Summit Investments Ltd., Kolkata V. JCIT, SPL. RG-16, KOLKATA, Kolkata

ITA 338/KOL/1999

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99936 (ITAT-KOLKATA)
• Duration Of Justice: 16 year(s) 8 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Assessee
• Bench Allotted: C
• Assessment Year: 1995-1996
• Appeal Filed On: 19-02-1999
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J P KHAITAN
• Keywords: Question of law; Bad and doubtful debts; Competent authority; Commercial expediency; Revenue expenditure
• Section: 28; 143(3)

Judgement Text

ITA NO. 338/KOL1999-C-AM M/S. SUMMIT INVE STMENTS LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH, K OLKATA BEFORE : SHRI M. BALAGANESH, ACCOUNTANT MEMBER, A ND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER I.T.A NO. 338/KOL/1999 A.Y : 1995-96 M/S. SUMMIT INVESTMENTS LTD VS. J.C.I.T, SPL. RA NGE-16, KOLKATA (MERGED WITH M/S. RUSSELL CREDIT LTD) PAN: 11 000 CT 2321 (APPELLANT) (RESPON DENT) FOR THE APPELLANT/ ASSESSEE: SHRI J.P KHAITA N, SR. ADVOCATE, LD.AR FOR THE RESPONDENT DEPARTMENT: SHRI S ANJAY MUKHERJEE,JCIT, LD.DR DATE OF HEARING: 13-10-2015 DATE OF PRONOUNCEMENT: 28-10-201 5 ORDER SHRI M.BALAGANESH, AM THIS APPEAL OF THE ASSESSEE ARISES OUT OF THE ORDER OF THE LEARNED CITA IN APPEAL NO. 355/A-XV/SR-16/98-99 DATED 17-12-98 FOR THE ASST YEAR 1995-96 PASSED AGAINST THE ORDER OF ASSESSMENT FRAMED BY THE LEARN ED AO U/S 143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ). 2. SHRI.J.P.KHAITAN, SENIOR ADVOCATE, THE LEARNED AR ARGUED ON BEHALF OF THE ASSESSEE AND SHRI.SANJAY MUKHERJEE, JCIT, THE LEARN ED DR ARGUED ON BEHALF OF THE REVENUE. 3. THE BRIEF BACKGROUND OF THIS APPEAL IS THAT THE SAME HAS ALREADY BEEN DISPOSED OFF BY THIS TRIBUNAL VIDE ORDER DATED 18.11.2002 D ISMISSING THE APPEAL OF THE ASSESSEE. AGAINST THIS TRIBUNAL ORDER, THE ASSESSEE PREFERRED FURTHER APPEAL TO THE HONBLE CALCUTTA HIGH COURT AND THE SAME WAS DISPOSED OFF I N THE FOLLOWING MANNER :- ITA NO. 338/KOL1999-C-AM M/S. SUMMIT INVE STMENTS LTD 2 THE COURT : AFTER HEARING THE LEARNED ADVOCATES AP PEARING FOR THE PARTIES THE MATTER IS REMANDED TO THE LEARNED TRIBU NAL TO RECONSIDER THE MATTER IN THE LIGHT OF THE JUDGEMENT IN THE CASE OF BADRIDAS DAGA VS CIT REPORTED IN (1958) 34 ITR 10 WHEREIN THE FOLLOWING VIEWS WERE ADOPTED:- A. THE THEORY THAT ONCE MONEYS WERE PUT INTO THE BANK THEY HAD GOT HOME AND THEIR SUBSEQUENT WITHDRAWAL FROM THE BANK WOULD BE DE HORS THE BUSINESS WAS INAPPLICABLE TO A BUSINESS SUCH AS BANKING OR MONEY-LENDING; B. AS THE BUSINESS OF THE APPELLANT CONSISTED IN LENDI NG MONEYS, REALIZING THEM AND MAKING FRESH LOANS, A CONTINUOUS OPERATION ON THE BANK ACCOUNT BY THE AGENT WAS INCIDENTAL TO THE CONDUCT OF THE BUSINESS ; C. ONCE IT WAS ESTABLISHED THAT THE AGENT WAS IN CHARG E OF THE BUSINESS, THAT HE HAD AUTHORITY TO OPERATE ON THE B ANK ACCOUNT AND THAT HE WITHDREW MONEYS IN THE PURPORTED EXERCI SE OF THAT AUTHORITY, HIS ACTION WAS REFERABLE TO THIS CHARACT ER AS AGENT AND ANY LOSS RESULTING FROM MISAPPROPRIATION OF FUNDS B Y HIM WAS A LOSS INCIDENTAL TO THE CARRYING ON OF THE BUSINESS; AND D. THE LOSS SUSTAINED BY THE APPELLANT AS A RESULT OF MISAPPROPRIATION BY THE AGENT WAS ONE WHICH WAS INC IDENTAL TO THE CARRYING ON OF THE BUSINESS AND SHOULD, THEREFO RE, BE DEDUCTED IN COMPUTING THE PROFITS UNDER SECTION 10( 1) OF THE ACT. THE LEARNED TRIBUNAL IS DIRECTED TO DISPOSE OF THE MATTER WITHIN SIX MONTHS FROM THE DATE OF COMMUNICATION OF THIS ORDER. THE INTENTION IS NOT HOWEVER TO PRECLUDE THE PARTIE S TO CITE OTHER JUDGEMETNS, IF THEY ARE SO ADVISED. ACCORDINGLY, THIS APPEAL HAS BEEN RESTORED BACK TO THE FILE OF THIS TRIBUNAL TO DECIDE THE ISSUE AS PER THE DIRECTIONS CONTAINED HE REINABOVE. 4. THE ISSUES TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE ASSESSEE IS ENTITLED FOR DEDUCTION ON WRITE OFF OF BAD DEBTS AMOUNTING T O RS. 11,62,253/- AS IRRECOVERABLE AMOUNT FROM BROKER AND WRITE OFF OF BAD ADVANCES AM OUNTING TO RS. 1,99,08,500/- AS IRRECOVERABLE AMOUNT FROM BROKER IN THE FACTS AND C IRCUMSTANCES OF THE CASE ITA NO. 338/KOL1999-C-AM M/S. SUMMIT INVE STMENTS LTD 3 4.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE AS SESSEE IS A COMPANY TRADING IN SHARES. THE ASSESSEE HAD TO RECOVER TRADE DEBTS AMOUNTING T O RS. 11,62,253/- AND TRADE ADVANCES RECEIVABLE FROM THE BROKER SHRI.PALLAV SHE TH AMOUNTING TO RS. 1,99,08,500/-. THE FACT IS THAT THE ASSESSEE HAD DULY OFFERED THE INCOME IN RESPECT OF TRADE DEBTS OF RS. 11,62,253/- IN THE EARLIER YEARS AND TREATED TH E SAME AS IRRECOVERABLE AND WROTE OFF THE SAME BY CREDITING THE CONCERNED DEBTOR ACCOUNT IN THE BOOKS AND CLAIMED DEDUCTION FOR THE SAME AS BAD DEBT IN ACCORDANCE WI TH THE PROVISIONS OF SECTION 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT. THI S CLAIM WAS DISALLOWED BY THE LEARNED AO WHICH WAS UPHELD BY THE LEARNED CITA. A GGRIEVED, THE REVENUE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- A) BAD DEBTS RS.11,62,253/- FOR THAT THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIE D IN IGNORING THE PROVISIONS OF THE INCOME TAX ACT IN DI SALLOWING THE SAID BAD DEBTS ALTHOUGH THE CLAIM WAS FULLY ALLOWAB LE AS PER THE PROVISIONS OF SEC.36 AND HE DID NOT DISPUTE THE SAM E. FOR THAT THE LEARNED CIT(APPEALS) FAILED TO APPRECI ATE THAT THE APPELLANT DID NOT FILE ANY CLAIM WITH THE SPECI AL COURT AND THEREFORE, IRRESPECTIVE OF THE OUTCOME OF ITS PROCE EDINGS, THE APPELLANT WOULD NOT BE ABLE TO RECOVER ANY AMOUNT. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN DISALLOWI NG THE AMOUNT IRRECOVERABLE FROM BROKER OF RS.11,62,253/- 4.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERU SED THE MATERIALS AVAILABLE ON RECORD. THE LEARNED AR FILED THE SEQUENCE OF EVENT S BEFORE US ABOUT THE CONDUCT OF THE SAID BROKER AND THE DIFFICULTIES UNDERWENT BY H IM DUE TO HIS FRAUDULENT ACTS COMMITTED EARLIER. IT IS NOT IN DISPUTE THAT THE BR OKER SHRI.PALLAV SHETH WAS DECLARED A DEFAULTER AND SUSPENDED BY THE BOMBAY STOCK EXCHANG E FROM ENTERING THE CAPITAL MARKETS DUE TO HIS INVOLVEMENT IN SECURITIES SCAM I N THE YEAR 1992. THE SEQUENCE OF EVENTS FILED BY THE LEARNED AR IS REPRODUCED HEREIN BELOW FOR THE SAKE OF CONVENIENCE :- LIST OF DATES AND EVENTS ITA NO. 338/KOL1999-C-AM M/S. SUMMIT INVE STMENTS LTD 4 MAY 20, 1992 A SUM OF RS.2 CRORES WAS ADVANCED TO P ALLAV SHETH UNDER OF PORTFOLIO MANAGEMENT SCHEME JUNE 6, 1992 SPECIAL COURT (TRIAL OF OFFENCES RELAT ING TO TRANSACTIONS IN SECURITIES) ORDINANCE, 1992 WAS PROMULGATED, SUBSEQUENTLY REPLACED BY THE SPECIAL COURT (TRIAL OF OFFENCES RELATING TO TRANSACTIONS I N SECURITIES) ACT, 1992 (THE SPECIAL COURT ACT). TH E SAID LAW WAS MADE BECAUSE OF LARGE SCALE IRREGULARITIES AND MALPRACTICES INDULGED IN BY SOME BROKERS IN COLLUSION WITH THE EMPLOYEES OF VARIOUS BANKS AND FINANCIAL INSTITUTIONS RESULTING IN DIVER SION OF FUNDS FROM THE BANKS AND FINANCIAL INSTITUTIONS TO THE INDIVIDUAL ACCOUNTS OF THE BROKERS. THE LAW WAS MAD E I) TO ENSURE THE SPEEDY RECOVERY OF THE HUGE AMOUNT INVOLVED; II) TO PUNISH THE GUILTY AND TO RESTORE CONFIDENCE IN AND MAINTAIN THE BASIC INTEGRITY AND CREDITABILITY OF THE BANKS AND FINANCIAL INSTITUTIONS . THE LAW PROVIDED FOR ESTABLISHMENT OF A SPECIAL COURT FOR SPEEDY TRIAL OF OFFENCES RELATING TO TRANSACTIONS IN SECURITIES AND DISPOSAL OF PROPERT IES ATTACHED. IT ALSO PROVIDED FOR APPOINTMENT OF CUSTODIAN FOR ATTACHING THE PROPERTY OF THE OFFENDE R WITH A VIEW TO PREVENT DIVERSION OF SUCH PROPERTY. JULY 27, 1992 MOVABLE AND IMMOVABLE PROPERTIES OF P ALLAV SHETH WERE PROVISIONALLY ATTACHED UNDER SECTION 281B OF T HE INCOME TAX ACT, 1961. THE SAID PROVISIONAL ATTACHME NT ORDER WAS MODIFIED ON OCTOBER 14, 1993 OCTOBER 1992 EQUITY SHARES AND DEBENTURES OF VARIOU S INDIAN COMPANIES WERE SEIZED BY THE CBI FROM THE REISIDENT IAL AND OFFICE PREMISES OF PALLAV SHETH OCTOBER 30, 1992 LAST TRANSACTION BETWEEN THE ASSES SEE AND PALLAV SHETH MARCH 31, 1993 PALLAV SETH ACKNOWLEDGTED HAVING REC EIVED RS. 2 CRORES FROM THE ASSESSEE UNDER PORTFOLIO MANAGEMENT SCHEME. OCTOBER 15, 1993 NOTICE ISSUED BY THE BOMBAY STOCK EXCHANGE ADVISING MEMBERS NOT TO DEAL IN SHARES ATTACHED BY THE INCOM E TAX DEPARTMENT INCLUDING THOSE SEIZED BY CBI. FEBRUARY 24, 1994 PALLAV SHETH SUBMITTED TO A CONSE NT DECREE FOR A SUM OF RS.51.49 CRORES UPON APPLICATION BY THE CUSTODIAN ITA NO. 338/KOL1999-C-AM M/S. SUMMIT INVE STMENTS LTD 5 APPOINTED UNDER THE SPECIAL COURT ACT. THE SAID AMOUNT WAS TO BE PAID IN INSTALMENTS. PALLAV SHETH PAID ONLY RS. 2 CRORE AND DEFAULTED IN THE PAYMENT OF FURTHER INSTALMENTS [ PARA 3 OF (2001) 7SCC 549 AT PAGE 555] AUGUST 24, 1994 THE SPECIAL COURT PASSED FURTHER IN TERIM ORDER OF ATTACHMENT IN RESPECT OF ASSETS OF PALLAV SHETH [ P ARA 4 OF (2001) 7SCC 549 AT PAGE 555] MARCH 30, 1995 BECAUSE OF UNLIKELY RECOVERY, THE BO ARD OF DIRECTORS OF THE ASSESSEE RESOLVED TO WRITE OFF RS.11,62,253/- D UE FROM PALLAV SHETH ON ACCOUNT OF NORMAL SHARE DEALI NGS CONDUCTED THROUGH HIM AND RS.1,99,08,500/- ADVANCE D TO HIM ON ACCOUNT OF PORTFOLIO MANAGEMENT SCHEME. THE AMOUNTS WERE ACCORDINGLY. JUNE 14, 1996 HAVING COMMITTED AN ACT OF INSOLVENC Y ON APRIL22, 1996, PALLAV SHETH FILED INSOLVENCY PETITION NO.49 OF 1996 FOR BEING ADJUDICATED INSOLVENT. 4.3. WE FIND THAT THE ASSESSEES EFFORTS TO RECOV ER THE DUES FROM THE BROKER SHRI.PALLAV SHETH WERE IN VAIN AND THE ASSESSEE TRE ATED THE IRRECOVERABLE TRADE DEBTS AMOUNTING TO RS. 11,62,253/- AND DECIDED TO WRITE O FF THE SAME BY CREDITING THE CONCERNED DEBTORS ACCOUNT. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD DULY OFFERED INCOME EMANATING OUT OF THIS TRADE DEBTS AND HENCE THE ASSESSEE IS ENTITLED FOR DEDUCTION U/S 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT. 4.4. WE FIND THAT THE RELIANCE PLACED BY THE LEARN ED AR ON THE FOLLOWING DECISIONS SQUARELY SUPPORTS THE CASE OF THE ASSESSEE:- 326 ITR 315 (MAD) CIT VS. RAMAKRSIHNA & SONS LTD HELD, DISMISSING THE APPEAL, THAT THE TRANSACTION OF THE ASSESSEE OF FINANCING THE SUBSIDIARY COMPANY WAS GENUINE AND B ONAFIDE. THE ASSESSEE PAID FURTHER ADVANCES IN ITS OWN INTEREST WITH A VIEW TO RECOVER THE AMOUNT GIVEN EARLIER, TO SUSTAIN A SHARE AND TO AVOID THE GUARANTEE BEING INVOKED. THERE MERE FACT OF PAYMENT OF MONEY AFTER STOPPAGE OF INTEREST FROM THE SUBSIDIARY COMPANY BY ITSELF COUL D NOT BE A GROUND TO HOLD THAT THE TRANSACTIONS WERE NOT IN THE COURSE O F THE BUSINESS. THERE WAS NO BAR IN LAW FOR FINACING THE SUBSIDIARY COMPA NY. THE INCOME ITA NO. 338/KOL1999-C-AM M/S. SUMMIT INVE STMENTS LTD 6 RECEIVED BY THE ASSESSEE FROM THE SUBSIDIARY COMPAN Y BY WAY OF INTEREST WAS SUBJECTED TO TAX AND THE ADVANCE MADE BY THE AS SESSEE TO THAT COMPANY WAS ALSO SUBJECTED TO TAX. AT THE TIME OF W RITING OFF THE DEBT, THE SUBSIDIARY COMPANY HAD ACCUMULATED HUGE LOSSES. THE ASSESSEE ALSO SUFFERED A LOSS WHILE SELLING THE SHARES OF THE SUB SIDIARY COMPANY WHICH RESULTED IN THE SUBSIDIARY COMPANY CESING TO BE THE SUBSIDIARY OF THE ASSESSEE. THEREFORE, IN THE CIRCUMSTANCES THE MONE Y ADVANCED BY THE ASSESSEE HAD BECOME IRRECOVERABLE AND WAS GIVEN DUR ING THE COURSE OF THE BUSINESS. WHAT WAS NOT PAID BY THE SUBSIDIARY C OMPANY WAS ONLY THE INTEREST AND THERE WAS NO PRINCIPAL AMOUNT DUE AT T HE TIME OF ADVANCING THE AMOUNT THEREAFTER. THE ADVANCES MADE BY THE ASS ESSEE WERE ALSO UTILIZED BY THE SUBSIDIARY COMPANY FOR THE PURPOSE FOR WHICH THEY WERE OBTAINED WHICH WAS TO RUN THE FOUNDRY. THIS WOULD A LSO INDICATE THAT THE AMOUNT HAD BEEN GIVEN OUT OF COMMERCIAL EXPEDIENCY AS WELL. BOTH THE COMMISSIONER(APPEALS) AS WELL AS THE TRIBUNAL HAD C ONSIDERED THE MATERIALS ON RECORD AND CAME TO THE CONCLUSION THAT THE TRANSACTIONS INVOLVED WERE TRUE AND GENUINE. THEY HAD ALSO HELD THAT THE ADVANCES HAD BEEN MADE DURING THE COURSE OF THE BUSINESS AN D THEY HAD BECOME IRREOVCOVERABLE AS BAD DEBTS AND HENCE THE ASSESSE E WAS ENTITLED TO THE BENEFIT UNDER SECTION 36(1)(VII). THE QUESTION AS TO WHETHER A DEBT HAD BECOME BAD OR NOT WAS A PURE QUESTION OF FACT AND, THEREFORE, IT COULD NOT BE CONSTRUED AS A QUESTION OF LAW. 323 ITR 397(SC) TRF LTD VS. CIT BAD DEBT-LAW AFTER APRIL 1, 1989- ASSESSEE ONLY T O ESTABLISH THAT DEBT WAS WRITTEN OFF- NOT NECESSARY TO ESTABLISH THAT DEBT IN FACT HAD BECOME IRRECOVERABL E INCOME-TAX ACT, 1961, S. 36 (1)(VII). AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE I NCOME-TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE: THE SUPREME COURT ACCORDINGLY REMANDED THE MATTER TO THE ASSESSING OFFICER TO EXAMINE, SOLELY TO THE EXTENT OF WRITE O FF, WHETHER THE DEBT OR PART THEREOF WAS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. (2013) 36 TAXMANN.COM 537 (AALLAHABAD HC) CIT VS. S MT. SUSHILA MALLICK- TO TREAT A DEBT AS A BAD DEBT HAD TO BE A COMMER CIAL OR BUSINESS DECISION OF THE ASSESSEE BASED ON THE RELE VANT MATERIAL IN THE POSSESSION OF THE ASSESSEE. ONCE THE ASSESSEE RECO RDS THE DEBT AS A BAD DEBT IN HIS BOOKS OF ACCOUNT, THAT WOULD PRIMA FAC IE ESTABLISH THAT IT WAS BAD DEBT UNLESS THE ASSESSING OFFICER FOR GOOD REAS ONS HOLDS OTHERWISE. THE WRITING OFF IN THE ACCOUNTS HAD TO BE BONAFIDE. ONCE THAT THE CASE, ITA NO. 338/KOL1999-C-AM M/S. SUMMIT INVE STMENTS LTD 7 THE ASSESSEE WAS NOT CALLED UPON TO DISCHARGE ANY F URTHER BURDEN. AFTER THE 1989 AMENDMENT IN SECTION 36(1)(VII) IT WAS NE ITHER OBLIGATORY NOR WAS THE BURDEN ON THE ASSESSEE TO PROVE THAT THE DE BT WRITTEN OFF BY HIM WAS INDEED A BAD DEBT AS LONG AS IT WAS BONA FIDE A ND BASED ON COMMERCIAL WISDOM OR EXPEDIENCY. [PARA 10] IN THE INSTANT CASE, THE ASSESSEE HAS WRITTEN OFF BAD DEBT WHEN IT WAS FELT THAT THE AMOUNT IS NOT RECOVERABLE. THE SATISF ACTION OF THE ASSESSEE IS SUFFICIENT FOR CLAIMING WRITE OFF THE BAD DEBT. MO REOVER, BOTH THE COMPANIES HAVE DISAPPEARED FROM LUCKNOW WITHOUT MAKING ANY PAYMENT. [ PARA 13]. IN THE LIGHT OF THE ABOVE DISCUSSION AND BY CONSID ERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES OF THE CASE, THERE WAS NO REASON TO INTERFERE WITH THE IMPUGNED ORDER PASSED BY THE TRIBUNAL. [ P ARA 14]. DY.CIT VS. OMAN INTERNATIONAL BANK SAOG IN ITA NO.7 431 (MUM) OF 1997 DATED 17.5.2006 FOR ASST YEAR 1994-95 PASSED BY MUMBAI TRIBUNAL SPECIAL BENCH HELD THE DIRECT TAX LAWS (AMENDMENT) ACT, 1987 W ITH EFFECT FROM ASSESSMENT YEAR 1989-90 HAS LIBERALIZED THE REQUIRE MENT OF WRITING OFF OF DEBTS BY AN ASSESSEE BY ALTOGETHER DOING AWAY W ITH THE CONDITION PRECEDENT OF THE SATISFACTION OF THE AO IN WRITING OFF A BAD DEBT, WHICH USED TO LEAD TO ENORMOUS LITIGATIONS. THE AMENDMENT BAD DEBT HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR [PARA 30]. IN PRE-AMENDED PROVISION THE ASSESSEE WAS REQUIRED TO ESTABLISH THAT THE DEBT IN QUESTION HAS BECOME BAD IN THE PREVIOUS YEAR. IN THE POST- AMENDED PERIOD IT IS SUFFICIENT IF THE BAD DEBT OR PART THEREOF IS WRITTEN OFF AS IRRECOVERABLY IN THE ACCOUNTS