ACIT Cir.-1, Aurangabad V. Nath Seeds Ltd., Aurangabad

ITA 1228/PUN/2009

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49791 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2002-2003
• Appeal Filed On: 14-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: L RAMAJI RAO
• Assessee Lawyers: K G IYER
• Keywords: Business income; Bad and doubtful debts
• Section: 143(3); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI I.C. SUDHIR, JM AND SHRI D. KARUNAKARA RAO, AM ITA NOS. 1228/PN/2009 (A.Y. 2002-03) ASSTT. COMMISSIONER OF IT CIR.1, AURANGABAD APPELLANT VS. NATH SEEDS LTD., NATH HOUSE, NATH ROAD, AURANGABAD PAN-AAACN-9213-B . RESPONDENT APPELLANT BY : SHRI L RAMAJI RAO RESPONDENT BY : SHRI K G IYER ORDER PER D.KARUNAKARA RAO, AM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A) DATED 24.7.2009 FOR THE ASSESSMENT YEAR 2002-03. TH E GROUNDS RAISED BY THE REVENUE READ AS FOLLOWS: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE, THE LD CIT(A) WAS NOT JUSTIFIED IN DELETING THE ADDITION OF RS 38 ,32,867/- OUT OF BAD DEBT WRITTEN OFF. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE TECHNICAL KNOW HOW & ROYALTY ARE THE CAPITAL (INTANGIBLE) ASS ET. SO ANY INCOME ARISES FROM ITS TRANSFER IS A CAPITAL RECEIP T & NOT REVENUE RECEIPT AS CLAIMED BY THE ASSESSEE. SIMILARLY, LOSS ARISES IS A CAPITAL LOSS & THEREFORE, BAD DEBT IS NOT ALLOWABLE . 2. RELEVANT FACTS OF THE CASE ARE THAT THE RETURN O F INCOME WAS FILED ON 30.10.2002 DECLARING A TOTAL LOSS OF RS 6,59,53,115 /-. IN THE ASSESSMENT MADE UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (I N SHORT THE ACT), THE AO DISALLOWED AND ADDED BACK RS 51,83,476/- ON ACCOUNT OF BAD DEBT CLAIMED BY THE ASSESSEE AND ASSESSED THE LOSS AT RS 6,07,69,63 9/-.THE DISALLOWANCE WAS MADE ON THE GROUND THAT THE AMOUNT CLAIMED AS BAD D EBT HAD NOT BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSE E IN ANY OF THE EARLIER PREVIOUS. THE RELEVANT PORTION OF THE AOS ORDER IS EXTRACTED BELOW: DISALLOWANCE OF ADVANCES WRITTEN OFF AS BAD: IT I S SEEN THAT THE COMPANY HAS CLAIMED IN THE P & L A/C BAD DEBTS AT RS 55,78, 096/-. THIS AMOUNT CONSTITUTES OF ADVANCES MADE OF RS 51,83,476/- AND DEBTS OF BUSINESS RS 3,94,620/-. IN THIS RESPECT AS PER QUERY VIDE ORDER HET ENTRY DT 1.12.2004 AN OPPORTUNITY WAS GIVEN TO THE COMPANY THAT WHY NO T AS PER PROVISION OF SEC. 36(2)(I) & U/S 36(1)(VII) THIS SHOULD BE DISAL LOWED. IN RESPONSE TO THE OPPORTUNITY GIVEN THE AR OF THE COMPANY IN HIS SUBM ISSION HAVE PROVIDED DETAIL BREAK UP OF AMOUNTS WRITTEN OF. FURTHER IN C OURSE OF HEARING IT IS CLAIMED THAT TWO KIND OF DEBTS BALANCE WERE WRITTEN OFF. FIRST THESE WERE SUNDRY DEBTORS AND SECOND THESE WERE ADVANCES TO TH E SUPPLIER & IT IS ARGUED THAT SAID ADVANCE HAVE BEEN MADE IN THE ORDI NARY COURSE OF BUSINESS. IT IS FURTHER ARGUED THAT NEVERTHELESS SA ID AMOUNT BECOME IRRECOVERABLE WHICH HAS TO BE ALLOWED AS A LOSS OF WORKING CAPITAL WHICH IS COVERED U/S 36(1)(VII). LASTLY IT HAS BEEN ARGUED T HAT EVEN THOUGH THESE ARE NOT COVERED BY 36(2)(I) IN ALTERNATE THE LOSS ON ACCOUNT OF IRRECOVERABLE ADVANCE ARE CLAIMED U/S 28 AS BUSINES S LOSS. I HAVE CONSIDERED THE SAID SUBMISSION AND ARGUMENT OF THE AR CAREFULLY. PROVISION OF SEC.36 (1)(VII) PROVIDES THAT IT WILL BE ALLOWED IN THE PREVIOUS YEAR IN WHICH IT IS WRITTEN OFF AS IRRECOVERABLE I N THE ACCOUNTS OF THE ASSESSEE FROM THE ACCOUNTING TREATMENT GIVEN IT IS CLEAR THAT IT HAS BEEN ACTUALLY WRITTEN OFF DURING THE ACCOUNTING YEAR 200 1-02 WHICH IS RELEVANT FOR AY 2002-03. HOWEVER SECTION 36(2)(I) PROVIDES T HAT EVEN IF IT IS ALLOWABLE U/S 36(1)(VII) IT SHALL NOT BE ALLOWED U NLESS SUCH DEBTS HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE A SSESSEE IN ANY OF EARLIER PREVIOUS YEAR OR IT REPRESENT MONEY LENT IN THE NORMAL COURSE OF BUSINESS OF BANKING OR MONEY LENDING WHICH IS CARRI ED ON BY THE ASSESSEE. IT IS BEYOND NORMAL UNDERSTANDING THAT HO W THE ADVANCE GIVEN TO THE GROWERS, SUPPLIERS OR LOAN GIVEN TO ONE OF T HE SISTER CONCERN NATH SLUIS LTD RS 39,46,000/- IN EARLIER YEARS CAN BE S AID TO HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING THE TOTAL INCOME OF ASSES SEE IN ANY EARLIER PREVIOUS YEAR PARTICULARLY WHEN THE COMPANY IS NOT ENGAGED IN THE BUSINESS OF BANKING OR MONEY LENDING ACTIVITY. SECT ION 36(2)(I) CLEARLY STATES THAT NO SUCH DEDUCTION SHALL BE ALLOWED UNL ESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING TH E INCOME OF THE ASSESSEE. ADVANCES OF RS 51,83,476/- WRITTEN OFF D URING THE YEAR AS BAD DEBT NEVER CONSTITUTED OR TAKEN INTO ACCOUNT IN COM PUTING THE INCOME OF THE ASSESSEE. HENCE THERE IS NO QUESTION OF ALLOWAN CE OF THE SAID SUM U/S 36(2)(I). AS REGARD TO ALLOWANCE OF BAD DEBTS OF RS 3,94,620/- IS CONCERNED THE SAME IS ALLOWED AS PER PROVISION OF S EC. 36(1)(VII) AS THE SAME HAVE BEEN ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNTS. WITH THIS DISCUSSIONS, IN THE COMPUTATION OF BUSINESS INCOME, TO THE EXTENT OF ADVANCES WRITTEN OFF R 51,83,476/- IS HEREBY DISALL OWED. 3. IN APPEAL, THE CIT(A) RESTRICTED THE ADDITION TO RS 13,50,609/-. THE RELEVANT FINDINGS OF THE CIT(A) ARE AS FOLLOWS: IN THE CASE OF AMOUNT RECEIVABLE FROM NATH SLUIS LTD. THE APPELLANT SUCCESSFULLY DEMONSTRATED THAT THE SAME WAS PART OF THE APPELLANTS INCOME FOR ASSESSMENT YEAR 1997-98 AND ON THE FACTS AND THE CIRCUMSTANCES PERTAINING TO AFORESAID DEBT, IT HAD TAKEN AN HONEST JUDGMENT THAT THE SAID DEBT HAD BECOME A BAD DEBT. THE APPELLANT ALSO PROVED THAT THE AFORESAID DEBT WAS A TRADING DEBT I .E. A DEBT OF THE TRADE THE PROFITS ON WHICH ARE BEING COMPUTED. IN VIEW OF THE AFORESAID FACT, IN MY OPINION, THE AO WAS NOT JUSTIFIED IN REJECTING T HE APPELLANTS CLAIM OF BAD DEBT IN RESPECT OF AMOUNT RECEIVABLE FROM NATH SLUIS LTD AND MAKING AN ADDITION OF RS 38,32,867/- 4. FROM THE ABOVE, IT IS EVIDENT THAT THE CIT(A) HA S PRAGMATICALLY ANALYSED THE TRANSACTIONS AND NEXUS OF THE DEBTS WITH THE BU SINESS/TRADEING ACTIVITY OF THE ASSESSEE AND EVENTUALLY GRANTED PART RELIEF TO THE ASSESSEE. CONSIDERING THE ABOVE DETAILED ORDER OF THE CIT(A), WE FIND THAT TH E REVENUE HAS NO CASE. ACCORDINGLY, THE GROUNDS RAISED BY THE REVENUE IN T HIS REGARD HAVE TO BE DISMISSED. ORDER PRONOUNCED IN THE COURT ON 3RD OF JUNE, 20 11. SD/- SD/- (I.C.SUDHIR) (D.KARUNAKARA RAO) JUDICIAL MEMBER ACC OUNTANT MEMBER PUNE, DATED 3 RD JUNE, 2011 COPY OF THE ORDER IS FORWARDED TO : 1. ASSESSEE. 2. ACIT, CIR.I, AURANGABAD. 3. CIT (A), AURANGABAD. 4. CIT CONCERNED, 5. D.R. ITAT A BENCH, PUNE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR I.T.A.T PUNE