9911796707
TMI Blog2016 (12) TMI 292X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submissions and carefully considered the same along with the orders of the tax authorities below. No doubt, a chit fund incidentally partake of the nature of saving scheme. Chit fund is primarily intended to operate as a scheme for advancing loans from the common fund to this subscribers, their turns for getting such loans being determined either by auction or by drawing lots. 6. There is no dispute that the assessee incurred the chitty loss of Rs. 2,15,090/- and claimed the same as deduction. The Assessing Officer disallowed it holding as a capital expenditure relying on the decision of the Punjab and Haryana High Court in the case of Soda Silicate & Chemical Works 179 ITR 588. The assessee subscribed to various chitties and the chits were bid for raising funds, for business purposes of the firm. The chit instalments were being paid on the due dates and when the chitty was terminated, the balance represented interest was treated as chitty loss and written off in the profit and loss account. The object of subscribing to a chitty was to finance the business and not for saving money by the subscriber. Usually the subscriber will join a chitty and after remitting certain instal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amounts in later periods. The scheme of the chit fund companies is covered by the Chit Fund Act, 1982 which enacted to have a control on the operation of Chit Fund Companies and to protect the interests of the subscribers to a chit fund company. 9. It was contended that there is a concept of mutuality in subscribing to the chit fund. The nature of chit fund companies suggests that all the members participate together and make contributions to the chit fund and the company distributes the prize money amongst the members in a prescribed manner. The identity of all the contributors of the Chit Fund is established and it can be presumed that the chit fund concept is based on the concept of mutuality. These principles derive support from the judgment of the Andhra Pradesh High Court in the case of (i) CIT v. Merchant Navy Club [1974] 96 ITR 261; (ii) CIT v. Royal Western India Turf Club Ltd. [1953] 24 ITR 551 (SC), (iii) Sports Club of Gujarat Ltd. v. CIT [1988] 171 ITR 504/37 Taxman 38 (Guj.) and (iv) CIT v. Nataraj Finance Corpn. [1988] 169 ITR 732/[1987] 35 Taxman 280 (AP). Based on these principles of mutuality, the Punjab and Haryana High Court in the case of Soda Silicate & Che ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le expenditure. 12. The Central Board of Direct Taxes also issued instructions in this connection. However, in all the above mentioned judgments, Instruction No. 1175 issued by the CBDT under order F. No. 169/21/78-IT (80) dated May 16, 1978 was not taken into account. The gist of the instructions is reproduced below :- "(a) If any person organises Chit Funds and for this purposes brings the members together, administers the Chit Funds and thereby earns commission, etc., profits made by such a person is income from business and if for any special reason there is loss then it is business loss. Normally there should be no loss to the organiser unless he takes over the liability of some of the members. In such a case the unrecovered amount due from such members will have to be treated as bad debts and the test to be adopted in usual business assessment for the allowance of bad debts would be applicable in such cases also. (b) In the hands of the subscribers, a few will be receiving more than what they have subscribed. This extra amount is the nature of interest and as such, taxable. Members who take the money earlier from the chit will necessarily have to contribute more which mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer. There is no allegation that the expenses have not been incurred wholly and exclusively for the purpose of business even it is not a case of the revenue that the expenses are personal expenses or capital expenditure. I, therefore, delete the disallowance of Rs. 25,000/-. 16. Ground No. 5 and 6 relate to the sustenance of the addition of Rs. 8,30,000/- u/s 68 of the Income-tax Act. The facts relating to this ground are that the Assessing Officer made the addition in the case of the assessee in respect of the following loans received by the assessee:- 1. Ms. Sapna Lalwani Rs. 1,10,000/- 2. Sh. Rajiv Maheswari Rs. 10,000/- 3. Ms. Vandana Rs. 10,000/- 4. M/s. Mahadev Enterprises Rs. 7,00,000/- Total Rs. 8,30,000/- 17. Assessing Officer was not satisfied with the explanation of the assessee in respect of creditworthiness and genuineness of the transactions. He, therefore added a sum of Rs. 8,30,000/- in the income of the assessee. When the matter went before the Ld. CIT(A), Ld. CIT(A) sustained the addition. 18. I have heard the rival submissions and carefully considered the same along with the orders of the tax authorities below. It is better for me to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y been proved, this proves the genuineness of the transaction as well as creditworthiness of Smt. Sapna Lalwani. In view of this fact, I delete the addition of Rs. 1,10,000/- as in my opinion, the assessee has duly discharged his onus. 22. Now coming to the addition of Rs. 7,00,000/-. I noted that this amount has been received by the assessee from M/s. Mahadev Enterprises. In this regard, the assessee has drawn our attention towards page no 16 to 23 of the paper book. From page no. 16, it is apparent that the assessee has received a sum of Rs. 7,50,000/- which consist of Rs. 50,000/-, Rs. 1,00,000/- Rs. 1,00,000 and Rs. 5,00,000/- from M/s. Mahadev Enterprises. The assessee before receiving the said sum has paid on 05.05.2003 a sum of Rs. 2,00,000/- to M/s. Mahadev Enterprises. The assessee has credited to M/s. Mahadev Enterprises on 09.03.2004 by interest amounting to Rs. 1,50,000/-. Thus in net the assessee has received only a sum of Rs. 5,50,000/- during the impugned assessment year not the sum of Rs. 9,00,000/- as has been observed by the Assessing Officer. The Assessing Officer ignored that the credit of Rs. 1,50,000/- has arisen due to the credit being given by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
