TMI Blog2023 (10) TMI 297X X X X Extracts X X X X X X X X Extracts X X X X ..... ancial year 2011-12, the debt has become bad will remain mere an unsubstantiated claim or an assertion on part of the assessee. Infact, if we look at the confirmation so filed by M/s City Beautiful Engineering Company Pvt limited, it states that It is hereby confirmed that an amount was due to Mr Sukhwant Singh Ahluwalia resident of 205, Sector 36-A, Chandigarh as on 31 March 2012. The said amount was received on 31 December 2010 vide cheque no. 401687. This was an interest bearing borrowing, however, no interest has been paid/credited on the said dues The said confirmation infact shows not just the existence of the loan transaction entered into by the borrower company with the assessee but also an affirmation by the borrower company that the amount of loan is payable by them to the assessee as on the close of the financial year 2011-12. It nowhere reflects or makes any statement which in any way reflect that the loan transaction has become bad as on 31/03/2012. The fact that the interest has not been paid as so stated therein doesn t lead to any conclusion that the loan transaction itself has become bad. Therefore, in absence of any other document on record, this confirmat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... H COURT] and K.R. Srinath [ 2001 (8) TMI 299 - ITAT MADRAS-C] support the case of the assessee. Therefore, the income has been rightly offered to tax under the head Capital gains and the same cannot be brought to tax under the head Income from other sources . Thus, the ground of appeal is allowed. - Shri. Vikram Singh Yadav, AM For the Assessee : Shri Parikshit Aggarwal, CA For the Revenue : Shri Akashdeep, JCIT, Sr. Dr ORDER PER VIKRAM SINGH YADAV, AM This is an appeal filed by the Assessee against the order of the Ld. Commissioner of Income Tax, (Appeals)-1, Chandigarh [hereinafter referred to as CIT(A) ] passed under section 250(6) of the Income Tax Act, 1961 (in short the Act ) dt. 04/12/2018 pertaining to A.Y. 2012-13 wherein the assessee has taken the following revised grounds of appeal: 1. That on the facts, circumstances and legal position of the case, the Worthy CIT(A) in Appeal No. 61/14-15/A.Y. 2012-13 has erred in passing that order in contravention of the provisions of S. 250(6) of the Income Tax Act, 1961. 2. That on law, facts and circumstances of the case, the Worthy CIT (A) has erred in confirming the action of the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erent persons with different names. Further, the confirmation given by CBECPL also categorically confirms that it is in no way related to the assessee. 5. It was submitted that the disallowance u/s 36(l)(iii) was wrongly made and wrongly confirmed due to following reasons. It was not a case of interest free advance. Therefore, the decision in Abhishek Industries (supra) has been wrongly applied by the Ld. AO. When a debt has turned bad in the case of a money lender, there is no illegality in not booking interest thereon and booking of the same at the time of receipt is an accepted method. The assessee did receive some interest of Rs. 5,71,001/- during AY 2015-16 which has been offered to tax in the ITR of AY 2015-16 (PB Pg 26). For this proposition, reliance was placed on the decisions in case of CIT vs Ferozepur Finance Pvt Ltd 124 ITR 619 (P H HC), CIT vs Eicher Ltd 320 ITR 410 (Del. HC), CIT vs Excel Industries Ltd 358 ITR 295 (SC) and Bechtel International Inc vs DDIT (Mum ITAT). 6. It was submitted that the CIT(A) has wrongly observed that the assessee in not into money-lending business and the borrower is related to the assessee. It was further submitted that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s profit loss account and has failed to furnish any plausible explanation for non-charging of interest on the funds given to M/s City Beautiful Engineering Company Pvt. Ltd. for the year under consideration, AO made proportionate disallowance of interest expenditure u/s 36(1)(iii) of the Act amounting to Rs. 9,09,340/- (12% of Rs. 75,77,838/-). The appellant has submitted that interest cannot be disallowed on the following grounds that: (i) he was engaged in borrowing and lending of money and this was also reflected in his return and the interest income on the advance was not booked as income on accrual basis as this was a case of a non-cooperative borrower who defaulted in payment of not only the interest but also the timely repayment of principal. The principal amount of loan could be recovered in FY 2014-15 only on which interest of Rs. 5,71,001/- was also declared as income for the AY 2015-16 as the borrower had settled the account at that time after lots of efforts by the assessee to recover the stuck principal amount. The said borrower had also deducted TDS of Rs. 57,101/- on the interest amount. This also establishes that it was infact an interest bearing loan given by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or can be asked AO to obtain from the borrower. 5.2.2. At the outset computation of total income for AY 2015-16 no where emanates that appellant is in the business of money lending. Under the head income from other sources only three items are there i.e. (i) Interest on securities Rs. 1,08,264/-, (ii) Interest on Refund Rs. 27,900/-, and (iii) interest from City Beautiful Engineering Company Pvt Ltd Rs. 5,71,001/-. Even in the instatnt year i.e FY 2011- 12, Interest from other parties is just a meagre amount of Rs. 1/- Lakh that too does not establishes the claim of the appellant. Now the very loan amounting to Rs. 75,77,838/- advanced to the City Beautiful in the FY 2010-11 is disputed by the AO. Interestingly, AR of the appellant on the basis such facts has tried to establish his case that appellant is in the business of carrying money lending that too when no interest has been charged in the FY 2010-11, 2011-12, 2012-13 and 2013-14.Just stating in the column in the Computation of total income that appellant is money lender is not sufficient if it is not corroborated with any material evidence or facts. One more interesting fact is that in the City Beautiful Engineering Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind that the amount advanced by way of loan of Rs 75,77,838/- by the assessee to M/s City Beautiful Engineering Company Pvt limited was an interest bearing loan as evidenced from the confirmation filed by M/s City Beautiful Engineering Company Pvt limited, the fact that interest amounting to Rs 571,001/- has been paid on 31/03/2015, the fact that the TDS @ 194A has been deducted thereon, the fact that the interest and TDS thereon is reflected in Form 26AS of the assessee for the financial year 2014-15 relevant to assessment year 2015-16 and the fact that there is no other loan transaction with M/s City Beautiful Engineering Company Pvt limited which is on record. 9. Having said that, the question that arises for consideration is where the assessee was following mercantile system of accounting, why it has not accounted for such interest accrual in his profit/loss account and offered the same to tax for the financial year 2011-12 relevant to impugned assessment year 2012-13. The explanation which has been submitted by the assessee is that it is a case of non-cooperative borrower who had defaulted in payment of not only the interest but also the timely repayment of principal, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f agreed upon rate of interest between the parties, therefore, being a case of unsecured loan, the matter is set-aside to the file of the AO for the limited purposes of determining the appropriate rate of interest on the unsecured loan as prevailing in the relevant point in time and bringing the same to tax. The assessee is at liberty to provide relevant information/documentation to assist the AO in determining the appropriate rate of interest. 11. In the result, the ground of appeal is disposed off in light of aforesaid directions. 12. Ground no. 3 relates to treating the gain from sale of capital asset as income from other sources. In this regard, the ld AR submitted that the assessee entered into an agreement to purchase a property in 2005 and paid consideration of Rs. 14 Lacs. The seller could not transfer this property to the assessee and after persistent and consistent meetings, the seller refunded back Rs. 28 Lacs to the assessee in 2012 (in the year in question) on cancellation of the original agreement. In his ITR, the assessee treated the above transaction of entering into an agreement in 2005 for purchase of a property as amounting to a capital asset in the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , he bonafidely acquired the right. The subsequent discovery or coming to the knowledge of the assessee about defect in the title of seller can not dilute the already acquired right and in-fact, assessee kept on insisting the seller to clear his defect in the title. It was not a case where the seller did not have any title at all. It was a case of defect in title which was discovered much later to the execution of the agreement and even that defect was curable but without curing such defect, the sale deed could not have been executed in favour of the assessee. Therefore, assessee did acquire right to own an asset by entering into the purchase agreement and by paying the advance of Rs. 14 Lacs in 2005. For this proposition, reliance was placed on the following decisions namely, Sanjeev Lai etc. vs CIT 365 ITR 389 (SC), J.K. Kashyap vs ACIT 76 CCH 375 (Del HC), CIT vs Vijay Flexible Containers 186 ITR 693 (Bom HC) and K.R. Srinath vs ACIT 20 CCH 289 (Chen Trib) 16. It was further submitted that the contention of the CIT(A) that since the agreement of 2005 and its cancellation in 2012 are both unregistered, they are invalid, it is most respectfully submitted that this contention is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the name of petitioner whereas in the case of assessee, the property in question was never transferred in the name of the assessee. He also distinguished the facts in the case of 'J.K. Kashyap vs. ACIT (2008) 302 ITR 255 as the assessee has never acquired any right in the property, so question of relinquishing his rights in the property does not arise. Therefore, he treated the excess receipt of Rs. 14,00,000/- (Rs. 28 lacs-Rs.14 lacs) as 'Income from Other Sources'. I find strength in the findings of the Assessing Officer. On perusal of Agreement to Sell dated 11.07.2005, it is found that this agreement is an unregistered document which must have been registered as per Registration Act for a Land, price of which was fixed at Rs. 4,50,00,000/-. Various terms and conditions for payment were laid down. At page 2 para 2 of the agreement, it is categorically mentioned that ..that the said property is free from all sorts of encumbrances i.e. sale...they are competent to sell this land. When at the outset, it was clear that the land was free from any encumbrances, then it is make belief story that the seller was unable to transfer the property in the name of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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