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TMI Blog2014 (11) TMI 675X X X X Extracts X X X X X X X X Extracts X X X X ..... a company registered with the RBI as a non-banking financial company (NBFC). The activity of the assessee broadly are accepting deposits of money from public and lending to borrowers in various forms like leasing, hire purchasing, demand loans, mortgage loans etc. For the impugned assessment year assessee originally had filed a return of income on 30/10/2004 declaring total income of Rs. 30,34,932/-. A search and seizure operation was conducted in case of the assessee. As a consequence of which the AO issued notice u/s 153A of the Act, calling upon the assessee to file his return of income. In response to the said notice, assessee filed return of income on 04/11/2010 declaring the same income of Rs. 30,34,932/- as was declared in the retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In pursuance to the direction of the ITAT, the AO initiated assessment proceeding again. 4. In course of assessment proceeding, the AO after examining the details and considering the submissions of the assessee noted that the assessee had advanced about 91% of the loans to parties who are related either to the company or the directors. From these, the AO concluded that since loan advanced to outsiders are in meager percentage the advances loose the character of business and become capital. AO observed that assessee has also violated the guidelines of RBI while advancing loans to sister concerns. Examining in detail the advances in respect of which the deduction was claimed the AO noted as under: S. No. Name of the party Amount advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he main activity of the assessee is lending money the amount advanced in ordinary course of business cannot be treated as investment. It was therefore submitted that if in its ordinary course of business any amount advanced turns doubtful or bad the same would have to be allowed as a bad debt if it is actually written off in the books of account irrespective of the fact, whether it was advanced to sister concern or third party. The assessee submitted that in earlier assessment years also bad debts emanating out of monies lent to sister concerns were duly allowed. Hence, in the present assessment year the AO cannot divide the monies advanced into two categories i.e. loans to sister concerns as investment and to third parties as loans. It was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that the amount in question having become bad debt and actually written off in the books of account the deduction claimed is allowable u/s 36(1)(vii) of the Act. 7. The CIT(A) after considering the submissions of the assessee vis-a-vis facts and material on record was of the view that though the assessee had claimed that the loans were given in ordinary course of business however the assessee could not substantiate the nature of such loans as revenue by explaining as to how the loans received by the concerned parties were utilized. The CIT(A) noted that as the assessee has admitted that the loans had to be written off as the sister concerns could not take off their operations, that itself indicate that the amounts concerned were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We have considered the submissions of the parties and perused the material on record as well as the orders of the revenue authorities. In the earlier round when the matter was remitted back to the file of the AO the Tribunal in its order in ITA No.1028 & 1059/Hyd/2007 dated 30/09/2011 directed as under: "9. We have heard both the parties and perused the materials on available on record. The contention of the department is that the money was not advanced to sister concern in the ordinary course of its business. The money advanced to sister concern is a capital investment as such it is a capital loss. But, in our opinion, these facts are to be examined by the lower authorities. If the monies advanced in the ordinary course of the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the nature of advance whether capital or revenue. Undisputedly, assessee is a NBFC registered with the RBI. Therefore, so far as the nature of business of the assessee is concerned there cannot be any doubt that money lending is one of its business activities. Only because in regular course of its money lending business it has also advanced loans to sister concerns/related parties, solely on that basis the advances cannot be said to be in the nature of investment, hence, coming in capital field. The Departmental authorities certainly cannot decide to whom the assessee will advance loan in its regular course of business. That certainly remains within the discretion of the assessee considering the business expediency. So far as the other ..... X X X X Extracts X X X X X X X X Extracts X X X X
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