DCIT, New Delhi V. M/s. Maruti Countrywide Auto Financial Services Pvt. Ltd., New Delhi

ITA 5894/DEL/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 97990 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 18-11-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 01-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: DEBJYOTI DAS
• Keywords: Bad and doubtful debts
• Section: 143(3); 142(1); 28

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH E : NEW DELHI BEFORE SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI , ACCOUNTANT MEMBER IN ITA NO. 5894 /DEL/ 2013 (ASSESSMENT YEAR: 2009 - 10 ) DCIT, CIRCLE - 6(1), ROOM NO.413, C.R. BUILDING, I.P.ESTATE, NEW DELHI VS. MARUTI COUNTRYWIDE AUTO FINANCIAL SERVICES PVT. LTD., 401 - 402, 4 TH FLOOR, MILLENNIUM TOWER, E - 1,2,3, NETAJI SUBHASH PLACE, PITAMPURA, NEW DELHI PAN:AAACM6101B (APPELLANT) APPELLANT BY : SH. SACHIT JOLLY, ADV RESP ONDENT BY : SH. DEBJYOTI DAS, CIT DR DATE OF HEARING 18 .11.2015 DATE OF PRONOUNCEMENT 26 . 11 .2015 O R D E R PER PRASHANT MAHARISHI , A M 01 . THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AGAINST THE ORDER OF THE LD CIT(A) - IX , NEW DELHI DATED 30.08.2013 FOR THE ASSESSMENT YEAR 2009 - 10 . 02 . THE REVENUE HAS RAISED THE FOLLOWING GROUNDS: - 1 . WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN DELETING THE DISALLOWANCE OF RS.77,36,166/ - MADE BY THE AO ON ACCOUNT OF LOSS OF FORECLOSURE OF LOAN ASSETS ON THE BASIS OF JUDICIAL PRONOUNCEMENTS IN THE CASE OF ASSESSEE FOR THE EARLIER ASSESSMENT YEARS WITHOUT APPRECIATING THAT THE ASSESSEE HAS CHANGED THE BUSINESS MODEL IN THE A.Y. 2009 - 10 AS THE LOSS C LAIMED BY THE ASSESSEE IS ON ACCOUNT OF LOSS OF FORECLOSURE OF LOAN ASSETS FOR THE A.Y. 2009 - 10 WHEREAS IN THE EARLIER ASSESSMENT YEARS THE LOSS WAS ON ACCOUNT OF LOSS ON SALE OF REPOSSESSED ASSETS? 2. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD. CIT (A) ERRED IN HOLDING THAT THE LOSS ON FORECLOSURE OF LOAN ASSETS IS AKIN TO THE LOSS WAS ON ACCOUNT OF LOSS ON SALE OF REPOSSESSED ASSETS? 3. THE ORDER OF THE LEARNED CIT ( APPEALS) IS ERRONEOUS & CONTRARY TO FACTS & LAW. 4. THAT TH E GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 03 . THE FACTS IN BRIEF OF THE CASE ARE THAT THE ASSESSEE IS AN NBFC ENGAGED IN THE BUSINESS OF AUTO FINANCE, LEASE AND HIRE PURCHASE . IT FINANCES TO DCIT CIR 6 (1) NEW DELHI V MARUTI COUNTYWIDE AUTO FINANCIAL SERVICES LIMITED ITA NO 5894/DEL/2013 AY 2009 - 10 2 | P A G E CUSTOMERS BUYING VEHICLES AND AUTO PRODUCTS PARTICUL ARLY MANUFACTURES UNDER MARUTI BRAND. THE ASSESSEE FILED RETURN OF INCOME DECLARING AN INCOME OF RS.18,18,75,550/ - ON 27.09.2009 FOR THE ASSESSMENT YEAR 2009 - 10. THE CASE WAS SELECTED FOR SCRUTINY AND STATUTORY NOTICE U/S 143(2) AND 142(1) OF THE INCOME - T AX ACT, 1961 (FOR SHORT THE ACT) WERE SERVED. THE ASSESSMENT WAS COMPLETED U/S 143(3) VIDE ORDER DATED 15.12.2011 BY THE ASSESSING OFFICER AT THE INCOME OF RS.18,96,11,720/ - MAKING ADDITION OF RS.77,36,166/ - ON DISALLOWANCE OF LOSS ON FORECLOSURE OF LOAN ASSET. 04 . AMOUNT OF LOSS ON FORECLOSURE OF LOAN IS ARISING OUT OF THE AUTO OR CONSUMER LOANS ADVANCED BY THE ASSESSEE COMPANY WHICH MAY OR MAY NOT BE HYPOTHECATED AGAINST THE ASSETS FINANCED. IN THE EVENT OF DEFAULT IN PAYMENTS OF INTEREST OR EMI OR SCHEDULED AMOUNT ASSESSEE NEGOTIATED THE OUTSTANDING AMOUNT WITH ITS CUSTOMERS AND THE ACCOUNT OF THE CUSTOMER IS SETTLED AT THE MUTUALLY AGREED AMOUNT. THIS AMOUNT MOST OF THE TIMES IS LESS THAN THE AMOUNT OUTSTANDING IN THE ACCOUNTS OF THE BORR OWER. THEREFORE THIS SHORT AMOUNT RECOVERED IS CALLED AS LOSS ON FORECLOSURE OF LOAN ASSETS. THIS AMOUNT IS WRITTEN OFF IN PROFIT AND LOSS ACCOUNT AND CLAIMED AS DEDUCTION BY THE ASSESSEE. DURING ASSESSMENT PROCEEDINGS THE CLAIM OF THE ASSESSEE WAS DIS ALLOWED HOLDING THAT IT IS NOT BAD DEBT BUT IT IS A FUTURE POSSIBLE, PROBABLE AMOUNT SAVED BY ASSESSEE FROM GOING BAD AND THEREFORE DOES NOT REPRESENT UNRECOVERED AMOUNT AND HENCE SAME IS NOT ALLOWABLE AS BAD DEBT U/S 36(1 ) (VII) RWS 36(2) OF THE INCOME TAX ACT. 05 . AGGRIEVED THE ASSESSEE FILED AN APPEAL BEFORE THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS), WHO PARTLY ALLOW ED THE APPEAL OF THE ASSESSEE H OLDING THAT IT IS ALLOWABLE AS BAD DEBT BASED ON JUDICIAL PRONOUNCEMENTS WHICH ARE RELATED TO LOS S ARISING ON ACCOUNT OF REPOSSESSED VEHICLES IN CASE OF NBFCS. CIT A() ALSO HELD THAT THIS DEDUCTION IS OF SIMILAR NATURE. 06 . AGGRIEVED BY THE ORDER OF LD. CIT (A) REVENUE IS IN APPEAL BEFORE US. BEFORE US LD DR SUBMITTED THAT THE DECISION RELIED UP ON BY THE CIT (A) ARE NOT APPLICABLE ON THE FACTS OF THE CASE AS THOSE DECISION ARE RELATED TO LOSS ARISING ON REPOSSESSED VEHICLES AND THIS CASE IS CLAIMED OF LOSS ON ACCOUNT DCIT CIR 6 (1) NEW DELHI V MARUTI COUNTYWIDE AUTO FINANCIAL SERVICES LIMITED ITA NO 5894/DEL/2013 AY 2009 - 10 3 | P A G E OF RENEGOTIATED DEBTS AT LESSER AMOUNT AND THEN CLAIMING SUCH LESSER AMOUNT CLAIMED AS D EDUCTION AS BAD DEBT. THEREFORE CIT (A) HAS WRONGLY ALLOWED THE CLAIM OF THE ASSESSEE. 07 . LD AR ON OTHER HAND SUBMITTED THAT THERE IS NO DIFFERENCE BETWEEN THE NOMENCLATURE ON BOTH THESE TRANSACTIONS AND THE LOSS IS IN FACT BAD DEBT WHICH SATISFIES ALL TH E CRITERIA LAID DOWN U/S 36(1) ( VII) RWS 36 (2) OF THE INCOME TAX A CT AND SAME SHOULD BE ALLOWED TO THE ASSESSEE. FOR THIS HE RELIED UP ON FOLLOWING DECISIONS : - A . CIT DELHI II V MARUTI COUNTRYWIDE AUTO FINANCE SERVICES LIMITED SLP IN CC22330/2011 B . C IT V CITICORP MARUTI FINANCE LIMITED ITA NO 1712/2010 & 1714/2010 DATED 9/11/2010 ( DELHI) (HC) C . DCIT V MARUTI COUNTRYWIDE AUTO FINANCIAL SERVICES P LTD ITA NO 281 TO 2183/DEL/2010 DATED 29.4.2011 08 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO THE VARIOUS DECISIONS RELIED UP ON BY THE ASSESSEE. FACTUM OF THE CLAIM OF THE ASSESSEE IS THAT ASSESSEE ADVANCES TO LOAN TO VARIOUS CUSTOMERS AGAINST HYPOTHECATION OF PRIMARY ASSETS. LATE OR ON IMMINENT DEFAULT IN REPAYMENT OF LOAN OR ON ACCOUNT OF INADEQUATE SECURITY AVAILABLE WITH THE ASSESSEE, ASSESSEE NEGOTIATES THE OUTSTANDING AMOUNT WITH THE BORROWER FOR REPAYMENT. ON NEGOTIATION IT MAY HAPPEN THE NEGOTIATED AMOUNT IS MOST OF THE TIMES LESS THAN THE AMOUNT OF OUTSTANDING DUE FR OM THE BORROWER. SUCH EXCESS OF OUTSTANDING OVER THE NEGOTIATED AMOUNT IS WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE TITLE D AS LOSS ON FORECLOSURE OF LOAN ASSETS. SUCH AMOUNT IS CLAIMED AS DEDUCTION U/S 36(1) (VII) OF THE INCOME TAX ACT. PRO VISION OF SECTION 36 (1) ( VII) ARE