Elgi Ultra Industries Ltd., Coimbatore V. ACIT, Coimbatore

ITA 317/CHNY/2011

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 7740 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 02-04-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 21-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: T BANUSEKAR
• Keywords: Bad and doubtful debts
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. 317/(MDS)/2011 ASSESSMENT YEAR : 2007-08 ELGI ULTRA INDUSTRIES LTD., 1239, INDIA HOUSE, TRICHY ROAD, COIMBATORE 641 018. VS. THE ASSIST. COMMISSIONER OF INCOME-TAX OFFICER, COMPANY CIRCLE-I(1), COIMBATORE. PAN AADCE 4566 G (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T. BANUSEKAR, FCA RESPONDENT BY : SHRI S. MOHA RANA, IRS, COMMISSIONER OF INCOME-TAX DATE OF HEARING : 2 ND APRIL, 2012 DATE OF PRONOUNCEMENT : 2 ND APRIL, 2012 O R D E R PER DR. O.K. NARAYANAN, VICE-PRESIDENT THIS APPEAL IS FILED BY THE ASSESSEE. THE RELEVAN T ASSESSMENT YEAR IS 2007-08. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS)-I AT ITA 317/1 1 :- 2 -: COIMBATORE DATED 24.12.2010 AND ARISES OUT OF THE ASSESSMENT COMPLETED UNDER SEC.143(3) OF THE INCOME-TAX ACT, 1 961. 2. THE ASSESSEE HAD TAKEN OVER DEBTS AMOUNTING TO ` 25,68,81,748/- FROM ITS SISTER CONCERN, M/S. ELGI F INANCE LTD. IN THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2 002-03. THESE DEBTS WERE TAKEN OVER FOR A SUM OF ` 22,10,00,000/-. THE DIFFERENCE OF ` 3.58 CRORES WAS OFFERED AS INCOME IN THE THREE ASSESSMENT YEARS COMMENCING FROM THE ASSESSMENT YEA R 2002- 03. THESE TRANSACTIONS WERE CONCLUDED ON THE BASIS OF MUTUAL AGREEMENT. 3. A PART OF SUCH DEBTS TAKEN OVER BY THE ASSESSEE- COMPANY WAS WRITTEN OFF AS BAD DEBTS FOR THE IMPUGNED ASSES SMENT YEAR. THE AMOUNT OF ` 1,04,92,744/- WAS CLAIMED AS BAD DEBTS UNDER SEC.36(1)(VII). THE ASSESSING OFFICER REJECTED THE CLAIM MADE BY THE ASSESSEE ON THE GROUND THAT THE ASSESSEE HAS NOT FULFILLED THE CONDITIONS SPECIFIED IN THE STATUTE FOR CLAIMIN G DEBTS AS BAD UNDER SEC.36(1)(VII). THE DEBTS WERE NOT INCURRED BY THE ASSESSEE, BUT BY ITS SISTER CONCERN. THE DEBTS WE RE TAKEN OVER BY THE ASSESSEE-COMPANY. THEREFORE, IT IS SEEN THA T THE ASSESSEE HAD NOT OFFERED THE AMOUNTS AS ITS INCOME IN ANY OF THE ITA 317/1 1 :- 3 -: EARLIER ASSESSMENT YEARS. NEITHER IT WAS INCURRED IN THE COURSE OF CARRYING ON THE BUSINESS OF THE ASSESSEE NOR THE A SSESSEE IS NOT IN THE FIELD OF FINANCE BUSINESS. IN FIRST APPEAL, THE COMMISSIONER OF INCOME-TAX(APPEALS) REFERRED TO AN ORDER OF THE TRIBUNAL AND DISMISSED THE CONTENTIONS OF THE ASSESSEE AND UPHEL D THE DISALLOWANCE MADE BY THE ASSESSING AUTHORITY. IT I S AGAINST THE ABOVE THAT THE ASSESSEE HAS COME IN SECOND APPEAL B EFORE US. 4. THE FOLLOWING ARE THE GROUNDS RAISED BY THE ASS ESSEE IN THE PRESENT APPEAL : 3. FOR THAT THE COMMISSIONER OF INCOME- TAX(APPEALS) FAILED TO APPRECIATE THAT THE BAD DEBT S OF ` 1,04,92,744/- WRITTEN OFF IS IRRECOVERABLE AND HEN CE ALLOWABLE AS A DEDUCTION UNDER THE AMENDED PROVISIONS OF SECTION 36(1)(VII) R.W.S.36(2)(I). 4. FOR THAT THE COMMISSIONER OF INCOME- TAX(APPEALS) FAILED TO APPRECIATE THAT THE APPELLAN T HAS OFFERED THE SUMS RECOVERED OUT OF THE BAD DEBTS AS INCOME IN THE PREVIOUS YEAR OF RECOVERY U/S.41(1) O F THE ACT. 5. FOR THAT THE COMMISSIONER OF INCOME- TAX(APPEALS) FAILED TO APPRECIATE THAT THE APPELLAN T ITA 317/1 1 :- 4 -: WAS ALSO IN THE BUSINESS OF MONEY LENDING AS PER CLAUSE 21 OF THE OBJECTS INCIDENTAL AND ANCILLARY T O THE ATTAINMENT OF THE MAIN OBJECTS IN THE MEMORANDUM OF ASSOCIATION. 6. FOR THAT WITHOUT PREJUDICE THE DEDUCTION OF ` 1,04,92,744/- CLAIMED AS BAD DEBTS IS ALLOWABLE AS AN EXPENDITURE U/S 37(1) OF THE ACT. 5. WE HEARD SHRI T.BANUSEKAR, THE LEARNED COUNSEL A PPEARING FOR THE ASSESSEE AND SHRI S. MOHARANA, THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENU E. 6. THE VERY SAME ISSUE WAS CONSIDERED BY ITAT, CHEN NAI D BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEA R 2004-05 THROUGH ITS ORDER DATED 6.6.2008 PASSED IN ITA NO.2256/MDS/2006. AFTER DETAILED EXAMINATION OF TH E CASE, THE TRIBUNAL HELD THAT THERE IS NO INFIRMITY IN THE ELA BORATE ORDER OF THE COMMISSIONER OF INCOME-TAX(APPEALS) THAT THE AMOUNT S ARE NOT ALLOWABLE UNDER SEC.36(1)(VII). BUT AN ALTERNATE G ROUND RAISED BY THE ASSESSEE WAS CONSIDERED AGAIN BY THE TRIBUNAL THAT WHETHER THE DEDUCTION CAN BE CLAIMED UNDER SEC.37(1) OR NOT . THE TRIBUNAL FOUND THAT THIS ISSUE WAS NOT CONSIDERED B Y THE ITA 317/1 1 :- 5 -: COMMISSIONER OF INCOME-TAX(APPEALS). REFERRING TO THE JUDGMENT OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF DEV I FILMS PVT. LTD. V. CIT (75 ITR 301), THE TRIBUNAL HELD THAT IF A SUM IS NOT ALLOWABLE AS BAD DEBT, IT MAY ALSO BE CONSIDERED, W HETHER IT CAN BE CONSIDERED AS BUSINESS LOSS. THE TRIBUNAL REMIT TED THE ISSUE BACK TO THE COMMISSIONER OF INCOME-TAX(APPEALS) TO CONSIDER THE MATTER UNDER SEC.37(1). 7. IN OBEDIENCE TO THE ABOVE DIRECTION OF THE TRIBU NAL, THE COMMISSIONER OF INCOME-TAX(APPEALS) RECONSIDERED TH E MATTER BUT STILL REJECTED THE CLAIM OF THE ASSESSEE . THE MATTER WAS AGAIN BROUGHT BEFORE THE TRIBUNAL IN ITA NO.463/MDS/2011. THE TRIBUNAL DISPOSED OF THE SAID APPEAL THROUGH ITS OR DER DATED 15.6.2011. THE TRIBUNAL AFTER EXAMINING THE ALTERN ATE CONTENTION OF THE ASSESSEE FOUND THAT THE TRANSACTIONS WERE MA DE BY THE ASSESSEE AND THEY WERE ENTERED INTO IN THE BOOKS OF ACCOUNT IN A PROPER MANNER AND THE DISCOUNT EARLIER GAINED BY TH E ASSESSEE IN THE TRANSACTIONS WAS OFFERED FOR TAXATION AND WA S ACTED UPON BY THE REVENUE. THE TRIBUNAL HELD THAT AFTER HAVIN G ACCEPTED THE ENTIRE SCHEME OF TRANSACTIONS ENTERED INTO BY THE A SSESSEE AND ALSO AFTER TAXING THE GAINS MADE BY THE ASSESSEE-CO MPANY IN THE ITA 317/1 1 :- 6 -: TRANSACTIONS, IT WAS NOT PROPER ON THE PART OF THE REVENUE TO HOLD THAT THE DEBTS WRITTEN OFF BY THE ASSESSEE COULD N OT BE ALLOWED AS A DEDUCTION UNDER SEC.37(1). THE TRIBUNAL MADE A F INDING THAT THE FACTS OF THE CASE SPEAK OUT THAT THE DEBTS WERE TAKEN OVER BY THE ASSESSEECOMPANY AS PART OF ITS BUSINESS DESIGN . 8. IT IS THE SAME ISSUE WHICH HAS COME UP FOR THE I MPUGNED ASSESSMENT YEAR ALSO. THE ASSESSEE HAS TAKEN OVER THE DEBTS OF ITS SISTER CONCERN AS PART OF ITS BUSINESS ENDEAVOU R BY EXECUTING A LAWFUL AGREEMENT. THE SISTER CONCERN AND THE ASS ESSEE BOTH, HAVE ENTERED INTO THE AGREEMENT IN A RIGHTFUL MANNE R. THE DISCOUNT BENEFIT GAINED BY THE ASSESSEE AT THE TIME OF TRANSACTIONS WAS OFFERED AS INCOME. THAT WAS ASSES SED BY THE REVENUE. WHEREVER THE ASSESSEE IS GETTING ANY BEN EFIT OUT OF THE TRANSACTIONS, THE ASSESSEE IS OFFERING THE SAME AS INCOME UNDER SEC.41(1). WHEN ALL THESE MATTERS ARE ACCEPT ED BY THE REVENUE, IT IS INCUMBENT UPON THEM TO ACCEPT THE LO SS ARISING OUT OF SUCH TRANSACTIONS AND ALLOW IT AS A DEDUCTION. THE BAD DEBTS WERE TAKEN OVER AS PART OF ITS BUSINESS AND EVEN IF THOSE AMOUNTS WERE WRITTEN OFF, AS THE AMOUNTS WERE NOT COLLECTED, ITA 317/1 1 :- 7 -: THEY PARTOOK THE CHARACTER OF BUSINESS LOSS. THERE FORE, THE ASSESSEE IS ENTITLED FOR CLAIM OF DEDUCTION UNDER SEC.37(1). 9. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE D IRECT THE ASSESSING OFFICER TO ALLOW DEDUCTION FOR THE AMOUNT OF BAD DEBTS CLAIMED BY THE ASSESSEE AS A BUSINESS LOSS. IT IS NOT NECESSARY TO BE CARRIED AWAY BY THE NOMENCLATURE EXTENDED TO THE LOSS AS BAD DEBT. IN FACT, IT IS A BUSINESS LOSS. 10. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON MONDAY , THE 2 ND OF APRIL , 2012 AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (DR. O.K.NARAYANAN) JUDICIAL MEMBER VICE-PRESIDENT CHENNAI, DATED THE 2 ND APRIL, 2012 MPO* COPY TO : APPELLANT/RESPONDENT/CIT/CIT(A)/DR