Seven Seas Distillery Pvt Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2498/CHNY/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 6789 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 29-08-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS R ANITA
• Assessee Lawyers: D ANAND
• Keywords: Revenue expenditure

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . , , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER & SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A.NO.2498/CHNY/2019 / ASSESSMENT YEAR:2013-14 M/S. SEVEN SEAS DISTILLERY PVT. LTD., NO. 1, V BLOCK, 7 TH FLOOR, KENCES ENCLAVE, RAMAKRISHNA NAGAR, T. NAGAR, CHENNAI 600 017. [PAN:AADCS0200Q] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 6(1), CHENNAI 600 017. ( /APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI D. ANAND, ADVOCATE / RESPONDENT BY : MRS. R. ANITA, JCIT / DATE OF HEARING : 03.09.2020 /DATE OF PRONOUNCEMENT : 08.09.2020 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 15, CHENNAI, IN ITA NO. 636/2016- 17/CIT(A)-15 DATED 28.06.2019 FOR THE ASSESSMENT YEAR 2013-14. 2. M/S. SEVEN SEAS DISTILLERY PVT. LTD., THE ASSESSEE, IS ENGAGED IN THE MANUFACTURE AND SALE OF INDIAN MADE FOREIGN LIQUOR [IMFL IN SHORT] OF THE BRANDS BELONGING TO M/S. UNITED SPIRITS LTD. BESIDES, IT ALSO OBTAINS OUTPUT ON JOB WORK BASIS FROM M/S. ELITE DISTILLERIES, KERALA. WHILE MAKING THE I.T.A. NO.2498/CHNY/19 2 ASSESSMENT FOR THE ASSESSMENT YEAR 2013-14, THE ASSESSING OFFICER DISALLOWED .40,00,000/- CLAIMED BY THE ASSESSEE AS BAD DEBT HOLDING INTER ALIA THAT IT WAS ONLY A LOAN TRANSACTION AND WHEN THE ASSESSEE IS NOT ENGAGED INTO MONEY LENDING, THE LOSS ON ACCOUNT OF IRRECOVERABLE LOAN CANNOT BE CONSIDERED NEITHER AS A BAD DEBT NOR AS A BUSINESS LOSS. FURTHER, THE ASSESSING OFFICER DISALLOWED .3,27,354/- TOWARDS CHIT LOSS CLAIMED BY THE ASSESSEE RELYING UPON THE HONBLE JURISDICTIONAL HIGH COURTS DECISION IN THE CASE OF SUNIL KOLIYOT V. ITO IN T.C. (A). NO. 1023 OF 2007 DATED 22.08.2007. 3. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A). THE LD. CIT(A) EXAMINED THE ASSESSEES CLAIM OF BAD DEBT OR BUSINESS LOSS AND HELD, INTER ALIA, THAT THE ASSESSEE HAS NOT CONTROVERTED ANY OF THE OBSERVATIONS OF THE ASSESSING OFFICER. IT WAS ONLY A LOAN TO AN UNRELATED COMPANY, WHICH IS NOT IN ASSESSEES LINE OF BUSINESS. THEREFORE, THE IMPUGNED LOAN TRANSACTION CAN NEVER BE CONSIDERED AS AN ADVENTURE IN THE NATURE OF ASSESSEES BUSINESS. THE ASSESSEE COULD NOT DEMONSTRATE IN TERMS OF ACCOUNTS THAT IT HAS FULFILLED THE CONDITIONS STIPULATED UNDER SECTION 36(2) OF THE ACT AND APPLIED THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SALEM MAGNESITE P. LTD. V. CIT 321 ITR 43. WITH REGARD TO THE ASSESSEES CHIT LOSS CLAIM, THE LD. CIT(A) HELD, INTER ALIA, THAT THE ASSESSEE I.T.A. NO.2498/CHNY/19 3 COULD NOT EXPLAIN HOW A LOSS INCURRED IN A CHIT LOAN CAN BE CLAIMED AS A REVENUE LOSS AND HENCE DISMISSED THE APPEAL. 4. ON BEING AGGRIEVED, THE ASSESSEE PREFERRED FURTHER APPEAL BEFORE THE TRIBUNAL. THE CASE WAS HEARD THROUGH VIDEO CONFERENCING, THE LD. AR SUBMITTED THE SAME PLEA TAKEN BEFORE THE LOWER AUTHORITIES AND PLEADED THAT THEY HAVE ERRED IN DISALLOWING THE ASSESSEES CLAIM OF BAD DEBT. FURTHER, THE LD. AR VEHEMENTLY SUBMITTED THAT IF IT IS NOT ALLOWED AS A BAD DEBT, IT SHOULD BE ALLOWED AS BUSINESS LOSS. PER CONTRA, THE LD. DR RELIED ON THE ORDERS OF AUTHORITIES BELOW. 5. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESSEE IS ENGAGED IN MANUFACTURE AND SALE OF IMFL. IT HAD CLAIMED ORIGINALLY AS A BAD DEBT AND SUBSEQUENTLY AS A BUSINESS LOSS OF .40,00,000/- CLAIMED TO HAVE BEEN ADVANCED TO M/S. AERO COMPONENTS PVT. LTD., WHICH IS ENGAGED IN MANUFACTURE OF COMPONENTS OF AIRCRAFT. THE IMPUGNED TRANSACTION IS NOT RELATED TO ASSESSEES LINE OF BUSINESS. IT IS CLEAR FROM THE ORDERS OF LOWER AUTHORITIES THAT THE ASSESSEE HAS NOT ESTABLISHED HOW THE IMPUGNED TRANSACTION IS CONNECTED TO ITS BUSINESS EITHER DIRECTLY OR INCIDENTALLY. THEREFORE, THE ASSESSEES CLAIM EITHER AS A BAD DEBT OR AS A BUSINESS LOSS HAS NOT BEEN ESTABLISHED EITHER BEFORE THE LOWER AUTHORITIES OR BEFORE US. THEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. I.T.A. NO.2498/CHNY/19 4 CIT(A) AND HENCE, THE CORRESPONDING GROUNDS OF APPEAL OF THE ASSESSEE FAILS ON THIS ISSUE. 6. WITH REGARD TO THE DISALLOWANCE OF CHIT LOSS CLAIMED BY THE ASSESSEE, THE LD. AR HAS SUBMITTED THAT THE ASSESSEE HAD USED CHIT FUND MEMBERSHIP AS A MEANS TO RAISE FUNDS FOR ITS BUSINESS FROM ASSESSMENT YEARS 2009-10 TO 2013-14. HE HAS SUBMITTED THAT THE CHIT DIVIDEND WAS OFFERED IN ALL THESE YEARS AS AN INCOME AND CLAIMED CHIT BID LOSS DURING THE ASSESSMENT YEAR 2011-12 AND ALSO THIS ASSESSMENT YEAR VIZ., 2013-14. THE ASSESSEE WHENEVER BID THE PRIZE MONEY PUT SUCH MONEY INTO THE OVER DRAFT ACCOUNT AND USED IT FOR ITS BUSINESS PURPOSES. THE ASSESSEE IS CONSISTENT IN ITS ACCOUNTING TREATMENT OF CHIT DIVIDEND AS INCOME AND LOSS IN CHIT BID AS EXPENDITURE ON ACCRUAL BASIS. THEREFORE, THE LD. AR PLEADED THAT THE LOSS CLAIMED BY THE ASSESSEE SHOULD BE ALLOWED AS REVENUE EXPENDITURE AND IN THIS REGARD RELIED ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF V. RAJKUMAR V. CIT [2014](44 TAXMANN.COM 283)(MADRAS). PER CONTRA, THE LD. DR SUPPORTED THE ORDERS OF LOWER AUTHORITIES. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS CLEAR FROM THE ASSESSEES CLAIM THAT THE ASSESSEE HAS USED THE CHIT FUND MEMBERSHIP AS A MEANS TO RAISE FUNDS FOR ITS BUSINESS. FOLLOWING ITS CONSISTENT METHOD OF ACCOUNTING, THE CHIT DIVIDEND WAS OFFERED AS AN INCOME AND CLAIMED THE CHIT BID LOSS WHENEVER AROSE AS AN EXPENDITURE. THE REVENUE HAS ASSESSED AND TAXED I.T.A. NO.2498/CHNY/19 5 THE DIVIDEND INCOME IN THE EARLIER YEARS. THE ASSESSEE SUBMITTED THESE FACTS BEFORE THE ASSESSING OFFICER AND CLAIMED THE CHIT LOSS AS A REVENUE EXPENDITURE. IT IS CLEAR FROM THE ORDERS OF LOWER AUTHORITIES THAT THE ASSESSEES CLAIM HAS NOT BEEN REPUDIATED. FROM THE ABOVE FACTS, IT IS CLEAR THAT THE ASSESSEE HAS USED THE CHIT FUND MEMBERSHIP TO RAISE FUNDS FOR ITS USE. HAVING ASSESSED THE CHIT DIVIDEND AS AN INCOME FROM THE ASSESSMENT YEARS 2009-10, THE REVENUE CANNOT REFUSE TO ALLOW THE ASSESSEES CHIT LOSS AS AN EXPENDITURE WHENEVER IT HAD INCURRED SUCH A LOSS. IN THE ABOVE FACTS AND CIRCUMSTANCES, WE FIND MERIT IN THE SUBMISSIONS OF THE LD. AR AND DIRECT THE ASSESSING OFFICER TO ALLOW THE LOSS AS A REVENUE EXPENDITURE. THE CORRESPONDING GROUNDS OF THE APPEAL OF THE ASSESSEE ARE ALLOWED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 08 TH SEPTEMBER, 2020 AT CHENNAI. SD/ - SD/ - (DUVVURU RL REDDY) JUDICIAL MEMBER (S. JAYARAMAN) ACCOUNTANT MEMBER CHENNAI, DATED, THE 08.09.2020 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.