Rajkumari Ramshakti Sheth, Ahmedabad vs Assessee

IN THE INCOME TAX APPELLATE TRIBUNAL " D " BENCH, AHMEDABAD (BEFORE SHRI SHAILENDRA Kr. YADAV, J.M. & SHRI ANIL CHATURVEDI, A.M.)

I.T. A. No. 2481/AHD/2011 (Assessment Year: 2008-09)

Smt. Rajkumari Ramshakti V/S ITO ward-11(4), Ahmedabad Sheth Prop. Ramraj Associates 126, New Cloth Market, O/s. Raipur Gate, Ahmedabad-380001

(Appellant) (Respondent)

PAN: ADIPR 4260N

Appellant by : Smt. Urvashi Sodhan, A.R. Respondent by : B.L. Yadav, Sr. D.R.

(आदे श)/ORDER

Date of hearing : 08-06-2015 Date of Pronouncement : 25-06-2015

PER ANIL CHATURVEDI, ACCOUNTANT MEMBER.

1. This appeal filed by the Assessee is against the order of CIT(A)-XVI, Ahmedabad dated 03.08.20111 for A.Y. 2008-09.

2. The relevant facts as culled out from the material on record are as under.

3. Assessee is an individual and proprietor of "Ramraj Associates" and stated to be engaged in the business of trading of cloth. Assessee filed her return of 2 ITA No 2481/AHD/2011 . A.Y. 2008-09 income for A.Y. 2008-09 on 22.08.2008 declaring total income of Rs. 3,85,081/-. The case was selected for scrutiny and thereafter the assessment was framed under section 143(3) vide order dated 15.12.2010 and the total income was determined at Rs. 8,11,960/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who vide order dated 03.08.2011 dismissed the appeal of the Assessee. Aggrieved by the aforesaid order of ld. CIT(A), Assessee is now in appeal before us and has raised the following grounds:-

1. The Id. CIT (A) erred in law and on facts in confirming action of AO in disallowing claim of bad debts of Rs. 4,07,853/- made by the appellant under the provisions of section 36 (1) (vii) of the Act. Ld. CIT (A) further erred in holding the same as capital loss failing to appreciate the fact that the interest income earned on advances made in the course of money lending business was offered to tax in earlier years. Ld. CIT (A) ought to have granted claim of bad debt made by the appellant.

2. Ld. CIT (A) erred in law and on facts in confirming disallowance made by AO of Rs.

19, 027/- out of motor car expenses, Telephone expenses & depreciation claimed on car without appreciating the fact that the said expenses were incurred for the purpose of business.

1st ground is with respect to disallowance of the claim of bad debts.

4. During the course of assessment proceedings, on perusing the return of income, A.O noticed that Assessee has claimed bad debts amounting to Rs. 4,07,853/- which comprised of debts stated to be out of money lending business and pertaining to two parties namely Shri Kantilal Hastimal (Rs. 3,55,000/-) and Madhavpura Mercantile Co-Op. Bank Ltd. (Rs. 1,05,705/-). A.O was of the view that since the present business of the Assessee was trading in cloth and had no relevance to the money lending business and in the absence of any evidence regarding money lending activity, the debt pertaining to money lent had no relevance with the income of the Assessee and therefore the same cannot be allowed u/s. 36(1)(vii) r.w.s. 36(2) of the 3 ITA No 2481/AHD/2011 . A.Y. 2008-09 Act and accordingly disallowed the claim of bad debts. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who upheld the order of A.O by holding as under:-

3.2 I have carefully considered the submission of the Ld. Counsel and the facts of the case. I have gone through the balance sheets and interest account of the A.Y. 1999-2000 onwards and noticed that though the name of Kantilal Hastimal was appearing in the balance sheets in the asset side but no interest was credited in his name in the interest account. It seems that no interest was ever charged from this party. Though, the assessee had not furnished any evidence regarding money lending business carried on by her but even if the assessee was in the business of money lending, no interest from Kantilal Hastimal was declared. In the balance sheets for the A.Y. 2005-06 to A.Y. 2007-08, the name of Kantilal Hastimal was appearing in the list of loans and advances whereas the name of Madhavpura Mercantile Co-operative Bank Ltd. was appearing in the list of investments. Therefore, even if the loans given to Kantilal Hastimal was not recoverable, it was a capital loss to the assessee. Likewise, the assessee had made investment with Madhavpura Mercantile Co-operative Bank Ltd. and the non- recovery of Rs. 52,853/-

(wrongly taken as Rs. 1,05,705/- by the Assessing Officer) was a loss of investment and that was also on capital account. Therefore, the assessee was not entitled to the claim u/s 36(1)(vii) for the loss on capital account The Assessing Officer had disallowed the claim as the appellant failed before him to satisfy the conditions laid down u/s 36(1)(vii) r.w.s. 36(2) of the Act and had not furnished any evidence of money lending business carried on by the appellant. No any such evidence was furnished during the appellate proceedings. When no interest was ever declared on the loans to Kantilal Hastimal (Rs. 3,55,000/-) and the loss was incurred for the investment with Madhavpura Mercantile Co-operative Bank Ltd., the conditions of sec. 36(2) was not fulfilled and therefore, the appellant was not entitled to the deduction u/s 36(1)(vii) of the Act. The appellant cannot derive support from the decision of TRF Ltd. vs. CIT 323 ITR 397 (SC) because this decision is applicable only if the bad debt is written off and not where the loans and advances and investments are written off. In view of the aforesaid discussion, I am of the opinion that the assessing Officer was justified in disallowing the claim of the appellant made u/s 36(1)(vii) of the Act. His finding is sustained and the disallowance of Rs. 4,07,853/- is confirmed. The second ground of appeal is accordingly dismissed.

5. Aggrieved by the aforesaid order of ld. CIT(A), Assessee is now in appeal before us.

6. Before us, ld. A.R reiterated the submissions made before A.O and ld. CIT(A). She further submitted that the Assessee is indeed engaged in the business of money lending and the amount of interest income is reflected in 4 ITA No 2481/AHD/2011 . A.Y. 2008-09 the Profit and Loss account. She pointed to the translated copy of the Profit and Loss account placed at page 75 to 88 of the paper book. She further submitted that the amount was lent to Kantilal Hastimal in the past in normal course of her business and on failure of Kantilal Hastimal to repay the amount, the amount was written off as bad debts. She further submitted that the amount was written off in the Profit and Loss account and the Assessee has complied with the provisions of Section 36(1)(vii) r.w.s. 36(2) of the Act. Ld. A.R. also placed on record the copy of the Balance sheet and Profit and Loss account of the Assessee of earlier years, the ledger account of Kantilal Hastimal. As far as the write off with respect to Madhavpura Mercantile Co-op. Bank Ltd. is concerned, she submitted that the interest income earned has been offered to tax by the Assessee in the past. She therefore submitted that Assessee be allowed the deduction of bad debts. The ld. D.R. on the other hand supported the order of A.O and ld. CIT(A).

7. We have heard the rival submissions and perused the material on record. The issue in the present case is with respect to the claim of bad debts. With respect to the amount lent to Kantilal Hastimal (Rs. 3,55,000/- which was written off during the year) it is Assessee's contention that the amount was lent in earlier years in the course of money lending activity of the Assessee and despite the efforts made by the Assessee for the recovery of amount and on failure of the Assessee to recover the amount, the amount has been written off as bad debts. On the other hand while upholding the action of A.O, it is CIT(A)'s finding that though the name of Kantilal Hastimal was appearing in the Balance Sheet but no interest from the amount lent was credited to the income account. Before us, the ld. A.R. has placed on record, the translated copy of the Balance Sheet and Profit and Loss account of 5 ITA No 2481/AHD/2011 . A.Y. 2008-09 earlier years to support the contention that the Assessee was indeed engaged in money lending activity in past and had shown the interest income in the return of income.

