9911796707
TMI Blog2021 (12) TMI 1208X X X X Extracts X X X X X X X X Extracts X X X X ..... iginal return and large refund was claimed (iii) very low profit before depreciation, interest and tax ratio (iv) large investment in property. Accordingly, notice u/s. 143(2) and 142(1) of the Income-tax Act, 1961 (in short "Act") were issued and served on the assessee. In response Ld. AR of the assessee attended and submitted the relevant information as called for. 3. Assessee is an NRI and shown income under the head "income from house property", "business income" and "income from other sources" in original return of income and in the revised return of income, assessee has declared leasing of property as income under the head "business income". 4. The Assessing Officer observed that assessee has advanced an amount of Rs..3.1 crores to M/s. Rusam Developer Pvt. Ltd., in the earlier years and claimed bad debts of Rs..3,45,57,667/- (including interest) and claimed Rs.9,23,800/- as stamp duty and registration charges on purchase of property. The assessment was completed u/s. 143(3) of the Act by the Assessing Officer rejecting the claim of the assessee of bad debts, registration charges, and declaring income of leasing of property under the head "business income". Aggrieved assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above mentioned Assessment Year 2016-17 is as under: - Sr. No. Location of the Property Leasee's Name Annual Rent No. of Units Leased 1 202A-AlphaI Bldg, Giga Space office at Pune TATA Elxsi Rs. 26,10,219/-(Rs. 2,15,043/-April to Dec)+(Rs. 2,24,944/-Jan to Mar) 1 unit 2 Shop No.1,4,6,7 in Solitude Building, Mahim Dena Bank Rs. 22,35,390/-(Rs. 1,71,953/- per month 4 Shops 3 Lake City Mall, Kapurwadi Junction, Majiwada, Thana HDFC Bank Rs. 13,21,176/-(Rs. 1,10,098/- per month] 6 Units 4 Marathon Nextgen, Parel HDFC Bank Rs. 25,25,868/-(Rs. 2,88,377/- from April to July 15) Rs. 1.71.545/- from Aug to March 16) 5 Natasha Shopping Center Shop-Bandra ShivanGaba Rs, 11,25,000/-(Rs.l,25,000/-Aug to Mar 16) 1 Unit d) Apart from the 12 properties which were purchased & leased by the Assessee, the Assessee had also purchased in January 2014, 6 more properties which were under construction. Sr. No. Property Details Purchase Date Status 1 The Park - Lodha (Worli) 3rd May 2013 Under Construction 2 Krishna Business Centre-Shop No. 7 (Bhosari, Pune) 11th January 2014 Under Construction 3 Krishna Business Cen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opy enclosed herewith), wherein, it was held that if the main objects of the company are to lease out the properties", then, the Income generated from such business will be taxable under the head "Income from Business & Profession" and not under the head "Income from House Property" a) It would not be out of place to submit here that the Assessee had advanced loans to Four parties namely: 1) Rusam Developers Pvt. Ltd 2) Birla Power Solution 2) Birla Power Solution 3) Sunil Mantri Realty Ltd 4) Kohinoor Cargo & Industrial Park private limited b) Assessee had given loans to Rusam Developers Pvt. Ltd. (RDPL) amounting to Rs. 3,10,00,000/- @15% p.a. by executing three (3) separate Memorandum of Understandings (M.O.U) along with three separate Mortgage Deeds (M.D) for three different properties (which were not registered with the Sub-Registrar of Immovable Properties) namely: Sr. No. Memorandum of Understanding Mortgage Deeds Amount Rate of Interest 1 Dt:- 02 Sept, 2010 Property at Andheri Rs. 1,00,00,000 15% 2 Dt :-19th May 2011 Property at Irla Dt:- 19th May 2011 Rs. 1,50,00,000 15% 3 Dt:- 11th oct, 2011 Property at Vakola Dt. 11*001,2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 35,57,662/pertaining to "Money Lending Business", were not claimed by the Assessee in its Original Return of Income, is because the post dated cheques (copies enclosed herewith) which were given by "Rusam Developers Pvt. Ltd." were dated 6% June 2016. These cheques were not deposited by the Assessee on that day as, Rusam Developers Pvt. Ltd. informed him to wait for three months. Hence, these cheques were deposited on 5 September 2016. Moreover, he came to know during the period from 1st October 2016 till 31st December 2016, that the company has gone into Liquidation. and only then, he decided to claim the "Business Loss" of Rs. 3,10,00,000/- and "Bad Debts" of Rs. 35,57,662/- as Business expenses. g) We also enclose herewith following documents in order to substantiate the fact that Interest Income which is earned on money lending is Assesse under the head "Income from Business & Profession". i. Computation of Total Income for the Assessment Year 2012-2013 (pertains to F.Y. 2011-2012) wherein the Net Profit from Business Income to the extent of Rs. 63,71,747/- has been offered for tax under the head "Income from Business". The Net Profit includes interest from Money Lending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopers Pvt. Ltd account. Since the assesse has not received this amount then the same will be allowed as bad debts u/s 36 (i) (vii). i) As regards the remaining amount of Rs. 3,10,00,000/- the same should be allowed as deduction u/s 37 (i) of Income Tax Act 1961 under the head "Business Loss". Though in the Profit & loss Account it has been wrongly debited under the head "Bad Debts" only to the extent of Rs. 3,10,00,000/- the same cannot be disallowed due to the fact it is debited under "Wrong Head of Expenses" i.e. "Bad Debts" One has to see whether the deduction which is claimed a Business Expenses, If yes, then, it has to be allowed as business expenses. The fact that Income Tax department has already accepted the fact that Interest Income received by the Assessee on account of Money Lending Business is taxable under the head "Income from Business &Profession", hence any loss in the same business has to be allowed as business expenditure u /s 37 (1). In light of the above said fact no disallowable is called for just because "Business Loss" of Rs. 3,10,10,000/- is debited under the head "Bad Debts". j) We enclose herewith Honorable ITAT's Order (Kolkata) in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he department accepts the same as business income, however, when they want to claim a deduction on account of Bad Debts, the Department wants to object that Money Lending is not a business. This stand taken by the Department is not fair. n) Moreover, Loans given to Rusam Developers Pvt Ltd was shown under the head Current Assets in Balance Sheet as on 31/03/2012, wherein, the Loans and Advances given to Rusam Developers Pvt Ltd amounting to &s. 3,40,78,078/is shown under the head "Current Assets and Loans and Advances". As per the accounting norms, all the "Business Assets" such as "Stock" and "Debtors" has to be shown under the head "Current Assets and Loans & Advances". Since, ~ Loans & Advances given to Rusam Developers Pvt Ltd is also shown under the head "Current Assets and Loan & Advances", this would clearly indicate that the same is declared as Business Asset and the same has been accepted by the Income Tax Department in A.Y.2012-13 relevant to previous year ended 31/03/2012. o) Finally, the Assessee has also submitted to you the Audited financials, the Loans & Advances given to the parties for "Money Lending Business" is also shown under the head Current Assets and L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act under the head "Income from Business & Profession". Obviously, when you do business of smuggling you don't obtain any license from any Regulatory Authority and still the Income is taxable under the head "Income from Business & Profession". Hence, even if the Assessee has not obtained any license for doing business in Money Lending it would not mean that such a "business income" would not taxed under the head Income from Business or Profession". In light of the above said facts and circumstances of the case, the basis on which the learned Assessing Officer has disallowed claim of 'bad debts & business loss' is baseless and uncalled for. The second reason stated by the Assessing Officer in para 4.3(c) of the Assessment Order due to which the above claim of "Bad Debts & Business Loss" has been disallowed stating that "Assessing Officer while assessing has not recognized assessee business as Money Lending. Assessee was a proprietor of GINNIS COLLECTION engaged in resale of fabrics upto 31/07/2015" In response to the above said reason due to which the disallowance is made by the Assessing Officer, to this we would like to submit that the Assessee has together been doing thre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learly states that loan has been given & rate of interest is also stated in the MOU. Promissory Notes and Post Dated Cheques are also given by RDPL. In light of all these facts, how come all these documentary evidences have been ignored by the Assessing Officer& disallowed the claim on presumptive basis. The fifth reason why the learned Assessing Officer has disallowed the Bad Debts & Business Loss is because he proclaims that the Assessee is having the nature of doubtful advance and not ascertained, which could not be allowed as a deduction u/s 36(1)(vii) of doubtful debts. The contention of the Assessing Officer is incorrect. The loan given to RDPL is not recoverable as the company has gone into liquidation & hence under no circumstances any one can say that the claim of assessee is having the nature of doubtful advance & not ascertained. Hence, business loss which is claimed by the Assessee amounting to Rs. 3,10,00,000/- is only because of the fact that company is liquidated & the amount is non recoverable. . The sixth reason why the learned Assessing Officer has disallowed the Bad Debts & Business Loss is because of the fact that Assessee has failed to submit any document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- was