DCIT, New Delhi V. M/s. Escotrac Finance and Investments Pvt. Ltd., Faridabad

ITA 6056/DEL/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 6406 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-03-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 21-01-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 07-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: YATENDRA SINGH SENIOR
• Assessee Lawyers: R M MEHTA
• Keywords: Bad and doubtful debts
• Section: 37(1); 68; 148; 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH B : NEW DELHI) BEFORE SHRI A.T. VARKEY, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO.6056/DEL./2013 (ASSESSMENT YEAR : 2005-06) DCIT, CIRCLE 11 (1), VS. M/S. ESCOTRAC FINANCE AND INVESTMENTS PVT. LTD., NEW DELHI. 15/5, MATHURA ROAD, FARIDABAD. (PAN : AAACE0088R) (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI R.M. MEHTA, ADVOCATE REVENUE BY : SHRI YATENDRA SINGH, SENIOR DR O R D E R PER A.T. VARKEY, JUDICIAL MEMBER : THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER OF THE CIT (APPEALS)-XIII, NEW DELHI DATED 16.08.2013 FOR THE ASSESSMENT YEAR 2005- 06. 2. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE READ AS UNDER :- 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE CIT (A) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.3,06,1 3,633/- MADE ON ACCOUNT OF BAD DEBTS WRITTEN OFF. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE CIT (A) HAS WAS NOT JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE U/S 28 OF THE ACT WHEREAS IN THE RETURN OF INCOME THE CLAIM WAS MADE U/S 36(1)(VII) OF THE INCOME TAX ACT, 1961. ITA NO.6056/DEL./2013 2 3. THE SOLE GROUND IS IN RESPECT OF DELETION OF DIS ALLOWANCE OF RS.3,06,13,633/- MADE BY THE AO ON ACCOUNT OF BAD D EBTS WRITTEN OFF. THE CIT (A) ALLOWED THE CLAIM OF THE ASSESSEE AS A BUSI NESS LOSS U/S 68 OF THE INCOME-TAX ACT, 1961 (HEREINAFTER THE ACT). 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E FILED ITS RETURN OF INCOME ON 29.10.2005 SHOWING A TOTAL LOSS OF RS.3,5 3,75,859/-. THE NOTICE U/S 148 OF THE ACT WAS ISSUED ON 27.03.2012. IN TH E ASSESSMENT ORDER, IT IS STATED THAT WHILE VERIFYING THE CASE RECORDS, THE A O OBSERVED THAT THE ASSESSEE HAS SHOWN DOUBTFUL DEBTS WRITTEN BACK OF RS.3,06,13 ,633/- AND CLAIMED IT AS EXPENDITURE BY MAKING ADJUSTMENT IN COMPUTATION OF INCOME, WHICH IS NOT AN ALLOWABLE EXPENDITURE UNDER THE ACT. THUS, ACCORDI NG TO THE AO, THE ASSESSEE HAD NOT DISCLOSED ITS INCOME CORRECTLY TO THE EXTEN T OF RS.3,06,13,633/-. THE ARGUMENTS OF THE ASSESSEE WERE NOT ACCEPTABLE TO TH E AO BECAUSE, AS PER THE AO, THE ASSESSEE HAD CREATED PROVISION IN EARLIER Y EARS AND SAME WAS ALSO OFFERED FOR