DCIT (OSD), MUMBAI V. HOTEL RUGBY LTD, MUMBAI

ITA 991/MUM/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 88645 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-03-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: H
• Next Hearing Date: 09-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 03-02-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: JEETENDRA KUMAR; SHRI NISHIT G
• Keywords: Business income; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL H BENCH, MUM BAI , , BEFORE SHRI JOGINDER SINGH, JM AND SHRI SANJAY ARO RA, AM ./ I.T.A. NO. 991/MUM/2011 ( / ASSESSMENT YEAR: 2007-08) DY. CIT-1(1), ROOM NO. 579, AAYAKAR BHAVAN, MUMBAI-400 020 / VS. HOTEL RUGBY LTD. 6, STADIUM HOUSE, 81/83, VEER NARIMAN ROAD, CHURCHGATE, MUMBAI-400 020 ' ./# ./PAN/GIR NO. AAACH 1088 G ( '$ /APPELLANT ) : ( %&'$ / RESPONDENT ) '$ ' ( / APPELLANT BY : SHRI JEETENDRA KUMAR %&'$ ' ( / RESPONDENT BY : SHRI NISHIT GANDHI ) *+, ' - . / DATE OF HEARING : 09.03.2015 /01 ' - . / DATE OF PRONOUNCEMENT : 18 .03.2015 2 / O R D E R PER SANJAY ARORA, A. M.: THIS IS AN APPEAL BY THE REVENUE DIRECTED AGAINST T HE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEALS)-1, MUMBAI (CIT(A) FOR SHO RT) DATED 09.09.2010, ALLOWING THE ASSESSEES APPEAL CONTESTING ITS ASSESSMENT U/S.143 (3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR THE ASSESSMENT YEAR (A.Y.) 20 07-08 VIDE ORDER DATED 31.12.2009. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E WAS DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS UNDER THE ACT OBSERVED TO HA VE CLAIMED BAD DEBTS WRITTEN OFF IN THE SUM OF RS.45,00,626/-, I.E., U/S.36(1)(VII), IN THE COMPUTATION OF ITS BUSINESS INCOME 2 ITA NO. 991/MUM/2011 (A.Y. 2007-08) DY. CIT VS. HOTEL RUGBY LTD. U/S.28 OF THE ACT. THE DETAILS THEREOF, HOWEVER, RE VEALED THE SAME TO INCLUDE THREE SUMS, AGGREGATING TO RS.23.26 LACS, WHICH WERE IN FACT DE POSITS, AS UNDER: A) NCPA DEPOSIT RS.4,00,000 B) JAI THACKERS DEVELOPERS RS.17,22,100 C) THACKER CATERERS RS.2,04,089 RS.23,26,189 THE SAME BEING NOT IN THE NATURE OF TRADE DEBTS NOR SATISFYING THE ESSENTIAL CONDITION OF SECTION 36(2)(I), STIPULATING THAT THE DEBT WRITTEN OFF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE ASSESSEES INCOME FOR THE YEAR OF WRITE OFF OR AN EARLIER YEAR, THE ASSESSEES CLAIM WAS TO THAT EXTENT DISALLOWED BY THE ASSESSING OFFICER (A.O.), FURTHER RELYING ON THE DECISIONS IN THE CASE OF A. V. THOMAS AND CO. LTD. VS. CIT [1963] 48 ITR 67 (SC); CIT VS. SOMASUNDARAM MILLS LTD. [1964] 51 ITR 650 (MAD); MADAN GOPAL BAGLA VS. CIT [1956] 30 ITR 174 (SC); AND INDIAN ALUMINIUM CO. LTD. VS. CIT [1971] 79 ITR 514 (SC), ALSO REPRODUCING THERE-FROM . IN APPEAL, THE LD. CIT(A) WAS OF THE VIEW THAT ALL THESE AMOUNTS HAD BEEN PAID BY THE ASSESSEE-COMPANY DURING THE COURSE OF ITS REGUL AR BUSINESS AND, ACCORDINGLY, WOULD, ON BEING IRRECOVERABLE, CONSTITUTE BUSINESS EXPENDI TURE, DEDUCTIBLE U/S.37(1), I.E., EVEN IF THE ASSESSEES CLAIM FAILS U/S.36(1)(VII). THE ASSE SSEE HAVING THUS FOUND FAVOUR WITH THE FIRST APPELLATE AUTHORITY, THE REVENUE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. 3.1 OUR FIRST OBSERVATION IN THE MATTER IS THAT EVE N THOUGH THE DISALLOWANCE IMPUGNED BEFORE, AND THE RELIEF ALLOWED BY, THE FIRST APPELL ATE AUTHORITY IS FOR A TOTAL OF RS.23.26 LACS, AS DETAILED ABOVE, THE REVENUE ASSAILS THE DI SALLOWANCE ONLY TO THE EXTENT OF RS.22.22 LACS, I.E., PERTAINING TO THE FIRST TWO DE BTORS SUPRA. OUR SECOND OBSERVATION IS THAT WHILE THE ASSESSEE CLAIMS THE IMPUGNED DEBTS A S BAD DEBTS, DEDUCTIBLE U/S.36(1)(VII), THE LD. CIT(A) CONSIDERED AND ALLOWED THE ASSESSEE S CLAIM AS A TRADING LOSS, I.E., U/S.28(I) OF THE ACT. JUDICIAL PROPRIETARY, THEREFORE, DEMAND ED THAT HE ALLOW OPPORTUNITY FOR THE CONSIDERATION OF THE SAME BY THE ASSESSING AUTHORIT Y. IF THE ASSESSEE IS NOT, AS INDEED IT OUGHT TO BE, PRECLUDED FROM RAISING AN ALTERNATE CL AIM, BEFORE AN APPELLATE AUTHORITY, AND 3 ITA NO. 991/MUM/2011 (A.Y. 2007-08) DY. CIT VS. HOTEL RUGBY LTD. NEITHER IT, WHOSE PURVIEW IS TO ENABLE DETERMINATIO N OF THE CORRECT TAX LIABILITY BY CAUSING ASSESSMENT OF THE CORRECT ASSESSABLE INCOME UNDER T HE ACT, FROM EXAMINING THE SAME, IN ALL FAIRNESS THE MATTER SHOULD BE EXAMINED BY THE A SSESSING AUTHORITY AS WELL. REFERENCE IN THIS CONTEXT MAY BE MADE TO THE DECISION BY THE APEX COURT IN THE CASE OF KAPURCHAND SHRIMAL VS. CIT [1981] 131 ITR 451 (SC). THE LAW IN FACT SPECIFICAL LY PROVIDES FOR THE SAME PER SECTION 250(4) OF THE ACT. 3.2 THE ASSESSEE HAS BEFORE US RELIED ON SOME CASE LAW. THE LAW IN THE MATTER IS LEGION, AND THE ASSESSEE CAN, LIKEWISE, DO SO BEFOR E THE ASSESSING AUTHORITY AS WELL. IN FACT, A PERUSAL OF THE SAID DECISIONS REVEALS THE H ONBLE COURTS TO HAVE ARRIVED AT THEIR RESPECTIVE DECISIONS QUA THE LOSS BEING A TRADING LOSS, WITH REFERENCE TO TH E FACTS OF THE CASE, I.E., THE SURROUNDING FACTS AND CIRCUMSTANCES UNDER WHICH THE LOSS UNDER REFERENCE IN EACH CASE ARISES. THE ORDER OF THE LD. CIT(A) IS ALSO DEFICIENT ON THIS SCORE; IT BEARING NO FINDINGS OF FACT, VIZ. WHEN, AS WELL AS THE PURP OSE FOR WHICH THE ADVANCE/DEPOSIT/S WHICH IS, SAVE ONE INSTANCE, NOT IN A ROUND FIGURE, WAS GIVEN; THE OTHER TERMS AND CONDITIONS THEREOF AS WELL AS OF THE CONTRACT IN PU RSUANCE OF WHICH IT WAS GIVEN; THE REASON FOR NON-PAYMENT OR RECALCITRANCE ON THE PART OF THE DEBTOR; HIS SOLVENCY STATUS; THE FATE OF THE LEGAL CLAIM, IF ANY, PRESSED BY THE ASS ESSEE; THE VERSION OF THE CORRESPONDING PARTY, ETC. WITH A VIEW TO DETERMINE THE FACTS OF T HE CASE, THE ONUS TO ESTABLISH WHICH IS ONLY ON THE ASSESSEE IN-AS-MUCH AS IT IS ONLY ITS CLAIM. HE HAS MERELY ALLOWED THE ASSESSEES CLAIM BASED ON ITS CONTENTIONS, CITING THE DECISION BY THE APEX COURT IN THE CASE OF TRF LTD. VS. CIT [2010] 323 