ACIT, Bangalore V. M/s Lotus Power Gear (P) Ltd., Bangalore

ITA 44/BANG/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5254 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 18-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V S SREELEKHA
• Assessee Lawyers: MARIAPPA M
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 44/BANG/2010 ASSESSMENT YEAR : 2005-06 THE ASST . COMMISSIONER OF INCOME-TAX, CIRCLE 11(5), BANGALORE. : APPELLANT VS. M/S. LOTUS POWER GEAR (P) LTD., NO.12/13 KM, KANAKAPURA ROAD, DODDAKALLASANDRA, BANGALORE 560 062. : RESPONDENT APPELLANT BY : SMT. V.S. SREELEKHA, ADDL. CIT(DR) RESPONDENT BY : SHRI MARIAPPA M.S., ADVOCATE O R D E R PER A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-I, BANGALORE, IN ITA NO: 232/AC 11(5)/CIT(A) -I/07-08 DATED: 12.11.2009 FOR THE ASSESSMENT YEAR 2005-06 IN THE C ASE OF LOTUS POWER GEAR (P) LIMITED. 2. IN THIS APPEAL, THE REVENUE HAS RAISED FIVE GROU NDS, OUT OF WHICH, GROUND NOS: 1, 4 AND 5 BEING GENERAL IN NATURE WITH NO SPECIFIC ISSUES ITA NO.44/BANG/10 PAGE 2 OF 6 INVOLVED, THEY HAVE BECOME NON-CONSEQUENTIAL AND DI SMISSED AS SUCH. IN THE REMAINING GROUNDS, THE MAIN THRUST OF THE REVEN UE IS CONFINED TO THE CIT (A) HAS ERRED IN DELETING THE ADDITI ON OF RS.5,97,344/- OUT OF BAD DEBTS WRITTEN OFF. 3. THE ISSUE, IN BRIEF, IS THAT THE ASSESSEE COMPAN Y (THE ASSESSEE IN SHORT) ENGAGED IN THE BUSINESS OF MANUFACTURING OF ELECTRICAL SWITCH GEAR AND CONTROL PANELS HAD CLAIMED RS.18,21,605/- AS BA D DEBTS AND THE AO, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, NOTICE D THAT RS.5,97,344/- WRITTEN OFF PERTAINING TO TRANSACTIONS ENTERED INTO DURING THE YEAR UNDER CHALLENGE. THUS, THE AO TOOK A STAND THAT THE DEBT S CAN BE CONSIDERED TO BE BAD WHEN THEY ARE NOT RECOVERABLE. THE DEBTS HAVE BEEN INCURRED DURING THE YEAR AND THE PARTIES FROM WHOM DEBTS HAV E BEEN STATED TO BE IRRECOVERABLE WERE CONTINUING TO HAVE TRANSACTIONS WITH THE ASSESSEE AND, THUS, THE CLASSIFICATION OF THE DEBT AS BAD IS QUES TIONABLE. 4. AGGRIEVED, THE ASSESSEE TOOK UP THE ISSUE WITH T HE LD. CIT(A) WHO, AFTER PERUSING THE DETAILS FURNISHED BY THE ASSESSE E SUCH AS LEDGER COPIES OF ACCOUNTS WHEREIN AS PER THE RESOLUTION OF THE BO ARD OF DIRECTORS OF THE ASSESSEE, THE AMOUNTS HAVE BEEN CONSIDERED AS IRREC OVERABLE AND WRITTEN OFF, OBSERVED THAT 3.THE REASONS SHOWN FOR NON-RECOVERY IN THE CHART CLEARLY DEMONSTRATES THAT, BECAUSE OF CONTINU ING GOOD BUSINESS TRANSACTION PRESSING FOR SUCH SMALL AMOUNTS WOULD N OT BE CONSIDERED A PRUDENT STEP ON THE PART OF THE APPELLANT. I, THER EFORE, HAS (SIC) HAVE NO HESITATION TO CONCLUDE THAT THE APPELLANT IS JUSTIF IED IN WRITING OFF THE SUM TREATING THEM AS BAD AND IRRECOVERABLE. ITA NO.44/BANG/10 PAGE 3 OF 6 5. DISILLUSIONED, THE REVENUE HAS COME UP WITH THE PRESENT APPEAL. THE CRYPTIC SUBMISSION OF THE REVENUE IS THAT (I) THE CIT(A) HAS ERRED IN DELETING THE ADDITION MADE OUT OF BAD DEBTS WRITTEN OFF PERTAINING TO 18 PARTIES ON THE G ROUND THAT BECAUSE OF CONTINUOUS GOOD BUSINESS TRANSACTION PRE SSING FOR SUCH SMALL AMOUNT WOULD NOT BE CONSIDERED A PRUDENT STEP ON THE PART OF THE APPELLANT; & (II) HE HAS FAILED TO APPRECIATE THAT AN AMOUNT WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE, IS A LLOWABLE AS A DEDUCTION U/S 36(1)(VII) OF THE ACT ONLY IF IT IS A BAD DEBT. IT WAS, THEREFORE, VEHEMENTLY PLEADED THAT THE IMPU GNED ORDER OF THE LD. CIT(A) REQUIRES TO BE ANNULLED AND THAT OF THE AO B E RESTORED. 