Lanxess ABS Limited, Baroda v. The ACIT., Circle-1(1),, Baroda

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI N.S. SAINI ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH JUDICIAL MEMBER DATE OF HEARING: DRAFTED ON: ITA NO.908/AHD/2007 ASSESSMENT YEAR : 2002-2003 LANXESS ABS LIMITED (FORMERLY-BAYER ABS LIMITED) 6 TH FLOOR ABS TOWER OLD PADRA ROAD BARODA. VS. THE ASST. COMMISSIONER OF INCOME TAX CIRCLE 1(1) AYAKAR BHAVAN RACE COURSE BARODA. PAN/GIR NO. : AAACB 6164 H (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI SUNIL H. TALATI RESPONDENT BY: SHRI M.C.PANDIT SR. D.R. O R D E R PER N.S.SAINI ACCOUNTANT MEMBER :- THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE LD.CIT(APPEALS)-I BARODA DATED 7.12.2006. 2. GROUND OF THE APPEAL OF THE ASSESSEE READS AS UN DER:- 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING ADDI TION MADE BY THE AO OF RS 3 00 00 000 BEING INTER-CORPORATE D EPOSIT WRITTEN OFF. YOUR APPELLANT SUBMITS THAT AMOUNT NOT RECOVERED/RECOVERABLE FROM GSL (I) LTD RS 200 LAKHS AND FROM REAL VALUE APPLIANCES LTD OF RS.100 LAKHS HAS RIGHTLY BEEN CLAIMED AS REVENUE EXPENDITURE LOSS DURING THE YEAR UNDER CONSIDERATION. IT BE HELD SO NOW AND SAME B E ALLOWED AS CLAIMED. 2. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT LEV Y OF INTEREST IS CONSEQUENTIAL IN NATURE. YOUR APPELLANT SUBMITS THAT LEVY - 2 - OF INTEREST BY THE AO IS INCORRECT. IT BE HELD SO N OW AND SAME BE DELETED. 3. THE BRIEF FACTS OF THE CASE ARE THAT IT IS OBSER VED THAT THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAD WRITTEN OFF AN AMOUNT OF RS.3 29 14 282/- IN THE P&L ACCOUNT AS BAD DEBTS. I T INCLUDED A SUM OF RS.2 CRORE WHICH THE ASSESSEE CLAIMED TO HAVE GIVEN AS AN INTER CORPORATE DEPOSIT IN F.Y. 1995-96 TO M/S. GSL (I) LTD. FOR FO UR MONTHS AND RS. 1 CRORE TO M/S. REAL VALUE APPLIANCES LTD. AS AN ADVA NCE FOR THE DEVELOPMENT OF A NEW PRODUCT IN F.Y. 1995-96. IT W AS FURTHER EXPLAINED BY THE APPELLANT THAT THESE AMOUNTS WERE NEVER RETU RNED BY THESE PARTIES. THE APPELLANT KEPT ON CREDITING INTEREST ON THE SAI D AMOUNTS IN ITS BOOKS OF ACCOUNT ON ACCRUAL BASIS ALTHOUGH THE AMOUNT HAD NOT BEEN RECEIVED BACK. THE APPELLANT FURTHER SUBMITTED BEFORE THE AS SESSING OFFICER THAT IT FILED A CRIMINAL COMPLAIN AGAINST M/S GSL(I)LTD. IN THE COURT OF CHIEF JUDICIAL MAGISTRATE VADODARA U/S.138 OF THE NEG OTIABLE INSTRUMENTS ACT. AS REGARDS M/S REAL VALUE APPLIANCES LTD THE RE WAS AN APPEAL IN THE HIGH COURT OF BOMBAY FOR WINDING UP PETITION OF THE SAID COMPANY AND THE APPELLANT IN ONE OF THE RESPONDENT IN THE S AID APPLICATION. THE MONEY ADVANCED TO THIS COMPANY WITH WHICH THE APPE LLANT HAD SUBSTANTIAL BUSINESS TRANSACTION FOR THE DEVELOPME NT OF NEW PRODUCT WAS NOT RETURNED AND THE DEBTOR COMPANY FAILED TO DEVEL OP AND LAUNCH THE NEW PRODUCT IN THE MARKET. THE APPELLANT EXPLAINED THAT BOTH THE DEPOSIT OF RS.2 CRORE AND THE ADVANCE OF RS.1 CRORE HAD BEEN M ADE IN THE ORDINARY COURSE OF BUSINESS. 4. THE ASSESSING OFFICER OBSERVED THAT THE DEPOSIT OF RS.2 CRORE WAS MADE BY THE APPELLANT BECAUSE IT WAS HAVING SURPLUS FUNDS AVAILABLE FOR DEPLOYMENT AND THAT THIS DEPOSIT HAD NO NEXUS WITH THE BUSINESS ACTIVITY OF THE ASSESSEE OF MANUFACTURING OF RESINS AND TRAD ING OF POLYCARBONATES - 3 - AND WIND POWER GENERATION. THE ASSESSING OFFICER FU RTHER OBSERVED WITH REGARD TO THE ADVANCE OF RS. 1 CRORE THAT THE APPEL LANT HAD NOT SUBSTANTIATED ITS ARGUMENT WITH ANY DOCUMENTARY EVI DENCE THAT THE ADVANCE HAD BEEN MADE FOR THE DEVELOPMENT OF A NEW PRODUCT AND THEREFORE IT WAS A DEPLOYMENT OF SURPLUS FUND IN T HE NATURE OF INVESTMENT ONLY. UNDER THE CIRCUMSTANCES SHE HELD THAT THE AP PELLANT HAD MADE THE SAID DEPOSIT / ADVANCE NOT FOR THE PURPOSES OF BUSI NESS BUT AS INVESTMENT FOR EARNING INCOME WHICH WOULD FALL UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. SHE ALSO HELD THAT THE TRANSACTIONS WERE IN THE NATURE OF INVESTMENT AND HENCE ANY LOSS OF INVESTMENT COULD N OT BE DEDUCTED FROM THE APPELLANT'S INCOME FROM BUSINESS OR PROFESSION. SHE RELIED UPON THE DECISION OF THE SUPREME COURT IN THE CASE OF HASIMARA INDUSTRIES LTD. V. CIT 231 ITR 842 (SC). UNDER THE CIRCUMSTANCES SHE DISALLOWED THE CLAIM OF BAD DEBTS OF SUCH INTER CORPORATE DEPOSITS WRITTEN OFF IN ITS ACCOUNT. 