AS UNDER : - 36. (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, 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] : DCIT CIR 6 (1) NEW DELHI V MARUTI COUNTYWIDE AUTO FINANCIAL SERVICES LIMITED ITA NO 5894/DEL/2013 AY 2009 - 10 4 | P A G E PROVIDED THAT IN THE CASE OF [AN ASSESSEE] TO WHICH CLAUSE (VIIA) APPLIES, THE AMOUNT OF THE DEDUCTION RELATING TO ANY SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO THE AMOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE : EXPLANA TION FOR THE PURPOSES OF THIS CLAUSE, ANY BAD DEBT OR PART THEREOF WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE SHALL NOT INCLUDE ANY PROVISION FOR BAD AND DOUBTFUL DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE 2) IN MAKING ANY DEDUCTION FO R A BAD DEBT OR PART THEREOF, THE FOLLOWING PROVISIONS SHALL APPLY - (I) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR, OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY - LENDING WHICH IS CARRIED ON BY THE ASSESSEE ; 09 . ADMITTEDLY THE ASSESSEE IS A NON BANKING FIANC COMPANY AND ENGAGED IN THE BUSINESS OF MONEY LENDING AND THEREFORE THE AMOUNT OF DEBT REPRESENTS THE MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF MONEY LENDING. FURTHER ACCORDING TO SECTION 36(1) (VII) OF THE ACT ANY BAD DEBT OR PART OF THE BAD DEBT IF W RITTEN OFF IN THE BOOKS OF ACCOUNTS AS IRRECOVERABLE , SAME SHALL BE ALLOWED TO THE ASSESSEE AS DEDUCTION. IT IS ADMITTEDLY WRITTEN OFF IN THE BOOK OF ACCOUNTS OF THE ASSESSEE AS LOSS ON FORECLOSURE OF LOAN ASSETS . IN VIEW OF THIS THE ASSESSEE SATISF IES ALL THE CONDITIONS OF ALLOWABAILITY OF THIS SUM AS DEDUCTION U/S 36(1) (VII) RWS 36(2) OF THE INCOME TAX ACT. AS THE SUM IS WRITTEN OFF IN THE BOOKS OF ACCOUNTS BY WRITING OF THE LOAN AMOUNT OF THE BORROWER ON NEGOTIATION CANNOT BE CALLED A FUTUR E OR PROBABLE LOSS BUT ASCERTAINED AND ACCRUED LOSS IN THE BUSINESS OF FINANCING. THOUGH THE CASES RELIED UP ON BY THE ASSESSEE RELATES TO THE ISSUES OF LOSS ON SALE OF REPOSSESSED VEHICLE, HONOURABLE DELHI HIGH COURT IN CASE OF CIT V CITI CORP MARUTI FINANCE LIMITED IN ITA NO 1712 & DCIT CIR 6 (1) NEW DELHI V MARUTI COUNTYWIDE AUTO FINANCIAL SERVICES LIMITED ITA NO 5894/DEL/2013 AY 2009 - 10 5 | P A G E 1714 /20109/11/2010 HAS HELD THAT EVEN LOSS ON REPOSSESSED VEHICLE SOLD IS ALSO ALLOWABLE TO THE ASSESSEE U/S 36(1) RWS 36 (2) OF THE ACT. HONOURABLE DELHI HIGH COURT ALSO HELD THAT SUCH DEDUCTION WAS ALSO COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONOURABLE CALCUTTA HIGH COURT IN CASE OF A W FIGGIES & CO PVT LIMITED 254 ITR 63 . ABOVE DECISION OF HONOURABLE DELHI HIGH COURT HAS BEEN UPHELD BY HON SUPREME COURT IN CC 22330/2011 DATED 13/1/2012. F URTHER THE CLAIM OF THE ASSESSEE IN WRITING OFF OF THE BAD DEBT IS ON STRONGER FOOTING ON THE CASES RELIED UP ON BY THE ASSESSEE. IN VIEW OF ABOVE FACTS, WE CONFIRM THE ORDER OF CIT (A) IN DELETING THE DISALLOWANCE OF RS. 77,36,166/ - MADE BY THE AO ON ACCO UNT OF LOSS OF FORECLOSURE OF LOAN ASSETS . 10 . IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 6 . 11 . 2015 . - S D / - - S D / - ( H.S.SIDHU ) (PRASHANT MAHARISHI ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 6 /11 / 2015 A K KEOT COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI