Megh Sakariya Internaitonal P Ltd, Chennai V. DCIT, Corporate Circle 4(1), Chennai

ITA 59/CHNY/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 2292 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 04-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R CLEMENT RAMESH KUMAR
• Assessee Lawyers: S SRIDHAR
• Keywords: Bad and doubtful debts

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, C BENCH : CHENNAI . , ! ' # ' $ . %& , ( * + [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBE R AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] ./I.T.A. NO.59/CHNY/2018. / ASSESSMENT YEAR : 2014-2015. M/S. MEGH SAKARIYA INTERNATIONAL P. LTD, NO.16, KESAVA IYER STREET, PARK TOWN, CHENNAI 600 003. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 4(1) CHENNAI. [PAN AAACS 8168G] ( ,- / APPELLANT) ( ./,- /RESPONDENT) / APPELLANT BY : SHRI.S. SRIDHAR, ADVOCATE /RESPONDENT BY : SHRI. R. CLEMENT RAMESH KUMAR, ADDL.CIT /DATE OF HEARING : 04-09-2018 ! /DATE OF PRONOUNCEMENT : 05-09-2018 0 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER IN THIS APPEAL FILED BY THE ASSESSEE, WHICH IS DIRECTED AGAINST AN ORDER DATED 14.11.2017 OF LD. COMMISSION ER OF INCOME TAX (APPEALS)-8, CHENNAI, IT IS AGGRIEVED ON DISALLOWA NCE OF BAD DEBTS OF B2,02,42,194/-, WRITTEN OFF. ITA NO.59 /2018 :- 2 -: 2. FACTS APROPOS ARE THAT ASSESSEE ENGAGED IN THE BUSI NESS OF DEVELOPING AND MAINTENANCE OF SHIPYARD HAD FILED I TS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DECLARING NIL INCOME. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY T HE LD. ASSESSING OFFICER THAT ASSESSEE HAD CLAIMED BAD DEBTS OF B2, 02,42,194/-. LD. ASSESSING OFFICER REQUIRED THE ASSESSEE TO EXPLAIN THE CLAIM OF BAD DEBT, SINCE ACCORDING TO HIM IN THE PRECEDING ASSE SSMENT YEAR ASSESSEE HAD NOT MADE ANY CLAIM FOR BAD DEBT. REP LY OF THE ASSESSEE WAS AS UNDER:- DURING THE ASSESSMENT YEAR WE HAVE INCURRED A LOS S BY WAY OF BAD DEBTS AMOUNTING TO 2,02,42,194.10. THE BAD DEBTS HAS ARISEN ON ACCOUNT OF THE FOLLOWING: DURING THE ASSESSMENT YEAR 2014-15 WE HAVE TRADED IN NATIONAL SPOT EXCHANGE LTD (NSEL) THROUGH THE BROKERS SUGAL COMMODITIY BROKERS PVT LTD DEALING IN COMMODITY TRADING, WE HAVE ENTERED INTO THE TRANSACTIONS OF PURCHASE AND SALES OF COMMODITIES THROUGH SUGAL COMMODITIES BROKERS PVT LTD. FROM THE STATEMENT IT CAN BE SEEN THAT AMOUNT DUE TO US ON 3110312014 BY SUGAL COMMODITIES BROKERS PVT LTD. AND ALSO THERE IS NO TRADING TRANSACTIONS AFTER JULY 2013. IT WAS SUDDENLY STOPPED DUE TO PROBLEMS IN NSEL AND WHICH RESULTED IN PAYMENT CRISIS AND THE SETTLEMENT WAS NOT MADE BY NSEL TO ITS CUSTOMERS. EVEN AFTER 3 YEARS THE ABOVE SAID AMOUNT COULD NOT RECOVERED FROM THEM IN SPITE OF VARIOUS STEPS TAKEN THROUGH NS6L INVESTORS FORUM. THEREFORE THE ABOVE DUE AS ON 3110312014, WAS WRITTEN (LLF AS BAD DEBTS WHILE FILING RETURN FOR T HE ASSESSMENT YEAR 2014-15. ' ITA NO.59 /2018 :- 3 -: 3. HOWEVER, LD. ASSESSING OFFICER WAS NOT IMPRESSED BY THE ABOVE REPLY. ACCORDING TO HIM, THERE WAS NO EVIDEN CE AVAILABLE WITH THE ASSESSEE TO SHOW THAT DEBT HAD BECOME BAD. FU RTHER, AS PER THE LD. ASSESSING OFFICER, DEPARTMENT HAD RECEIVED INFO RMATION FROM NATIONAL SPOT EXCHANGE LTD (IN SHORT THE NSEL) THAT TRADING IN THEIR PLATFORM WAS STOPPED SINCE 31.07.2014. AS PER THE LD. ASSESSING OFFICER, NSEL WAS IN THE PROCESS OF SETTLING OUTS TANDING DUES OF ITS TRADERS AND AUCTIONING ITS ASSETS FOR THE SAID PURP OSE. ACCORDING TO THE LD. ASSESSING OFFICER, THE CLAIM OF BAD DEBT W AS PREMATURE. SUCH CLAIM WAS DISALLOWED. 4. ASSESSEES APPEAL BEFORE THE LD. COMMISSIONER OF IN COME TAX (APPEALS) WAS NOT SUCCESSFUL. ACCORDING TO THE LD. COMMISSIONER OF INCOME TAX (APPEALS), SUM OF B2,02 ,42,194/- CLAIMED AS BAD DEBT WAS NOT SHOWN AS PART OF ASSES SEES INCOME IN ANY EARLIER YEARS. AS PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IT WAS ONLY PART OF THE CAPITAL EMPLOYED BY THE ASSESSEE TOWARDS ITS BUSINESS ACTIVITY. THUS, ACCORDING TO T HE LD. COMMISSIONER OF INCOME TAX (APPEALS), LOSS INCURRED BY THE ASSES SEE WAS A CAPITAL LOSS AND NOT A BAD DEBT ELIGIBLE FOR DEDUCTION U/ S.36(1)(II) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). ITA NO.59 /2018 :- 4 -: 5. NOW BEFORE US, THE LD. AUTHORISED REPRESENTATIVE STRONGLY ASSAILING THE ORDERS OF THE LOWER AUTHORITIES SUBMI TTED THAT THE LD. ASSESSING OFFICER HAD ACCEPTED THE CLAIM AS ONE OF BAD DEBT BUT HAD DISALLOWED IT TAKING A VIEW THAT IT WAS TOO PREMAT URE TO COME TO THAT CONCLUSION. AS PER THE LD. AUTHORISED REPRESENTATI VE, ASSESSEE HAD STARTED TRADING IN NSEL THROUGH ITS BROKER ONLY DUR ING THE PREVIOUS YEAR RELEVANT TO IMPUGNED ASSESSMENT YEAR. FURTHER, AS PER THE LD. AUTHORISED REPRESENTATIVE, THE SUM OF B2,02,42,19 4/- DUE TO THE ASSESSEE ON ACCOUNT OF COMMODITY TRADING DONE THR OUGH NSEL WAS FOUND TO BE NO MORE RECOVERABLE. ACCORDING TO HIM, BY VIRTUE OF JUDGMENT OF HONBLE APEX COURT IN THE CASE OF T .R.F. LTD VS. CIT, (2010) 323 ITR 397 , AFTER 1 ST APRIL, 1989, IT WAS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, HAD BECOME IRR ECOVERABLE AND IT WAS ENOUGH IF THE BAD DEBT WAS WRITTEN OFF AS IRRE COVERABLE IN THE BOOKS. THUS, ACCORDING TO HIM, THE CLAIM WAS UNJUS TLY DISALLOWED. 6. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE STRON GLY SUPPORTING THE ORDER OF THE LD. COMMISSIONER OF INC OME TAX (APPEALS) SUBMITTED THAT LD. COMMISSIONER OF INCOME TAX (APPE ALS) HAD GIVEN A CLEAR OBSERVATION WITH REGARD TO THE NATURE OF THE DEBT. ACCORDING TO HIM, IT WAS ONLY A LOSS OF CAPITAL. AS PER THE LD. AUTHORISED REPRESENTATIVE, IT COULD NOT BE CONSIDERED AS BAD DEBT. ITA NO.59 /2018 :- 5 -: 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUTE D THAT ASSESSEE HAD STARTED COMMODITY TRADING IN NSEL THROUGH ITS BROK ER SUGAL COMMODITY BROKERS PVT LTD DURING THE RELEVANT PREVI OUS YEAR. IT IS ALSO NOT DISPUTED THAT DEBT OF B2,02,42,194/- BEC AME DUE TO THE ASSESSEE FROM THE SAID EXCHANGE, ON ACCOUNT OF THE COMMODITY TRADING UNDERTAKEN BY THE ASSESSEE DURING THE RELE VANT PREVIOUS YEAR. OBSERVATION OF THE LD. ASSESSING OFFICER WITH REGAR D TO THE CLAIM AS IT APPEARS AT PAGE 3 OF ITS ORDER IS REPRODUCED HEREUN DER:- IT IS PERTINENT TO MENTION HERE THAT THE DEPARTMENT HAS' RECEIVED INFORMATION FROM THE NATIONAL SPOT EXCHANGE THAT DUE TO VARIOUS REASONS THE TRADING ON THE EXCHANGE PLATFORM WAS STOPPED ON 3PT JULY, 2013 , AND THE NSE HAS TO SETTLE THE OUTSTANDING RECEIVABL ES OF THE TRADERS. THE NSE ALSO STATED THAT THE AMOUNT S RECOVERED HAVE BEEN DISTRIBUTED TO THE BROKERS UNDE R THE SUPERVISION OF THE FORWARD MARKET COMMISSION (FMC). THE NSC FURTHER STATED THAT THERE ARE ENOUGH ASSETS TO LIQUIDATE AND RECOVER THE OUTSTANDING AMOUNTS OF THE TRADERS / BROKERS. IT HAS COME TO THE LIGHT THAT MOST OF THE BROKERS 1 TRADERS HAVE CLAIMED THE OUTSTANDING AMOUNT AS DEDUCTION AS BAD DEBT U/S 36(1) (VII) / 37(I) OF TH E INCOME TAX ACT, 1961. SIMILARLY, MOST OF THE NBFC COMPANIES WHICH HAD LENT MONEY TO BROKERS / TRADERS HAVE ALSO WRITTEN OFF SUCH AMOUNTS AS BAD DEBTS. THE NSC FURTHER STATED THAT IT IS IN THE PROCESS OF AUCTIONING OF THE ASSETS AND THE PROCESS HAVE START ED. IT IS EVIDENT THAT SIGNIFICANT AMOUNTS WILL BE RECE IVED BY THE BROKERS / TRADERS. THUS, THE CLAIM OF BAD-DEBT ARE PREMATURE. ITA NO.59 /2018 :- 6 -: IT IS SIGNIFICANT TO NOTE THAT LD. ASSESSING OFFICE R HAD ACCEPTED THE DEBT TO BE BAD, BUT HAD DISALLOWED THE CLAIM DEEMING IT TO BE PREMATURE. IT IS ALSO CLEAR THAT DEBT AROSE ON ACCOUNT OF TRAD ING IN COMMODITIES IN THE EXCHANGE AND NOT DUE TO SALE OF ANY CAPITAL ASS ETS. HONBLE APEX COURT IN THE CASE OF T.R.F. LTD (SUPRA) HAD HELD AS UNDER AT PARA 4 OF ITS JUDGMENT. 4. THIS POSITION IN LAW IS WELL-SETTLED. AFTER AP RIL 1, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRIT TEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. WHEN A BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMER'S ACCOUNT IS CREDITED, THUS, CLOSING THE ACCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STATED ABOVE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OFF I N THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVEMENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE-OFF. IT IS CLEAR THAT ONCE A DEBT IS WRITTEN OFF AS IRRE COVERABLE IN THE ACCOUNTS OF THE ASSESSEE, IT HAS TO BE ALLOWED. IT IS NOT REQUIRED THAT DEBT SHOULD HAVE AROSE ON ACCOUNT OF TRANSACTIONS IN ANY PRECEDING YEARS. ONCE A DEBT IS CLAIMED AS BAD AND WRITTEN OF F IN THE ACCOUNTS IT ITA NO.59 /2018 :- 7 -: HAS TO BE ALLOWED. NO DOUBT, IF THE ASSESSEE AT A LATER POINT OF TIME RECOVERS ANY MONEY AGAINST ANY SUM, IT IS BOUND TO SHOW IT AS INCOME. CONSIDERING THE JUDGMENT OF HONBLE APEX CO URT IN THE CASE OF T.R.F. LTD (SUPRA), WE ARE OF THE OPINION THAT THE CLAIM OF THE ASSESSEE HAD TO BE ALLOWED. ORDERS OF THE LOWER AUTHORITIES ON THIS ISSUE ARE SET ASIDE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS A LLOWED. ORDER PRONOUNCED ON WEDNESDAY, THE 5 TH DAY OF SEPTEMBER, 2018, AT CHENNAI. SD/- SD/- ( ' # ' $ . %& ) ( DUVVURU RL REDDY ) ( / JUDICIAL MEMBER ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED: 5TH SEPTEMBER, 2018. KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF