ACIT, Trichy V. Sri S.Kulandaisamy, Kumbakonam

ITSSA 2/CHNY/2012

• Counselvise Citation: [2015] 122 COUNSELVISE.COM (IT) 0727 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 15-05-2015
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-04-2015
• Assessment Year: misc
• Appeal Filed On: 09-01-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: S SRIDHAR
• Keywords: Bad and doubtful debts; Block assessment

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER I.T.(SS) A. NO.2/MDS/2012 BLOCK ASSESSMENT PERIOD : 1988-89 TO 1998-99 (UPTO 11/12/1997) THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE I, TRICHY. V. SHRI S. KULANDAISAMY, 17, K.G.K. STREET, KUMBAKONAM. PAN : AEEPK 7149 E ('(/ APPELLANT) (*+'(/ RESPONDENT) I.T.(SS) A. NO.3/MDS/2012 BLOCK ASSESSMENT PERIOD : 1988-89 TO 1998-99 (UPTO 11/12/1997) SHRI S. KULANDAISAMY, 17, K.G.K. STREET, KUMBAKONAM. V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE I, 44, WILLIAMS ROAD,TRICHY. ('(/ APPELLANT) (*+'(/ RESPONDENT) REVENUE BY : SH. PATHLAVATH PEERYA, CIT ASSESSEE BY : SHRI S. SRIDHAR, ADVOCATE , - .$ / DATE OF HEARING : 16.04.2015 /!0 - .$ / DATE OF PRONOUNCEMENT : 15.05.2015 2 I.T.(SS) A. NO.2/MDS/12 I.T.(SS) A. NO.3/MDS/12 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE REVENUE AND ASSESSEE ARE DIRECTED AGAINST THE VERY SAME ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), TIRUCHIRAPPALLI, DATED 21.10.2011 AND PE RTAIN TO BLOCK PERIOD 1997-98 TO 1998-99 (UPTO 11.12.1997). 2. THERE WAS A DELAY OF 10 DAYS IN FILING THE APPEA L BY THE ASSESSEE. THE ASSESSEE HAS FILED A PETITION FOR CO NDONATION OF DELAY. WE HAVE HEARD THE LD. REPRESENTATIVE AND TH E LD. D.R. WE FIND THAT THERE WAS SUFFICIENT CAUSE FOR NOT FILING THE APPEAL BEFORE THE STIPULATED TIME. THEREFORE, WE CONDONE THE DEL AY AND ADMIT THE APPEAL OF THE ASSESSEE. 3. SH. PATHLAVATH PEERYA, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE ONLY ISSUE ARISE S FOR CONSIDERATION IN THE REVENUES APPEAL IS WITH REGAR D TO DISALLOWANCE OF THE CLAIM OF BAD DEBTS UNDER SECTIO N 36(2) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). ACCORDI NG TO THE LD. D.R., A SEARCH WAS CONDUCTED IN THE PREMISES OF THE ASSES SEE AND INCRIMINATING MATERIALS WERE FOUND AND SEIZED. THE LD. D.R. POINTED OUT THAT THE ASSESSING OFFICER COMPUTED THE UNDISCLOSED 3 I.T.(SS) A. NO.2/MDS/12 I.T.(SS) A. NO.3/MDS/12 INCOME FROM MONEY LENDING BUSINESS AT ` 11,88,189/-. THE ASSESSING OFFICER ALSO CONSIDERED AN AMOUNT OF ` 4,11,089/- AS UNDISCLOSED INCOME FOR THE ASSESSMENT YEAR 1998-99. ACCORDING TO THE LD. D.R., THE ASSESSEE CLAIMED THE DEBT FROM MO NEY LENDING BUSINESS AS BAD DEBT. HOWEVER, THE ASSESSING OFFIC ER FOUND THAT THE ASSESSEE HAS NOT WRITTEN OFF THE BAD DEBT. THE REFORE, THE ASSESSEE CANNOT CLAIM THE SAME AS BAD DEBT. ACCORD ING TO THE LD. D.R., THE ASSESSEE HAS NOT MAINTAINED ANY BOOKS OF ACCOUNT IN THE REGULAR COURSE OF THE MONEY LENDING BUSINESS. THER EFORE, IT CANNOT BE ALLOWED AS DEDUCTION WHILE COMPUTING UNDISCLOSED INCOME. 