ACIT, CHENNAI V. M/s. Shriram City Union Finance Co. Ltd., CHENNAI

ITA 1002/CHNY/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5182 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-04-2011
• Assessment Year: 1998-1999
• Appeal Filed On: 18-06-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JR
• Assessee Lawyers: V D GOPAL
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH B BEFORE DR.O.K.NARAYANAN, VICE PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER I.T.A. NOS. 1001 & 1002/MDS/2010 ASSESSMENT YEARS : 1997-98 & 1998-99 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE VI(2), CHENNAI 600 034. VS. M/S SHRIRAM CITY UNION FINANCE CO. LTD MOOKAMBIGA COMPLEX THIRD FLOOR, MYLAPORE CHENNAI-34 PAN AAACS 7703 H (APPELLANT) (RESPONDENT) ASSESSEE BY SHRI V.D. GOPAL DEPARTMENT BY : SHRI K.E.B. RENGARAJAN JR. STANDING COUNSEL O R D E R PER DR. O.K.NARAYANAN, VICE PRESIDENT THESE TWO APPEALS ARE FILED BY THE REVENUE. THE RE LEVANT ASSESSMENT YEARS ARE 1997-98 AND 1998-99. THESE AP PEALS ARE ITA NOS. 1001 &1002/MDS/2010 :- 2 -: DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME-TAX (APPEALS)-V AT CHENNAI DATED 25.03.2010 AND ARISES OUT OF THE ASSESSMENT COMPLETED UNDER SEC. 143(3) R.W.S 254 OF THE INCOME-TAX ACT, 1961. 2. THE COMMON GROUNDS RAISED BY THE REVENUE IN THES E APPEALS ARE AS UNDER: 2.1 THE COMMISSIONER OF INCOME-TAX [APPEALS] ERRED IN DELETING THE ADDITION MADE TOWARDS INTEREST ON NON PERFORMING ASSETS [NPAS] 2.2 THE COMMISSIONER OF INCOME-TAX [APPEALS] ERRED IN ADJUDICATING ON AN ISSUE ALREADY DECIDED BY THE TRIBUNAL IN ITA NO. 13/MDS/2002 DATED 21/4/2006 AND IN HOLDING THAT THERE IS NO REAL INCOME ACCRUING IN RESPECT OF BAD DEBTS WRITTEN OFF, WHEN THE TRIBUNAL HAD ONLY REMITTED THE ISSUE TO THE ASSESSING OFFICE R TO VERIFY WHETHER THE AMOUNT ON WHICH INTEREST WAS SAI D TO ACCRUE REPRESENTED THE NPAS AS PER RBI NORMS. 2.3 THE COMMISSIONER OF INCOME-TAX [APPEALS] HAS FAILED TO APPRECIATE THAT THE NPAS HAVE BEEN WRITTEN OFF A S ITA NOS. 1001 &1002/MDS/2010 :- 3 -: BAD DEBTS ONLY IN THE BOOKS OF ACCOUNT FOR THE PURP OSE OF INCOME-TAX ACT AND IN THE BOOKS OF ACCOUNT AS PE R COMPANIES ACT, IT HAS NOT BEEN WRITTEN OFF. 2.4. THE COMMISSIONER OF INCOME-TAX [APPEALS] HAS FAILED TO APPRECIATE THAT SECTION 43D WHICH LAYS DOWN THAT ONLY PUBLIC FINANCIAL INSTITUTIONS, SCHEDULED BANKS , STATE FINANCIAL CORPORATIONS, STATE INDUSTRIAL CORPORATIONS AND PUBLIC COMPANIES ENGAGED IN LONG TERM FINANCING FOR RESIDENTIAL PROJECTS CAN OFFER T HEIR INCOME ONLY WHEN THEY CREDIT THEIR ACCOUNT WITH INTEREST ON STICKY LOANS OR ON RECEIPT BASIS, WHICH EVER IS EARLIER WHICH IS NOT APPLICABLE TO THE ASSESSEE. 