ITO 22(2)-1, NAVI MUMBAI V. ASSOCIATE INVESTMENT & TRADING, MUMBAI

ITA 1309/MUM/2010

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6239 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Assessment Year: 2006-2007
• Appeal Filed On: 17-02-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K NAYAK
• Assessee Lawyers: BRIJMOHAN
• Keywords: Business income; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH G MUMBAI BEFORE SHRI S.V. MEHROTRA (AM) AND SMT. ASHA VIJAYARA GHAVAN (JM) ITA NO. 1309/MUM/2010 ASSESSMENT YEAR- 2006-07 THE ITO 22(2)-1, R. NO. 419, 4 TH FLOOR, TOWER NO.6, VASHI RAILWAY STATION COMPLEX, VASHI, NAVI MUMBAI-400 705 M/S. ASSOCIATE INVESTMENT & TRADING, 318, SWASTIK CHAMBERS, SION TROMBAY ROAD, MUMBAI-400 071 PAN-AAHFA 0817E (APPELLANT) VS. (RESPONDENT) APPELLANT BY: SHRI A.K.NAYAK RESPONDENT BY: SHRI BRIJMOHAN O R D E R ASHA VIJAYARAGHAVAN (JM) THIS APPEAL PREFERRED BY THE REVENUE IS DIRECTED AG AINST THE ORDER DATED 13.12.2009 PASSED BY THE LD. CIT(A)-33 FOR T HE ASSESSMENT YEAR 2006-07. 2. THE RETURN OF INCOME WAS FILED ON 31.10.2006 DEC LARING A TOTAL LOSS OF RS. 42,202/-. THE CASE WAS SELECTED FOR SCRUTIN Y AND VARIOUS DETAILS, BOOKS OF ACCOUNTS, BILLS, VOUCHERS ETC. WERE PRODUC ED BEFORE THE ASSESSING OFFICER. THE AO ASSESSED THE TOTAL INCOM E AT RS. 22,56,003/- AFTER MAKING CERTAIN ADDITIONS TO THE RETURNED TOTA L LOSS WHICH THE ASSESSEE WISHES TO CONTEST IN APPEAL. 3. THE ASSESSEE COMPANY IS IN THE BUSINESS OF MONEY LENDING AND FINANCING BY WAY OF BILL DISCOUNTING, GRANTING INTE R-CORPORATE DEPOSITS AND ALSO EARNS INCOME FROM INVESTMENTS BY WAY OF IN VESTING SURPLUS FUNDS. ITA NO. 1309/M/10 2 3. THE ASSESSEE WAS ASKED TO SUBMIT THE COPY OF ACC OUNT OF DHARENDRA INDUS. LTD. IN WHICH BAD DEBTS OF RS. 200 8750 WAS CLAIMED. AS PER THE DETAILS SUBMITTED BY THE ASSESSEE, BIFUR CATION OF THE AMOUNT DEBITED AS BAD DEBTS IS AS UNDER: A.Y. 1996-97 S.NO. PARTICULARS DATE PRINCIPAL AMOUNT DISCOUNT TOTAL 1 DHARENDRA INDUS. 11.9.95 1843667 165083 2008750/- NEITHER THE ASSESSEE SHOWN ANY AMOUNT RECEIVED NOR CLAIMED LOSS IN ANY ASSESSMENT YEAR UPTO A.Y. 2006-07. THEREFOR E THE ASSESSEE WAS ASKED TO JUSTIFY THE ASSESSEES CLAIM OF BAD DEBTS. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE LD. AR STATED AS FOLLOWS: THE ASSESSEE IS CARRYING BILL DISCOUNTING BUSINES S AND FURTHER STATED VIDE LETTER DT. 4.3.2008 THAT THE A SSESSEE HAS GRANTED AN AMOUNT OF RS. 1843647/- THROUGH BILL DIS COUNTING FACILITY THE ABOVE PARTY AND IT HAS RECOGNIZED INCOME OF RS. 165103/- AS DISCOUNTING CHARGES AND THE SAME HAS BEEN OFFERED T O TAX DURING THE A.Y. 1996-97. THE ASSESSEE HAS GIVEN ITS EFFORT FO R RECOVERY OF THE SAID AMOUNT FOR YEARS AS EXPLAINED TO YOU I THE HEA RING ON 4 TH FEB. 2008 THAT IT HAS ALSO FILED A LEGAL SUIT AGAINST TH E PARTY. DURING THE ASSESSMENT YEAR, IT HAS BEEN REALIZED THAT THE AMOU NT IS NO LONGER RECOVERABLE. HENCE IT HAS BECOME BAD AND REQUIRED TO BE WRITTEN OFF. ACCORDINGLY, THE ASSESSEE HAS WRITTEN