M/s. Apple Credit Corporation Limited, CHENNAI V. DCIT, CHENNAI

ITA 88/CHNY/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 5251 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2001-2002
• Appeal Filed On: 19-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: TAPAS KUMAR DUTTA
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Opportunity of being heard; Bad and doubtful debts
• Section: 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHENNAI BENCH C BEFORE DR. O.K.NARAYANAN, VICE-PRESIDENT AND SHRI HARI OM MARATHA, JUDICIAL MEMBER I.T.A. NO.88/MDS/2011 ASSESSMENT YEAR : 2001-02 M/S. APPLE CREDIT THE ASSISTANT COMMISSIONER CORPORATION LTD., OF INCOME-TAX, GOKUL ARCADE, 1 ST FLOOR, VS. COMPANY CIRCLE-I(1), NO.2, SARDAR PATEL ROAD, CHENNAI 34. CHENNAI-600 020. PAN AACCA 2996 C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI R. VIJAYARAGHAVAN RESPONDENT BY : SHRI TAPAS KUMAR DUTTA O R D E R PER DR. O.K.NARAYANAN, VICE PRESIDENT THIS APPEAL FILED BY THE ASSESSEE RELATES TO THE AS SESSMENT YEAR 2001-02. THE APPEAL ARISES OUT OF THE ASSESS MENT COMPLETED UNDER SEC.143[3] READ WITH SEC.147 OF THE I.T .ACT, ITA 88/11 :- 2 -: 1961 AND IS DIRECTED AGAINST THE ORDER OF THE COMMI SSIONER OF INCOME-TAX (APPEALS)-III, AT CHENNAI DATED 18.10.2 010. 2. THE ONLY GROUND RAISED BY THE ASSESSEE IN THIS APPE AL IS THAT THE BAD DEBTS WRITTEN OFF BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT SHOULD HAVE BEEN ALLOWED AS A DEDUCTION IN DETERMINING THE LOSS ATTRIBUTABLE TO THE ASSESSMENT YEAR UNDER APPEAL. IT IS THE CASE OF THE ASSESSEE THAT THE BAD DEBTS WRITTEN OFF REPRESENTED RECEIVABLES FROM DEBTORS ARISING IN THE COURSE OF CARRYING ON MONEY LENDING BUSINESS BY THE ASSESSEE. AS THE ADVANCES MADE BY THE ASSESSEE-COMPANY TURNED TO BE IRRECOVERABLE, IT WAS TREATED AS BAD AND WRITTEN OF F IN THE BOOKS OF ACCOUNT. THE ASSESSEE HAS PLACED RELIANCE ON THE J UDGMENT OF THE HON'BLE SUPREME COURT RENDERED IN THE CASE OF T .R.F. LTD. VS. COMMISSIONER OF INCOME-TAX (323 ITR 397). 3. THE ASSESSEE HAS ALSO STATED THAT REQUISITE PARTICU LARS CALLED FOR BY THE COMMISSIONER OF INCOME-TAX (APPEALS)/ASSESSING AUTHORITY COULD NOT BE PRODUCED BECAUSE THE OPERATIONS OF THE ASSESSEE WAS WOUND UP BECAUSE OF HEAVY LOSSES AND MOST OF THE EMPLOYEES OF THE ASSESSEE HA D LEFT SERVICE AND IN SUCH CIRCUMSTANCES, THE ASSESSEE WAS NOT IN A ITA 88/11 :- 3 -: POSITION TO COLLECT THE NECESSARY DOCUMENTS TO BE P RODUCED BEFORE THE AUTHORITIES. IT IS THE CASE OF THE ASSE SSEE THAT ONE MORE OPPORTUNITY BE GIVEN TO PROVE ITS CASE. 4. THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS O F HIRE PURCHASES AND FINANCING. THE ASSESSEE HAS FILED A LOSS RETURN