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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S. SUNDER SINGH
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) –V, Chennai, dated 20.09.2012 and pertains to assessment year 2005-06.
Shri T.N. Seetharaman, the Ld.counsel for the assessee, submitted that the first issue arises for consideration is reopening of assessment under Section 147 of the Income-tax Act, 1961 (in short 'the Act'). According to the Ld. counsel, the return filed by the assessee was processed under Section 143(1) of the Act.
Subsequently, the Assessing Officer issued notice under Section 148 of the Act on the ground that the income otherwise assessable to tax escaped assessment. According to the Ld. counsel, once the return of income was accepted under Section 143(1) of the Act, the reopening of assessment is invalid.
We have heard Shri Supriyo Pal, the Ld. Departmental Representative also. Admittedly, the return filed by the assessee on 31.08.2005 was processed under Section 143(1) of the Act. The assessee declared loss in the return filed. Subsequently, the Assessing Officer found that the income escaped assessment.
Accordingly, he issued notice under Section 148 of the Act on 25.08.2010. The CIT(Appeals), by placing reliance on the judgment of Apex Court in CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. (291 ITR 500), found that the condition for reopening the assessment under Section 147 of the Act is satisfied. This observation of the CIT(Appeals) that the condition for reopening of assessment under Section 147 of the Act is satisfied is not disputed by the assessee.
The processing of return under Section 143(1) of the Act cannot be equated with regular assessment under Section 143(3) of the Act.
Therefore, this Tribunal is of the considered opinion that the Assessing Officer has rightly reopened the assessment by issuing notice under Section 148 of the Act.
Now coming to the merit of the appeal, Shri T.N.
Seetharaman, the Ld.counsel for the assessee, submitted that the assessee is engaged in the business of hiring and leasing apart from financing. The Reserve Bank of India by its letter dated 13.08.2007, directed the assessee not to do any business as non- banking finance company. The assessee, consequent to the direction of Reserve Bank of India, stopped accepting deposits from public, however, continued to recover the outstanding dues.
According to the Ld. counsel, merely because the Reserve Bank of India directed the assessee not to engage in non-banking finance activities, it does not mean that the business of the assessee was closed down. According to the Ld. counsel, what was stopped by the assessee is receiving deposit from public. The assessee continued to recover the outstanding liability, therefore, for all practical purposes, the assessee is continuing its business. In the course of its business activity, according to the Ld. counsel, the assessee wrote off bad debts which could not be recovered and claimed the same as deduction. The Assessing Officer allowed part of the claim. However, the Assessing Officer disallowed a sum of `83,97,364/- on the ground that the assessee has stopped its business.
Referring to the order of the CIT(Appeals), the Ld.counsel for the assessee submitted that the CIT(Appeals), while confirming the disallowance made by the Assessing Officer to the extent of `83,97,364/-, has also enhanced the assessment in respect of the bad debt allowed by the assessee to the extent of `84,70,390/-.
According to the Ld. counsel, the CIT(Appeals) mainly found that the business of the assessee was stopped, therefore, the assessee cannot claim any bad debt. Referring to the decision of Mumbai Bench of this Tribunal in Preimus Investment & Finance Ltd. v.
DCIT (2015) 171 TTJ 794, the Ld.counsel submitted that on identical set of facts, the Mumbai Bench of this Tribunal found that denial of registration by Reserve Bank of India as non-banking finance company does not decide the issue of carrying of business or legality of the issue. The Mumbai Bench of this Tribunal found that the assessee was carrying on its business on identical set of facts. The Ld.counsel has also placed his reliance on another decision of Mumbai Bench of this Tribunal in KNP Securities P. Ltd. v. ACIT (2010) 1 ITR (Trib) 130. Therefore, the CIT(Appeals) is not justified in not only confirming the order of the Assessing Officer but also enhancing the assessment made by the Assessing Officer by disallowing the claim allowed by the Assessing Officer.
On the contrary, Shri Supriyo Pal, the Ld. Departmental Representative, submitted that the assessee was not allowed to carry on the business of non-banking finance, therefore, the assessee cannot now claim that even after the direction of Reserve Bank of India, the assessee continued its business. Referring to the assessment order, the Ld. D.R. submitted that the Assessing Officer specifically found that the assessee has stopped the business of hire purchase and leasing as per the Reserve Bank of India order dated 13.08.2007. Once the business was stopped, according to the Ld. D.R., the Assessing Officer ought to have disallowed the entire claim of bad debt. Since the Assessing Officer partly allowed the claim of the assessee, the CIT(Appeals) found that the assessment has to be enhanced. Accordingly, by following the statutory requirement of giving notice, the CIT(Appeals) has rightly enhanced the assessment .
We have considered the rival submissions on either side and perused the relevant material available on record. The assessee claims that even after the order of the Reserve Bank of India dated 13.08.2007, continued its business and recovered the outstanding liabilities. However, the Revenue contends that the assessee stopped its business, therefore, there cannot be any bad debt after the business was closed down. On a query from the Bench - whether the assessee advanced funds in the course of business activity after the order of the Reserve Bank of India dated 13.08.2007? the Ld.counsel for the assessee submitted that he has to verify the records. The Ld.counsel clarified that the assessee continued its business even after the order of Reserve Bank of India and also recovered outstanding liability.
We have carefully gone through the decision of Mumbai Bench of this Tribunal in Preimus Investment & Finance Ltd. (supra). In the case before Mumbai Bench, Reserve Bank of India denied the request of the assessee to register as non-banking finance company. The Mumbai Bench further found that if the assessee violated the provisions of Reserve Bank of India Act, it does not mean that the assessee has not carried on any business activities. It is for the Reserve Bank of India to penalise the assessee for violating the provisions of Reserve Bank of India Act, and accordingly allowed the claim of the assessee. A similar view was taken by another Bench of this Tribunal at Mumbai in KNP Securities P. Ltd. (supra). We find that CBDT, vide its circular dated 30.05.2016, instructed its officers not to file any appeal in case the bad debt was written off as irrecoverable in the books of account, if it fulfills the condition stipulated under sub-section (2) Section 36 of the Act. In the case before us, the CIT(Appeals) found that the assessee has stopped its business, therefore, not eligible to claim the bad debt. It is not in dispute that the bad debt was written off.
The question arises for consideration is whether the assessee is continuing its business after the order of Reserve Bank of India dated 13.08.2007. Though the assessee claims that outstanding liabilities were recovered from the respective customers, no material is available on record to suggest whether the assessee has carried on non-bank business after the order of the Reserve Bank of India on 13.08.2007. In other words, whether the assessee has advanced funds to any of its customers after the RBI order dated 13.08.2007 needs to be verified. Moreover, the decisions of Mumbai Bench of this Tribunal in Preimus Investment & Finance Ltd. (supra) and KNP Securities P. Ltd. (supra) were not brought to the notice of both the authorities below. Therefore, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer. Accordingly, the orders of the authorities below are set aside and the entire disallowance of `1,68,67,754/- is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter afresh in the light of the decisions of Mumbai Bench of this Tribunal in Preimus Investment & Finance Ltd. (supra) and KNP Securities P. Ltd. (supra) and the circular issued by CBDT in Circular No.12 of 2016 and thereafter decide the same, in accordance with law, after giving a reasonable opportunity to the assessee.
In the result, the appeal filed by the assessee is allowed for statistical purposes.