Mayajaal Entertainment Ltd., Chengalput V. ACIT, CHENNAI

ITA 1216/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 61148 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 21-05-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 27-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: J SREEVIDYA S
• Keywords: Rectification of order; Bad and doubtful debts; Scheme of amalgamation; Revised return
• Section: 115JB; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI BEFORE SHRI N.S.SAINI, ACCOUNT ANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER ITA NO.1216/MDS/2011 (ASSESSMENT YEAR : 2006-07) MAYAJAAL ENTERTAINMENT LTD. 34/1, EAST COAST ROAD, KANATHUR, CHENNAI-603 112. PAN:AAACH7469P VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-IV(1) 121, M.G.ROAD, CHENNAI-600 034. (APPELLANT) (RESPONDENT) ITA NO.1284/MDS/2011 (ASSESSMENT YEAR : 2006-07) THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-IV(1) 121, M.G.ROAD, CHENNAI-600 034. VS. MAYAJAAL ENTERTAINMENT LTD. 34/1, EAST COAST ROAD, KANATHUR, CHENNAI-603 112. PAN:AAACH7469P (APPELLANT) (RESPONDENT) ASSESSEE BY : MRS.PUSHYA SEETHARAMAN, SR.AD VOCATE &MRS.G.VARDINI & J.SREEVIDYA, ADVOCATES REVENUE BY : MR. SH AJI P.JACOB, ADDL. CIT DATE OF HEARING : 21 ST MAY, 2012 DATE OF PRONOUNCEMENT : 8 TH JUNE, 2012 O R D E R PER VIKAS AWASTHY, JUDICIAL MEMBER: THESE TWO CROSS APPEALS ONE BY THE ASSESSEE I.E. IT A NO.1216/MDS/2011 AND ANOTHER BY REVENUE I.E ITA NO.1284/MDS/2011 ARE ARISING OUT OF THE ORDER OF TH E CIT(A)- ITA NO.1216 & 1284/MDS/2011 2 V, CHENNAI DATED 29.04.2011 RELEVANT TO THE ASSESSM ENT YEAR 2006-07. 2. THE ASSESSEE COMPANY FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07 ON 25.11.2006 DECLARING TOT AL LOSS OF ` 1,05,86,118/-. THE CASE OF THE ASSESSEE WAS SELECT ED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) WAS SERVED ON THE ASSESSEE ON 20.11.2007. BEFORE SCRUTINY ASSESSMENT WAS TAKEN UP, THE ASSESSEE FILED REVISED RETURN ON 31.0 3.2008 AND CLAIMED DEDUCTION OF AMOUNTS WRITTEN OFF IN THE BOO KS OF ACCOUNT AS IRRECOVERABLE OR BAD RELATING TO BOOK DE BTS, TRADE ADVANCES, INVENTORIES, WORK-IN-PROGRESS AND FIXED ASSETS AGGREGATING TO ` 236.18 CRORES, IN ADDITION TO THE LOSS DECLARED BY THE ASSESSEE IN ITS ORIGINAL RETURN. THE ASSESSING OFFICER DISALLOWED THE CLAIM OF DEDUCTION OF 236.18 CRORES CLAIMED BY THE ASSESSEE IN THE REVISED RETU RN. IN THE ORIGINAL ASSESSMENT ORDER AS WELL AS RECTIFICATION ORDER, BOOK PROFITS UNDER SECTION 115JB WERE DETERMINED AT ` 54,57,346/-. 3. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, TH E ASSESSEE PREFERRED AN APPEAL BEFORE CIT(A). IN THE APPEAL ITA NO.1216 & 1284/MDS/2011 3 BEFORE THE CIT(A) THE ASSESSEE RAISED AS MANY AS 12 GROUNDS AND AN ADDITIONAL GROUND TO CARRY FORWARD L OSS COMPUTED UNDER NORMAL PROVISIONS OF THE INCOME TAX ACT, 1961. 4. THE AUTHORISED REPRESENTATIVE APPEARING BEFORE T HE CIT(A) ADMITTED THAT THE FOLLOWING THREE GROUNDS AR E MAIN GROUNDS OF APPEAL REQUIRING ADJUDICATION:- I) DISALLOWANCE OF CLAIM FOR DEDUCTION OF ` 2,36,17,64,930/- TOWARDS WRITE OFF OF BAD DEBTS/TRA DE ADVANCES/INVENTORIES/ASSETS & CWIP IS INCORRECT. II) COMPUTATION OF BOOK PROFIT WITHOUT DEDUCTING ` 2,36,17,64,930/- BEING THE VALUE OF THE EXCEPTIONAL ITEMS WRITTEN OFF IN THE BOOKS AFTER COMPUTING PROF IT OF THE BUSINESS FOR THE YEAR. III) TO CARRY FORWARD THE LOSS COMPUTED UNDER THE NORMAL PROVISIONS OF THE IT ACT CONSEQUENT TO THE ABOVE. THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSE E BY ALLOWING PART OF THE INVENTORIES, LOANS & ADVANCES AND DEBTORS TO BE WRITTEN OFF AS PER THE DETAILS GIVEN BELOW:- ITA NO.1216 & 1284/MDS/2011 4 RELIEF CLAIMED RELIEF GRANTED INVENTORIES 91,28,17,863 53,76,14,307 LOANS & ADVANCES 37,76,35,892 30,74,52,104 DEBTORS WRITTEN OFF 16,87,37,738 2,26,90,990 AS REGARDS THE WRITTEN OFF OF FIXED ASSETS AND CAPI TAL WORK-IN- PROGRESS, THE APPEAL OF THE ASSESSEE WAS REJECTED. 5. AGGRIEVED AGAINST THIS ORDER OF THE CIT(A) DATED 29.04.2011, BOTH THE ASSESSEE AS WELL AS DEPARTMENT HAS PREFERRED RESPECTIVE APPEALS BEFORE THE TRIBUNAL. T HE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL: - 1. THE CIT(A) HAS ERRED IN DISALLOWING THE APPELLANTS CLAIM FOR WRITE OFF OF INVENTORIES TO T HE TUNE OF ` 3,75,20,03,556/- IN RESPECT OF NUM TV ANIMATIONS. 2. THE CIT(A) HAS ERRED IN DISALLOWING THE APPELLANTS CLAIM FOR WRITE OFF OF LOANS AND ADVANC ES TO THE TUNE OF ` 7,01,83,788/- RELATING TO INTELVISION AND KSSEL ON THE GROUND THAT IT WAS ONLY CAPITAL LOSS. 3. THE CIT(A) HAS ERRED IN DISALLOWING THE ADVANCES OF ` 68,28,86,116/- TOWARDS CAPITAL WORK IN PROGRESS ON THE GROUND THAT THE LOSS ON ACCOUNT OF NON-RECOVERY OF THE ADVANCES WOULD AMOUNT TO ONLY CAPITAL LOSS. ITA NO.1216 & 1284/MDS/2011 5 4. THE CIT(A) HAS ERRED IN DISALLOWING A SUM OF ` 5,22,881/- RELATING TO KSSEL BEING THE VALUE OF FIXED ASSETS WRITTEN OFF IN THE BOOKS OF ACCOUNT. 5. THE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCES OF APPELLANTS CLAIM FOR DEDUCTION OF AMOUNT WRITTEN OFF IN RESPECT OF THE DISCARDED ASSE TS TO THE TUNE OF ` 22,06,64,440/- IN THE FOLLOWING CASES:- MEDIA DREAMS LTD. 3,07,370 INTELVISION 48,75,734 NUM TV 21,54,81,336 --------------------- TOTAL ` 22,06,64,440 6. THE CIT(A) HAS ERRED IN DISALLOWING THE APPELLANTS CLAIM FOR FOREIGN DEBTS WRITTEN OFF ` 14,60,46,748/- IN RESPECT OF NUM TV ANIMATION OVERSEAS FOR LACK OF APPROVAL OF RBI. 6. THE REVENUE HAS CHALLENGED THE IMPUGNED ORDER ON THE FOLLOWING GROUNDS:- 1. THE ORDER OF THE CIT(A) IS CONTRARY TO LAW AND FACTS AND CIRCUMSTANCES OF THE CASE. 2.1 THE CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE TOWARDS LOANS & ADVANCES WRITTEN OFF TO TH E TUNE OF ` 30,74,52,104/- 2.2 THE CIT(A) FAILED TO NOTE THAT THE ADVANCES CLAIMED BY THE ASSESSEE NOT ONLY PERTAINS TO TELECA STING RIGHTS BUT ALSO OTHER ASPECTS SUCH AS BANDWIDTH, SOFTWARE LICENSES, PRODUCTION OF TV EPISODES, ITA NO.1216 & 1284/MDS/2011 6 PRODUCTION OF ANIMATION FILMS ETC. THE EXPENSES TOWARDS BANDWIDTH AND SOFTWARE LICENSES ARE OF CAPI TAL IN NATURE AND HENCE CANNOT BE CONSIDERED AS REVENUE LOSS. 2.3 THE CIT(A) OUGHT TO HAVE SEEN THAT LOANS AND ADVANCES ARE REFLECTED IN THE BALANCE SHEET UNDER T HE HEADING EXCEPTIONAL ITEMS IN SCHEDULE 18 AND ARE NO T REFLECTED IN THE P & L ACCOUNT. HENCE IT IS A BELOW THE LINE ITEM AND HAS BEEN ROUTED THROUGH A DIFFERENT N AME IN THE BALANCE SHEET. 2.4 IT IS ALSO SUBMITTED THAT THE EVIDENCES FOR BR EAKUP OF ADVANCES WRITTEN OFF HAVE BEEN PRODUCED BY THE ASSESSEE FOR THE FIRST TIME BEFORE THE CIT(A) AND T HE CIT(A) FAILED TO GIVE AN OPPORTUNITY TO THE ASSESSI NG OFFICER IN TERMS OF RULE 46A. 3.1 THE CIT(A) ERRED IN ALLOWING BAD DEBTS WRITTEN OFF TO THE TUNE OF ` 2,26,90,990/- 3.2 IT IS SUBMITTED THAT AS IN THE CASE OF LOANS AN D ADVANCES THE BAD DEBTS ARE ALSO NOT REFLECTED IN TH E P & L ACCOUNT AND THEY ARE REFLECTED IN SCHEDULE 18 OF THE BALANCE SHEET UNDER THE HEADING EXCEPTIONAL ITEMS. THE CLAIM IS NOT ROUTED THROUGH P AND L ACCOUNT. 4.1 THE CIT(A) ERRED IN ALLOWING THE ASSESSEES CLA IM TOWARDS INVENTORIES WRITTEN OFF TO THE TUNE OF ` 53,76,14,307/- ITA NO.1216 & 1284/MDS/2011 7 4.2 THE CIT(A) FAILED TO NOTE THAT THE ASSESSEE HAS NOT ESTABLISHED AS TO HOW AND WHY THE ASSETS HAVE BECOME OBSOLETE. 4.3 IT IS SUBMITTED THAT THE DECISION OF THE ITAT R ELIED UPON BY THE CIT(A) IN THE CASE OF KOPRAN DRUGS LTD. VS. ACIT ( 2 ITR (TRIB) 155) CANNOT BE SAID TO BE APPLI CABLE TO THE FACTS OF THIS CASE ON ALL FORCE SINCE THE SA ID DECISION PERTAINS TO THE TRANSFER ENTRIES OF SHARE PREMIUM ACCOUNT TO THE P & L ACCOUNT ON ACCOUNT OF WRITE OFF OF OBSOLETE STOCKS IN PURSUANCE OF A SCHE ME OF DEMERGER AND IT IS NOT SO HERE. 5.1 THE CIT(A) ERRED IN DELETING THE BOOK PROFITS COMPUTED UNDER SECTION 115JB. 5.2 THE CIT(A) FAILED TO NOTE THAT THE LOSS CLAIMED BY THE ASSESSEE IN THE RETURN OF INCOME IS NOT GENUINE . THE COMPUTATION OF BOOK PROFITS IS JUSTIFIED. 6.1 THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO CARRY FORWARD THE LOSS AS QUANTIFIED BY HIM. 6.2 IT IS SUBMITTED THAT SINCE THE LOSSES ALLOWED B Y THE CIT(A) ARE CONTESTED BY THE DEPARTMENT IN APPEAL TH IS GROUND IS RAISED AS A CONSEQUENTIAL GROUND. 