9911796707
TMI Blog2011 (1) TMI 1182X X X X Extracts X X X X X X X X Extracts X X X X ..... ddition made by the AO. - Decided in favor of assessee. Depreciation and administrative expenses - Ownership - Held that:- issue relating to depreciation on building set aside to the file of the AO for fresh adjudication - Regarding disallowance of adminstrative expenditure - disallowance of entire expenses was not justified, to meet the ends of justice deem it appropriate to restrict the disallowance to the extent of 50 per cent out of the disallowances made by the AO on account of the expenses. Addition in capital account - Held that:- assessee furnished a handwritten receipt issued by one Shri Bhupinder Singh s/o S. Ajmer Singh where the said person had shown that he had paid Rs. 1,50,000 through account payee cheque to the assessee towards purchase of old school furniture from her, it appears that all the information was in his possession and if he was having any doubt regarding the receipt by the assessee on account of sale of old furniture, AO made the addition only on the basis of doubt and the learned CIT(A) had also not given any cogent reason while confirming the action of the AO, addition sustained by the learned CIT(A) deleted. Interest - Addition on presumption and sur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t thereof under s. 36(2)(i) of the IT Act, cannot be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of business of banking or moneylending which is carried on by the assessee. According to the AO, the claiming of bad debts of Rs. 39 lacs did not relate to any debt or part thereof, which had been taken into account in computing the income of the assessee of the previous year or any earlier previous year and that the making of fixed deposit with bank could not be treated as moneylending business in ordinary course of business and similarly depositing money with share broker (Century Consultants Ltd.) for Badla transactions in stock market also could not be treated as lending money in ordinary course of business. He was of the view that making of deposits with the bank and putting security deposit with share broker for Badla transactions were capital investments and could not be treated as revenue expenditure and that the assessee had already been showing intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourse of business and it must have become bad. (i) That as far as reply to first ingredient is concerned the 'debt' could be defined as a liability to pay in present or in future unascertainable money. On a deposit being made; the depositee incurs a liability although the time for payment could come only when a demand is made.--Ramanathan Chettiar v. Ramanathan Chettiar AIR 1968 SC 1047, 1049. (ii) That payment of interest is of paramount consideration for determining whether or not a particular money is a debt or a trust.-- Jessu Ram Fateh Chand v. Official Liquidators AIR 1962 All 370, 372 (Trusts Act, 1932 s. 3). That on perusal of abovementioned two conditions (i) and (ii) it is clearly established that the amount of Rs. 39,00,000 employed with City Co-operative Bank and Century Consultant Ltd. was a debt (considering the intention of the assessee which is primary condition before arriving at a conclusion). That as the bank had eloped which is a widely known fact and after waiting for long years the assessee claimed it as bad debt during the year after writing it off in her books of account. That both the above conditions are being fulfilled, as such the amount of Rs. 39, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t office and also from private parties. It was contended that since the bank with which the deposit was made eloped, so, it was not possible to recover the amount from the bank as such, the amount was written off as bad debts. It was further submitted that when the amount was deposited with the bank to earn income, relationship which constituted between the banker and the assessee was one of debtor and creditor and not of the trustee and beneficiary, since the bank and the broker were the debtors of the assessee and it was not possible to recover the money, therefore, it was written off and claimed as bad debts. Reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Shanti Prasad Jain v. Director of Enforcement AIR 1962 SC 1764. It was clarified that allegation of the AO that the assessee had shown interest income from the parties in question under the head 'Income from other sources' was wrong because no interest was received from the absconding parties, therefore, interest income was not shown under any head of income from those parties in the year under consideration. 8. In his rival submissions, the learned Departmental Representative strongly supporte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... debtor and not trustee." 10. In the present case also, the assessee made the deposit of Rs. 34 lacs with the banking company, namely, City Co-operative Bank, so there was relationship of debtor and creditor and as the amount deposited by the assessee with the bank could not be recovered so, there was loss to the assessee, which was claimed as bad debts. The assessee had written off the amount in the books of account, therefore, the claim of the assessee that it is allowable as bad debts. Similarly, the amount of Rs. 5 lacs was deposited by the assessee with the Century Consultant Ltd. The said amount was also claimed as bad debt. The assessee has written off this amount also in the books of account. In the present case, the assessee was engaged in the business of moneylending, the amount was given with the intention to earn better return i.e., the higher rate of interest. Recently, the Hon'ble Supreme Court in the case of T.R.F. Ltd. v. CIT [2010] 323 ITR 397/190 Taxman 391 has held as under : "After the amendment of s. 36(1)(vii) of the IT Act, 1961, w.e.f. 1st April, 1989, in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that in the preceding year, the assessee had 'income from other sources' and had no business income on loan amount given, as such, the question of deduction of TDS during the relevant year did not arise. Our attention was drawn towards p. 4 of the assessee's compilation and it was submitted that the total income of the assessee from moneylending business was Rs. 10,85,550, therefore, the provisions of s. 44AB of the IT Act were not applicable. It was further stated that the assessee is the proprietor and being individual, the provisions of s. 194H were not applicable to the assessee's case. 17. In his rival submissions, the learned Departmental Representative strongly supported the orders of the authorities below. 18. We have considered the submissions of both the parties and gone through the material available on record. In the present case, it is noticed that the assessee was engaged in the moneylending business and earning interest income. The AO made the disallowance for the reason that the assessee had not deducted tax at source on the commission and brokerage in accordance with the provisions contained in s. 194H of the IT Act, as such, the provisions of s. 40(a)(ia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amount involved in the transaction relating to the selling of properties was not the part of turnover of the assessee. We, therefore, considering the totality of the facts as discussed hereinabove, are of the view that the learned CIT(A) was not justified in confirming the addition made by the AO. Accordingly, the said addition is directed to be deleted. 