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Income Tax Appellate Tribunal - Mumbai

Pawankumar D Saraf, Gujrat vs Asst Cit 30(1), Mumbai on 14 June, 2017

ITA NO. 5516/Mum/2016 Pawankumar D. Saraf Assessment Year 2005-06 आयकर अपीलीय अिधकरण "एच" ायपीठ मुंबई म ।

IN THE INCOME TAX APPELLATE TRIBUNAL "H" BENCH, MUMBAI ी सं जय गग , ाियक सद एवं ी मनोज कुमार अ वाल, ले खा सद केसम BEFORE SHRI SANJAY GARG, JM AND SHRI MANOJ KUMAR AGGARWAL, AM आयकर अपील सं./I.T.A. No.5516/Mum/2016 (िनधा रण वष / Assessment Year: 2005-06) Pawankumar D. Saraf Assistant Commissioner of 1, Shree Nagar Society, Income Tax 31(2) 7, Shree Complex [earlier ACIT W-24(1)] Stadium Road बनाम/ 207, C-10 Ahmedabad Vs. Pratyakshkar Bhavan Gujarat - 380 014 Bandra Kurla Complex Bandra Mumbai 400 051 थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AALPS-7212-H (अ पीलाथ# /Appellant) : ($%थ# / Respondent) अ पीलाथ# की ओर से / Appellant by : Mihir A. Tanna, Ld. AR $%थ# की ओर से/Respondent by : M.C.Omi Ningshen,Ld.DR सुनवाई की तारीख / : 12/06/2017 Date of Hearing घोषणा की तारीख / : 14 /06/2017 Date of Pronouncement 2 ITA NO. 5516/Mum/2016 Pawankumar D. Saraf Assessment Year 2005-06 आदे श / O R D E R Per Manoj Kumar Aggarwal (Accountant Member)

1. The captioned appeal by assessee for Assessment Year [AY] 2005- 06 assails the order of Ld. Commissioner of Income Tax (Appeals)-41 [CIT(A)], Mumbai dated 22/06/2016 on sole ground of disallowance of claim of Rs.6,46,294/- as 'Business Loss'.

2. Briefly stated, the assessee being resident individual engaged in the business of trading of paper under proprietorship concern Saraf Agencies, was subjected to exercise of revisional jurisdiction u/s 263 by Ld. Commissioner of Income Tax vide order date 25/09/2009 and consequently assessed u/s 143 read with section 263 on 02/08/2010 where it was saddled with sole addition of Rs.6,46,294/- claimed as 'bad debts & deposit written off.' The assessee unsuccessfully assailed invocation of section 263 before this Tribunal vide ITA No. 7374/Mum/2010 order dated 20/03/2015.

3. The provisions of Section 263 were invoked since it was noted that the assessee was allowed deduction of certain 'bad debts & deposit written off' for Rs.6,46,294/- u/s 36(1)(vii) but since they failed to fulfill conditions prescribed u/s 36(2) and therefore, disallowable.

4. Facts qua the claim are that the assessee obtained overdraft facility from Visnagar Nagrik Sahakari Bank Ltd. against Fixed Deposit [FD] of 3 ITA NO. 5516/Mum/2016 Pawankumar D. Saraf Assessment Year 2005-06 Rs.25 Lakhs. The bank became insolvent and at that time the assessee had already drawn a sum of Rs.18,53,706/- from the said overdraft facility leaving balance of Rs.6,46,294/- under the FD which could not be recovered. The assessee claimed the same u/s 36(1)(vii) but the same was disallowed by Ld. AO on the premises that FD constituted capital asset in assessee's hand and therefore, capital loss was not allowable to the assessee.

5. Aggrieved, the assessee assailed without any success before Ld. CIT(A) vide impugned order dated 22/06/2016 where Ld. CIT(A) found the same inadmissible u/s 36(1)(vii). Aggrieved, the assessee is in appeal before us.

6. The Ld. Counsel for Assessee [AR], while drawing our attention to the documents placed in the paper book contended that although the claim was not allowable u/s 36(1)(vii) but the same was allowable as business loss since FD were created out of the said overdraft facility which was used for business purpose. The FD was taken in the name of proprietorship concern and shown under the head 'current asset' and therefore, constituted business asset. More so, the income from FD was reflected as business income and the same has been accepted by the revenue. Therefore, loss in respect thereof was allowable as business loss. Reliance was placed on the judgment of Gujarat High court rendered in CIT Vs. Rao Construction P. Ltd. [2013 215 Taxman 159].

ITA NO. 5516/Mum/2016 Pawankumar D. Saraf Assessment Year 2005-06

7. Per contra, Ld. DR asserted that FD was in the nature of capital asset in the hands of the assessee and therefore, could not be allowed as business loss to the assessee. Further, the income tax returns filed in earlier years was simply processed u/s 143(1) and therefore, the contention that the revenue accepted the interest income as business income was not conclusive.

8. We have heard the rival contentions and perused relevant material on record including the cited case law. It is noticed that the FDRs have been created in the AY 2000-2001. Upon perusal of financial statements for AY 2003-04, 2004-05, 2005-06 & 2006-07, we find that the interest income & interest expenditure has been netted off and the resultant amount has been transferred to the profit & loss account which gives strength to the argument of the Ld. AR that the interest income has been offered under the head business income. FD has consistently been shown under the current assets. Admittedly, the overdraft facility has been used for business purposes of the assessee and the revenue has not disputed the same. Therefore, we are of the considered opinion that the FDR was part and parcel of business operations of assessee's business and constituted assessee's business asset. Hence, any loss arising therefrom was allowable to the assessee as business loss being revenue in nature. Our view is further fortified by the cited decision of Hon'ble Gujarat High Court where the Hon'ble court considering the judgment of Apex Court in Ramchandar Shivnarayan Vs. CIT [1978 111 ITR 263] and also in the case 5 ITA NO. 5516/Mum/2016 Pawankumar D. Saraf Assessment Year 2005-06 of Indian Aluminium Company Ltd. Vs. CIT [1972 84 ITR 735] decided the issue in assessee's favor in similar circumstances. Therefore, the impugned expenditure, being revenue in nature, was allowable to the assessee as business loss.

9. Resultantly, the assessee's appeal stands allowed.

Order pronounced in the open court on 14th June, 2017.

                   Sd/-                                   Sd/-
           (Sanjay Garg)                         (Manoj Kumar Aggarwal)
     ाियक सद  / Judicial Member            लेखा सद  / Accountant Member

मुंबई Mumbai; िदनांक Dated : 14 .06.2017 Sr.PS:- Thirumalesh आदे श की ितिलिप अ ेिषत/Copy of the Order forwarded to :

1. अपीलाथ# / The Appellant

2. $%थ# / The Respondent

3. आयकर आयु-(अपील) / The CIT(A)

4. आयकर आयु- / CIT - concerned

5. िवभागीय $ितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai

6. गाड फाईल / Guard File आदे शानुसार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपीलीय अिधकरण, मुंबई / ITAT, Mumbai