7. THE COUNSEL APPEARING ON BEHALF OF THE ASSESSEE SUBMITTED THAT THERE WAS A SCHEME OF AMALGAMATION B ETWEEN FOUR COMPANIES I.E. 1) MEDIA DREAMS LTD. 2) INTELIV ISION LTD. ITA NO.1216 & 1284/MDS/2011 8 3) KRIS SRIKANTH SPORTS ENTERTAINMENT LTD. 4) NUM AND ANIMATION DIVISION OF PENTAMEDIA GRAPHICS LTD. WITH THE ASSESSEE COMPANY. THE SCHEME OF AMALGAMATION WAS APPROVED BY THE HONBLE MADRAS HIGH COURT ON 12.10. 2004 AND AMALGAMATION WAS EFFECTIVE FROM 1.1.2004. THE AMOUNTS/ASSETS WRITTEN OFF RELATING TO THE FOUR AMA LGAMATING COMPANIES WERE CARRIED FORWARD IN THE RESPECTIVE CO MPANIES BOOKS PRIOR TO AMALGAMATION. AFTER AMALGAMATION THE SE AMOUNTS WERE TRANSFERRED TO THE BOOKS OF ACCOUNTS O F AMALGAMATED COMPANY I.E. THE ASSESSEE. THE ASSESS ING OFFICER AS WELL AS CIT(A) HAS DISALLOWED THE CLAIM OF THE ASSESSEE TOWARDS WRITE OFF OF ASSETS AS PER DETAILS GIVEN BELOW:- I) WRITE OFF OF INVENTORIES IN RESPECT OF NUM TV ANIMATION ` 3,75,20,03,556 II) LOANS & ADVANCES RELATING TO INTELVISION & KSSEL ` 7,01,83,788 III) CAPITAL WORK-IN-PROGRESS ` 68,23,86,116 IV) FIXED ASSETS WRITTEN OFF RELATING TO KSSEL ` 5,22,881 V) DISCARDED ASSETS WRITTEN OFF ` 22,06,64,440 VI) FOREIGN BOOK DEBTS WRITTEN OFF ` 14,60,46,748 IN RESPECT OF NUM TV ANIMATION TOTAL ` 4,87,18,07,529 ITA NO.1216 & 1284/MDS/2011 9 8. ON THE OTHER HAND, D.R. APPEARING FOR THE REVENU E SUBMITTED THAT THE CIT(A) HAS ERRED IN ALLOWING THE FOLLOWING CLAIMS OF THE ASSESSEE:- LOANS & ADVANCES WRITTEN OFF TO THE TUNE OF ` 30,74,52,104 BAD DEBTS WRITTEN OFF ` 2,26,90,990 INVENTORIES WRITTEN OFF ` 53,76,14,307 HE FURTHER SUBMITTED THAT THE CIT(A) HAS ERRED IN A LLOWING THE DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 115 JB OF THE ACT. HE SUBMITTED THAT LOSS CLAIMED BY THE ASSE SSEE IN THE RETURN OF INCOME IS NOT GENUINE. THE D.R. ALSO SUBM ITTED WRITTEN SUBMISSIONS DURING THE COURSE OF ARGUMENT. IN ORDER TO SUPPORT HIS CONTENTIONS/SUBMISSIONS, HE RELIED O N THE FOLLOWING JUDGEMENTS:- I) HASIMARA INDUSTRIES LTD. VS. CIT., 231 ITR 842(SC) II) CIT VS. R.CHIAMBARANATHA MUDALIAR, 240 ITR 552 III) ALLIED ELECTRONICS & MAGNETICS LTD. VS. DCIT., 304 ITR 160 IV) CIT VS. SWAMIJI MILLS LTD., 342 ITR 250(MAD) ITA NO.1216 & 1284/MDS/2011 10 THE D.R. SUBMITTED THAT THE ASSESSEE HAD ONLY FILED FOUR PAPERS BEFORE THE ASSESSING OFFICER DURING THE COUR SE OF ASSESSMENT INCLUDING LETTER DATED 5.8.2008 AND DET AILS OF ASSETS WRITTEN OFF FOR THE ASSESSMENT YEAR 2006-07. EXCEPT FOR THE FOUR PAPERS WHICH ARE AT PAGE NOS.1 TO 4 OF THE PAPER BOOK SUBMITTED BY THE D.R., HE SUBMITTED THAT NO OT HER DOCUMENT WAS FURNISHED BEFORE THE ASSESSING OFFICER BY THE ASSESSEE . HE CONTENDED THAT NO PARTYWISE CLAIM OF ADVANCES MADE BY DIFFERENT AMALGAMATING COMPANIES WAS PROVID ED BEFORE THE ASSESSING OFFICER. 