Case Law Details
Zen Industrial Services Ltd. Vs DCIT (ITAT Kolkata)
1. This appeal by the Assessee arises out of the order of the Learned Commissioner of Income Tax(Appeals)-2, Kolkata [in short the ld CIT(A)] in Appeal No.304/CIT(A)- 2/15-16 dated 05.09.2016 against the order passed by the DCIT, Circle-5(1), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 20.03.2015 for the Assessment Year 2012-13.
2. The only issue to be decided in this appeal is as to whether the Ld. CIT(A) was justified in upholding the disallowance of write off of outstanding loan and interest aggregating to Rs. 56,94,685/-, in the facts and circumstances of the case. The interconnected issue is as to whether the Ld. CIT(A) was justified in upholding the treatment of interest income earned during the year in the sum of Rs. 9,02,612/- as income from other sources instead of business income in the facts and circumstances of the case.
3. The brief facts of this issue is that the assessee is a limited company having its shares quoted in recognized stock exchange. The ld. AO observed that the assessee is engaged in the business of investment and general merchant and commission agency. The assessee pleaded that it is also engaged in the business of money lending by granting loans to several parties with or without interest, out of own funds as well as borrowed funds. The assessee wrote off of the sum of Rs. 56,94,685/- as bad debt in its profit and loss account comprising of principal portion of Rs. 20 lacs and interest outstanding of Rs. 36,94,685/- and claimed the same as deduction u/s 36(1)(vii) of the Act. Admittedly the assessee had offered the interest income of Rs. 36,94,685/- in respect of loan given to Mr. Umesh Jatia, 4, MIDC, Bosani Industrial Estate, Pune-4 11026 from 31.03.1999 to 31.03.2011. The loan was given to Mr. Umesh Jatia during the financial year 1998- 99 in the sum of Rs. 20 lacs and interest thereon was offered by the assessee under the head income from business commencing from assessment year 1999-2000 till assessment year 2011-12 on accrual basis. This interest income was assessed as such by the ld. AO under the head income from the business for all the years. Out of these years, it is evident from the chart mentioned in page 7 of the paper book that assessment for the assessment year 2007-08 was completed u/s 143(3) of the Act. The ld. AO observed that the assessee is not engaged in the business of money lending and is not a non-banking finance company and accordingly he held that the assessee had not proved the fact that the debt has become bad. He also held that the loan given to Umesh Jatia was not incidental to the business of the assessee and accordingly held that the conditions prescribed in section 36(1)(vii) of the Act were not satisfied by the assessee. The assessee replied that for the financial year 2011-12 relevant to assessment year 20 12-13, the assessee had indeed given fresh loans to several parties to the tune of Rs. 1,86,29,850/-. The opening balance of loans receivable by the assessee from 8 parties was Rs. 1,15,10,793/-. The fresh loans given during the year under appeal to three parties were Rs. 1,86,29,850/-. The loans repaid by various parties during the year were Rs. 2,28,18,599/- thereby levying a closing balance of Rs. 7,70,044/-. Apart from this, the assessee had also given advances to Mr. R.K.Dixit in the ordinary course of business amounting to Rs. 12,65,000/- in the earlier years which was lying as outstanding as on 31.03.2012. The assessee pleaded that it has received interest from most of the parties to whom loans were given at the interest rate of 12%, 13%, 15%, as the case may be, and offered the said interest income under the head income from business consistently in the past and which has been accepted by the Department and assessed as such under the head income from business. The ld. AO however did not accept this contention and proceeded to disallow the entire write off of bad debts of Rs. 56,94,685/- in the assessment. This action of the ld. AO was upheld by the Ld. CIT(A). Aggrieved the assessee is in appeal before us on the following grounds:
1. That the learned Commissioner of Income Tax (Appeals) failed to appreciate that the appellant had also been carrying on the business of lending monies on interest and thus he erred in dismissing the appellant’s grounds of appeal relating to the deduction allowable for Writing off of bad debts in the form of Outstanding Loan and Interest aggregating to Rs. 56,94,685/-.
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