TAXATION IN EARLIER YEARS. IN THE YEAR UNDER CONSIDERATION, ACCORDING TO THE AO, THE ASSESSEE HAD SHOWN AN AMOU NT OF RS.3,06,13,633/- IN INCOME SIDE AND THE SAME WAS ALSO SHOWN IN EXPEN DITURE SIDE. FURTHER, THE ASSESSEE HAS DEDUCTED THE SAME FROM COMPUTATION OF INCOME, THEREFORE, THE AO ADDED BACK THE SAID SUM TO THE INCOME OF THE ASS ESSEE AND WORKED OUT TO THE TOTAL LOSS OF RS.47,62,266/-. ITA NO.6056/DEL./2013 3 5. ON APPEAL BEFORE THE CIT (A), THE ASSESSEE CLARI FIED THAT THE PROVISIONS FOR DEBTS MADE IN THE EARLIER YEARS AND THE AMOUNTS WERE ADDED BACK TO THE INCOME. HOWEVER, DURING THE YEAR UNDER CONSIDERATI ON, THE AMOUNT OF BAD DEBT IS WRITTEN OFF FROM THE BOOKS OF ACCOUNTS AND CLAIMED AS DEDUCTION. THE ASSESSEE SUBMITTED BAD DEBTS WRITTEN OFF AT RS.3,03 ,13,633/- WHICH INCLUDED RS.2,90,00,000/- ON ACCOUNT OF PRINCIPAL OUTSTANDIN G AND RS.16,13,633/- ON ACCOUNT OF INTEREST DUE FROM M/S. M.S. SHOES LIMITE D. THE ASSESSEE COMPANY POINTED OUT THAT IT BEING AN NBFC, THE ENTI RE WRITE OFF INCLUDING PRINCIPAL AMOUNT OF LOAN IS INCIDENTAL TO THE BUSIN ESS OF THE ASSESSEE COMPANY. THE LD. AR ALSO PLEADED THAT THE ASSESSEE IS ENTITLED TO THE DEDUCTION OF FULL AMOUNT OF BAD DEBTS U/S 36(1)(VII ) OF THE ACT OR OTHERWISE AS A BUSINESS LOSS IN COMPUTING THE PROFITS AND GAINS OF BUSINESS U/S 28 OF THE ACT. IT WAS ALSO SUBMITTED BEFORE THE LD. CIT (A) THAT ITAT IN THE CASE OF CIT VS. SHREYAS S. MORAKHIA DATED 28.02.2012 IN ITA NO.89 OF 2011 HELD THAT EVEN IF A PART OF BAD DEBTS HAVE TO BE TAKEN I NTO ACCOUNT WHILE COMPUTING THE INCOME OF THE ASSESSEE AND OFFERED FOR TAX IN A N EARLIER YEAR, THE SAME WOULD BE SUFFICIENT SATISFACTION OF SECTION 36(2) O F THE ACT. THE LD. AR ALSO STATED THAT ANY LOSS WHICH OCCURS IN CARRYING ON TH E BUSINESS AND IS RELATED TO THE BUSINESS OPERATION IS ENTITLED TO BE DEDUCTED T O ARRIVE AT THE PROFITS AND GAINS OF A BUSINESS UNDER SECTION 28 OF THE ACT. H E REFERRED TO THE DECISION OF ITA NO.6056/DEL./2013 4 CIT VS. R.B. RUNGTA & CO. REPORTED IN 50 ITR 233. AFTER HEARING THE LD. AR AS WELL AS THE DEPARTMENT, THE CIT (A) HELD AS UNDE R :- IN THE LIGHT OF THE JUDGMENT OF HONBLE BOMBAY HIG H COURT, IT IS CLEAR THAT SECTION 28 OF THE ACT IMPOSES A CHARGE ON THE PROFITS OR GAINS OF BUSINESS OR PROFESSION. THE EXPRESSION PROFITS AN D GAINS OF BUSINESS OR PROFESSION IS TO BE UNDERSTOOD IN ITS ORDINARY COM MERCIAL MEANING AND THE SAME DOES NOT MEAN TOTAL RECEIPTS. WHAT HAS TO BROUGHT TO TAX IS THE NET AMOUNT EARNED BY CARRYING ON A PROFESSION OR A BUSI NESS WHICH NECESSARILY REQUIRES DEDUCTING EXPENSES AND LOSSES INCURRED IN CARRYING ON BUSINESS OR PROFESSION. THE HON'BLE APEX COURT IN THE CASE OF BADRIDAS DAGA V. COMMISSIONER OF INCOME TAX, REPORTED IN 34 ITR 10, HAS HELD THAT IN ASSESSING THE AMOUNT OF PROFITS AND GAINS LIABLE TO TAX, ONE MUST NECESSARILY HAVE REGARD TO THE ACCEPTED COMMERCIAL PRACTICE THAT DEDUCTION OF SUCH EXPENSES AND LOSSES IS TO BE ALLOWED, IF IT ARISES IN CARRYING ON BUSINESS AND IS INCIDENTAL TO IT. ON THE BASIS OF T HE AFORESAID DECISIONS, IT CAN BE CONCLUDED THAT EVEN IF THE DEDUCTION IS NOT ALLOWABLE AS BAD DEBTS, THE SAME CAN BE CONSIDERED FOR DEDUCTION AS BUSINES S LOSS. THIS IS PARTICULARLY SO AS THERE IS NO BAR IN CLAIMING A LO SS AS A BUSINESS LOSS, IF THE SAME IS INCIDENTAL TO CARRYING ON OF A BUSINESS. TH E FACT THAT CONDITION OF BAD DEBTS WERE NOT SATISFIED BY THE ASSESSEE WOULD NOT PREVENT HIM FROM CLAIMING DEDUCTION AS A BUSINESS LOSS INCURRED IN T HE COURSE OF CARRYING ON BUSINESS AS NON BANKING FINANCE COMPANY. UNDER THE CIRCUMSTANCES, IT IS HELD THAT THE ASSESSEE WAS DULY ENTITLED TO DEDUCTI ON OF A SUM OF RS.3,06,13,633/- ON ACCOUNT OF BUSINESS LOSS. 6. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE REC ORDS. WE FIND THAT IN THE CASE OF MOHAN MEAKINS LTD. VS. CIT 348 ITR 44 9, THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD IN THAT CASE THA T THOUGH THE ASSESSEES CLAIM WAS U/S 37(1) OF THE ACT, HOWEVER, IT WAS ALL OWED U/S 28 AS BUSINESS LOSS, SO ONE IS ENTITLED TO CLAIM A DEDUCTION UNDER DIFFERENT PROVISION OF THE ACT OTHER THAN THE PROVISION CLAIMED IN THE RETURN OR IN THE ASSESSMENT PROCEEDINGS. THERE IS NO DISPUTE THAT THE ASSESSEE IS AN NBFC AND THE PRINCIPAL AMOUNT OF LOAN COMES TO RS.2,90,00,000/- AND THE INTEREST AMOUNT OF RS.16,13,633/- WHICH WAS DUE FROM M/S. M.S. SHOES L IMITED. THE CIT (A) ITA NO.6056/DEL./2013 5 HAS RIGHTLY REFERRED TO HONBLE APEX COURT DECISION IN THE CASE OF BADRIDAS DAGA VS. CIT REPORTED IN 34 ITR 10 WHEREIN IT WAS H ELD THAT IN ASSESSING THE AMOUNT OF PROFITS AND GAINS LIABLE TO TAX, ONE MUST NECESSARILY HAVE REGARD TO THE ACCEPTED COMMERCIAL PRACTICE THAT DEDUCTION OF SUCH EXPENSES AND LOSSES IS TO BE ALLOWED, IF IT ARISES IN CARRYING ON BUSIN ESS AND IS INCIDENTAL TO IT. WE FIND THAT THE CIT (A) HAS RIGHTLY HELD THAT THE ASS ESSEES CLAIM OF DEDUCTION AS BUSINESS LOSS INCURRED IN THE COURSE OF CARRYING ON BUSINESS AS NON BANKING FINANCE COMPANY AND WE AGREE WITH THE SAID FINDING AND ACCORDINGLY, WE UPHOLD THE ORDER OF THE CIT (A). 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN OPEN COURT ON THIS 16 TH DAY OF MARCH, 2016. SD/- SD/- (PRASHANT MAHARISHI) (A.T. VARKEY) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED THE 16 TH DAY OF MARCH, 2016 TS COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(A)-XIII, NEW DELHI. 5.CIT(ITAT), NEW DELHI. AR, ITAT NEW DELHI.