Jeevan Shakthi Chit Fund (P) Ltd., Hyderabad V. Dy.CIT, Circle-2(1), Hyderabad

ITA 970/HYD/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82464 (ITAT-HYDERABAD)
• Duration Of Justice: 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-10-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 19-05-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: Y V S T SAI
• Assessee Lawyers: S RAMA RAO
• Keywords: Bad and doubtful debts
• Section: 143(3); 263; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B : HYDERABAD BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICAL MEMBER ITA.NO.970/HYD/2014 ASSESSMENT YEAR 2009-2010 M/S. JEEVAN SHAKTHI CHIT FUND (P) LTD., HYDERABAD. PAN AAACJ5056C VS. DCIT, CIRCLE 2(1) I.T. TOWERS, HYDERABAD. (APPELLANT) (RESPONDENT) FOR ASSESSEE : MR. S. RAMA RAO FOR REVENUE : MR. Y.V.S.T. SAI DATE OF HEARING : 24.09.2014 DATE OF PRONOUNCEMENT : 25.09.2014 ORDER PER B. RAMAKOTAIAH, A.M. THIS APPEAL BY ASSESSEE IS DIRECTED AGAINST THE O RDER OF COMMISSIONER OF INCOME TAX-II, HYDERABAD PASSED UNDER SECTION 263 DATED 30.03.2014 ON THE REASON THAT ASS ESSEES CLAIM OF BAD DEBTS AMOUNTING TO RS.1,78,32,800 CANNOT BE ALLOWED AS A DEDUCTION, AS THE SAME IS NOT ARISING IN THE ACTIVI TY OF MONEY LENDING. 2. BRIEFLY STATED FACTS ARE THAT ASSESSEE HAD WRIT TEN OFF THE ABOVE AMOUNT IN THE BOOKS OF ACCOUNTS AND CHARG ED TO P & L ACCOUNT. A.O. COMPLETED THE ASSESSMENT UNDER SECTIO N 143(3) INTER ALIA, ALLOWING THE DEDUCTION VIDE ORDER DATED 09.11.2011. LD. CIT WAS OF THE OPINION THAT CLAIM OF BAD DEBT ARISI NG IN CHIT BUSINESS DOES NOT SATISFY THE CONDITIONS OF SECTION 36(2) AND ACCORDINGLY, ISSUED A SHOW CAUSE NOTICE DATED 30.01 .2013. THE MAIN THRUST OF THE NOTICE WAS THAT AS PER THE PROVI SIONS OF SECTION 2 ITA.NO.970/HYD/2014 M/S. JEEVAN SHAKTHI CHIT FUND (P) LTD., HYDERABAD 36(2) NO DEDUCTION ON ACCOUNT OF BAD DEBT IS ALLOWA BLE UNLESS SUCH DEBT OR PART THEREOF WAS TAKEN ACCOUNT IN COMP UTING THE INCOME OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH BAD DEBT IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR OR TH E PERTAINS TO MONEY LENT IN THE COURSE OF BUSINESS OF BANKING OR MONEY LENDING. SINCE THE DEBT PERTAINING TO BIDDERS AMOUNT WAS NO T OFFERED TO TAX IN ANY OF THE YEAR, THE WRITING OFF OF EXPENDITURE TOWARDS BAD DEBT IS NOT CORRECT. IN RESPONSE, ASSESSEE SUBMITTED THA T AMOUNT IS ALLOWABLE AS ASSESSEE IS IN THE BUSINESS OF CHIT FU ND AND THE AMOUNT HAS BEEN TAKEN INTO ACCOUNT WHILE COMPUTING THE INCOME IN EARLIER YEARS. IT ALSO SUBMITTED THAT CBDT VIDE INSTRUCTION NO.1175 IN F.NO.169/21/78-ITL80 DATED 16.05.1978 HA S ISSUED INSTRUCTIONS WITH REGARD TO BUSINESS OF CHIT FUNDS AND HAS STATED THAT UN-RECOVERED AMOUNT DUE FROM MEMBERS WILL HAVE TO BE TREATED AS BAD DEBTS AND TEST TO BE ADOPTED IN USUA L BUSINESS ASSESSMENTS FOR ALLOWANCE OF BAD DEBTS WOULD BE APP LICABLE IN SUCH CASES ALSO. 3. LD. CIT WHILE ACCEPTING THAT CBDT INSTRUCTION NO.1175 STATES THAT UN-RECOVERED AMOUNT DUE FROM TH E MEMBERS OF CHIT FUNDS WILL HAVE TO BE TREATED AS BAD DEBTS, WAS OF THE OPINION THAT THE TWIN CONDITIONS REQUIRED FOR ALLOW ING AS A BAD DEBT UNDER SECTION 36(2) ARE NOT SATISFIED. HE DIR ECTED THE A.O. TO DISALLOW BAD DEBTS AND REVISE THE ASSESSMENT ORDER ACCORDINGLY. 4. LD. COUNSEL SUBMITTED THAT THIS AMOUNT WAS ALLO WED BY THE A.O AS BAD DEBT AFTER SCRUTINY AND FURTHER S UBMITTED THAT EVEN CBDT CIRCULAR ALLOWS IT AS A BAD DEBT. HE ALSO RELIED ON COORDINATE BENCH DECISION IN THE CASE OF SREE RAM CHITS(TAMILNADU) P. LTD., IN ITA.NO.1842/MDS/2010 D ATED 08.05.2012. HE ALSO RELIED ON THE DECISION OF COCHI N BENCH IN THE CASE OF RAJEES VS. ITO REPORTED IN 63 ITD (COCH.) 3 30 WHEREIN IT 3 ITA.NO.970/HYD/2014 M/S. JEEVAN SHAKTHI CHIT FUND (P) LTD., HYDERABAD WAS CONSIDERED THAT IT IS A LOSS INCURRED IN SUBSCR IBING CHIT FUND TO RAISE THE FUNDS IS ALLOWABLE AS DEDUCTION. HE AL SO RELIED ON COORDINATE BENCH DECISION IN THE CASE OF MARGADARSI CHIT FUND P. LTD., IN ITA.NO.470/HYD/2014 DATED 28.08.2014 IN SU PPORT OF CONTENTION. 5. LEARNED D.R. HOWEVER, RELIED ON THE ORDER OF COMMISSIONER OF INCOME TAX-II, HYDERABAD. 6. WE HAVE CONSIDERED THE ISSUE AND EXAMINED THE ARGUMENTS AND PAPER BOOK PLACED ON RECORD. WE ARE O F THE OPINION THAT ORDER OF CIT UNDER SECTION 263 CANNOT BE UPHEL D. AS FAR AS THE LEGAL PRINCIPLES ARE CONCERNED, THE CLAIM IS AL LOWABLE UNDER SECTION 36(2) AS BAD DEBT. NOT ONLY THE BOARD CIRCU LAR ALLOWS IT TO BE TREATED AS A BAD DEBT, WHICH IS BINDING ON THE A .O. AND ALSO CIT, SIMILAR ISSUE WAS ALSO CONSIDERED BY THE COORD INATE BENCH OF CHENNAI TRIBUNAL IN THE CASE OF SREE RAM CHIT FUNDS (TAMILNADU) P. LTD., AND ALSO IN SHREE RAM CHITS P. LTD., BY HY DERABAD BENCH. IN THE CASE OF MARGADARSI CHIT P. LTD.(SUPRA), THE COORDINATE BENCH OF THE TRIBUNAL HAS CONSIDERED SIMILAR ISSUE AND HELD AS UNDER : 5. AFTER PERUSING THE ARGUMENTS OF THE LD. COUNSE L AND LD. D.R. AND EXAMINING THE PAPER BOOK PLACED ON RECORD, WE ARE OF THE OPINION THAT THE ORDER OF LD. CIT UND ER SECTION 263 CANNOT BE UPHELD. AS FAR AS THE LEGAL PRINCIPLE S ARE CONCERNED, THE CLAIM IS ALLOWABLE UNDER SECTION 36( 2) AS A BAD DEBT. IN ASSESSEES OWN CASE IN EARLIER YEARS A S WELL AS IN THE CASE OF SHRIRAM CHITS P. LTD., (SUPRA), IT W AS HELD THAT THE DEBTS ARISING IN THE CHITS BEING CONDUCTED BY A SSESSEE ARE ALLOWABLE AS BAD DEBT/ LOSS. EVEN IF THE SAME ARE T O BE CONSIDERED AS LOSS IN BUSINESS, THERE IS NO PREJUDI CE CAUSED TO REVENUE ON THAT. AS FAR AS EXAMINATION BY A.O. I N THE COURSE OF ASSESSMENT IS CONCERNED, THE A.O. DID ASK THE ASSESSEE THE DETAIL OF BAD DEBTS CLAIMED AND ASSESS EE FURNISHED DETAILS VIDE LETTER DATED 24.11.2011 AS I TEM 3 WITH FOLLOWING EXPLANATION. 4 ITA.NO.970/HYD/2014 M/S. JEEVAN SHAKTHI CHIT FUND (P) LTD., HYDERABAD IN CONTINUATION OF THE HEARING HELD ON 9 TH NOVEMBER, 2011 AND AS REQUIRED BY YOU DURING THE SAID HEARING, WE ARE SUBMITTING HEREWITH THE FOLLOWING INFORMATION FOR T HE ABOVE SAID ASSESSMENT YEAR. 1. . .. 2. . 3. BAD DEBTS OF RS.53,17,158/- WRITTEN OFF INCLUDES AR REARS OUTSTANDING BELOW RS.300/- OVER A PERIOD OF 12 MONT HS IN CHIT CLOSED SERIES AND DOUBTFUL DEBTS IN SUITS FILE D IN CIVIL COURTS OF RESPECTIVE JURISDICTION. DETAILS FOR SUCH DEBTS BRANCH-WISE IS HEREWITH ENCLOSED. 6. ON PERUSAL OF ENCLOSED DETAILS RUNNING INTO PAG ES 15 (2-16 IN PAPER BOOK) REVEAL THAT ASSESSEE HAS FU RNISHED COMPLETE DETAILS TO A.O. IN THE COURSE OF ASSESSMEN T PROCEEDINGS. JUST BECAUSE A.O. HAS NOT DISCUSSED IS SUE IN ASSESSMENT ORDER, IT DOES NOT MEAN THAT A.O. HAS NO T APPLIED HIS MIND AND MECHANICALLY ALLOWED THE CLAIM. 7. BOTH ON FACTS AND ON LAW, THE PROCEEDINGS INITIATED BY LD. CIT UNDER SECTION 263 CANNOT BE SU STAINED. TWIN CONDITIONS REQUIRED FOR INITIATING THE PROCEED INGS ARE (1) ORDER IS ERRONEOUS AND (2) PREJUDICIAL TO THE INTER EST OF REVENUE HAVE NOT BEEN SATISFIED. SINCE A.O. ENQUIRE D AND ALLOWED THE CLAIM, THE CONTENTION OF LD. CIT THAT A .O. ALLOWED MECHANICALLY CANNOT BE SUPPORTED. FOR THESE REASONS , WE SET ASIDE THE ORDER OF LD. CIT AND RESTORE THE ORDER OF A.O. DATED 29.12.2011 ON THIS ISSUE. 6.1. FACTS BEING SIMILAR AND CONTENTIONS OF THE CI T BEING SIMILAR, WE ARE OF THE OPINION THAT A.O. IS CORRECT IN ALLOWING THE AMOUNT AS BAD DEBT. NOT ONLY THAT, EVEN IF IT IS NO T ALLOWABLE AS BAD DEBT THE AMOUNT CAN ALSO BE CONSIDERED AS BUSIN ESS LOSS AND THEREFORE, THERE IS NO PREJUDICE CAUSED TO THE REVE NUE ON THIS ISSUE. BOTH ON FACTS AND ON LAW, THE PROCEEDINGS INITIATED BY LD. CIT UNDER SECTION 263 CANNOT BE SUSTAINED. TWIN CON DITIONS REQUIRED FOR INITIATING THE PROCEEDINGS ARE (1) ORD ER IS ERRONEOUS AND (2) PREJUDICIAL TO THE INTEREST OF REVENUE HAVE NOT BEEN SATISFIED. SINCE A.O. ENQUIRED AND ALLOWED THE CLAI M, THE CONTENTIONS OF LD. CIT CANNOT BE SUPPORTED. IN VIEW OF THIS, WE SET 5 ITA.NO.970/HYD/2014 M/S. JEEVAN SHAKTHI CHIT FUND (P) LTD., HYDERABAD ASIDE THE ORDER OF CIT AND RESTORE THE ORDER OF A.O . DATED 09.11.2011. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 25.09.2014. SD/- SD/- (SAKTIJIT DEY) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED 25 TH SEPTEMBER, 2014 VBP/- COPY TO 1. M/S. JEEVAN SHAKTHI CHIT FUND (P) LTD., HYDERABA D C/O. MR. S. RAMA RAO, ADVOCATE, 102, SHRIYAS ELEGANCE, 3-6-643, STREET NO.9, HIMAYATNAGAR, HYDERABAD. 2. DCIT, CIRCLE 2 (1), I.T. TOWERS, HYDERABAD. 3. CIT-II, HYDERABAD 4. ADDL. CIT, RANGE-2, HYDERABAD 5. D.R. B BENCH, ITAT, HYDERABAD.