5. IN APPEAL BEFORE THE CIT(A) THE ASSESSEE REITER ATED ITS SUBMISSIONS THAT WERE MADE BEFORE THE ASSESSING OFFICER. IN ADD ITION IT HAS SUBMITTED THAT M/S. REAL VALUE APPLIANCES LTD. WAS DECLARED A S A SICK UNIT BY BFIR UNDER SICA ACT. IT HAS FURTHER SUBMITTED THAT THESE DEPOSITS WERE MADE ON A TEMPORARY BASIS AND NOT AS INVESTMENTS AND THE AS SESSING OFFICER HAS WRONGLY INFERRED THAT IT WOULD FALL UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. THE APPELLANT HAS ALSO SUBMITTED THAT THE FACTS IN THE CASE OF HASIMARA INDUSTRIES LTD. (SUPRA) WERE ENTIRELY DIFF ERENT AND THE RATIO DOES NOT APPLY TO THE FACTS OF ITS CASE. THE APPELLANT H AS RELIED UPON THE FOLLOWING DECISIONS: (I) MS. GITA SANGHI V. CIT & OTHERS (2005) 277 ITR 388 (MP). IT WAS HELD IN THIS CASE THAT THE AMOUNT IN QUESTIO N WAS GIVEN TO THE COMPANY WHICH WAS DECLARED TO BE A SICK INDUSTRIAL UNIT AND DIRECTED TO - 4 - BE CLOSED DOWN BY WAY OF LOAN AND THE SAME WAS WRI TTEN OFF IN THE P.Y. THE AMOUNT IN QUESTION WAS IN THE NATURE OF DEBT AN D THE SAME HAVING BEEN WRITTEN OFF IN THE PREVIOUS YEAR BY THE ASSESS EE IN HER ACCOUNT IT WAS DEDUCTIBLE U/S. 36(2)(I) I(II) CIT V. GIRISH BHAGWAT PRASAD 256 ITR 772 (GUJ.). IT WAS HELD THAT IN THIS CASE THAT AFTER THE AMENDM ENT IN SECTION 36(L)(VII) W.E.F. 1-4-1989 THE ASSESSEE WAS NOT REQUIRED TO ES TABLISH THAT DEBT HAD BECOME BAD IN THE PREVIOUS YEAR AND MERE WRITING OF F OF THE AMOUNT OF BAD DEBT WAS SUFFICIENT (III) KAMLA COTTON MILLS V. CIT 226 ITR 605 (GUJ.) IT HAD BEEN HELD IN THIS CASE THAT THE REQUIREMENT THAT THE DEBT SHOULD BECOME BAD AND RECOVERABLE DID NOT MEAN THAT THE DE PT SHOULD INSIST UPON DEMONSTRATIVE AND INFALLIBLE PROOF THAT THE DEBT HA D BECOME BAD........ LEGAL PROCEEDINGS AGAINST THE DEBTOR NOT COMPULSORY BEFOR E WRITING OFF THE DEBT. UNDER THESE CIRCUMSTANCES THE APPELLANT CLAIMED TH AT IT HAD CORRECTLY WRITTEN OFF THE BAD DEBTS AND THE SAME WERE ALLOWAB LE. 6. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE HELD AS UNDER:- 16. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS OBSERVED THAT THE ASSESSING OFFICER REJECTED THE APPELLANT'S CLAIM ON THE GROUND THAT THE DEPOSIT / ADVANCE HAD NOT BEEN MADE IN THE OR DINARY COURSE OF ITS BUSINESS WHICH WAS OF MANUFACTURING RESINS AND TRADING OF POLYCARBONATES AND OF WIND POWER GENERATION. IT WAS NOT THAT OF MONEY LENDING. THE TRANSACTIONS WERE THEREFORE 'I N THE NATURE OF INVESTMENT' AND ANY LOSS OF INVESTMENT COULD NOT BE DEDUCTED FROM THE INCOME FROM BUSINESS OR PROFESSION. IT IS NOT T HE CASE OF THE ASSESSING OFFICER THAT THE DEBT HAD NOT BECOME BAD OR THAT THE CONDITIONS FOR WRITING OFF THE SAME WERE NOT SATISF IED. ON THE OTHER HAND THE CLAIM OF THE APPELLANT HAS BEEN THAT THE MONEY IS DEPOSITED / ADVANCED COULD NOT BE RECOVERED AND TH EREFORE IT HAD BECOME BAD DEBTS AND HAD THEREFORE BEEN WRITTEN OF F. IT WOULD BE OBSERVED THAT APART FROM SIMPLY DENYING THAT IT IS NOT AN INVESTMENT THE APPELLANT HAS NOT REALLY SAID MUCH TO REBUT THE - 5 - ASSESSING OFFICER'S OBSERVATION THAT THESE TRANSACT IONS ARE IN THE NATURE OF AN INVESTMENT OF SURPLUS FUNDS. THE APPEL LANT HAS FILED A COPY OF THE GENERAL LEDGER ACCOUNT IN RESPECT OF IN TER CORPORATE DEPOSIT FROM 1-7-95 TO 30-6-05 WHICH IS PLACED ON RECORD. AN ABSTRACT OF INTER CORPORATE DEPOSIT GIVEN HAS ALSO BEEN FILED IN WHICH THE DATES ON WHICH THE DEPOSITS HAVE BEEN GIV EN AND THE CHEQUES BY WHICH THE MONEY ALONG WITH INTEREST HAS BEEN RECEIVED BACK AND THE DATES ON WHICH THESE CHEQUES HAVE BOUN CED IN BOTH THE CASES HAVE BEEN INDICATED. FROM THE GENERAL LED GER ACCOUNT OF ICDS IT IS SEEN THAT THE APPELLANT COMPANY HAS BEE N CONTINUOUSLY MAKING DEPOSITS WITH A LARGE NUMBER OF COMPANIES DU RING THE ENTIRE PERIOD ON A REGULAR BASIS AND HAS ALSO BEEN RECEIVING BACK THE REFUNDS ON THE SAID ACCOUNT. SOME OF THESE DE POSITS IN THEIR NARRATION INDICATE THE NUMBER OF DAYS FOR WHICH THE SE ARE MADE. IT IS OBSERVED THAT THESE ARE NOT ISOLATED INSTANCES O F DEPOSITS. THE TRANSACTIONS ARE VERY LARGE IN NUMBER AND THE DEPOS ITS ARE ALSO MADE WITH A LARGE NUMBER OF DIFFERENT COMPANIES. IT IS COMMON FOR COMPANIES TO DEPOSIT THEIR MONIES IN ICDS FOR THE E CONOMIC AND EFFICIENT USE OF MONEY. HOWEVER THE SCALE OF TRANS ACTIONS IS SO LARGE IN THE APPELLANT'S CASE THAT IT DOES NOT FIT INTO THE MOULD OF THE NORMAL ACTIVITY OF PARKING OF SURPLUS FUNDS FOR THEIR EFFICIENT UTILIZATION. THE SCALE OF TRANSACTIONS AND THEIR RE GULARITY IMPARTS A DIFFERENT CHARACTER TO THIS TRANSACTION - A CHARACT ER INDICATED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE ASSE SSING OFFICER HAS HELD THAT THESE TRANSACTIONS ARE NOT IN THE NOR MAL COURSE OF BUSINESS OF THE APPELLANT WHICH IS OF MANUFACTURING RESINS AND TRADING OF POLYCARBONATES AND OF WIND POWER GENERAT ION. THERE IS NO OBVIOUS CONNECTION BETWEEN THE NATURE OF BUSINES S OF THE APPELLANT COMPANY AND THE LARGE NUMBER OF COMPANIES WITH WHICH THE MONEY HAS BEEN DEPOSITED. THE APPELLANT HAS NOT EVEN MADE A PRETENCE OR AN EFFORT TO SHOW THAT THE DEPOSIT WITH M/S. GSL (I) LTD. HAS BEEN MADE DURING THE COURSE OF NORMAL BUSINESS. IT HAS ONLY MADE A WEAK EFFORT IN THIS BEHALF IN RESPECT OF THE OTHER TRANSACTION WITH M/S. REAL VALUE APPLIANCES LTD. WHERE IT HAS CLAIMED THAT THE IMONEY WAS GIVEN FOR THE DEVELOPMENT OF NEW PRODUCT AND LAUNCH IN 'THE MARKET HOWEVER IT IS OBSERVED THAT HERE AL SO THIS BALD CLAIM HAS NOT BEEN CORROBORATED BY SHOWING THAT WHAT DIFF ERENT STEPS HAD BEEN UNDERTAKEN BY THAT COMPANY IN THE PRODUCT DE VELOPMENT PROJECT AND WHAT STAGES HAD BEEN COMPLETED AND AT W HAT STAGE OF DEVELOPMENT THE PRODUCT HAD FAILED AND FOR WHAT REASONS THE PROJECT HAD TO BE SHELVED. IT HAS ALSO NOT BEEN SHO WN AS TO WHAT WAS THE PRODUCT THAT WAS PROPOSED TO BE DEVELOPED HOW IT WAS RELEVANT TO THE APPELLANT'S BUSINESS INTEREST. IT H AS NOT BEEN SHOWN - 6 - AS TO WHY THE MONEY FOR A PRODUCT DEVELOPMENT PROJE CT OF THE BUSINESS INTEREST TO THE APPELLANT WAS GIVEN ONLY F OR A SHORT PERIOD OF FOUR MONTHS. THE PERIOD OF FOUR MONTHS DOES NOT FIT INTO AN ADVANCE IN THE NATURE OF AN ADVANCE FOR THE PRODUCT DEVELOPMENT PROJECT. THE APPELLANT'S EXPLANATION DOES NOT STAND THE TEST OF REASON. IT TAKES A MUCH LONGER PERIOD TO DEVELOP A PRODUCT AND TO LAUNCH IT SUCCESSFULLY IN THE MARKET. THIS CLAIM IS ALSO NOT SUPPORTED BY ANY WRITTEN AGREEMENT BECAUSE IN THE NORMAL COURSE THE APPELLANT WOULD HAVE LIKED TO ADVANCE S UCH MONEY IN RETURN FOR CERTAIN DEFINITE QUANTIFIABLE BENEFITS. UNDER THE CIRCUMSTANCES EVEN WHERE THE APPELLANT HAS TRIED T O EXPLAIN THE TRANSACTION AS HAVING BEEN UNDERTAKEN IN THE INTERE ST OF ITS BUSINESS IT HAS FAILED TO ESTABLISH THE CLAIM IN A NY SOUND LOGICAL WAY. IT IS OBSERVED FROM THIS THAT IN THE ABSENCE OF ANY PLAUSIBLE EXPLANATION THAT THE MONIES WERE ADVANCED OR THE D EPOSITS WERE MADE FOR THE PURPOSES OF BUSINESS OR IN RELATION TO THE ACTIVITIES OF THE APPELLANT'S OWN BUSINESS IT CANNOT BE REASONAB LY CLAIMED THAT THE SAID TRANSACTIONS WERE IN THE NORMAL COURSE OF APPELLANT'S BUSINESS. UNDER THE CIRCUMSTANCES THE CONCLUSION DERIVED BY THE ASSESSING OFFICER IS FOUND TO BE CORRECT AND NOT WI THOUT BASIS. LOOKING TO THE NUMBER OF TRANSACTIONS UNDERTAKEN T HE LARGE NUMBER OF COMPANIES WITH WHICH THE TRANSACTIONS HAV E BEEN MADE AND THE REGULARITY WITH WHICH THESE TRANSACTIONS HA VE TAKEN PLACE OVER A PERIOD IT CAN SAFELY BE CONCLUDED THAT THES E TRANSACTIONS ARE IN THE NATURE OF INVESTMENT. ANY LOSS ON ACCOUNT OF SUCH INVESTMENT CANNOT BE ALLOWED FROM THE APPELLANT'S INCOME FROM BUSINESS OR PROFESSION. THE ASSESSING OFFICER WAS THEREFORE C ORRECT IN DISALLOWING THE APPELLANT'S CLAIM THAT THESE WERE U NREALIZED BAD DEBTS ELIGIBLE FOR ALLOWANCE U/S. 36(L)(VII) OF THE ACT AS BAD DEBTS. UNDER THE CIRCUMSTANCES IT IS HELD THAT THE AMOUNT OF RS 3 CRORES REPRESENTS LOSS OF INVESTMENT WHICH CANNOT BE ALLOW ED AGAINST THE BUSINESS INCOME OF THE APPELLANT AS CLAIMED BY THE APPELLANT. THE ACTION OF THE ASSESSING OFFICER IN THIS REGARD IS U PHELD. 7. THE LD. A.R. RELIED ON THE DECISION IN THE CASE OF MATRIX LOGISTICS LTD. VS. CIT (2009) 316 ITR (AT) 316 (AHMEDABAD) WH EREIN IT WAS HELD AS UNDER:- THAT THE ASSESSEE-COMPANY HAD BEEN LENDING MONEY T O VARIOUS CONCERNS FROM THE TIME OF ITS INCORPORATION AND MON EY-LENDING WAS A BUSINESS CARRIED ON BY THE ASSESSEE IN ITS ORDINA RY COURSE OF BUSINESS EVEN THOUGH IT WAS NOT THE MAIN BUSINESS OF THE ASSESSEE. - 7 - THE INCOME WHICH WAS RECEIVED FROM THE AMOUNTS ADVA NCED WAS SHOWN AS BUSINESS INCOME AND TAXED ACCORDINGLY YEAR TO YEAR. THE ASSESSEE'S STOCK-IN-TRADE WAS SHARES AND THE INCOME EARNED BY THE ASSESSEE WAS MAINLY FROM TRADING IN SHARES AND THE ASSESSEE WAS AN INVESTMENT COMPANY. THE ASSESSING OFFICER HAD CO NSIDERED THE BOARD RESOLUTION AND THE MEMORANDUM OF ASSOCIATION AUTHORISING THE ASSESSEE IN PURSUING OBJECTS INCIDENTAL AND ANC ILLARY TO THE ATTAINMENT OF THE MAIN OBJECTS WHICH WERE AVAILABL E TO THE ASSESSEE PRIOR TO THE ADVANCING OF LOANS. THE ASSES SEE WAS ENGAGED IN THE BUSINESS OF INVESTMENT AND FINANCING IN ITS ORDINARY COURSE OF BUSINESS WHICH WAS INCIDENTAL TO THE ATTAINMENT OF THE MAIN OBJECTS OF THE COMPANY'S FORMATION. THERE WAS NO QUESTION O F ALTERATION OF THE MEMORANDUM OF ASSOCIATION. THE ASSESSING OFFICE R HAD RIGHTLY ALLOWED THE BAD DEBTS WHILE FRAMING THE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 147 OF THE ACT AND THE ORD ER OF THE ASSESSING OFFICER WAS NEITHER ERRONEOUS NOR PREJUDI CIAL TO THE INTERESTS OF THE REVENUE. 