ACIT, Coimbatore V. M/s. Elgi Ultra Industries Ltd., Coimbatore

ITA 1962/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 57946 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2008-2009
• Appeal Filed On: 07-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T BANUSEKAR
• Keywords: Bad and doubtful debts
• Section: 37(1)

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL CHENNAI A BENCH, CHENNAI. BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER & SHRI GEORGE MATHAN, JUDICIAL MEMBER I.T.A. NO. 1962/MDS/2011 ASSESSMENT YEAR: 2008-09 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1), 63, RACE COURSE ROAD, COIMBATORE 641 018. VS. M/S. ELGI ULTRA INDUSTRIES LTD., ELGI HOUSE, TRICHY ROAD, COIMBATORE 641 018. [PAN: AAACE4566G] (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHAJI P. JACOB, ADDL. CIT ASSESSEE BY : SHRI T. BANUSEKAR, C.A. DATE OF HEARING : 22 . 0 2 .201 2 DATE OF PRONOUNCEMENT : 22.02.2012 ORDER PER N.S. SAINI, ACCOUNTANT MEMBER THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) I, COIMBATORE DATED 22.09.2011 PASSED IN APP EAL NO.148/10-11 IN ASSESSMENT YEAR 2008-09. SHRI SHAJI P. JACOB, ADDL. CIT REPRESENTED ON BEHALF OF THE REVENUE AND SHRI T. BANUSEKAR, CHARTE RED ACCOUNTANT REPRESENTED ON BEHALF OF THE ASSESSEE. 2. THE LD. DR SUBMITTED THAT THE REVENUE HAS TAKEN 6 GROUNDS OF APPEAL AND IN ALL THE GROUND, THE ONLY ISSUE INVOLVED IS T HAT THE LD. CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO ALLOW THE CLAIM OF BAD DEBTS/ACTIONABLE CLAIMS UNDER SECTION 37(1) RELYING ON THE DECISION OF THE CHENNAI C BENCH I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 196 9696 962 22 2/ // /M/ M/M/ M/11 1111 11 2 OF THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF IN I.T.A. NO. 463/MDS/2011 FOR THE ASSESSMENT YEAR 2004-05. HE RELIED ON THE G ROUNDS OF APPEAL TAKEN BY THE ASSESSEE. 3. ON THE OTHER HAND, THE LD. AR FOR THE ASSESSEE SUPPORTED THE ORDER OF THE LD. CIT(A). 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED TH E ORDERS OF LOWER AUTHORITIES AND MATERIAL AVAILABLE ON RECORD. WE FI ND THAT THE ASSESSING OFFICER DISALLOWED THE CLAIM FOR BAD DEBT OF ` .3,05,89,292/- BY OBSERVING AS UNDER: 3.3 IN THIS CASE, ALL THE CONDITIONS ARE NOT SATIS FIED. LOOKING AT THE FACTS OF THE CASE, IT IS SEEN THAT THE ASSESSEE TOO K OVER DEBTS AMOUNTING TO ` .25,68,85,743/- FROM THE SISTER CONCERN, M/S. ELGI FINANCE LIMITED IN THE PREVIOUS YEAR 2001-02 (ASST. YEAR 2002-03). THE DIFFERENCE OF ` .3.58 CRORES HAS BEEN OFFERED AS INCOME IN THE ASSESSMENT YEAR COMMENCING FROM ASST. YEAR 2002.03. THIS WAS DONE BY MUTUAL CONSENT. EVEN AFTER THE DEBTS WERE TAKEN OVER, THE COMPANIE S IE., M/S ELGI ULTRA INDUSTRIES AND M/S EL GI FINANCE LIMITED HAVE CONTINUED TO EXIST RETAINING THEIR DISTINCT IDENTIT IES. 3.4. AFTER TAKING OVER THE DEBT THE ASSESSEE HAS BE EN SYSTEMATICALLY WRITING OFF A PART OF THE AGGREGATE DEBTS YEAR AFTER YEAR AND THIS WAS DISALLOWED BY THE DEPARTMENT ON T HE GROUND THAT THE CONDITIONS ENUMERATED IN SECTION 36(1) (VII) RE AD WITH SECTION 36(2) HAVE NOT BEEN MET IN ENTIRETY. 3.5. AT THE TIME OF TAKING OVER THE ASSETS, THE AS SESSEE WAS NOT ENGAGED IN THE FINANCE BUSINESS. A MENTION IN THE M EMORANDUM AND ARTICLES OF ASSOCIATION BY ITSELF DOES NOT SHOW THAT THE ASSESSEE WAS DOING MONEY LENDING OR FINANCING AT THE TIME OF TAKING OVER FROM M/S ELGI FINANCE LIMITED. THEREFORE, THE WHOLE ACT THAT IS TAKING OVER THE DEBT AT A DISCOUNTED VALUE WAS NOT A STRAIGHT TRANSACTION BUT A DEVICE TO BAILOUT THE ASSOCIATE C OMPANY FROM A BAD SITUATION AND FINANCIAL DIFFICULTIES. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 196 9696 962 22 2/ // /M/ M/M/ M/11 1111 11 3 3.6. FACTS GO TO SHOW THAT WHEN THE DEBTS OF M/S EL GI FINANCE LIMITED WAS TAKEN OVER BY THE ASSESSEE-COMPANY, THE Y HAD ALREADY BECOME DEBT IN THAT COMPANY AND TAKE OVER WAS ONLY FOR BAILING OUT M /S EIGI FINANCE LIMITED WHICH WAS ITS ASSOCIATE COMPAN Y AND BEING A ASSOCIATE COMPANY, IT ATTRACTS RELATED PART Y TRANSACTION CONCEPT ALSO. 3.7. THREE THINGS STAND OUT HERE (1) WHEN THE DEBTS WERE TAKEN OVER BY THE ASSESSEE-COMPANY, THEY HAD ALREADY BECO ME BAD IN THE HANDS OF M/S ELGI FINANCE LIMITED (2) THE ASSESSEE- COMPANY WAS NOT IN THE FINANCE BUSINESS WHEN IT TOOK OVER THE D EBTS FROM M/S ELGI FINANCE LIMITED. (3) THE INTEREST ON THE AMOUN T LENT BY M/S ELGI FINANCE LIMITED AND TAKEN OVER BY THE ASSESSEE HAS NOT OFFERED FOR ASSESSMENT. 3.8. THEREFORE, ANY AMOUNT COLLECTED FROM THESE DEB TS AFTER IT WAS TAKEN OVER BY THE ASSESSEE-COMPANY CANNOT PARTAKE T HE CHARACTER OF INCOME, IT REPRESENTS THE RECOUPMENT MADE. 3.9. THE AUTHORISED REPRESENTATIVE STATED THAT ON A SAME SET OF FACTS AND ISSUES, THE INCOME-TAX APPELLATE TRIBUNAL HAD A LLOWED THE APPEALS OF THE ASSESSEE FOR THE EARLIER ASSESSMENT YEARS. I T NEEDS TO BE STATED THAT THE FULL FACTS OF THE TRANSACTION STARTING FRO M THE TAKEOVER OF DEBTS BY THE ASSESSEE COMPANY, OFFERING DISCOUNTED VALUE AS FINANCIAL CHARGES FOR THE ASSESSMENT YEAR 2001-02 TO 2005-06 HAS NOT BEEN PROPERLY APPRAISED BEFORE THE INCOME-TAX APPELLATE TRIBUNAL. THEREFORE, IN THE GIVEN SEQUENCE AND FACTS, THE S UM OF ` .3,05,89,292/- CLAIMED AS AUCTIONABLE CLAIM IS DISA LLOWED. 5. WE FIND THAT THE LD. CIT(A) HAS ALLOWED THE CLA IM FOR BAD DEBTS OF ` .3,05,89,292/- BY OBSERVING AS UNDER: 6. I HAVE GONE THROUGH THE SUBMISSIONS MADE BY TH E APPELLANT AND THE ORDER OF THE ASSESSING OFFICER. I HAVE GONE THR OUGH THE REASONS GIVEN FOR EACH OF THE DEBTS WHICH HAVE BEEN WRITTEN OFF FOR THE ASSESSMENT YEAR UNDER CONSIDERATION. THE APPELLANT HAD WRITTEN OFF THE AMOUNT RECEIVABLE AS BAD DEBTS IN THE CASE OF M/S D EVI GRANITES, M/S THE SILCAL METALLURGIC LIMITED, M/S SREE KUMAR TEXT ILES P LIMITED, I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 196 9696 962 22 2/ // /M/ M/M/ M/11 1111 11 4 M/S TIRUVARUL TEXTILES AND M/S BRIGHT SPINNERS PVT. LIMITED AMOUNTING TO ` .3,05,89,292/-. THE HON'BLE ITAT, 'C' BENCH AT PARA 15 OF THE ORDER OBSERVED 'IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, HAVING THE TRANSACTIONS LAWFULLY MADE AND ENTERED IN THE BOOKS OF ACCOUNT IN PROPER MANNER AND THE DISCOUNT OFFERED FOR TAXATION WHICH HAS BEEN ACTED UPON BY THE DEPARTMENT, IT IS NOT PROPER ON T HE PART OF THE ASSESSING AUTHORITY TO SAY THAT THE PART OF DEBTS W RITTEN OFF BY THE ASSESSEE COULD NOT BE ALLOWED AS A DEDUCTION UNDER SECTION 37(1). THE FACTS OF THE CASE SPEAK OUT THAT THE DEBTS WERE TAK EN OVER BY THE ASSESSEE COMPANY AS PART OF ITS BUSINESS DESIGN. T HE TRIBUNAL DIRECTED THE ASSESSING OFFICER TO ALLOW THE DEDUCTI ON U/S 37(1) OF THE INCOME TAX ACT, 1961. RESPECTFULLY FOLLOWING THE DE CISION OF THE HON'BLE ITAT IN THE CASE OF THE APPELLANT FOR THE A SSESSMENT YEAR 2004- 05, I DIRECT THE ASSESSING OFFICER TO ALLOW THE DED UCTION U/S 37(1) OF THE INCOME-TAX ACT. THIS GROUND OF APPEAL IS ALLOWED. 6. FROM A READING OF THE ABOVE QUOTED ORDER OF THE LD. CIT(A), WE FIND THAT THE LD. CIT(A) HAS ALLOWED THE APPEAL OF THE A SSESSEE BY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR TH E ASSESSMENT YEAR 2004- 05. THE LD. DR COULD NOT BRING ANY MATERIAL ON RECO RD TO SHOW THAT THE ORDER OF THE TRIBUNAL IN I.T.A. NO. 463/MDS/2011 FOR THE ASSESSMENT YEAR 2004-05 DATED 15.06.2011 IN ASSESSEES OWN CASE WAS VARIED IN APPEAL OR THE OPERATION OF THE ORDER WAS STAYED BY ANY HIGHER FOR UM. NO CHANGE IN THE FACT HAS ALSO BEEN BROUGHT TO OUR NOTICE BY THE LD. DR. THEREFORE, WE DO NOT FIND ANY GOOD AND JUSTIFIABLE REASON TO INTERFERE WITH T HE ORDER OF THE LD. CIT(A). IT IS CONFIRMED AND THE GROUNDS RAISED BY THE REVENUE ARE DISMISSED. I.T.A. I.T.A. I.T.A. I.T.A. NO. NO. NO. NO.1 11 196 9696 962 22 2/ // /M/ M/M/ M/11 1111 11 5 7. NO OTHER POINT HAS BEEN URGED BY THE REVENUE EX CEPT THE ABOVE POINT. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. ORDER PRONOUNCED AT THE CLOSE OF THE HEARING IN THE PRESENCE OF THE PARTIES ON 22.02.2012. SD/- SD/- (GEORGE MATHAN) JUDICIAL MEMBER (N.S.SAINI) ACCOUNTANT MEMBER CHENNAI, DATED, THE 22.02.2012 VM/- TO: THE ASSESSEE//A.O./CIT(A)/CIT/D.R.