of the above said facts we enclose herewith the Analytical Business-wise Profit & Loss Account, wherein the claim for "Bad Debts" is Rs. 35,57,662/- and "Business Loss" is Rs. 3,10,00,000/-. f) Moreover, it will also not be out of place to submit here that, the reason why these expenses i.e. "Business Loss" amounting to Rs. 3,10,00,000/- and "Bad Debts" amounting to Rs. 35,57,662/pertaining to "Money Lending Business", were not claimed by the Assessee in its Original Return of Income, is because the post dated cheques (copies enclosed herewith) which were given by "Rusam Developers Pvt. Ltd." were dated 6% June 2016. These cheques were not deposited by the Assessee on that day as, Rusam Developers Pvt. Ltd. informed him to wait for three months. Hence, these cheques were deposited on 5 September 2016. Moreover, he came to know during the period from 1st October 2016 till 31st December 2016, that the company has gone into Liquidation. and only then, he decided to claim the "Business Loss" of Rs. 3,10,00,000/- and "Bad Debts" of Rs. 35,57,662/- as Business expenses. g) We also enclose herewith following documents in order to substantiate....
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....lity of expenses amounting to Rs. 3,45,57,662/- under the head "Bad Debts" which is related to the amount paid to Rusam Developers Pvt. Ltd, we would like to submit that Rusam Developers Pvt. Ltd is a 'Debtor to the extent of Rs. 35,57,662/- & the Assessee has rightly claimed the deduction under the head Bad Debts u/s 36 (i)(vii) as this amount pertains to "Interest Accrued on loans which is given to RusamDevelopers Pvt. Ltd., was offered for tax in the preceding previous years & corresponding debit entry was passed in Rusam Developers Pvt. Ltd account. Since the assesse has not received this amount then the same will be allowed as bad debts u/s 36 (i) (vii). i) As regards the remaining amount of Rs. 3,10,00,000/- the same should be allowed as deduction u/s 37 (i) of Income Tax Act 1961 under the head "Business Loss". Though in the Profit & loss Account it has been wrongly debited under the head "Bad Debts" only to the extent of Rs. 3,10,00,000/- the same cannot be disallowed due to the fact it is debited under "Wrong Head of Expenses" i.e. "Bad Debts" One has to see whether the deduction which is claimed a Business Expenses, If yes, then, it has to be allowed as business ....
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.... The developer did not deliver the commercial property nor did they repay the money to appellant. In light of the above said facts, the advance paid of Rs. 10 Crores was allowed as bad debt u/s 36(1)(iii) r.w.s. 36(2), inspite of the fact it was not offered as income in preceding previous years. In light of the above said facts & circumstances of the case, no addition should be made on account of "bad debts" claimed by the Assessee amounting to Rs. 3,45,57,662/- which is debited to profit & loss account. m) It's a no brainer that, when Assessee offers Interest Income for tax, the department accepts the same as business income, however, when they want to claim a deduction on account of Bad Debts, the Department wants to object that Money Lending is not a business. This stand taken by the Department is not fair. n) Moreover, Loans given to Rusam Developers Pvt Ltd was shown under the head Current Assets in Balance Sheet as on 31/03/2012, wherein, the Loans and Advances given to Rusam Developers Pvt Ltd amounting to &s. 3,40,78,078/is shown under the head "Current Assets and Loans and Advances". As per the accounting norms, all the "Business Assets"....
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....e assessee formed part of the stock-in-trade had to be allowed as a business loss under provisions of section 37(1) of Income Tax Act 1961. We also rely on the judgement of the High Court, wherein, the Income Tax Authorities found that the Assessee was carrying on the business of smuggling, and it was held that the Assessee was therefore liable to Income Tax on Income from that Business under the head "Income from Business & Profession". From the gist of above two case laws it can be seen that even when the assessee does an illegal business (smuggling), still the Income earned from such illegal business will be taxable under Income Tax Act under the head "Income from Business & Profession". Obviously, when you do business of smuggling you don't obtain any license from any Regulatory Authority and still the Income is taxable under the head "Income from Business & Profession". Hence, even if the Assessee has not obtained any license for doing business in Money Lending it would not mean that such a "business income" would not taxed under the head Income from Business or Profession". In light of the above said facts and circumstances of the case, the basis on which th....