OF THE ASSESS EE. THE LAW HAS DONE AWAY WITH THE ONEROUS OBLIGATION ON THE PART OF TH E ASSESSEE TO ESTABLISH THAT THE DEBT HAS BECOME BAD IN THE PREVIOUS YEAR. NOW THE REQUIREMENT IS ONLY THE WRITE OFF OF SUCH DEBT AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. [PARA 31]. AS EXPLAINED BY THE CBDT CIRCULAR NO.551 DT. 23-1- 1990 THE AMENDMENT HAS BEEN BROUGHT TO THE DO AWAY WITH ALL THE COMPLICATIONS INVOLVED IN DETERMINING THE ISSUE OF DEDUCTIBILIT Y OF BAD DEBTS UNDER SECTION 36(1)(VII). THE AMENDMENT DECIDED THE YEAR IN WHICH THE DEDUCTION HAS TO BE ALLOWED, AS THE YEAR IN WHICH T HE ASSESSEE HAS WRITTEN OFF THE DEBT AS BAD DEBT IN THE BOOKS OF A CCOUNT. THE AMENDMENT HAS ALSO DONE AWAY WITH THE REQUIREMENT OF ESTABLIS HING THAT THE DEBT HAS BECOME BAD. THIS IS CLEAR FROM THE CIRCULAR O F THE BOARD WHERE IT IS STATED THAT THE AMENDMENT HAS BEEN BROUGHT TO ELIM INATE THE DISPUTES IN THE MATTER OF DETERMINING THE YEAR IN WHICH A BAD D EBT CAN BE ALLOWED AND ALSO TO RATIONALIZE THE PROVISIONS. EVEN AFTER THE AMENDMENT , IF THE ASSESSEE IS AGAIN CALLED UPON TO ESTABLISH THAT T HE DEBT HAS BECOME BAD, ITA NO. 338/KOL1999-C-AM M/S. SUMMIT INVE STMENTS LTD 8 THE TRUE SPIRIT OF THE AMENDMENT IS TO AVOID LITI GATIONS AND DO AWAY WITH ALL SORTS OF DISPUTES REGARDING THE ALLOWABILITY O F BAD DEBTS AS A DEDUCTION IN COMPUTING THE INCOME OF AN ASSESSEE. T HE DISPUTE REGARDING THE YEAR IN WHICH THE DEBT HAS TO BE ALLOWED AS A DEDUCTION HAS BEEN RESOLVED BY THE CLEAR STATEMENT OF THE AMENDED LAW THAT THE DEDUCTION SHALL BE ALLOWED IN THE YEAR IN WHICH THE DEBT HAS BEEN WRITTEN OFF AS IRRECOVERABLE. IT IS VERY IMPORTANT TO NOTE THAT T HE EARLIER EXPRESSION ANY DEBT, OR PART THEREOF, WHICH IS ESTABLISHED TO HAVE BECOME A BAD DEBT IN THE PREVIOUS YEAR HAS BEEN CONSPICUOUSLY OMITTED BY THE AMENDMENT AND SUBSTITUTED BY THE EXPRESSION WRITTE N OFF AS IRRECOVERABLE. THE WORD OF THE LAW ARE CLEAR AND THE INTENT AND PURPOSE OF THE AMENDMENT ARE MANIFEST. THE EARLIE R RULE OF ESTABLISHING THAT THE DEBT HAS BECOME BAD IS OMITTED FROM THE PR OVISIONS OF LAW. THEREFORE, THERE IS NO OCCASION OR PROVOCATION TO C ONSIDER WHETHER THE ASSESSEE HAS AGAIN TO ESTABLISH THAT THE DEBT HAS BECOME DAD. IN FACT, THERE IS NO PROVOCATION AT ALL TO GO TO THAT EXTENT OF DISCUSSION BECAUSE THE AMENDMENT HAS OMITTED THE EXPRESSION DEBT WHIC H IS ESTABLISHED TO HAVE BECOME A BAD DEBT.WHEN THE AMENDMENT HAS BEEN BROUGHT TO CURE A DEFECT AND THE AMENDMENT HAS OMITTED THE EXP RESSION WHICH HAS MADE WAY FOR SUCH DEFECT THERE IS NO REASON TO POND ER OVER THE PAST AND TO DECIDE THE MATTER STILL UNDER THE LAW WHICH STO OD PRIOR TO THE AMENDMENT [PARA 33]. IN VIEW OF THE AFORESAID JUDICIAL DECISIONS, WE HOL D THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION TOWARDS WRITE OFF OF BAD DEBTS AMOU NTING TO RS. 11,62,253/- AND WE HAVE NO HESITATION IN DIRECTING THE LEARNED AO TO G RANT DEDUCTION TOWARDS THE SAME. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE IN THIS REGARD ARE ALLOWED. 5. BAD ADVANCES WRITTEN OFF RS. 1,99,08,500/- 5.1 THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSES SEE ADVANCED A SUM OF RS. 2 CRORES ON 20.5.1992 TO BROKER SHRI.PALLAV SHETH UNDER PORT FOLIO MANAGEMENT SCHEME. THE SAID BROKER IS SUPPOSED TO MANAGE THE TRADING PORTF OLIO OF SHARES AND SECURITIES ON BEHALF OF THE ASSESSEE. THE SAID ADVANCE WAS MADE T O SHRI.PALLAV SHETH DURING THE COURSE OF BUSINESS OF THE ASSESSEE FOR THE PURPOSE OF PURCHASE AND SALE OF SHARES UNDER PORTFOLIO MANAGEMENT SCHEME. OUT OF THE SAID ADVAN CE, A SUM OF RS. 1,99,08,500/- ITA NO. 338/KOL1999-C-AM M/S. SUMMIT INVE STMENTS LTD 9 BECAME IRRECOVERABLE FROM THE SAID BROKER AND ASSES SEE CHOSE TO WRITE OFF THE SAME IN ITS BOOKS OF ACCOUNTS BY CREDITING THE ADVANCE RECE IVABLE VIS A VIS THE CONCERNED PARTY ACCOUNT. THE ASSESSEE CLAIMED THE SAME AS DEDUCTION AS BAD ADVANCES WRITTEN OFF AS IRRECOVERABLE WHICH WAS DISALLOWED BY THE LEARNED A O AND UPHELD BY LEARNED CITA. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON T HE FOLLOWING GROUNDS :- A) BAD ADVANCE RS.1,99,08,500/- FOR THAT THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIE D IN IGNORING THE PROVISIONS OF THE INCOME TAX ACT IN DI SALLOWING THE SAID WRITE OFF ALTHOUGH THERE WAS NO DISPUTE THAT I T HAD BECOME BAD. FOR THAT THE LEARNED CIT(APPEALS) FAILED TO APPREC IATE THAT THE APPELLANT DID NOT FILE ANY CLAIM WITH THE SPECI AL COURT AND THEREFORE, IRRESPECTIVE OF THE OUTCOME OF ITS PROCE EDINGS, THE APPELLANT WOULD NOT BE ABLE TO RECOVER ANY AMOUNT. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN DISALLOWI NG THE AMOUNT IRRECOVERABLE FROM BROKER OF RS.1,99,08,500/- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(APPEALS) WAS NOT JUSTIFIED IN DISALLOWING THE A MOUNT IRRECOVERABLE FROM BROKER OF RS.1,99,08,500/- 5.2. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. THE LEARNED AR FILED THE SEQUENCE OF EVENT S BEFORE US ABOUT THE CONDUCT OF THE SAID BROKER AND THE DIFFICULTIES UNDERWENT BY H IM DUE TO HIS FRAUDULENT ACTS COMMITTED EARLIER. IT IS NOT IN DISPUTE THAT THE BR OKER SHRI.PALLAV SHETH WAS DECLARED A DEFAULTER AND SUSPENDED BY THE BOMBAY STOCK EXCHANG E FROM ENTERING THE CAPITAL MARKETS DUE TO HIS INVOLVEMENT IN SECURITIES SCAM I N THE YEAR 1992. WE FIND THAT THE ASPECT OF IRRECOVERABILITY OF TRADE ADVANCES GIVEN DURING THE COURSE OF BUSINESS OF THE ASSESSEE IS PROVED BEYOND DOUBT FROM THE SEQUENCE O F EVENTS IN TABULAR FORM STATED HEREINABOVE WHICH SHOWS THE CONDUCT OF THE BROKER S HRI.PALLAV SHETH. WE FIND THAT ON 27.7.1992, MOVABLE AND IMMOVABLE PROPERTIES OF SHRI .PALLAV SHETH WERE PROVISIONALLY ATTACHED U/S 281B OF THE INCOME TAX ACT WHICH WAS L ATER MODIFIED ON 14.10.1993. WE ITA NO. 338/KOL1999-C-AM M/S. SUMMIT INVE STMENTS LTD 10 FIND IN OCTOBER 1992, THE EQUITY SHARES AND DEBENTU RES OF VARIOUS INDIAN COMPANIES WERE SEIZED BY CBI FROM THE RESIDENTIAL AND OFFICE PREMISES OF SHRI.PALLAV SHETH. WE ALSO FIND THAT A NOTICE WAS ISSUED BY BOMBAY STOCK EXCHANGE ADVISING MEMBERS NOT TO DEAL IN SHARES ATTACHED BY THE INCOME TAX DEPARTMEN T INCLUDING THOSE SEIZED BY CBI. WE FIND THAT SHRI.PALLAV SHETH HAD SUBMITTED TO A C ONSENT DECREE FOR A SUM OF RS. 50 CRORES UPON APPLICATION BY THE CUSTODIAN APPOINTED UNDER THE SPECIAL COURT ACT WHICH WAS AGREED TO BE PAID IN INSTALLMENTS. BUT HE PAID ONLY RS 2 CRORES AND DEFAULTED IN THE PAYMENT OF FURTHER INSTALLMENTS. THE LEARNED A R PLACED THE COPY OF THE HONBLE SUPREME COURT JUDGEMENT TO PROVE THESE FACTS IN THE CASE OF PALLAV SHETH VS CUSTODIAN AND OTHERS REPORTED IN (2001) 7 SUPREME COURT CASES 549. WE FIND THAT THE ASSESSEE HAD PATIENTLY WAITED FOR RECOVERY OF THE DUES BY WA TCHING THE VARIOUS JUDICIAL PROCEEDINGS OF SHRI.PALLAV SHETH DUE TO FRAUDULENT ACTS COMMITTED BY HIM AND FINALLY DECIDE TO WRITE OFF THE ADVANCES AS BAD AND IRRECOV ERABLE IN ITS BOOKS BY CREDITING THE ADVANCE VIS A VIS THE CONCERNED BROKER SHRI. PALLAV SHETH ACCOUNT IN ITS BOOKS IN ASST YEAR 1995-96. 5.3. WE ALSO APPRECIATE THE STATEMENT OF THE LEARN ED AR THAT TILL DATE NOT EVEN A SINGLE PENNY COULD BE REALIZED BY THE ASSESSEE FROM SAID BROKER. WE ALSO FIND THAT THE SAID BROKER SHRI.PALLAV SHETH HAD COMMITTED AN ACT OF INSOLVENCY ON 22.4.1996 VIDE INSOLVENCY PETITION NO. 49 OF 1996 AND DECLARED INS OLVENT BY THE COMPETENT AUTHORITY. THOUGH THIS ACT OF INSOLVENCY HAD HAPPENED SUBSEQUE NT TO THE WRITE OFF THE TRADE DEBT AND TRADE ADVANCE BY THE ASSESSEE, WE HOLD THAT THE SUBSEQUENT CONDUCT AND NEGATIVE DEVELOPMENT IN THE HANDS OF THE BROKER SHRI.PALLAV SHETH ONLY STRENGTHENS THE EARLIER CONSCIOUS AND JUDICIOUS DECISION OF THE ASSESSEE TO WRITE OFF THE ADVANCES AND DEBTS AS IRRECOVERABLE. 5.4. WE ARE NOT IN AGREEMENT WITH THE ARGUMENTS OF THE LEARNED DR THAT THE CONTENTION OF ASSESSEE PAYING ADVANCE TO SHRI.PALLA V SHETH UNDER PORTFOLIO MANAGEMENT SCHEME IS A FRESH POINT RAISED BEFORE T HIS TRIBUNAL IN THE SECOND ROUND OF ITA NO. 338/KOL1999-C-AM M/S. SUMMIT INVE STMENTS LTD 11 APPELLATE PROCEEDINGS, AS, WE FIND FROM PARA 2 OF OLD TRIBUNAL ORDER, A CLEAR FINDING HAS BEEN GIVEN THAT THE ASSESSEE HAD INDEED ADVANCE D MONIES TO THE BROKER UNDER PORTFOLIO MANAGEMENT SCHEME. 5.5. WE ALSO FIND THAT THE DECISION OF HONBLE CA LCUTTA HIGH COURT RELIED BY THE LEARNED AR IN THE CASE OF CIT VS COATES OF INDIA LTD REPORTED IN 232 ITR 324 (CAL) FULLY SUPPORTS THE VIEW OF THE ASSESSEE. THE RELEV ANT EXTRACT IS REPRODUCED HEREIN BELOW:- HELD, THAT WHAT HAD BEEN TAKEN INTO CONSIDERATION BY THE COMMISSIONER OF INCOME-TAX (APPEALS) AND THE TRIBUN AL WAS THE ABILITY OR FEASIBILITY OF THE RECOVERY OF THE D EBT FROM THE ANGLE OF THE ASSESSEE AND NOT OF THE DEBTOR AND IN THOSE CIRCUMSTANCES BOTH OF THEM ERRED IN LAW. THEREFORE, THE TRIBUNAL WAS NOT JUSTIFIED IN LAW IN DELETING THE D ISALLOWANCE OF THE BAD DEBTS. 5.6. WE FIND THAT SINCE THE TRADE ADVANCE WAS MADE DURING THE COURSE OF ITS BUSINESS BY THE ASSESSEE, ANY LOSS ON ACCOUNT OF RECOVERABIL ITY WOULD AUTOMATICALLY FALL UNDER THE CATEGORY OF TRADE DEBT / RECEIVABLE AND HENCE I S ALLOWABLE AS BUSINESS LOSS. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF CIT VS MYSORE SUGAR CO. LTD REPORTED IN (1962) 46 I TR 649 (SC) . THE FACTS BEFORE THE HONBLE APEX COURT AND DECISION RENDERED THEREON IS GIVEN BELOW:- FACTS: THE ASSESSEE WHO CARRIED ON THE MANUFACTURE OF SUGAR USED TO ADVANCE SEEDLINGS, FERTILISERS AND MONEY TO SUGARCANE GROWERS UNDER AN AGREEMENT BY WHICH THE GROWERS AGR EED TO SELL THE NEXT CROP OF THE SUGARCANE GROWN BY THEM E XCLUSIVELY TO THE ASSESSEE AT CURRENT MARKET RATES AND TO HAVE THE ADVANCES ADJUSTED TOWARDS THE PRICE OF THE SUGARCAN E TO BE DELIVERED TO THE COMPANY. IN A CERTAIN YEAR OWING T O DROUGHT THE SUGARCANE GROWERS COULD NOT GROW SUGARCANE AND THE ADVANCES REMAINED UNRECOVERED. A COMMITTEE APPOINT ED BY THE GOVERNMENT RECOMMENDED THAT THE ASSESSEE SHOULD EX GRATIA FORGO SOME OF ITS DUES. THE ASSESSEE ACCORDI NGLY WAIVED ITS RIGHTS IN RESPECT OF RS. 2,87,44 AND CLAIMED TH IS AMOUNT AS A DEDUCTION UNDER SECTIONS 10(2)(XI) AND 10(2)(XV) OF THE INCOME- ITA NO. 338/KOL1999-C-AM M/S. SUMMIT INVE STMENTS LTD 12 TAX ACT. THE QUESTION WAS WHETHER THE AMOUNT OF RS. 2,87,422 WHICH WAS GIVEN REPRESENTED A LOSS OF CAPITAL OR WA S A REVENUE EXPENDITURE: HELD, THAT SO FAR AS THE ASSESSEE COMPANY WAS CONC ERNED IT WAS MERELY MAKING A FORWARD ARRANGEMENT FOR THE NEX T YEARS CROPS AND PAYING AN AMOUNT IN ADVANCE OUT OF THE PRICE; THERE WAS NO ELEMENT OF A CAPITAL INVESTMENT IN MAKING TH E ADVANCE AND THE LOSS INCURRED BY THE ASSESSEE WAS, THEREFOR E, A LOSS ON THE REVENUE SIDE AND WAS DEDUCTIBLE. 5.7. WE FIND THAT THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF HARSHAD J. CHOKSI VS CIT REPORTED IN (2012) 25 TAXM ANN.COM 567 (BOM) ALSO SUPPORTS THE VIEW OF THE ASSESSEE. THE QUESTION RAISED BEFO RE THE HONBLE BOMBAY HIGH COURT AND THE DECISION RENDERED THEREON IS REPRODUCED BEL OW:- QUESTIONS: WHETHER IF AN AMOUNT IS HELD TO BE NOT DEDUCTIBLE AS A BAD DEBT IN VIEW OF NON-COMPLIANCE OF THE CONDITION PRECEDENT AS PROVID ED UNDER SECTION 36(2), COULD THE SAME BE CONSIDERED AS AN ALLOWABLE BUSINE SS LOSS? WHETHER, THEREFORE, THE AMOUNT OF RS. 44.98 LAK HS COULD BE CONSIDERED AS AN ALLOWABLE BUSINESS LOSS? HELD: SECTION 28 IMPOSES A CHARGE ON THE PROFITS OR GAINS OF BUSINESS OR PROFESSION. THE EXPRESSION 'PROFITS AND GAINS OF BU SINESS OR PROFESSION' IS TO BE UNDERSTOOD IN ITS ORDINARY COMMERCIAL MEANING AND T HE SAME DOES NOT MEAN TOTAL RECEIPTS. WHAT HAS TO BROUGHT TO TAX IS THE NET AMO UNT EARNED BY CARRYING ON A PROFESSION OR A BUSINESS WHICH NECESSARILY REQUIRES DEDUCTING EXPENSES AND LOSSES INCURRED IN CARRYING ON BUSINESS OR PROFESSION. THE SUPREME COURT IN THE CASE OF BADRIDAS DAGA V. CIT [1958] 34 ITR 10 HAS HELD THAT IN ASSESSING THE AMOUNT OF PROFITS AND GAINS LIABLE TO TAX, ONE MUST NECESSARI LY HAVE REGARD TO THE ACCEPTED COMMERCIAL PRACTICE THAT DEDUCTION OF SUCH EXPENSES AND LOSSES IS TO BE ALLOWED, IF IT ARISES IN CARRYING ON BUSINESS AND IS INCIDENTAL TO IT. [PARA 10] ON THE BASIS OF THE AFORESAID DECISION, IT CAN BE C ONCLUDED THAT EVEN IF THE DEDUCTION IS NOT ALLOWABLE AS BAD DEBTS, THE TRIBUN AL OUGHT TO HAVE CONSIDERED THE ASSESSEE'S CLAIM FOR DEDUCTION AS BUSINESS LOSS. TH IS IS PARTICULARLY SO, AS THERE IS NO BAR IN CLAIMING A LOSS AS A BUSINESS LOSS, IF TH E SAME IS INCIDENTAL TO CARRYING ON OF A BUSINESS. THE FACT THAT CONDITION OF BAD DEBTS WERE NOT SATISFIED BY THE ASSESSEE WOULD NOT PREVENT HIM FROM CLAIMING DEDUCTION AS A BUSINESS LOSS INCURRED IN THE COURSE OF CARRYING ON BUSINESS AS SHARE BROKER. [PA RA 11] IN FACT, THE BOMBAY HIGH COURT IN THE CASE OF CIT V. R.B. RUNGTA & CO. [1963] 50 ITR 233 UPHELD THE FINDING OF THE TRIBUNAL THAT THE LOSS C OULD BE ALLOWED ON GENERAL PRINCIPLES GOVERNING COMPUTATION OF PROFITS UNDER SECTION 10 OF THE INDIAN INCOME-TAX ACT, 1922, WHICH IS SIMILAR/IDENTICAL TO SECTION 28 OF THE 1961 ACT. THE ITA NO. 338/KOL1999-C-AM M/S. SUMMIT INVE STMENTS LTD 13 REVENUE IN THAT CASE URGED THAT THE ASSESSEE HAVING CLAIMED DEDUCTION AS A BAD DEBT THE BENEFIT OF THE GENERAL PRINCIPLE OF LAW TH AT ALL EXPENDITURE INCURRED IN CARRYING ON THE BUSINESS MUST BE DEDUCTED TO ARRIVE AT A PROFIT CANNOT BE EXTENDED. THIS SUBMISSION WAS NEGATIVED BY THE COURT AND IT W AS HELD THAT EVEN WHERE THE DEBT IS NOT HELD TO BE ALLOWABLE AS BAD DEBTS YET T HE SAME WOULD BE ALLOWABLE AS A DEDUCTION AS A REVENUE LOSS IN COMPUTING PROFITS OF THE BUSINESS UNDER SECTION 10(1) OF THE INDIAN INCOME-TAX ACT, 1922. [PARA 12] THEREFORE, THE AMOUNT OF RS. 44.98 LAKHS, WHICH WAS HELD TO BE NOT DEDUCTIBLE AS BAD DEBTS IN VIEW OF THE PROVISIONS OF SECTION 36(2 ), COULD BE CONSIDERED AS AN ALLOWABLE BUSINESS LOSS. [PARA 13] 5.8 IN VIEW OF THE AFORESAID JUDICIAL DECISIONS, WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM DEDUCTION TOWARDS WRITE OFF OF BAD ADVANCE S AMOUNTING TO RS. 1,99,08,500/- AND WE HAVE NO HESITATION IN DIRECTING THE LEARNED AO TO GRANT DEDUCTION TOWARDS THE SAME. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSES SEE IN THIS REGARD ARE ALLOWED. 6. THE DIRECTIONS OF THE HONOURABLE HIGH COURT OF C ALCUTTA ARE COMPLIED WITH IN THE MANNER STATED HEREINABOVE AND THE APPEAL IS DISPOSED OFF ACCORDINGLY. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON 28/ 10 /2015 COPY OF THE ORDER FORWARDED TO: 1.. THE APPELLANT: M/S. SUMMIT INVESTMENTS LTD (TA XATION DEPARTMENT) 37 CHOWRINGHEE, CALCUTTA-700 071. 2 THE RESPONDENT-JT. COMMISSIONER OF INCOME TAX , SPL. RANGE-16, CIT(APPEALS) XV, P- 7 CHOWRINGHEE SQ, CALCUTTA-69. 3 4.. /THE CIT, / THE CIT(A) SD/- ( S.S. VISWANETHRA RAVI, JUDICIAL MEMBER ) SD/- (M. BALAGANESH, ACCOUNTANT MEMBER) DATE 28/10/2015 *PP/SPS ITA NO. 338/KOL1999-C-AM M/S. SUMMIT INVE STMENTS LTD 14 5. DR, KOLKATA BENCH 6. GUARD FILE. TRUE COPY, BY ORDER, ASSTT REGISTRAR