M/s. Arma Financial Services Ltd., CHENNAI V. ITO, CHENNAI

ITA 111/CHNY/2014

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9237 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 4 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2008-2009
• Appeal Filed On: 13-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR MILIND MADUKAR BHUSARI
• Assessee Lawyers: S SRIDHAR
• Keywords: Bad and doubtful debts; Corroborative evidences
• Section: 37(1); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . , . , BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBE R AND SHRI. G. PAVAN KUMAR, JUDICIAL MEMBER ./I.T.A. NO. 111/MDS/2014 / ASSESSMENT YEAR : 2008-2009 M/S. ARMA FINANCIAL SERVICES LTD, FLAT NO.8, MURALI ANAND APARTMENTS, 65, ALAMELUMANGAPURAM, MYLAPORE, CHENNAI 600 004. ( PAN NO. AAACA 7464K ) VS. THE INCOME TAX OFFICER, COMPANY WARD I(1) CHENNAI ( / APPELLANT) ( /RESPONDENT) ! ' # / APPELLANT BY : SHRI. S. SRIDHAR, ADVOCATE $% ! ' # /RESPONDENT BY : DR. MILIND MADUKAR BHUSARI, CIT. & ' ' ( /DATE OF HEARING : 19-05-2016 ) ' ' ( /DATE OF PRONOUNCEMENT : 25-05-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AG AINST ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-CENTRAL -I, CHENNAI IN ITA NO.238/2013-2014, DT 26.11.2013 FOR THE ASSESSM ENT YEAR 2008- ITA NO.111/MDS/2014 :- 2 -: 2009 PASSED U/S.143(3) AND 250 OF THE INCOME TAX A CT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). 2. THE ASSESSEE HAS RAISED ONLY ONE SUBSTANTIVE GROUND THAT THE LD. COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE DISALLOWANCE OF BAD DEBTS ;.2,00,00,000/- WITHOUT PROPER REASONS AND IGNORED THE CIRCUMSTANCES AND CONTENTION OF THE ASS ESSEE WHOSE CORE BUSINESS ACTIVITY BEING FINANCIAL SERVICES AND ALSO LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS NOT GRANTED RELIEF U/S.36 (1) OF THE ACT OR U/S. 37(1) OF THE ACT AND IGNORED THE EVIDENCE FILE D IN SUPPORT OF CLAIM AND NO PROPER OPPORTUNITY WAS PROVIDED TO THE ASSES SEE AND CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER. 3. THE BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF FINANCIAL SERVICES AND FILED RETURN OF INCOME ON 30.09.2008 ADMITTING TOTAL LOSS OF ;.1,40,16,382/-. SUBSEQUENTLY, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES U/S.143( 2) AND 115WE(2) WAS ISSUED. IN COMPLIANCE TO NOTICES, THE LD. AUTHO RISED REPRESENTATIVE OF ASSESSEE APPEARED FROM TIME TO TIME AND PRODUCED DETAILS AND FURNISHED EXPLANATIONS. THE DISPUTED ISSUE BEING TH E CLAIM OF BAD DEBTS OF ;.2,00,00,000/- DEALT AND REFERRED BY THE LD. ASSESSING OFFICER AT PAGE 2 & 3 OF THE ORDER. THE CONTENTION OF THE ASSESSEE COMPANY THAT THE AMOUNT WAS ADVANCED IN THE NORMAL BUSINES S WHOLLY AND EXCLUSIVELY THROUGH BANK ACCOUNT AND THE ASSESSEE S MAIN OBJECT WAS ITA NO.111/MDS/2014 :- 3 -: FINANCIAL AND LENDING BUSINESS. THE LD. ASSESSING OFFICER CONSIDERED THE SUBMISSIONS AND APPLICABILITY OF PROVISIONS OF SEC. 36 AND SEC.37 OF THE ACT AND FINANCIAL CONDITIONS OF THE ASSESSEE COMPANY IN COMPARISON WITH EARLIER YEARS. THE LD. AUTHORISED REPRESENTATIVE FILED LETTER DATED 20.12.2010 TO ALLOW DEDUCTION U/S.36 A ND U/SEC. 37 OF THE ACT. THE LD. ASSESSING OFFICER ON PERUSAL OF THE PR OFIT AND LOSS ACCOUNT, BALANCE SHEET GAVE EXHAUSTIVE FINDINGS WITH THE REA SONS AND DISALLOWED THE CLAIM OF BAD DEBTS ;.2,00,00,00/- AN D COMPLETED ASSESSMENT VIDE ORDER U/S.143(3) OF THE ACT DATED 2 3.12.2010. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN APPEA L BEFORE COMMISSIONER OF INCOME TAX (APPEALS). 4. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE OF THE ASSESSEE REITERATED THE SUBMI SSIONS WITH EVIDENCE OF ADVANCE ;.2,00,00,000/- DISALLOWED BY T HE LD. ASSESSING OFFICER WITHOUT CONSIDERING BASIC GENUINE FACTS. T HE ASSESSEE WAS DUPED BY THE DEBTOR ALONGWITH MANY PERSONS IN CHENN AI AND DELHI AND CRIMINAL CASES ARE PENDING IN COURTS. THE LD. COMM ISSIONER OF INCOME TAX (APPEALS) PERUSED THE GROUNDS AND SUPPORTING C LAIMS AND FINDINGS OF THE ASSESSING OFFICER. THE LD. AUTHORI SED REPRESENTATIVE SUBMITTED DETAILED EXPLANATION OF FACTS REFERRED A T PARA 6.1 OF THE ORDER. THE LD. COMMISSIONER OF INCOME TAX (APPEALS ) RELIED ON THE ITA NO.111/MDS/2014 :- 4 -: FINDINGS OF THE LD. ASSESSING OFFICER AND OBSERVED AT PARA 6.2 AND 6.3 OF HIS ORDER AND DISMISSED THE APPEAL AS UNDER:- 6.2 AFTER HAVING GONE THROUGH THE ASSESSING OFFIC ERS OBSERVATIONS IN THE ASSESSMENT ORDER AND THE AUTHOR ISED REPRESENTATIVES SUBMISSIONS IN THIS REGARD, I AM O F THE CONSIDERED OPINION THAT THE AO IS JUSTIFIED IN NOT ENTERTAINING THE APPELLANT'S CLAIM AND I AM IN AGREEMENT WITH T HE REASONS STATED BY THE AO IN THE ASSESSMENT ORDER. A S IT CAN BE SEEN THAT THE APPELLANT HAS NOT FILED ANY EVIDEN CE TO THE EFFECT THAT THE DEBT HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE APPELLANT OF THE PREVIO US YEAR IN WHICH THE AMOUNT OF SUCH DEBT ARE PART THEREOF I S WRITTEN OFF; AS PER THE PROVISIONS OF SEC. 36(1), THOSE AMO UNTS WHICH HAVE CONTRIBUTED TO THE !COMPUTATION OF INCOM E OR LOSS FOR ANY OF THE EARLIER ASST. YEARS COULD BE WR ITTEN OFF AS BAD DEBTS. SECONDLY, THE SAID AMOUNT, WHICH WAS CLA IMED AS BAD DEBT OF RS. 2 CRORES CANNOT BE DEDUCTED U/S 37( 1) AS THE AMOUNT HAS NOT BEEN PROVED TO BE GIVEN FOR THE PURPOSE OF THE BUSINESS IN THE PREVIOUS YEAR RELEVANT TO TH E ASST.YEAR UNDER APPEAL. FURTHER, THE HON'BLE JURISDICTIONAL I TAT, 'A' BENCH IN THE CASE OF M/S. DECCAN ESTATES VS. DCIT, CENTRAL CIRCLE-ILL (4) VIDE ITA NO.1060/MDS/2013 FOR ASSESS MENT YEAR 2008-09 DATED 23.09.2013 HELD AS UNDER:- 'THIS AMOUNT CANNOT BE TREATED AS BAD DEBT, BECAUSE THIS AMOUNT HAS NEVER BEEN PART OF COMPUTATION OF PROFIT OR LOSS OF THE BUSINESS OF THE ASSESSEE IN :ANY OF THE EARLIER ASST. YEARS. ONLY THOSE AMOUNTS WHICH HAVE CONTRIBUTED TO THE COMPUTATION OF INCOME OR LOSS FOR ANY OF THE EARLIER ASST.YEARS COULD BE WRITTEN OF AS BAD DEBT S U/S 36(1).' 