R.Bharagthwaj, Madurai V. ACIT, Madurai

ITA 234/CHNY/2015

• Counselvise Citation: 23421714 RSA 2015
• Duration Of Justice: 7 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 09-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 27-01-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: T BANUSEKAR
• Keywords: Bad and doubtful debts

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ! ' . #$ , % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ ITA NO. 234/MDS/2015 / ASSESSMENT YEAR : 2010-11 R. BHARAGTHWAJ, 39, HARVEY NAGAR II STREET, ARASARADI, MADURAI 625 016. PAN ACIPB6349K APPELLANT) V. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-III, MADURAI. RESPONDENT) / APPELLANT BY : SHRI T. BANUSEKAR, FCA / RESPONDENT BY : SHRI A.V.SREEKANTH, JCIT ! / DATE OF HEARING : 09.09.2015 '# ! / DATE OF PRONOUNCEMENT: 23.09.2015 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) DATED 13 .11.2014. - - ITA 234/15 2 2. THE GRIEVANCE OF THE ASSESSEE IN THIS APPEAL IS WITH REGARD TO ADDITION OF ` 50 LAKHS WHICH IS CLAIMED AS BADE DEBT. 3. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS T HE PROPRIETOR OF M/S. M.R. & SONS AND IS IN THE BUSINE SS OF REDISTRIBUTION STOCKIST FOR FMCG PRODUCTS AND DEALE R IN LPG STOVES. FOR THE ASSESSMENT YEAR 2010-11, THE ASSES SEE FILED HIS RETURN OF INCOME ON 31.12.2010 ADMITTING A TOTA L INCOME OF ` 2,39,15,690/- AND THE SAME WAS PROCESSED U/S.43(1) OF THE ACT. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S.1 43(2) WAS ISSUED. 3.1 A SURVEY U/S.133A WAS CONDUCTED IN THE BUSINESS PREMISES OF THE ASSESSEE ON 20.10.2009. DURING THE COURSE OF SURVEY PROCEEDINGS, IT WAS FOUND THAT THE ASSESSEE WAS INVOLVED IN FINANCE BUSINESS. THE ASSESSING OFFICER MADE EN QUIRIES WITH SOME OF THE DEBTORS AND FOUND THAT MOST OF THE FINA NCE BUSINESS WAS NOT ACCOUNTED IN THE REGULAR BOOKS OF ACCOUNTS. THE AO CONFRONTED THE ASSESSEE WITH THESE EVIDENCES AND RE CORDED THE STATEMENT FROM THE ASSESSEE ON THE EVIDENCES FOUND DURING THE COURSE OF SURVEY AND THE INFORMATION COLLECTED THRO UGH ENQUIRIES. 3.2 THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE U/S 1 43(2) - - ITA 234/15 3 WAS ISSUED. DURING THE COURSE OF SCRUTINY, AO COMPA RED THE INCOME IN THE RETURN VIS-A-VIS DECLARATION MADE UND ER SURVEY AND FOUND THAT THE INCOMES WERE CREDITED TO THE PROFIT & LOSS ACCOUNT BY WAY OF AMOUNTS WRITTEN BACK. THE INCOM E AMOUNTING TO ` 40,00,000/ - TOWARDS DIFFERENCE IN LOAN ACCOUNTS OF MILTON JAGANATHAN WAS OFFERED UNDER THE HEAD OTHER SOURCES. HOWEVER THE DIFFERENCE IN LOAN ACCOUNTS OF S.RANI A MOUNTING TO ` 50,00,000/ - WAS NOT INCLUDED IN THE INCOME. WHEN QUESTIONED, THE ASSESSEE STATED THAT THE SAME IS NOT ADMITTED A S THE ADVANCE WAS MADE IN THE YEAR 2002 HAS BECOME TOTALL Y BAD AND I RRECOVERABLE. THE BORROWER PASSED AWAY IN THE YEAR 2006 AND HIS ONLY SON S.RAVI ALSO PASSED AWAY IN 2011 AN D THERE ARE SERIOUS DISPUTES IN THE SURVIVING MEMBERS OF THE FA MILY AND THE AMOUNTS ARE NOT RECOVERABLE. 