OF ` 1,95,54,34,202/- FOR THE ASSESSMENT YEAR UNDER APP EAL. INITIALLY, THE RETURN WAS PROCESSED UNDER SEC.143(1 ). SUBSEQUENTLY, THE ASSESSMENT WAS RE-OPENED BY ISSU E OF NOTICE UNDER SEC.148. IN COMPLETING THE SAID INCOME ESCAP ING ASSESSMENT, THE ASSESSING OFFICER DISALLOWED AND AD DED BACK THE BAD DEBT CLAIM OF THE ASSESSEE TO THE TUNE OF ` 130,36,96,349/-. IN FIRST APPEAL, THE COMMISSIONER OF INCOME- TAX (APPEALS) CONFIRMED THE DISALLOWANCE ON THE GRO UND THAT THE ASSESSEE HAS NOT PRESSED THE GROUND BEFORE HIM AS E VIDENCED BY THE WRITTEN SUBMISSIONS FILED BY THE ASSESSEE BEFOR E HIM. 5. SHRI R. VIJAYARAGHAVAN, THE LEARNED COUNSEL APPEAR ING FOR THE ASSESSEE EXPLAINED THAT IT WAS TRUE THAT THE AS SESSEE HAD NOT SERIOUSLY PRESSED THE GROUND OF BAD DEBTS BEFORE TH E COMMISSIONER OF INCOME-TAX (APPEALS). BUT HE STATE D THAT THE GROUND WAS NOT PRESSED, NOT BECAUSE OF THE FACT THA T THE CLAIM ITA 88/11 :- 4 -: WAS NOT GENUINE OR LEGITIMATE. IT WAS NOT PRESSED BECAUSE, AT THAT POINT OF TIME, THE ASSESSEE WAS NOT IN A POSIT ION TO COLLECT THE RELEVANT MATERIALS AND DOCUMENTS TO SUBSTANTIATE IT S CASE BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS). HE FURT HER STATED THAT THIS INABILITY WAS NOT CAUSED BECAUSE OF ANY L APSE ON THE PART OF THE ASSESSEE-COMPANY. BECAUSE OF HUGE LOSSES SU FFERED YEAR AFTER YEAR, THE ASSESSEE-COMPANY WAS FORCED TO DISC ONTINUE ITS BUSINESS OPERATIONS AS A RESULT OF WHICH ITS VARIOU S BRANCHES WERE CLOSED DOWN AND THE EMPLOYEES LEFT ITS SERVICE . IT IS BECAUSE OF THIS COMPELLING REASON THAT THE ASSESSEE COMPANY UNWILLINGLY PLACED BEFORE THE COMMISSIONER OF INCOM E-TAX (APPEALS) ITS INABILITY TO PURSUE THE MATTER TO ITS LOGIC CONCLUSION. THE LEARNED COUNSEL SUBMITTED THAT IT IS IN THIS CO NTEXT THE GROUND WAS DISMISSED BY THE COMMISSIONER OF INCOME-TAX (AP PEALS) STATING THAT THE ISSUE WAS NOT PRESSED BEFORE HIM A T THE TIME OF HEARING. 6. ON THE MERITS OF THE CASE, THE LEARNED COUNSEL FURT HER ARGUED THAT THE CLAIM MADE BY THE ASSESSEE WAS DISA LLOWED BY THE ASSESSING OFFICER ON A SINGULAR GROUND THAT THE BAD DEBTS WERE WRITTEN OFF BY THE ASSESSEE IN ITS PROFIT AND LOSS APPROPRIATION ITA 88/11 :- 5 -: ACCOUNT AND NOT IN ITS PROFITS AND LOSS ACCOUNT. H E EXPLAINED THAT AS IT WAS A SPECIAL ITEM, THE DEBIT WAS SEPARATELY MENTIONED BUT IT WAS NOT DEBITED IN THE PROFIT AND LOSS APPROPRIATIO N ACCOUNT AS WRONGLY OBSERVED BY THE ASSESSING AUTHORITY. HE FU RTHER EXPLAINED THAT APART FROM THE ABOVE TECHNICAL REASO NS THE ASSESSING OFFICER HAS NOT EXAMINED THE ISSUE RAISED BY THE ASSESSEE ON ITS MERITS AND HE HAS NOT ARRIVED AT AN Y FINDING ON THE BASIS OF THE ENTRIES REFLECTED IN THE BOOKS OF ACCOUNT. 7. IN THESE CIRCUMSTANCES, IT IS THE CONTENTION OF THE LEARNED COUNSEL THAT EITHER THE TRIBUNAL MAY ALLOW THE BAD DEBTS CLAIMED BY THE ASSESSEE AS AN EXPENDITURE OR ALTERNATIVELY THE ISSUE MAY BE RESTORED TO THE LOWER AUTHORITIES SO THAT THE IS SUE MAY BE RE- EXAMINED IN THE LIGHT OF THE DETAILS AND PARTICULAR S, NOW AVAILABLE WITH THE ASSESSEE. 8. SHRI TAPAS KUMAR DUTTA, THE LEARNED COMMISSIONER OF INCOME-TAX APPEARING FOR THE REVENUE CONTENDED THA T THE COMMISSIONER OF INCOME-TAX (APPEALS) WAS JUSTIFIED IN DISMISSING THE GROUND RAISED BY THE ASSESSEE AS THE SAME WAS N OT PRESSED BEFORE HIM. HE EXPLAINED THAT THE CLAIM OF BAD DEB TS WAS MADE BY THE ASSESSEE-COMPANY THROUGH AN ENTRY IN PROFIT AND LOSS ITA 88/11 :- 6 -: APPROPRIATION ACCOUNT ALONE AND IN THE ABSENCE OF A NY OTHER DETAILS IT WAS NOT POSSIBLE FOR THE ASSESSING OFFIC ER TO ENTERTAIN THAT CLAIM OF DEDUCTION. IN FIRST APPEAL, BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) THE ASSESSEE-COMPANY ITSELF SUBMITTED THAT THE SAID GROUND WAS NOT PRESSED BY THE ASSESSE E. THEREFORE, THERE IS NO MISTAKE OF FACT OR LAW EITHE R IN THE ORDER OF THE ASSESSING AUTHORITY OR IN THE ORDER OF THE COMM ISSIONER OF INCOME-TAX (APPEALS), AS FAR AS THIS ISSUE IS CONCE RNED. HE THEREFORE, SUBMITTED THAT THIS APPEAL FILED BY THE ASSESSEE IS LIABLE TO BE DISMISSED. 9. WE HEARD BOTH SIDES IN DETAIL AND PERUSED THE ORD ERS OF THE LOWER AUTHORITIES. WE HAVE ALSO GONE THROUGH T HE AFFIDAVIT FILED BY SHRI JRK SARMA, DIRECTOR OF THE ASSESSEE-C OMPANY WHO HAS DEPOSED THEREIN THAT IN THE LAST EIGHT MONTHS, THE ASSESSEE HAD MADE STRENUOUS EFFORTS TO OBTAIN OLD RECORDS AN D DETAILS BY AVAILING HELP FROM THE OLD EMPLOYEES AND NOW IT IS IN A POSITION TO PRESENT THE RELEVANT MATERIALS AND EVIDENCES BEFORE THE INCOME- TAX AUTHORITIES AND THEREFORE, ONE MORE OPPORTUNITY MAY BE GRANTED TO THE ASSESSEE-COMPANY FOR THE SAME. ITA 88/11 :- 7 -: 10. THERE IS NO DOUBT REGARDING THE FACT THAT THE BUSIN ESS OF THE ASSESSEE-COMPANY WAS RESULTING IN LOSS YEAR AFTER Y EAR. FOR THE IMPUGNED ASSESSMENT YEAR 2001-02, THE ASSESSEE HAS RETURNED A LOSS OF ` 195,54,34,202/-. EVEN AFTER THE DISALLOWANCE MADE BY THE ASSESSING AUTHORITY, THE ASSESSMENT HAS RESULT ED ONLY IN A LOSS DETERMINED AT ` 65,16,40,344/-. IT IS ALSO NOT DISPUTED THAT 40 ODD BRANCHES OF THE ASSESSEE-COMPANY WERE CLOSED DO WN AND THE EMPLOYEES HAVE LEFT THE SERVICE OF THE ASSESSE E-COMPANY. 11. IN THESE CIRCUMSTANCES, IT IS ONLY INCIDENTAL THAT THE ASSESSEE-COMPANY WOULD NOT HAVE BEEN IN A POSITION TO COLLECT THE NECESSARY DETAILS AND PRESENT THE SAME BEFORE T HE COMMISSIONER OF INCOME-TAX (APPEALS) TO SUPPORT ITS CLAIM OF DEDUCTION OF BAD DEBTS. THE REASONS EXPLAINED BY T HE ASSESSEE- COMPANY ARE NOTHING BUT CONVINCING. 12. THE COMMISSIONER OF INCOME-TAX (APPEALS) HAS DISMIS SED THE APPEAL OF THE ASSESSEE ON THE GROUND THAT THIS ISSUE WAS NOT PRESSED BY THE ASSESSEE BEFORE HIM. IT IS TRUE THA T WE DO NOT FIND ANY FAULT WITH THE COMMISSIONER OF INCOME-TAX (APPE ALS) ON THAT GROUND BUT STILL WE LIKE TO PURSUE THE SUBMISSION M ADE BY THE ITA 88/11 :- 8 -: ASSESSEE-COMPANY BEFORE THE COMMISSIONER OF INCOME- TAX (APPEALS) IN THIS REGARD WHICH READS AS UNDER : THE APPELLANT WHILE FILING THE RETURN OF INCOME FO R THE YEAR CLAIMED A SUM OF ` ` ` ` 130,36,96,349/- AS DEDUCTION TOWARDS BAD AND RECOVERABLE DEBTS WHEREAS FOR THE PURPOSE OF PRESENTATION THE SAME WAS DISCLOSED AS A SEPARATE LINE ITEM IN THE PROFIT AND LOSS ACCOUNT IN TERMS OF ACCOUNTING STANDARD 5 BEING AN EXPENDITURE OF EXTRAORDINARY IN NATURE. WHEREAS THE ASSESSING OFFICER TOOK A STAND THAT THI S CLAIM OF BAD DEBT IS SHOWN AS AN APPROPRIATION IN THE PROFIT AND LOSS ACCOUNT AND HENCE NOT ELIGIBLE FOR DEDUCTION. THE APPELLANT HAVING FAILED TO RECOVER THE AMOUNT MADE THE CLAIM UNDER SEC.36 WHEREAS CONSIDERABLE TIME HAD LAPSED EVER SINCE THE CLAIM WAS MADE AND THE PRESENT ISSUE CAME UP FOR ADJUDICATION NOW. AS THERE IS NOT MUCH OF MEANING IN INSISTING FOR THE ALLOWANCE NOTWITHSTANDING THE FACT THE CLAIM REPRESENTS GENUINE BUSINESS BAD DEBTS, THE APPELLANT SUBMITS ITA 88/11 :- 9 -: THAT THIS GROUND IS NOT PRESSED FOR AND REQUESTS TH E LEARNED COMMISSIONER OF INCOME TAX APPEALS TO TREAT THE MATTER ACCORDINGLY. (EMPHASIS SUPPLIED) 13. IN THE ABOVE SUBMISSION MADE BEFORE THE COMMISSIONE R OF INCOME-TAX (APPEALS), THE ASSESSEE HAS IN FACT OBJE CTED TO THE OBSERVATION OF THE ASSESSING OFFICER THAT THE CLAIM OF DEDUCTION OF BAD DEBTS WAS MADE BY THE ASSESSEE AS A SEPARATE IT EM, IN THE PROFIT AND LOSS APPROPRIATION ACCOUNT. THE ASSESSE E HAS EXPLAINED THAT THE ITEM WAS MENTIONED AS A SEPARATE LINE ITEM IN THE REGULAR PROFIT AND LOSS ACCOUNT IN COMPLIANCE O F ACCOUNTING STANDARD 5, BEING AN ITEM OF EXTRA ORDINARY ONE. T HE ASSESSEE HAS ALSO FURTHER STATED IN THE SUBMISSION THAT THE AMOUNTS SO CLAIMED BY THE ASSESSEE-COMPANY HAVE NOT SO FAR BEE N RECOVERED BY IT. THE ASSESSEE-COMPANY FURTHER STAT ED THAT IT IS NOT INSISTING FOR THE DISALLOWANCE NOTWITHSTANDING THE FACT THAT THE CLAIM REPRESENTED GENUINE BUSINESS BAD DEBTS. 14. THEREFORE, IT IS TO BE SEEN THAT THE ASSESSEE STATE D BEFORE THE COMMISSIONER OF INCOME-TAX (APPEALS) AS NOT PRE SSING THE GROUND NOT FOR LACK OF MERITS BUT ON ACCOUNT OF PRE SSURE OF CIRCUMSTANCES. NOW AS THE ASSESSEE IS HAVING NECE SSARY ITA 88/11 :- 10 - : DETAILS, IT WILL BE ONLY JUST AND FAIR IF THE ASSES SEE IS GIVEN ONE MORE OPPORTUNITY TO PRESENT ITS CASE BEFORE THE LOW ER AUTHORITIES. 