9. THE COUNSEL APPEARING FOR THE ASSESSEE IN ORDER TO SUPPORT HER CONTENTIONS RELIED ON THE PAPER BOOKS G IVING DETAILS OF BAD DEBTS WRITTEN OFF, FIXED ASSETS WRIT TEN OFF, CAPITAL WORK-IN-PROGRESS WRITTEN OFF, INVENTORY WRITTEN OFF AND ADVANCES WRITTEN OFF. IN ADDITION TO THE ABOVE, THE COUNSEL RELIED ON THE ORDER PASSED BY THE HYDERABAD BENCH O F THE TRIBUNAL IN THE CASE OF GULF OIL CORPORATION LTD. VS. ACIT., REPORTED AS 111 ITD 124 AND THE ORDER OF THE MUM BAI BENCH OF THE TRIBUNAL IN THE CASE OF SABRA IM PEX LTD. VS. ITO REPORTED AS 141 TTJ (MUM) (UO)11. DURING THE CO URSE OF ITA NO.1216 & 1284/MDS/2011 11 ARGUMENTS, THE COUNSEL FOR THE ASSESSEE ALSO REFER RED TO THE ORDER OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE O F KOPRAN DRUGS LTD., VS. ACIT., REPORTED AS 35 DTR (MUMBAI) (TRIB) 380. EXCEPT FOR THE AFORESAID CASES, THE COUNSEL FO R THE ASSESSEE HAS NOT REFERRED TO ANY OTHER JUDGEMENT / ORDER IN THE PAPER BOOK FILED IN THE COURT ON 21.5.2001 AT T HE TIME OF HEARING OF THE CASE. 10. WE HAVE HEARD RIVAL SUBMISSIONS OF THE DR AS WE LL AS COUNSEL FOR THE ASSESSEE. WE HAVE ALSO GONE THROUGH THE JUDGEMENTS /ORDERS RELIED ON BY BOTH THE PARTIES. T HE D.R. IN HIS PAPER BOOK AT PAGES 11 & 12 HAS PLACED ON RECOR D COMPUTATION OF TOTAL INCOME (REVISED) ALONG WITH T HE REVISED RETURN FOR THE ASSESSMENT YEAR 2006-07 FILED BY THE ASSESSEE. ON CONFRONTING WITH THE REVISED RETURN FILED BY THE ASSESSEE AND THE DETAILS GIVEN AT PAGES 11 & 12 OF THE COMPU TATION OF TOTAL INCOME, THE COUNSEL APPEARING ON BEHALF OF TH E ASSESSEE CONCEDED THAT CALCULATIONS HAVE BEEN WRONGLY MADE A LTHOUGH THE SAME HAVE BEEN CERTIFIED BY THE CHARTERED ACCOU NTANT. ON CONFRONTING WITH THE FACT THAT HUGE LOSSES WHICH NOW THE ITA NO.1216 & 1284/MDS/2011 12 ASSESSEE WANTS TO WRITE OFF EXISTED AT THE TIME OF AMALGAMATION OF THE COMPANIES, HOW VALUATION OF THE ASSETS WAS MADE, THE COUNSEL FOR THE ASSESSEE WAS UNABLE TO GIVE ANY SATISFACTORY REPLY TO THE QUERY RAISED BY THE B ENCH. THE COUNSEL FOR THE ASSESSEE CONCEDED THAT PAPER BOOKS GIVING DETAILS OF THE ASSETS WRITTEN OFF WERE NOT SUPPLIED TO THE ASSESSING OFFICER AND FOR THE FIRST TIME THESE DETA ILS WERE GIVEN TO THE CIT(A), AND NO PLAUSIBLE REASON WAS GI VEN FOR NOT SUBMITTING THESE DOCUMENTS TO THE ASSESSING OFFICE R. THE ASSESSEE HAS RELIED ON THE CASE OF GULF OIL CORPORA TION LTD. (SUPRA), SABRA IMPEX LTD. (SUPRA) AND KOPRAN DRUGS LTD.(SUPRA). THE FACTS OF THE SAID CASES AND THE RATIO LAID DOWN BY THE TRIBUNAL IN THE AFOREMENTIONED CASES A RE TOTALLY DIFFERENT FROM THE ISSUE IN HAND. THEREFORE, THE JU DGEMENTS RELIED ON BY THE AUTHORISED REPRESENTATIVE DO NOT COME TO THE RESCUE OF ASSESSEE OR TO SUPPORT THE CONTENTIONS/SUBMISSIONS MADE BY THE COUNSEL FOR THE ASSESSEE. 