TaxTMI 
TaxTMI 
2005 (1) TMI 316
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....s. 36(1)(vii) as to how the condition of s. 36(2) was fulfilled when the AO in his assessment order, without prejudice to his earlier finding that income is assessable under the head 'Other sources' only, has clearly held that even the condition laid under s. 36(2) is not fulfilled; (v) holding that the debts have become bad when the AO without prejudice to his other finding has also concluded that the debts, on facts, are not really bad." 2. The grounds of appeal, which are narrative and argumentative in nature, pertain to only one issue, i.e., deletion by the learned CIT(A) of addition of Rs. 35,15,347 made by the AO by disallowing assessee's claim for deduction of bad debts. The relevant facts are that the assessee was a member of the Bombay Stock Exchange and during the previous year relevant to the asst. yr. 1995-96, the assessee sold the Bombay Stock Exchange membership card for a sum of Rs. 1.5 crores. It was claimed by the assessee that even thereafter he was acting as sub-broker and during the course of business of sub-brokering certain amounts, were advanced to various parties. This included a sum of Rs. 15 lakhs to Shri Rajesh Tibrewala and a sum of Rs. 20 lakhs to Shr....
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....adhavlal vs. CIT (1937) 5 ITR 210 (Bom); (ii) Indequip Ltd. vs. CIT (1994) 116 CTR (Bam) 261 : (1993) 202 ITR 417 (Bom); (iii) K.J. Somaiya & Sons (P) Ltd. vs. CIT (1985) 45 CTR (Bom) 174 : (1985) 155 ITR 605 (Bom); (iv) Godavari Sugar Mills Ltd. vs. CIT (1991) 97 CTR (Bom) 141 : (1991) 191 ITR 359 (Bom). 4. The learned counsel appearing on behalf of the assessee strongly supported the order of the learned CIT(A) and contended that the learned CIT(A) has elaborately discussed the relevant facts and circumstances of the case as also the legal position and has arrived at a legally correct view. Regarding the Departmental allegation that debts have been written off prematurely, the learned counsel relied on the Tribunal, Mumbai Third Member decision in the case of ITO vs. Anil H. Rastogi (2003) 80 TTJ (Mumbai)(TM) 696 : (2003) 86 ITD 193 (Mumbai)(TM). It is contended that in the above decision it has been held that after the amendment of s. 36(1)(vii) w.e.f. 1st April, 1989, it is not obligatory for the assessee to place demonstrative proof for establishing a debt as bad. If he has taken steps to write it off in the previous year, it is sufficient compliance for claiming the debt ....
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....al the assessee would have been able to recover this amount from the subsidiary, the question of recovery became impossible and thus in all respects, the amount could be treated as a bad debt entitling the assessee to the allowance on account of deduction from its income for the relevant year." 5. We have given a careful consideration to the rival submissions vis-a-vis the facts of the case. First of all, it must be mentioned that the learned CIT(A) has decided the issue on the basis of either irrelevant considerations or incorrect position of law. The learned CIT(A) has failed to record any conclusive finding at all as to whether the assessee is carrying on money-lending business and the relevant loans were advanced by him during the course of carrying on of such money-lending business. The relevant facts with regard to this issue have not been discussed by the learned CIT(A) at all. The learned CIT(A) has observed in his order that the assessee, after selling the Bombay Stock Exchange Card, continued to indulge in share dealing and the loans advanced by the assessee originated from the sale proceeds of Bombay Stock Exchange Card, which is part of the entire share dealings of the....
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.... have been made on credit and the corresponding debt becomes irrecoverable, the said debt can be allowed as bad debt as the sales have gone into computation of assessee's income. Obviously, the assessee does not fulfil this condition and the finding recorded by the learned CIT(A) is legally incorrect. From the above, it would appear that in the case of the assessee, the debt can be allowed as bad debt under s. 36(1)(vii) only if it falls under (b) above, i.e., the debt represents money lent in the ordinary course of money-lending business carried on by the assessee. The moot question is as to whether the assessee can be said to be carrying on money-lending business. In our view, no material or evidence whatsoever is available to even remotely suggest that in the previous year relevant to the asst. yr. 1996-97 when the loans were advanced, the assessee was carrying on money-lending business. Admittedly, the assessee received a sum of Rs. 1.5 crores during that year by sale of BSE Card and this was treated to be capital receipt. As per the balance sheet as on 31st March, 1995, the following items appear on the liability side of the balance sheet: Particulars Amount (Rs.) Profession....
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....e Tribunal, it may be that the assessee had earned some interest from surplus funds given as advances or loans to certain parties, but this by itself would not establish the indicium of trade. The Tribunal had sought various details from the assessee. The Tribunal pointed out that the assessee failed to give information which had been sought for. This is set down by the Tribunal in the following passage: 'If the assessee had conducted money-lending business, it could have certainly informed us as to what Was the total capital in the said business, what was the extent of loans taken from outside parties, what was the total interest paid by the assessee, whether it owned a money-lending licence or whether it advanced funds only to traders, what was the extent of rolling of the circulating capital and such other relevant factors. No such evidence has been produced before us. The only material before us is that the assessee invested considerable amounts in purchase of shares and the interest paid on these advances was claimed against dividend income, of course after debiting the interest received from surplus funds advanced to a few parties. On the basis of this material, it is not po....