19. The next issue vide ground No. 3 relates to the disallowance out of depreciation and administrative expenses. 20. The facts relating to this issue, in brief, are that the assessee claimed depreciation on building and other assets including cars, computers, furniture and mobile etc. According to the AO, the assessee furnished photocopy of incomplete agreement to sell, which only mentions the name and address of the purchaser and seller and did not mention the address of the flat in question. The AO also pointed out that it was clear that the flat was being used by the assessee for her residence and no business activity was being carried out. As regards to the depreciation on cars, the AO pointed out that the documents of registration certificate furnished by the assessee revealed that the date of manufacturing of the car was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regards to the depreciation on other items is concerned, it is noticed that the assessee had not challenged the same before the learned CIT(A). We, therefore, do not see any merit in this contention of the learned counsel for the assessee that depreciation was allowable in respect of other items also. 24. As regards to the another issue involved in this ground of appeal relating to disallowance of the administrative expenses amounting to Rs. 1,54,182 is concerned, the facts, in brief, are that the assessee claimed the following expenses : Electricity expenses Rs. 38,661 Internet charges Rs. 9,247 Insurance charges Rs 14,351 Legal expenses Rs. 10,000 Printing and stationery expenses Rs. 1,565 Repairs and maintenance expenses Rs. 12,661 Travelling expenses Rs. 11,824 Telephone expenses Rs. 55,873 24.1 The AO disallowed the claim by stating that personal usage could not be ruled out and that the assessee did not furnish any documentary evidence in support of the expenditure incurred. 25. On appeal, the learned CIT(A) confirmed the action of the AO by "observing that the expenses seem to be belonging to the residential premises. 26. Now, the assessee is in appeal. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te when it was issued which is very important to prove the date of transaction. B. Though the said receipt issued mentioned that payment was made by account payee cheque but it did not specify the cheque number, name of the bank and branch on which it was drawn and even the date of said cheque which itself creates doubt about its genuineness. C. In normal course of business the purchaser of any old assets only describes the details of purchased assets and does not mention the source of acquisition of that asset in the hands of vendor but in the instant case the purchaser has specified that these items belonged to Auckland Public School, Yamuna Nagar, Haryana which was being run by late husband of the assessee and after his death, the said school was closed. The narration of whole story appears to be an afterthought to support the theory of old furniture and create an impression that the said receipt of amount belonged to the sale of old school furniture. Thus in view of absence of date of issue of receipt, cheque number and its date, name of bank and branch and narration of story in the said receipt the said amount is treated as unexplained receipt as the onus to prove the genui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the assessee could not show the date of transaction, cheque number, name of bank and thus, the assessee could not prove the genuineness of the transaction. He accordingly sustained the addition of Rs. 1,50,000. 34. Now, the assessee is in appeal. 35. The learned counsel for the assessee reiterated the submissions made before the authorities below and further submitted that the old furniture, which was belonging to the deceased husband of the assessee was sold by the assessee since she became the owner in possession of the said old furniture. It was further submitted that the assessee sold the entire furniture of the school, which was run by her husband late Shri S. Mullick to Shri Bhupender Singh, who made the payment of Rs. 1,50,000 through account payee cheque. A confirmatory letter of the purchaser was furnished before the AO. On the said confirmatory letter, complete postal address was mentioned. The AO did not make any enquiry from the purchaser and made the impugned addition. It was further stated that the learned CIT(A), without appreciating the facts, in right perspective, confirmed the action of the AO. 36. In his rival submissions, the learned Departmental Repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id company. Similarly, interest was worked out at Rs. 7,84,497 in the case of Shri Ashok Sur and, thus, the addition totalling to Rs. 31,56,983 (Rs. 23,72,486 + Rs. 7,84,497) was made. 41. The assessee carried the matter to the learned CIT(A) and submitted as under : "That the appellant had given loan to several parties and had charged interest over it. That the interest received has duly been shown by the appellant and TDS is also there. That on loan amount of Rs. 2,58,16,570 given to M/s Drosia Construction (P) Ltd. the appellant had charged interest of Rs. 7,50,000. That this was the interest amount which was paid by M/s Drosia Construction (P) Ltd. (also an assessee). That while making payment of interest, TDS, was also made. That the AO without giving any opportunity, charged the additional interest of Rs. 23,72,486 arbitrarily. That the AO charged interest from M/s Drosia Construction (P) Ltd. @ 15 per cent on presumption and surmises only. The basis of charging higher rate of interest was only that since the appellant had charged interest @ 15 per cent from Dr. A.K. Singh of Varanasi, as such 'the fitness of thing demands 15 per cent interest should also be charged from M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions, the learned Departmental Representative strongly supported the orders of the authorities below. 46. We have considered the submissions of both the parties and gone through the material available on record. In the instant case, the AO worked out the interest by presuming that the interest @ 15 per cent should have been charged by the assessee from Drosia Constructions (P) Ltd. also since the assessee had charged the interest @ 15 per cent from Dr. A.K. Singh of Varanasi. It is noticed that the only basis for making the addition was the rate of interest charged by the assessee from one Dr. A.K. Singh. It is also noticed that the contention of the assessee before the authorities below was that Shri A.K. Sur is son-in-law of the assessee to whom money was given as loan out of the surplus funds, this contention of the assessee has not been rebutted. It is further noticed that M/s Drosia Constructions (P) Ltd. had deducted TDS on the interest paid to the assessee so, it is not the case of the AO that the said party has paid interest more than Rs. 7,50,000, which was shown by the assessee as interest earned from the said party. It is also not brought on record that the assessee ..... 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