Pallipalayam Spinners (P) Ltd., Pallipalayam V. ACIT, Salem

ITA 3027/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86295 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 03-02-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 12-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR MR S DAS GUPTA
• Keywords: Capital asset; Bad and doubtful debts
• Section: 28

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO. 3027/MDS/2014 ( / ASSESSMENT YEAR: 2011-12) M/S. PALLIPALAYAM SPINNERS (P)LTD., 14-A, SANKARI BYE-PASS ROAD, PALLIPALAYAM-638 006. VS THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE-I, NO.3, GANDHI ROAD, SALEM-7. PAN: AABCP2474R ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.SRIDHAR, ADVOCATE /RESPONDENT BY : MR. S. DAS GUPTA, JCIT /DATE OF HEARING : 3 RD FEBRUARY, 2015 /DATE OF PRONOUNCEMENT : 20 TH FEBRUARY, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE O RDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), SALEM DATED 28.11.2014 FOR THE ASSESSMENT YEAR 2011-12. THE ONLY GRIEVANCE OF THE ASSESSEE IN ITS APPEAL IS THAT CO MMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING THE DI SALLOWANCE IN RESPECT OF BAD DEBTS CLAIMED BY THE ASSESSEE AN D ERRED IN NOT CONSIDERING OTHERWISE ALLOWABILITY OF THE PAYME NT UNDER BUSINESS LOSS. 2 ITA NO.3027/MDS/2014 2. BRIEF FACTS ARE THAT ASSESSEE COMPANY IS HAVING SPINNING MILLS AND WIND MILLS AND GENERATING INCOME FROM BUSINESS. ASSESSMENT WAS COMPLETED UNDER SECTION 1 43(3) OF THE ACT BY THE ASSESSING OFFICER ON 31.12.2013 DISALLOWING A SUM OF ` 28,78,527/- WHICH WAS CLAIMED AS BAD DEBTS ON THE GROUND THAT THE SAID AMOUNT WAS NEVER OFFERED AS INCOME AND CONDITIONS LAID DOWN UNDER SECTION 36 (2) WERE NOT COMPLIED WITH. THE ASSESSING OFFICER ALSO OBSE RVED THAT THE SAID AMOUNT WRITTEN OFF BY THE ASSESSEE REPRESE NTS ONLY ADVANCES IRRECOVERABLE TOWARDS PURCHASES OF CAPITAL ASSET, THEREFORE IT CANNOT BE CLAIMED AS REVENUE EXPENDIT URE. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) ASS ESSEE CONTENDED THAT THIS AMOUNT SHOULD BE ALLOWED AS BAD DEBTS OR ALTERNATIVELY THIS SHOULD BE ALLOWED AS LOSS IN CIDENTAL TO THE BUSINESS. HOWEVER, THE COMMISSIONER OF INCOME T AX (APPEALS) REJECTED THE CONTENTIONS OF THE ASSESSEE AND SUSTAINED THE ADDITION AGREEING WITH THE VIEW OF TH E ASSESSING OFFICER. COUNSEL FOR THE ASSESSEE SUBMIT S THAT ASSESSEE MADE SOME ADVANCES TO ONE MR. KRISHNA PILL AI, WHO WAS A SMALL CIVIL CONTRACTOR WAS DOING WORKS FO R THE ASSESSEE AND THE SAID AMOUNTS WERE ADVANCED FOR HI M TO ENABLE HIM TO SHOW THE LANDS TO THE ASSESSEE WHICH WAS 3 ITA NO.3027/MDS/2014 REQUIRED FOR SETTING UP OF WINDMILLS. COUNSEL FOR THE ASSESSEE SUBMITS THAT ADVANCES COULD NOT BE RECOVERED FROM T HE SAID MR. KRISHNA PILLAI. COUNSEL FOR THE ASSESSEE SUBMI TS THAT THIS LOSS INCURRED BY THE ASSESSEE IF NOT ALLOWABLE UND ER SECTION 36 AS BAD DEBT IT SHOULD BE ALLOWED AS BUSINESS LO SS UNDER SECTION 28 OF THE ACT. THE ALTERNATIVE CONTENTION O F THE ASSESSEE WAS REJECTED BY THE COMMISSIONER OF INCOME TAX (APPEALS) WITHOUT MUCH DISCUSSION. 3. DEPARTMENTAL REPRESENTATIVE STRONGLY SUPPORTS TH E ORDERS OF LOWER AUTHORITIES. 4. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSME NT DISALLOWED THE ADVANCES MADE BY THE ASSESSEE TO ONE MR. KRISHNA PILLAI ON THE GROUND THAT THIS AMOUNT IS N OT A BAD DEBT WITHIN THE MEANING OF SECTION 36(2) OF THE ACT , AS THIS AMOUNT WAS NEVER SHOWN AS INCOME NOR THIS AMOUNT W AS LENT IN THE ORDINARY COURSE OF BUSINESS OF BANKING AND IT IS AN AMOUNT PAID IN THE NATURE OF ADVANCES FOR PURCHASE OF LAND NOT IN THE REGULAR COURSE OF BUSINESS OF THE ASSESS EE. THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE 4 ITA NO.3027/MDS/2014 ADDITION/DISALLOWANCE MADE BY THE ASSESSING OFFICE R. IT APPEARS THAT ASSESSEE HAS RAISED A CONTENTION BEFOR E THE COMMISSIONER OF INCOME TAX (APPEALS) THAT IF IT IS NOT ALLOWED AS BAD DEBT IT SHOULD BE ALLOWED AS BUSINES S LOSS, HOWEVER THE COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE ADDITION WITHOUT GOING MUCH INTO THE CONTENTION OF THE ASSESSEE, WHERE THIS AMOUNT CAN BE ALLOWED A S BUSINESS LOSS. BEFORE US, COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS AMOUNT SHOULD BE ALLOWED AS BAD DEBT OR BUSINESS LOSS AS LOSS INCIDENTAL TO THE BUSINESS. AS FAR AS ALLOWING THE SAID AMOUNT AS BAD DEBT IS CONCERNED, WE ARE NOT AB LE TO AGREE WITH THE COUNSEL FOR THE ASSESSEE THAT IT SHO ULD BE ALLOWED AS BAD DEBT. THE ASSESSING OFFICER CLEARLY HELD THAT ASSESSEE HAS NOT COMPLIED WITH THE PROVISIONS OF SE CTION 36(2) OF THE ACT AS THIS AMOUNT IS NOT TAKEN INTO A CCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE IN THE PREVIOU S YEAR IN WHICH THE AMOUNT OF SUCH DEBT IS WRITTEN OFF OR EVE N IN THE EARLIER PREVIOUS YEARS. WE AGREE WITH THE ASSESSING OFFICER THAT THIS AMOUNT CANNOT BE ALLOWED AS BAD DEBT. 5. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF HAR SHAD J.CHOKSI VS. CIT (349 ITR 250) HELD THAT AMOUNT DIS ALLOWED 5 ITA NO.3027/MDS/2014 AS BAD DEBT UNDER SECTION 36(2) CAN BE CLAIMED AS B USINESS LOSS UNDER SECTION 28 OF THE ACT. THE HONBLE HIGH COURT FURTHER HELD THE FACT THAT CONDITIONS OF BAD DEBT S WERE NOT SATISFIED BY THE ASSESSEE WOULD NOT PREVENT HIM FRO M CLAIMING DEDUCTION AS A BUSINESS LOSS INCURRED IN T HE COURSE OF CARRYING ON BUSINESS. IN THE LIGHT OF THE ABOVE JUDGEMENT, THE CONTENTION OF THE ASSESSEE IN THE PRESENT CASE THAT ADVANCES MADE BY THE ASSESSEE SHOULD BE ALLOWED AS LOSS INCIDENTAL TO THE BUSINESS HAS SOME FORCE AND THIS ASPECT WAS NOT EXAMINED BY THE ASSESSING OFFICER NOR IT WA S THE CLAIM OF THE ASSESSEE BEFORE THE ASSESSING OFFICER. THE ASSESSEE RAISED THIS PLEA ONLY IN THE APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) AND THE COMMISSIONER ALSO WITHOUT MUCH DISCUSSION ON THE IS SUE AFFIRMED THE ADDITION. IN THE CIRCUMSTANCES, WE AR E OF THE VIEW THAT THIS MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER FOR FRESH CONSIDERATION AND EXAMI NATION AS TO WHETHER SUCH ADVANCES GIVEN BY THE ASSESSEE IS ALLOWABLE AS LOSS INCIDENTAL TO BUSINESS. THUS, WE SET ASIDE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER TO D ECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. 6 ITA NO.3027/MDS/2014 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 20 TH DAY OF FEBRUARY, 2015 AT CHENNAI. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED 20 TH FEBRUARY, 2015 SOMU 12 32 / COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .