Southern Group Industries P Ltd., CHENNAI V. ITO, Corp Ward -6(3), CHENNAI

ITA 150/CHNY/2019

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 3742 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-11-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 21-01-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRINIRANJANI
• Keywords: Principle of natural justice; Additional evidence; Bad and doubtful debts
• Section: 143(3); 143(2)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: CHENNAI , $ % .. ' , * + BEFORE SHRI RAMIT KOCHAR , ACCOUNTANT MEMBER AND SHRI DUVVURU R.L.REDDY , JUDICIAL MEMBER ITA NO.150/CHNY/2019 *, , /ASSESSMENT YEAR: 2013-14 M/S.SOUTHERN GROUP INDUSTRIES PVT. LTD., NEW NO.72, OLD NO.19, RAJA ANNAMALAI BUILDING, MARSHALLS ROAD, EGMORE, CHENNAI-6000 V . THE INCOME TAX OFFICER, CORPORATE WARD-6(3), ROOM NO.706, 7 TH FLOOR, NEW BLOCK, 121, M.G.ROAD, CHENNAI-600034 [PAN: AAECS0081Q ] ( / /APPELLANT) ( 01/ /RESPONDENT) / 2 / APPELLANT BY : MS.S.SRINIRANJANI, ADV. 01/ 2 /RESPONDENT BY : MR. GURUBASHYAM, JCIT 2 /DATE OF HEARING : 28.11.2019 2 /DATE OF PRONOUNCEMENT : 28.11.2019 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER : THIS APPEAL FILED BY TASSESSEE IS DIRECTED AGAINST APPELLATE ORDER DATED 31.12.2018 PASSED BY LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-16, CHENNAI (HEREINAFTER CALLED THE CIT( A)), IN ITA NO.31/CIT(A)-16/2016-17 FOR ASSESSMENT YEAR (AY) 20 13-14, THE APPELLATE PROCEEDINGS BEFORE LEARNED CIT(A) HAD ARI SEN FROM ASSESSMENT ORDER DATED 17.03.2016 PASSED BY LEARNED ASSESSI NG OFFICER (HEREINAFTER CALLED THE AO) U/S.143(3) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED THE ACT). ITA NO.150/CHNY/2019 :- 2 -: 2. THE GROUNDS OF APPEAL RAISED BY ASSESSEE IN MEM O OF APPEAL FILED WITH INCOME-TAX APPELLATE TRIBUNAL, CHENNAI (HEREIN AFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1. THE COMMISSIONER OF INCOME TAX (APPE ALS) ERRED IN CONFIRMING THE DISALLOWANCE OF BAD DEBTS WRITTEN OFF OF RS.24,05,0 04/-. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N NOT CONSIDERING THE POSITION OF LAW AS THIS STOOD POST 01.04.1989 AND THE DECISION LAID DOWN BY THE HON'BLE APEX COURT IN TRF LTD VS. CIT WHEREIN IT IS CLEARLY HELD THAT MERE WR ITING OFF OF A BAD DEBT IS ENOUGH AND THERE IS NO REQUIREMENT TO ESTABLISH THAT THE DEBT HAD REALLY BECOME BAD. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN OBSERVING THAT MOST OF THE PARTIES WERE GOVERNMENT ORGANIZATIONS AND WELL-KNOWN CONCER NS, WHICH IS FACTUALLY INCORRECT. 4. MERELY BECAUSE MOST OF THE PARTIES WERE GOVERN MENT ORGANIZATIONS AND WELL-KNOWN CONCERNS, THE COMMISSIONER OF INCOME TAX (APPEALS) C OULD NOT HAVE HELD THAT THEY CAN'T BE BAD DEBTS. 5. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT T O HAVE CONSIDERED THAT THE ADVANCES WERE GIVEN MORE THAN A DECADE BACK WHEN THE ASSESSE E WAS IN THE BUSINESS OF SELLING BULLET-PROOF JACKETS AND THAT THE ASSESSEE WAS NO L ONGER IN CONTACT WITH THE PARTIES TO WHOM THE ADVANCES WERE GIVEN. 