Income derived from money lending activities can qualify as business income under Section 44AD, regardless of licensing compliance, if the activity is systematic and profit-oriented.

ORDER

PER WASEEM AHMED, ACCOUNTANT MEMBER:

This is an appeal filed by the assessee against the order passed by the NFAC, Delhi dated 21/02/2024 vide DIN No. ITBA/APL/ S/250/2023-24/1061293788(1) for the assessment year 2016-17.

2. At the outset I note that appeal filed by the assessee has been delayed by 230 days The assessee in the application seeking condonation of a delay in filing the appeal prayed that he (the assessee) is 75-year-old individual, not conversant with emails or other electronic means of e-communication. He (the ld. AR) stated that the order passed under Section 250 of the Act was not served to him in physical form but served through email. As the assessee was not conversant with email, he was not aware about passing of order under section 250 of the Act, once he came to know about the order, he promptly filed the appeal.

3. The appellant further submitted that the delay was neither intentional nor deliberate but due to negligence and genuine limitations associated with the old age and technological inexperience. It is also noted that the appellant has demonstrated bona fide intent by filing the appeal promptly upon becoming aware of the order. Thus, the ld. AR prayed for condonation of the delay. On the other hand, the Ld. DR left the issue at the discretion of the bench.

4. After considering the submissions made by the assessee and the affidavit filed, I find that the reasons caused for the delay are genuine and beyond the control of the assessee. The principles of natural justice demand that an opportunity be granted to the assessee in present the case on merits.

5. The term "reasonable cause" has not been defined under the Act but has been interpreted by various judicial precedents. The Hon’ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji & Others [1987] 167 ITR 471 (SC) has held that:

• Ordinarily, a litigant does not stand to benefit by resorting to delay.

• When substantial justice and technical considerations are pitted against each other, cause of substantial justice should prevail.

• The Courts should adopt a liberal approach in condoning delays caused due to a genuine and bona-fide mistake.

6. Further, such a delay does not reflect negligence or mala fide intent but a genuine cause beyond the control of the assessee. The Hon’ble Supreme Court in N. Balakrishnan v. M. Krishnamurthy [1998] 7 SCC 123 held that:

• Length of delay is not as material as the acceptability of the explanation for such delay.

• If the explanation is reasonable and does not indicate deliberate negligence, delay should be condoned.

7. In view of the above we condone the delay of 230 days in filing the appeal by the assessee and proceed to decide the issue on merit of the case.

8. The necessary facts are that the assessee is an individual and deriving income as share of profit from the firm namely M/s Parvati Enterprises and is also claimed to be engaged in the business of money lending. The assessee filed a return of income declaring income of ₹2,32,722/- under section 44AD of the Act, on Gross receipt of Rs. ₹21,09,014/- from the money lending business.

9. The case of the assessee was selected for scrutiny. During the assessment proceedings, the AO observed that the assessee did not obtain a license for money lending activities as required under the Karnataka Money Lenders Act, 1961. Accordingly, the AO held that the activity of the assessee in the absence of requisite license does not constitutes a business. The AO further held that business activities typically involve trading in goods, incurring expenses, and earning income, whereas money lending involves lending funds and earning interest without associated business expenditure. Hence the assessee is not in the business activity on which the provision of section 44AD may be applied. Consequently, the AO treated the gross receipts of ₹21,09,014/- as "Income from Other Sources" under the Act and added the same to the total income of the assessee.

10. Aggrieved b