TMI Blog2015 (9) TMI 1238X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee for its claim of bad debts on account of irrecoverable interest income which was treated as the income of the assessee during the earlier years and loss incurred due to irrecoverable loans and advances made by the assessee during the course of its money lending business subject to verification of the fact that the interest income were actually offered to the income of the assessee during the earlier years and the loans and advances were made during the course of the money lending business of the assessee. Accordingly, this issue is remitted back to the file of the Ld. Assessing Officer. - Decided in favour of assessee for statistical purposes. Disallowance of the claim of set-off of unabsorbed business losses of the earlier year - Held that:- From the provisions of Section 80, Section 32(2) and Section 72(2) of the Act, it is evident that loss of the earlier years other than the unabsorbed depreciation shall not be allowed to be carry forward unless the return of income is filed within the due date specified U/s.139(3) of the Act - Decided against assessee. - I.T.A.No.1376/Mds./2014 - - - Dated:- 3-9-2015 - SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In response, the assessee responded vide its letter dated 10.03.2010 stating that the return of income filed on 31.10.2003 for the assessment year 2003-04 may be treated as return filed in response to notice U/s.148 of the Act. The assessee also requested for furnishing the reasons for reopening which was complied by the Ld. Assessing Officer vide letter dt 17.02.2010. Subsequently the assessment was completed u/s.143(3) r.w.s 147 of the Act on 08.12.2010 wherein the Ld. Assessing Officer disallowed ₹ 3,94,59,120/- being the claim of the assessee towards rebate and discount and denied to carry forward the assessee s business loss of earlier years where the return of income was not filed within the time limit prescribed U/s.139(3) of the Act. 4.1 While doing so, the Ld. Assessing Officer observed as under:- Rebate discount on loan ₹ 3,94,59,120/-: - The assessee has debited an amount of ₹ 3,94,59,120/- under the head rebate and discount allowed on loans in the P L a/c. Rebates discounts on loan are capital in nature. Since loans are capital in nature, hence, as a corollary, any rebate on such capital receipt is also a capital item. Moreover, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. As per these provisions what the Assessing Officer is supposed to fulfill is to see whether the escapement of income of at least ₹ 50,000/- is there or not if it is within four years and ₹ 1 lakhs if it is beyond four years, whether it is a case of 143(3) and whether he has taken approval from his senior officers as per the provisions. Once the Assessing Officer fulfills these requirements then he can reopen the assessment by recording the reasons. The Assessing Officer will be within his jurisdiction to reopen the assessment and his jurisdiction cannot be challenged per se. 4.2.1 In view of the above discussion, the objection raised for reopening the assessment on mere technicality is defeated. Let us move on to the merits of the case. 5.2 On the issue of the claim of rebate and discount, the Ld. CIT (A) agreed with the view of the Ld. Assessing Officer by stating as follows:- I have carefully considered the facts and circumstances of the case. When loans are advanced, either as a finance company or as a regular business house, the interest will be credited to the P L a/c and the balance receivable on account of principle and unpaid interest, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on under the provisions of the Act because the assessee was in the business of money lending. Reliance was placed in the decisions of the Hon ble Jurisdictional High Court in the case of P.C.Dharmalingam Mudaliar Vs. CIT (1985) 152 ITR (Mad. Rowlat J.Curtis V.J. G. Old field Ltd (1925 9TC 319). It was therefore pleaded that both the irrecoverable amount of interest and principle arising out of money lending business may be allowed as deduction for the relevant assessment year. 6.4. Disallowance of the claim of set off of unabsorbed business losses of the earlier year:- On this issue Ld. A.R submitted before us that the company was taken over by the Commissioner s appointed by the Hon ble High Court of Madras in order to investigate the real financial position and the affairs of the company through Special Auditors. Therefore, there was a delay in finalization of accounts and filing of income-tax returns for the assessment years 1999-00 to 2001-02. During that period there was carry forward of unabsorbed business loss of ₹ 16,14,67,681/- and unabsorbed depreciation of ₹ 2,66,29,279/-aggregating ₹ 18,80,96,960/-. Though the Ld. CIT (A) allowed to set off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier years and since the same was found not recoverable, the assessee had written off the same from its books of accounts treating it as bad debts. Similarly the assessee had claimed that during the year it was found that the principle amount of ₹ 1,62,43,282/- being the advances made by the assessee in the earlier years in the course of the assessee s money lending business, the same was written off as bad debts in the books of accounts of the assessee during the relevant assessment year. It was therefore pleaded that both these amounts were allowable deduction as per the provisions of the Act. We find merit in the contention of the assessee. If the assessee had credited the accrued interest in its books of accounts, on account of loans and advances and subsequently if the same has become irrecoverable, the assessee is entitled to write off the same as bad debts in its books of accounts and claim deduction as per the provisions of the Act. Similarly since the business of the assessee is money lending, the loans and advances made by the assessee, if it becomes irrecoverable, the same shall be allowed as deduction provided it is written off in the books of its accounts. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo parts of clause (i) of sub-section (2), it may be stated that the provision of section 36(1)(vii) read with section 36(2)(i) of the Act would come into play only if; firstly the amount of loan or part thereof which is claimed as deduction should be established to have become bad debt and secondly, the amount should have been shown to have become irrecoverable and written off from the accounts of the assessee or from the account in which the claim is made. 9. The division bench of our High Court in the case of CIT v. Morgan Securities and Credits (2007) 292 ITR 339, while interpreting section 36(1)(vii) and 36(2)(i) observed as under: 5. A conjoint reading of Section 36(2) and Section 36(i)(vii) makes it clear that the assessed would be entitled to a deduction of the amount of any bad debt which has been written off as irrecoverable in its Accounts for the previous year. Any lingering doubt would vanish on a careful reading of Circular Number 551 dated 23.1.1990, the relevant portion of which reads as follows: 6.6 The old provisions of Clause (vii) of Sub-section (1) read with Subsection (2) of the section laid down conditions necessary for allowability of bad deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the second part of this clause starting from or represents money lent by the assessee as highlighted by us deals with the different types of activities, not at all related to those with the first part of business activities. In other words, his submission was that in the case of advances/loans made by any Concern doing the business of banking or money lending, it was not obligatory that such advances/Ioans or part thereof should be shown to have become irrecoverable and consequently written off in the accounts of the assessee in the previous year. This manner of interpretation was not acceptable to the learned counsel for the revenue who submitted that for claiming deduction of any amount as bad debt it was necessary to establish that the amount has become not only bad debt, but the same was also shown to have become irrecoverable and written off in the accounts of the assessee for the previous year. The interpretation of section 36(2) clause (I) came before the Division Bench of Madras High Court in the case of PC.DharmaIinga Mudaliar v. Commissioner of Income Tax (1985) 152 ITR (Mad). Relying upon the famous judgment of Rowlatt J., in Curtis v. J. G. Oldfield Ltd. 11925] 9 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -money lending business; and (ii) second part, dealing with money lending business alone and the division is intended to ensure the fulfillment of conditions for allowance of bad debts peculiar to each limb concerned. 12. The controversy that has arisen from the order of the Tribunal is whether the amount of debt itself should be shown as income before the debt qualifies for claim as a bad debt. It is seen that the controversy before the Madras High Court in the case of PC. Dharmalinga (supra) was whether money advanced to a transport company from cloth and yarn business be treated as money advanced in the ordinary course of cloth and yarn business. The Madras High Courts emphasis as required by the second part was that it may be admittedly in relation to money lending business that debt is advanced in ordinary course of business and if the debt is not advanced in the ordinary course of business, it would not qualify for deduction as a bad debt. Thus, according to Madras High Court itself money lent as part of money lending business being stock-in-trade automatically comes into revenue account. In other words, it need not be taken into account in computing the income as requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 80, Section 32(2) and Section 72(2) of the Act, it is evident that loss of the earlier years other than the unabsorbed depreciation shall not be allowed to be carry forward unless the return of income is filed within the due date specified U/s.139(3) of the Act. The relevant provisions of the Act are reproduced herein below for reference. Sec.80 : Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed in accordance with the provisions of sub-section(3) of section 139, shall be carried forward and set off under subsection(1) of section 72 or sub-section(2) of section 73 or sub-section(1) or subsection(3) of section 74 or sub-section(3) of section 74A. Sec.32(2): Where, in the assessment of the assessee, full effect cannot be given to any allowance under sub-section (1) in any previous year, owing to there being no profits or gains chargeable for that previous year, or owing to the profits or gains chargeable being less than the allowance, then, subject to the provisions of subsection (2) of section 72 and sub-section (3) of section 73, the allowance or the part of the allowance to which effect has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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