MANORI PROPERTIES PVT.LTD., MUMBAI V. I.T.O.6(3)(3), MUMBAI

ITA 5950/MUM/2008

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 49056 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 30-09-2008
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SU RENDRA KUMAR
• Keywords: Bad and doubtful debts; Capital expenditure

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI B BENCH BEFORE SHRI R.V.EASWAR, PRESIDENT & SHRI T.R.SOOD, ACCOUNTANT MEMBER I.T.A.NO.5950/MUM/2008 A.Y 2003-04 MANORI PROPERTIES PVT. LTD., 84, MARTHANDA, DR. A.B. ROAD, WORLI NAKA, MUMBAI 400 018. PAN: AAACM 3853 C VS. INCOME TAX OFFICER 6(3)(3), MUMBAI. (APPELLANT) (RESPONDENT) APPELLANT BY : SMT. ARATI VISSANJI. RESPONDENT BY : SHRI SURENDRA KUMAR. O R D E R PER T.R.SOOD, AM: IN THIS APPEAL, THE ASSESSEE HAS RAISED THE FOLLOW ING GROUND: THE LEARNED COMMISSIONER OF INCOME TAX APPEALS, MU MBAI [HEREINAFTER REFERRED TO AS CIT[A] ] ERRED IN CONFI RMING A SUM OF ` `` ` .10,85,000/- BEING BAD DEBTS WRITTEN OFF IN THE PRO FIT & LOSS ACCOUNT BY YOUR APPELLANT. 2. AFTER HEARING BOTH THE PARTIES, WE FIND THAT DUR ING THE ASSESSMENT PROCEEDINGS, AO NOTICED THAT THE ASSESSE E HAD MADE A CLAIM OF ` `` ` .10,85,000/- ON ACCOUNT OF BAD DEBTS WRITTEN OFF. O N ENQUIRY, IT WAS FURTHER FOUND THAT ASSESSEE HAS PURCHASED TH E DEBT AMOUNT FROM ROSE MERCANTILE CO. LTD. AND THE AMOUNT WAS DU E FROM QUALITRON COMPONENTS LTD. THE AO OBSERVED THAT THIS WAS NOT A DEBT WHICH WAS ORIGINALLY ACCOUNTED FOR BY COMPUTING THE INCOME OF PREVIOUS YEAR AND IT WAS NOT EVEN MONEY LENT IN THE ORDINARY COURSE O F BUSINESS AND, 2 THEREFORE, THE CLAIM WAS NOT ALLOWABLE. AFTER DISCU SSING VARIOUS CASE LAWS, HE DISALLOWED THE CLAIM. 3. BEFORE THE CIT[A] IT WAS MAINLY SUBMITTED THAT A FTER THE AMENDMENT IN LAW W.E.F. 1-4-1989, IT WAS NO MORE A REQUIREMENT THAT FOR CLAIMING A DEBT, THE SAME COULD NOT REALLY BECO ME BAD. A MERE WRITING OFF OF THE DEBT IS SUFFICIENT COMPLIANCE WI TH THE REQUIREMENT OF SEC.36(1)(VII). ALTERNATIVELY, IT WAS ARGUED THAT T HE SAME SHOULD BE ALLOWED AS A BUSINESS LOSS. THE LD. CIT[A] DECIDED THE ISSUE VIDE PARAS 2.3 AND 3 AS UNDER: 2.3 I HAVE CAREFULLY CONSIDERED THE REPLY GIVEN BY THE APPELLANT AND PERUSED THE ASSESSMENT ORDER. THE APPELLANT HAS PUR CHASED DEBTS OF AMOUNT DUE TO ROSE PATEL MERCANTILE CO. LTD. FOR ` `` ` .10,85,000/- BY PAYING THE SAID AMOUNT ON 10-1-1996 ` `` ` .5,00,000/- AND ON 29-1-1996 ` `` ` .5,85,000/-. THE AMOUNT WAS DUE FROM QUALITRON COMP ONENTS LTD. UNFORTUNATELY DUE TO LOSSES THE COMPANY CLOSED DOWN ITS OPERATIONS AND ULTIMATELY WOUND UP BY THE ORDER OF GUJARAT HIG H COURT. THE ASSESSING OFFICER HAS CLEARLY POINTED OUT THAT THE SAID DEBTS OF ` `` ` .10,85,000/- WAS NOT TRADING DEBT. THEREFORE THE CO NDITIONS SPECIFIED U/S.16(1)(VII) R.W.S. 36(2) IS NOT FULFILLED AS THE AMOUNT HAS NOT BEEN TAKEN INTO CONSIDERATION WHILE ARRIVING TO THE PROF IT OF THE APPELLANT COMPANY. THE AMOUNT IS ALSO NOT MONEY LENDED IN THE ORDINARY COURSE OF BUSINESS OF BANKING COMPANY OR MONEY LENDING WHI CH IS CARRIED ON BY THE ASSESSEE. THE APPELLANT HAS ALSO NOT MADE AN Y SUCH CLAIM THAT THE DEBTS HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT O F SUCH DEBTS OR PART THEREOF IS WRITTEN OFF OR OF EARLIER YEAR. THE APPE LLANT HAS ALSO NOT CLAIMED THAT IT IS DOING THE BUSINESS OF BANKING OF MONEY LENDING. MOREOVER NO INTEREST EITHER ACCRUED OR RECEIVED HAS BEEN DEBITED IN P &L ACCOUNT BY THE APPELLANT IN RESPECT OF AMOUNT OF DEBTS OF ` `` ` .10,85,000/-. THEREFORE THE ASSESSING OFFICER HAS R IGHTLY DISALLOWED THE CLAIM OF BAD DEBTS AMOUNTING TO ` `` ` .10,85,000/- U/S.36(1)(VII) R.W.S. 36(2) OF THE I.T. ACT. THE ACTION OF THE ASSESSING OFFICER IS JUSTIFIED AND CONFIRMED. THE CASE LAWS RELIED UPON BY THE APP ELLANT ARE DISTINGUISHABLE ON FACTS AND NOT APPLICABLE IN THE CASE OF THE APPELLANT. 3 3. AS REGARDS ALTERNATIVE CLAIM OF THE ASSESSEE REG ARDING ALLOWING WRITE OFF OF ` `` ` .10,85,000/- AS BUSINESS LOSS U/S.37(1) IS CONCERNE D, THE CLAIM OF APPELLANT IS ALSO NOT ACCEPTABLE. FIRSTLY, THE AMOUNT OF ` `` ` .10,85,000/- IS NOT AN EXPENDITURE WHICH HAS BEEN INCURRED FOR THE PURPOSE OF BUSINESS OF THE ASSESSEE RATHER IT IS A CAPITAL EXPENDITURE AS THE APPELLANT HAS PURCHASED DEBTS OF DEFUNCT COMPAN IES WHICH HAS BEEN ULTIMATELY WRITTEN OFF AS THE SAID COMPANY HAS BEEN WIND UP DUE TO ORDER OF GUJARAT HIGH COURT. THE ASSESSING OFFIC ER HAS DISCUSSED IN DETAIL REGARDING THE CLAIM OF BUSINESS LOSS OF THE APPELLANT AND RIGHTLY HELD THAT THE LOSS IS NOT ALLOWABLE AS BUSINESS LOS S BEING A COLOURABLE DEVICE TO REDUCE THE PROFIT OF BUSINESS. THE FINDIN GS OF THE ASSESSING OFFICER IN THIS REGARD IS JUSTIFIED AND CONFIRMED. 4. BEFORE US, LD. COUNSEL OF THE ASSESSEE FAIRLY CO NCEDED THAT THIS AMOUNT CANNOT BE CLAIMED AS BAD DEBT, BECAUSE, SAME HAS NOT BEEN ROUTED THROUGH THE PROFIT & LOSS ACCOUNT EARLIER. A LTERNATIVELY, SHE ARGUED THAT THIS SHOULD BE ALLOWED AS A BUSINESS LO SS. 5. ON THE OTHER HAND, LD. DR SUBMITTED THAT SINCE T HE DEBT HAS NOT BEEN ACCOUNTED FOR WHILE COMPUTING THE INCOME IN EA RLIER YEAR, THEREFORE, SAME DOES NOT COMPLY WITH THE REQUIREMEN T OF SEC.36(2). AS FAR AS THE CLAIM FOR BUSINESS LOSS IS CONCERNED, SI NCE NO GROUND HAS BEEN TAKEN FOR THE SAME, THAT ISSUE CANNOT BE ENTER TAINED. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. ADMITTEDLY, THE BAD DEBT WAS PURCHASED FROM A THIRD PARTY AND H AD NOT ARISEN DURING THE COURSE OF BUSINESS FROM THE ORDINARY TRA DING TRANSACTIONS OF THE ASSESSEE. THEREFORE, THE CONDITIONS PRESCRIBED U/S.36(2) FOR CLAIM OF BAD DEBT ARE NOT FULFILLED. HENCE, THE CLAIM FOR BAD DEBT HAS BEEN RIGHTLY REJECTED BY THE LD. CIT[A]. WE ALSO FIND FO RCE IN THE SUBMISSION OF THE LD. DR THAT SINCE NO GROUND HAS BEEN TAKEN R EGARDING THE CLAIM 4 OF BUSINESS LOSS, THOUGH THE LD. CIT[A] HAS DEALT W ITH THAT ISSUE AND, THEREFORE, THAT ISSUE CANNOT BE ENTERTAINED NOW IN THE ABSENCE OF A SPECIFIC GROUND. 7. THE LD. COUNSEL OF THE ASSESSEE HAD ALSO SUBMITT ED THAT, IN ANY CASE, SHE IS ENTITLED TO SUPPORT THE ORDER OF THE C IT[A] ON ANY GROUND WHICH HAS BEEN DECIDED AGAINST THE ASSESSEE UNDER R ULE 27 OF THE APPELLATE TRIBUNAL RULES, 1963. HOWEVER, WHEN WE PO INTED OUT TO HER THAT RULE 27 IS APPLICABLE TO THE RESPONDENT, BUT S INCE IT WAS THE APPEAL OF THE ASSESSEE THEREFORE SHE COULD NOT INVO KE RULE 27 AND RATHER THE ASSESSEE OUGHT TO HAVE TAKEN A SPECIFIC GROUND CHALLENGING THE DECISION OF THE CIT[A] THAT THE CLAIM WAS ALLOW ABLE AS A BUSINESS LOSS. AT THIS POINT SHE DID NOT PURSUE THE MATTER F URTHER AND, ACCORDINGLY, THIS CONTENTIONS IS ALSO DISMISSED. 8. IN THE RESULT, ASSESSEES APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF 2 0/5/2011. SD/- SD/- (R.V.EASWAR) (T.R.SOOD) PRESIDENT ACCOUNTANT MEMBER MUMBAI: 20/5/2011. P/-* 5