M/s B.V.Reddy &Sons, Chittoor V. ACIT, Hyderabad

ITA 669/HYD/2006

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9799 (ITAT-HYDERABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2003-2004
• Appeal Filed On: 29-06-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AMLAN TRIPATHY
• Assessee Lawyers: S RAMA RAO
• Keywords: Reasonable cause

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B , HYDERABAD BEFORE SHRI G.C. GUPTA, VICE PRESIDENT AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO. 669/H/2006 ASSESSMENT YEAR 2003-04 M/S B.V. REDDY & SONS, CHITTOOR (PAN AACFB 2166 N) VS THE ACIT, CIRCLE 1(1), TIRUPATHI (APPELLANT) (RESPONDENT) ITA NO. 315/H/2010 ASSESSMENT YEAR 2004-05 M/S B.V. REDDY & SONS, CHITTOOR (PAN AACFB 2166 N) VS THE ACIT, CIRCLE 1(1), TIRUPATHI (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI S. RAMA RAO RESPONDENT BY: SHRI AMLAN TRIPATHY O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: THESE TWO APPEALS PREFERRED BY THE ASSESSEE IS DIRECTED AGAINST DIFFERENT ORDERS PASSED BY THE CIT(A) TIRU PATHI AND PERTAINS TO THE ASSESSMENT YEARS 2003-04 & 2004-05. SINCE ISSUES I NVOLVED IN THESE TWO APPEALS ARE COMMON IN NATURE THEY ARE CLUBBED TOGET HER, HEARD TOGETHER AND DISPOSED OFF VIDE THIS COMMON ORDER FOR THE SAK E OF CONVENIENCE. 2. THE FIRST COMMON GROUND IN THE ABOVE TWO APPE ALS ARE THAT THE CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS.50,06,503/- MADE BY THE ASSESSING OFFICER TOWARDS FURTHER INTEREST RECE IVABLE FROM MADHU GRANITE, PROPRIETOR SHRI V. MADHUSUDHAN REDDY. ITA NOS.669/H/2006 & 315/H/2010 M/S BVS REDDY & SONS, CHITTOOR 2 2 3. THE ASSESSEE LENT RS.6,05,00,000/- TO MADHU G RANITES IN EARLIER YEARS TO MADHU GRANITES IN EARLIER YEARS. DUE TO CONTINUOUS LOSSES, MADHU GRANITES COULD NOT PAY BACK PRINCIPAL AMOUNT AND PART OF INTEREST. THE M/S MADHU GRANITES REQUESTED THE ASSESSEE TO C HARGE INTEREST FOR THIS ASSESSMENT YEAR AT 12% P.A. ON THE ORIGINAL PR INCIPAL AMOUNT OF RS.6,05,00,000/- AND NOT ON ACCUMULATED BALANCE OF PRINCIPAL AND INTEREST ON 1.4.2002 BY LETTER DATED 1.4.2002 WHI CH WAS ACCEPTED BY THE ASSESSEE IN THE CIRCUMSTANCES EXPLAINED BY DEBTOR. THE ASSESSING OFFICER HAS IGNORED THE UNDERSTANDING REACHED AS ABOVE BET WEEN THE ASSESSEE AND SUNDRY DEBTOR AND HAS PROCEEDED TO CHARGE INTE REST ON TOTAL OUTSTANDING OF RS.10,22,20,816/- AT 12% P.A. RS.1,2 2,66,503/- INSTEAD OF ACCEPTING INTEREST ON RS.6,05,00,000/- AT 12%P.A. I .E. RS.72,60,000 AND THE DIFFERENCE BETWEEN THESE TWO IS OF RS.50,06,50 3/-. 4. FOR THE ASSESSMENT YEARS 2004-05 THE ADDITION ON THE ABOVE COUNT IS RS.64,78,478/-. FOR THE ASSESSMENT YEARS 2002-03 THE AMOUNT OF OUTSTANDING IS RS.10,94,80,862/- THE ASSESSEE CALCULATED THE INTEREST RECEIVABLE AT 12% ON THE LOAN AT RS.6.05 CRORES INS TEAD OF RS.10,94,80,862/-. SIMILARLY, FOR THE ASSESSMENT Y EARS 2004-05 THE ASSESSEE CALCULATED INTEREST AT RS.6.05 CRORES THOU GH THE AMOUNT OUTSTANDING AT RS.11.44.87,319/- THUS, THERE WAS A DIFFERENCE IN INTEREST AT RS.50,06,503/- AND RS.64,78,478/- FOR THE ASSESS MENT YEARS 2003-04 AND 2004-05 RESPECTIVELY. THE SAME WAS TREATED AS INCOME OF THE ASSESSEE BY THE ASSESSING OFFICER AND WHICH WAS CONFIRMED BY THE CIT(A). AGAINST THIS THE ASSESSEE IS IN APPEAL BEFORE US. 5. THERE WAS A DELAY OF 218 DAYS IN FILING THE APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2004-05. THE LEAR NED AUTHORISED REPRESENTATIVE EXPLAINED THE REASONS FOR FILING THE APPEAL BELATEDLY STATING THAT THE ASSESSEE FILED AN APPEAL FOR THE ASSESSMEN T YEAR 2003-04 BEFORE ITA NOS.669/H/2006 & 315/H/2010 M/S BVS REDDY & SONS, CHITTOOR 3 3 THE TRIBUNAL AND ANTICIPATED THE HEARING OF THE CAS E BY THE TRIBUNAL AND GRANTING OF THE RELIEF FOR THE ASSESSMENT YEAR 2003 -04. DUE TO ASSESSEES BAD LUCK, THE CASE WAS NOT HEARD AT ALL TILL 1.3.20 10. AS SUCH, IT WAS ADVISED TO THE ASSESSEE TO FILE AN APPEAL SEPARATEL Y FOR THE ASSESSMENT YEAR 2004-05. IT WAS SUBMITTED BY THE LEARNED AUTHORISE D REPRESENTATIVE FOR THE ASSESSEE THAT THE ASSESSEE IS HAVING BONA FIDE REASONS FOR NOT FILING THE APPEAL IN TIME FOR THE ASSESSMENT YEAR 2004-05. W E HAVE CAREFULLY GONE THROUGH THE REASONS ADVANCED BY THE ASSESSEE IN FIL ING THE APPEAL BELATEDLY. WE HAVE CONVINCED THAT THE ASSESSEE IS HAVING REASONABLE CAUSE FOR NOT FILING THE APPEAL IN TIME. ACCORDING LY, WE CONDONE THE DELAY IN FILING THE APPEAL AND ADJUDICATE THE APPEAL OF T HE ASSESSEE ON MERIT. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIALS AVAILABLE ON RECORD. THE ORIGINAL PRINCIPAL AMOUNT OUTSTANDING WAS RS.6.05 CRORES. THE CUMULATIVE BALANCE OUTSTANDING FOR THE ASSESSMENT YEARS 2003-04 IS RS.10,94,80,862/-. ACCORDING TO T HE LEARNED COUNSEL FOR THE ASSESSEE, IT HAS CHARGED INTEREST AT 12% P.A. O N THE PRINCIPAL AMOUNT AND NOT ON THE CUMULATIVE OUTSTANDING BALANCE. SIN CE MADHU GRANITE IS SUFFERING SEVERE FINANCIAL PROBLEM, WHICH WAS NOT I N A POSITION TO PAY THE COMPOUND INTEREST ON THE CUMULATIVE BALANCE. TO R ECOVER AS MUCH AS POSSIBLE THE ASSESSEE ENTERED INTO AN UNDERSTANDING WITH M/S MADHU GRANITE TO CHARGE SIMPLE INTEREST AT 12% P.A. ON TH E PRINCIPAL AMOUNT AND NOT ON THE CUMULATIVE OUTSTANDING. IT HAS ALSO BROUGHT TO OUR NOTICE THAT FOR THE ASSESSMENT YEARS 2005-06 ON THE SIMILA R FACTS AND CIRCUMSTANCES, THERE WAS NO ADDITION ON ACCOUNT OF THIS INTEREST. HE DREW OUR ATTENTION TO THE ASSESSMENT ORDER FOR THE ASS ESSMENT YEARS 2005-06 DATED 31.12.2007. IN OUR OPINION, IT IS A BUSINESS DECISION WHICH HAS BEEN TAKEN BY THE MANAGEMENT OF THE ASSESSEE TO CHARGE I NTEREST AT 12% P.A. ONLY ON PRINCIPAL AMOUNT. BY THIS DECISION THE AS SESSEE MIGHT HAVE INCURRED SOME FINANCIAL LOSS. HAD THE ASSESSEE NOT TAKEN THE DECISION, ITA NOS.669/H/2006 & 315/H/2010 M/S BVS REDDY & SONS, CHITTOOR 4 4 THERE WAS EVERY CHANCE OF EVEN LOSING THE PRINCIPAL AMOUNT AND PROLONGED LITIGATION. TO BE ON THE SAFER SIDE, THE ASSESSEE HAS AGREED TO THE REDUCTION OF THE INTEREST AND IT IS A BUSINESS DECISION WITH WHICH THE ASSESSING OFFICER CANNOT FIND FAULT WITH. THE ASSESSING OFF ICER CANNOT JUSTIFIABLY CLAIM TO PUT HIMSELF IN THE ARM CHAIR OF THE ASSESS EE AND ASSUME THE ROLE TO DECIDE WHAT RATE OF INTEREST ASSESSEE TO BE CHAR GED ON ITS ADVANCE. NO ASSESSEE CAN BE COMPELLED TO MAXIMIZE HIS PROFIT. THE INCOME TAX AUTHORITIES MUST PUT THEMSELVES IN THE SHOES OF THE ASSESSEE AND SEE HOW A PRUDENT BUSINESS MAN COULD ACT. THE AUTHORITIES MUST NOT LOOK AT THE MATTER FROM THEIR OWN VIEW POINT BUT THAT OF A PRUD ENT BUSINESS MAN. AS WE HAVE ALREADY STATE, THE ASSESSEE HAS TAKEN A DEC ISION DEPENDING UPON THE SITUATION AND THE FINANCIAL POSITION OF THE BOR ROWER. HAD HE NOT TAKEN THE DECISION, THERE IS EVERY CHANCE OF PROLONGED LI TIGATION AND LOSS OF TIME AND MONEY. IN OUR OPINION, THE ASSESSEE HAS TAKEN A WISE DECISION IN REDUCTION OF INTEREST THEREBY RECOVERING THE PRINCI PAL AS WELL AS INTEREST. WE DO NOT FIND ANY INFIRMITY IN THIS PROCESS OF RED UCTION OF INTEREST AND ADDITION MADE BY THE ASSESSING OFFICER IS NOT JUSTI FIED. THE SAME IS DELETED. 7. THE NEXT GROUND IN ITA NO.669/H/2009 IS WITH R EGARD TO BAD DEBT AT RS.2,15,538/-. 8. BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE ONE OF THE BUSINESSES IS MONEY LENDING AS ALSO MENTIONED IN TH E PARTNERSHIP DEED. THE ASSESSEE CLAIMED BAD DEBT OF RS.2,13,008/- AND RS.2,530/- IN THE CASE OF BVR MEMORIAL SCHOOL AND BVR MEMORIAL TRUST, RESPECTIVELY. ACCORDING TO ASSESSING OFFICER, THESE TWO DEBTS ARE NOT AT ALL CONNECTED TO THE BUSINESS ACTIVITIES OF THE ASSESSEE. ACCORDI NG TO THE ASSESSEE, MERE WRITING OFF THE DEBT IN THE BOOKS OF ACCOUNT IS SUF FICIENT FOR CLAIMING DEDUCTION OF BAD DEBT UNDER THE AMENDED PROVISIONS OF SEC.36(1) (VII) W.E.F. ITA NOS.669/H/2006 & 315/H/2010 M/S BVS REDDY & SONS, CHITTOOR 5 5 ASSESSMENT YEAR 1989-90. THE ASSESSEE IS NOT REQUI RED TO PROVE THAT DEBT HAS BECOME BAD. THIS IS ALSO CLEAR FROM THE CIRCUL AR NO.551 DT. 23.1.90 RULE REGARDING THE DEDUCTIBILITY OF BAD DEBT PROVID ED IN AMENDED SECTION 36(1) (VII) IS A STATUTORY RULE BY ITSELF. THEREFOR E THERE IS NO NEED FOR INSISTING FOR ANY OTHER PROOF. ONCE THAT STATUTORY RULE IS SATISFIED NO FURTHER OBLIGATIONS TO BE DISCHARGED BY THE ASSESSE E (VIDE 200) 102 TTJ (MUM) (SB) 207 IN THE CASE OF DCIT VS. OMAN INTERNA TIONAL BANK. 9. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE. THE ASSESSEE HAS NOT ABLE TO PROVE THE BUSINESS TRANSACTIONS WHA T THE ASSESSEE IS HAVING WITH THE ABOVE TWO PARTIES. THE DEBT WHICH HAS BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS BY THE ASSESSEE COULD BE CLAIMED AS BAD DEBT. UNLESS THE ASSESSEE INCURR ED THE DEBT FOR THE PURPOSE OF ITS BUSINESS, IT CANNOT BE CLAIMED AS BU SINESS DEDUCTION EVEN IF IT IS WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE A SSESSEE. HENCE, IN OUR OPINION, THE LOWER AUTHORITIES ARE JUSTIFIED IN DIS ALLOWING THIS BAD DEBT. THIS GROUND OF THE ASSESSEE IS DISMISSED. 10. IN THE RESULT, THE APPEAL IN ITA NO.669/H/200 6 IS PARTLY ALLOWED AND APPEAL IN ITA NO.315/H/2010 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT 18. 2.2011 SD/- SD/- G.C. GUPTA CHANDRA POOJARI VICE PRESIDENT ACCOUNTANT MEMBER DATED THE 18 TH FEBRUARY, 2011 ITA NOS.669/H/2006 & 315/H/2010 M/S BVS REDDY & SONS, CHITTOOR 6 6 COPY FORWARDED TO: 1. M/S KGM GUPTA & CO., CAS, 10/67, GANDHI ROAD, CH ITTOOR 2. THE ACIT, CIRCLE 1(1), KT ROAD, TIRUPATHI 3. CIT(A)- TIRUPATHI. 4. CIT, HYDERABAD 5. THE D.R., ITAT, HYDERABAD. NP