6.3 SINCE THE ISSUE INVOLVED IN THIS APPEAL IS SQUA RELY COVERED BY THE ABOVE DECISION, THE SAME IS HEREBY FOLLOWED. IN VIEW OF THE ABOVE, THE ACTION OF THE ASSESSING OFFICER I N DISALLOWING THE CLAIM MADE BY THE APPELLANT TOWARDS BAD DEBTS OF ;2 CRORES IN HEREBY UPHELD AND THE GROUNDS OF APPEAL R AISED IN THIS REGARD ARE DISMISSED. AGGRIEVED BY THE COMMISSIONER OF INCOME TAX (APPEAL S) ORDER, THE ASSESSEE ASSAILED AN APPEAL BEFORE US. ITA NO.111/MDS/2014 :- 5 -: 5. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE ARGUED THE GROUNDS AND REITERATED THE SUBMISSIONS MADE IN THE ASSESSMENT PROCEEDINGS AND APPELLATE PROCEEDINGS ALONGWITH EVI DENCE. THE LD. AUTHORISED REPRESENTATIVE CONTENTION THAT MAIN OBJE CT OF THE ASSESSEE COMPANY IS FINANCIAL SERVICES AND THIS ADVANCE WAS PROVIDED IN THE NORMAL COURSE OF BUSINESS AND ALSO EXPLAINED THE RE ASONS FOR CLAIM OF BAD DEBTS DUE TO VARIOUS CRIMINAL AND COURT CASES ARE PENDING AGAINST THE DEBTOR. THE LD. COMMISSIONER OF INCOME TAX (APP EALS) AND LD. ASSESSING OFFICER HAS NOT CONSIDERED THE INTENTION OF THE BUSINESS TRANSACTION AND SUPPORTING EVIDENCE THAT AMOUNT WA S IN THE NATURE OF ADVANCE AND COULD NOT BE RECOVERABLE DUE TO VARIOUS CIRCUMSTANCES ARISED OVER A PERIOD OF TIME AND PRAYED FOR ALLOWIN G THE APPEAL. 6. CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND OPPOSED THE GRO UNDS OF THE ASSESSEE. 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL ON RECORD. THE ONLY CONTENTION OF THE LD. AUTHORISED R EPRESENTATIVE THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFI RMING THE FINDINGS OF THE ASSESSING OFFICER AND ASSESSEE HAS BONAFIDE EVIDENCE WITH PROOF THAT AMOUNT WAS PAID IN THE NORMAL COUR SE OF BUSINESS AND IN THE NATURE OF COMMERCIAL TRANSACTION. THE A SSESSEE BEING A ITA NO.111/MDS/2014 :- 6 -: FINANCIAL COMPANY AND FINANCIAL ACTIVITIES PLAYS A IMPORTANT ROLE AND THE ADVANCES ARE SUPPORTED WITH A ADEQUATE DOCUMEN TS. WE ON PERUSAL OF THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER FOUND THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS RELIED ON THE FINDINGS OF THE LD. ASSESSING OFFICER AND DECISION OF THE T RIBUNAL AND DISMISSED THE APPEAL WITHOUT PROVIDING PROPER REASONS. WE, C ONSIDERING THE APPARENT FACTS, COURT CASES AND BONAFIDE EVIDENCE, ARE OF THE OPINION THAT MATTER HAS TO BE RE-EXAMINED BY THE ASSESSING OFFICER IN DEPTH, TO VERIFY THE GENUINENESS OF EVIDENCE FILED AND PA SS THE ORDER. ACCORDINGLY, WE SET ASIDE THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSE. ORDER PRONOUNCED ON WEDNESDAY , THE 25TH DAY OF M AY, 2016 AT CHENNAI. SD/- SD/- ( . ! ' ) (A. MOHAN ALANKAMONY) $ %& / ACCOUNTANT MEMBER ( ' . ( ) ) (G. PAVAN KUMAR) * %& / JUDICIAL MEMBER *& /CHENNAI + /DATED:25TH MAY, 2016. KV , ' $'-. /.' /COPY TO: 1. ! /APPELLANT 2. $% ! /RESPONDENT 3. 0' ( )/CIT(A) 4. 0' / CIT 5. .2 3 $'4 / DR 6. 3 5 6 & / GF ITA NO.111/MDS/2014 :- 7 -: