Commissioner of Income Tax vs Omega Forwarders P. Ltd.

K. Raviraja Pandian, J.—This appeal is filed by the Revenue against the order of the Income Tax Appellate Tribunal, Madras ""B"" Bench,

dated September 21, 2007, in I. T. A. No. 958/Mds/2004. The relevant assessment year is 2000-01. The substantial question of law formulated

in this appeal is as follows:

Whether, on the facts and circumstances of the case, the Tribunal is right in allowing the deduction u/s 36(1)(vii) even when the assessee failed to

satisfy the conditions laid out in Section 36(2) for the allowability of claim u/s 36(1)(vii)?

The facts of the case are as follows:

The assessee is a clearing and forwarding agent. For the assessment year 2000-01, the assessee filed its return of income on November 28, 2000,

declaring a total income of Rs. 47,60,400. The assessee claimed an amount of Rs. 35,85,106 as ""bad debt"" under the provisions of Section 36(1)

(vii) and 36(2). Out of the above claim, an amount of Rs. 11,25,481 belongs to various trade debtors was allowed by the Assessing Officer. For

the balance amount of Rs. 24,59,626, the Assessing Officer was of the opinion that the assessee was not engaged in the business of money-lending

and unsecured loan advanced to M/s. Seahorse Finance Services P. Ltd. was not lent in the ordinary course of money-lending business disallowed

the claim u/s 36(1)(vii) as the assessee failed to satisfy the conditions laid down in Section 36(2). Aggrieved by the order of the Assessing Officer

the assessee filed an appeal before the Commissioner of Income Tax (Appeals) who allowed the appeal in favour of the assessee holding that there

was systematic money-lending activity carried on by the assessee including the bill discounting and call money advances which are to be

considered only as an activity of money-lending and further the assessee was offering such income as part of its business activity. Not satisfied with

the order, the Revenue carried the matter to further appeal to the Tribunal and the Tribunal also by reason of the impugned order confirmed the

order of the Commissioner of Income Tax (Appeals). The correctness of the said order is canvassed in this appeal by the Revenue by formulating

the above question of law.

Mr. Narayanaswamy, learned Counsel appearing for the Revenue submitted that the assessee is not in the business of money-lending and as

such the amount in a sum of Rs. 24,59,626 advanced to M/s. Seahorse Financial Services P. Ltd. cannot be regarded as an advance which is

sticking in nature cannot be regarded as bad debts under the provisions of Section 36(1)(vii) of the Act.

We heard the argument of learned Counsel for the Revenue and perused the materials on record.

The Commissioner of Income Tax (Appeals) as well as the highest fact finding authority-Tribunal have categorically found that there was

systematic money-lending activity carried on by the assessee and further found that the assessee was offering such income as part of business

activity in the earlier assessment years such as 1996-97 to 1998-98 and that has been accepted by the Department. It is also brought on record

that the Assessing Officer has recorded a finding that after perusal of the memorandum of association, one of the objectives of the assessee has

been stated to be money-lending.

In view of the abovesaid reasoning, we do not find any merit in the appeal, much less, a substantial question of law for entertaining the appeal.

Hence, the appeal is dismissed.