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2016 (9) TMI 590 - ITAT AHMEDABAD

2016 (9) TMI 590 - ITAT AHMEDABAD - TMI - Disallowances of bad-debts and other expenses - application of explanation 1 to section 37 (1) - assessee is a NRI, citizen of USA and claimed to have carried on money lending as business activity in India - Held that:- We find merit in the contentions of the ld. DR. As observed that:- - (1) The assessee himself offered the interest from private loans under the head “income from other sources”. The assessee having filed the return and not filed the r .....

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been in deep trouble. - (3) Assuming the assessee was into illegal money lending business then also in view of the Explanation 1 to Section 37, the assessee’s business being an offence and prohibited by law, the expenditure cannot be allowed. In view of the above, I have no hesitation to uphold the orders of the authorities below. - Decided against assessee. - ITA No. 3567/Ahd/2015 - Dated:- 3-8-2016 - SHRI R.P. TOLANI, JUDICIAL MEMBER For The Assessee : Shri N.M. Darji, AR For The Revenue : .....

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pplied the explanation 1 to section 37 (1) of the Act that the business of Money lending without license is illegal business. If the business done by the appellant is illegal business the amount of ₹ 8,00,000/- shall be allowed as trading loss since the income earned from illegal business is taxable income as established principle of law. The expenses of ₹ 3,61,489/- have been incurred for legitimate purpose to run the business. It is not the expenses incurred in respect of the payme .....

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ources'. 3. Brief facts are - the assessee is a NRI, citizen of USA and claimed to have carried on money lending as business activity in India holding any money lending license or RBI approval for the same. The assessee filed return of income showing income from business, LTCG and income from other sources. The case was selected for scrutiny assessment through CASS, notice u/s 143(2) was issued and assessment was framed after due opportunity of hearing to the assessee. Ld. AO found that asse .....

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he assessee on loans was chargeable under the head income from other sources , the expenditure in question cannot be regarded as business expenditure. Besides even if it assumed that assessee was carrying on illegal money landing business, no expenditure can be allowed qua alleged illegal business. Consequently, the business losses claimed by assessee were held to be not allowable. As a result the income from other sources was assessed at ₹ 14,90,974/-. 4. Aggrieved, the assessee preferred .....

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the I.T. Act. I find that nowhere the factual and legal observations made by the AO are rebutted by the appellant. The AO has very categorically pointed out that all the receipts of the appellant are in the nature of income from other sources and this claim of expenses being business expenses is untenable. Vide para 5.9(b), the AO has brought out the illegitimacy of the money lending activity purportedly carried out by the appellant. I am in agreement with the observations of the AO which are qu .....

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ssment order was passed on 20.02.2015 the CBDT s instruction No.7/2014 dtd. 26.09.2014 was already communicated to the AO for limited income tax scrutiny of the cases selected under CASS which was operative from 15th October, 2014. The instructions of CBDT is retrospective in nature. The point of selection for scrutiny under CASS was accepted by the AO as per return of income filed. The ld. AO is therefore not justified in making comprehensive scrutiny assessment as the case for scrutiny assessm .....

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held as a legal proposition. Consequently the ground raised cannot be considered as a legal question. ii) Income Tax Act do not prescribes any fetters in the power of the Assessing Officer to proceed with assessment by issuing notice u/s 143(2) where any claim of the assessee made in the return is found to be not in order. iii) The assessee was well aware of these instructions dated 26.09.2014. No objection was raised either before the Assessing Officer in this behalf, though the assessment ord .....

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r admission of additional ground. 6.3 I have heard the rival contentions and perused the material placed before me. In my considered view, the assessee has not been able to show any reasonable cause as to how he was prevented by sufficient cause in not raising this plea before authorities below. Therefore, the application for admission of additional ground is rejected. 7. Adverting to the grounds of the appeal, ld. Counsel for the assessee contends that the frequency of finance transactions amou .....

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the case of Hemchand Hirachand Shah vs.CIT, 206 ITR 55. d) Decision of ITAT Ahmedabad in the case of DCIT vs. Deepaben Amitbhai Shah, 99 ITD 219 7.1 It is contended that in the State of Gujarat the private money lending activities are governed by the Gujarat Money-Lenders Act, 2011. Going by this definition, an individual assessee is eligible to carry out money lending activity in the State of Gujarat. The assessee being an individual is eligible to carry out such activity. If registration has n .....

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h carry on activities like that of NBFCs. Are they allowed to take deposits? Who regulates them? Answer : 35 Any person who is an individual or a firm or unincorporated association of individuals cannot accept deposits except by way of loan from relatives, if his/its business wholly or partly includes loan, investment, hire-purchase or leasing activity or principal business is that of receiving of deposits under any scheme or arrangement or in any manner or lending in any manner. Once it is held .....

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Further reliance is placed on Hon ble Supreme Court s judgment in the case of Indian Molasses Co. Ltd. vs. CIT, (1959) 37 ITR 0066 (SC). 8. The ld. DR, on the other hand, contends that in the computation of income filed with the return of income which is placed at page No. 5 of the paper-book, the assessee has himself offered the interest on loans/ advances amounting to ₹ 12,02,750/- under the head income from other sources. Likewise, other interest income from bank FDRs & IT refund h .....

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o carry out illegal money lending business without prior approval of the RBI or valid license. The assessee neither applied for license nor RBI approval, it clearly demonstrates that assessee was no carrying on any alleged illegal money landing business which is corroborated by computation of income filed along with return by assessee declaring the interest income as income from other sources. 8.1 Carrying out any business which is an offence or is prohibited by law, no expenditure is allowable .....

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