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1 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 7TH DAY OF DECEMBER 2020 PRESENT THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD I.T.A. NO.147 OF 2016 BETWEEN: PRANAVA ELECTRONICS PVT LTD FLAT NO.101, 1ST FLOOR, EDEN PARK NO.20, VITTAL MALLYA ROAD BANGALORE - 560 001. ... APPELLANT (BY SRI.K.R.PRADEEP, ADV.,) AND: DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-12(2) BANGALORE - 560 001. ... RESPONDENT (BY SRI.E.I.SANMATHI, ADV.) - - - THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT, 1961 ARISING OUT OF ORDER DATED 11.09.2015 PASSED IN ITA NO.415/BANG/2015 FOR THE ASSESSMENT YEAR 2010-11, PRAYING TO: (I) SET ASIDE THE ORDER OF THE INCOME TAX APPELLATE TRIBUNAL, BENCH B, BENGALURU DATED 11.09.2015 MADE IN ITA NO.415/BANG/2015 FOR THE A.Y.2010-11. (II) SET ASIDE THE ORDER OF THE COMMISSIONER OF INCOME TAX APPEAL-5, BENGALURU DATED 20.02.2015 MADE IN THE CASE OF ASSESSEE FOR THE A.Y.2010-11.
2 (III) SET ASIDE THE ORDER OF THE ASSESSMENT DATED 28.03.2013 MADE BY THE ASSESSING OFFICER IN THE CASE OF THE ASSESSEE FOR THE A.T.2010-11. THIS ITA COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING: JUDGMENT This appeal under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as the Act for short) has been preferred by the assessee. The subject matter of the appeal pertains to the Assessment year 2010-11. The appeal was admitted by a bench of this Court vide order dated 24.01.2018 on the following substantial questions of law: (a) Whether in the facts and circumstances of the case, the tribunal erred in holding that none of the incidental objects mentioned in the memorandum of associations can amount to the business of imparting education to students when the objects of the memorandum of the association of the assessee categorically states "to carryon the business of education and training in technical and other fields'.
3 (b) Whether in the facts and circumstances of the case, tribunal erred in denying the bad debts written off as allowable deductions in view of the decision in TRF Ltd. Vs. CIT, 323 ITR 397? (c) Whether in the facts and circumstances of the case, the tribunal erred in not taking into consideration the evidences filed by the assessee to substantiate that the interest amount was offered for tax in the earlier years and portion of the debt was taken for computing the income of the assessee. (d) Whether in the facts and circumstances of the case, the quantification of deduction under Section 14(A) of the income Tax Act was made in accordance with the Act? (e) Whether in the facts and circumstances of the case, the tribunal erred in not adjudicating the issue on eligible credit available under Section 115JAA, when a specific ground to that effect was raised?
Facts leading to filing of this appeal briefly stated are that assessee is engaged in the business of manufacturing and trading of electronic goods and developmental activities. The assessee filed the return of income on 30.09.2010 declaring ‘NIL’ income. The return was processed under Section 143(1) and the case was selected for scrutiny. A notice under Section 143(2) of the Act was issued on 02.09.2011. The Assessing Officer by an order dated 28.03.2013 inter alia held that the assessee is neither a bank nor a money lender and therefore, is not entitled to written off the outstanding amount and claimed deduction under Section 36(2) or under Section 37(1) of the Act. The Assessing Officer determined the total income at Rs.4,03,17,086/- and proceeded to determine the expenditure of Rs.13,20,338/- as having incurred in relation of income received by way of dividend.
The assessee thereupon filed an appeal before Commissioner of Income Tax (Appeals) who by an order dated 20.02.2015 dismissed the appeal preferred by the assessee. The assessee thereupon filed an appeal before Income Tax Appellate Tribunal (hereinafter referred to as 'the tribunal' for short). The tribunal by an order dated 11.09.2015 inter alia held that the object of the assessee is not one of imparting education and held that lending of loan to M/s PIE EDUCATION PVT. LTD. cannot be the object of the assessee and therefore, the loan cannot be held to be out of commercial expediency. Accordingly, the claim for deduction under Section 36(1)(vii) of the Act was disallowed. The tribunal further held that the issue pertaining to Section 115JAA of the Act was not argued and the assessee cannot go back to the computation on the issue pertaining to Section 14A of the Act. In the result, the appeal was dismissed. In the aforesaid factual background, the assessee has filed this appeal.
Learned counsel for the assessee submitted that loan given by the assessee to M/s PIE EDUCATION PVT. LTD. was given during the course of carrying on of money lending business and non recoverable loan was duly written off in the books of accounts and therefore, the assessee had complied with all the conditions mentioned in Section 36(1)(vii) of the Act and was eligible for deduction under the aforesaid Section. Alternatively, it is submitted that the claim of the assessee for deduction under Section 37 of the Act was not examined by the authorities. It is also submitted that while dealing with the issue relating to Section 14A of the Act, the Commissioner of Income Tax (Appeals) as well as the tribunal ought to have appreciated that the aforesaid issue is required to dealt in accordance with the provisions of law and not on the basis of admission made by assessee. It is also submitted that finding recorded by the tribunal that no submission with regard to claim of Minimum Alternate Tax (MAT) has
7 been made is perverse and therefore, the matter deserves to be remitted to the tribunal for decision afresh in accordance with law. In support of aforesaid submissions, reliance has been placed on decisions in 'CIT VS. T.VEERABHADRA RAO, K.KOTESWARA RAO & CO.', 102 ITR 604, 'P.C.DHARMALINGA MUDALIAR VS. CIT', 152 ITR 588, 'NARAIN SWADESHI WEAVING MILLS VS. CEPT', 26 ITR 765, 'INDORE MALWA UNITED MILLS LTD. VS. STATE OF MADHYA PRADESH & ORS', 55 ITR 736, 'BADRIDAS DAGA VS. CIT', 34 ITR 10, 'A.V.THOMAS & CO. LTD. VS. CIT', 48 ITR 67, 'ALL GROW FINANCE AND INVESTMENT P LTD. VS. CIT', 338 ITR 496, 'POYSHA OXYGEN (P) LTD VS. ACIT', 19 SOT 711, 'MOHAN MEAKIN LTD VS. CIT', 348 ITR 109, 'CIT VS. VIVEK ENGINEERING & CASTING LTD.', 383 ITR 480, 'CIT VS. SMT.PADMA S. BORA', (2015) 54 TAXMANN.COM 319, 'CIT VS. GILLANDERS ARBUTHNOT & CO LTD', 138 ITR 763.
On the other hand, learned counsel for the revenue submitted that the Commissioner of Income Tax (Appeals) as well as tribunal has recorded a finding in favour of the revenue and the findings are based on proper appreciation of evidence on record. It is further submitted that no substantial question of law arises for consideration in this appeal. It is also pointed out that the amount was not lent to M/s PIE EDUCATION PVT. LTD. in the ordinary course of business and in case, the aforesaid amount would have been lent, the assessee would have charged interest on such lending. It is also submitted that merely because assessee has earned certain interest income from advance, it cannot be considered to be a money lender. It is also submitted that assessee had submitted before the assessing authority that an expenditure of Rs.13,20,388/- has to be determined towards dividend income and in view of the stand taken by the assessee, the aforesaid amount was disallowed. The tribunal in para 16 has reproduced
9 the contents of the aforesaid communication and therefore, the assessee cannot raise the plea in this regard after admitting the same. It is also pointed out that the Assessing Officer has recorded a finding that the assessee has not claimed any expenditure in relation to the income from dividend and the assessee has also not contested the issue before the Commissioner of Income Tax (Appeals). The orders passed by the Commissioner of Income Tax (Appeals) as well as the tribunal do not call for any interference in this appeal under Section 260A of the Act. In support of aforesaid submissions, reliance has been placed on 'VIJAY KUMAR TALWAR VS. COMMISSIONER OF INCOME TAX', 330 ITR 1 (SC), 'CIT VS. EPSILON ADVISERS (P.) LTD.', (2008) TAXMAN 332 (KAR).
We have considered the submissions made by learned counsel for the parties and have perused the record. From perusal of Clause 13 of the memorandum of Association, it is evident that one of the object's of
10 the assessee is to lend money and the assessee has been engaged in money lending business since its inception from financial year 2004-05. The schedule of loans and advances is a continuing feature in all the past years and has been accepted by the department as part of business by taxing the income under the head 'income from business'. However, the fact that assessee has been carrying on the money lending business and it has been taxed so under the head business for past 9 years has been over looked. It is pertinent to mention here that holding of money lending licence is not a prerequisite for allowing a claim of bad debts as is held by Supreme Court in TRF Ltd. Supra and it is enough if the irrecoverable debt is written off in the books of accounts. It is also pertinent to note that non charging of interest is not fatal to the claim for deduction. However, the aforesaid aspect of the matter has not been appreciated by the tribunal. Alternatively, the claim of the assessee under Section 37(1) of the Act has
11 also not been examined. The issue with regard to the claim of the assessee under Section14A of the Act has not been adjudicated.
We therefore, quash the order passed by the tribunal insofar as it pertains to disallowance of the claim of bad debts to the sum of Rs.4,86,14,074/- and disallowance of claim under Section 14A of the Act and remit the matter to the tribunal for decision afresh in accordance with law. The orders passed by the Commissioner of Income Tax (Appeals) as well as the tribunal with regard to remaining issues are maintained. Therefore, it is not necessary for us to answer the substantial questions of law framed in this appeal.
In the result, the appeal is disposed of. Sd/- JUDGE Sd/- JUDGE ss