Commissioner Of Income Tax-I, Ludhiana v. M/S Eastman Industries, Ludhiana

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH.ITA No. 2 of 2010 Date of Decision: February 8, 2010 Commissioner of Income Tax-I, Ludhiana …Appellant Versus M/s Eastman Industries, Ludhiana …Respondent CORAM:HON'BLE MR. JUSTICE M.M. KUMAR HON’BLE MR. JUSTICE JITENDRA CHAUHAN Present:Mr. Vivek Sethi, Advocate,for the appellant. 1.To be referred to the Reporters or not? 2.Whether the judgment should be reported inthe Digest?the Digest? M.M. KUMAR, J. The instant appeal filed by the revenue under Section 260-A ofthe Income-tax Act, 1961 (for brevity, ‘the Act’) is directed against theorder dated 27.2.2009, passed by the Income Tax Appellate Tribunal,Chandigarh Bench, Chandigarh (for brevity, ‘the Tribunal’), in ITA No.498/Chandi/2008, in respect of the Assessment Year 2004-05.2.Brief facts of the case are that the assessee-respondent isengaged in the business of sale purchase of Mutual Funds and MoneyLending business. It has filed its return of income in respect of AssessmentYear 2004-05 on 22.9.2004 declaring Nil income after adjusting B/Fbusiness losses to the tune of Rs. 9,75,060/-, out of which Rs. 8,01,881/- related to Assessment Year 1999-2000 and Rs. 1,73,179/- pertains to theAssessment Year 2001-02. The assessee-respondent also shown net lossfrom sale purchase of Mutual Funds to the tune of Rs. 25,63,574/-, whereasthe dividend income received from Mutual Funds has been shown at Rs.57,76,085/-, claiming that it is exempted under Section 10(33) of the Actand was not to form part of the total income The return was processedunder Section 143(1)(a) of the Act on 31.3.2005. Thereafter, the case wasselected for scrutiny and notice under Section 143(2) of the Act was issuedon 23.8.2005. During the assessment proceedings, under the heading‘Addition on account of disallowance of Bad Debts written off’ it was alsonoticed that the assessee-respondent has claimed expenses of Rs. 2,57,502/-on account of DDB receivable and Rs. 56,66,950/- towards Bad debtsoverseas under the head Administrative, Financial and other Expenses,which were pertaining to the Assessment Year 1997-98. The AssessingOfficer came to the conclusion that the assessee-respondent had alreadytaken exemption of profit on the said amounts on account of deductionunder Section 80HHC in the Assessment Year 1997-98 and if the amount isagain debited to the expenses account in the Assessment Year 2004-05, itwould give double benefit to the assessee-respondent. The AssessingOfficer further observed that the assessee-respondent was earlier dealing inthe business of cycle and auto parts and exporting the same during theAssessment Years 1996-97 and 1997-98. However, during the AssessmentYear 2004-05 there was a change of business because now the assessee-respondent is dealing in mutual funds and earning interest income.Accordingly, the Assessing Officer disallowed the claim of the assessee-respondent on account of bad debts written off, amounting to Rs. 56,66,950 and Rs. 2,57,502/- and added the same to the income of the assessee-respondent. 3.The Assessing Officer further found that the assessee-respondent has also claimed following ‘interest income’ as ‘business income’:- (i)Interest on income tax refundsRs. 4,04,937/- (ii)Interest from PartiesRs. 54,20,545/-(iii)Interest on FDRsRs. 38,63,248/-TotalRs. 96,88,730(iii)Interest on FDRsRs. 38,63,248/-TotalRs. 96,88,730 4.In this regard, the Assessing Officer has opined that the above and Rs. 2,57,502/- and added the same to the income of the assessee-respondent. 3.The Assessing Officer further found that the assessee-respondent has also claimed following ‘interest income’ as ‘business income’:- (i)Interest on income tax refundsRs. 4,04,937/- (ii)Interest from PartiesRs. 54,20,545/-(iii)Interest on FDRsRs. 38,63,248/-TotalRs. 96,88,730(iii)Interest on FDRsRs. 38,63,248/-TotalRs. 96,88,730 4.In this regard, the Assessing Officer has opined that the above interest income is assessable under the head ‘Income from other sources’instead of ‘business income’ shown by the assessee-respondent. Therefore,the B/F business loss claimed at Rs. 9,75,060/- cannot be allowed to beadjusted from the said ‘interest income’. Accordingly, the AssessingOfficer assessed the interest income of Rs. 96,88,730/- under the head‘Income from other sources’ and disallowed the claim of the assessee-respondent for setting off of B/f business loss amounting to Rs. 9,75,060/-.On 26.12.2006, the assessment was completed under Section 143(3) at anincome of Rs. 80,82,120/- (A-1). 5.Feeling aggrieved, the assess-respondent filed an appeal beforethe Commissioner of Income Tax (Appeals)-I, Ludhiana, who vide orderdated 6.3.2008 (A-II) deleted the addition on account of disallowance ofbad debts written off amounting to Rs. 56,66,950/- and Rs. 2,57,502/- madeby the Assessing Officer. On the issue of ‘Interest Income’ assessed underthe head ‘Income from other sources’, the CIT (A) treated the incomeearned on FDRs amounting to Rs. 38,63,248/- as ‘Income from other sources’ and the balance income of Rs. 58,25,482/-, which was claimed tobe pertaining to money lending business, has been held to be the businessincome of the assessee-respondent and allowed the benefit of set-off of B/Fbusiness losses out of this income. Against the order dated 6.3.2008 passedby the CIT (A), the revenue-appellant filed an appeal before the Tribunal.The Tribunal confirmed the order of the CIT (A) in deleting the additionmade on account of disallowance of bad debts written off in view of theprovisions of Section 36(1)(vii) and Section 36(2) of the Act and also onaccount of treating the income claimed to be pertaining to money lendingbusiness amounting to Rs. 58,25,482/- as ‘Business Income’ of the assessee-respondent thereby allowing the benefit of set-off of B/F business losses outof this income, vide order dated 27.2.2009 (A-III). 6.The revenue-appellant has filed the instant appeal claiming thatthe following two questions of law would emerge from the impugned orderand deserve to be adjudicated by this Court:- “(i)Whether on the facts and in law, the Income TaxAppellate Tribunal was justified in deleting the additionof Rs. 56,66,950/- and Rs. 2,57,502/- made by theAssessing Officer by disallowing the claim of bad debtswritten off which were declared on accrual basis inearlier assessment years and deduction under Section80HHC was claimed on the same in the respective years,keeping in view the provisions of Section 14A of theIncome Tax Act, 1961? (ii)Whether on the facts and in law, the Income TaxAppellate Tribunal was justified in treating the ‘interest income’ earned from money lending as ‘business income’whereas the same was assessed under the head ‘incomefrom other sources’? “(i)Whether on the facts and in law, the Income TaxAppellate Tribunal was justified in deleting the additionof Rs. 56,66,950/- and Rs. 2,57,502/- made by theAssessing Officer by disallowing the claim of bad debtswritten off which were declared on accrual basis inearlier assessment years and deduction under Section80HHC was claimed on the same in the respective years,keeping in view the provisions of Section 14A of theIncome Tax Act, 1961? (ii)Whether on the facts and in law, the Income TaxAppellate Tribunal was justified in treating the ‘interest income’ earned from money lending as ‘business income’whereas the same was assessed under the head ‘incomefrom other sources’? 7.The Tribunal has answered the aforesaid two questions in para14 by referring to the order of the CIT (A), which has returned a finding offact. The finding recorded by the CIT (A) is that the amount of deductionsin all under Section 80HHC comes to Rs. 56,66,950/-. In respect ofAssessment Year 1997-98, deduction is Rs. 29,39,114/- while for theAssessment Year 1996-97, it is Rs. 27,27,836/-. The Tribunal furtherreferred to the finding of the CIT(A) that the aforesaid factual position hasremain unrebutted by the revenue-appellant as no effort has been made todislodge the stand of the assessee-respondent on the basis of any cogentmaterial. Such being the nature of finding of fact, we do not think that anyquestion of law much less a substantial question of law, within the meaningof Section 260-A, would arise for determination by this Court. 8.The other question with regard to interest income is the incomeassessable under the head ‘Business Income’. The Assessing Officer did notconsider the interest income as assessable under the head ‘Business Income’instead of treating the same as assessable under the head ‘Income from othersources’ and accordingly, he denied the set-off of brought forward inrespect of business losses. The Tribunal although, did not bank upon thecontention of the assessee-respondent with regard to absence of moneylending licence yet decided in favour of the assessee-respondent byrecording a finding of fact that the assessee-respondent had the business ofsale and purchase of mutual funds and money lending which was carried outas an organised activity over a period of time. Basing reliance on the order of the CIT (A), the Tribunal has concluded that there was no justification todisbelieve the conclusion drawn by the CIT (A). The argument of therevenue-appellant that the interest income falls under Section 56(2) of theAct and is assessable under the head ‘Income from other sources’ has alsobeen rejected on the ground that the income assessable under the head‘Income from other sources’ are of the nature which are otherwise not foundto be assessable under any other heads of income. The interpretation of theAssessing Officer was not accepted. 9.Keeping in view the aforesaid factual finding, we are notinclined to accept that there would be a substantial question of law fordetermination by this Court as it is pertinent to mention that challengeherein has been laid only qua two aforesaid questions. However, withregard to some of the other issues, the order passed by the Tribunal is fordetermination of fact to the extent of the aforesaid questions of law. Theorder is upheld. However, in respect of the other part of the order, theremand order shall apply as directed by the Tribunal. (M.M. KUMAR)JUDGE February 8, 2010Pkapoor (JITENDRA CHAUHAN)JUDGE