M/s. Rajdarshan Industries Limited, UDAIPUR V. ACIT, UDAIPUR

ITA 82/JODH/2013

• Counselvise Citation: 8223314 RSA 2013
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 13-11-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 18-02-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N A JOSHI
• Assessee Lawyers: G K GARGIEYA
• Keywords: Capital asset; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELALTE TRIBUNAL : JODHPUR BENC H : JODHPUR BEFORE SHRI HARI OM MARATHA, JUDICIAL MEMBER AND SHRI N.K. SAINI, ACCOUNTANT MEMBER. ITA NO.82/JODH/2013 (A.Y. 200-08) M/S. RAJDARSHAN INDUSTRIES LTD., VS. ACIT, CIRCL E-2, 59, MOTI MAGRI SCHEME, UDAIPUR. UDAIPUR. PAN NO. AAACR 6372 H (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.K. GARGIEYA & SHRI SARVESH BALDI DEPARTMENT BY : SHRI N.A. JOSHI- D.R. DATE OF HEARING : 13/11/2013. DATE OF PRONOUNCEMENT : 18/11/2013. O R D E R PER N.K.SAINI, A.M THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 05/12/2012 OF LD. CIT (A), UDAIPUR. THE ONLY EFFEC TIVE GROUND RAISED IN THIS APPEAL READS AS UNDER:- 1. ON THE FACTS AND IN THE PRESENT CIRCUMSTANCES O F THE CASE, LD. CIT(A) WAS NOT JUSTIFIED IN CONFIRMING THE ADDITION MADE BY THE LD. AO 2 TOWARDS THE WRITE OFF BAD DEBTS OF RS. 4 LAKHS TREA TING IT AS A CAPITAL LOSS. 2. THAT THE APPELLANT CRAVES TO ADD, AMEND, ALTER, DELETE OR MODIFY ANY OR ALL THE ABOVE GROUNDS OF APPEAL BEFORE OR AT THE TIME OF HEARING. 2. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE F ILED RETURN OF INCOME ON 10/10/2007 DECLARING AN INCOME OF RS. 30, 92,761/-. THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD WRITTEN OFF DEBTS OUTSTANDING AGAINST M/S. BHUPENDRA MARBLES AND GRAN ITES CLAIMING THAT IT HAS BECOME BAD. THE ASSESSING OFFICER ASKED THE AS SESSEE TO SHOW-CAUSE AS TO WHY THE BAD DEBTS OF RS. 4,00,000/- OUTSTANDI NG AGAINST M/S. BHUPENDRA MARBLES AND GRANITES MAY NOT BE DELETED. THE ASSESSEE SUBMITTED AS UNDER:- KINDLY REFER TO THE ASSESSMENT PROCEEDINGS, ANY YO UR HONORS QUARRY REGARDING AMOUNT WRITTEN OFF OF RS. 4,00,000/- WE F URTHER CLARIFY THAT AS REPORTED WE ARE IN THE BUSINESS OF EXCAVATION AND T RANSPORTATION OF LIMESTONE FOR VARIOUS CEMENT PLANTS. FOR DOING THIS JOB WE HAVE PURCHASED ONE EXCAVATOR TATA HITACHI EX-200 LC MACHINE IN JUN E 1997 AND AFTER SUFFICIENTLY USING AND SINCE INCURRING HEAVY REPAIR EXPENDITURE WE HAVE SOLD THIS MACHINE IN RS. 8,91,000/- TO BHUPENDRA MARBLES AND GRANITES PVT. LTD. THE CIRCUMSTANCES UNMISTAKABLY INDICATE THAT THE TR ANSACTION WAS A PROPER TRADING TRANSACTION MADE IN THE COURSE OF THE NORMA L BUSINESS OF THE COMPANY. THE AMOUNT WRITTEN OFF BY THE COMPANY IS THEREFORE IN THE NATURE OF COMMERCIAL LOSS INCIDENTAL TO THE BUSINES S AND ENTITLED TO A DEDUCTION OF THIS AMOUNT AS BUSINESS LOSS. 3 3. THE ASSESSING OFFICER AFTER CONSIDERING THE SUBMI SSIONS OF THE ASSESSEE OBSERVED THAT THE BAD DEBTS IN THE CASE OF ASSESSEE HAS ARISEN AGAINST THE SALE OF CAPITAL ASSET, WHICH WAS IN THE NATURE OF CAPITAL LOSS AND NOT REVENUE LOSS. HE, THEREFORE, DISALLOWED RS . 