6. ANY OTHER GROUND THAT MAY BE RAISED AT THE T IME OF HEARING. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS CARR IED ON BY AO U/S 143(3) READ WITH SECTION 143(2) OF THE 1961 ACT , I T WAS OBSERVED BY AO THAT ASSESSEE HAD CLAIMED WRITE OFF OF BAD DEBT IN RETURN OF INCOME FILED WITH REVENUE, TO THE TUNE OF RS. 29,19,132/- UNDER THE HEAD BAD DEBTS WRITTEN OFF , OUT OF WHICH LOANS AND ADVANCES WRITTEN OFF WERE TO THE TUNE RS. 22,00,830/- FROM 7 PARTIES WHILE TOUR ADVANCES WERE TO THE TUN E OF RS. 2,04,174/- FROM 5 PARTIES. THE AO OBSERVED THAT T HESE WRITE OFF ARE IN THE NATURE OF CAPITAL LOSS. FURTHER, AO OBSERVED TH AT PROVISIONS OF SECTION 36(1)(VII) OF THE 1961 ACT ARE SUBJECT TO PROVISION S OF SECTION 36(2) OF THE 1961 ACT. THE AO WAS OF THE VIEW THAT THESE DEBTS WERE NOT SHOWN AS ITA NO.150/CHNY/2019 :- 3 -: PART OF THE INCOME OF THE ASSESSEE , WHICH LED TO D ISALLOWANCE OF THESE BAD DEBTS WRITTEN OFF BY THE AO BY INVOKING PROVISIONS OF U/S.36(1)(VII) , TO THE TUNE OF RS. 24,05,004/-, VIDE ASSESSMENT ORDER DATED 17.03.2016 PASSED BY AO U/S 143(3) OF THE 1961 ACT. 4. THE ASSESSEE BEING AGGRIEVED FILED FIRST APPEAL BEFORE LD.CIT(A), WHO WAS PLEASED TO DISMISS APPEAL OF THE ASSESSEE. THE LD.CIT(A) OBSERVED THAT ASSESSEE HAS WRITTEN OFF LOAN & ADVANCES TO TH E TUNE OF RS. 22,00,830/ AND TOUR ADVANCES TO THE TUNE OF RS. 2,04,174/- . THE LD.CIT(A) OBSERVED THAT ASSESSEE HAS CLAIMED TO HAV E GIVEN THESE LOANS AND ADVANCES MORE THAN A DECADE BACK WHEN ASSESSEE HAD CLAIMED TO BE SELLING BULLET-PROOF JACKETS BUT ASSESSEE HAS NO T FURNISHED ANY EVIDENCE REGARDING NATURE OF GOODS AND SERVICES THOSE PARTIE S WERE TO RENDER TO THE ASSESSEE, COMPLETE NAME AND ADDRESS OF THE PERSONS , LEDGER ACCOUNT OF THESE PERSONS AND EFFORTS MADE TO REALIZE THE DUES. THE LD.CIT(A) REFERRED TO DECISION OF HYDERABAD-TRIBUNAL IN THE C ASE OF NATCO PHARMA LIMITED V. DCIT REPORTED IN (2013) 29 TAXMANN.COM 2 97(HYD.-TRIB.) AND DISMISSED APPEAL OF THE ASSESSEE, VIDE APPELLATE OR DER DATED 31.12.2018 PASSED BY LEARNED CIT(A). 5. AGGRIEVED BY AN APPELLATE ORDER DATED 31.12.2018 PASSED BY LEARNED CIT(A), THE ASSESSEE HAS FILED AN APPEAL WITH TRIBU NAL. AT OUTSET LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT ASSESSEE W AS EARLIER ENGAGED IN THE BUSINESS OF SELLING BULLET-PROOF JACKETS WHICH BUSINESS HAS CEASED TO ITA NO.150/CHNY/2019 :- 4 -: EXIST SINCE LONG BACK FOR MORE THAN A DECADE AGO. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THESE ADVANCES ARE RELA TED TO SAID BUSINESS OF SELLING BULLET-PROOF JACKETS WHICH HAS SINCE BEE N CLOSED FOR MORE THAN A DECADE. IT IS SUBMITTED THAT ASSESSEE IS NOW A MA NUFACTURER AND TRADER OF ZIPPER AND ZIPPER COMPONENTS. THE LD.COUNSEL FOR ASSESSEE RELIED UPON DECISION OF HONBLE SUPREME COURT IN THE CASE OF T .R.F. LIMITED V. CIT REPORTED IN [2010] 323 ITR 397(SC) AND ALSO DECISI ON OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. CRESCENT FILMS PRI VATE LIMITED REPORTED IN (2001) 248 ITR 670(MAD.) TO CONTEND THAT THESE BAD DEBTS WRITTEN OFF BY ASSESSEE IN ITS BOOKS OF ACCOUNTS BE ALLOWED AS DED UCTION. ON BEING ASKED BY THE BENCH, LD.COUNSEL FOR ASSESSEE FAIRLY SUBMI TTED THAT NO EVIDENCE IS PLACED BEFORE AUTHORITIES INCLUDING TRIBUNAL TO SUBSTANTIATE THAT THESE LOANS AND ADVANCES WERE GIVEN IN CONNECTION WITH BU SINESS OF SELLING BULLET-PROOF JACKETS AND INCOME PERTAINING TO SAID BUSINESS OF SELLING JACKETS WERE OFFERED FOR TAXATION IN EARLIER YEARS. THE LD.COUNSEL FOR ASSESSEE PRAYED THAT MATTER BE RESTORED TO FILE OF AO FOR FRESH ADJUDICATION AND IT WAS SUBMITTED THAT EVIDENCES WI LL BE SUBMITTED TO SHOW THAT THESE LOANS AND ADVANCES WERE INEXTRICABL Y LINKED TO BUSINESS OF BULLET PROOF JACKETS AND INCOME OF SAID BUSINESS WAS OFFERED FOR TAXATION TO REVENUE IN RETURN OF INCOME FILED IN EA RLIER YEARS . THE LD.DR DID NOT RAISE ANY OBJECTION IF THE MATTER IS RESTO RED TO FILE OF AO FOR FRESH ADJUDICATION. AFTER HEARING BOTH THE PARTIES AND P ERUSING MATERIAL ON RECORD INCLUDING CITED CASE LAWS, WE HAVE OBSERVED THAT ASSESSEE HAS WRITTEN OFF AS BAD DEBTS LOANS AND ADVANCES AS WELL TOUR ADVANCES GRANTED ITA NO.150/CHNY/2019 :- 5 -: TO SEVERAL PARTIES, AGGREGATING TO RS. 24,05,004/-. ONE SUCH LOANS AND ADVANCE WRITTEN OFF AS BAD DEBT IS MR. M.L.BAHARAN I LOAN ACCOUNT-RS. 8,00,000/-. THE ASSESSEE HAS CLAIMED THAT AT ONE PO INT OF TIME MORE THAN A DECADE AGO, IT WAS ENGAGED IN BUSINESS OF SELLING BULLET PROOF JACKETS AND THESE LOANS AND ADVANCES ARE INEXTRICABLY LINKE D TO SAID BUSINESS OF SELLING BULLET PROOF JACKET CARRIED ON BY ASSESSEE AT THAT POINT OF TIME. IT IS ALSO SUBMITTED THAT INCOME FROM BUSINESS OF SELLING BULLET PROOF JACKET WAS OFFERED FOR TAXATION IN THOSE YEARS WHEN BUSINESS O F SELLING JACKETS WAS CARRIED ON BY THE ASSESSEE. IT IS SETTLED POSITION THAT INCOME INCLUDES LOSSES. BUT, THE ASSESSEE HAS ADMITTEDLY NOT BROUGH T ON RECORD ANY EVIDENCE TO THE EFFECT THAT , FIRSTLY IT CARRIED O N BUSINESS OF SELLING BULLET PROOF JACKETS IN EARLIER YEARS, SECONDLY THAT INCOM E( WHICH INCLUDE LOSSES) FROM BUSINESS OF SELLING BULLET PROOF JACKETS WAS O FFERED FOR TAXATION IN EARLIER YEARS IN RETURN OF INCOME FILED WITH REVENU E AND THIRDLY THAT THESE LOANS AND ADVANCES ARE INEXTRICABLY LINKED TO SAID BUSINESS OF SELLING BULLET PROOF JACKETS. THE ASSESSEE HAS PRAYED THAT IF MATT ER IS RESTORED TO THE FILE OF THE AO, IT WILL PRODUCE NECESSARY EVIDENCES TO T HAT EFFECT . NO DOUBT AS PER AMENDED PROVISIONS OF SECTION 36(!)