3.3. HOWEVER, T HE AO REJECTED THE CLAIM WITH THE FOLLOWING OBSERVATION: WITH REGARD TO THE LOAN IT IS SUCH HUGE AMOUNT. TH E MONEY LENDERS USUALLY KEEP SOME MOVABLE OR IMMOVABLE ASSET AS MORTGAGE, AND THEN ONLY LEND THE AMOUNT OF MONEY AS LOAN, AS IS PRACTICE WORLD VIDE. IT IS SURPRISING AND DIFFICULT TO BELIEVE THA T THE ASSESSEE DID NOT FOLLOW THIS PRACTICE OF KEEPING AN MOVABLE OR IMMOVABLE ASSET AS MORTGAGE BEFORE - - ITA 234/15 4 LENDING THE MONEY HE HAS NOT MADE SURE THAT HIS LOAN AMOUNT WILL GET RETURNED UNDER ALL CIRCUMSTANCES, THE TIME HAS ALSO NOT EXPIRED FOR RECOVERY FOR MAKING LEGAL EFFORTS OF RECOVERY OF LO AN AMOUNT, AS IS PRACTICE PREVAILING IN THE MARKET. THUS THE EXPLANATION OF THE ASSESSEE IS NOT ACCEPTABLE, THAT THE ENTIRE AMOUNT OF ` 50,00,000 LAKHS IS GONE BAD AND IRRECOVERABLE, AND THE ENTIRE AMOUNT OF ` 50,00,000 LAKHS IS ADDED TO THE TOTAL INCOME. AGGRIEVED BY THIS ORDER OF THE AO, THE ASSESSEE WEN T IN APPEAL BEFORE THE CIT(APPEALS). 4. BEFORE THE CIT(APPEALS), THE ASSESSEE REITERATED THE ASSERTIONS, WHICH WERE MADE BEFORE THE AO. THE CI T(APPEALS) OBSERVED THAT THE CLAIM OF BAD DEBT IS NOT AS PER T HE PROVISIONS OF THE ACT. THE CIT(APPEALS) FURTHER OBSERVED THAT IF THE ADVANCE IS UNACCOUNTED, IT FIRST NEEDS TO BE OFFERE D AS INCOME. AFTER THAT THE DEBT CAN BE WRITTEN OFF BY THE ASSES SEE IN CASE IT IS NOT RECOVERABLE. THE PRIMARY CONDITION FOR WRITIN G OFF A BAD DEBT IS THAT THE INCOME SHOULD HAVE BEEN OFFERED IN EARL IER YEARS. THEREFORE, THE CIT(APPEALS) HELD THAT SINCE THE ADV ANCE WAS NOT OFFERED IN THE EARLIER YEAR, THE CONDITION FOR WRIT ING OFF OF THE DEBT IS NOT SATISFIED. ACCORDINGLY, THE CIT(APPEALS) DI SALLOWED THE CLAIM OF THE ASSESSEE. AGAINST THIS, THE ASSESSEE IS IN APPEAL - - ITA 234/15 5 BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. IN THIS CASE, THERE WAS A SURVEY U/S.13 3A OF THE ACT. DURING THE SURVEY, IT WAS FOUND THAT THERE WAS DIFF ERENCE IN THE LOAN ACCOUNT OF S. RANI AMOUNTING TO ` 50 LAKHS, WHEN COMPARED WITH THE ASSESSEES BOOKS OF ACCOUNT. THE ASSESSEE EXPLAINED THAT THE ADVANCE OF ` 50 LAKHS WAS MADE IN THE YEAR 2002, WHICH BECAME BAD AND IRRECOVERABLE AND THE BO RROWER WAS PASSED AWAY IN THE YEAR 2006. HIS ONLY SON S. RAVI ALSO PASSED AWAY IN THE YEAR 2011 AND AS SUCH, THE AMOUN T WAS NOT RECOVERABLE. THEREFORE, HE HAS WRITTEN OFF THE AFO RESAID AMOUNT AS BAD DEBT. THE SAME WAS DISALLOWED BY THE AO ON THE REASON THAT THE MONEY LENDERS USUALLY KEEP SOME MOVABLE OR IMMOVABLE PROPERTY AS MORTGAGE, THEN ONLY LEND THE MONEY AS A LOAN AND IT IS UNBELIEVABLE THAT THE ASSESSEE DID N OT FOLLOW THIS PRACTICE. HOWEVER, THE CIT(APPEALS) OBSERVED THAT THE CONDITION REQUIRED FOR WRITING OFF A BAD DEBT IS NOT FULFILLE D, SINCE THE ADVANCE WAS NOT OFFERED IN THE EARLIER YEAR. BUT I N THIS CASE, THE ASSESSEE IS DOING MONEY LENDING BUSINESS. THE CONT ENTION OF THE LD. DR IS THAT THIS AMOUNT HAS NOT BEEN TAKEN I NTO ACCOUNT IN - - ITA 234/15 6 COMPUTING THE ASSESSEES INCOME FOR THE PREVIOUS YE AR AND NO INTEREST ON THIS INCOME HAS BEEN RECEIVED SO AS TO OFFER IT TO TAX IN ANY ASSESSMENT YEAR INCLUDING IN THE CURRENT ASS ESSMENT YEAR. THE BASIC CONDITION FOR CLAIMING BAD DEBT IS THAT SUCH DEBT HAD BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF ASSES SEES INCOME FOR THE PREVIOUS YEAR IN WHICH AMOUNT OF SUC H DEBT OR PART THEREOF WAS WRITTEN OFF. ACCORDING TO THE LD . AR, FIRST OF ALL, THIS CONDITION IS ONLY BASED ON THE STATEMENT COLLE CTED DURING THE SURVEY ACTION U/S.133A OF THE ACT. TO SUPPORT THE VIEW, THE LD. AR RELIED ON THE FOLLOWING JUDGMENTS: 1. CIT V. KHADER KHAN SON (352 ITR 480)(SC) 2. CIT VS. S. KHADER JHAN SON (300 ITR 157)(MAD) 3. PAUL MATHEW & SONS V. CIT (263 ITR 101) (KER) 4. COPY OF CBDT INSTRUCTION IN F.NO.286/2/2003-IT(I NV) DATED 10.3.2003 5. COPY OF CBDT INSTRUCTION IN F.NO.286/98/2013-IT (INV.II) DATED 18.12.2014. 