M/s. LUSAKA PROPERTIES P. LTD., MUMBAI v. ITO - 6(3)(2), MUMBAI

ITA 2952/MUM/2006 | 2003-2004
Pronouncement Date: 28-01-2010 | Result: Allowed

Appeal Details

RSA Number 295219914 RSA 2006
Bench Mumbai
Appeal Number ITA 2952/MUM/2006
Duration Of Justice 3 year(s) 8 month(s) 18 day(s)
Appellant M/s. LUSAKA PROPERTIES P. LTD., MUMBAI
Respondent ITO - 6(3)(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-01-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted K
Tribunal Order Date 28-01-2010
Date Of Final Hearing 21-01-2010
Next Hearing Date 21-01-2010
Assessment Year 2003-2004
Appeal Filed On 10-05-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH K MUMBAI BEFORE SHRI R.K. PANDA (AM) AND SMT. ASHA VIJAYARA GHAVAN (JM) ITA NO.2952/MUM/2006 ASSESSMENT YEAR- 2003-04 LUSAKA PROPERTIES PVT. LTD. 84 MARTHANDA DR. A.B. ROAD WORLI NAKA MUMBAI-400 018 PAN AAACLO137E THE ITO 6(3)(2) AAYAKAR BHAVAN MUMBAI-400 020 (APPELLANT) (RESPONDENT) APPELLANT BY: MS. AARATI VISANJI RESPONDENT BY: SHRI KESHAV SAXENA O R D E R PER SMT. ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DT. 10.2.2006 PASSED BY THE LD. CIT(A)-XXVI MUMBAI FOR THE ASSESSMENT YEAR 2003-04. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS ENGAGED IN THE BUSINESS OF SHARES AND SECURITIES. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAS RECEIVED THE DIVIDE ND AND INTEREST OF RS. 20 53 035/- ON WHICH THE ASSESSEE HAS COMPUTED TOTA L INCOME OF RS. 8 02 298/- WHICH HAS BEEN SET OFF AGAINST THE BROUG HT FORWARD BUSINESS LOSS OF 1997-98 AND 1998-99. THE ASSESSEE COMPANY HAD PURCHASED THE DEBT OF RS. 10 85 000/- ON ACCOUNT OF BAD DEBT WRIT TEN OFF. IN RESPONSE TO THE QUERY REGARDING THE NATURE AND ALLOWABILITY OF THE AMOUNT OF BAD DEBT BY THE AO THE ASSESSEES REPRESENTATIVE VIDE LETTER DT. 29.6.2005 STATED AS UNDER: OUR CLIENT HAD PURCHASED THE DEBT OF AMOUNT DUE T O ROSE PATEL MERCANTILE CO. LTD. FOR RS. 10 85 000/- BY PA YING THE ITA NO. 2952/M/06 2 SAID AMOUNT ON 12.12.1995 RS. 10 00 000/- AND ON 29.1.1996 RS. 85 000/-. THE AMOUNT WAS DUE FROM QU ALITRON COMPONENTS LTD. UNFORTUNATELY DUE TO LOSSES THE CO MPANY CLOSED DOWN ITS OPERATIONS AND ULTIMATELY WOUND UP BY THE ORDER OF GUJARAT HIGH COURT. 3. THE AO HELD THAT THE SAID DEBT OF RS. 10 85 000/ - WAS NOT A TRADE DEBT. THE AO FURTHER RELIED ON VARIOUS CASE LAWS A ND HELD THAT THE AMOUNT OF RS. 10 85 000/- WAS DEBITED ON ACCOUNT OF BAD DEBT WRITTEN OFF IS NOT ALLOWABLE AS BAD DEBT AS THE SAID AMOUNT WERE NEVER A TRADING DEBT. 4. THE ASSESSEE COMPANY CAME WITH AN ALTERNATIVE PL EA REQUESTING TO ALLOW THE SAID AMOUNT AS BUSINESS EXPENDITURE (LOSS ) U/S. 37(1) OF THE I.T. ACT. THE ASSESSEES REPRESENTATIVE PLACED REL IANCE IN THE CASE OF CIT VS C.M. CHINOY & CO. PVT. LTD. 74 ITR 780 (BOM) AND CIT VS SRI JEYA JYOTHI & CO. 164 ITR 318 (BOM). 