From the translated copy of Balance Sheet placed on record (which are duly certified by ld. A.R.), it is seen that Assessee on the asset side of the Balance Sheet has shown amount due from Kantilal Hastimal of Rs. 3,55,000 (as on 31.03.2002 Paper book page 75), Rs. 65,00,000 (as on 31.03.2001 paper book page 79) and Rs. 2,50,000/- (as on 31.03.2000 paper book page 84). Assessee has also placed on record the translated copy of interest account of earlier years i.e. for F.Y. 98-99, 99- 2000, 2000-01 & 2001-02. The perusal of the interest account of the earlier year reveals that though Assessee has shown interest income from various other parties but has not shown any receipt of interest from Kantilal Hastimal though as per Balance Sheets the amounts which were advanced by Assessee and which have been stated to be during the course of business had increased vis-a-vis 31.03.2000 and 31.03.2002. In such a situation the submission of the Assessee that the amount was advanced to Kantilal Hastimal in the normal course of money lending business cannot be accepted more so in the absence of income from the amount lent.

Before us, ld. A.R. has also not placed any material on record to demonstrate the terms and conditions of which the money was lent by Assessee to Kantilal Hastimal and also has not placed any material to controvert the finding of ld. CIT(A). With respect to amount written off with respect to Madhavpura Mercantile Co-Op. Bank Ltd., we find that ld. CIT(A) has noted that the investment with the bank were in the nature of investment and on capital account and the loss was a capital loss. Before us, Assessee has not placed any material on record to controvert the findings of ld. CIT(A). We therefore find no 6 ITA No 2481/AHD/2011 . A.Y. 2008-09 reason to interfere with the order of ld. CIT(A). In the result, the ground of Assessee is dismissed.

2nd ground is with respect to disallowance of expenses.

8. A.O noticed that Assessee has incurred motor car expenses, Telephone expenses and claimed depreciation on car the aggregate of which was Rs. 95,122/- A.O was of the view that the personal element in the aforesaid expenses cannot be ruled out. He accordingly disallowed 1/5th of the expenditure amounting to Rs.19,024/-. Aggrieved by the order of A.O., Assessee carried the matter before ld. CIT(A) who upheld the order of A.O by holding as under:-

4.0 The third ground of appeal is regarding the disallowance of 20% out of the motor car expenses, telephone expenses and depreciation on car. The Assessing Officer vide para-5 of the assessment order had held that personal element in the aforesaid expenses cannot be ruled out. He was of the view that it is not verifiable whether all the expenses were exclusively made for the purpose of business. The Ld. Counsel had not disputed this finding during the course of appellate proceedings nor any written objection was filed. In absence thereof, I have no reason to interfere with the finding of the Assessing Officer.

The finding of the assessing Officer is thus sustained and the disallowances are confirmed. The third ground of appeal is accordingly dismissed.

9. Aggrieved by the aforesaid order of ld. CIT(A), Assessee is now in appeal before us.

10. Before us, ld. A.R reiterated the submissions made before A.O and ld. CIT(A) and submitted that the addition made on ad hoc basis be deleted. The ld. D.R. on the other hand supported the order of A.O and ld. CIT(A).

11. We have heard the rival submissions and perused the material on record. We find that ld. CIT(A) while upholding the disallowance has noted that the 7 ITA No 2481/AHD/2011 . A.Y. 2008-09 counsel had not disputed the finding with respect to the personal element in the expenses and had also not filed any written objection. Before us, Assessee has not placed any material on record to controvert the findings of ld. CIT(A). We therefore find no reason to interfere with the order of ld. CIT(A).In the result, this ground of Assessee is dismissed.

12. In the result, the appeal of Assessee is dismissed.

Order pronounced in Open Court on 25- 06 - 2015.

Sd/- Sd/- (SHAILENDRA Kr. YADAV) (ANIL CHATURVEDI) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad. TRUE COPY Rajesh

Copy of the Order forwarded to:- 1. The Appellant. 2. The Respondent. 3. The CIT (Appeals) - 4. The CIT concerned. 5. The DR., ITAT, Ahmedabad. 6. Guard File. By ORDER

Deputy/Asstt.Registrar ITAT,Ahmedabad