American Express (India) Private Ltd., New Delhi V. ACIT, New Delhi

ITA 2165/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6706 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 10 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-03-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 15-03-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 12-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAVI JAIN
• Assessee Lawyers: SANDEEP S KARH AIL S
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH A : NEW DELHI) BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER AND SHRI A.T. VARKEY, JUDICIAL MEMBER ITA NO.2094/DEL./2013 (ASSESSMENT YEAR : 2008-09) ACIT, CIRCLE 1 (1), VS. M/S. AMERICAN EXPRESS (IN DIA) PVT.LTD., NEW DELHI. MGF METROPOLITAN, 7 TH FLOOR, SAKET DISTRICT CENTRE, SAKET, NEW DELHI 110 017. (PAN : AAACA8163F) ITA NO.2165/DEL./2013 (ASSESSMENT YEAR : 2008-09) M/S. AMERICAN EXPRESS (INDIA) PVT.LTD., VS. ACIT, C IRCLE 1 (1), MGF METROPOLITAN, NEW DELHI. 7 TH FLOOR, SAKET DISTRICT CENTRE, SAKET, NEW DELHI 110 017. (PAN : AAACA8163F) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/SHRI NAGESHWAR RAO AND SANDEEP S. KARHAIL, ADVOCATES REVENUE BY : SHRI RAVI JAIN, CIT DR O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THESE CROSS APPEALS BY THE REVENUE AND THE ASSESSE E ARE FILED AGAINST THE ORDER OF THE CIT (APPEALS)-IV, NEW DELHI DATED 02.0 1.2013 FOR THE ASSESSMENT YEAR 2008-09. 2 ITA NO.2094/DEL/2013 ITA NO.2165/DEL/2013 ITA NO.2094/DEL/2013 (REVENUES APPEAL) 2. THE SOLE ISSUE THAT IS BEFORE US IN THE REVENUE S APPEAL IS AGAINST ALLOWING THE CLAIM OF DEDUCTION OF RS.51,89,67,939/- U/S 10A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER THE ACT) 3. THE ASSESSEE IS A SERVICE PROVIDER AND HAS SET U P A NEW UNIT AND HAS CLAIMED A DEDUCTION OF RS.51,89,69,939/- U/S 10A OF THE ACT WHICH WAS DISALLOWED BY THE AO BY FOLLOWING EARLIER ORDER OF HIS PREDECESSOR AO. 4. AT THE OUTSET ITSELF, THE LD. COUNSEL OF THE ASS ESSEE BROUGHT TO OUR NOTICE THAT THE TRIBUNAL IN AY 2003-04 HAS UPHELD THE ORDE R OF THE CIT (A) ALLOWING DEDUCTION U/S 10A OF THE ACT AND IN AY 2007-08 ALSO , THE TRIBUNAL TOOK THE SAME VIEW. SO, HE DOES NOT WANT US TO DISTURB THE ORDER OF THE CIT (A). 5. THE LD. DR COULD NOT BRING TO OUR NOTICE ANY CHA NGE IN FACTS OR LAW, WHICH COULD HAVE PERSUADED US TO TAKE A DIFFERENT V IEW. 6. WE HAVE HEARD BOTH THE PARTIES AND HAVE PERUSED THE RECORD AND WE FIND THAT THE TRIBUNAL IN ASSESSEES OWN CASE FOR AY 200 3-04 HAS HELD AS UNDER :- 36. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT THE CIT(A) HAS CONSI DERED ALL THE PARAMETERS WHICH MAY BE NECESSARY FOR ADJUDICATING WHETHER THE SET UP OF THE NEW UNIT IS BY WAY OF SPLITTING U P OF THE EXISTING BUSINESS OR IT IS A NEW SET UP OVER AND AB OVE THE EXISTING SET UP. HE HAS RECORDED THE FINDING THAT T HE PHYSICAL LOCATION OF BOTH THE UNITS IS DIFFERENT. THE NATURE OF ACTIVITIES IS DIFFERENT, SEPARATE LICENSE IS OBTAINED FOR THE NEW UNIT, SEPARATE 3 ITA NO.2094/DEL/2013 ITA NO.2165/DEL/2013 INFRASTRUCTURE IS CREATED IN THE NEW UNIT, FRESH FU NDS HAVE BEEN INVESTED IN THE NEW UNIT AND EVEN AFTER THE SETTING UP OF THE NEW UNIT, THE TURNOVER OF THE OLD UNIT HAS NOT REDUCED BUT, ON THE OTHER HAND, INCREASED. DURING AY 2002-03, WHEN NO N EW UNIT WAS IN EXISTENCE, THE TURNOVER OF OLD UNIT WAS RS.1 29 CRORES WHICH, AFTER THE SETTING UP OF THE NEW UNIT, HAS IN CREASED TO RS.294 CRORES IN AY 2008-09. IN VIEW OF THE ABOVE F ACTS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF LD. CIT(A). THE SAME IS SUSTAINED AND GROUND NO. 3 OF THE REVENUES APPEAL IS REJECTED. RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL , WE HOLD THAT THE ASSESSEE WAS ENTITLED FOR DEDUCTION U/S 10A OF THE ACT AS IT HAD ESTABLISHED A NEW UNIT. THEREFORE, WE CONFIRM THE ORDER OF THE LD. CIT (A) AND DISMISS THE APPEAL OF THE REVENUE. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ITA NO.2165/DEL/2013 (ASSESSEES APPEAL) 8. THE SOLE GROUND OF THE ASSESSEES APPEAL IS REGA RDING CONFIRMATION OF THE ADDITION OF RS.18,73,121/- ON ACCOUNT OF BAD DEBTS WRITTEN OFF CLAIMED BY THE ASSESSEE U/S 36(1)(VII) OF THE ACT. 9. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E HAD CLAIMED A DEDUCTION OF BAD DEBTS BEING WRITTEN OFF IN THE BOOKS OF ACCO UNT OF IRRECOVERABILITY. THE SAID DEBTS WERE TRANSFERRED ON ACQUISITION OF TRAVE L BUSINESS OF AEBL BY THE ASSESSEE. THE AO DISALLOWED THE SAID BAD DEBTS STA TING THAT THERE WAS NO DOCUMENTARY EVIDENCE IN SUPPORT OF THIS CLAIM. HOW EVER, WE NOTE THAT THE CIT (A) HAS STATED THAT THE AO DISALLOWED THE SAID BAD DEBTS ON THE BASIS THAT THE 4 ITA NO.2094/DEL/2013 ITA NO.2165/DEL/2013 DEBT IN ISSUE PERTAINED TO THE PURCHASED COMPANY I. E. AEBL. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT (A) WHO DISMISSED THE CLAIM OF THE ASSESSEE. AGGRIEVED BY THE SAID ORDER OF THE CIT ( A), THE ASSESSEE IS IN APPEAL BEFORE US. 10. LD. AR FOR THE ASSESSEE SUBMITTED THAT ACTUAL B AD DEBTS RELATING TO TRAVEL UNIT HAVE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS WHICH WERE INCURRED BY AEBL AND WERE TRANSFERRED ALONG WITH TRAVEL BUSINES S TO THE ASSESSEE. HE EXPLAINED THAT THE TRAVEL UNIT, AEBL WAS ACQUIRED A ND THE DEBTS INCURRED BY AEBL WERE TRANSFERRED TO THE ASSESSEE ALONG WITH OT HER ASSETS AND LIABILITIES. ACCORDING TO HIM, THE SAID DEBTS BASICALLY IS IN TH E NATURE OF UNRESOLVED AMOUNTS BETWEEN THE AIRLINES PAYABLES RECORDED AS G MAX (AMEX INTERNAL FINANCIAL CAPTURE SYSTEM) AND THE AIRLINES PAYABLES AS PER THE BSP (THE PARTY) STATEMENT. ACCORDING TO HIM, SUCH UNRESOLVED AMOUN TS, IF DO NOT GET RESOLVED OR DO NOT GET BILLED TO THE RESPECTIVE CUSTOMER, AR E WRITTEN OFF IN THE BOOKS OF ACCOUNT ON ACCOUNT OF IRRECOVERABILITY. HE FURTHER SUBMITTED THAT THE AMOUNTS RECEIVABLE FROM THE CUSTOMERS OF AEBL WHICH ON ACCO UNT OF SOME DISPUTE BECAME IRRECOVERABLE ARE WRITTEN OFF IN THE BOOKS O F ACCOUNT. HE FURTHER SUBMITTED THAT DURING THE SUBJECT YEAR, SUCH DEBTS HAVE BECOME IRRECOVERABLE AND ACCORDINGLY, THE ASSESSEE HAD DEBITED IT IN THE PROFIT & LOSS ACCOUNT WITH THE SAID AMOUNT. IT WAS ALSO BROUGHT TO OUR KNOWLEDGE THAT SIMULTANEOUS REDUCTION HAS BEEN REFLECTED IN THE VALUE OF DEBTORS. IN THE LIGHT OF THE ABOVE, HE STATED 5 ITA NO.2094/DEL/2013 ITA NO.2165/DEL/2013 THAT THE ASSESSEE HAD CLAIMED DEDUCTION UNDER CLAUS E (VII) OF SUB-SECTION (1) OF SECTION 36 OF THE ACT IN THE COMPUTATION OF INCOME IN THE RELEVANT ASSESSMENT YEAR AND SINCE THE ASSESSEE IS ENTITLED TO CLAIM DE DUCTION UNDER THE SAME, WHICH HAS TO BE ALLOWED. THEREFORE, THE LD. AR CONTENDED THAT SINCE THESE WERE THE SAID DEBTS INCURRED BY AEBL AND WERE TRANSFERRED TO THE ASSESSEE ALONG WITH THE OTHER ASSETS AND LIABILITIES BY THE TRANSFER OF SUC H DEBT, THE ASSESSEE GETS RIGHT TO RECOVER SUCH DEBTS. LD. AR POINTED OUT THAT THIS I SSUE IS NO LONGER RES INTEGRA AND HONBLE SUPREME COURT HAS HELD THAT IN THE CASE OF CIT VS. T. VEERBHADRA RAO 155 ITR 152 (SC) WHEREIN IT WAS HELD THAT IF A BUSINESS ALONG WITH ASSETS AND LIABILITIES IS TRANSFERRED BY ONE OWNER TO ANOT HER, A DEBT SO TRANSFERRED WOULD BE ENTITLED TO THE SAME TREATMENT IN THE HAND S OF THE SUCCESSOR. THE RECOVERY OF DEBT IS A RIGHT TRANSFERRED AND WHERE L AW PERMITS THE TRANSFEROR TO TREAT THE DEBT AS IRRECOVERABLE AND TO CLAIM DEDUCT ION, THE SAME RIGHTS SHOULD BE RECOGNIZED IN THE HANDS OF THE TRANSFEREE ALSO. FU RTHER, IF THE DEBT HAD BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE P REDECESSOR ONLY AND HAD SUBSEQUENTLY BEEN WRITTEN OFF AS IRRECOVERABLE IN T HE ACCOUNTS OF THE ASSESSEE, THE ASSESSEE WOULD STILL HAVE BEEN ENTITLED TO A DE DUCTION OF THE AMOUNT WRITTEN OFF AS A BAD DEBT. THEREFORE, HE PLEADED THAT THE AMOUNT WRITTEN OFF BY THE ASSESSEE SHOULD BE ALLOWED AS A DEDUCTION IN THE RE LEVANT ASSESSMENT YEAR. 11. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE O NLY POINTED OUT TO THE FACT THAT IF AN AMOUNT HAS TO BE CLAIMED AS A BAD DEBT T HE ASSESSEE SHOULD HAVE 6 ITA NO.2094/DEL/2013 ITA NO.2165/DEL/2013 OFFERED IT AS INCOME FROM SOME PREVIOUS YEAR. IN T HIS CASE, THE ASSESSEE HAS NEVER CREDITED THIS AMOUNT IN THE BOOKS OF ACCOUNT AND SO, IN ORDER TO WRITE OFF CLAIM, THE ASSESSEE HAS TO PROVE THAT THIS AMOUNT H AS BEEN CLAIMED AS AN INCOME IN THE PREVIOUS YEAR BY AEBL BEFORE BEING ACQUIRED BY THE ASSESSEE, WHICH ASSESSEE HAS NOT DONE, SO THE CIT (A) RIGHTLY DISAL LOWED THE CLAIM. THEREFORE, HE DOES NOT WANT US TO INTERFERE IN THE MATTER. 12. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORDS. WE FIND FORCE IN THE CONTENTION OF THE REVENUE THAT BEFORE THE CLAIM WRITING OFF BAD DEBT IS MADE, THE INCOME MUST HAVE BEEN CREDITED IN THE BOOKS. T HE CASE OF THE ASSESSEE IS THAT THE INCOME HAS BEEN CREDITED IN THE BOOKS OF A CCOUNTS OF AEBL WHICH HAS BEEN ACQUIRED BY THE ASSESSEE WHICH HAS BECOME IRRE COVERABLE SO IT HAS BEEN WRITTEN OFF BY THE ASSESSEE. IN SUCH A SCENARIO, O N A QUERY BY THE BENCH TO THE LD. AR, WHETHER THE ASSESSEE WOULD BE ABLE TO PROVE BEFORE THE AO, THE FACT THAT THE INCOME HAS BEEN CREDITED IN THE BOOKS OF AEBL T HE LD. AR AGREES TO DO SO. IN THE LIGHT OF THE AFORESAID FACTS AND CIRCUMSTANC ES, IN THE INTEREST OF JUSTICE, WE SET ASIDE THE ORDER OF THE CIT (A) ON THIS ISSUE AN D REMAND THE MATTER BACK TO THE FILE OF THE AO TO VERIFY WHETHER AEBL HAD CREDI TED THIS AMOUNT AS INCOME IN SOME PREVIOUS YEAR WHICH HAS NOW BEING CLAIMED B Y THE ASSESSEE AS BAD DEBT BEING IRRECOVERABLE. IN CASE, IF THE ASSESSEE SUCC EEDS IN SHOWING THAT AEBL HAS IN FACT CREDITED THIS AMOUNT IN ITS BOOKS OF ACCOUN T IN SOME PREVIOUS ASSESSMENT YEARS THEN, AS HELD BY HONBLE SUPREME COURT IN CIT VS. T. VEERBHADRA RAO 7 ITA NO.2094/DEL/2013 ITA NO.2165/DEL/2013 (SUPRA), THE ASSESSEE HAS EVERY RIGHT TO CLAIM THE DEDUCTION U/S 36(1)(VII) OF THE ACT AND THEN IT HAS TO BE ALLOWED. NEEDLESS TO SAY , THE AO TO GIVE OPPORTUNITY TO ASSESSEE TO BRING IN THE EVIDENCE AS STATED AND PASS FRESH ORDER ON THIS ISSUE. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED FOR STATISTICAL PURPOSES ON THE ABOVE TERMS. 14. TO SUM UP : THE APPEAL OF THE REVENUE IS DISMIS SED AND THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN OPEN COURT ON THIS 4 TH DAY OF MARCH, 2016. SD/- SD/- (J.S. REDDY) (A.T. VARKE Y) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 4 TH DAY OF MARCH, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-IV, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.