8. THE LD. A.R. ALSO RELIED ON THE DECISION IN THE CASE OF GOETZE (INDIA) LTD. VS. DCIT (2008) 119 TTJ (DEL)351 WHE RE IT WAS HELD AS UNDER:- IT IS ADMITTED FACT THAT THE AMOUNT OF BAD DEBT CL AIMED AS DEDUCTION IS WRITTEN OFF IN THE ACCOUNTS. IT IS ALS O NOT IN DISPUTE THAT THE WRITE OFF IS BONA FIDE AND HENCE THE CONDITION SET OUT IN S. 36(1) (VII) IS SATISFIED. SEC. 36(1)(VII) IS SUBJECT TO T HE PROVISIONS OF SUB-S. (2) OF S. 36 UNDER WHICH THE CLAIM OF BAD DEBT IN RESPECT OF AMOUNT WRITTEN OFF WHICH REPRESENTS MONEY LENT IN THE ORDI NARY COURSE OF THE BUSINESS OF MONEY LENDING CARRIED ON BY THE ASS ESSEE IS ALLOWABLE. THEREFORE THE QUESTION TO BE EXAMINED I S WHETHER THE DEBT WRITTEN OFF REPRESENTS MONEY LENT IN THE ORDIN ARY COURSE OF THE BUSINESS OF MONEY LENDING OR NOT. THE FACT WHICH I S NOT IN DISPUTE IS THAT FOR ALL THESE YEARS THE INTEREST ON ICDS W AS OFFERED FOR TAXATION AND TAXED AS SUCH AS BUSINESS INCOME. THE COROLLARY THEREFORE IS THAT THE INTEREST WAS EARNED IN THE C OURSE OF CARRYING ON BUSINESS AS SUCH. BUSINESS IS A SET OF ORGANIZED ACTIVITIES WITH SET PURPOSE CARRIED ON CONTINUOUSLY AND WITH A VIEW TO EARN PROFIT. IN DETERMINING SUCH QUESTION ORDINARY COMMERCIAL PR INCIPLES SHOULD BE APPLIED. WHETHER A PARTICULAR INCOME RECE IVED AS A RESULT OF ACTIVITIES CARRIED ON BY THE ASSESSEE IS BUSINES S INCOME OR OTHERWISE DEPENDS UPON THE MANNER OF EXPLOITATION O F THE ASSETS OF THE ASSESSEE. THE SAME IS TO BE DECIDED ACCORDING T O THE GENERAL - 8 - COMMON SENSE VIEW OF THOSE WHO DEAL WITH THOSE MATT ERS IN THE PARTICULAR CIRCUMSTANCES AND THE CONDUCT OF THE PAR TIES CONCERNED. FROM THE CHART OF MONEY LENT AND INTEREST EARNED TH EREON IT IS CLEAR THAT LENDING OF MONEY BY WAY OF ICD WAS CARRI ED ON AS A PART OF ORGANIZED AND REGULAR BUSINESS ACTIVITY. HUGE AM OUNT OF INTEREST IS EARNED THEREON. THUS IT CANNOT BE SAID THAT THE LENDING OF MONEY WAS ONLY A CASUAL ACTIVITY OR ONE TIME PLACING OF F IXED DEPOSIT. THE ASSESSEE USEFULLY LENT MONEY REALIZED THEM AND RED EPLOYED THE FUND AS PER THE BORROWERS REQUIREMENT. THIS WAS CARRIE D ON BY WAY OF REGULAR BUSINESS ACTIVITY. TAXING THE SAME UNDER TH E HEAD 'PROFITS AND GAINS OF BUSINESS' IS A TESTIMONY TO THE FACT T HAT THE INTEREST WAS EARNED IN THE COURSE OF CARRYING ON BUSINESS. I T IS TOO LATE IN THE DAY FOR THE REVENUE TO CONTEND THAT INTEREST IN COME SHOULD BE TAXED UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. T HUS IT CAN BE SAID THAT THE ASSESSEE WAS CARRYING ON BUSINESS OF MONEY LENDING IN ITS ORDINARY COURSE. IN VIEW OF THE MATTER THE CON DITION AS SET OUT UNDER S. 36(1)(VII) R/W S. 36(2)(I) IS SATISFIED AN D HENCE CLAIM OF THE ASSESSEE IS ALLOWABLE. POYSHA OXYGEN (P) LTD. VS. ASSTT. CIT (2008) 19 SOT 711 (DEL)(TM) CIT VS. ESS JAY ENTERP RISES (P) LTD. (2008) 165 TAXMAN 465 (DEL) CIT VS. A.L.R.M. RAMAN ATHAN CHETTIAR & ORS. (1996) 218 ITR 161 (MAD) AND CIT VS . NEO POLY PACK (P) LTD. (2000) 245 ITR 492 (DEL) RELIED ON; E AST INDIA PROSPECTING SYNDICATE VS. CEPT (1951) 19 ITR 571 (C AL) AND TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. C IT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC) DISTINGUISHE D. 9. THE LD. AR ALSO RELIED ON THE DECISION OF HON'BL E DELHI BENCH IN THE CASE OF POYSHA OXYGEN (P.). LTD. VS. ACIT [2008 ] 19 SOT 711 (DELHI) (TM) WHEREIN IT WAS HELD AS UNDER:- WHERE MONIES ARE LENT IN THE ORDINARY COURSE OF TH E BUSINESS THE CONDITION STIPULATED IN S. 36(2)(I) IS SATISFIED IF THE INTEREST FROM THE MONIES LENT WAS ASSESSED AS BUSINESS INCOME IN THE EARLIER YEARS OR EVEN IN THE YEAR IN WHICH THE BAD DEBT IS WRITTEN O FF. THEREFORE IF THE INTEREST OF RS. 17 40 984 WAS ASSESSED AS BUSIN ESS INCOME OF THE ASSESSEE IN THE ASSESSMENT ORDER FOR THE ASST. YR. 1996-97 AND THE INTEREST ON THE LOAN WAS SIMILARLY ASSESSED IN THE ASSESSMENT ORDER FOR THE ASST. YR. 1997-98 BOTH IN ORDERS PASSED UN DER S. 143(3) THE REVENUE