TMI Blog2011 (1) TMI 1182X X X X Extracts X X X X X X X X Extracts X X X X ..... ip - Held that:- issue relating to depreciation on building set aside to the file of the AO for fresh adjudication - Regarding disallowance of adminstrative expenditure - disallowance of entire expenses was not justified, to meet the ends of justice deem it appropriate to restrict the disallowance to the extent of 50 per cent out of the disallowances made by the AO on account of the expenses. Addition in capital account - Held that:- assessee furnished a handwritten receipt issued by one Shri Bhupinder Singh s/o S. Ajmer Singh where the said person had shown that he had paid Rs. 1,50,000 through account payee cheque to the assessee towards purchase of old school furniture from her, it appears that all the information was in his possession and if he was having any doubt regarding the receipt by the assessee on account of sale of old furniture, AO made the addition only on the basis of doubt and the learned CIT(A) had also not given any cogent reason while confirming the action of the AO, addition sustained by the learned CIT(A) deleted. Interest - Addition on presumption and surmises - Held that:- assessee has not been rebutted at any stage that the loan was given to close rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hereof under s. 36(2)(i) of the IT Act, cannot be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of business of banking or moneylending which is carried on by the assessee. According to the AO, the claiming of bad debts of Rs. 39 lacs did not relate to any debt or part thereof, which had been taken into account in computing the income of the assessee of the previous year or any earlier previous year and that the making of fixed deposit with bank could not be treated as moneylending business in ordinary course of business and similarly depositing money with share broker (Century Consultants Ltd.) for Badla transactions in stock market also could not be treated as lending money in ordinary course of business. He was of the view that making of deposits with the bank and putting security deposit with share broker for Badla transactions were capital investments and could not be treated as revenue expenditure and that the assessee had already been showing interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ordinary course of business and it must have become bad. ( i ) That as far as reply to first ingredient is concerned the 'debt' could be defined as a liability to pay in present or in future unascertainable money. On a deposit being made; the depositee incurs a liability although the time for payment could come only when a demand is made. Ramanathan Chettiar v. Ramanathan Chettiar AIR 1968 SC 1047, 1049. ( ii ) That payment of interest is of paramount consideration for determining whether or not a particular money is a debt or a trust. Jessu Ram Fateh Chand v. Official Liquidators AIR 1962 All 370, 372 (Trusts Act, 1932 s. 3). That on perusal of abovementioned two conditions (i) and (ii) it is clearly established that the amount of Rs. 39,00,000 employed with City Co-operative Bank and Century Consultant Ltd. was a debt (considering the intention of the assessee which is primary condition before arriving at a conclusion). That as the bank had eloped which is a widely known fact and after waiting for long years the assessee claimed it as bad debt during the year after writing it off in her books of account. That both the above conditions are being fulfilled, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee's compilation and it was submitted that the assessee was earning interest income from different deposits in the banks, post office and also from private parties. It was contended that since the bank with which the deposit was made eloped, so, it was not possible to recover the amount from the bank as such, the amount was written off as bad debts. It was further submitted that when the amount was deposited with the bank to earn income, relationship which constituted between the banker and the assessee was one of debtor and creditor and not of the trustee and beneficiary, since the bank and the broker were the debtors of the assessee and it was not possible to recover the money, therefore, it was written off and claimed as bad debts. Reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Shanti Prasad Jain v. Director of Enforcement AIR 1962 SC 1764. It was clarified that allegation of the AO that the assessee had shown interest income from the parties in question under the head 'Income from other sources' was wrong because no interest was received from the absconding parties, therefore, interest income was not shown under any head of income from tho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial arrangement under which a banker might be constituted as a trustee, but apart from such an arrangement, his position qua banker is that or a debtor and not trustee." 10. In the present case also, the assessee made the deposit of Rs. 34 lacs with the banking company, namely, City Co-operative Bank, so there was relationship of debtor and creditor and as the amount deposited by the assessee with the bank could not be recovered so, there was loss to the assessee, which was claimed as bad debts. The assessee had written off the amount in the books of account, therefore, the claim of the assessee that it is allowable as bad debts. Similarly, the amount of Rs. 5 lacs was deposited by the assessee with the Century Consultant Ltd. The said amount was also claimed as bad debt. The assessee has written off this amount also in the books of account. In the present case, the assessee was engaged in the business of moneylending, the amount was given with the intention to earn better return i.e., the higher rate of interest. Recently, the Hon'ble Supreme Court in the case of T.R.F. Ltd. v. CIT [2010] 323 ITR 397/190 Taxman 391 has held as under : "After the amendment of s. 36(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the action of the AO. 15. Now, the assessee is in appeal. 16. The learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that in the preceding year, the assessee had 'income from other sources' and had no business income on loan amount given, as such, the question of deduction of TDS during the relevant year did not arise. Our attention was drawn towards p. 4 of the assessee's compilation and it was submitted that the total income of the assessee from moneylending business was Rs. 10,85,550, therefore, the provisions of s. 44AB of the IT Act were not applicable. It was further stated that the assessee is the proprietor and being individual, the provisions of s. 194H were not applicable to the assessee's case. 17. In his rival submissions, the learned Departmental Representative strongly supported the orders of the authorities below. 