4. ON THE CONTRARY, SHRI S. SRIDHAR, THE LD.COUNSEL FOR THE ASSESSEE, SUBMITTED THAT ADMITTEDLY THE BAD DEBT HA D ARISEN OUT OF THE MONEY LENDING BUSINESS OF THE ASSESSEE. REFERR ING TO SECTION 36(2) OF THE ACT, THE LD.COUNSEL SUBMITTED THAT THE ASSESSEE HAS TO WRITE OFF THE DEBT IN RESPECT OF OTHER BUSINESS. H OWEVER, IN RESPECT OF DEBT WHICH REPRESENTS THE MONEY LENT IN THE MONE Y LENDING BUSINESS NEED NOT BE WRITTEN OFF. THEREFORE, THE C IT(APPEALS) FOUND THAT SINCE THE MONEY WAS LENT IN THE COURSE OF ORDI NARY BUSINESS, IT IS NOT NECESSARY TO WRITE OFF AS REQUIRED UNDER SEC TION 36(2) OF THE ACT. THEREFORE, THE CIT(APPEALS) HAS RIGHTLY DELET ED THE ADDITION MADE BY THE ASSESSING OFFICER. 4 I.T.(SS) A. NO.2/MDS/12 I.T.(SS) A. NO.3/MDS/12 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL ON RECORD. SECTION 3 6(2) OF THE ACT READS AS FOLLOWS:- 36 (2) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART THEREOF, THE FOLLOWING PROVISIONS SHALL APPLY [(I) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUC H DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMP UTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR, OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY - LENDING WHICH IS CARRIED ON BY THE ASSESSEE;] (II) IF THE AMOUNT ULTIMATELY RECOVERED ON ANY SUC H DEBT OR PART OF DEBT IS LESS THAN THE DIFFERENCE BETWEEN THE DEBT OR PART AND THE AMOUNT SO DEDUCTED, THE DEFICI ENCY SHALL BE DEDUCTIBLE IN THE PREVIOUS YEAR IN WHICH T HE ULTIMATE RECOVERY IS MADE; (III) ANY SUCH DEBT OR PART OF DEBT MAY BE DEDUCTE D IF IT HAS ALREADY BEEN WRITTEN OFF AS IRRECOVERABLE IN TH E ACCOUNTS OF AN EARLIER PREVIOUS YEAR [(BEING A PREV IOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1988, OR ANY EARLIER ASSESSME NT YEAR)], BUT THE [ASSESSING] OFFICER HAD NOT ALLOWED IT TO BE DEDUCTED ON THE GROUND THAT IT HAD NOT BEEN ESTABLI SHED TO HAVE BECOME A BAD DEBT IN THAT YEAR; (IV) WHERE ANY SUCH DEBT OR PART OF DEBT IS WRITTE N OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE PREVIOUS YEAR [(BEING A PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1988, OR ANY EA RLIER ASSESSMENT YEAR)] AND THE [ASSESSING] OFFICER IS SA TISFIED THAT SUCH DEBT OR PART BECAME A BAD DEBT IN ANY EAR LIER PREVIOUS YEAR NOT FALLING BEYOND A PERIOD OF FOUR P REVIOUS YEARS IMMEDIATELY PRECEDING THE PREVIOUS YEAR IN WH ICH SUCH DEBT OR PART IS WRITTEN OFF, THE PROVISIONS OF SUB- SECTION (6) OF SECTION 155 SHALL APPLY; [(V) WHERE SUCH DEBT OR PART OF DEBT RELATES TO AD VANCES MADE BY AN ASSESSEE TO WHICH CLAUSE (VIIA) OF SUB- SECTION (1) APPLIES, NO SUCH DEDUCTION SHALL BE ALL OWED 5 I.T.