returned by the builder. Hence, the stamp duty & registration charges paid was claimed as a business loss. Since the Assessee is involved in the business of leasing the property hence, the loss of Rs. 9,23,800/- incurred by the assessee in purchase of the property, we see no reason as to why these losses should not be allowed. The only reason why the Assessing officer disallowed the loss is because of the fact that Assessee was involved only in one business i.e. Resale of fabrics and no other business. Since the assessee was involved in all the businesses of leasing of property & money lending business hence claiming of these expenses should be allowed. It would not be out of place to submit that the Assessee closed his business of "Ginnis Collection (Resale of Fabrics)'From 1st August 2015, and thereafter the shop at Bandra where the Business of Ginnis Collection was done, was given on lease. Hence, the staff (Salesman and others) who were working for Ginnis Collection were given "Retirement Bonus" for the services which they had rendered for so many years. The Retirement Bonus is paid to all 7 (Seven staff) members through Account Payee cheques. The names of ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . After considering the detailed submissions Ld.CIT(A) rejected the grounds raised by the assessee and sustained the addition made by the Assessing Officer. Aggrieved assessee preferred an appeal before us raising the following grounds: - "Ground No. 1 The Honourable Commissioner of Income Tax (Appeal), has erred in confirming with the Assessing Officer that the "Rental Income which is received by the Assessee on account of Leasing Out all the Commercial Properties which was offered by the Assessee in his Revised Return of Income amounting to Rs. 92,41,045 under the head Income From Business & Profession" is incorrect, hence the same should be taxed under the head "Income From House Property" to the extent of Rs. 64,68,732/-. In spite of the fact that, this case, is identical to the facts of Supreme Court Judgement in case Chennai Properties & Investments Ltd, wherein, the Assessee had acquired 12 (Twelve) properties, in order that he would lease out all of these 12 (Twelve) properties to customers, hence, the Rental Income received there from, was offered for tax in his Return under the head "Income from Business & Profession", even then, the Honourable C.I.T.(A) has dismiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty booked by the Assessee with the Builder. In spite of the fact the Builder returned the entire money back to the Assessee which was given to him as an advance, nevertheless, the stamp duty & registration charges which was paid by the Assessee was the loss incurred by the Assessee. Since, the main object of the Assessee is to buy the property & lease it to the outsiders & the Income is offered under the head Income from Business & Profession, hence any business loss incurred in running such business should be allowed u/s 37(1) of Income Tax Act. Hence, the disallowances of Rs. 9,23,800/- ought to be deleted." 6. Before us, Ld. AR of the assessee made the submissions with regard to Ground No. 1 similar to the submissions made before First Appellate Authority i.e., he opposed the observation of the Assessing Officer that the case law relied by the assessee pertains to corporate assessee not applicable in this case as assessee is an individual engaged in the business of resale of fabrics and he further submitted that Hon'ble Supreme Court decision is applicable to all the assessees whose main object is to lease out of properties and not only to corporate assessee. 7. Furt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other hand, Ld. DR agreed with the observations made by the Ld.CIT(A) and the Assessing Officer wherein the facts are distinguishable, the facts relied on by the assessee in the case of Chennai Properties & Investment Ltd., (supra) are distinguishable as the assessee is an individual. With regard to Ground No. 2 and 3 she relied on the orders passed by the lower authorities. 12. Considered the rival submissions and material placed on record, with regard to Ground No. 1 we observed that assessee is earning income from leasing of the properties consistently from past several years and declaring the same under the head "Income from House Property". Even in the original return of income assessee has declared the same under the head "Income from House Property" However, in revised return of income assessee has changed the head of income to "business income" by heavily relying on the case of Hon'ble Supreme Court decision in the case of Chennai Properties & Investment Ltd., (supra). 13. After considering the detailed submissions of the assessee and the orders passed by the tax authorities we observed that the decision relied on by the assessee which is relating to the corporate ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
