MAHINDRA CONSTRUCTION COMPANY LTD, MUMBAI V. ACIT CIR 6(3), MUMBAI

ITA 3624/MUM/2010

• Counselvise Citation: 362419914 RSA 2010
• Duration Of Justice: 1 year(s) 2 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-07-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 07-05-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DEVDATTA MAINKAR
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI R.S.SYAL(A.M) AND SHRI N.V.VASUDEVA N(J.M) ITA NO.3624/MUM/2010(A.Y. 2006-07) MAHINDRA CONSTRUCTION COMPANY LIMITED, 5 TH FLOOR, MAHINDRA TOWERS, ROAD NO.13, WORLI, MUMBAI 400 018. PAN:AAACM 3574A (APPELLANT) VS. THE ACIT, CIR. 6(3), MUMBAI. (RESPONDENT) APPELLANT BY : SHRI DEVDATTA MAINKAR RESPONDENT BY : SHRI SANJEEV JAIN DATE OF HEARING : 25/07/2011 DATE OF PRONOUNCEMENT : 29/07/2011 ORDER PER N.V.VASUDEVAN, J.M, THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORD ER DATED 24/12/2009 OF CIT(A)-12, MUMBAI RELATING TO A.Y 2006 -07. THE GROUND OF APPEAL BY THE ASSESSEE READS AS FOLLOWS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF BAD DEBTS TO THE TUNE OF RS.48,74,617/-. 2. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINES S OF CIVIL CONSTRUCTION AND CONSTRUCTION PROJECT MANAGEMENT. THE ASSESSEE HAD DEBITED A SUM OF RS. 1,42,39,937/- UNDER THE HEAD B AD DEBT AND SUNDRY BALANCES WRITTEN OFF IN THE P&L ACCOUNT AND CLAIMED AS A DEDUCTION WHILE COMPUTING THE TOTAL INCOME . THE A O CALLED UPON THE ITA NO.3624/MUM/2010(A.Y. 2006-07) 2 ASSESSEE TO SUBMIT THE DETAILS OF THE DEBTS WHICH W ERE WRITTEN OF AS BAD AND DOUBTFUL. THE ASSESSEE FURNISHED THE NECES SARY DETAILS. THE AO WAS OF THE VIEW THAT EVEN AFTER THE AMENDMENT TO THE PROVISIONS OF SECTION 36(1)(VII) OF THE INCOME TAX ACT, 1961 (THE ACT), THE ASSESSEE HAD TO ESTABLISH THAT THE DEBTS WRITTEN OFF AS BAD DEBTS HAD IN FACT BECOME BAD. THE AO, THEREFORE, DISALLOWED THE CLAI M OF THE ASSESSEE FOR DEDUCTION. 3. ON APPEAL BY THE ASSESSEE THE CIT(A) EXAMINED TH E MAJOR DEBTS WHICH WERE WRITTEN OFF AS BAD DEBTS AND HELD THAT T HE ASSESSEE HAD ESTABLISHED THAT IT HAD TAKEN ENOUGH EFFORTS TO RE COVER THE DEBTS AND STILL COULD NOT RECOVER THE DEBTS AND, THEREFORE, T HE ASSESSEE WAS JUSTIFIED IN WRITING OFF OF THE DEBTS IN QUESTION A S BAD DEBTS. HOWEVER, IN RESPECT OF DEBTS DUE FROM JAIN HOUSING & CONST. CO.LTD., HOWEVER, INCLUDING EIFFEL AND ANTARIKSHA, THE CIT(A) HELD TH AT THE DECISION OF THE ASSESSEE TO WRITE IT OFF AS BAD DEBT WAS NOT ON SOL ID FOOTING FOR THE REASON THAT THE ASSESSEE HAS WON AN ARBITRATION AWA RD AND THERE WAS NO STAY OF RECOVERY OF THE AMOUNTS DUE UNDER THE AW ARD BY THE HONBLE HIGH COURT. THE DEBTOR HAD ONLY FILED APPE AL AGAINST THE AWARD OF THE ARBITRATORS. ACCORDING TO THE CIT(A) , THE ASSESSEE HAS AN AWARD IN HIS FAVOUR AND WAS IN A POSITION TO ENFORC E THE DEBT. HE HELD THAT THE ASSESSEE HAS NOT GIVEN ANY EVIDENCE THAT I T HAD TRIED TO ENFORCE THE AWARD OR THAT THE DEBTOR WAS NOT FINANC IALLY CAPABLE TO PAY THE DEBT. THE CIT(A) THEREFORE HELD THAT THE DEBTS WRITTEN OFF IN THE CASE OF JAIN HOUSING, EIFFEL AND ANTARIKSHA AMOUNTI NG TO RS. 27,30,677/-, RS. 11,00,889/- AND RS. 10,43,051/- CA NNOT BE ITA NO.3624/MUM/2010(A.Y. 2006-07) 3 CONSIDERED AS BAD DEBTS. THE CIT(A) ALSO HELD THAT THE ASSESSEE HAS NOT IN THESE CASES PROVED THE BONAFIDE OF THE DECI SION TAKEN TO WRITE OFF THE DEBT. IN VIEW OF THE ABOVE, THE DISALLOWAN CE MADE BY THE AO AMOUNTING TO RS. 1,42,39,937/- WAS RESTRICTED TO RS . 48,74,617/-. 4. AGGRIEVED BY THE ORDER OF THE CIT(A) SUSTAINING THE ADDITION MADE BY THE AO TO THE EXTENT OF RS. 48,74,617/- THE ASSE SSEE HAS FILED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD RIVAL SUBMISSIONS. PRIOR TO 1STAPRIL, 1989, EVERY ASSESSEE HAD TO ESTABLISH, AS A MATTER OF FACT, THA T THE DEBT ADVANCED BY THE ASSESSEE HAD, IN FACT, BECOME IRRECOVERABLE. THAT P OSITION GOT ALTERED BY DELETION OF THE WORD ESTABLISHED, WHICH EARLIER E XISTED IN SECTION 36(1)(VII) OF THE INCOME TAX ACT, 1961 [`ACT',FOR SHORT]. FOR THE SAKE OF CLARITY, WE RE- PRODUCE HEREINBELOW PROVISIONS OF SECTION 36(1)(VII ) OF THE ACT, BOTH PRIOR TO 1ST APRIL, 1989 AND POST-1ST APRIL, 1989: PRE- 1 S T APRIL, 1989 : OTHER DEDUCTIONS. 36.(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN CO MPUTING THE INCOME REFERRED TO IN SECTION 28(I) TO (VI) XXXX XXXX XXXX (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION(2), THE AMOUNT OF ANY DEBT, OR PART THEREOF, WHICH IS ESTABLISHED TO HAVE BECOME A BAD DEBT IN THE PREVIOUS YEAR. POST- 1 S T APRIL, 198 9: OTHER DEDUCTIONS. 36.(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN CO MPUTING THE INCOME REFERRED TO IN SECTION28(I) TO (VI) ITA NO.3624/MUM/2010(A.Y. 2006-07) 4 XXXX XXXX XXXX (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION(2), THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. IN TRF LIMITED VS. CIT 323 ITR 397 (SC), THE HON BLE SUPREME HOLD HAS HELD THAT AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECO VERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACC OUNTS OF THE ASSESSEE. 6. IN THE LIGHT OF THE DECISION OF THE HONBLE SUPR EME COURT REFERRED TO ABOVE WE ARE OF THE VIEW THAT THE ADDITIONS SUST AINED BY THE CIT(A) DESERVES TO BE DELETED. IT IS SEEN THAT IN THE CAS E OF DEBTS JAIN HOUSING & CONST. CO.LTD., THERE WERE DISPUTES BETWE EN THE ASSESSEE AND JAIN HOUSING & CONST. CO. LTD., AND THE MATTER WAS REFERRED TO ARBITRATION. IT WAS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESSEE BEFORE US THAT THE AMOUNT IS DUE AND PAYABLE IS ONL Y BY ONE PARTY NAMELY JAIN HOUSING & CONT. CO.LTD. AND THE OTHER T WO NAMES NAMELY EIFFEL AND ANTARIKSHA ARE NAMES OF THE PROJ ECTS DEVELOPED BY JAIN HOUSING & CONST. CO. LTD. IN RESPECT OF WHICH THE AMOUNT IN QUESTION WERE DUE TO THE ASSESSEE BY JAIN HOUSING & CONST. CO.LTD. DESPITE THE AWARD IN FAVOUR OF THE ASSESSEE, JAIN HOUSING & CONST. CO. LTD., PREFERRED AN APPEAL CHALLENGING THE ORDE R OF THE HONBLE ARBITRATOR BEFORE THE HONBLE HIGH COURT. IT IS IN THESE CIRCUMSTANCES THAT THE ASSESSEE WROTE OFF THE DEBTS AND BAD DEBTS . IN OUR VIEW THE FAT THAT THERE WAS AN AWARD IN FAVOUR OF THE ASSESS EE WOULD NOT BE A GROUND TO HOLD THAT THE AMOUNT DUE UNDER THE AWARD CANNOT BE WRITTEN OFF AS BAD DEBTS. IN THIS REGARD WE ARE A LSO OF THE VIEW THAT IN ITA NO.3624/MUM/2010(A.Y. 2006-07) 5 THE EVEN OF ANY RECOVERY BY THE ASSESSEE THERE ARE PROVISIONS IN THE ACT TO BRING TO TAX SUCH SUMS AS INCOME. WE, THEREFORE , HOLD THAT THE ADDITION SUSTAINED BY THE CIT(A) SHOULD BE DELETED. WE ORDER ACCORDINGLY. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH JULY 2011. SD/- SD/- (R.S.SYAL ) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED. 29 TH JULY .2011 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CITY CONCERNED 4. THE CIT(A)- CONCERNED 5. THE D.RB BENCH. (TRUE COPY) BY ORDER ASST. REGISTRAR, I TAT, MUMBAI BENCHES MUMBAI. VM. ITA NO.3624/MUM/2010(A.Y. 2006-07) 6 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 25/7/11 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 26/7/11 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER