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TMI Blog2021 (12) TMI 1208X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome and revenue has accepted the source of income therefore the bad debts incurred by the assessee is certainly an expenditure allowable deduction u/s. 37 of the Act. Therefore, we direct the Assessing Officer to allow the bad debts claimed by the assessee. Accordingly, Ground No. 2 is allowed. Disallowing business loss as incurred by the Assessee due to cancellation of property booked by the Assessee with the Builder - Assessee recovered the cost of the property based on the agreement with the builder and the cost incurred by the assessee for registration are remained as expenditure. Since the property is clearly bought for the purpose of lease and this income will be charged to tax under the head Income from House Property and the cost incurred by the assessee by not recovery of registration charges can be a loss claimable under the head Income from House Property . Accordingly, we direct the Assessing Officer to allow the loss claimed by the assessee. - ITA No. 261/MUM/2020 - - - Dated:- 22-12-2021 - Shri S. Rifaur Rahman, Hon'ble Accountant Member And Ms. Suchitra Raghunath Kamble, Hon'ble Judicial Member For the Assessee : Shri Mukesh Advani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come from the properties under the head Income from Business and Profession , which were earlier offered for tax under the head Income from House Property , he did not claim any further expenses in the Revised Return. Hence, the learned Assessing Officer, by denying the Assessee, to offer the Rental Income under the head Income from Business Profession , this has been prejudicial to interest of the Revenue because, since, the Rental Income is taxed under the head Income from House Property , then, the Assessee obtained an additional deduction u/s 24 @30% of the Annual Value of the properties which amounts to ₹ 27,72,314/-. Assessee, while filing the Revised Return, he offered for tax the Rental Income of ₹ 92,41,045/- (Net of Muncipal Taxes) under the head income from Business Profession , as compared to ₹ 64,68,732/- which was offered for tax under the head Income from House Property at the time of filing the Original Return of Income, In light of the above said facts, the Assessing Officer s decision to deny the Assessee to offer the Rental Income under the head Income from Business Profession is prejudicial to the Revenue. 1) I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties which were purchased leased by the Assessee, the Assessee had also purchased in January 2014, 6 more properties which were under construction. Sr. No. Property Details Purchase Date Status 1 The Park - Lodha (Worli) 3rd May 2013 Under Construction 2 Krishna Business Centre-Shop No. 7 (Bhosari, Pune) 11th January 2014 Under Construction 3 Krishna Business Centre-Shop No.8 (Bhosari, Pune) 11th January 2014 Under Construction 4 Krishna Business Centre-Shop No.9 (Bhosari, Pune) 11th January 2014 Under Construction 5 Krishna Business Centre-Shop No.10 (Bhosari, Pune) 11th January 2014 Under Construction 6 Krishna Business Centre-Shop No.19 (Bhosari, Pune) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from House Property a) It would not be out of place to submit here that the Assessee had advanced loans to Four parties namely: 1) Rusam Developers Pvt. Ltd 2) Birla Power Solution 2) Birla Power Solution 3) Sunil Mantri Realty Ltd 4) Kohinoor Cargo Industrial Park private limited b) Assessee had given loans to Rusam Developers Pvt. Ltd. (RDPL) amounting to ₹ 3,10,00,000/- @15% p.a. by executing three (3) separate Memorandum of Understandings (M.O.U) along with three separate Mortgage Deeds (M.D) for three different properties (which were not registered with the Sub-Registrar of Immovable Properties) namely: Sr. No. Memorandum of Understanding Mortgage Deeds Amount Rate of Interest 1 Dt:- 02 Sept, 2010 Property at Andheri ₹ 1,00,00,000 15% 2 Dt :-19th May 2011 Property at Irla Dt:- 19th May 2011 ₹ 1,50,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... losed herewith for your perusal and records. When all the cheques were bounced and the Assessee came to know the company has gone into Liquidation (copy of the current status from ROC site is enclosed herewith), then, the Assessee realized that, he will not be able to recover any amount. e) It would also not been out of place to submit here that, in the Profit Loss account which was uploaded on the Income Tax Site, the Assessee had claimed the above expenses of ₹ 3,45,57,662/under the head Bad Debts , whereas the Assessee should have claimed only ₹ 35,57,662/- under the head Bad Debts u/s 36(i) (vii) and whereas the remaining amount of ₹ 3,10,00,000/- should have been claimed u/s 37(1) under the head Business Loss . In light of the above said facts we enclose herewith the Analytical Business-wise Profit Loss Account, wherein the claim for Bad Debts is ₹ 35,57,662/- and Business Loss is ₹ 3,10,00,000/-. f) Moreover, it will also not be out of place to submit here that, the reason why these expenses i.e. Business Loss amounting to ₹ 3,10,00,000/- and Bad Debts amounting to ₹ 35,57,662/pertaining to Money ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it of ₹ 86,179/also been offered for tax under head Income from Business Profession . v) Audited Capital Account for the financial year ended 31.3.2012. vi) Fixed Assets Schedule A as on 31.3.2012. vii) Details of Investment Schedule B as on 31.3.2012. viii) Details of Sundry Creditor as on 31.3.2012. ix) Assessment Order passed u/s 143 (3) dated 20.01.2015 wherein the Return Income filed by the Assessee the different sources of Income which has offered by the Assessee under various different head of Income namely Income from House Property , Income from Business Profession and Income from Other Sources has been accepted by the Income Tax Department. x) This proves that Interest Income received from Rusam Developers Pvt. Ltd and other three parties, which is offered for tax under Income from Business Profession has been accepted by the Income Tax Department. xi) As regard Rental Income is concerned we rely on the supreme Court s decision in the case of Chennai Properties and Investment Ltd vs The Commissioner of Income Tax, Tamilnadu-1. h) As regards allowability of expenses amounting to ₹ 3,45,57,6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Business, which is substantial, when compared to the total capital of the Assessee. In light of the above said facts circumstances of the case, the addition made by the Assessing Officer was deleted. k) We also enclosed herewith Honorable Supreme Court Judgment in the case of TRF Ltd reported in 323 ITR 397 (SC), wherein it is held that where the Assessee has satisfied all the conditions prescribed u/s 36(1)(vii) r.w.s. 36(2) of the Income Tax Act 1961 after the amendment brought w.e.f. 01/04/1989 u/s 36(1)(vii) of the Act, the assessee need not establish the debt is bad money given to Rusam Developers Private Ltd. in the ordinary course of business will be allowed as deduction u/s 36(1)(vii). l) We also enclose herewith Honorable ITAT s order (Mumbai) in the case of Kyati Realtors Pvt. Ltd., wherein the Assessing Officer had disallowed bad debts to the extent of ₹ 10 Crores while determining the income under the head Income from Business Profession. The company had given an advance to Developer in order to confirm the reservation by way of bookings in an upcoming project, for which the appellant paid ₹ 10 Crores. The developer did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom Regulatory Authority related to Money Lending . To this, we would like to submit that the Assessee has submitted all the documentary evidence stated in para 8(a) to 8(0) above in order to substantiate that assessee is involved in Money Lending Business. What more documentary evidence would the Assessing Officer request in order to substantiate that the Assessee is involved in Money Lending Business. As regards obtaining License from Regulatory Authority for doing Money Lending Business is concerned, to this we would like to submit that, assuming License is required by the assessee to do business, he has not obtained the license, even then, from the Income Tax Act point of view, section 28 which is a charging section, it does states that to charge the Income under the head Income from Business Profession does not put a condition that unless corresponding license is obtained from the Regulatory Authority the income would not be charged under the head Income from Business Profession . We also rely on the Supreme Court's decision in the case of Dr. TA Qureshi reported in 287 ITR 547, wherein, it has held that heroin seized from the assessee formed part of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Money Lending Business. The third reason stated by the Assessing Officer in para 4.3 (d) of the Assessment Order due to which Bad Debts Business Loss to the extent of ₹ 3,45,57,662/is disallowed is that M/s Rusam Developers Pvt Ltd. (RDPL) was never a debtor of the Assessee in any of the Financial Years upto 31/03/2015. To this, we would like to submit that the Assessee has shown the loans advanced to RDPL under the head Current Assets Loans Advances . In para 8(h) 8(i) above we have already clarified that assessee instead of claiming Bad Debts u/s 36(1)(vi) amounting to ₹ 3,45,57,662/-, it should have claimed Bad Debts u/s 36(1)(vi) amounting to ₹ 35,57,662/and the balance amount of ₹ 3,10,00,000/- should be claimed u/s 37(1) of Income Tax Act/ Just because the claim was made under wrong head does not mean that those genuine expenses are not allowable. Hence, RDPL was correctly not shown as a Debtor to the extent of ₹ 3,45,57,662/-as the same was shown under the head Current Assets, Loams Advances , Even if it is shown under Current Assets, Loams Advances still, the claim made by the Assessee under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Since the company has been liquidated, what more documentary evidence would any one require to come to a conclusion that amount is no longer recoverable. In view of the above said facts the claim made by the assessee that he is involved in business of money tending hence claim of bad debts amounting to ₹.35,57,662/ - business loss of ₹ 3,10,00,000/- should be allowed. Assessee has claimed expenses of ₹ 10,56,000/- on account of amount paid to all the employees for giving them ex-gratia in order that the employees had to leave the job as assessee closed the business of Ginnis Collection . The entire payment was made by the Assessee through account payee cheques to only to those employees to whom monthly salary were paid. We have submitted all the documentary evidence including the ledger account of the employees to whom these amounts are paid and reconciled the names of these employees with the salary account. Moreover, we also have submitted the bank statements in order to prove the genuineness of the expenses. In light of the above said facts circumstances of the case we see no reason why these expenses have been disallowed. What ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quently, this property was cancelled and the entire amount which was paid to the Builder was returned without any interest and compensation. Hence, due to cancellation of Deed, Stamp Duty and Registration Charges paid on such property was a Loss to the Assessee. Hence, such a loss of ₹ 9,.23,800/- is claimed as business expenses as per the provisions of the section 37(1) of the I.T.Act, 1961. Two copies of the Cancellation Deeds executed with the Builders which are also registered with the Registrar are also enclosed herewith for your perusal and records. Finally, Assessee had claimed. expenses amounting to ₹ 9,23,800/- due to the loss incurred in cancellation of property i.e. flat no.1301 at BhartiSatsang which is located at at Malad (W). This flat was purchased in the year 2012 in the order that the same would be given on lease once the property is constructed and occupation certificate is received on the date of completion. At the time of purchase of the property for ₹ 75,00,000/- a Stamp duty Registration charges of ₹ 9,23,800/- was paid by the Assessee. Since the property was not constructed since 2012, hence, the assessee cancelled the deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchased should be taxed under the head Income From Business Profession Ground No. 2 a) The Honourable Commissioner of Income Tax (Appeal), C.I.T.(A) has also erred in confirming the disallowance which was made by the Assessee Officer on account of Bad Debts amounting to ₹ 3,45,57,662/- due to two reasons namely (i) The expenses which were claimed by the Assessee are Business Losses not Bad Debts (ii) The Money Lending Business was not claimed by the Assessee in his Original Return of Income. b) (i) Even though the Assessee claimed these expenses in his Revised Return of Income which was filed within the time specified as per the provision of Section 139(5) of the Income Tax Act, then the loss claimed in the Revised Return of Income will be deemed to be claimed in the Original Return of Income. Hence the provisions of Section 139(3) are complied with. (ii) Moreover, out of ₹ 3,45,57,662/- even though the Assessee has claimed ₹ 3,10,00,000/- i.e. principal amount given to borrower under the head Bad Debts not under the head Business Loss still the Honourable ITAT (Mumbai) in the case of Khyati Realtors Pvt Ltd has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to lease out properties, then the income generated from such business is only lease of the property which is the dominate income from the assessment year then the income generated from such business will be taxable under the head income from business and profession and not under the head income from house property . 8. With regard to bad debts he submitted that assessee has given loan to M/s. Rusam Developer Pvt. Ltd., amounting to ₹.3.1 crores with the return at 15% P.A by executing three separate memorandums of understanding along with three separate mortgage deeds for three different properties (details are part of the submissions made by the assessee before the Ld.CIT(A) which is reproduced in Para No. 4 above). He submitted that assessee has declared the interest income earned by the assessee in the earlier Assessment Years from A.Y. 2013-14 to 2015-16 wherein assessee has declared the loan given to M/s. Rusam Developer Pvt. Ltd., in all the respective balance sheet and as well as declared the income earned from them. He objected to the observations made by the Assessing Officer and the Ld.CIT(A) for rejecting the plea of the assessee. 9. Further, he brought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that these are artificial persons created by the law. Whereas the intention of the assessee can be understood only by its actions. Considering the fact that assessee is an individual and over the years assessee has declaring the income only under the head Income from House Property and it is far-fetched for the assessee to rely on the decision of the Hon'ble Supreme Court in the case of Chennai Properties Investment Ltd., (supra) with the assessee s case. Therefore, we do not find any reason to entertain the grounds raised by the assessee. Accordingly, it is dismissed. 14. We observe from the record that assessee has given loan to M/s. Rusam Developer Pvt. Ltd., amounting to ₹.3.1 crores against three properties viz., Andheri, Irla, Vakola with the interest rate of 15% in Financial Year 2010-11. These transactions were properly recorded by the assessee in its balance sheet as well as declared income under Profit and Loss Account as well as in the return of income. This information was clearly brought to our notice by the Ld. AR by taking us through the Paper Book at Page No. 203A to 203N and 203AE. This clearly indicates that assessee has earned the property for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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