DCIT, CHENNAI V. M/s. Vivek Hire Purchase and Leasing Limited, CHENNAI

ITA 1362/CHNY/2008

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64420 (ITAT-CHENNAI)
• Duration Of Justice: 4 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 17-10-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 20-06-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V D GOPAL
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI VIKAS AWASTHY, JUDICIAL MEMBER I.T.A. NOS. 1361 & 1362/MDS/2008 (ASSESSMENT YEARS : 2002-03 & 2003-04) & I.T.A. NOS. 689 & 690/MDS/2010 (ASSESSMENT YEARS : 2001-02 & 2005-06) THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(4) / I(1), CHENNAI - 600 034. (APPELLANT) V. M/S VIVEK HIRE PURCHASE AND LEASING LIMIT ED, 2 ND FLOOR, CITI TOWER, 117, SIR THIAYAGARAYA ROAD, T. NAGAR, CHENNAI - 600 017. PAN : AAACV1167E (RESPONDENT) APPELLANT BY : SHRI GURU BASHYAM, JCIT RESPONDENT BY : SHRI V.D. GOPAL, ADVOCATE DATE OF HEARING : 17.10.2012 DATE OF PRONOUNCEMENT : 17.10.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : THESE ARE APPEALS OF THE REVENUE, DIRECTED AGAINS T ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS)-III, CHENNAI, FOR RESPECTIVE ASSESSMENT YEARS, IN WHICH IT ASSAILS THE DIRECTION OF CIT(APPEALS) ALLOWING THE CLAIM OF BAD DEBTS. 2 I.T.A. NOS. 1361 & 1362/MDS/2008 I.T.A. NOS. 689 & 690/MDS/2010 2. FOR ASSESSMENT YEAR 2002-03, THE SAME ISSUE HAD COME UP BEFORE THIS TRIBUNAL IN ASSESSEES APPEAL, WHEREUPO N THIS TRIBUNAL HAD REMITTED THE MATTER BACK TO THE FILE OF A.O. FOR CO NSIDERATION AFRESH. THOUGH FOR THE ASSESSMENT YEAR 2002-03 THE A.O. HAD STATED THAT THE TRIBUNAL HAD SET ASIDE THE EARLIER ORDER FOR THAT Y EAR WITH A DIRECTION TO EXAMINE THE PAYMENT MADE BY THE ASSESSEE IN THE CON TEXT OF EXIGENCIES OF THE BUSINESS IN ACCORDANCE WITH DECISIONS OF HON BLE APEX COURT IN THE CASE OF INDORE MALWA UNITED MILLS LTD. V. STATE OF MP & OTHERS (55 ITR 736) AND IN THE CASE OF ESSEN PRIVATE LTD. V. C IT (65 ITR 625), IT IS ALSO MENTIONED BY THE A.O. THAT THE TRIBUNAL HAD DI RECTED TO DECIDE THE CASE IN ACCORDANCE WITH LAW. 3. ADVERTING TO THE FACTS, ASSESSEE IS A HIRE PURCH ASE AND LEASING FINANCE COMPANY. FOR THE IMPUGNED ASSESSMENT YEARS , ASSESSEE HAD CLAIMED WRITE OFF OF BAD DEBTS FOR AMOUNTS REMAININ G UNPAID ON HIRE PURCHASE FINANCE GIVEN TO VARIOUS CUSTOMERS. ASSES SEE WAS ENGAGED IN FINANCING PURCHASE OF CONSUMER DURABLE ARTICLES. ASSESSEE WAS NOT DIRECTLY ENGAGED IN SELLING ANY CONSUMER DURABLE AR TICLES, BUT HAD GIVEN FINANCE TO POTENTIAL CONSUMERS OF SUCH ARTICLES. A .O. HAD NOT DOUBTED THE WRITE OFF MADE BY THE ASSESSEE WITH REGARD TO T HE DEBTS WHICH WERE CONSIDERED BAD BY THE ASSESSEE. BUT, THE A.O. WAS OF THE OPINION THAT ASSESSEE HAD NOT MADE ANY EFFORTS FOR RECOVERING TH E MONEY AND HAD 