2023 (4) TMI 748 - HC - Income Tax

Addition u/s 68 - entity which had granted the loan, had not responded to the summons - HELD THAT - Tribunal adopted the correct approach. Merely because the respondent/assessee had not repaid the balance amount and the creditor had not responded to the notice issued under Section 133(6) of the Act could not have been used as a reason by the AO to make an addition. Addition of amount written off by assessee - ITAT deleted the addition - HELD THAT - Tribunal has returned a finding of fact, that the amount reflected the interest accrued which had been offered for tax in the preceding year. In the AY in issue, since the amount could not be recovered from the debtor i.e., Bell Ceramics Ltd., the respondent/assessee had written off the same. Tribunal came to the correct conclusion, based on the appreciation of the material placed before it. Inter alia, the respondent/assessee not only submitted to the AO/CIT(A), the details of the amount given on loan to Bell Ceramics Ltd., as also the interest accrued from year to year, but also the TDS certificate and interest received on the amount of loan extended to the said entity. The addition, as noted above, was rightly deleted by the Tribunal. Correct head of income - whether the income earned from business centre, run and managed by the respondent/assessee should have been treated as income under the head income from Business and Profession or, as held by the AO/CIT(A), as income from House Property ? - HELD THAT - Tribunal, in our view, has correctly ruled that the business centre was being exploited by the respondent/assessee as a commercial asset. Therefore, the income from the same, as rightly concluded by the Tribunal, should have been treated by the AO/CIT(A) as business income. Consequently, the deduction of expenses as well as interest on borrowed capital would have to be allowed, in terms of Section 36(1)(iii) of the Act.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Deletion of additions under Section 68 of the Income Tax Act, 1961.
3. Write-off of outstanding credit balance.
4. Classification of income from business center as business income or income from house property.
5. Allowance of deductions/expenses under Section 36(1)(iii) of the Income Tax Act, 1961.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:

The appellant/revenue filed an application seeking condonation of a 117-day delay in filing the appeal. The court allowed the application for condonation of delay, stating, "For the reasons stated in the application, the delay is condoned."

2. Deletion of Additions Under Section 68 of the Income Tax Act, 1961:

The appellant/revenue raised issues regarding the deletion of additions made under Section 68 of the Income Tax Act, 1961, concerning unsecured loans and advances received by the respondent/assessee. The Tribunal examined the material on record and concluded that the respondent/assessee had discharged its onus of proving the identity, creditworthiness of the creditor, and genuineness of the transaction. The Tribunal noted that the respondent/assessee provided the PAN, bank statements, and acknowledgment of the creditor's return, which showed payment of advance tax, withholding tax, and self-assessment tax.

The court upheld the Tribunal's findings, stating, "The Tribunal, after taking into account, the legal principles on the subject, and the facts obtaining in the instant case, came to the correct conclusion."

3. Write-off of Outstanding Credit Balance:

The Tribunal examined the write-off of Rs. 1,90,64,516/- in the account of M/s. Bell Ceramics Ltd. The Tribunal found that the amount represented interest accrued and offered to tax in the preceding year, which could not be recovered and was written off during the year. The Tribunal concluded that the write-off was an allowable deduction, stating, "We agree with the contention of the assessee that the impugned sum is allowable as deduction for the reason that the Ld. AO has not disputed that the said sum has been offered as income in the preceding year."

The court concurred with the Tribunal's conclusion, noting, "The Tribunal came to the correct conclusion, based on the appreciation of the material placed before it."

4. Classification of Income from Business Center:

The issue involved whether the income earned from the business center should be treated as business income or income from house property. The Tribunal concluded that the business center was exploited as a commercial asset and not let out for earning rent. The Tribunal noted that the income from the business center had been consistently assessed as business income in preceding and subsequent years, except for the assessment years in question.

The court upheld the Tribunal's findings, stating, "The Tribunal, in our view, has correctly ruled that the business center was being exploited by the respondent/assessee as a commercial asset. Therefore, the income from the same, as rightly concluded by the Tribunal, should have been treated by the AO/CIT(A) as business income."

5. Allowance of Deductions/Expenses Under Section 36(1)(iii):

The Tribunal allowed the deduction of interest on borrowed capital under Section 36(1)(iii) of the Income Tax Act, 1961, noting that the loan obtained by the assessee was genuine and the interest paid on the borrowal for business purposes was allowable. The Tribunal directed the AO to allow the interest while computing the income under the head 'business'.

The court agreed with the Tribunal's direction, stating, "Consequently, the deduction of expenses as well as interest on borrowed capital would have to be allowed, in terms of Section 36(1)(iii) of the Act."

Conclusion:

The court found that no substantial question of law arose for consideration and upheld the Tribunal's findings on all issues. The appeal was closed, with the court stating, "The Tribunal has rendered findings of fact qua each issue, which in our opinion, are not unmerited. The appellant/revenue has not labelled any of the findings as perverse."

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