COMMISSIONER OF INCOME TAX Vs. EASTMAN INDUSTRIES

JUDGEMENT

(1.) The instant appeal filed by the revenue under Section 260A of the Income-tax Act, 1961 (for brevity, 'the Act') is directed against the order 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 is engaged in the business of sale purchase of Mutual Funds and Money Lending business. It has filed its return of income in respect of Assessment Year 2004-05 on 22.9.2004 declaring Nil income after adjusting B/F business 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 the Assessment Year 2001-02. The assessee-respondent also shown net loss from sale purchase of Mutual Funds to the tune of Rs. 25,63,574/-, whereas the 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 Act and was not to form part of the total income The return was processed under Section 143(1)(a) of the Act on 31.3.2005. Thereafter, the case was selected for scrutiny and notice under Section 143(2) of the Act was issued on 23.8.2005. During the assessment proceedings, under the heading 'Addition on account of disallowance of Bad Debts written off' it was also noticed that the assessee-respondent has claimed expenses of Rs. 2,57,502/on account of DDB receivable and Rs. 56,66,950/- towards Bad debts overseas under the head Administrative, Financial and other Expenses, which were pertaining to the Assessment Year 1997-98. The Assessing Officer came to the conclusion that the assessee-respondent had already taken exemption of profit on the said amounts on account of deduction under Section 80HHC in the Assessment Year 1997-98 and if the amount is again debited to the expenses account in the Assessment Year 2004-05, it would give double benefit to the assessee-respondent. The Assessing Officer further observed that the assessee-respondent was earlier dealing in the business of cycle and auto parts and exporting the same during the Assessment Years 1996-97 and 1997-98. However, during the Assessment Year 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':