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Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH AHMEDABAD
IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD “SMC” BENCH AHMEDABAD
BEFORE, SHRI S. S. GODARA, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER
ITA No. 2929/Ahd/2013 (Assessment Year:2009-10)
M/s. M. B. Sons Post Box No.1, PO. Chikhodra, Tal: Anand – 388 320 Appellant Vs. Income Tax Officer, Ward- 2, Anand Respondent
PAN: AAEFM0155G
आवेदक क� ओर से/By Assessee : Shri Anil R. Shah, A.R. राज�व क� ओर से/By Revenue : Shri N. P. Patel, Sr. D.R. सुनवाई क� तार�ख/Date of Hearing : 03.08.2017 घोषणा क� तार�ख/Date of Pronouncement : 01.11.2017
ORDER PER S. S. GODARA, JUDICIAL MEMBER
This assessee’s appeal for assessment year 2009-10 arises against the CIT(A)-IV, Baroda’s order dated 12.09.2013, passed in appeal no. CAB/IV- A-401/2011-12, affirming Assessing Officer’s action disallowing assessee’s bad debts claim of Rs.12,43,228/- (correct amount as Rs.11,06,714/-) in
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assessment order dated 16.12.2011, in proceedings under section 143(3) of the Income Tax Act, 1961; in short “the Act”.
The sole issue emanating from assessee’s pleadings in the instant case is that of correctness of both the lower authorities’ orders disallowing assessee’s bad debts claim hereinabove. The assessee is stated to be a firm trading and processing of tobacco. It claimed bad debts relief in question in case of one of its debtor M/s. N. Shantilal Patel & Co. The Assessing Officer appears to have disallowed the same by adopting various reasons. He observed first of all that the assessee was engaged in tobacco business only without having carried out any money lending business activity or any such income being declared under such a head. He treated the principal amount in question not as a trading debt but deposits made with the debtor. The Assessing Officer was further of the view that the assessee had not shown any corresponding income as well. All this reasoning resulted in the impugned disallowance being made in assessee’s case.
The CIT(A) affirms the above assessment findings as under:
“4.3. I have gone through the facts of the case, observation of the AO as well as the submission made by the AR. The appellant's main contention is that the appellant was engaged in the activity of financing and the interest received from such activity has been taxed under the head business income and hence the amount of loan written off as bad debt should be allowed as deduction u/s 35(1)(vii) of the IT Act 1961. In this regard, the appellant has submitted copy of assessment order for A.Y. 1998-99 in which the interest received of Rs.10,81,158/- was reduced from the interest paid of Rs.19,33,935/-and the balance amount was allowed as a deduction in the computation of business income. But from a perusal of the assessment order, it is seen that the AO has given following findings:- "4. From the perusal of administrative expenses, general expenses, interest expenses and depreciation, it is noticed that administrative expenses, general expenses and depreciation remains almost unchanged. However, interest expenses is raised from 11,01,577/- to 19,33,765/-. The assessee has explained that this is because of reduced volume of the business and therefore family fund had to be kept with the banks instead of employing the same for more gainful business. The main
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reason attributable to lower returned income is on account of interest expenses. The same found to be of genuine loans obtained in the preceding years and mainly assessed depositors".
4.3.1 Thus, AO has nowhere examined the nature of interest received in his order. Besides before the AO, in the proceedings for current A.Y, the appellant had stated that N Shantilal and company is a financier and for the safeguard of fund, the appellant financed the money to this firm who manage to finance the same in the market. Thus, from appellant's own submission, it is evident that the appellant is depositing its surplus money with this financier and earning interest on them. The appellant had nowhere stated or established that the given by him to this financier has been utilized for financing the persons from whom the appellant is making trading transactions and thus in order to boost its profit. Depositing of money with a financier to earn interest on that cannot be treated as part of any money lending business. Thus, it is held that the appellant is not in the business of money lending and hence the entire amount written off as bad debt cannot be allowed as a deduction in computation of its income.
4.3.2 Another important factor is the fact that appellant has nowhere furnished the details of the years in which the deposit was made with N. Shantilal and company, how much interest was earned from such party on account of such deposit, how much interest was actually received and how much interest remained to be received as on the date on which the amount was written off as bad debt. Alongwith it submission, the appellant has given the ledger account of this party for the financial years 2005-06 and 2006-07. During the financial year 2005-06, the appellant had earned interest of Rs.2,15,891/- from this party and had received amount of Rs.3,00,000/- from this party. Thus, the interest charged was less than amount received. It is a settled principle that any repayment of loan is adjusted first against the interest and then against principle. In the financial year 2006-07, the interest is Rs.1,36,514/- against which no payment was received. ' Thus, out of the bad debt written off from the details submitted by the appellant the amount of Rs.1,36,514/- is the only amount which has been taken into consideration for computation of income of the appellant for A.Y. 2006-07 and which is also outstanding as on the date of writing off bad debt. The balance amount is the capital amount given as deposit by the appellant. The write off of such amount as bad debt is also not allowable as a deduction in the computation of total income.
4.3.3 Thus, even if appellant's submission that the interest on the deposit has been taxed as business income and hence should be allowed as a deduction as bad debt is accepted, the amount of Rs.1,36,514/- can only be allowed as a deduction for bad debt written off.: The balance amount has been given as principle to the financier for earning of interest and hence the non-recovery of the same results into capital loss which is not allowable as a deduction in the computation of total income of the appellant. It is also pointed out here that in the assessment order u/s 143(3) for the A.Y 2006-07, a copy of which has been furnished by the appellant, the AO has taxed the amount of Rs.1,35,514/- under head business income from business and provision and not as income from other sources. Hence, the AO is
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directed to allow a deduction of Rs. 1,36,514/- as bad debt written off and disallowance of balance amount is upheld.”
Heard both sides. Case file perused. Learned representatives reiterate their respective stands during the course of hearing. The first and foremost question that arises for our apt adjudication is as to whether the assessee firm can be taken to be engaged in money lending business or not. Case file reveals that assessee’s partnership deed made on 06.04.1992 contains clause no.3 to the effect that it would carry sharafi business. There is no change in the said partnership deed clauses pointed out from Revenue’s end. We further find that the assessee had been declaring its interest income from the above debtor entity (supra) as business income in preceding assessment years. Relevant figures before us are available from assessment year 2003-04 to 2008-09 indicating its opening balance, closing balance, interest received, TDS deducted thereupon alongwith rate of deduction. The same forms sufficient material to observe that the assessee had been declaring interest received from M/s. N. Shantilal Patel & Co. under the head “business”. The assessee’s balance sheet is page 8 of the paper book stating advances recoverable to the tune of Rs.47,29,426/- in its business. Next page 9 (P&L account) recognizes interest income of Rs.3,16,441/- to be not from “other sources”. Relevant details of this interest income are at page 51. The assessee chose to write off the impugned bad debts amount on 05.04.2008 as per its doubtful reserves account at page 56. The said parties’ account is at page(s) 57 to 58 showing the actual write off. All this makes us to conclude that inter alia the assessee to have been carrying money lending business as per its partnership deed, recognizing interest income arising therefrom under the head “business” in case of M/s. N. Shantilal & Co. given principal amount as trading debt. Learned Departmental Representative fails to dispute all these facts. The issue as to whether the relevant amount has to be proved to have become actually bad is no more res integra in such a case as admitted
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by both the learned representatives. We therefore accept assessee’s contention to delete the impugned bad debt disallowance.
This assessee’s appeal is accordingly allowed.
[Pronounced in the open Court on this the 1st day of November, 2017.]
Sd/- Sd/- (PRADIP KUMAR KEDIA) (S. S. GODARA) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad: Dated 01/11/2017
S.K.SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।