2.5 THE COMMISSIONER OF INCOME-TAX [APPEALS] OUGHT TO HAVE FOLLOWED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF KERALA FINANCIAL CORPORATION [ 210 ITR 129] WHEREIN IT WAS HELD THAT INTEREST WHICH HA D ACCRUED ON THE STICKY ADVANCE HAS TO BE TREATED AS THE INCOME OF THE ASSESSEE AND AS SUCH TAXABLE. ITA NOS. 1001 &1002/MDS/2010 :- 4 -: 2.6 THE COMMISSIONER OF INCOME-TAX [APPEALS] OUGHT TO HAVE FOLLOWED THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF SOUTHERN TECHNOLOGIES [320 ITR 577] WHEREIN IT WAS HELD THAT THE DIRECTIONS OF THE RBI HAVE NOTHING TO DO WITH COMPUTATION OF TAXABLE INCOME. 3. AS PER THE ABOVE GROUNDS, THE ONLY ISSUE AGITATE D BY THE REVENUE IN THESE APPEALS IS THE ORDER OF THE COMMIS SIONER OF INCOME-TAX [APPEALS] TO DELETE THE INTEREST ATTRIBU TED BY THE ASSESSING AUTHORITY TO NON PERFORMING ASSETS [NPA] FOR THESE TWO ASSESSMENT YEARS, AMOUNTING TO ` 16,96,648/- FOR ASSESSMENT YEAR 1997-98 AND ` 16,19,707/-, FOR ASSESSMENT YEAR 1998-99. 4. THE ASSESSEE HAS WRITTEN OFF CERTAIN BALANCES OF RECEIVABLES AS NPAS IN ITS BOOKS OF ACCOUNT MAINTAI NED FOR THE PURPOSES OF INCOME-TAX. BUT, IN THE BOOKS OF ACCOU NT MAINTAINED UNDER THE COMPANIES ACT, SUCH NPAS HAVE NOT BEEN WR ITTEN OFF. THEREFORE, THE ASSESSING OFFICER HELD THAT WHAT HAS BEEN CLAIMED BY THE ASSESSEE BY WRITING OFF IN THE BOOKS OF ACCO UNT MAINTAINED FOR THE PURPOSES OF INCOME-TAX IS NOT BAD DEBTS BUT PROVISION FOR BAD DEBT. AFTER HOLDING THAT THE AMOUNT WRITTEN OFF BY THE ITA NOS. 1001 &1002/MDS/2010 :- 5 -: ASSESSEE WAS IN THE NATURE OF PROVISION FOR BAD DEB T, THE ASSESSING OFFICER FURTHER PROCEEDED TO HOLD THAT IN TEREST HAS TO BE IMPUTED ON THAT PROVISION ON THE GROUND THAT INTERE ST ACCRUES ON THOSE AMOUNTS AS WELL. ON THE BASIS OF THE ABOVE F ACTUAL AND LEGAL PROPOSITION, THE ASSESSING OFFICER COMPUTED T HE INCOME ATTRIBUTABLE TO SUCH PROVISION FOR BAD DEBT AT ` 16,96,648/- FOR ASSESSMENT YEAR 1997-98 AND ` 16,19,707/- FOR ASSESSMENT YEAR 1998-99. IN THE FIRST APPEALS, THESE ADDITION S MADE BY THE ASSESSING AUTHORITY HAVE BEEN DELETED BY THE COMMIS SIONER OF INCOME-TAX [APPEALS]. THE REVENUE IS AGGRIEVED AND , THEREFORE, IN SECOND APPEALS BEFORE US. 5. WE HEARD BOTH THE SIDES IN DETAIL. AS ALREADY S TATED, THE ONLY QUESTION TO BE CONSIDERED IN THESE APPEALS IS WHETHER THE ASSESSING AUTHORITY IS JUSTIFIED IN ATTRIBUTING THE INTEREST ON ACCRUAL BASIS ON THE DEBTS CLASSIFIED BY THE ASSESSEE AS BA D. 6. THE VERY SAME ISSUE WAS CONSIDERED BY THIS TRIBU NAL IN THE CASE OF CIT VS. ELGI FINANCE LIMITED IN ITS ORDER D ATED 12.12.2002 PASSED IN ITA NO. 361/MDS/2002 IN ITAT B BENCH. THE