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....aim made by the Assessee under the head Bad Debts to the extent of Rs. 3,10,00,000/- cannot be disallowed. The fourth reason why the Assessing Officer has disallowed Bad Debts & Business loss is because the proclaims that loan given to RDPL was on account of Capital Expenditure with a view to purchase the property developed by him, hence, the Assessee has incurred a capital Loss which is not allowed as business expenses. This contention of the Assessing Officer is incorrect because the Assessee paid RDPL in order to purchase a property then a "Sale Deed" would had been executed & registered the same with Sub-Registrar. He would not have executed MOU & Mortgage Deed. The MOU & Mortgage Deed which has been executed clearly states that loan has been given & rate of interest is also stated in the MOU. Promissory Notes and Post Dated Cheques are also given by RDPL. In light of all these facts, how come all these documentary evidences have been ignored by the Assessing Officer& disallowed the claim on presumptive basis. The fifth reason why the learned Assessing Officer has disallowed the Bad Debts & Business Loss is because he proclaims that the Assessee is ha....
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....s have been disallowed. What more documentary evidence is required to prove the genuineness of the expenses. Finally, Assessee had claimed expenses amounting to Rs. 9,23,800/- due to the loss incurred in cancellation of property i.e. flat No.1301 at Bharti Satsang which is located at Malad (W). This flat was purchased in the year 2012 in the order that the same would be given on lease once the property is constructed and occupation certificate is received on the date of completion. At the time of purchase of the property for Rs. 75,00,000/- a Stamp duty & Registration charges of Rs. 9,23,800/- was paid by the Assessee. Since the property was not constructed since 2012, hence, the assessee cancelled the deal & cancellation agreement was registered & the entire amount of Rs. 75,00,000/- was returned by the builder. Hence, the stamp duty & registration charges paid was claimed as a business loss. Since the Assessee is involved in the business of leasing the property hence, the loss of Rs. 9,23,800/- incurred by the assessee in purchase of the property, we see no reason as to why these losses should not be allowed. The only reason why the Assessing officer di....
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....e deal & cancellation agreement was registered& the entire amount of Rs. 75,00,000/- was returned by the builder. Hence, the stamp duty & registration charges paid was claimed as a business loss. Since the Assessee is involved in the business of leasing the property hence, the loss of Rs. 9,23,800/- incurred by the assessee in purchase of the property, we see no reason as to why these losses should not be allowed. The only reason why the Assessing Officer disallowed the loss is because of the fact that Assessee was involved only in one business i.e. Resale of fabrics & no other business. Since the assessee was involved in all the businesses of leasing of properties & money lending business hence claiming of these expenses should be allowed. In light of the above said facts the claim of Rs. 9,23,800/- should be allowed." 5. After considering the detailed submissions Ld.CIT(A) rejected the grounds raised by the assessee and sustained the addition made by the Assessing Officer. Aggrieved assessee preferred an appeal before us raising the following grounds: - "Ground No. 1 The Honourable Commissioner of Income Tax (Appeal), has erred in c....
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....enses as Bad Debts u/s 36(1)(iii) r.w.s. 36(2), in spite of the fact, that the same amount was not offered as Income in the preceding previous years. (iii) Finally, the balance amount of Rs. 35,57,662/- which pertains to interest on the principal amount of Rs. 3,10,00,000/- which was given on loan, the same interest was offered for tax in the preceding previous years,hence, if the same is claimed as "bad debts" in the above mentioned Assessment year, then there is no reason as why the same should be disallowed. Hence, the entire amount of Rs. 3,45,57,662/- should be allowed as Business Expenses u/s 36(1)(iii) r.w.s. 36(2) of the Income Tax Act, 1961. Ground No. 3 The Honourable Commissioner of Income Tax (Appeal), C.I.T.(A) has also erred in confirming with the Assessing Officer in disallowing business loss which was incurred by the Assessee amounting to Rs. 9,23,800/- due to cancellation of property booked by the Assessee with the Builder. In spite of the fact the Builder returned the entire money back to the Assessee which was given to him as an advance, nevertheless, the stamp duty & registration charges which was paid by the Assessee....
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.... of the Paper Book wherein the M/s. Rusam Developer Pvt. Ltd., has gone into liquidation and he prayed that the loss claimed by the assessee in revised return of income should be allowed. 10. With regard to Ground No. 3, Ld. AR of the assessee submitted that assessee is into the business of leasing out the properties and in that process assessee has purchased a property and registered the property by paying stamp duty and registration charges. He brought to our notice Page No. 211 & 214 of the Paper Book and he submitted that the construction of the property was not completed and assessee by mutual agreement with the builder taken back the advance paid to them. He submitted that this property as well as advance paid to the builder are recorded in the Books of Accounts and brought to our notice Page No. 203M of the Paper Book ad submitted that it is a genuine loss to the business carried by the assessee and it should be allowed as business expenditure. 11. On the other hand, Ld. DR agreed with the observations made by the Ld.CIT(A) and the Assessing Officer wherein the facts are distinguishable, the facts relied on by the assessee in the case of Chennai Properties & Investment....