OFF THE FULL AMOUNT NO LONGER RECOVERABLE FROM THE ABOVE PARTY AS BAD DEBTS AND C LAIMED AS AN ALLOWABLE EXPENDITURE U/S. 36(1)(VII) OF THE I.T. A CT. 4. THE A.O. HELD AS FOLLOWS: THE ASSESSEES CONTENTION IS NOT ACCEPTABLE AS THE ASSESSEES BUSINESS OF BILL DISCOUNTING IS DIFFEREN T FROM MONEY LENDING. ACTUALLY, THE ASSESSEE IS TAKING OVER THE DEBTS OWED BY A PARTY DHARENDRA INDUSTRIES TO THE PARTY NILKAM AL SYN ITA NO. 1309/M/10 3 FABS LTD. ON THE PROMISE THAT ON A CERTAIN FUTURE D ATE. DHARENDRA INDUSTRIES WILL PAY THAT MONEY TO THE A SSESSEE. SINCE THE ASSESSEE RETIRES A FUTURE DEBT, IT DEDUCT S CERTAIN AMOUNT FROM THE DEBT OWED TO NILKAMAL SYN FABS LTD. AND PAYS NILKAMAL SYN FABS LTD. ONLY REMAINING AMOUNT. THIS AMOUNT DEDUCTED OUT OF DEBT OWED BY DHARENDRA INDUS . TO NILKAMAL SYN FABS LTD. AND PAYS NIL KAMAL SYN FABS AND PAYS NILKAMAL SYN FABS LTD. ONLY REMAINING AMOUNT. THIS AMOUNT DEDUCTED OUT OF DEBT OWED BY DHARENDRA INDUS . TO NILKAMAL SYN FABS LTD IS SHOWN AS BILL DISCOUNTING CHARGES AND CREDITED TO P&L ACCOUNT. THUS, ASSESSEE PAYS M ONEY NILKAMAL SYN FABS LTD WHICH IS TO BE RECOVERED FROM DHARENDRA INDUSTRIES. THUS, ACTIVITY OF THE ASSESS EE IS DIFFERENT FROM THE MONEY LENDING ACTIVITY BECAUSE H ERE RECEIVED OF MONEY HAS NO LIABILITY TOWARDS THE ASSE SSEE IN THE EVENT OF DEFAULT BY PARTY DHARENDRA INDUSTRIES. TH EREFORE, THE ASSESSEES CLAIM OF BAD DEBTS IS NOT ALLOWABLE AS B USINESS EXPENDITURE. 5. ON APPEAL, THE LD. CIT(A) HELD AS FOLLOWS: I HAVE ALSO PERUSED THE ORDER OF THE LEARNED CIT(A ) XXII, MUMBAI DATED 10.12.2004 IN THE CASE OF MR. CY RUS KENNETH PEDDAR FOR ASSESSMENT YEAR 2000-01 AND THE ORDER OF THE HONBLE ITAT G BENCH DATED 28.08.2008 IN T HE CASE OF MR. CYRUS KENNETH PEDDAR FOR ASSESSMENT YEAR 2000-0 1 ALONG WITH THE OTHER CASE LAWS MENTIONED AND RELIED UPON BY THE ASSESSEE. IT IS SEEN THAT THE CASE OF MR. CYRU S KENNETH PEDDAR IS ABSOLUTELY SIMILAR TO THAT OF THE ASSESSE E. IT IS ALSO TO BE NOTED THAT MR. CYRUS KENNETH PEDDAR IS ONE OF THE PARTNERS IN THE ASSESSEE FIRM. THEREFORE, RELIANCE IS BEING PLACED ON THE ORDER OF THE HONBLE G BENCH OF ITA T MUMBAI MENTIONED ABOVE IN RESPECT OF THE ISSUE OF BAD DEBT S CLAIMED BY THE ASSESSEE AND DISALLOWED BY THE ASSESSING OFF ICER TREATING IT AS BUSINESS LOSS FOR THE EARLIER YEARS. I FIND THAT IN A SIMILAR SET OF CIRCUMSTANCES THE HONBLE ITAT, MU MBAI IN THE CASE OF MR. CYRUS KENNETH PEDDAR HAS OBSERVED AS UN DER: HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THEIR RIVAL CONTENTIONS, WE FIND THAT TH E ASSESSEE HAS BEEN IN THE BUSINESS OF BILL DISCOUNTI NG FOR EARLIER YEARS ALSO AND THE INCOME THERE FROM HAS BE EN ACCEPTED BY REVENUE AUTHORITIES AS THE ASSESSEES BUSINESS INCOME. WE FIND THAT THE CIT(A) HAS OBSER VED THAT FOR THE ASSESSMENT YEAR 1995-96 AND 1998-99, T HE ASSESSMENTS WERE COMPLETED U/S.143(3), AND THE ITA NO. 1309/M/10 4 INCOME FROM BILL DISCOUNTING WAS TREATED AS BUSINES S INCOME AND THERE BEING NO FACTUAL OR LEGAL CHANGE DURING THE YEAR, HE DIRECTED THE ASSESSING OFFICER, TO TAX THE INCOME FROM THE BILL DISCOUNTING UNDER THE HEAD BUSINESS INCOME. IN VIEW OF THE SAME, WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDERS OF THE CIT(A) AND THIS GR OUND OF APPEAL OF REVENUE IS REJECTED. AS REGARDS, THE GROUND NO.2 I.E. THE ISSUE OF BAD D EBTS IS CONCERNED, WE FIND THE CIT(A) HAS HELD THAT THE ASS ESSEE HAS NOT SATISFIED THE CONDITIONS LAID DOWN U/S.36(2) OF THE I.T. ACT I.E. THE PRINCIPAL AMOUNT HAS NOT ROUTED THROUGH TH E TRADING ACCOUNT. BUT HE HAS AGREED WITH THE ASSESSEES CON TENTIONS THAT THE LOSS SHOULD BE ALLOWED AS BUSINESS LOSS. WE FIND THAT THE CIT(A) HAS HELD THAT LOSSES HAVE B EING INCURRED DURING THE COURSE OF BILL DISCOUNTING BUSI NESS AND IS INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. DURIN G THE COURSE OF ARGUMENT, THE LEARNED DR HAD SUBMITTED THAT M/S. SHAWWALLACE CO. LTD. HAD MADE PAYMENT OF DEMANDED AMOUNT IN THE NEXT ASSESSMENT YEAR AND THE ASSESSEE HAS OFFERED THE SAME FOR TAXATION AND THUS, ACCORDING T O THE DR, IT WAS PREMATURE ON THE PART OF THE ASSESSEE TO HAVE W RITTEN IT OFF AS BAD DEBTS OR BUSINESS LOSS. FOR THIS PREPOS ITION, THE DR PLACED RELIANCE UPON THE FACT THAT THE ASSESSEE WAS PERUSING THE LEGAL REMEDIES IN THE COURT OF LAW. HOWEVER, WE ARE NOT INCLINED TO AGREE WITH THE CONTENTIONS OF THE LEARNED DR. IT HAS ALREADY BEE N HELD BY US THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF BI LL DISCOUNTING. THE TWO PARTIES M/S NEILCON LTD. & M/ S SHAWWALLACE CO. LTD. DEFAULTED IN MAKING PAYMENTS T O THE ASSESSEE AND THE ASSESSEE HAD TO RESORT TO THE LEGA L REMEDIES FOR ITS RECOVERY. MERELY BECAUSE, THE SUITS ARE P ENDING BEFORE THE COURT, IT CANNOT BE SAID THAT THE LOSS HAS NOT OCCURRED DURING THE RELEVANT PERIOD. IT IS FOR THE ASSESSEE TO DECIDE AS TO WHICH AMOUNTS WERE RECOVERABLE AND WHICH WERE NO T, DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE. FURTHERMORE, THE ASSESSEE HAS OFFERED TAX ON THE AM OUNT RECEIVED BY IT IN THE SUBSEQUENT TO THE COURT ORDER . I FIND THAT THE ASSESSING OFFICER HAS ALSO PLACED H IS RELIANCE ON THIS ORDER AND COME TO THE CONCLUSION THAT BAD DEBTS CLA IMED HAS TO BE TREATED ITA NO. 1309/M/10 5 AS LOSS. THE ASSESSEE HAS OBJECTED TO THIS AND FI LED A REPLY. HOWEVER, IT IS SEEN THAT WHILE RELYING ON VARIOUS CASE LAWS THE ASSESSEE HAS CHOSEN NOT TO MENTION A CASE LAW WHICH IS OF THE PARTNERS OF THE ASSESSEE FIRM WHO AS AN INDIVIDUAL CARRIES OUT THE SAME BUSINESS AS THAT OF THE ASSESSEE FIRM AND WHOSE CASE IS IDENTICAL TO THAT O F THE ASSESSEE. BESIDES IT IS ALSO BEEN FROM THE ORDER OF THE ASSES SING OFFICER THAT THE CONDITIONS OF CLAIMING BAD DEBTS HAVE NOT BEEN COMP LIED WITH THE ASSESSEE. IN VIEW OF THESE FACTS AND RESPECTFULLY FOLLOWING T HE ORDER OF THE HONBLE ITAT MENTIONED ABOVE, IT IS HELD THAT THE A SSESSING OFFICERS ACTION OF HOLDING THAT RS. 2008750/- WOULD REPRESENT A LOS S AND NOT BAD DEBTS IN THE HANDS OF THE ASSESSEE IS UPHELD. REGARDING THE YEAR OF ALLOWABILITY OF LOSS I FIND THAT THE ASSESSING OFFICER HAS NOT ALLOWED THE LOSS IN THIS YEAR MAINL Y BECAUSE HE WAS OF THE OPINION THAT IT IS ALLOWABLE IN THE YEAR IN WHICH I T HAS CRYSTALLIZED AND AFTER ANALYZING THE RECORDS HE WAS OF THE OPINION T HAT THE SAME IS NOT FOR PREVIOUS YEAR 2005-06 AT ALL AS COURT SUITS ARE PEN DING BEFORE THE RESPECTIVE COURTS AND LOSS HAS NOT CRYSTALLIZED. T HE ASSESSEE HAS ARGUED THAT IT IS NOT SO. THE ASSESSEE HAS HERE RELIED U PON THE DECISION OF THE HONBLE ITAT G BENCH DATED 29.08.2008 QUOTED ABOV E WHEREIN HAS BEEN HELD. HOWEVER, WE ARE NOT INCLINED WITH THE CONTENTIONS OF THE LD DR, IT HAS ALREADY BEEN HELD BY US THAT THE ASSESSEE IS CARRYING ON THE BUSINESS OF BILL DISCOUNTING. THE TWO PARTIES M/S. NEILSON LTD. & M/S. SHAW WALLACE CO. LTD. DEFA ULTED IN MAKING PAYMENTS TO THE ASSESSEE AND THE ASSESSEE HA D TO RESORT TO THE LEGAL REMEDIES FOR ITS RECOVERY. MER ELY BECAUSE, THE SUITS ARE PENDING BEFORE THE COURT, IT CANNOT B E SAID THAT THE LOSS HAS NOT OCCURRED DURING THE RELEVANT PERIO D. IT IS FOR THE ASSESSEE TO DECIDE AS TO WHICH AMOUNTS WERE REC OVERABLE AND WHICH WERE NOT DEPENDING UPON THE FACTS AND CIRCUMSTANCES OF EACH CASE. (PARA NO.17 PAGE NO.6 O F THE ORDER.) AS THE FACTS OF THE CASE OF THE ASSESSEE ARE SIMILA R IN THIS CASE RELIED UPON AND RESPECTIVELY FOLLOWING THE DECISION OF THE HONBLE ITAT WHICH COVERS THE ISSUE THE ASSESSING OFFICER IS DIRECTED TO ALLOW THE LOSS TO THE ASSESSEE IN THE CURRENT YEAR ITSELF. THE ASSESSING OFFICER MAY COMPUTE THE INCOME ACCORDINGLY. HOWEVER, IT MAY ALSO BE VERIFI ED THAT THE ASSESSEE HAS NOT CLAIMED LOSS OR BAD DEBTS ON THIS ACCOUNT I N THE SUBSEQUENT YEAR. ITA NO. 1309/M/10 6 6. AGGRIEVED, THE REVENUE HAS COME UP ON APPEAL AND HAS RAISED THE FOLLOWING GROUND: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE LEARNED CIT(A) ERRED IN DIRECTING THE ASSESSING OFF ICER TO TREAT THE LOSS OF RS. 20,08,750/- AS BUSINESS LOSS AND ALLOW THE LOSS IN THE CURRENT YEAR WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE COULD NOT PROVE THAT THE LOSS WAS CRYSTALLIZED DURI NG THE PREVIOUS YEAR AND THE ASSESSING OFFICER RIGHTLY CAM E TO CONCLUSION THE LOSS IS NOT ALLOWABLE DURING THE YEA R. 7. WE FIND THAT THE LD. CIT(A) HAS FOLLOWED THE ORD ER OF THE ITAT G BENCH IN THE CASE OF ACIT VS SHRI CYRUS KENNETH PED DER IN ITA NO. 1396/M/2005 WHO IS PARTNER OF THE ASSESSEE FIRM. HE NCE RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDINATE BENCH IN THE CASE OF ACIT VS SHRI CYRUS KENNETH PEDDER, WE DISMISS THE DEPARTMEN TAL APPEAL. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF NOVEMBER, 2010 SD/- SD/- (S.V. MEHROTRA) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 30 TH NOVEMBER, 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR G BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI ITA NO. 1309/M/10 7 DATE INITIALS 1 DRAFT DICTATED ON: 24.11.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 24.11.2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______