Assistant Commissioner of Income TAx Circle-1, Bellary V. Mrs.Padmavathi V, Hospet

ITA 1973/BANG/2017

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4728 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 10-10-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts; Revised return

Judgement Text

ITA.1973/BANG/2017 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI. A. K. GARODIA, ACCOUNTANT MEMBER AND SHRI. LALIET KUMAR, JUDICIAL MEMBER I.T.A NO.1973/BANG/2017 (ASSESSMENT YEAR : 2012-13) ASST. COMMISSIONER OF INCOME-TAX, CIRCLE -1, BENGALURU .. APPELLANT VS. SMT. PADMAVATHI V, PROP : MINERAL EMBASSY, FLAT NO.7, ASHWASTHI APARTM ENT, VIVEKANANDA NAGAR,HOSPET 583 201 .. RESPONDENT PAN : APFPP29623 ASSESSEE BY : NONE REVENUE BY : DR. P. V. PRADEEP KUMAR, ADDL. CIT HEARD ON : 23.05.2018 PRONOUNCED ON : 01.06.2018 O R D E R PER LALIET KUMAR, JUDICIAL MEMBER : THE PRESENT APPEAL IS FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT (A), GULBARGA, DT.31.07.2017, FOR THE AS SESSMENT YEAR 2012-13, ON THE FOLLOWING GROUNDS : ITA.1973/BANG/2017 PAGE - 2 ITA.1973/BANG/2017 PAGE - 3 02. BRIEF FACTS ARE, THE ASSESSEE FILED THE RETURN OF INCOME FOR AY 2012-13 AND HAS CLAIMED BUSINESS LOSS OF RS.7,89,38 ,200/-. THE ASSESSEE SUBSEQUENTLY FILED A REVISED RETURN CLAIMI NG BUSINESS LOSS AT RS.8,54,28,290/-. CASE OF THE ASSESSEE WAS SELE CTED FOR SCRUTINY AND NOTICE WAS ISSUED TO THE ASSESSEE. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTICED THAT THE ASS ESSEE HAD WRITTEN OFF THE DEBTORS FOR RS.4,94,40,133/-, OUT OF WHICH RS.1,33,40,133/- BELONGED TO M/S. BST HK LTD AND RS.3,61,00,000/- BE LONGED TO PRASANNA V. GHOTGE. THE CONTENTION OF THE ASSESSEE WAS EXAMINED BY THE AO. HOWEVER, THE AO WAS NOT CONVINCED WITH THE SUBMISSION MADE BY THE ASSESSEE AND THEREFORE HAD D ISALLOWED THE WRITE-OFF OF THE DEBTS TO THE EXTENT OF RS.3,61,00, 000/-. THE ORDER OF THE AO TO THIS EFFECT IS REPRODUCED HEREIN BELOW : ASSESSEES SUBMISSION IS DULY CONSIDERED. AS PER THE PROVISIONS OF SECTION 36(2) OF THE ACT, ONLY DEBTS IN RESPECT OF WHICH INCOME HAS BEEN OFFERED TO TAX IN EARLIER YEARS CAN BE CLAIMED AS BAD DEBTS IF THEY BECOME IRRECOVERABLE. IT CAN BE SEEN FROM THE ASSESSEE SUBMISSION THAT IT IS ONLY AN ADVANCE PAID FOR SUPP LY OF GOODS. FURTHER SUCH ADVANCE HAS BEEN MADE ONLY DUR ING THE YEAR UNDER ASSESSMENT. THEREFORE THE LOSS CLAI MED CANNOT BE ALLOWED AS BAD DEBT U/S.36. HENCE ASSESS EES CLAIM OF BAD DEBTS FOR RS.3,61,00,000/- IS DISALLOW ED AND ACCORDINGLY RS.3,61,00,000/- IS ADDED TO THE RETURN ED INCOME OF THE ASSESSEE. FEELING AGGRIEVED BY THE DECISION OF THE AO, THE AS SESSEE FILED AN APPEAL BEFORE THE CIT (A). ITA.1973/BANG/2017 PAGE - 4 03. THE CIT(A) HAD ALLOWED THE APPEAL OF THE ASSESS EE TREATING THE BAD DEBTS AS BUSINESS LOSS. THE FINDING OF THE CIT (A) IS RECORDED AS UNDER : THE APPELLANT MADE A REASONABLE CONTENTION THAT LEARNED AO WAS UNJUSTIFIED IN LAW BY DISALLOWING TH E CLAIM SINCE THERE IS NO PROHIBITION OF LAW AGAINST THE DEDUCTION AND THAT THE AO FAILED TO INTERPRET THAT THE EXPRESSION OF TRADE ADVANCE WRITTEN OFF GIVES SUCH DESCRIPTION OF DEBT WHICH CANNOT REASONABLY BE EXPECTED TO BE R EALIZED AND THE SAME IS TO BE ALLOWED AS BUSINESS LOSS U/S 28. APPELLANT FURTHER MADE A REASONABLE CONTENTION THAT BY CONSIDERING THE BAD FINANCIAL POSITION OF THE PARTY WAS CONVINCED WITH THE FACT THAT IT WOULD BE IMPOSSIBLE TO RECOVER THE MONEY FROM HIM ESPECIALLY IN THE LIGHT OF THE F ACT THAT THE ADVANCE WRITTEN OFF DURING THE YEAR UNDER CONSIDERATION IS NOT RECOVERED TILL DATE BY THE APP ELLANT AND THE POSSIBILITY OF REALIZATION IS UNACHIEVABLE. THUS THE CONTENTION OF THE APPELLANT THAT THE DECISION OF AP PELLANT TOWARDS THE EXPENDITURE IS THE HONEST AND BONA FIDE , IS CONSIDERABLE AND ACCEPTABLE. THE APPELLANT'S CONTEN TION WITH ALL THE MATERIAL FACT THAT THE SAID EXPENDITUR E IS PURELY A BUSINESS LOSS, HAS NOT BEEN REJECTED OR PROVED FALS E BY THE AO. THE APPELLANT FURTHER RELIED UPON THE JUDGMENT IN T HE CASE OF ITO V. RELIANCE ENGINEERING ASSOCIATION P. LTD, WHE REIN IT WAS HELD THAT WHEN DEPOSITS MADE FOR RESIDENTIAL ACCOMMODATION OF EMPLOYEES OF ASSESSEE COMPANY IS IRRECOVERABLE IT IS ALLOWABLE AS BUSINESS LOSS U/S. 28. IN VIEW OF THE ABOVE, THE CIT (A) HAS HELD THAT THE AMOUNT OF RS.3,61,00,000/- WAS ALLOWABLE AS BUSINESS LOSS INS TEAD OF WRITE-OFF OF THE SAME AS BAD DEBTS. 04. THE LD. DR BEFORE US, HAS SUBMITTED THAT THERE IS NO FINDING OF FACT BY THE CIT (A), EITHER BY CALLING A REMAND REPORT OR OTHERWISE THAT THE ASSESSEE HAS INCURRED THE BUSINE SS LOSS TO THE EXTENT OF RS.3,61,00,000/-, IN THE YEAR UNDER CONSI DERATION. FURTHER IT WAS SUBMITTED THAT THE JUDGMENT RELIED UPON BY T HE CIT (A) IN THE ITA.1973/BANG/2017 PAGE - 5 MATTER OF RELIANCE ENGINEERING ASSOCIATION P. LTD ( SUPRA), IS NOT RELEVANT FOR ADJUDICATION OF THE GROUND. 05. AT THE TIME OF HEARING NONE APPEARED ON BEHALF OF THE ASSESSEE DESPITE THE SERVICE OF NOTICE. THEREFORE, WE ARE CONSTRAINED TO DECIDE THE APPEAL WITHOUT ANY ASSIS TANCE FROM THE ASSESSEE. 06. WE HAVE HEARD THE LD. DR AND PERUSED THE RECORD . IN OUR VIEW, ONCE THE ASSESSEE HAS TAKEN A STAND BEFORE TH E AO THAT THE ASSESSEE HAS WRITTEN OFF RS.3,61,00000/-, THEN THE ASSESSEE CANNOT CHANGE ITS STAND TO SAY THAT IT WAS A BUSINESS LOSS ARISING ON ACCOUNT OF GROSS SALES OF IRON ORE. FOR THE PURPOSE OF BUS INESS LOSS, UNDER THE PROVISIONS OF SECTION 28, IT IS NECESSARY FOR T HE ASSESSEE TO PROVE THAT THE BUSINESS LOSS HAS BEEN ACTUALLY CAUSED TO THE ASSESSEE. THE WRITE-OFF OF BAD DEBTS AND WRITE-OFF OF THE TRADING LIABILITY / BUSINESS LOSS, OPERATE IN DIFFERENT FIELDS AND DIFFERENT YAR DSTICKS ARE REQUIRED TO BE APPLIED FOR ALLOWING THESE BY THE REVENUE . IN OUR VIEW, THE CIT (A) HAS NOT BROUGHT ON RECORD THE FACTUAL FOUND ATION OF TREATING THE AMOUNT OF RS.3,61,00,000/- AS BUSINESS LOSS, IN STEAD OF WRITE-OFF OF BAD DEBTS. THEREFORE IT BECOMES NECESSARY FOR US TO REMAND THE MATTER BACK TO THE FILE OF THE CIT (A) TO DECIDE A AFRESH ALL THE ISSUES RAISED IN THE PRESENT APPEAL. NEEDLESS TO S AY THAT THE CIT (A) SHALL GIVE OPPORTUNITY OF HEARING TO THE ASSESSEE A ND ALSO TAKE THE REMAND REPORT FROM THE AO BEFORE THE DECIDING THE I SSUE FINALLY. ITA.1973/BANG/2017 PAGE - 6 07. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON 1ST DAY OF JU NE, 2018. SD/- SD/- (A. K. GARODIA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER BENGALURU DATED : 01.06.2018 MCN* COPY TO: 1. THE ASSESSEE 2. THE ASSESSING OFFICER 3. THE COMMISSIONER OF INCOME-TAX 4. COMMISSIONER OF INCOME-TAX(A) 5. DR 6. GF, ITAT, BANGALORE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.