5. THE AO HELD AS FOLLOWS: AS HAS ALREADY BEEN STATED EARLIER THE ASSESSEE CO MPANY IS DEALING IN SHARES AND SECURITIES AND TAKING OVER TH E DEBTS OF DEFUNCT COMPANIES IN THE PROCESS OF WINDING UP WAS NOT ITS BUSINESS. THEREFORE THIS EXPENDITURE OF RS. 10 85 000/- CANNOT BE SAID TO HAVE BEEN INCURRED WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF THE BUSINESS. 6. THE AO ALSO PLACED RELIANCE IN THE CASE OF TRAVE NCORE TITANIUM PRODUCTS LTD. VS CIT 60 ITR 277 INDIAN ALUMINIUM C O. LTD. VS CIT 84 ITR 735 CIT VS AMALGAMATION PVT. LTD (226 ITR 188) . THUS THE AMOUNT OF 10 85 000/- WHICH WAS INITIALLY CLAIMED AS BAD D EBT WRITTEN OFF AND LATER ON CLAIMED AS TRADING LOSS WAS NOT ALLOWED EI THER AS BAD DEBT OR TRADING LOSS BY THE AO. ITA NO. 2952/M/06 3 7. ON FURTHER APPEAL BEFORE THE LD. CIT(A) THE CIT (A) REQUESTED THE ASSESSEE TO FILE THE MEMORANDUM & ARTICLE OF ASSOCI ATION SO THAT THE MAIN OBJECT OF THE COMPANY COULD BE LOOKED INTO. T HE LD. CIT(A) HELD THAT THE MAIN OBJECT OF THE COMPANY WAS NEITHER FO R ADVANCING OF LOAN OR PURCHASING OF A DEBT OF ANY COMPANY. ITS NATURE OF BUSINESS WAS NEITHER THAT OF MONEY LENDING NOR THAT OF ANY SCHEDULED BAN K OR A FINANCIAL INSTITUTION. RATHER ITS MAIN OBJECT WAS TO CARRY O N THE BUSINESS OF PURCHASE AND SALE OF MOVABLE AND IMMOVABLE PROPERTI ES AND INVESTMENTS IN SUCH PROPERTIES. 8. THE LD. CIT(A) FURTHER HELD THAT IN VIEW OF THES E FRESH OBSERVATIONS GATHERED ON PERUSAL OF THE MEMORANDUM & ARTICLE ASS OCIATION OF THE COMPANY DT. 13.1.1989 IT IS VERY MUCH ESTABLISHED THAT THE SUM OF RS. 10 85 000/- CANNOT BE EVER TREATED AS A TRADE ADVAN CE. THERE WAS NO TRADING TRANSACTION BETWEEN THE APPELLANT COMPANY A ND M/S. QUALITRON COMPONENTS LTD. THEREFORE IT CANNOT BE ALLOWED AS A BAD DEBT BECAUSE IT IS NEITHER A PROPER DEBT NOR A DEBT OF REVENUE NATU RE. SINCE THE INITIAL CONDITIONS ARE NOT FULFILLED MERELY WRITING OFF TH E BAD DEBTS IN ITS PROFIT AND LOSS ACCOUNTS WILL NOT MAKE ANY DIFFERENCE AS F AR AS ALLOWING THE SAME ON ACCOUNT OF WRITING OFF OF ANY BAD (TRADING) DEBT IS CONCERNED. 9. WITH RESPECT TO THE ALTERNATE CLAIM OF ALLOWING THE SAME AS TRADING LOSS THE LD. CIT(A) HELD THAT THE PURCHASE OF A DE BT IS NEITHER AN EXPENDITURE NOR WAS CONNECTED WITH THE BUSINESS ACT IVITY OF THE ASSESSEE AND HENCE HE CONFIRMED THE ORDER OF THE AO AND DISM ISSED THE APPEAL. 