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TMI Blog2011 (1) TMI 1223X X X X Extracts X X X X X X X X Extracts X X X X ..... te tax credit under section 115JA. The assessee filed a revised return of income on February 5, 2001 declaring loss of ₹ 32,46,645. This return was processed under section 143(1) on March 26, 2002. Thereafter, a notice under section 148 of the Act was issued on March 27, 2007 to the assessee and the assessee-company filed a reply on April 5, 2007 requesting the Assessing Officer to consider the return of income already filed on February 5, 2001 as that which was filed in response to notice under section 148. The assessee sought reasons for reopening and the Assessing Officer communicated the same. The assessee raised objections. The Assessing Officer disposed of these objections in the assessment order itself. He assessed the income of the assessee at ₹ 7,84,98,560, inter alia, making addition of income under section 41(1) amounting to ₹ 7,42,36,020 being loan written by M/s. Syndicate Bank in pursuance of an order of the Debt Recovery Tribunal, Mumbai and addition of ₹ 76,16,250 on account of wreck removal charges. Aggrieved, the assessee carried the matter in appeal before us. The first appellate authority granted part relief. Further, aggrieved, the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant under section 234B ₹ 1,75,76,120 and section 234D ₹ 2,75,547 respectively. Learned counsel for the assessee Shri Sanjiv M. Shah submitted that the reopening of the appeal is bad in law for the following reasons : (a) The amount was offered to tax for the assessment year 2004-05 and it was assessed on substantive basis and hence the reasons recorded was wrong. (b) The order for the assessment year 2004-05 was passed under section 143(3) on October 13, 2006 and thereafter on March 27, 2007 notice of reopening has been given and that no reopening can be made on protective basis. For the proposition that reopening cannot be made in the realm of doubt, he relied on the following case law : M. P. Ramachandran v. Deputy CIT [2011] 8 ITR (Trib) 655 (Mumbai) ; 32 SOT 592. That once a substantive addition is made reopening cannot be made on protective basis (c) The reasons for reopening are perverse as the Assessing Officer wanted to tax the same income twice. (d) The objections for reopening were not separately disposed of but were dealt with only within the assessment order and hence illegal. (e) The reasons for reopening was wrong as there is no speculative in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that reopening is correct in law. He pointed out that the return of income was processed under section 143(1) and no opinion has been formed. He pointed out that the note given, i.e., Note No. 2(e) to the balance-sheet is misleading and the Assessing Officer was right in entertaining a reasonable belief that the income escaped assessment. He refuted various contentions of the assessee and relied on the order of the learned Commissioner of Income-tax (Appeals). He further relied on the recent judgment of the hon'ble High Court in the case of Multiscreen Media P. Ltd. v. Union of India [2010] 324 ITR 54 (Bom) for the proposition that the material found in the subsequent assessment proceedings can form the basis for reopening the assessment. On the issue of bringing to tax the amount written off by Syndicate Bank in this year, the learned Departmental Representative relied on the order of the Assessing Officer. In regard to ground No. 7, he submitted that the same may be set aside to the lower authorities. As regards the ground No. 8, he agreed that the same is consequential in nature. Rival contentions heard. On a careful consideration of the facts and circumstances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued by the New India Assurance Company Limited on November 18, 1985. The claim sanctioned under the above policy by the insurance company, or award/decree passed for payment of claim is solely payable to defendant No. 1 Messrs Maini Shipping Private Ltd. (emphasis supplied). Paragraph 2 of the above decree makes it clear that in the event of the assessee committing a default in payment of any instalment the consent terms shall lapse. From the above, it is clear that, only on fulfilling certain conditions which is spread over a period of time, the assessee would derive the benefit. The payments to be made by the assessee are spread over a period of three years. Only on completion of payments, the assessee shall get a concession and not otherwise. Only on October 18, 2003, the bank vide letter dated October 18, 2003 at paragraph 4 stated as under : "Our claim against you in the above matter stands fully satisfied under OTS and we do not have any further claim against you under this case." This letter was given only after all the instalments were paid by the assessee to the bank, which was in the assessment year 2004-05. Thus, in our considered opinion, the income, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad debts of ₹ 26,25,000 claimed by the appellant-company under section 36(1)(vii) of the Income-tax Act, 1961 by holding that the date under consideration is not related to an amount which has been taken into account in computation of income of the appellant-company and also erred in holding that unless it can be held that the appellant-company is engaged in money lending business, the bad debts claimed by the appellant-company cannot be allowed as per the provisions of section 36(2) of the Income-tax Act, 1961. 2. That the learned Commissioner of Income-tax (Appeals) erred in not allowing the claim of ₹ 26,25,000 as expenditure under section 37(1) of the Income-tax Act, 1961 being incurred wholly and exclusively for the purposes of business of the appellant-company. 3. That the learned Commissioner of Income-tax (Appeals) erred in confirming the interest charges under sections 234B and 234C of the Income-tax Act, 1961. The assessee has raised two additional grounds which read as follows: "1. The Assessing Officer be directed to exclude the sum of ₹ 7,42,36,024 from the total income of the assessment year 2004-05 inasmuch as the addition has been made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 143(3) to assess the income as income from business. He referred to the profits and loss account for the year ended March 31, 2004 which is at page 124 of the assessee's paper book, wherein "Income from finance activity" was given under that head. He submitted that even under the Companies Act, the income is being shown as "income from finance activity". Even in the financial year ended March 31, 2002 at page 176 of the paper book, the interest from finance activity is shown. He relied on the following case law : (i) Poysha Oxygen P. Ltd. v. Asst. CIT [2008] 19 SOT 711 (Delhi) (TM) ; and (ii) CIT v. Omega Forwarders P. Ltd. [2009] 316 ITR 342 (Mad). The sum and substance of his submission is that the assessee was offered interest income as part of its business activity nor of the earlier years as well as this year and that the write off of bad debt should be allowed following the decision of the hon'ble Supreme Court in the case of T. R. F. Ltd. v. CIT [2010] 323 ITR 397 (SC). On ground No. 2, he submitted that this is an alternative ground that bad debt in question is to be allowed under section 37(1) of the Act. On ground No. 3, he sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken into account on the loan written off. He submitted that the loan was given during the current financial year and the borrower has not been charged with any interest. He pointed out that the borrower died within six months and the entire transaction shows that this was not for the purpose of profit. Thus, he submitted that the requirement of section 36(2) is not fulfilled. On the decision cited by the assessee, he distinguished the same by submitting that there is no dispute in those cases that the assessee was in the business of banking or money lending. On ground No. 2, he relied on the order of the Commissioner of Incometax (Appeals). On ground No. 3, he submitted that the same is consequential. On additional ground No. 2, he submitted that similar issue arises in the Departmental appeal and they may be disposed of together. After hearing the rival contentions, on the first issue of bad debts, we hold that the assessee is not in the business of banking or money lending. The amounts advanced in this case, in our considered opinion, cannot be considered as having been lent in the ordinary course of business of banking or money lending, which is carried on by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment 2004-05, where the order has been passed under section 143(3) on November 26, 2007. Here also the entire interest income has been assessed as business income without discussing or taking a conscious decision. Thus, the fact that the interest on the advance is assessed as business income, do not come to the rescue of the assessee. Thus, on facts, we uphold the order of the Commissioner of Income-tax (Appeals) where in paragraphs 3.2 to 3.6 he held as follows : "3.2. I have perused the facts of the case. The issues that emanate in the present case are first whether in the facts of the appellant's case the activity of money lending is a business activity and, second whether provisions of section 36(2) are applicable to the facts of the case. I take up the second issue first. Section 36(2)(i) categorically specifies that bad debt can be allowed only when the debt or a part of it has been taken into account in computing the income of the assessee, either in the current year or in any of the earlier years. At the same time the latter part of this clause specifies that it shall even otherwise be allowed if it is a debt in the ordinary course of money lending business. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te of interest is therefore not supported by conduct. 3.5 It is necessary to look into the basic requirements for an activity to be classified as business. It is an established principle that there are two basic requirements for an activity to be classified as business. These are : First, a continuous exercise of activity occupying time, attention and labour of a person, and second it should be undertaken with a profit motive. The underlying fundamental idea is continuous exercise of an activity with profit motive. Invariably an effort is involved. There is an active connotation about it in contrast to a lull. These principles have been enunciated time and again by various authorities in several decisions. So, when we talk of business, an active connotation is always there, an activity with a profit motive. The person undertaking the activity knows that these efforts are likely to yield profits and therefore he strives. 3.6 In the facts of appellant's case both the basic requirement for the activity to become a business are not satisfied. In respect of 98 per cent. of the loan advanced, the activity is an in-house activity, admitting that Brita Maini is an outsider. Ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a borrower and "G" is a guarantor. In the case on hand, no such agreements are shown. Moreover, we held that the assessee is not in the business of money lending or banking and hence the case law does not apply. In view of the above discussions, we dismiss ground No. 1 of the assessee. Coming to ground No. 2, the said amount cannot be allowed under section 37(1) of the Act as the amount in question has not been demonstrated to have been advanced for the purpose of business and that the loss in question is in the revenue field. The amount has been advanced to one M/s. Brita Maini on February 26, 2003 and the purpose is not known. There was no interest recovery and it cannot be said that this is a loss incurred in the normal course of business. Thus, this ground is hereby dismissed. Ground No. 3 is in respect of levy of interest under section 234B. This is dismissed as levy of interest is consequential. On the additional ground of appeal, we would dispose of the same along with ground No. 2 of the Revenue's appeal which is on the same issue. In the result, the appeal is allowed in part. Now we take up the Revenue's appeal in I. T. A. No. 3531/Mum/2007. The grou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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