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Facts
The assessee, an individual aged 75, appealed against an order classifying his money lending income as 'Income from Other Sources' instead of 'Business Income' and denying the applicability of Section 44AD. The delay in filing the appeal was attributed to the assessee's age and lack of familiarity with electronic communication.
Held
The Tribunal condoned the delay in filing the appeal, stating that the reasons provided were genuine and beyond the assessee's control. It held that the classification of income should be based on the substance of the activity rather than procedural compliance, and the AO was directed to re-examine the nature of the activity and the applicability of Section 44AD.
Key Issues
Whether the income from money lending activities can be treated as 'Income from Other Sources' or 'Business Income', and whether Section 44AD is applicable. Also, whether the delay in filing the appeal should be condoned.
Sections Cited
44AD, 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, ‘SMC’ BENCH: BANGALORE
Before: SHRI WASEEM AHMED
PER WASEEM AHMED, ACCOUNTANT MEMBER:
This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 21/02/2024 vide DIN No. ITBA/APL/ S/250/2023-24/1061293788(1) for the assessment year 2016-17.
At the outset I note that appeal filed by the assessee has been delayed by 230 days The assessee in the application seeking condonation of a delay in filing the appeal prayed that he (the assessee) is 75-year-old individual, not conversant with emails or other electronic means of e-communication. He (the ld. AR) stated that the order passed under Section 250 of the Act was not served to him in physical form but served through email. As the assessee was not conversant with email, he was not aware about passing of order under section 250 of the Act, once he came to know about the order, he promptly filed the appeal.
The appellant further submitted that the delay was neither intentional nor deliberate but due to negligence and genuine limitations associated with the old age and technological inexperience. It is also noted that the appellant has demonstrated bona fide intent by filing the appeal promptly upon becoming aware of the order. Thus, the ld. AR prayed for condonation of the delay. On the other hand, the Ld. DR left the issue at the discretion of the bench.
After considering the submissions made by the assessee and the affidavit filed, I find that the reasons caused for the delay are genuine and beyond the control of the assessee. The principles of natural justice demand that an opportunity be granted to the assessee in present the case on merits.
The term "reasonable cause" has not been defined under the Act but has been interpreted by various judicial precedents. The Hon’ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji & Others [1987] 167 ITR 471 (SC) has held that: • Ordinarily, a litigant does not stand to benefit by resorting to delay.
• When substantial justice and technical considerations are pitted against each other, cause of substantial justice should prevail.
• The Courts should adopt a liberal approach in condoning delays caused due to a genuine and bona-fide mistake.
Further, such a delay does not reflect negligence or mala fide intent but a genuine cause beyond the control of the assessee. The Hon’ble Supreme Court in N. Balakrishnan v. M. Krishnamurthy [1998] 7 SCC 123 held that: • Length of delay is not as material as the acceptability of the explanation for such delay.
• If the explanation is reasonable and does not indicate deliberate negligence, delay should be condoned.
In view of the above we condone the delay of 230 days in filing the appeal by the assessee and proceed to decide the issue on merit of the case.
The necessary facts are that the assessee is an individual and deriving income as share of profit from the firm namely M/s Parvati Enterprises and is also claimed to be engaged in the business of money lending. The assessee filed a return of income declaring income of ₹2,32,722/- under section 44AD of the Act, on Gross receipt of Rs. ₹21,09,014/- from the money lending business.
The case of the assessee was selected for scrutiny. During the assessment proceedings, the AO observed that the assessee did not obtain a license for money lending activities as required under the Karnataka Money Lenders Act, 1961. Accordingly, the AO held that the activity of the assessee in the absence of requisite license does not constitutes a business. The AO further held that business activities typically involve trading in goods, incurring expenses, and earning income, whereas money lending involves lending funds and earning . interest without associated business expenditure. Hence the assessee is not in the business activity on which the provision of section 44AD may be applied. Consequently, the AO treated the gross receipts of ₹21,09,014/- as "Income from Other Sources" under the Act and added the same to the total income of the assessee.
Aggrieved by the order of the AO, the assessee preferred an appeal before the learned CIT(A). The CIT(A), however, upheld the findings of the AO and dismissed the appeal of the assessee ex-parte.
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before the Tribunal.
The learned AR before me contended that since the order of the ld. CIT-A is ex parte to the assessee and accordingly, it was prayed by the ld. AR to restore the issue to the file of the ld. CIT-A for fresh adjudication.
On the other hand, the learned DR vehemently supported the order of the lower authorities.
I have heard the rival contentions of both the parties and perused the materials available on record. On merits, the primary issue for consideration is whether the income derived from money lending activities can be treated as "Income from Other Sources" or "Business Income."
14.1 1t is noted that the AO's contention is based on the absence of a license under the Karnataka Money Lenders Act, 1961, and the nature of money lending activities. However, the classification of income under the Act must be based on the substance of the activity rather than mere procedural compliance with local laws. If the assessee is systematically engaged in lending money with the intention of earning profit, such activity can qualify as a business, irrespective of whether a license is obtained.
14.2 Furthermore, the AO has not demonstrated that the gross receipts of ₹21,09,014/- represent taxable income in entirety. The assessee has declared income in accordance with the provision of section 44AD of the Act, which provides for presumptive taxation for eligible businesses. The rejection of the assessee's claim under Section 44AD of the Act requires a detailed examination of facts, which appears to have been overlooked. In view of the above, I deem it appropriate to set aside issue to the file of the AO for fresh adjudication. The AO is directed to re-consider the nature of the assessee's activities, the applicability of section 44AD of the Act, and any other relevant provisions of the Act after providing an adequate opportunity to the assessee to present his case. Hence the ground of appeal of the assessee is allowed for statistical purposes.