(VII), IF TH E BAD DEBTS ARE WRITTEN OFF IN BOOKS OF ACCOUNTS AS IRRECOVERABLE , IT WILL BE SUFFICIENT COMPLIANCES OF SECTION 36(1)(VII) AND THE TAXPAYER IS NOT REQUI RED TO PROVE THAT DEBTS HAVE BECOME BAD OR THAT NECESSARY EFFORTS WERE MADE BY IT TO RECOVER THE SAID DEBT. TO THAT EXTENT ASSESSEE PLEA IS ACCEPTAB LE AND ASSESSEE HAS RIGHTLY RELIED UPON THE CITED JUDICIAL PRECEDENTS . BUT AT THE SAME TIME , THE PRIMARY ONUS IS ON THE ASSESSEE TO SHOW THAT DE BT OR PART THEREOF WAS ITA NO.150/CHNY/2019 :- 6 -: TAKEN INTO ACCOUNT IN COMPUTING INCOME OF THE ASSE SSEE WHICH HAS BEEN OFFERED TO TAX IN PREVIOUS YEAR OR EVEN EARLIER YEA RS. BUT, ASSESSEE HAS ADMITTEDLY NOT BROUGHT ON RECORD ANY EVIDENCE TO T HE EFFECT THAT , FIRSTLY IT CARRIED ON BUSINESS OF SELLING BULLET-PROOF JACK ETS IN EARLIER YEARS, SECONDLY THAT INCOME( WHICH INCLUDE LOSSES) FROM CA RRYING ON BUSINESS OF SELLING BULLET PROOF JACKETS WAS OFFERED FOR TAXATI ON IN EARLIER YEARS IN RETURN OF INCOME FILED WITH REVENUE AND THIRDLY THA T THESE LOANS AND ADVANCES ARE INEXTRICABLY LINKED TO SAID BUSINESS O F SELLING BULLET PROOF JACKETS. AS COULD BE SEEN , SECTION 36(1)(VII) IS S UBJECT TO SECTION 36(2) OF THE 1961 ACT. THESE EVIDENCES ARE NOT BROUGHT ON RE CORD AND FUNDAMENTALS FOR GRANT OF DEDUCTION U/S 36(1)(VII) ARE NOT COMPLIED WITH BY THE ASSESSEE BUT IT IS STATED THAT THESE LOANS AND ADVANCES ARE IN CONNECTION WITH BUSINESS OF SELLING BULLET PROOF JA CKETS CARRIED ON BY ASSESSEE WHICH STOOD CLOSED A DECADE AGO AND PRAYER S ARE MADE TO PRODUCE NECESSARY EVIDENCES IF OPPORTUNITY IS GRANT ED. UNDER THESE CIRCUMSTANCES, WE ARE INCLINED TO RESTORE THIS ISSU E TO FILE OF AO FOR FRESH ADJUDICATION AND ASSESSEE IS DIRECTED TO BRING ON R ECORD ALL NECESSARY EVIDENCE IN ORDER TO PROVE THAT INCOME(WHICH INCLUD E LOSSES) RELATED TO BUSINESS OF SELLING BULLET-PROOF JACKETS WERE OFFER ED FOR TAXATION IN EARLIER YEARS AND THIRDLY THAT THESE LOANS AND ADVANCES ARE INEXTRICABLY LINKED TO SAID BUSINESS OF SELLING BULLET-PROOF JACKETS CARRI ED ON BY ASSESSEE IN THOSE YEARS. THE AFORESAID PRIMARY ONUS IS ON ASSES SEE TO GET DEDUCTION U/S 36(!)(VII) OF THE 1961 ACT READ WITH SECTION 36 (2) OF THE 1961 ACT. UNDER THESE CIRCUMSTANCES, WE RESTORE THIS ISSUE TO THE FILE OF THE AO FOR ITA NO.150/CHNY/2019 :- 7 -: FRAMING FRESH ASSESSMENT DENOVO. NEEDLESS TO SAY T HAT AO SHALL GRANT ADEQUATE AND PROPER OPPORTUNITY TO THE ASSESSEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LA W, IN DENOVO ASSESSMENT PROCEEDINGS. THE ADDITIONAL EVIDENCES/EXPLANATIONS FILED BY ASSESSEE IN ITS DEFENSE DURING DE-NOVO ASSESSMENT PROCEEDINGS W ILL BE ADMITTED BY AO AND THE ISSUES BE ADJUDICATED BY AO IN DENOVO AS SESSMENT PROCEEDINGS ON MERITS IN ACCORDANCE WITH LAW. WE O RDER ACCORDINGLY. IN THE RESULT, THE APPEAL FILED BY ASSESSEE IN ITA NO.150/CHNY/2019 FOR AY: 2013-14 IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN OPEN COURT ON THIS 28TH DAY O F NOVEMBER, 2019 IN CHENNAI. SD/- SD/- ( $ % . . ' ) ( DUVVURU R.L.REDDY ) * /JUDICIAL MEMBER ( ) ( RAMIT KOCHAR ) /ACCOUNTANT MEMBER /CHENNAI, 6 /DATED: 28 TH NOVEMBER, 2019. TLN 2 0*7 87 /COPY TO: 1. / /APPELLANT 4. 9 /CIT 2. 01/ /RESPONDENT 5. 7 0** /DR 3. 9 ( ) /CIT(A) 6. , /GF