6. ON THE OTHER HAND, THE LD. AR ARGUMENT WAS MORE OR LESS REVOLVED WHAT WAS URGED BEFORE THE FIRST APPELLATE AUTHORITY . IN FURTHERANCE, IT WAS SUBMITTED THAT THE AO HAD ERRED IN TREATING THE AM OUNT OF RS.5.97 LAKHS AS BAD DEBTS INSTEAD OF BUSINESS LOSS, THAT SHE SHOULD HAVE INQUIRED INTO THE CHARACTER, NATURE AND THE CIRCUMSTANCES UNDER WHICH THE AMOUNTS WERE TREATED AND DEBITED IN THE BOOKS OF ACCOUNTS AS BA D DEBTS. IT WAS EARNESTLY PLEADED THAT SINCE THE LD. CIT (A) DECIDE D THE ISSUE IN A JUDICIOUS MANNER, KEEPING THE BACK-GROUND OF THE ISSUE IN VIE W, NO INTERFERENCE IS CALLED FOR AT THIS STAGE. 7. WE HAVE DULY CONSIDERED THE RIVAL SUBMISSIONS, D ILIGENTLY PERUSED THE RELEVANT RECORDS AND ALSO THE DETAILS FURNISHED BY EITHER PARTY. 7.1. BEFORE ANALYZING THE ISSUE, LET US HAVE A GLIM PSE OF WHAT THE AMENDED PROVISIONS OF S. 36(1) (VII) OF THE ACT SAY . ITA NO.44/BANG/10 PAGE 4 OF 6 S.36. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLO WING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THE REIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28- (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. 7.2. THUS, THE AMENDED PROVISIONS OF S.36(1)(VII) OF THE ACT MAKE IT UNAMBIGUOUSLY CLEAR THAT ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR , THE ASSESSEE IS WITHIN HIS/ITS REALM TO CLAIM THE SAME AS A DEDUCTION. THIS HAS BEEN PRECISELY REINFORCED BY THE LEGAL PRONOUNCEMEN TS ALSO. 7.3. WE SHALL HAVE A GLANCE ON WHAT THE HONBLE COU RTS SAY ON THE ISSUE. I. THE HONBLE HIGH COURT OF PATNA, IN THE CASE OF LA WLYS ENTERPRISES P. LTD. V. CIT REPORTED IN (2009) 314 ITR 297, HAS RUL ED THAT THE LAW AS AMENDED WITH EFFECT FROM APRIL 1, 1989, PERMITTED D EDUCTION OF THE AMOUNT OF ANY BAD DEBT OR PART THEREOF, WHICH WAS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. TH E ASSESSEE, HAVING WRITTEN OFF THE AMOUNT AS IRRECOVERABLE IN ITS ACCOUNTS FOR THE PREVIOUS YEAR, WAS ENTITLED TO DEDUCTION OF THE AMOUNT OF THE BAD DEBT . II. ON A SIMILAR ISSUE, THE HONBLE HIGH COURT OF HIMA CHAL PRADESH IN THE CASE OF SURESH GAGGAL V. ITO REPORTED IN (2009) 222 CTR (HP) 96 WAS VERY EMPHATIC IN ITS RULING THAT THE AMENDED PROVIS ION OF S.36(1)(VII) IS ABSOLUTELY CLEAR THAT ONCE THE ASSESSEE WRITES OFF ANY BAD DEBT OR ANY PART ITA NO.44/BANG/10 PAGE 5 OF 6 THEREOF AS BEING IRRECOVERABLE, HE IS ENTITLED TO C LAIM DEDUCTION FOR THE SAME. THE WORD ESTABLISHED HAS BEEN DELETED FROM THE AMENDED PROVISION AND, THUS, ONCE THE ASSESSEE WRITES OFF T HE DEBT AS IRRECOVERABLE, HIS CLAIM FOR DEDUCTION CANNOT BE REJECTED ON THE G ROUND THAT THE DEBT HAS NOT BEEN ESTABLISHED TO HAVE BECOME IRRECOVERABLE. THE HONBLE COURT HAS SEALED THE ISSUE THUS - ANY DOUBT, IF REMAINING, HAS BEEN CLARIFIED BY CIRCULAR NO.551 DATED: 23 RD JANUARY, 1990. 7.4. IN VIEW OF THE AMENDED PROVISIONS OF S.36(1 )(VII) OF THE ACT AND ALSO THE JUDICIAL VIEW AS REFERRED TO IN THE FORE- GOING PARAGRAPHS, WE ARE OF THE UNANIMOUS VIEW THAT THE AO WAS NOT JUSTIFIED IN DISALLOWING RS.5,97,344/- CLAIMED AS BAD DEBTS WRITTEN OFF. IT IS ORDERED ACCORDINGLY. 8. IN THE RESULT, THE REVENUES APPEAL IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 3 RD DAY OF JUNE, 2010. SD/- SD/- ( SMT. P. MADHAVI DEVI ) (A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 3 RD JUNE, 2010. DS/- ITA NO.44/BANG/10 PAGE 6 OF 6 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE (1+1) BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.