ITR 397 (SC), WHICH IS WITH REFERENCE T O SECTION 36(1)(VII), EVEN AS THE ASSESSEES CASE DOES NOT FA LL UNDER THE SAID PROVISION IN-AS-MUCH AS THE IMPUGNED DEBTS ARE ADMITTEDLY DEPOSITS/ADVAN CES, CLAIMED TO BE GIVEN IN THE REGULAR COURSE OF BUSINESS, SO THAT THE CONDITION O F SECTION 36(2), TO WHICH THE CLAIM U/S.36(1)(VII) IS SUBJECT, IS NOT MET. THE SECOND ASPECT OF THE MATTER WHICH WE SEEK TO EM PHASIZE IS THAT, I.E., QUITE DISTINCT FROM A CLAIM FOR BAD DEBT U/S.36(1)(VII), WHERE THE IRRECOVERABILITY OF A DEBT IS MANDATED BY LAW ON ITS WRITE OFF IN THE BOOKS OF A CCOUNT OF ITS BUSINESS OR PROFESSION BY 4 ITA NO. 991/MUM/2011 (A.Y. 2007-08) DY. CIT VS. HOTEL RUGBY LTD. AN ASSESSEE, SETTLING ALSO THE ISSUE AS TO THE TIME OF IT BECOMING BAD (FOR RECOVERY), A TRADING OR BUSINESS LOSS CANNOT BE SAID TO HAVE BEE N ARISEN MERELY ON THE WRITE OFF OF THE CORRESPONDING DEBT. ENTRIES IN THE BOOKS OF ACCOUNT DO NOT BY THEMSELVES CREATE/GENERATE INCOME OR GIVE RISE TO EXPENDITURE, BUT ONLY RECORD THE SAME, SO THAT THE ENTRY/S IS TO BE EXAMINED WITH REFERENCE TO THE UNDERLYING FACTS AND CIRCUMSTANCES, WHICH THE ACCOUNTS ARE SUPPOSED TO REFLECT, REPRESENTING A TRUE STATEM ENT THEREOF. WE MAY THOUGH HASTEN TO ADD THAT TO THE EXTENT THE WRITE OFF REPRESENTS THE JUDGMENT OF THE ASSESSEE, AS A BUSINESSMAN, I.E., AS TO THE DEBT BECOMING BAD, AND THUS OF THE LOSS IN ITS RESPECT HAVING BEEN INCURRED, THE SAME IS TO BE RESPECTED, AND IS A PRIMA FACIE PROOF OF IT BECOMING BAD. HOWEVER, NEITHER THE DECISION OF ITS WRITE OFF NOR THE TIMING THEREOF CAN BE HELD AS CONCLUSIVE AGAINST THE ASSESSING AUTHORITY, WHO IS EMPOWERED IN LAW TO VERIFY THE ASSESSEES CLAIM, I.E., THE FACTS AND CIRCUMSTANCES , OF COURSE FROM A BUSINESSMANS POINT OF VIEW, ON THE BASIS OF THE MATERIAL AND EVIDENCES LED BY THE ASSESSEE, OF THE LOSS HAVING ARISEN IN THE REGULAR COURSE OF ITS BUSINESS DURING THE RELEVANT PREVIOUS YEAR. 4. IN VIEW OF THE FOREGOING, WE RESTORE THE MATTER BACK TO THE FILE OF THE LD. CIT(A) FOR THE PURPOSE, I.E., TO ALLOW AN OPPORTUNITY TO T HE ASSESSING AUTHORITY U/S.250(4) OF THE ACT TO EXAMINE THE ASSESSEES CLAIM FOR ITS DEDUCTI BILITY AS A TRADING/BUSINESS LOSS U/S.28(I) OF THE ACT. WE DECIDE ACCORDINGLY. 5. IN THE RESULT, THE REVENUES APPEAL ALLOWED FOR STATISTICAL PURPOSES. 3 1-4 *563 - ' 7' 89: + ; - ' - < ORDER PRONOUNCED IN THE OPEN COURT ON MARCH 18 , 20 15 SD/- SD/- (JOGINDER SINGH) (SANJAY ARORA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER ) =, MUMBAI; > * DATED :18.03.2015 +.*../ ROSHANI , SR. PS 5 ITA NO. 991/MUM/2011 (A.Y. 2007-08) DY. CIT VS. HOTEL RUGBY LTD. ! ' #$%& ' &$ / COPY OF THE ORDER FORWARDED TO : 1. '$ / THE APPELLANT 2. %&'$ / THE RESPONDENT 3. ) ?- ( ) / THE CIT(A) 4. ) ?- / CIT CONCERNED 5. B+C %-*5 , . 5 1 , ) =, / DR, ITAT, MUMBAI 6. E6 F, / GUARD FILE ! ( / BY ORDER, )/(* + (DY./ASSTT. REGISTRAR) , ) =, / ITAT, MUMBAI