18. We have considered the submissions of both the parties and gone through the material available on record. In the present case, it is noticed that the assessee was engaged in the moneylending business and earning interest income. The AO made the disallowance for the reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of the properties, the income of which had been shown under the head "Short-term capital gain" as is evident from p. 5 of the assessee's compilation. The selling of properties was not the business of the assessee, as such, the amount involved in the transaction relating to the selling of properties was not the part of turnover of the assessee. We, therefore, considering the totality of the facts as discussed hereinabove, are of the view that the learned CIT(A) was not justified in confirming the addition made by the AO. Accordingly, the said addition is directed to be deleted. 19. The next issue vide ground No. 3 relates to the disallowance out of depreciation and administrative expenses. 20. The facts relating to this issue, in brief, are that the assessee claimed depreciation on building and other assets including cars, computers, furniture and mobile etc. According to the AO, the assessee furnished photocopy of incomplete agreement to sell, which only mentions the name and address of the purchaser and seller and did not mention the address of the flat in question. The AO also pointed out that it was clear that the flat was being used by the assessee for her residen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we, therefore, deem it appropriate to set aside the issue relating to depreciation on building to the file of the AO for fresh adjudication in accordance with law, after providing due and reasonable opportunity of being heard to the assessee. As regards to the depreciation on other items is concerned, it is noticed that the assessee had not challenged the same before the learned CIT(A). We, therefore, do not see any merit in this contention of the learned counsel for the assessee that depreciation was allowable in respect of other items also. 24. As regards to the another issue involved in this ground of appeal relating to disallowance of the administrative expenses amounting to Rs. 1,54,182 is concerned, the facts, in brief, are that the assessee claimed the following expenses : Electricity expenses Rs. 38,661 Internet charges Rs. 9,247 Insurance charges Rs 14,351 Legal expenses Rs. 10,000 Printing and stationery expenses Rs. 1,565 Repairs and maintenance expenses Rs. 12,661 Travelling expenses Rs. 11,824 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee's claim that she got Rs. 1,50,000 from the sale of old furniture of her husband, she filed one photocopy of handwritten receipt issued by one Shri Bhupinder Singh s/o S. Ajmer Singh, resident of 9/11, Model Colony, Jagadhari where the said person has shown that he had paid Rs. 1,50,000 through account payee cheque to the assessee towards purchase of old school furniture from her. On perusal of the said receipt the following doubts are raised over its genuineness : A. The said receipt did not mention the date when it was issued which is very important to prove the date of transaction. B. Though the said receipt issued mentioned that payment was made by account payee cheque but it did not specify the cheque number, name of the bank and branch on which it was drawn and even the date of said cheque which itself creates doubt about its genuineness. C. In normal course of business the purchaser of any old assets only describes the details of purchased assets and does not mention the source of acquisition of that asset in the hands of vendor but in the instant case the purchaser has specified that these items belonged to Auckland Public School, Yamuna Nagar, Haryana which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubt about its genuineness'." 33. The learned CIT(A), after considering the submissions of the assessee, observed that the bank balances pertaining to earlier years were shown as opening balances for the year under consideration, therefore, no addition could be made during the year under consideration. He directed the AO to delete the addition of Rs. 3,92,882. As regards to the addition of Rs. 1,50,000 on account of sale of old property of the husband of the assessee, the learned CIT(A) observed that the AO made this addition on the ground that the assessee could not show the date of transaction, cheque number, name of bank and thus, the assessee could not prove the genuineness of the transaction. He accordingly sustained the addition of Rs. 1,50,000. 34. Now, the assessee is in appeal. 35. The learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the old furniture, which was belonging to the deceased husband of the assessee was sold by the assessee since she became the owner in possession of the said old furniture. It was further submitted that the assessee sold the entire furniture of the school, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ir Anand Rs. 4,94,768 Loan to Salil Anand Rs. 18,100 Loan to Sadana Electric Rs. 10,802 40. The AO pointed out that the assessee in the P L a/c had shown the interest income as per following details : A.K. Singh, Varanasi Rs. 7,30,043 Drosia Constructions (P) Ltd. Rs. 7,50,000 Mullicks Emporium Rs. 62,105 40.1 According to the AO, the assessee had charged the interest approximately @ 15 per cent per annum. The AO worked out the interest by applying the rate of 15 per cent at Rs. 31,22,486 as against Rs. 7,50,000 charged from Drosia Constructions (P) Ltd. and the addition was worked out at Rs. 23,72,486 in the case of the said company. Similarly, interest was worked out at Rs. 7,84,497 in the case of Shri Ashok Sur and, thus, the addition totalling to Rs. 31,56,983 (Rs. 23,72,486 + Rs. 7,84,497) was made. 41. The assessee carried the matter to the learned CIT(A) and submitted as under : "That the appellant had given loan to several parties and had charged interest over it. That the interest received has duly been shown by the appellant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee reiterated the submissions made before the authorities below and further submitted that the loans were given out of surplus funds of the assessee. It was further stated that Mr. Ashok Sur is the only son-in-law of the assessee and had taken short-term loan and Shri Samir Anand and Shri Salil Anand are the sons of the assessee, as such, no interest was charged from them. It was further stated that the assessee had shown the interest income which was paid by Drosia Constructions (P) Ltd., who also deducted TDS while making payment to the assessee and disclosed the same to the Department. It was further stated that the AO as well as the learned CIT(A) failed to consider that friendly loans were given to son-in-law and the sons out of surplus money. 45. In his rival submissions, the learned Departmental Representative strongly supported the orders of the authorities below. 46. We have considered the submissions of both the parties and gone through the material available on record. In the instant case, the AO worked out the interest by presuming that the interest @ 15 per cent should have been charged by the assessee from Drosia Constructions (P) Ltd. also since the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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