11. THE CIT(A) HAS REJECTED THE CALCULATIONS MADE BY THE ASSESSING OFFICER UNDER THE PROVISIONS OF SECTION 1 15JB OF ITA NO.1216 & 1284/MDS/2011 13 THE ACT. WE ARE OF THE VIEW THAT THE ASSESSING OFFI CER HAS RIGHTLY MADE CALCULATIONS - REDUCING THE BOOK PROF ITS BY INVENTORIES WRITTEN OFF, ADVANCES WRITTEN OFF, DISC ARDED ASSETS AND BAD DEBTS WRITTEN OFF. THE ASSESSING OFFICER H AS MADE CALCULATIONS AS PER THE PROVISIONS OF SECTION 115JB OF THE ACT AND HAS RIGHTLY OBSERVED IN HIS ORDER THAT THE BOO K PROFIT CANNOT BE ADJUSTED EXCEPT FOR THE ITEMS SPECIFIED I N THE SECTION. THE ITEMS AFOREMENTIONED BY THE ASSESSE E ARE NOT SPECIFIED IN SECTION 115JB. THEREFORE, THE DEDUCTIO N CLAIMED BY THE ASSESSEE IN THE BOOK PROFIT HAS RIGHTLY BEEN DISALLOWED BY THE ASSESSING OFFICER. THE ACTION OF THE ASSESS ING OFFICER IN REJECTING THE BOOKS OF ACCOUNTS OF THE ASSESSEE IS IN ACCORDANCE WITH THE LAW LAID DOWN BY THE HONBLE SU PREME COURT OF INDIA IN THE CASE OF APOLLO TYRES LTD., VS . CIT REPORTED AS 255 ITR 273(SC). 12. THE CIT(A) WHILE ACCEPTING THE CLAIM OF THE AS SESSEE FOR INVENTORIES WRITTEN OFF AS OBSOLETE STOCK HAS E RRED IN RELYING ON THE DECISION IN THE CASE OF KOPRAN DRUGS LTD.(SUPRA). IN THE AFORESAID CASE, THE ASSESSEE HA D ACQUIRED ITA NO.1216 & 1284/MDS/2011 14 THE BUSINESS OF THE DEMERGED COMPANY AS A GOING CON CERN. WHEREAS, IN THE INSTANT CASE, THE ASSESSEE HAS NOT PLACED ON RECORD ANY DOCUMENT TO SHOW THAT THE ASSESSEE HAD T AKEN OVER THE AMALGAMATING COMPANIES AS A GOING CONCERN. THUS, THE RATIO OF THE KOPRAN DRUGS LTD. CASE (SUPRA) WIL L NOT APPLY TO THE INSTANT CASE. MOREOVER, IT IS NOT THE CASE O F THE ASSESSEE THAT THE INVENTORIES ARE BEING WRITTEN OFF FOR BEING OBSOLETE ALONE. THE ASSESSEE HAS STATED BEFORE THE ASSESSING OFFICER THAT IT COULD NOT RECEIVE THE AMO UNTS FROM VARIOUS PARTIES AND WHEN IT HAS BECOME BAD, THE SAM E WAS WRITTEN OFF. THE ASSESSEE WAS UNABLE TO SHOW HOW AND WHY THE INVENTORIES HAVE BECOME OBSOLETE. THE ASSESSEE FAILED TO TENDER ANY EVIDENCE BEFORE THE ASSESSING OFFICER IN SUPPORT OF THE CLAIM. SIMILARLY, FOR ALLOWING THE CLAIM OF THE ASSESSEE F OR WRITING OFF OF THE LOANS AND ADVANCES, THE CIT(A) H AS RELIED ON THE JUDGEMENT OF THE HONBLE MADRAS HIGH COURT IN T HE CASE OF CRESCENT FILMS (P). LTD., 248 ITR 670(MAD). THE RATIO LAID DOWN BY THE HONBLE MADRAS HIGH COURT IN THE AFORE SAID CASE IS NOT APPLICABLE TO THE INSTANT CASE. AS PER THE DECISION ITA NO.1216 & 1284/MDS/2011 15 OF THE HONBLE HIGH COURT, IT IS THE REVENUE LOSS INCURRED IN THE COURSE OF THE BUSINESS I.E. DEDUCTIBLE UNDER TH E PROVISIONS OF SECTION 37 OF THE ACT. IN THE PRESENT CASE, THE RE WAS AMALGAMATION OF FOUR COMPANIES INTO THE ASSESSEE CO MPANY. THE ASSESSEE INTENDS TO WRITE OFF THE LOSSES INCURR ED BY THE ASSESSEE IN ACQUIRING THE ASSETS AND LIABILITIES OF THE AMALGAMATING COMPANIES, WHICH IS CAPITAL IN NATURE. THEREFORE, THE DECISION OF THE HONBLE HIGH COURT I N THE CASE OF CRESCENT FILMS P.LTD. (SUPRA) IS NOT APPLICABLE TO THE PRESENT CASE. 13. AS REGARDS BAD DEBTS IS CONCERNED, BAD DEBTS AR E ALLOWABLE AS DEDUCTION U/S.36(I)(VII) ONLY IF IT IS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS IN THE PREVI OUS YEAR IN WHICH CLAIM FOR DEDUCTION IS MADE. THE TERM WRITTE N OFF IN ACCOUNTING PRACTICE MEANS THAT AN ACCOUNT WHICH WAS PREVIOUSLY SHOWN AS ASSET MUST BE TRANSFERRED TO TH E EXPENSE ACCOUNT OR THE PROFIT AND LOSS ACCOUNT. THE WRITING OFF OF BAD DEBTS WITHOUT CHARGING THE SAME IN THE PROFIT AND L OSS ACCOUNT IS NOT A WRITE OFF AT ALL. IN THE PRESENT CASE, THE ASSESSEE HAD ITA NO.1216 & 1284/MDS/2011 16 NOT WRITTEN OFF THE DEBTS IN THE BOOKS OF ACCOUNT A S PER PROVISIONS OF SECTION 36(1)(VII). THE CIT(A) HAS ER RED IN DISCARDING THE VIEW OF THE ASSESSING OFFICER BY TER MING IT AS A SHORT SIGHT. THE PRINCIPLES OF ACCOUNTING ARE TO BE FOLLOWED STRICTLY WHILE GIVING TREATMENT TO THE ADJUSTMENTS AND RECORDING FINDINGS THEREON. IT WOULD NOT BE OUT OF PLACE TO MENTION HERE THAT THE ASSESSEE INTENDS TO WRITE OFF DEBTS TERMING THAN TO BE BAD WHICH IT HAD ACQUIRED FRO M THE AMALGAMATING COMPANIES. MOREOVER, THE ASSESSEE IS CLAIMING WRITE OFF OF BAD DEBTS IN VIOLATION OF THE PROVISIONS OF SECTION 36(2)(I) AS WELL. THE RELEVANT EXTRACT OF T HE PROVISION IS REPRODUCED HEREINBELOW:- 36(2) (I) NO SUCH DEDUCTION SHALL BE ALLOWE D UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PRE VIOUS YEAR, OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY THE ASSESSEE IN THE CASE OF THE ASSESSEE, THE A.R. HAS FAILED TO SHOW THAT THE PROVISIONS OF SECTION 36(2)(I) WERE SATISFIED. THE ASSESSEE HAS NOT PLACED ON RECORD THE SCHEME OF ITA NO.1216 & 1284/MDS/2011 17 AMALGAMATION EITHER BEFORE THE LOWER AUTHORITIES OR BEFORE THE TRIBUNAL. THEREFORE, CLAIM OF BAD DEBTS, INVENTORI ES ETC. OF THE ASSESSEE HAS RIGHTLY BEEN DISALLOWED BY THE ASSESSI NG OFFICER. 14. IN OUR CONSIDERED OPINION, THE CIT(A) HAS ERRED IN MODIFYING THE ORDER OF THE ASSESSING OFFICER WHICH IS A WELL REASONED AND DETAILED ORDER. WE, THEREFORE, SET ASI DE THE ORDER OF THE CIT(A) AND RESTORE THE ORDER OF THE AS SESSING OFFICER. ACCORDINGLY, WE DISMISS THE APPEAL OF THE ASSESSEE IN ITA NO.1216/MDS/2011 AND ALLOW THE APPEAL OF THE RE VENUE IN ITA NO.1284/MDS/2011. ORDER PRONOUNCED IN THE OPEN COURT ON FRIDAY, THE 8 TH OF JUNE, 2012 AT CHENNAI. SD/- SD/- ( N.S. SAINI ) (VIKAS AWASTHY) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 8 TH JUNE, 2012. SOMU COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT (4) CIT(A) (5) D.R. (6) G.F .