M/s Manappuram General Finance & Leasing Ltd, Trichur V. ACIT, Trichur

ITA 623/COCH/2010

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64791 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-09-2012
• Appeal Filed By: Assessee
• Bench Allotted: DB
• Next Hearing Date: 11-09-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 22-11-2010
• Court: TRIBUNAL
• Department Lawyers: B SAJJIEVE
• Assessee Lawyers: RADHESH BHAT
• Keywords: Opportunity of being heard; Bad and doubtful debts
• Section: 37(1); 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NO. 623 /COCH/2010 ASSESSMENT YEAR: 2006-07 M/S. MANAPPURAM GENERAL FINANCE & LEASING LTD., BROTHERS COMPLEX, NAICKANAL P.O., TRICHUR-680 001. [PAN:AABCM 6882E] VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1(1),TRICHUR. (ASSESSEE -APPELLANT) (REVENUE-RESPOND ENT) ASSESSEE BY SHRI RADHESH BHAT, CA REVENUE BY SHRI B. SAJJIEVE, JR. DR DATE OF HEARING 11/09/2012 DATE OF PRONOUNCEMENT 14/09/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 20-09-2010 PASSED BY LD CIT(A) V, KOCHI AND IT RELATES TO THE ASSESSME NT YEAR 2006-07. 2. THE ONLY ISSUE URGED IN THIS APPEAL RELATES TO THE DISALLOWANCE OF CLAIM OF BAD DEBTS OF RS.3,48,476/- CONFIRMED BY LD CIT(A). 3. THE FACTS RELATING TO THE ISSUE ARE STATED I N BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF ADVANCING MONEY UNDER VA RIOUS SCHEMES LIKE HIRE PURCHASE, LEASING, GOLD LOANS ETC. DURING THE ASSESSMENT PRO CEEDINGS, THE AO DISALLOWED A SUM OF RS.63,83,390/- RELATING TO EXPENDITURE CLAIMED U NDER THE HEAD BAD DEBTS, AS THE I.T.A. NO.623/COCH/2010 2 ASSESSEE FAILED TO FURNISH THE DETAILS CALLED FOR B Y HIM. HOWEVER, BEFORE LD CIT(A), THE ASSESSEE FILED THE DETAILS ON WHICH THE LD CIT(A) C ALLED FOR A REMAND REPORT FROM AO. AFTER CONSIDERING THE REMAND REPORT, THE LD CIT(A) CONFIRMED THE ADDITION TO THE EXTENT OF RS.3,48,476/- AND DELETED THE REMAINING BALANCE OF THE ADDITION. STILL AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS. IT WAS NOTICED THAT THE ABOVE SAID AMOUNT OF RS.3,48,476/- RELATED TO A STAFF NAMED SMT. ANUR ADHA. BOTH THE TAX AUTHORITIES CONSIDERED THE SAME AS A DEBT NOT ARISING OUT OF BU SINESS TRANSACTIONS AND HENCE IT WOULD NOT QUALIFY FOR DEDUCTION AS BAD DEBT. HOWEV ER, THE LD A.R SUBMITTED THE FACTS RELATING TO THE SAID CLAIM OF RS.3,48,476/- AS UNDE R:- IT IS SUBMITTED THAT THE DEBT WAS DUE FROM SMT. AN URADHA, WHO HAD WORKED AS PRINCIPAL OFFICER OF THE DIFFERENT BRANCHES OF THE COMPANY DURING THE FINANCIAL YEARS 2003-04 TO 2005-06. DURING THE PERIOD, SHE H AD AVAILED CERTAIN GOLD LOANS BY MANIPULATING RECORDS AND GIVING SPURIOUS GOLD AS SECURITY ETC. WHEN THIS MANIPULATION WAS FOUND OUT, THE AMOUNT DUE FROM HER IN RESPECT OF THE LOAN AND AFTER ADJUSTMENT OF RECOVERY AND INSURANCE CLAIM RE CEIVED (UNDER INSURANCE POLICY FOR SPURIOUS GOLD) AMOUNTED TO RS.3,48,476/- . THE SERVICES OF THE EMPLOYEE WAS SINCE TERMINATED AND THE BALANCE AMOUN T DUE FOUND AS IRRECOVERABLE WAS WRITTEN OFF. THE ASSESSEE HAD CL AIMED THE AMOUNT WRITTEN OFF AS BAD DEBT SINCE IT WAS IN RESPECT OF A LOAN AVAIL ED BY A STAFF MEMBER IN THE NORMAL COURSE OF BUSINESS. WITHOUT PREJUDICE TO THE ABOVE, IT IS SUBMITTED THA T EVEN IF THE CLAIM IS NOT ALLOWED AS BAD DEBT UNDER SECTION 36(1)(VII), IT IS ALLOWABLE AS A BUSINESS LOSS U/S 28 READ WITH SECTION 37. ACCORDING TO COMMERCI AL PRINCIPLES, IT IS NOW WELL SETTLED IN LAW THAT LOSS OF MONEYS DUE TO EMBEZZLEM ENT BY EMPLOYEES IN THE COURSE OF DISCHARGING OF THEIR DUTIES IS ALLOWABLE AS DEDUCTION. RELIANCE IS PLACED ON THE FOLLOWING DECISIONS:- COMMON WEALTH TRUST (INDIA) LTD VS. CIT 242 ITR 493 (KER) SUSSAN J DAVID & CO. P LTD VS. CIT - 98 ITR 50 (B OM) CIT VS. PRAMANAND MAKHAN LAL 142 ITR 800 (PAT). 5. IN THE NOTES ON SUBMISSION FURNISHED BEFOR E THE BENCH ON 11.09.2012, IT IS STATED AS UNDER BY THE ASSESSEE:- THE ONLY GROUND INVOLVED IN THIS APPEAL IS REGARD ING THE ALLOWABILITY OF WRITE OFF OF RS.348476.50 DUE FROM MS. ANURADHA, AN EMPLOYEE OF THE COMPANY, SINCE DISMISSED FROM SERVICE. THIS REPRESENTS IRRECOVERABLE AMOUNT OUT OF FUNDS DEFALCATED BY AN EMPLOYEE. I.T.A. NO.623/COCH/2010 3 MS. ANURADHA WAS APPOINTED AS JUNIOR ASSISTANT (TRA INEE) AS PER LETTER NO.1602/01-02 DT. 13.7.2001 (COPY ENCLOSED SEE PAGE 1 TO 3). WHILE SHE WAS WORKING AS ASSISTANT BRANCH HEAD OF MANJAKKULAM BRA NCH, PALAKKAD, HER RESPONSIBILITIES INCLUDED HOLDING CUSTODY OF GOLD O RNAMENTS PLEDGED WITH THE COMPANY BY BORROWERS. DURING THE PERIOD FROM 29.6. 2004 TO 6.11.2004, SHE UNLAWFULLY MISAPPROPRIATED CERTAIN GOLD ORNAMENTS H ELD UNDER HER CUSTODY AND REPLEDGED THE SAME ON VARIOUS DATES AND AVAILED LOA N IN HER NAME FROM THE COMPANY. DURING THIS PERIOD, SHE ALSO AVAILED LOAN BY PLEDGE OF SPURIOUS GOLD. WHEN THIS IRREGULARITY CAME TO LIGHT, THE MATTER WA S INVESTIGATED BY POLICE AND THEY FILED A REPORT BEFORE THE CHIEF JUDICIAL MAGIS TRATE, PALAKKAD BY THE KERALA POLICE, STATING THAT SHE HAD COMMITTED AN OFFENCE U NDER IPC 408,420 (COPY OF REPORT AND ITS TRUE TRANSLATION IN ENGLISH ENCLOSED IN PAGES 5 TO 14). SUBSEQUENTLY, SHE REPAID PART OF THE AMOUNT BORROWE D. THE COMPANY ALSO RECOVERED FIDELITY INSURANCE. SHE WAS SINCE TERMIN ATED FROM SERVICE (COPY OF TERMINATION LETTER ATTACHED IN PAGE 4). THE BALANC E OUTSTANDING IN HER ACCOUNT, WHICH COULD NOT BE RECOVERED, WAS WRITTEN OFF AS BA D DEBT. THIS WAS CLAIMED AS BAD DEBT WHILE COMPUTING THE INCOME FOR THE ASSESSM ENT YEAR.. THE ASSESSEE HAS ALSO FILED COPIES OF VARIOUS DOCUM ENTS MENTIONED IN THE SUBMISSIONS REFERRED ABOVE. 6. IT APPEARS THAT THE AMOUNT WRITTEN OFF FROM THE ACCOUNT OF SMT. ANURADHA CONSISTED OF TWO DIFFERENT KIND OF TRANSACTIONS VIZ ., THE AMOUNT OF LOAN TAKEN BY HER FROM THE COMPANY AND ALSO THE AMOUNT DEBITED TO HER ACCOUNT RELATING TO THE VALUE OF GOLD MISAPPROPRIATED BY HER. THE ASSESSEE HAS NOT SEPARATED THE OUTSTANDING BALANCE BETWEEN THE TWO TYPES REFERRED ABOVE. THERE CANNOT BE ANY DISPUTE THAT THE CRITERIA OR CONDITION TO BE FULFILLED FOR ALLOWING A CLAIM AS B AD DEBT U/S 36(1)(VII) OR AS EXPENDITURE/LOSS U/S 28 OR 37(1) IS DIFFERENT. IN ANY CASE, ALL THESE FACTS AND ALSO THE SUPPORTING DOCUMENTS WERE NOT FURNISHED BEFORE THE TAX AUTHORITIES. HENCE, WE ARE OF THE VIEW THAT THESE DOCUMENTS NEED TO BE EXAMINED A T THE END OF THE AO. ACCORDINGLY, WE SET ASIDE THE ORDER OF LD CIT(A) ON THIS ISSUE A ND RESTORE THE SAME TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THE CLAIM OF THE A SSESSEE AFRESH IN ACCORDANCE WITH LAW, AFTER AFFORDING NECESSARY OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. I.T.A. NO.623/COCH/2010 4 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY ON 14-09-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 14TH SEPTEMBER, 2012 GJ COPY TO: 1. M/S. MANAPPURAM GENERAL FINANCE & LEASING LTD., BROTHERS COMPLEX, NAICKANAL P.O., TRICHUR-680 001. 2.THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE- 1(1), TRICHUR. 3.THE COMMISSIONER OF INCOME-TAX(APPEALS)-V, KOCHI. 4.THE COMMISSIONER OF INCOME-TAX, TRICHUR. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN