TMI Blog2015 (10) TMI 806X X X X Extracts X X X X X X X X Extracts X X X X ..... different types of activities not at all related to those with the first part of business activities. In other words the submission is that in the case of advances/ loans made by any concern doing business of banking or money lending it was not obligatory that such advances/loans or part thereof should be shown to have become irrecoverable and consequently written off in the accounts of the assessee in the previous year. The 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 required in the first limb in relation to money lending business to prove that it is on revenue account. As per second limb it should be found out in relation to money lending business that debt is advanced in the ordinary course of money lending business. If this debt is not advanced in the ordinary course of business, it would not qualify for deduction as bad debt. The only condition laid down in second part of Sub. S. (2) of S. 36 of the Act is that the amount should be advanced in the ordinary course of business which by itself proves its revenue nature and no further conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss loss on account of no recovery since 1999 , 'parties absconding and criminal cases against parties accepting that the loans given to these parties are actually not recoverable when the AO has rightly disallowed the claim of the assessee as the reasons given for non recovery are vague and no details regarding assets owned by each of the debtors could be furnished. 3. On the facts and in the circumstances of the case and in law, the CIT (A), Kolhapur erred in treating the bad debts as business loss u/s 28 ignoring the fact that the block assessment has been completed by applying deeming provisions and despite agreeing that conditions laid down u/s 36(1) (vii) are not satisfied. 4. On the facts and in the circumstances of the case and in law, the CIT (A), Kolhapur failed to appreciate that the basic requirement by which any bad debts becomes eligible for deduction u/s 36(1) of the Act has not been satisfied by in the case of assessee. 5. On the facts and in the circumstances of the case and in law, the CIT (A), Kolhapur has ignored the fact that seized ledger accounts of such persons do not contain any mention what so ever, to indicate that such loans have been wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 468/- was claimed as bad debts. This claim was not supported by entries in the books. The income of the assessee was computed on the basis of aggregating of assets and expenses incurred during the block period. Investments, according to the table at page 4 of the assessment order aggregated to ₹ 4,88,35,412/-. The assessee, however, submitted a reconciliation statement pointing out certain mistakes in the calculation, bad debts written off in the regular books not taken into account, funds obtained as a result of sale of assets not taken into account etc. The reconciliation given by the assessee is shown in the table at pages 4 and 5 of the assessment order. The Assessing Officer has dealt with each item of the reconciliation statement given by the assessee. The total accretion to the loans given during the block period is computed at ₹ 2,11,70,108/- as under : Undisclosed loss as on 25-07-02 Rs.3,92,40,739/- Undisclosed loss as on 01-04-96 as per seized books Rs.1,80,70,631/- Balance Rs.2,11,70,108/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be furnished. Considering the above aspects, the Assessing Officer allowed only an amount of ₹ 7,30,000/- as bad debts/business loss in respect of loans where the debtor had expired. In effect, the disallowance of claim of bad debt was made at ₹ 37,17,000/-, excluding the FDRs with the Pat Sanstha of ₹ 15 lakhs. 11. Before CIT(A) it was submitted that the assessee had maintained memorandum books relating to the business of money lending. These books contained ledger accounts of various borrowers. On the basis of these books, a complete set of books were written for the block period 01-04-92 to 25-07-02. The books were audited by a Chartered Accountant. According to these books, undisclosed income of ₹ 59,59,971/- was declared. A further amount of ₹ 76,40,029/- was also declared on ad hoc basis to provide for any omission/ disallowance in the assessment. The Assessing Officer was not correct in discarding these books and completing the assessment on the basis of investments and expenses. The Assessing Officer had observed that the undisclosed income as shown in these books was very low compared to the assets. He also observed that the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counts in the form of ledger accounts giving details of loans given, interest received, repayment of loans had been recorded in these books of account and ledgers. Once it was discovered that a money lending business had been carried out and books of account relating to this business were maintained, the computation of undisclosed income has to be done on the basis of such evidence. According to section 158BB, the total income should be computed in accordance with the provisions and on the basis of evidence found as a result of search or requisition of books of account or other documents or information available with the Assessing Officer and relatable to such evidence. The books of account relating to money lending business are in the nature of evidence found as a result of search. These, therefore, form the basis of computation of undisclosed income according to the provisions laid down in the Act. The provisions of the Act allow for certain deduction and exemptions as well as allowances in arriving at the taxable income. Under the provisions of section 36(1), there is a specific provision for allowance of bad debts subject to certain conditions in computing total income. The pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, there is no doubt that the income from such loans etc. have not been offered to tax earlier. In the case of the appellant, therefore, the provisions of section 36(1)(vii) are not strictly applicable. 16. However, the fact is that the appellant has carried on a money lending business as stated earlier. A loan or advance, which is not recovered is a revenue loss in such business. The loan funds are the stock in trade or working capital. When a loan is not recovered, it is a business loss, which is allowable under section 28. In the appellant's case, loans not recovered would, therefore, be allowed as business loss. It is pertinent to note that the Assessing Officer has also accepted this principle since he has allowed a Joss to the extent of ₹ 7,30,000/- in case of loans given where the borrowers had expired. The Assessing Officer has taken a different view in taxing the net accretion to the loans given by the appellant during the block period as undisclosed income. If the accretion to the loans is taken into consideration, loss suffered as a result of non-recovery of loans should also be allowed to arrive at the real undisclosed income. The aggregate loans and advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no proof that the amount in cash had been advanced during the block period. However, the amounts advanced by cheque are proved to have been given during the block period. 20. In the current list given by the appellant, there still occur some loans, which have been given prior to the block period. They are as follows : i) Parag Deshmukh 01/01/96 Cheque No.23945 Gadhinglaj Urban a. Bajirao Shelke 26/03/96 Co-op. Bank Cheque No.23510 In both the above cases, the loans have been given in instalments where one of the instalments falls prior to the block period although the other instalments have been given during the block period. In the list furnished, the amount which is advanced prior to the block period, has not been given. The Assessing Officer should, verify the amount, which is given prior to the block period and exclude the amount from the bad debts/business loss to be allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) R. Nhavelkar Rs.4,50,000/- ii) A. Nayar Rs.2,00,000/- TOTAL Rs.6,50,000/- In both the cases, arrest warrants have been issued but could not be executed, which is adequate proof that the persons are not traceable. 23. In the following cases, the appellant has filed criminal cases against the parties for recovery i) P. Deshmukh Rs.2,50,000/- ii) S. Shelke Rs.98,000/- iii) Shelke Rs.2,33,000/- iv) Dharangutti Rs.3,25,000/- v) Joshi Rs.50,000/- TOTAL Rs.9,56,000/- In the case of Shri P. Deshmukh, the appellant has filed a copy of plaint, filed in the court by one of the banks for recovery of its dues. It is further stated that Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her granted relief of ₹ 25,26,000/- (Rs. 9,20,000/- observing in these accounts there was no recovery from the persons; ₹ 6,50,000/- persons stated to be absconding; ₹ 9,56,000/- where it was held the criminal cases were filed against these persons. The CIT(A) has considered mainly the issue from the angle of the irrecoverability of loans. None of the authorities below considered the second part; dealing with money lending business alone of S. 36(1)(i) of the Act. The Assessing Officer observed that assessee is mainly engaged in the money lending business as well as dealing in properties. The assessee has been operating various bank accounts for the business of money lending but these were never shown in the regular returns furnished. Books of account of money lending business have been maintained in the form Ledger account and entries regarding loans given, interest received, repayment of loans etc. have been recorded in these books. In appeal, the CIT(A) observed that on the basis of these books a complete set of books were written for the block period 1-4-92 to 25-07-2002. The books were audited by Chartered Accountant. In this background, CIT(A) observed that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hown to have become irrecoverable and consequently written off in the accounts of the assessee in the previous year. The 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 required in the first limb in relation to money lending business to prove that it is on revenue account. As per second limb it should be found out in relation to money lending business that debt is advanced in the ordinary course of money lending business. If this debt is not advanced in the ordinary course of business, it would not qualify for deduction as bad debt. The only condition laid down in second part of Sub. S. (2) of S. 36 of the Act is that the amount should be advanced in the ordinary course of business which by itself proves its revenue nature and no further conditions are required to be satisfied which are only applicable with regard to debts qualifying as bad debts in the first part of sub. S. (2). 20. This legal preposition is fortified by the ratio laid down by Hon'ble Delhi High Court in the case of All Grow Finance Investments (P) Ltd. v. CIT (2012) 66 D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding. The Revenue has filed the appeal only to keep the matter alive. Therefore, following the decision of the Tribunal in assessee s own case and in absence of any contrary material brought to our notice the grounds raised by the Revenue are dismissed. ITA No.694/PN/2013 : 18. The grounds raised by the Revenue are as under : 1. On the facts and in the circumstances of the case and in law, the CIT (A), Kolhapur is not justified in granting further relief of ₹ 50,000/ - in addition to his earlier relief of ₹ 25,26,000/- granted vide order dated 30-12-2005 to the assessee being Bad debts claimed which were rightly disallowed by the Assessing Officer. 2. On the facts and in the circumstances of the case and in law, the CIT (A), Kolhapur erred in treating the bad debts as business loss u/s.28 without considering that the basic condition as is prescribed u/s.36(1)(vii) of the I.T. Act, 1961, is not satisfied in the case of assessee. 3. The appellant prays that the order of the Commissioner of Income Tax (Appeals), Kolhapur be vacated and that of the Assessing Officer be restored. 4. The appellant craves leave to add, alter, amend, raise, any of the abov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The cross objections raised by the assessee in both the appeals are identical and which read as under : 1. On the facts and circumstances of the case and in law the appeal filed by the Revenue has not been so filed within reasonable time as directed by Hon ble Tribunal in its appeal order decided on 31-08-2012 which judgment was also pronounced in the open court on the same day that is on 31-08-2012. The depart knew on 31-08- 2012 itself the reason for dismissal of their appeal. In view of this, the appeal filed on 18-03-2013 cannot be considered as filed within reasonable time. The appeal therefore, be dismissed as barred by limitation. 2. On the facts and circumstances of the case and in law the business of the assessee being mainly of money-lending the provisions of S.36(2) viz or represents money lent in the ordinary course of business of banking or money-lending which is carried on by the assessee apply. In view of this, Ld.CIT(A) has correctly decided the issue in favour of the assessee and it be held accordingly. 3. On the facts and circumstances of the case and in law the filing of this C.O. in F.No.36A is delayed due to unavoidable circumstances. The detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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