Sagar Drugs & Pharmaceuticals Pvt. Ltd., Ahmedabad V. The Jt.CIT,Range-8, Ahmedabad

ITA 345/AHD/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5878 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 11-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Assessee Lawyers: S N SOPARKAR
• Keywords: Business income; Bad and doubtful debts
• Section: 143(3)

Judgement Text

ITA NO. 345/AHD/2016 SAGAR DRUGS & PHARMACEUTICALS PVT LTD VS. JCIT ASSESSMENT YEAR: 2011-12 PAGE 1 OF 4 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD A BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR VP AND MAHAVIR PRASAD JM] ITA NO. 345/AHD/2016 ASSESSMENT YEAR: 2011-12 SAGAR DRUGS & PHARMACEUTICALS PVT LTD ..AP PELLANT SAGAR, OPP. KAMDHENU COMPLEX, NR. SAHAJANAND COLLEGE, AMBAWADI, AHMEDABAD-380 015 [PAN: AADCS 9311 E] VS JOINT COMMISSIONER OF INCOME TAX ............. .RESPONDENT RANGE-8, AHMEDABAD APPEARANCES BY SN SOPARKAR, FOR THE APPELLANT SK DEV, FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 18.01.2019 DATE OF PRONOUNCEMENT : 18.01.2019 O R D E R PER PRAMOD KUMAR, VP: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED CORRECTNESS OF THE ORDER DATED 1 ST DECEMBER 2015 PASSED BY THE LEARNED CIT(A)-9, AHME DABAD, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF TH E INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2011-12. 2. GRIEVANCE OF THE ASSESSEE IN SUBSTANCE IS THAT T HE LEARNED COMMISSIONER (APPEAL) ERRED IN CONFIRMING THE DISALLOWANCE OF BA D DEBTS WRITTEN OFF OF RS.48,00,000/- ON THE GROUND THAT ALLOWABILITY OF B AD DEBTS U/S 36(1)(VII) R.W.S. 36(2) IS LIMITED TO THE HEAD OF INCOME FROM BUSINESS AND PROFESSION EVEN THOUGH SUCH AMOUNT EARLIER TAXED AS A CAPITAL GAIN. 3. TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERIA L FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSEE BEFORE US IS ENGAGED IN THE BUSINE SS OF MANUFACTURING OF DYE INTERMEDIATES AND FINE CHEMICALS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS C LAIMED BAD DEBTS OF RS.48,00,000/-. IT WAS FURTHER FOUND THAT THE BAD DEBTS IS CLAIMED IN RESPECT OF CLAIM OF CERTAIN SHARES THROUGH M/S. PRAVIN RATILAL SHARE S & STOCK BROKERS PVT LTD AS THE ITA NO. 345/AHD/2016 SAGAR DRUGS & PHARMACEUTICALS PVT LTD VS. JCIT ASSESSMENT YEAR: 2011-12 PAGE 2 OF 4 BROKER HAD NOT PAID THE SALE PROCEEDS TO THE ASSESS EE. IT IS ALSO NOT IN DISPUTE THAT THESE SHARES WERE HELD AS INVESTMENTS AND THAT THE ASSESSEE IS ALSO ENGAGED IN THE BUSINESS OF DEALING IN SHARES, MUTUAL FUNDS ETC. THE SHORT EXPLANATION GIVEN BY THE ASSESSEE, AS APPARENT FROM THE ASSESSMENT ORDER, WA S THAT SINCE THE ENTRIES ON SALES WERE ROUTED THROUGH P&L ACCOUNTS, IT HAS FULF ILLED THE REQUIREMENTS UNDER SECTION 36(2). NOT SATISFIED WITH THE EXPLANATION SO GIVEN BY THE ASSESSEE AT THE TIME OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFIC ER PROCEEDED TO DISALLOW THE CLAIM OF BAD DEBTS OF RS. 48,00,000/-. 4. AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN AP PEAL BEFORE THE CIT(A) BUT WITHOUT ANY SUCCESS. BEFORE THE LD. CIT(A), ASSESSE E HAS PLEADED THAT THE ASSESSEE HAD DEBITED THE ACCOUNT OF PRAVIN RATILAL SHARES &S TOCK BROKERS LTD BY CREDITING THE SALE OF SHARES AND AFTER DEDUCING THE COST OF INVES TMENT IN RESPECT OF SHARES SOLD THE PROFIT HAS BEEN CREDITED TO PROFIT AND LOSS ACCOUNT ; THEREFORE, THE AMOUNT OF THE CLAIM OF BAD DEBTS HAS BEEN CREDITED TO THE PROFIT AND LO SS ACCOUNT OF THE RESPECTIVE YEAR. THIS PLEA AS ALSO THE ARGUMENTS WERE REJECTED BY TH E CIT(A) AND THE ACTION OF THE ASSESSING OFFICER WAS CONFIRMED. WHILE DOING SO, T HE CIT(A) HAS OBSERVED AS FOLLOWS:- 7.2 I HAVE GONE THROUGH THE SUBMISSIONS MADE BY THE APPELLANT AND THE OBSERVATION OF THE A.O. THE APPELLANT HAS WRITTEN O FF AN AMOUNT OF RS. 48 LACS ON ACCOUNT OF BAD DEBT FROM PRAVIN RATILAL SHA RES AND STOCK BROKERS LTD. IN THE P & L A/C. THE A.O. HAS RIGHTLY ENQUIRED FRO M THE ASSESSEE TO EXPLAIN THE DETAILS RELATING TO THE SAID BAD DEBT WITH DOCU MENTS REFLECTING THAT THE SAME WAS TAKEN INTO ACCOUNT WHILE COMPUTING THE INC OME TO THAT PARTICULAR YEAR. THE A.O. HAS FURTHER GONE INTO DETAILS OF COM PUTATION OF INCOME FROM A.Y 1999-2000 TILL A.Y.2001-02 I.E. THE PERIOD IN W HICH THE APPELLANT HAS CLAIMED TO HAVE DEBITED THE ACCOUNT OF PRAVIN RATIL AL SHARES AND STOCK BROKERS LTD. BY CREDITING THE SALE OF SHARES. ACCOR DING TO THE APPELLANT, AFTER DEDUCTING THE COST OF INVESTMENT IN RESPECT OF SHAR ES SOLD THE PROFIT HAS BEEN CREDITED TO P&L A/C. THEREFORE, THE AMOUNT OF CLAIM OF BAD DEBT HAS BEEN CREDITED TO THE P&L A/C OF THE RESPECTIVE YEAR. THE A.O. ON ANALYSING THE COMPUTATION OF INCOME FOR A.Y.1999-2000 AND 2001-02 HAS OBSERVED THAT THE ENTIRE AMOUNT CREDITED IN THE P&L A/C AS OTHER INCO ME IS UNDER SUB-HEAD PROFIT ON SALE OF SHARES. IN ALL THE THREE YEARS TH E APPELLANT HAS DECLARED LTCG, STCG AND HAS CLAIMED THE SAME AS CAPITAL GAIN S. THE AO ALSO OBSERVED THAT SUCH AMOUNT (CLAIMED AS BAD DEBT WERE NEVER REFLECTED IN THE BUSINESS INCOME) AND TRANSACTION WITH THE SHARE BRO KER WERE FOR INVESTMENT FOR WHICH INCOME/LOSS WERE OFFERED UNDER THE HEAD ' CAPITAL GAIN. THE A.O. HAS CONCLUDED THAT THE ALLOWABILITY OF BAD DEBT IS U/S. 36(1)(VII) R.W. SEC. 36(2) AND IS ONLY IN RESPECT OF INCOME FROM BUSINESS AND PROF ESSION. THE BAD DEBT OF RS.40 LACS WRITTEN OFF BY THE APPELLANT IS IN RESPE CT OF THE HEAD INCOME FROM CAPITAL GAIN. THEREFORE, SEC.36(1)(VII) R.W. SEC.36 (2) IS NOT APPLICABLE IN RESPECT OF COMPUTATION OF INCOME/LOSS UNDER THE HEA D CAPITAL GAIN. THE APPELLANT HAS ALSO SUBMITTED THAT RS.48 LAC WAS RECEIVABLE SINCE MANY YEARS FROM THE SHARE BROKER. ACCORDING TO APP ELLANT THE SAID AMOUNT IS ITA NO. 345/AHD/2016 SAGAR DRUGS & PHARMACEUTICALS PVT LTD VS. JCIT ASSESSMENT YEAR: 2011-12 PAGE 3 OF 4 RECEIVABLE IN RESPECT OF SALE OF SHARES IN EARLIER YEARS. IN THE RESPECTIVE YEARS PROFIT EARNED FROM SHARES HAD BEEN OFFERED TO TAX U NDER THE HEAD CAPITAL GAIN. THE APPELLANT HAS CONTESTED THE RECOVERY OF RS. 48 LACS IN COURT FOR LAST 9 YEARS AND ON REALIZING THAT THE SAID AMOUNT IS NOT RECOVERABLE, THE SAME WAS WRITTEN OFF IN P&L A/C. ACCORDING TO THE APPELLANT, THE PROVISION OF SEC.36(2) IS TALKING ABOUT CONSIDERATION OF BAD DEBT WRITTEN OFF IN COMPUTING INCOME OF EARLIER YEARN AND THERE IS NO MENTION OF HEAD OF IN COME IN WHICH BAD DEBT WRITTEN OFF IS TO BE CONSIDERED AS INCOME. I DISAGREE WITH THE CONTENTION OF THE APPELLANT. TH E BAD DEBT CAN BE WRITTEN OFF ONLY IN RESPECT OF A DEBT RELATING TO THE COMPUTATI ON OF INCOME UNDER THE HEAD OF INCOME FROM BUSINESS AND PROFESSION. CAPITAL LO SS IS NOT DEDUCTABLE AS BUSINESS LOSS. IT HAS BEEN HELD IN THE CASE OF BLU ECHIP BUSINESS CENTRE PVT LTD VS. ITO (2014) 149 ITD 354 (MUMBAI) TRIBUNAL TH AT CAPITAL LOSS CANNOT BE CLAIMED AS DEDUCTIBLE AS BUSINESS LOSS. ACCORDINGLY , THE ADDITION MADE ON DISALLOWANCE OF BAD DEBT WRITTEN OFF OF &S. 48 LACS IS HEREBY CONFIRMED AND THE GROUND OFF APPEAL IS DISMISSED. 5. THE ASSESSEE IS NOT SATISFIED BY THE STAND SO TA KEN BY THE CIT(A) AND IS IN FURTHER APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE AP PLICABLE LEGAL POSITION. 7. THE SHORT GROUND ON WHICH MR. SOPARKAR, LEARNED SR. ADVOCATE HAS JUSTIFIED THE PLEA OF THE ASSESSEE IS THAT THE ENTRIES ON SAL ES WERE ROUTED THROUGH P&L ACCOUNT. THE AMOUNT WAS OFFERED FOR TAX. MR. SOPAR KAR, HOWEVER, FAIRLY SUBMITS THAT, IN CASE WHATEVER REASONS THIS IS NOT TO BE ALLOWED AS A BAD DEBT OR BUSINESS LOSS, IT SHOULD ALSO BE ALLOWED AS CAPITAL LOSS. IN OUR HUM BLE UNDERSTANDING, THE FACT OF THESE ENTRIES BEING ROUTED THROUGH P&L ACCOUNT DOES NOT ENTITLE TO BE CLAIMED AS A BAD DEBTS OR BUSINESS LOSS FOR THE SIMPLE REASON TH AT IRRESPECTIVE OF WHETHER THESE ENTRIES IN THE REVENUE FIELD OR CAPITAL FIELD IN TE RMS OF REQUIREMENTS OF THE COMPANIES ACT, IT IS TO BE ROUTED THROUGH P&L ACCOUNT NEVERTH ELESS. 8. IT IS ONLY ELEMENTARY THAT WHAT CAN BE ALLOWED A S BAD DEBTS OR BUSINESS LOSS IS ONLY PUT IN THE REVENUE FILED IN CONNECTION WITH THE BUSINESS OPERATION. WE, THEREFORE, SEE SUBSTANCE IN THE ACTIONS OF THE AUTH ORITIES BELOW AND CONCUR WITH THE VIEWS SO TAKEN BY THE AUTHORITIES BELOW THAT THE LO SS IN QUESTION CANNOT BE ALLOWED AS A BAD DEBTS OR BUSINESS LOSS. HAVING SAID THAT, HOWEVER, WE SEE MERITS IN THE PLEA OF THE LEARNED COUNSEL THAT ONCE IT IS NOT IN DISPUTE THAT LOSS HAS INDEED INCURRED EVEN IF IT IS NOT IN THE REVENUE FIELD OR BAD DEBTS , THE SAME SHOULD BE CONSIDERED BY THE ASSESSING OFFICER FOR BEING ALLOWED IN THE CAPI TAL FILED. THE ASSESSING OFFICER HAVING REJECTED THE CASE OF THE ASSESSEE FOR THE LO SS IN THE REVENUE FIELD, IT IS ONLY COROLLARY THERETO THAT AS LONG AS IT IS A GENUINE L OSS, AS UNDISPUTED FACTS OF THE PRESENT CASE CLEARLY INDICATE, THE LOSS IS TO BE TR EATED AS LOSS IN THE CAPITAL FIELD, AND ITA NO. 345/AHD/2016 SAGAR DRUGS & PHARMACEUTICALS PVT LTD VS. JCIT ASSESSMENT YEAR: 2011-12 PAGE 4 OF 4 THE MATTER IS TO BE EXAMINED FURTHER FROM THAT ANGL E. HOWEVER, THIS ASPECT OF THE MATTER IS NOT AT ALL EXAMINED BY THE ASSESSING OFFI CER. THEREFORE, WE REMIT THIS ISSUE TO THE ASSESSING OFFICER FOR EXAMINATION OF THE ALT ERNATIVE CLAIM OF THE ASSESSEE THAT THE LOSS BE ALLOWED AS CAPITAL LOSS. TO THIS EXTEN D, THE PLEA OF THE LEARNED COUNSEL IS ACCEPTED. 9. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES IN THE TERMS INDICATED ABOVE. DICTATED IN THE OPEN COURT TODAY ON THE 18 TH JANUARY, 2019. SD/- SD/- MAHAVIR PRASAD PRAMOD KUMAR (JUDICIAL MEMBER) (VICE PRESI DENT ) AHMEDABAD, DATED THE 18 TH DAY OF JANUARY, 2019 COPIES TO: (1) THE APPELLANT (2) THE RESPOND ENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD 1. DATE OF DICTATION: .....18.01.2019..... 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: . 18.01.2019. 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR . P.S./P.S.: 18.01.2019 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: . 18.01.2019 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK : . 18.01.2019. 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK : . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER : . 8. DATE OF DESPATCH OF THE ORDER: ......