5.1 IN THIS CASE, THE FACTS ARE QUITE DIFFERENT. AFTER SURVEY THE ASSESSEE MADE THE ENTRY IN HIS BOOKS OF ACCOUNT AS FOLLOWS : - - ITA 234/15 7 DATE PARTICULARS CREDIT DEBIT 31.03.2010 BY AMOUNT DEBITED AS PER OFFER DURING SURVEY 50,00,000 31.03.2010 TO MRS. RANI AMOUNT WRITTEN OFF BAD DEBTS SINCE NOT RECOVERABLE 50,00,000 TOTAL. 50,00,000 50,00,000 NIL BALANCE 0000000 5.2 THE DISALLOWANCE MADE BY THE AO IS NOT ONLY BAS ED ON THE STATEMENT COLLECTED DURING THE SURVEY BUT ALSO BASED ON THE SEPARATE ENTRY MADE BY THE ASSESSEE, SUBSEQUENTLY, IN THE ASSESSMENT YEAR UNDER CONSIDERATION. THE BASIC COND ITION FOR WRITING OFF BAD DEBT IS NOT FULFILLED. IN OUR OPIN ION, THE DECISION OF THE TRIBUNAL IN THE CASE OF INDIAN EXPRESS (MADURAI ) (P.) LTD. (68 ITD 374) IS SQUARELY APPLICABLE TO THE FACTS OF THE CASE, WHEREIN IT WAS HELD AS UNDER: SEC.36(1)(VII), READ WITH SEC.36(2) OF THE INCOME TAX ACT, 1961 BAD DEBTS ASSESSMENT YEAR 1987-88- WHETHER THERE WAS NOTHING TO SHOW THAT AMOUNT OF BA D DEBT HAD BEEN TAKEN INTO ACCOUNT IN COMPUTATION OF ASSESSEES INCOME FOR PREVIOUS YEAR IN WHICH AMOUNT OF SUCH DEBT OR PART THEREOF WAS WRITTEN OFF AND FA CTS REVEALED THAT PARTIES WERE MAKING COUNTER CLAIMS AGAINST EACH OTHER, BAD DEBT WAS RIGHT DISALLOWED. (EMPHASIS SUPPLIED) - - ITA 234/15 8 FURTHER, IT WAS HELD BY THE TRIBUNAL THAT : UNDER SEC.36(2), NO DEDUCTION FOR BAD DEBT IS ALLOWABLE UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE ASSESSEES INCOME FOR THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF, OR REPRES ENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS O F BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY ASSESSEE. NO FACTS WERE BROUGHT TO SHOW THAT THE AMOUNT OF BAD DEBT HAD BEEN TAKEN INTO ACCOUNT IN T HE COMPUTATION OF THE ASSESSEES INCOME FOR THE PREVIO US YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THERE OF WAS WRITTEN OFF. RATHER, FROM THE SUIT FILED BY TH E ASSESSEE AS WELL AS THE COUNTER SUIT FILED BY THE D EBTOR IT WAS CLEAR THAT PARTIES WERE MAKING COUNTER CLAIM S AGAINST EACH OTHER. FROM THE DETAILS AVAILABLE AND IN VIEW OF THE FACT THAT THE CONDITIONS SPECIFIED IN S ECTION 36(2) WERE NOT SATISFIED, THE DISALLOWANCE OF BAD D EBTS HAD RIGHTLY BEEN MADE BY THE ASSESSING OFFICER AND UPHELD BY THE COMMISSIONER (APPEALS). - - ITA 234/15 9 5.3 ACCORDINGLY, IN OUR OPINION, THE JUDGMENTS RELI ED ON BY THE LD. AR ARE OF NO USE AND THE BASIC CONDITION REQUIR ED U/S.36(1)(VII) OF THE ACT HAS NOT BEEN FULFILLED. IN VIEW OF THIS, WE ARE INCLINED TO DISMISS THE APPEAL OF THE ASSESSEE. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 23 RD OF SEPT., 2015 AT CHENNAI. SD/- SD/- ( $ % . & '( ) ( ) * + , ) DUVVURU RL REDDY - ./012304556037- 8 9: /JUDICIAL MEMBER ! 9:;<<5=1>01>?@AB@3 )8 /CHENNAI, C9 /DATED, THE23RD SEPT., 2015. MPO* 9D EFGF /COPY TO: 1. /APPELLANT 2. /RESPONDENT 3. H- /CIT(A) 4. H /CIT 5. FIJ K /DR 6. J(L /GF.