3 I.T.A. NOS. 1361 & 1362/MDS/2008 I.T.A. NOS. 689 & 690/MDS/2010 EFFECTED A PRE-MATURE WRITE-OFF. FURTHER, ACCORDIN G TO A.O., CONDITION PRESCRIBED IN SECTION 36(2) OF INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') WAS NOT SATISFIED AND A CLAIM UNDER SECTION 36(1)(V II) COULD BE ACCEPTED ONLY IF SUCH A CONDITION WAS SATISFIED. AS PER TH E A.O., THOUGH THE AMOUNTS WERE DECLARED AS BAD DEBTS BY THE ASSESSEE AND WRITTEN OFF IN THE ACCOUNTS, SUCH WRITE OFF WAS BASED ON ACCOUNT O F NORMS PRESCRIBED BY RESERVE BANK OF INDIA, AND NOT BECAUSE THE AMOUN TS HAD BECOME ACTUALLY IRRECOVERABLE. NEVERTHELESS, THE A.O. DID NOT DOUBT THE CLAIM OF THE ASSESSEE THAT WHAT WERE WRITTEN OFF WERE OVERDU E AMOUNTS. HE THUS DISALLOWED THE CLAIM IN EACH OF THE YEAR. 4. ASSESSEE MOVED IN APPEAL BEFORE CIT(APPEALS) FOR ALL THE IMPUGNED ASSESSMENT YEARS. ARGUMENT OF THE ASSESSE E WAS THAT THERE WAS NO QUESTION OF NON-FULFILLING OF THE CONDITIONS LAID DOWN UNDER SECTION 36(2) OF THE ACT. AS PER THE ASSESSEE, IT HAVING EFFECTED AN ACTUAL WRITE OFF IN THE BOOKS, COULD NOT BE DENIED THE CLAIM FOR BAD DEBTS. CIT(APPEALS) WAS OF THE OPINION THAT ASSESSING OFFI CER HIMSELF HAD CONCEDED THAT WHAT ASSESSEE WAS GIVING WAS ONLY HIR E PURCHASE FINANCE FOR PURCHASE OF CONSUMER DURABLE ARTICLES AND ENTIR E LOAN WAS DIRECTLY PAID TO CONCERNED COMPANY DEALING IN CONSUMER DURAB LES. ACCORDING TO CIT(APPEALS), IT WAS NOTHING BUT A MONEY LENDING BU SINESS AND ASSESSING OFFICER WAS NOT JUSTIFIED IN DECLINING TO ALLOW THE CLAIM OF BAD 4 I.T.A. NOS. 1361 & 1362/MDS/2008 I.T.A. NOS. 689 & 690/MDS/2010 DEBTS. HE, THEREFORE, DELETED THE DISALLOWANCES OF BAD DEBTS CLAIMED, FOR ALL THE IMPUGNED ASSESSMENT YEARS. 5. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDERS OF CIT(APPEALS), SUBMITTED THAT FOR ASSESSMENT YEAR 20 02-03, THERE WAS A SPECIFIC DIRECTION BY THIS TRIBUNAL TO REDO THE ASS ESSMENT BASED ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF INDOR E MALWA UNITED MILLS LTD. AND ESSEN PRIVATE LTD. (SUPRA). THE ASSESSING OFFICER HAD FOLLOWED THIS DIRECTION OF THE TRIBUNAL AND HELD THAT ASSESS EE HAD NOT MADE ANY ATTEMPT TO RECOVER THE MONEY, BUT HAD ONLY EFFECTED THE WRITE OFF RELYING ON RESERVE BANK OF INDIA NORMS AND DISALLOWED THE C LAIM OF THE ASSESSEE. ACCORDING TO HIM, CIT(APPEALS) FELL IN E RROR IN OVERTURNING THIS DECISION OF A.O. WHICH FOLLOWED THE DIRECTIONS OF T HIS TRIBUNAL. AS PER LEARNED D.R., FOR OTHER YEARS ALSO, DISALLOWANCE OF CLAIM WAS RIGHTLY MADE SINCE ASSESSEE COULD NOT PROVE THAT THE DEBTS HAD BECOME BAD. 6. PER CONTRA, LEARNED A.R. SUPPORTED THE ORDERS OF CIT(APPEALS). 7. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. IT IS AN ADMITTED FACT THAT ASSESSEE WAS IN THE BUSINESS OF HIRE PURCHASE FINANCE. ASSESSING OFFICER HAS NOTED THIS IN THE A SSESSMENT ORDER FOR ASSESSMENT YEAR 2002-03. ASSESSEE HAD PAID ENTIRE HIRE PURCHASE LOAN DIRECTLY TO THE COMPANY WHICH WAS DEALING WITH CONS UMER DURABLES. THE 5 I.T.A. NOS. 1361 & 1362/MDS/2008 I.T.A. NOS. 689 & 690/MDS/2010 CONCERNED PARTIES HAD PURCHASED SUCH CONSUMER DURAB LES FROM SUCH COMPANY. THUS, EFFECTIVELY ASSESSEE WAS PROVIDING ONLY A HIRE PURCHASE FINANCE. INTEREST RECEIVED ON SUCH HIRE P URCHASE FINANCING WAS SHOWN AS ITS INCOME. THIS POSITION HAS NOT BEE N DISPUTED. THAT ASSESSEE HAD EFFECTED AN ACTUAL WRITE OFF HAS ALSO NOT BEEN DISPUTED. IN SUCH A SITUATION, DECISION OF HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT V. SHREYAS S. MORAKHIA (342 ITR 285) AND THAT O F HONBLE SUPREME COURT IN THE CASE OF T.R.F. LIMITED V. CIT (323 ITR 397), IN OUR OPINION, COME TO THE DIRECT AID OF THE ASSESSEE. IN THE FOR MER DECISION, IT WAS HELD BY HONBLE BOMBAY HIGH COURT THAT CONDITIONS S TIPULATED UNDER SECTION 36(2)(I) STOOD SATISFIED WHEN ASSESSEE HAD WRITTEN OFF A DEBT ARISING OUT OF SHARES TRANSACTED BY IT SO LONG AS B ROKERAGE ON SUCH SHARES WAS ACCOUNTED BY IT AS A PART OF ITS INCOME. IN OTHER WORDS, THEIR LORDSHIP HELD THAT REQUIREMENT UNDER SECTION 36(2)( I) WAS THAT ATLEAST A PART OF THE DEBT SHOULD HAVE BEEN TAKEN INTO ACCOUN T FOR COMPUTING INCOME OF THE ASSESSEE. HERE, UNDISPUTEDLY, THE IN TEREST ON HIRE PURCHASE LOANS WERE CONSIDERED BY THE ASSESSEE AS A PART OF ITS INCOME AND CREDITED TO ITS PROFIT & LOSS ACCOUNT. THUS CO NDITION STIPULATED UNDER SECTION 36(2) STOOD SATISFIED. 8. AS FOR THE CLAIM OF REVENUE THAT DEBT HAD NOT AC TUALLY BECOME BAD, AND THE CLAIM OF ASSESSEE COULD NOT HAVE BEEN ALLOWED, IN OUR 6 I.T.A. NOS. 1361 & 1362/MDS/2008 I.T.A. NOS. 689 & 690/MDS/2010 OPINION, DECISION OF HONBLE APEX COURT IN THE CASE OF T.R.F. LIMITED (SUPRA) SWINGS THE CASE DECISIVELY IN FAVOUR OF ASS ESSEE. HONBLE APEX COURT HELD THAT AS LONG AS WRITE OFF OF BAD DEBT WA S EFFECTED IN THE BOOKS, IT WAS NOT NECESSARY FOR AN ASSESSEE TO ESTA BLISH THAT DEBT HAD IN FACT BECOME IRRECOVERABLE, AFTER THE AMENDMENT TO S ECTION 36(1)(VII) WITH EFFECT FROM APRIL 1, 1999. THUS, ANY ENQUIRY MADE BY THE ASSESSING OFFICER AS TO WHETHER DEBT HAD INDEED BECOME BAD OR NOT WAS IRRELEVANT INSOFAR AS CLAIM OF WRITE OFF OF BAD DEBT IS CONCER NED. IN THIS VIEW OF THE CASE, CIT(APPEALS) WAS JUSTIFIED IN DELETING THE DI SALLOWANCE FOR THE IMPUGNED ASSESSMENT YEARS. NO INTERFERENCE IS REQU IRED. 9. IN THE RESULT, APPEALS FILED BY THE REVENUE ARE DISMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON WEDNESDAY, THE 17 TH OF OCTOBER, 2012, AT CHENNAI. SD/- SD/- (VIKAS AWASTHY) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 17 TH OCTOBER, 2012. KRI. COPY TO: APPELLANT/RESPONDENT/CIT(A)-III, CHENNAI/ CIT, CHENNAI-I, CHENNAI/D.R./GUARD FILE