TRIBUNAL HAS COME TO A FINDING IN THAT CASE ON MATTERS OF RE COGNIZING INCOME ON NPAS. WHETHER INCOME HAS TO BE IMPUTED O N ACCRUAL ITA NOS. 1001 &1002/MDS/2010 :- 6 -: BASIS OR ON RECEIPT BASIS COULD BE DECIDED ONLY AFT ER GIVING A FINDING WHETHER INCOME COULD BE RECOGNIZED AT ALL. IF NO INCOME WAS RECOGNIZED FROM SUCH ASSETS, THERE WAS NO QUEST ION OF APPLYING THE PRINCIPLE OF ACCRUAL. THE PRINCIPLE O F ACCRUAL COMES INTO PLAY WHEN THE INCOME WAS RECOGNIZED. THE FIRS T STEP, THEREFORE, IS THE RECOGNITION OF INCOME. IF FOR VA LID REASONS NO INCOME COULD BE RECOGNIZED FROM SUCH ASSETS, IT IS NOT POSSIBLE TO PROCEED FURTHER. SO THAT, IN SUCH CASES, THE QUESTI ON OF CONTEMPLATING INCOME ON ACCRUAL BASIS DOES NOT ARIS E. 7. THE ABOVE ORDER OF THE TRIBUNAL WAS TAKEN IN APP EAL BEFORE THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT VS. ELGI FINANCE LTD 293 ITR 357. THE HON'BLE HIGH COURT UPH ELD THE PROPOSITION LAID DOWN BY THE TRIBUNAL AND HELD THAT WHERE THE ASSESSEE HAS CLASSIFIED CERTAIN ASSETS AS NPAS AND THE ASSESSEE HAS NOT RECOGNIZED ANY INCOME FROM SUCH ASSETS, THE ASSESSING AUTHORITY COULD NOT COMPUTE ANY INCOME ON ACCRUAL B ASIS. THE ABOVE JUDGMENT OF THE HON'BLE JURISDICTIONAL HIGH CO URT WAS TAKEN IN FURTHER APPEAL BY THE REVENUE BEFORE THE H ON'BLE SUPREME COURT OF INDIAN IN CIT, COIMBATORE VS. ELGI FINANCE LIMITED IN SPECIAL LEAVE TO CIVIL APPEAL NO. CC 205 1 OF 2008. ITA NOS. 1001 &1002/MDS/2010 :- 7 -: THE HON'BLE SUPREME COURT DISMISSED THE SLP AND CONF IRMED THE JUDGMENT OF THE HON'BLE MADRAS HIGH COURT. 8. IN THE PRESENT CASE, THE BASIC QUESTION IS NOT W HETHER THE NPAS HAVE BEEN ACTUALLY WRITTEN OFF AS BAD DEBTS OR OTHER ASSETS HAVE BEEN BROUGHT UNDER A PROVISION FOR BAD AND DOU BTFUL DEBTS. NO DISPUTE REGARDING THE DEDUCTION OF THE NPAS HAS BEEN RAISED IN THESE APPEALS. THE QUESTION WHETHER THE NPA ACC OUNTS HAVE BEEN WRITTEN OFF BY THE ASSESSEE IN ITS BOOKS OF AC COUNT OR THE ASSESSEE HAS MADE ONLY A PROVISION FOR BAD AND DOUB TFUL DEBTS IS A QUESTION TO BE CONSIDERED ONLY WHEN DEDUCTION OF THE SAID NPAS BY WAY OF BAD DEBTS IS TO BE CONSIDERED. 9. THE LD. COUNSEL APPEARING FOR THE ASSESSEE HAS P RODUCED BEFORE US A CONSOLIDATED ORDER OF THE ITAT CHENNAI B BENCH IN THE CASE OF ACIT VS. M/S SHRI RAM CHITS TAMIL NADU [P] LTD AND OTHERS IN ITA NO. 1877 & 1878/MDS 2002 AND OTHER TW O APPEALS DATED 21.4.2006 TO BRING HOME THE POINT THAT WRITIN G OFF BAD DEBTS IN THE BOOKS OF ACCOUNT MAINTAINED FOR THE PURPOSES OF INCOME- TAX ALONE, IS SUFFICIENT, AND SUCH DEBTS NEED NOT B E WRITTEN OFF IN THE BOOKS OF ACCOUNT MAINTAINED UNDER THE PROVISION S OF COMPANIES ACT, THEREBY HOLDING THAT THE ASSESSEE CA N MAINTAIN ITA NOS. 1001 &1002/MDS/2010 :- 8 -: DIFFERENT SETS OF ACCOUNTS UNDER DIFFERENT STATUTES . THIS ORDER OF THE TRIBUNAL HAS NO RELEVANCE IN THE PRESENT CASES AS WE ARE NOT CONSIDERING THE DEDUCTIBILITY OF DEBTS WRITTEN OFF. WE ARE ONLY CONSIDERING THE RECOGNITION OF INTEREST ON NPAS. 10. THEREFORE, WHETHER THE ASSESSEE HAS CLASSIFIED THE ASSETS AS BAD DEBTS EITHER BY FOLLOWING THE ACCOUNTING STA NDARDS OR GUIDELINES ISSUED BY THE RESERVE BANK OF INDIA OR I N ITS OWN WISDOM, IT IS NECESSARY TO EXAMINE ONLY WHETHER SUC H CLASSIFICATION IS JUSTIFIED IN THE LINE OF BUSINESS CARRIED ON BY THE ASSESSEE AND WHETHER SUCH CLASSIFICATION IS REASONA BLY JUSTIFIED FOR THE PURPOSES OF INCOME-TAX ACT. SO, WHETHER TH E RESERVE BANK OF INDIAS REGULATIONS APPLY TO THE ASSESSEE O R NOT, ALSO DO NOT ARISE IN THESE CASES. 11. WE HAVE ELABORATED THESE INCIDENTAL ISSUES ONLY FOR THE REASON THAT ARGUMENTS WERE ADVANCED FROM BOTH SIDES AT THE TIME OF HEARING ON ISSUES LIKE THE QUESTION OF ACTUAL WR ITING OFF BAD DEBTS IN THE BOOKS OF ACCOUNT, THE BINDING NATURE O F RESERVE BANK OF INDIA REGULATIONS, ETC. ITA NOS. 1001 &1002/MDS/2010 :- 9 -: 12. TO MAKE IT SIMPLE, AS FAR AS THESE TWO CASES AR E CONCERNED, THE ONLY ISSUE IS THE RECOGNITION OF INTEREST INCOM E ON BAD AND STICKY ACCOUNTS. WHERE THE ASSESSEE HAS HELD CERTA IN ACCOUNTS AS BAD AND STICKY, ON THE BASIS OF BUSINESS PRUDENC E AND ON THE CHANCES OF LEGAL RECOVERY, IT HAS TO BE ACCEPTED TH AT THOSE ACCOUNTS ARE BAD AND STICKY FOR ALL PRACTICAL PURPO SES. WHEN THE RECOVERY OF PRINCIPAL AMOUNTS ITSELF IS BAD AND STI CKY, IT IS NEEDLESS TO SAY THAT THE RECOVERY OF INTEREST ON TH OSE ACCOUNTS IS STILL REMOTE. WHEN THE RECOVERY OF INTEREST IS VER Y DOUBTFUL AND REMOTE, THERE IS NO JUSTIFICATION TO RECOGNIZE ANY INCOME BY WAY OF INTEREST ON THOSE BAD AND STICKY ACCOUNTS. WHEN TH AT IS THE CASE, THE ASSESSEE IS JUSTIFIED IN NOT RECOGNIZING ANY IN COME BY WAY OF INTEREST AS HELD BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF ELGI FINANCE LTD 293 ITR 357. 13. THEREFORE, IN THE FACTS AND CIRCUMSTANCES OF TH E CASE, WE HOLD THAT THE COMMISSIONER OF INCOME-TAX [APPEALS] IS JUSTIFIED IN DELETING INTEREST INCOME COMPUTED BY THE ASSESSING OFFICER ON STICKY ACCOUNTS ON THESE TWO ASSESSMENT YEARS IN AP PEAL. ITA NOS. 1001 &1002/MDS/2010 :- 10 - : 14. IN RESULT, THESE TWO APPEALS FILED BY THE REVEN UE ARE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 29 TH OF APRIL, 2011. SD/- SD/- (HARI OM MARATHA) JUDICIAL MEMBER ( DR.O.K.NARAYANAN) VICE-PRESIDENT CHENNAI : 29 TH APRIL, 2011 VL. COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR