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Shri Gopaldas Khandelwal Versus The ACIT, Circle-1, Jaipur

2016 (9) TMI 543 - ITAT JAIPUR

Penalty u/s 271(1)(c) - claim of bad debts - whether the claim of the appellant was patently wrong under section 36(1)(vii) read with section 36(2) of the Act? - Held that:- As it is noted that in P&L account prepared for M/s Gopal Das Sonkia, assessee had claimed bad debts of ₹ 5,15,000/-. It consists of bad debt written off in books of accounts pertaining to amount advanced by way of loan to Shri Rajeev Khattar amounting to ₹ 5,00,000/- and interest thereon charged by assessee amou .....

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s further submitted a statement of account of Shri Rajeev Khattar right from year 2000 and onwards where the said amount of ₹ 515,000 has been shown as outstanding and in the year 2007, the same has been written off as bad debt and balance in the account has been reduced to Nil. The above facts shows clearly that the appellant had lent this money to Shri Rajeev Khattar and the same has been regularly been disclosed in the balance sheets right from the year the amount was lent to the year u .....

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first limb of the two alternate conditions specified u/s 36(2)(i) of the Act whereas the appellant claim was largely under the second limb of 36(2)(i) of the Act. All it stated was that the appellant has failed to adduce appropriate evidence to show that such debt or part thereof has been taken into account in computing the income of the assessee of the previous year. During the course of subject proceedings, the appellant has ably demonstrated through appropriate documentation that he was engag .....

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essee by : Shri G.G. Mundra CA) For The Revenue : Shri R.S. Dagur (Add.CIT) ORDER PER SHRI VIKRAM SINGH YADAV, A.M. This is an appeal filed by the assessee against the order of Ld. CIT(A)-I, Jaipur dated 21.12.2015 wherein the assessee has taken following ground of appeal: That on the facts and in the circumstances of the case the ld. CIT(A) is wrong, unjust and has erred in law in confirming penalty of ₹ 1,73,350/- imposed by the ld. AO u/s 271(1)(c) of the IT Act, 1961. 2. The brief fact .....

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hat the assessee has deliberately claimed the bad debts on the pretext that he is doing money lending business whereas no such business activities was done by the assessee during the year or even in earlier year. Further the assessee was also not having any licence to do the money lending business. The assessee also could not produce any evidence in support of any efforts made by him to recover the said amount. Further the assessee does not fulfil the basic prerequisite of sub section 2(i) of se .....

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AO. During the appellate proceedings, the appellant was required to show that the amount of bad debt claimed was taken into accounts as income either during the year under consideration or earlier year but of no avail. It is therefore, held that the claim of bad debt was patently wrong when the basic perquisite for claiming bad debts as required u/s 36(2)(i)of the Act was not even fulfilled. v) In the instant case under consideration, it has been held that the claim of bad debt amounting to S .....

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firm, capital gain and income from other sources. The income from business is derived from two proprietary concerns viz. (i) M/s Gopal Das & Co. Which is engaged in business of gems and stones and (ii) M/s Gopaldas Sonkia which is engaged in share trading, future & option and lending of money on interest. The appellant filed return of income declaring income of ₹ 8,59,950/-. In P&L account assessee claimed bad debts of ₹ 5,15,000/- in respect to bad debt written off in ac .....

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71,517/- ₹ 24,68,314/- Ld AR submitted that the figures prove that the assessee is engaged in business of lending money also. As per provisions of section36(2)(i) deduction for bad debts is also allowable if it represent money lent in the ordinary course of business of banking or money lending which is carried by the assessee. It is submitted that interest income of earlier years and interest arising out of the above transaction was accepted and assessed as business income in assessment of .....

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which is carried on by the assesee. The holding of money lending licence is neither requirement of provision nor such licence is required for money lent out in ordinary course of business of lending money. The legal view is supported from the decision in case of Penisular Plantation Ltd. vs. ACIT(2014) 263 Taxman 258 (Ker)(Mag.) The order of CIT(A) rejecting quantum appeal of assessee was not by fully appreciating the above contention and said judgement of ITAT. In further appeal against the sai .....

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earlier previous year or represents money lent in the ordinary course of business of bank or money lending which is carried on by assessee. It is submitted that assessee complies the condition as the money lent was out of current profits of earlier year and/or accumulated capital of assessee which consists of profits of earlier years and also money lent was in ordinary course of business of money lending which is carried on by assessee as explained above. Thus finding of appellate authorities ca .....

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ealment of income by assessee as held by Ld. AO but it was a case of bonafide claim made by assessee which was not found sustainable in law. Reliance is placed in the decision of Hon ble Supreme Court in the case of Reliance Petro Products Ltd. 322 ITR 158. 2.5 The ld AR further submitted that there are plethora of decisions of judicial courts/Tribunals that in absence of any finding that explanation offered by assessee for making wrong claim is not bonafide, imposition of penalty u/s 271(1)(c) .....

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R 172 and in CIT vs. Manibhai & Bros. (2007) 294 ITR 501. Further in the case of CIT vs. Harshvardhan Chemical and Minerals ltd. 259 ITR 212 (Raj.) it was stated that if the claim of deduction or an expenditure is either debatable or controversial or even arguable, in such cases it cannot be said that assessee has concealed any income or furnished inaccurate particulars for evasion of tax and hence penalty cannot be levied. The CIT(A) in impugned order relied on CIT vs. N.G. Technologies Ltd .....

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e order of the lower authorities and submitted that the claim of the appellant has rightly been denied by the Hon ble ITAT, hence it was a clear case of levy of penalty which has rightly been levied by the AO. 2.7 We have heard the rival contentions and perused the material available on record. On perusal of records, it is noted that in P&L account prepared for M/s Gopal Das Sonkia, assessee had claimed bad debts of ₹ 5,15,000/-. It consists of bad debt written off in books of accounts .....

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. The assessments have also been completed for both of these years u/s 143(3) where the above balance sheets were placed on record. The ld AR has further submitted a statement of account of Shri Rajeev Khattar right from year 2000 and onwards where the said amount of ₹ 515,000 has been shown as outstanding and in the year 2007, the same has been written off as bad debt and balance in the account has been reduced to Nil. The above facts shows clearly that the appellant had lent this money t .....

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. The Coordinate Bench in its order dated 28.08.2014 has held that the assessee has made compliance of section 36(1)(vii) of the Act but has not fulfilled the condition of 36(2)(i) of the Act as there was no evidence on record to show that such debt or part thereof was taken into account in computing the income of the assessee of the previous year. 2.9 As per provisions of section36(2)(i) deduction for bad debts is allowable on satisfaction of either of following two conditions: 1. Where such de .....

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