15. NOW, COMING TO THE MERIT OF THE CASE, IT IS A SETTL ED LAW THAT BAD DEBTS IF WRITTEN OFF IN THE BOOKS OF ACCOUNT, T HE SAME MAY BE ALLOWED AS A DEDUCTION AS HELD BY THE HON'BLE SUPRE ME COURT IN T.R.F. LTD. VS. COMMISSIONER OF INCOME-TAX (323 IT R 397). WE DO NOT FIND MUCH FORCE IN THE ARGUMENT OF THE ASSES SING OFFICER THAT THE CLAIM WAS MADE BY THE ASSESSEE AS AN ITEM IN THE PROFIT AND LOSS APPROPRIATION ACCOUNT. THE BAD DEBTS WHEN WRITTEN OFF AND CLAIMED AS AN ITEM OF EXPENDITURE IS A CHARGE O N THE PROFIT AND LOSS ACCOUNT AND THEREFORE, THE SAME SHOULD BE DEBITED ONLY IN THE PROFIT AND LOSS ACCOUNT. IT CANNOT BE A MAT TER OF APPROPRIATION AS APPREHENDED BY THE ASSESSING AUTHO RITY. IT MAY SOMETIMES COME AS AN ITEM IN THE PROFIT AND LOSS AP PROPRIATION ACCOUNT IF A BAD DEBT RESERVE ACCOUNT IS IN OPERATI ON AND THE BAD DEBTS OF A PARTICULAR ASSESSMENT YEAR HAVE BEEN SET OFF AGAINST THE SAID RESERVE. BUT FOR THAT, IT IS NOT POSSIBLE TO DEBIT THE BAD DEBTS IN THE PROFIT AND LOSS APPROPRIATION ACCOUNT. AS AN EXTRA ORDINARY ITEM, THE ASSESSEE MIGHT HAVE HIGHLIGHTED THE EXPENDITURE AS A SEPARATE LINE ITEM IN ITS PROFIT A ND LOSS ACCOUNT. ITA 88/11 :- 11 - : SO ALSO THE ASSESSING OFFICER HAS NOT MADE OUT ANY CASE THAT THE BAD DEBTS WERE NOT WRITTEN OFF IN THE PERSONAL ACCO UNTS OF THE CONCERNED PARTIES. THE ASSESSING OFFICER HAS NOT D ISCUSSED ANYTHING ON THE ENTRIES REFLECTED IN THE BOOKS OF A CCOUNT OF THE ASSESSEE-COMPANY. 16. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE OBSERVATION OF THE ASSESSI NG AUTHORITY ON THE ISSUE IS PREMATURE. THE DECISION WAS ENDORS ED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) ONLY ON A DIFF ERENT TECHNICAL GROUND AND NOT ON MERITS. 17. AS ALREADY MENTIONED IN THE PARAGRAPHS ABOVE, WE FI ND THAT IT IS NECESSARY IN THE INTEREST OF JUSTICE TO GIVE ONE MORE OPPORTUNITY TO THE ASSESSEE TO PRESENT THE CLAIM OF BAD DEBTS BEFORE THE LOWER AUTHORITIES. ACCORDINGLY, THE ORD ERS OF THE LOWER AUTHORITIES ARE SET ASIDE AND THE ISSUE IS REMITTED BACK TO THE ASSESSING AUTHORITY FOR RE-EXAMINING THE ISSUE AFTE R GIVING THE ASSESSEE-COMPANY AN OPPORTUNITY OF BEING HEARD AND TO PRESENT THE MATERIALS AND EVIDENCES INCLUDING THE BOOKS OF ACCOUNT, AND TO PASS AN ORDER IN ACCORDANCE WITH LAW. ITA 88/11 :- 12 - : 18. IN RESULT, THIS APPEAL FILED BY THE ASSESSEE IS TRE ATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON TUESDAY, THE 12 TH DAY OF APRIL, 2011 AT CHENNAI. SD/- SD/- (HARI OM MARATHA) JUDICIAL MEMBER (DR. O.K.NARAYANAN) VICE-PRESIDENT CHENNAI, DATED : 12 TH APRIL, 2011 MPO* COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR