Amco Batteries Ltd. V. The Assistant Commissioner of Income \\u2013 tax, Circle 11(1) Bangalore

ITA/718/2009

AI Insights

M/s. Amco Batteries Ltd. appealed against the decision of the ITAT Bangalore, which had declined to allow a deduction of Rs.2,85,75,000 as a bad debt. The amount was initially recognized and taxed in the Assessment Year 2002-03 as warranty expenses of TAFE, PSD. In the subsequent year, when the amount was deemed irrecoverable, the assessee sought to write it off as a bad debt. The ITAT and other authorities disallowed the claim on the grounds that the expenditure did not pertain to the year under consideration and was not recognized as expenditure by TAFE. The High Court, however, found that the deduction was rightly claimable under Section 36(1)(vii) as the debt had become irrecoverable and was acknowledged by TAFE in the previous year.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 689843 (HC-KARNATAKA)
• Appeal Type: Others
• Pronouncement Date: 02-12-2014
• Assessment Year: misc
• Laws Referred To: Income Tax Act 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: K V ARAVIND
• Assessee Lawyers: S PARTHASARATHI
• Keywords: Assessment Year; Bad debt; Deduction; Income Tax; Warranty Claim
• Section: 37; 36(1)(vii); 36(2); 36; 260-A

Judgement Text

" 1 IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THE 2ND DAY OF DECEMBER 2014 PRESENT THE HON'BLE MR. JUSTICE N. KUMAR AND THE HON’BLE MR. JUSTICE B. MANOHAR ITA NO.718 OF 2009 BETWEEN; M/s. Amco Batteries Ltd., 3rd Floor, Tower Block Unity Buildings J.C.Road, N.R.Square Bangalore – 560 002 Represented by its Senior General Manager – Finance & Co. Secy., Sri.B.N.Balachandran Aged about 62 years Son of Sri.B.R.Natarajan ...APPELLANT (By Sri.S.Parthasarathi, Advocate) AND: The Assistant Commissioner of Income – tax, Circle 11(1) Bangalore ...RESPONDENT (By Sri.K.V.Aravind, Advocate) -0-0-0-0-0- This appeal is filed under Section 260-A of Income Tax Act 1961, arising out of order dated 26.06.2009 passed in 2 ITA No.1225/BNG/2007, for the Assessment Year 2003-04, praying to 1) formulate the substantial questions of law stated therein and 2) allow the appeal and set aside the order passed by the ITAT Bangalore in ITA No.1225/BNG/2007, dated 26.06.2009, in the interest of justice and equity. This appeal coming on for Hearing this day, N.KUMAR, J. delivered the following:- JUDGMENT The assessee has preferred this appeal against the order passed by the Tribunal which has declined to allow deduction of Rs.2,85 ,75,000/- as bad debt. 2. The assessee company is engaged in the manufacture and sale of automative batteries. The assessee claimed a sum of Rs.2,85,75,000/- as warranty claim being written off. The claim of the assessee was that it has voluntarily recognized and credited the warranty expenses of TAFE, PSD in the Assessment Year 2002-03. Further they claimed that there is no cessation of liability in the hands of TAFE, as TAFE has never claimed this as expenditure in its books of accounts. However the said claim was disallowed on the ground that the expenditure does not pertains to the year under the consideration and therefore it was held that it 3 is not allowable under Section 36 of the Income tax Act. The other reason given was that the said amount has not been recognized as expenditure by TAFE. Provisions of Section 36(1)(vii) of the Act cannot also be applicable as it could not be treated as debt at all. Therefore all the three authorities disallowed the said claim, hence this appeal. 3. The appeal was admitted to consider the following substantial questions of law: a) “Whether in law, the Tribunal was right in holding that the expenditure towards warranty claim written off during the relevant year which was suffered tax in preceding year was neither allowable under Section 37 nor under Section 36(1)(vii) of the Act? b) Whether the Tribunal was right in holding that the provisions of Section 36(1)(vii) read with Section 36(2) were not applicable when the debt due which suffered tax in preceding year having been written off during the relevant year? c) Whether in law, the Tribunal was justified in omitting to consider the fact that TAFE having acknowledged the debt during the previous year and having requested for waiver during the 4 relevant year, which has been accepted by the Appellant and the debt having become irrecoverable and consequently denying the benefit of deduction to the Appellant under Section 36(1)(vii) or 37 of the Act.” 4. The facts are not in dispute. The assessee company voluntarily recognized and credited warranty expenses of TAFE, PSD in the assessment year 2002-03 and paid taxes on the said amount. In the subsequent year when they were sure that they are not getting any portion of the said amount, they wanted to treat it as a bad debt and write off the said claim. Accordingly, they sought for deduction of the said amount out of the total income. Once the assessee writes off a claim in its books of accounts treating it as a bad debt under section 36(1)(vii) read with 36(2), the assessee is entitled for deduction of the said amount. However the authorities have proceeded altogether in a different course. They are of the view that the said amount pertains to the previous year. The benefit cannot be given to subsequent year. Secondly, as the said amount is not reflected in the accounts of TAFE, PSD, the assessee is not entitled to the 5 said benefit. In fact, the said facts would support the claim. However in the TAFE and PSD accounts is not shown in their books as due to the asessee. The assessee showing it as due and it is only because the tax is paid in the previous year and in the subsequent year amount not being recovered, it is treated as a bad debt and deduction is claimed. 5. In that view of the matter, the impugned orders passed by the authorities cannot be sustained. The substantial questions of law are answered in favour of the assessee and against the revenue. Hence we pass the following order:- The impugned order is hereby set aside. The appeal is allowed. Sd/- JUDGE. Sd/- JUDGE. Bsv "