DCIT, Bhubaneswar V. TK International, Bhubaneswar

ITA 93/CTK/2011

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 4363 (ITAT-CUTTACK)
• Duration Of Justice: 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2011
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 17-06-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 14-02-2011
• Court: TRIBUNAL
• Department Lawyers: B S SUBUDHI
• Assessee Lawyers: PARAMITA TRIPATHY
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCME TAX APPELLATE TRIBUNAL, CUTTACK BENCH, CUTTACK BEFORE : HONBLE SHRI K.K.GUPTA, ACCOUNTANT MEMBER, AND HONBLE SHRI K.S.S.PRASAD RAO, JUDICIAL MEMBER. ITA NO S . 093,094 AND 095/CTK/2011 (ASSESSMENT YEAR S 2005 - 06, 2006 - 07 AND 2007 - 08) DC IT, CIRCLE 2(2), BHUBANESWAR. VERSUS T.K.INTERNATIONAL LTD., C - 40, MARKET BUILDING, SAHID NAGAR, BHUBANESWAR, PAN: AABCT 2236 P (APPELLANT) (RESPONDENT) FOR THE APPELLANT: SHRI B.S.SUBUDHI, AR FOR THE RESPONDENT SMT. PARAMITA TRIPATHY, DR ORDER SHRI K.K.GUPTA, ACCOUNTANT MEMBER : THESE APPEALS BY THE REVENUE FOR THE AYS 2005 - 06, 2006 - 07 AND 2007 - 08 ARISE OUT OF THE ORDER S OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) ON A COMMON ISSUE RAISED IN THESE THREE YEARS WITH RESPECT TO INCOME OF T HE ASSESSEE TO BE RECOGNIZED IN THE RATIO OF 45 : 5 5 BEING MEMBERSHIP AGREEMENT BETWEEN THE ASSESSEE AND THE MEMBERS FOR TIME SHARING THE VACATION TOURIST RESORT. ANOTHER ISSUE REGARDING DELETION OF BAD AND DOUBTFUL DEBTS DISALLOWED BY THE ASSESSING OFFICER HAS BEEN RAISED BY THE REVENUE IN THE ASSESSMENT YEAR 2007 - 08. 2. AT THE OUTSET THE LEARNED COUNSEL SUBMITTED THAT THE LEARNED CIT(A) HAS FOLLOWED THE DECISION THE TRIBUNAL IN THE CASE OF THE ASSESSEE ITSELF WHICH COPIES OF THE TRIBUNAL ORDER S ARE BEING FU RNISHED IN THE PAPER BOOK ON PAGES 1 TO 17 FOR THE AYS 1995 - 996 TO 1998 - 99, PAGES 18 TO 21 BEING THE COPY OF THE ORDER OF ITAT, CUTTACK FOR THE AYS 1999 - 00 TO 2000 - 01 AND PAGES 60 - 63 OF THE PB ANNEXE THE ORDER FOR THE ASSESSMENT YEAR 2002 - 03 TO 2003 - 04. WITH RESPECT TO THE DECISION RELATING TO DELETION OF THE DISALLOWANCE ON ACCOUNT OF BAD DEBTS WRITTEN OFF BY THE ASSE SSEE FOR THE ASSESSMENT YEAR 20 07 - 08, THE LEARNED COUNSEL SUBMITTED THAT THE LEARNED CIT(A) WAS APPRISED OF THE NATURE OF DEBT WRITTEN OFF IN VIEW OF THE INCOME IN PROPORTION TO WHICH TAX HAS BEEN PAID AND IN CONSEQUENCE TO THE DECISION OF THE ITA NOS.093,094 AND 095/CTK/2011 2 TRIBUNAL, THE LEARNED CIT(A) RELIED ON THE CBDT CIRCULAR NO.551 DT.23.1.1990 AND ALSO THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF DIRECTO R OF INCOME - TAX (INTERNATIONAL TAXATION) V. OMAN INTERNATIONAL BANK [2009] 313 ITR 128 (BOM) [2009] 223 CTR 382 (BOM) AND ANOTHER DECISION IN THE CASE OF STAR CHEMICALS (BOMBAY) P. LTD. [2009] 313 ITR 126 (BOM) [2008] 220 CTR 319 (BOM). 3. THE LEARNED DR S UBMITTED THAT THE LEARNED CIT(A) HAS RELIED ON THE DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE EARLIER YEARS WHEN IN DETAIL OBSERVATION REGARDING THE DELETION OF THE INCOME PROPOSED TO BE TAXED BY THE ASSESSING OFFICER HAS BEEN IDENTIFIED BY T HE LEARNED CIT(A) CANNOT BE TAXED IN THE IMPUGNED AYS. SHE HAD NO FURTHER CONTROVERTING MATERIAL TO PUT FORTH ON THE ISSUE OF TIME SHARING INCOME TO BE RENDERED TO TAX IN ACCORDANCE WITH THE JUDICIAL PRONOUNCEMENT. HOWEVER, O N THE ISSUE OF DELETION OF THE BAD DEBTS CLAIMED DISALLOWED BY THE ASSESSING OFFICER SHE SUBMITTED THAT IN CONSEQUENCE TO RENDERING OF INCOME BY CREATING A DEMAND ON THE DEBTORS THE ASSESSEE HAD TO ARITHMETICALLY COMPUTE INCOME IN THE RATIO OF 45:55 WHEN IT C OULD NOT HAVE BECOME BAD HA S NOT BEEN EXPLAINED BY THE ASSESSEE. THE CASE LAWS CITED BY THE LEARNED COUNSEL FOR THE ASSESSEE THEREFORE ARE TO BE DISTINGUISHED TO THE FA C TS OF THE ASSESSEES CASE WHEN ONCE THE INCOME IS RECOGNIZED IN ACCORDANCE WITH THE PAST PRACTICE, THE WRITE OFF O F BAD DEBT IN ACCORDANCE WITH THE CBDT CIRCULAR HAD TO BE DETERMINED ON THAT PORTION OF THE DEBT WHICH COULD BE HELD IRRECOVERABLE AGAINST WHICH INCOME HAD BEEN PROPORTIONATELY CONSIDERED IN THE IMPUGNED ASSESSMENT YEAR ONLY. IN OTHER WORDS , SHE POINTED OU T THAT THE EXERCISE OF COMPUTING INCOME AND WRITING OFF OF BAD DEBT BECOME INTERLINKED TO THE EXTENT THAT THE UNILATERAL EFFECT GIVEN BY THE ASSESSEE TO WRITE OFF A BAD DEBT WAS TO BE IN ACCORDANCE WITH THE CASE LAWS CITED AT THE BAR AND THE FACT THAT IT W OULD NOT BECOME AN EXE RCISE FOR ITA NOS.093,094 AND 095/CTK/2011 3 THE ASSESSEE TO WRITE IT OFF AS BAD INDICATING THAT THE DEBTORS WOULD NOT USE THE TIME ALLOTTED TO THEM PENDING INCOME HAS BEEN POSTPONED. 4. IN RESPONSE TO THE LEARNED DRS SUBMISSION, THE LEARNED COUNSEL FOR THE ASSESSEE P OINTED OUT THAT THE ASSESSEE HAS MARKET PREFERENCE AND ITS COMPUTERIZED ACCOUNTING BRINGS OUT INCOME AGAINST WHICH DEBT IS DUE NOT PAID, THIS LEADS TO THE FINDING OF TIME SHARING WHEN THE OUTSTANDING IN MEMBERS BALANCE HAS ALREADY BEEN CONSIDERED FOR RENDE RING TO TAX IN THE IMPUGNED ASSESSMENT YEAR. FOR THIS PROPOSITION HE HAS SUBMITTED THE DETAILS OF DEBTORS WHO HAVE TO SHARE TIME FOR A PERIOD SPECIFIED BETWEEN 5 TO 12 YEARS AND THE AMOUNT WRITTEN OFF BECOME S PART AND PARCEL OF THE DEBT WHICH OTHERWISE MA Y NOT HAVE BECOME BAD. IT IS ONLY WHEN THE DEBTOR REFUSES TO PAY FOR THE PERIOD HE HAS ALREADY ENJOYED THE RESORT THAT THE AMOUNT OWED BY IT HAS BEEN WRITTEN OFF WHEN HE WAS TO PAY THEREMAININGINSTALMENTS. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON OUR CAREFUL CONSIDERATION OF THE FACTS, WE ARE IN AGREEMENT WITH THE SUBMISSIONS OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THE ISSUE INCOME RECOGNITION OF TIME SHARING HAS BEEN DELIBERATED BY THE ITAT, CUTTACK BENCH IN ASSESSEES OWN CASE, WHICH HAS ALSO BEEN SUPPORTED BY THE DECISION OF ITAT,SPECIAL BENCH, CHENNAI IN THE CASE OF DCIT V. MAHINDRA HOLIDAYS, WHERE THE ASSESSEE WAS AN INTERVENER, THE LEARNED CIT(A) THEREFORE RIGHTLY DELETED THE ADDITION AS MADE BY THE ASSESSING OFFICER FOR THE IMPUGNED AYS ON IDENTICAL FACTS AND CIRCUMSTANCES. 6. HOWEVER, ON ISSUE OF BAD DEBTS WRITTEN OFF, WE ARE INCLINED TO RESTORE THE ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION OF THE FACTUAL MATRIX AS DEMONSTRATED BY THE LEARNED COUNSEL FOR THE ASSESSEE VIS - - VIS AS AN APPREHENSION IN THE MIND OF THE LEARNED DR. SHE HAS RIGHTLY POINTED OUT THAT THE CASE LAWS CITED FOR ALLOWANCE OF THE BAD DEBT AFTER THE AMENDMENT ITA NOS.093,094 AND 095/CTK/2011 4 TO SECTION36(1)(VII) HAS TO BE CONSIDERED ON THE SUBMIS SIONS OF THE ASSESSEE THE FACT REMAINS THAT IT CAN ONLY BE WRITTEN OFF AGAINST INCOME ALREADY RENDERED TO TAX. HERE THE ASSESSEE HAS BEEN ABLE TO POSTPONE RECOGNIZING THE REVENUE FOR A PARTICULAR ASSESSMENT YEAR THEREFORE HAS TO ESTABLISH BEYOND DOUBT THAT THE TIME SHARING INCOME WHICH HAS BEEN POSTPONED WAS TO BE RENDE RED TO TAX WHEN THE DEBT BECAME BAD SUBSEQUENTLY. THE SPREAD SHEET OF RECOGNIZING BAD DEBTS BY THE ASSESSEE REQUIRES VERIFICATION BY THE ASSESSING OFFICER IN THE LIGHT OF THE OBSERVATION OF T HE ASSESSING OFFICER THAT A DEBT CAN ONLY BE WRITTEN OFF WHEN IT BECOME IRRECOVERABLE. IN OTHER WORDS, THE INCOME OUGHT TO HAVE BEEN RENDERED TO TAX PRIOR TO ITS IR RECOVERABILITY HAS TO BE ESTABLISHED BY THE ASSESSEE WHICH OPPORTUNITY HE WILL AVAIL WHEN TH E ISSUE IS RESTORED TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION OF THE BAD DEBTS ACTUALLY WRITTEN OFF AS NOT REC OVERABLE WHEN THE DEBTOR OPTED OUT OF THE SCHEME AFTER HAVING AVAILED TIME SHARING IN ACCORDANCE WITH THE REVENUE RECOGNISATION METH OD ADOPTED BY THE ASSESSEE IN ACCORDANCE WITH THE APPELLATE AUTHORITIES DECISIONS PLACED ON RECORD. 7. IN THE RESULT, THE APPEALS FILED BY THE REVENUE IN ITA NOS.93 AND 94/CTK/2011 ARE DISMISSED AND IN ITA NO.95/CTK/2011 IS PARTLY ALLOWED. PRONOUNCED IN OP EN COURT ON DT. 30 TH JUNE, 2011 S D/ - S D/ - (K.S.S.PRASAD RAO) JUDICIAL MEMBER (K.K.GUPTA) ACCOUNTANT MEMBER DATE: 30 TH JUNE, 2011 H.K.PADHEE, SENIOR PRIVATE SECRETARY. ITA NOS.093,094 AND 095/CTK/2011 5 COP Y OF THE ORDER FORWARDED TO : 1. THE APPELLANT: DCIT, CIRCLE 2(2), BHUBANESWAR. 2. THE RESPONDENT: T.K.INTERNATIONAL LTD., C - 40, MARKET BUILDING, SAHID NAGAR, BHUBANESWAR, 3. THE CIT, 4. THE CIT(A), 5. THE DR, CUTTACK 6. GUARD FILE (IN DUPLICATE) TRUE COPY, BY OR DER, SENIOR PRIVATE SECRETARY.