4,00,000/-. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A) AND SUBMITTED THAT THE CLAIM OF RS. 4,00,000 /- WAS REJECTED BY THE ASSESSING OFFICER UNEQUIVOCALLY ONLY ON THE GROUND THAT THE BAD DEBT HAD ARISEN AGAINST THE SALE OF CAPITAL ASSET WHICH WAS IN THE NATURE OF CAPITAL LOSS AND NOT REVENUE LOSS. IT WAS FURTHER SUBMITTE D THAT THE ASSESSEE WAS IN THE BUSINESS OF EXCAVATION AND TRANSPORTATION OF LIMESTONE FOR VARIOUS CEMENT PLANTS AND FOR DOING THIS JOB, PURCHASED ONE EXCAVATOR TATA HITACHI EX-200 LC MACHINE IN JUNE 1997 AND AFTER SU FFICIENTLY USING IT, THE ASSESSEE WAS INCURRING HEAVY REPAIR EXPENDITURE, SO , MACHINE WAS SOLD FOR RS. 8,91,000/- TO M/S. BHUPENDRA MARBLES AND GRANIT ES PVT. LTD. THEREFORE, THE TRANSACTION WAS A PROPER TRADING TRA NSACTION MADE IN THE COURSE OF NORMAL BUSINESS AND THE AMOUNT WRITTEN OF F BY THE ASSESSEE WAS IN THE NATURE OF COMMERCIAL LOSS INCIDENTAL TO THE BUSINESS AND ENTITLED TO A DEDUCTION AS BUSINESS LOSS. RELIANCE WAS PLACED ON THE FOLLOWING CASE LAWS:- 4 1. CIT VS. INDIAN BISELERS 181 ITR 64 2. BADRIDAS DAGA VS. CIT 34 ITR (10, 15) 3. CIT, KANPUR VS. JWALA PD. RADHA KRISHAN 107 ITR (540) 4. CHENAB FOREST CO. VS. CIT (1974) 96 ITR 568 (J & K) 5. ACIT VS. STAR INDIA (P) LTD. (2008) 117 TTJ (MU MBAI) 577 6. SPACE FINANCIAL SERVICES VS. ACIT (2008) 115 TJ (DEL.) 165 7. CIT VS. AUTOMETERS LTD. (2007) 292 ITR 345 (DEL .) 5. THE LEARNED CIT(A) AFTER CONSIDERING THE SUBMISSIO NS OF THE ASSESSEE OBSERVED THAT THE ASSESSEE SOLD THE MACHINERY TO M/ S. BHUPENDRA MARBLES AND GRANITES PVT. LTD. FOR RS. 8,91,000/- AND OBTAI NED A POST DATED CHEQUE FROM THE PURCHASER. THEREAFTER, A DISPUTE W AS ARISEN BETWEEN THE ASSESSEE AND THE PURCHASER. ASSESSEE FILED A CA SE BEFORE THE JUDICIAL MAGISTRATE FIRST, UDAIPUR, WHO IN TURN ISSUED ARRES T WARRANT AGAINST SHRI HARISH MEHLAWAT, THE DIRECTOR OF THE PURCHASER COMP ANY. HOWEVER, THE ISSUE WAS SETTLED OUTSIDE THE COURT VIDE MEMORANDUM OF UNDERSTANDING DATED 22/07/2006 BETWEEN THE ASSESSEE AND THE PURCH ASER COMPANY. ACCORDING TO THE SAID AGREEMENT, THE ISSUE HAD BEEN SETTLED BY TAKING PAYMENT OF RS. 4,91,000/- IN PLACE OF RS. 8,91,000/ - FOR WHICH THE EXCAVATOR MACHINE WAS SOLD BY THE ASSESSEE AT THE I NITIAL STAGE. HE FURTHER OBSERVED THAT THE ASSESSEE HAD WRITTEN OFF AN AMOUNT OF RS. 4,00,000 IN ITS BOOKS OF ACCOUNTS AS NON-RECOVERABL E, WHICH WAS SUFFICIENT 5 TO CLAIM SUCH DEBT AS BAD DEBT AS PER THE AMENDED P ROVISIONS OF SECTION 36(1) (VII) AND 36(2)(I) OF THE I.T. ACT, 1961 (HER EINAFTER REFERRED TO AS ACT, FOR SHORT). LEARNED CIT(A) ALSO OBSERVED TH AT THE EXPENDITURE CLAIMED ON EXCAVATOR MACHINE HAD BEEN ALLOWED IN TH E PREVIOUS YEARS, HOWEVER, THE DEDUCTION OF RS. 4,00,000/- CLAIMED BY THE ASSESSEE WAS THE LOSS INCURRED ON SALE OF EXCAVATOR MACHINE, WHI CH WAS APPARENTLY AN ASSET OF THE ASSESSEE. THEREFORE, IT WAS A CAPITAL LOSS AND COULD NOT BE CLAIMED BAD DEBT. ACCORDINGLY, DISALLOWANCE MADE B Y THE ASSESSING OFFICER WAS CONFIRMED. NOW THE ASSESSEE IS IN APPE AL. 6 . LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND THE LEARNED D.R. S UPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 7. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PARTI ES AND THE MATERIAL AVAILABLE ON THE RECORD, IT IS NOTICED THA T THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF EXCAVATION AND TRANSPORT ATION OF LIMESTONE AND FOR THAT PURPOSE, AN EXCAVATOR TATA HITACHI EX- 200 LC MACHINE WAS PURCHASED IN JUNE 1997 AND SINCE EXPENDITURE REQUIR ED TO BE INCURRED ON ACCOUNT OF REPAIRS AND MAINTENANCE INCREASED, THE A SSESSEE SOLD THE SAID 6 MACHINE TO M/S. BHUPENDRA MARBLES AND GRANITES PVT. LTD., HOWEVER, PURCHASER DID NOT MAKE THE PAYMENT DUE TO CERTAIN D ISPUTES AND ULTIMATELY THE ISSUE WAS SETTLED BY TAKING PAYMENT OF RS. 4,91,000/-. THUS, THERE WAS A LOSS OF RS. 4,00,000/-, THE SAID AMOUNT WAS CLAIMED BY THE ASSESSEE AS BAD DEBTS. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT THE TRANSACTION ENTERED INTO BY THE ASSESSEE WAS A BUSINESS TRANSACTION AND WHEN THE MACHINERY WAS SOLD, A DEBT OF RS. 8,91 ,000/- WAS RECOVERABLE, OUT OF WHICH THE ASSESSEE RECEIVED ONL Y RS. 4,91,000/- AND THE REMAINING AMOUNT OF RS. 4,00,000/- BECAME BAD D EBT, WHICH WAS WRITTEN OFF IN THE BOOKS OF ACCOUNTS. IT IS ALSO N OT IN DISPUTE THAT THE ASSESSEE WAS EARNING INCOME BY USING EXCAVATOR MACH INE AND ALSO INCURRING EXPENSES FOR RUNNING THAT MACHINE, SO IT CANNOT BE SAID THAT THERE WAS NO EARNING OF REVENUE IN NATURE BY THE AS SESSEE FROM THE SAID MACHINE. IN THE PRESENT CASE, LOSS OF THE ASSESSEE WAS NOT ON ACCOUNT OF SALE OF MACHINE, WHICH WAS SOLD FOR RS. 8,91,000/-, BUT IT WAS ON ACCOUNT OF RECOVERY OF THE DEBTS ARISING IN THE TRANSACTION RELATING TO THE BUSINESS. THEREFORE, THE AMOUNT IN QUESTION WAS A B AD DEBTS, WHICH WAS WRITTEN OFF IN THE BOOKS OF ACCOUNTS AS SUCH IT WAS ALLOWABLE UNDER SECTION 36(1)(VII) R.W.S. 36(2)(I) OF THE ACT, THIS FACT HAS ALSO BEEN ACCEPTED BY THE LEARNED CIT(A). WE THEREFORE, SET A SIDE THE IMPUGNED 7 ORDER PASSED BY THE LEARNED CIT(A) AND DIRECT THE ASSESSING OFFICER TO ALLOW THE CLAIM OF THE ASSESSEE. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. (ORDER PRONOUNCED IN THE COURT ON 18 TH NOVEMBER, 2013). SD/- SD/- (HARI OM MARATHA) (N.K.SAINI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 18 TH NOVEMBER , 2013. VR/- COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE LD.CIT 4. THE CIT(A) 5. THE D.R ASSISTANT REGISTRAR, ITAT, JODHPUR.