10. AGGRIEVED BY THE ORDER OF THE LD. CIT(A) ASSESS EE PREFERRED AN APPEAL BEFORE US. THE LD. COUNSEL FOR THE ASSESSEE SMT. ARATI VISSANJI FILED A BULKY PAPER BOOK. SHE PLACED BEFORE US T HE ORDER FOR ASSESSMENT YEAR 2001-02 DT. 28.10.2003 WHEREIN IT H AS BEEN OBSERVED ITA NO. 2952/M/06 4 THAT THE ASSESSEE IS ENGAGED IN THE INVESTMENT ACT IVITIES AND ADVANCEMENT OF LOANS ETC. 11. THE LD. COUNSEL FOR THE ASSESSEE FURTHER POINTE D OUT THAT ACQUISITION OF THIS DEBT IS IN THE COURSE OF BUSINE SS AS THE WORD MOVABLE IN THE MEMORANDUM & ARTICLE ASSOCIATION WIL L INCLUDE A DEBT AND THEREFORE THE TRANSACTION OF ACQUISITION OF DEB IT IS ACCORDING TO THE MEMORANDUM OF ASSOCIATION. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE PRECEDING YEARS FROM THE REC ORDS IT CAN BE SEEN THAT THE DEPARTMENT HAS ACCEPTED THE RETURNS SHOWIN G BUSINESS INCOME WHERE NO SEPARATE INTEREST INCOME HAS BEEN SHOWN. THE LD. COUNSEL ALSO FILED THE FOLLOWING: (1) AUDITORS ACCOUNTS FOR THE YEAR ENDED 31.3.2001 2002 AND 2003 (2) COMPUTATION OF INCOME FOR THE ASSESSMENT YEARS 2001-02 2002-03 AND 2003-04 (3) DETAILS OF INTEREST INCOME FOR THE YEAR ENDED 2 001-02 2002- 03 AND 2003-04. (4) DETAILS OF THE SHARE BADLA TRANSACTIONS DONE WI TH THREE PARTIES. 12. THE LD. DEPARTMENTAL REPRESENTATIVE SHRI KESHAV SAXENA POINTED OUT THAT THE CENTRE OF THE BUSINESS FOR THE ASSESSE E IS IN MUMBAI WHEREAS THE ASSESSEE HAD PURCHASED THE DEBT WITH RE SPECT TO COMPANY BASED AT AHMEDABAD WHICH WAS UNNATURAL. HE ALSO S UBMITTED THAT THE SHARE BADLA HAS REMAINED AT THE SAME FIGURE FOR THE ASSESSMENT YEARS 2001-02 2002-03 AND 2003-04. HE RELIED ON THE DEC ISION OF 202 ITR 417 226 ITR 188 AND 194 ITR 343 (CAL). IN SUPPOR T OF HIS CONTENTION THAT THE DEBT CAN NEITHER BE ALLOWED AS BAD DEBT NO R AS A TRADING LOSS. ITA NO. 2952/M/06 5 13. SINCE THE ABOVE ADDITIONAL EVIDENCE HAVE BEEN F ILED BY THE LD. COUNSEL FOR THE ASSESSEE UNDER RULE 29 OF I.T. RULE 1963 AND THE AO DID NOT HAVE THE BENEFIT OF GOING THROUGH THE DETAILED ANALYSIS OF THE INTEREST INCOME AS REFLECTED IN THE BALANCE SHEET WE DEEM I T FIT THAT THE MATTER SHOULD BE RESTORED TO THE FILE OF THE AO. THE AO S HALL GIVE AN OPPORTUNITY TO THE ASSESSEE TO REPRESENT THE ASSESSEES CASE EF FECTIVELY WITH THE SUPPORT OF THE ADDITIONAL EVIDENCE NOW PRODUCED BEF ORE US. 14. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THIS 28 TH DAY OF JANUARY 2010 SD/- SD/- (R.K. PANDA) (AS HA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI DATED 28 TH JANUARY 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR K BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR I.T.A.T MUMBAI ITA NO. 2952/M/06 6 DATE INITIALS 1 DRAFT DICTATED ON: 22.1.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 25.1.10 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/ PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______