CANNOT TURN AROUND NOW AND SAY THAT THE ADV ANCE TO F WAS NOT A MONEY-LENDING ADVANCE. THAT APART THE REP RESENTATIVE OF THE ASSESSEE DID RAISE A VALID POINT WHEN HE SUBMIT TED THAT EVEN IN THE ORDER PASSED BY THE AO FOR THE YEAR UNDER APPEA L TO GIVE EFFECT - 9 - TO THE DIRECTIONS OF THE CIT(A) HE HAD ALLOWED DED UCTION IN RESPECT OF THE INTEREST WHICH IS THE INTEREST FOR THE VERY YEAR UNDER APPEAL. THIS INTEREST WAS ASSESSED BY THE AO IN THE ASSESSM ENT ORDER FOR THE YEAR UNDER APPEAL REFUSING THE ASSESSEE S CLA IM FOR WRITE OFF OF THE SAME ALONG WITH THE PRINCIPAL AMOUNT OF RS. 1 C RORE. IN THE IMPUGNED ORDER THE CIT(A) DIRECTED THE AO TO VERIF Y WHETHER THE INTEREST AMOUNT WAS EARLIER ASSESSED AS BUSINESS IN COME AND FURTHER DIRECTED THE AO TO ALLOW DEDUCTION UNDER S. 36(1) (VII) IN RESPECT OF THE SAME IF THE ASSESSEE BRINGS ENOUGH M ATERIAL TO JUSTIFY THE WRITE OFF. PURSUANT TO THIS DIRECTION THE AO H AD VERIFIED THE ASSESSMENT RECORD AND HE HAS OBSERVED IN HIS ORDER THAT THE AFORESAID AMOUNT OF INTEREST HAS ALREADY TAXED IN T HE ASST. YR. 1996- 97 AND ACCORDINGLY ALLOWED RELIEF. IT IS PERTINENT TO MENTION THAT AGAINST THE DIRECTION OF THE CIT(A) NO APPEAL HAS BEEN PREFERRED BY THE DEPARTMENT BEFORE THE TRIBUNAL. THE RELIEF G IVEN BY THE AO IN HIS ORDER HAS THUS BECOME FINAL AS ALSO THE FIN DING THAT THE INTEREST WAS EARLIER ASSESSED AS BUSINESS INCOME OF THE ASSESSEE. IN THE LIGHT OF THESE FACTS IT CANNOT BE SAID THAT TH E BAD DEBT CLAIMED BY THE ASSESSEE HAS NOT BEEN TAKEN INTO ACCOUNT IN COMPUTING THE ASSESSEE S INCOME IN ANY OF THE EARLIER PREVIOUS YEARS OR IN THE IMPUGNED YEAR.CIT VS. CITY MOTOR SERVICE LTD. (196 6) 61 ITR 418 (MAD) RELIED ON. IT ONLY REMAINS NOW TO CONSIDER WHETHER THE FACT TH AT THE ASSESSEE DESCRIBED THE ADVANCE OF RS. 1 CRORE TO F AS 'I NTER-CORPORATE DEPOSIT' OR ICD IN SHORT IS FATAL TO ITS CLAIM. AN INTER-CORPORATE DEPOSIT IS A DEPOSIT MADE BY ONE CORPORATE ENTITY W ITH ANOTHER CORPORATE ENTITY. IT IS NOT A LEGAL TERM. IT APPEAR S TO BE A TERM WHICH HAS GAINED IN COMMERCIAL PARLANCE. SEC. 372A OF THE COMPANIES ACT 1956 DEALS WITH INTER-CORPORATE LOA NS AND INVESTMENTS. THESE ARE REGULATED STRICTLY BY THE SE CTION. UNDER THE EXPLANATION BELOW THE SECTION A LOAN HAS BEEN DEFI NED TO INCLUDE DEBENTURES OR ANY DEPOSIT OF MONEY MADE BY ONE COMP ANY WITH ANOTHER COMPANY NOT BEING A BANKING COMPANY. THE F ACT THAT IN THE INCOME-TAX PROCEEDINGS THE ADVANCE HAS BEEN DE SCRIBED AS AN ICD IS NEITHER HERE NOR THERE; CERTAINLY IT IS NOT DECISIVE OF THE QUESTION WHETHER IT WAS GIVEN IN THE COURSE OF THE MONEY-LENDING BUSINESS OF THE ASSESSEE. IT IS WELL-SETTLED THAT T HE NOMENCLATURE GIVEN BY THE ASSESSEE TO A TRANSACTION CANNOT DECID E ITS REAL NATURE. THE ADVANCE WAS A MONEY-LENDING ADVANCE. IF SO THE FACT THAT IT WAS A SINGLE TRANSACTION IS NOT AN IMPEDIMENT TO IT BEING CALLED MONEY-LENDING BUSINESS. THE TRANSACTION RELATING TO THE ADVANCE OF - 10 - ICD OF RS. 1 CRORE BY THE ASSESSEE WAS A LOAN TRANS ACTION AND REPRESENTED MONEY LENT IN THE ORDINARY COURSE OF TH E BUSINESS OF MONEY-LENDING CARRIED ON BY THE ASSESSEE; AND THE C LAIM OF THE ASSESSEE FOR BAD DEBTS OF RS. 1 CRORE IS ALLOWABLE IN VIEW OF THE PROVISIONS CONTAINED IN S. 36(1)(VII) R/W S. 36(2)( I). 10. HE THEREFORE SUBMITTED THAT THE FACTS OF THE A SSESSEES CASE ARE IDENTICAL TO THE FACTS OF THE CASE CITED ABOVE AND FOLLOWING THE DECISIONS CITED ABOVE THE APPEAL OF THE ASSESSEE SHOULD BE A LLOWED. 11. THE LD. D.R. SUPPORTED THE ORDER OF THE LD.CIT( A). 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIALS AVAILABLE ON RE CORD. IN THE INSTANT CASE THE ASSESSEES MAIN BUSINESS IS MANUFACTURING RESIN S AND TRADING OF POLYCARBONATES AND OF WIND POWER GENERATION. DURING THE YEAR THE ASSESSEE CLAIMED DEDUCTION FOR BAD DEBT OF RS.3 CRO RES WHICH RELATES TO RS.2 CRORES TO M/S.GSL INDIA LTD. AND RS.1 CRORE TO M/S. REAL VALUE APPLIANCES LTD. THE ABOVE CLAIM WAS DISALLOWED BY T HE LEARNED ASSESSING OFFICER ON THE GROUND THAT MONEY LENDING WAS NOT THE BUSINESS OF THE ASSESSEE AND THE AMOUNT IN QUESTION WERE ADV ANCED BY THE ASSESSEE TO EARN INTEREST INCOME AND ACCORDING TO THE LEARNE D ASSESSING OFFICER IT WAS IN THE NATURE OF PARKING OF SURPLUS FUND AND TH EREFORE NOT ALLOWABLE DEDUCTION UNDER SECTION 36(1)(VII) OF THE ACT. 13. ON APPEAL THE LEARNED COMMISSIONER OF INCOME T AX(APPEALS) CONFIRMED THE ACTION OF THE LEARNED ASSESSING OFFIC ER BY OBSERVING AS UNDER:- 16. I HAVE CONSIDERED THE RIVAL SUBMISSIONS. IT IS OBSERVED THAT THE ASSESSING OFFICER REJECTED THE APPELLANT'S CLAIM ON THE GROUND THAT THE DEPOSIT / ADVANCE HAD NOT BEEN MADE IN THE OR DINARY COURSE OF ITS BUSINESS WHICH WAS OF MANUFACTURING RESINS AND TRADING OF POLYCARBONATES AND OF WIND POWER GENERATION. IT WAS NOT THAT OF - 11 - MONEY LENDING. THE TRANSACTIONS WERE THEREFORE 'I N THE NATURE OF INVESTMENT' AND ANY LOSS OF INVESTMENT COULD NOT BE DEDUCTED FROM THE INCOME FROM BUSINESS OR PROFESSION. IT IS NOT T HE CASE OF THE ASSESSING OFFICER THAT THE DEBT HAD NOT BECOME BAD OR THAT THE CONDITIONS FOR WRITING OFF THE SAME WERE NOT SATISF IED. ON THE OTHER HAND THE CLAIM OF THE APPELLANT HAS BEEN THAT THE MONEY IS DEPOSITED / ADVANCED COULD NOT BE RECOVERED AND TH EREFORE IT HAD BECOME BAD DEBTS AND HAD THEREFORE BEEN WRITTEN OF F. IT WOULD BE OBSERVED THAT APART FROM SIMPLY DENYING THAT IT IS NOT AN INVESTMENT THE APPELLANT HAS NOT REALLY SAID MUCH TO REBUT THE ASSESSING OFFICER'S OBSERVATION THAT THESE TRANSACT IONS ARE IN THE NATURE OF AN INVESTMENT OF SURPLUS FUNDS. THE APPEL LANT HAS FILED A COPY OF THE GENERAL LEDGER ACCOUNT IN RESPECT OF IN TER CORPORATE DEPOSIT FROM 1-7-95 TO 30-6-05 WHICH IS PLACED ON R ECORD. AN ABSTRACT OF INTER CORPORATE DEPOSIT GIVEN HAS ALSO BEEN FILED IN WHICH THE DATES ON WHICH THE DEPOSITS HAVE BEEN GIV EN AND THE CHEQUES BY WHICH THE MONEY ALONG WITH INTEREST HAS BEEN RECEIVED BACK AND THE DATES ON WHICH THESE CHEQUES HAVE BOUN CED IN BOTH THE CASES HAVE BEEN INDICATED. FROM THE GENERAL LED GER ACCOUNT OF ICDS IT IS SEEN THAT THE APPELLANT COMPANY HAS BEE N CONTINUOUSLY MAKING DEPOSITS WITH A LARGE NUMBER OF COMPANIES DU RING THE ENTIRE PERIOD ON A REGULAR BASIS AND HAS ALSO BEEN RECEIVING BACK THE REFUNDS ON THE SAID ACCOUNT. SOME OF THESE DEP OSITS IN THEIR NARRATION INDICATE THE NUMBER OF DAYS FOR WHICH THE SE ARE MADE. IT IS OBSERVED THAT THESE ARE NOT ISOLATED INSTANCES O F DEPOSITS. THE TRANSACTIONS ARE VERY LARGE IN NUMBER AND THE DEPOS ITS ARE ALSO MADE WITH A LARGE NUMBER OF DIFFERENT COMPANIES. IT IS COMMON FOR COMPANIES TO DEPOSIT THEIR MONIES IN ICDS FOR THE E CONOMIC AND EFFICIENT USE OF MONEY. HOWEVER THE SCALE OF TRANS ACTIONS IS SO LARGE IN THE APPELLANT'S CASE THAT IT DOES NOT FIT INTO THE MOULD OF THE NORMAL ACTIVITY OF PARKING OF SURPLUS FUNDS FOR THE IR EFFICIENT UTILIZATION. THE SCALE OF TRANSACTIONS AND THEIR RE GULARITY IMPARTS A DIFFERENT CHARACTER TO THIS TRANSACTION - A CHARACT ER INDICATED BY THE ASSESSING OFFICER IN THE ASSESSMENT ORDER. THE ASSE SSING OFFICER HAS HELD THAT THESE TRANSACTIONS ARE NOT IN THE NOR MAL COURSE OF BUSINESS OF THE APPELLANT WHICH IS OF MANUFACTURING RESINS AND TRADING OF POLYCARBONATES AND OF WIND POWER GENERAT ION. THERE IS NO OBVIOUS CONNECTION BETWEEN THE NATURE OF BUSINES S OF THE APPELLANT COMPANY AND THE LARGE NUMBER OF COMPANIES WITH WHICH THE MONEY HAS BEEN DEPOSITED. THE APPELLANT HAS NOT EVEN MADE A PRETENCE OR AN EFFORT TO SHOW THAT THE DEPOSIT WITH M/S. GSL (I) LTD. HAS BEEN MADE DURING THE COURSE OF NORMAL BUSINESS. IT HAS ONLY MADE A WEAK EFFORT IN THIS BEHALF IN RESPECT OF THE OTHER TRANSACTION - 12 - WITH M/S. REAL VALUE APPLIANCES LTD. WHERE IT HAS CLAIMED THAT THE IMONEY WAS GIVEN FOR THE DEVELOPMENT OF NEW PRODUCT AND LAUNCH IN 'THE MARKET HOWEVER IT IS OBSERVED THAT HERE AL SO THIS BALD CLAIM HAS NOT BEEN CORROBORATED BY SHOWING THAT WHAT DIFF ERENT STEPS HAD BEEN UNDERTAKEN BY THAT COMPANY IN THE PRODUCT DEVE LOPMENT PROJECT AND WHAT STAGES HAD BEEN COMPLETED AND AT W HAT STAGE OF DEVELOPMENT THE PRODUCT HAD FAILED AND FOR WHAT REA SONS THE PROJECT HAD TO BE SHELVED. IT HAS ALSO NOT BEEN SHO WN AS TO WHAT WAS THE PRODUCT THAT WAS PROPOSED TO BE DEVELOPED HOW IT WAS RELEVANT TO THE APPELLANT'S BUSINESS INTEREST. IT H AS NOT BEEN SHOWN AS TO WHY THE MONEY FOR A PRODUCT DEVELOPMENT PROJE CT OF THE BUSINESS INTEREST TO THE APPELLANT WAS GIVEN ONLY F OR A SHORT PERIOD OF FOUR MONTHS. THE PERIOD OF FOUR MONTHS DOES NOT FIT INTO AN ADVANCE IN THE NATURE OF AN ADVANCE FOR THE PRODUCT DEVELOPMENT PROJECT. THE APPELLANT'S EXPLANATION DOES NOT STAND THE TEST OF REASON. IT TAKES A MUCH LONGER PERIOD TO DEVELOP A PRODUCT AND TO LAUNCH IT SUCCESSFULLY IN THE MARKET. THIS CLAIM IS ALSO NOT SUPPORTED BY ANY WRITTEN AGREEMENT BECAUSE IN THE N ORMAL COURSE THE APPELLANT WOULD HAVE LIKED TO ADVANCE SUCH MONE Y IN RETURN FOR CERTAIN DEFINITE QUANTIFIABLE BENEFITS. UNDER THE C IRCUMSTANCES EVEN WHERE THE APPELLANT HAS TRIED TO EXPLAIN THE T RANSACTION AS HAVING BEEN UNDERTAKEN IN THE INTEREST OF ITS BUSIN ESS IT HAS FAILED TO ESTABLISH THE CLAIM IN ANY SOUND LOGICAL WAY. I T IS OBSERVED FROM THIS THAT IN THE ABSENCE OF ANY PLAUSIBLE EXPLAN ATION THAT THE MONIES WERE ADVANCED OR THE DEPOSITS WERE MADE FOR THE PURPOSES OF BUSINESS OR IN RELATION TO THE ACTIVITIES OF THE APPELLANT'S OWN BUSINESS IT CANNOT BE REASONABLY CLAIMED THAT THE SAID TRANSACTIONS WERE IN THE NORMAL COURSE OF APPELLANT'S BUSI NESS. UNDER THE CIRCUMSTANCES THE CONCLUSION DERIVED BY THE ASSESS ING OFFICER IS FOUND TO BE CORRECT AND NOT WITHOUT BASIS. LOOKING TO THE NUMBER OF TRANSACTIONS UNDERTAKEN THE LARGE NUMBER OF COMPAN IES WITH WHICH THE TRANSACTIONS HAVE BEEN MADE AND THE REGULARITY WITH WHICH THESE TRANSACTIONS HAVE TAKEN PLACE OVER A PERIOD IT CAN SAFELY BE CONCLUDED THAT THESE TRANSACTIONS ARE IN THE NATURE OF INVESTMENT. ANY LOSS ON ACCOUNT OF SUCH INVESTMENT CANNOT BE AL LOWED FROM THE APPELLANT'S INCOME FROM BUSINESS OR PROFESSION. THE ASSESSING OFFICER WAS THEREFORE CORRECT IN DISALLOWING THE APPELLANT'S CLAIM THAT THESE WERE UNREALIZED BAD DEBTS ELIGIBLE FOR A LLOWANCE U/S. 36(L)(VII) OF THE ACT AS BAD DEBTS. UNDER THE CIRCU MSTANCES IT IS HELD THAT THE AMOUNT OF RS 3 CRORES REPRESENTS LOSS OF INVESTMENT WHICH CANNOT BE ALLOWED AGAINST THE BUSINESS INCOME OF THE APPELLANT AS CLAIMED BY THE APPELLANT. THE ACTION O F THE ASSESSING OFFICER IN THIS REGARD IS UPHELD. - 13 - 14. BEFORE US THE LEARNED AUTHORISED REPRESENTATIV E OF THE ASSESSEE SUBMITTED THAT IT IS NOT IN DISPUTE THAT THE AMOUNT IN QUESTION WERE ADVANCED BY THE ASSESSEE TO EARN INTEREST AS INTERC ORPORATE DEPOSITS. HE EXPLAINED THAT THE ASSESSEE WAS INTER ALIA ALSO ENG AGED IN THE BUSINESS OF ADVANCING LOAN BY WAY OF INTERCORPORATE DEPOSITS AN D THE ABOVE FACTS ARE EVIDENCED BY THE FINDING OF THE LEARNED COMMISSIONE R OF INCOME TAX(APPEALS) ITSELF. HE ALSO POINTED OUT THAT THE I NTEREST INCOME EARNED BY THE ASSESSEE ON THE ABOVE DEPOSITS WERE ASSESSED AS BUSINESS INCOME IN THE HANDS OF THE ASSESSEE IN EARLIER YEARS WHICH IS EVIDENCED BY THE COMPUTATION INCOME OF THE ASSESSEE FINANCIAL STATE MENTS AND ORDER OF ASSESSMENT PASSED IN THE CASE OF THE ASSESSEE FOR T HE ASSESSMENT YEARS 1996-97 AND 1997-98 WHICH ARE PLACED AT PAGE NOS. 1 1 TO 70 OF THE PAPER- BOOK. HE RELIED UPON THE DECISION OF IN THE CASE OF GOETZE (INDIA) LTD. VS. DCIT (2008) 119 TTJ (DEL)351 FOR HIS SUBMISSI ON THAT ON THE ABOVE UNDISPUTED FACTS THE BAD DEBTS CLAIMED BY THE ASSE SSEE WAS ALLOWABLE AS A DEDUCTION TO IT. 15. ON THE OTHER HAND THE LEARNED DEPARTMENTAL REP RESENTATIVE STRONGLY RELIED UPON THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX(APPEALS). 16. WE FIND THAT THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) HAS RECORDED A CATEGORICAL FINDING THAT THE ASSESSE E WAS REGULARLY ENGAGED IN THE ACTIVITY OF ADVANCING INTERCORPORATE DEPOSIT S TO VARIOUS COMPANIES DURING THE LAST 10 YEARS. THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER GOING THROUGH THE ICD ACCOUNT OF THE ASSESSEE FOR THE PERIOD FROM 1.07.1995 TO 30.06.2005 HAS OBSERVED TH AT THE ASSESSEE WAS REGULARLY MAKING ICDS AND THERE WERE NUMEROUS TRANS ACTION IN THIS - 14 - RESPECT AND THE TRANSACTIONS WERE WITH LARGE NUMBER OF COMPANIES. THE ABOVE FINDINGS OF THE LEARNED COMMISSIONER OF INCOM E TAX(APPEALS) COUPLED WITH THE FACT THAT THE INTEREST INCOME EARN ED BY THE ASSESSEE ON ICDS WERE ACCEPTED BY THE REVENUE AS BUSINESS INCOM E IN EARLIER YEARS CLEARLY SHOWS THAT THE ACTIVITY OF THE ASSESSEE OF MAKING ICDS WERE ITS REGULAR BUSINESS ACTIVITY APART FROM THE BUSINESS O F MANUFACTURING RESINS AND TRADING OF POLYCARBONATES AND OF WIND POWER GEN ERATION. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GOETZE (INDIA) LTD. VS. DCIT (2008) 119 TTJ (DEL)351 WHERE IT WAS HELD AS UNDER:- IT IS ADMITTED FACT THAT THE AMOUNT OF BAD DEBT CL AIMED AS DEDUCTION IS WRITTEN OFF IN THE ACCOUNTS. IT IS ALS O NOT IN DISPUTE THAT THE WRITE OFF IS BONA FIDE AND HENCE THE CONDITION SET OUT IN S. 36(1) (VII) IS SATISFIED. SEC. 36(1)(VII) IS SUBJECT TO T HE PROVISIONS OF SUB-S. (2) OF S. 36 UNDER WHICH THE CLAIM OF BAD DEBT IN RESPECT OF AMOUNT WRITTEN OFF WHICH REPRESENTS MONEY LENT IN THE ORDI NARY COURSE OF THE BUSINESS OF MONEY LENDING CARRIED ON BY THE ASS ESSEE IS ALLOWABLE. THEREFORE THE QUESTION TO BE EXAMINED I S WHETHER THE DEBT WRITTEN OFF REPRESENTS MONEY LENT IN THE ORDIN ARY COURSE OF THE BUSINESS OF MONEY LENDING OR NOT. THE FACT WHICH I S NOT IN DISPUTE IS THAT FOR ALL THESE YEARS THE INTEREST ON ICDS W AS OFFERED FOR TAXATION AND TAXED AS SUCH AS BUSINESS INCOME. THE COROLLARY THEREFORE IS THAT THE INTEREST WAS EARNED IN THE C OURSE OF CARRYING ON BUSINESS AS SUCH. BUSINESS IS A SET OF ORGANIZED ACTIVITIES WITH SET PURPOSE CARRIED ON CONTINUOUSLY AND WITH A VIEW TO EARN PROFIT. IN DETERMINING SUCH QUESTION ORDINARY COMMERCIAL PR INCIPLES SHOULD BE APPLIED. WHETHER A PARTICULAR INCOME RECE IVED AS A RESULT OF ACTIVITIES CARRIED ON BY THE ASSESSEE IS BUSINES S INCOME OR OTHERWISE DEPENDS UPON THE MANNER OF EXPLOITATION O F THE ASSETS OF THE ASSESSEE. THE SAME IS TO BE DECIDED ACCORDING T O THE GENERAL COMMON SENSE VIEW OF THOSE WHO DEAL WITH THOSE MATT ERS IN THE PARTICULAR CIRCUMSTANCES AND THE CONDUCT OF THE PAR TIES CONCERNED. FROM THE CHART OF MONEY LENT AND INTEREST EARNED TH EREON IT IS CLEAR THAT LENDING OF MONEY BY WAY OF ICD WAS CARRI ED ON AS A PART OF ORGANIZED AND REGULAR BUSINESS ACTIVITY. HUGE AM OUNT OF INTEREST IS EARNED THEREON. THUS IT CANNOT BE SAID THAT THE LENDING OF MONEY WAS ONLY A CASUAL ACTIVITY OR ONE TIME PLACING OF F IXED DEPOSIT. THE ASSESSEE USEFULLY LENT MONEY REALIZED THEM AND RED EPLOYED THE FUND AS PER THE BORROWERS REQUIREMENT. THIS WAS CARRIE D ON BY WAY OF REGULAR BUSINESS ACTIVITY. TAXING THE SAME UNDER TH E HEAD 'PROFITS - 15 - AND GAINS OF BUSINESS' IS A TESTIMONY TO THE FACT T HAT THE INTEREST WAS EARNED IN THE COURSE OF CARRYING ON BUSINESS. I T IS TOO LATE IN THE DAY FOR THE REVENUE TO CONTEND THAT INTEREST IN COME SHOULD BE TAXED UNDER THE HEAD 'INCOME FROM OTHER SOURCES'. T HUS IT CAN BE SAID THAT THE ASSESSEE WAS CARRYING ON BUSINESS OF MONEY LENDING IN ITS ORDINARY COURSE. IN VIEW OF THE MATTER THE CON DITION AS SET OUT UNDER S. 36(1)(VII) R/W S. 36(2)(I) IS SATISFIED AN D HENCE CLAIM OF THE ASSESSEE IS ALLOWABLE.POYSHA OXYGEN (P) LTD. VS. A SSTT. CIT (2008) 19 SOT 711 (DEL)(TM) CIT VS. ESS JAY ENTERP RISES (P) LTD. (2008) 165 TAXMAN 465 (DEL) CIT VS. A.L.R.M. RAMAN ATHAN CHETTIAR & ORS. (1996) 218 ITR 161 (MAD) AND CIT VS . NEO POLY PACK (P) LTD. (2000) 245 ITR 492 (DEL) RELIED ON; E AST INDIA PROSPECTING SYNDICATE VS. CEPT (1951) 19 ITR 571 (C AL) AND TUTICORIN ALKALI CHEMICALS & FERTILIZERS LTD. VS. C IT (1997) 141 CTR (SC) 387 : (1997) 227 ITR 172 (SC) DISTINGUISHE D. 17. IN VIEW OF THE ABOVE DECISION IN OUR CONSIDERE D VIEW THE LEARNED COMMISSIONER OF INCOME TAX(APPEALS) AFTER OBSERVING THAT THE ASSESSEE WAS ENGAGED IN ADVANCING ICDS TO LARGE NUMBER OF CO MPANIES REGULARLY AND INTEREST INCOME THEREON WERE ASSESSED AS BUSINE SS INCOME IN THE HANDS OF THE ASSESSEE WAS NOT JUSTIFIED IN HOLDING THAT IT WAS MERELY AN INVESTMENT ACTIVITY OF THE ASSESSEE AND NOT ALLOW D EDUCTION FOR BAD DEBT IN QUESTION. 18. WE FIND THAT IT IS NOT IN DISPUTE THAT THE DEBT WHICH WERE CLAIMED BY THE ASSESSEE AS BAD DEBTS WERE NOT BONAFIDE AND THE DEBT HAS IN FACT HAVE NOT BECOME BAD. GENUINENESS OF THE DEBTS IN QUESTIO N OF BECOMING BAD DEBT IS NOT IN DISPUTE THE DEBTS WERE MONEY GIVEN BY THE ASSESSEE AS ICDS INTEREST INCOME EARNED THEREON WAS ASSESSED A S BUSINESS INCOME IN EARLIER YEARS ASSESSEE WAS REGULARLY ADVANCING ICD S ICDS WERE ADVANCED TO LARGE NUMBER OF COMPANIES BY THE ASSESS EE THERE WERE NUMEROUS TRANSACTIONS IN THE ICD ACCOUNT OF THE ASS ESSEE ARE NOT IN DISPUTE BEFORE US. ON THE ABOVE UNDISPUTED FACTS F OLLOWING THE ABOVE DECISION IN THE CASE OF GOETZE (INDIA) LTD. VS. DCI T (2008) 119 TTJ - 16 - (DEL)351 IN OUR CONSIDERED OPINION THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 36(1)(VII) READ WITH SECTIO N 36(2) CANNOT BE DENIED. WE THEREFORE SET ASIDE THE ORDER OF THE LE ARNED COMMISSIONER OF INCOME TAX(APPEALS) AND ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 19. IN THE RESULT THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER SIGNED DATED AND PRONOUNCED IN THE COURT ON 30/04/2010. SD/- SD/- ( MAHAVIR SINGH) ( N.S. SAINI ) JUDICIAL MEMBER ACCOUNTA NT MEMBER AHMEDABAD; DATED 30/04/2010 PARAS COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)- 5. THE DR AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER //TRUE COPY// (DY./ASSTT.REGISTRAR) ITAT AHMEDABAD