(SS) A. NO.2/MDS/12 I.T.(SS) A. NO.3/MDS/12 UNLESS THE ASSESSEE HAS DEBITED THE AMOUNT OF SUCH DEBT OR PART OF DEBT IN THAT PREVIOUS YEAR TO THE P ROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MADE UNDER THAT CLAUSE.] A BARE READING OF SECTION 36(2) CLEARLY SAYS THAT F OR THE PURPOSE OF CLAIMING A DEBT AS BAD DEBT, THE FOLLOWING CONDITIO NS SHALL BE SATISFIED:- (I) A DEBT OR LOAN SHALL BE IN RESPECT OF BUSINESS WHICH IS CARRIED ON BY THE ASSESSEE IN THE RELEVANT ACCOUNTING YEAR; (II) THE DEBT SHOULD HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE ACCOUNTING YEAR IN WHICH THE DEBT WAS WRITTEN OFF OR IN THE EARLIER ACCOUNTING YEAR OR SHOULD REPRESENT THE MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OR MONEY LENDING BUSINESS. THESE CONDITIONS ARE SUBJECT TO SECTION 36(1)(VII) OF THE ACT. SECTION 36(1)(VII) READS AS FOLLOWS:- 36(1) (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTI ON (2), THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRI TTEN OFF AS IRRECOVERABLE IN THE ACCOUNT OF THE ASSESSEE FOR TH E PREVIOUS YEAR. THEREFORE, EVEN THOUGH THE DEBT BECOMES BAD IN RESP ECT OF MONEY LENDING BUSINESS, IT HAS TO BE WRITTEN OFF FOR THE PURPOSE OF CLAIMING THE SAME AS BAD IN VIEW OF SECTION 36(1) (VII) OF T HE ACT. THEREFORE, THE CIT(APPEALS) IS NOT CORRECT IN SAYING THAT THE CONDITION PRESCRIBED FOR ALLOWING A DEBT AS BAD SHOULD BE WRI TTEN OFF IS NOT 6 I.T.(SS) A. NO.2/MDS/12 I.T.(SS) A. NO.3/MDS/12 APPLICABLE IN MONEY LENDING BUSINESS. THIS TRIBUNA L IS OF THE CONSIDERED OPINION THAT IN VIEW OF SECTION 36(1)(VI I), EVEN THE BAD DEBT RELATING TO MONEY LENDING BUSINESS NEEDS TO BE WRITTEN OFF. THE JUDGMENTS REFERRED BY THE CIT(APPEALS) IN HIS O RDER HAVE NOT CONSIDERED THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT. MOREOVER, ANY OF THESE JUDGMENTS DOES NOT SAY THAT DEBT ARISING OUT OF MONEY LENDING BUSINESS NEED NOT BE WRITTEN O FF. THEREFORE, THE CIT(APPEALS) MISPLACED HIS RELIANCE ON THOSE JU DGMENTS. HENCE, IT IS NECESSARY FOR THE ASSESSEE TO ESTABLIS H THAT IT HAS BEEN WRITTEN OFF IN THE BOOKS. SINCE THE LOWER AUTHORIT IES HAVE NOT EXAMINED WHETHER THE ASSESSEE HAS WRITTEN OFF THE O UTSTANDING AMOUNT IN THE MONEY LENDING BUSINESS, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-E XAMINED BY THE ASSESSING OFFICER. ACCORDINGLY, WE SET ASIDE THE O RDERS OF THE LOWER AUTHORITIES AND THE ISSUE IS REMITTED BACK TO THE F ILE OF THE ASSESSING OFFICER FOR RE-CONSIDERATION. THE ASSESSING OFFICE R SHALL RECONSIDER THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING REASO NABLE OPPORTUNITY TO THE ASSESSEE. 6. NOW COMING TO THE ASSESSEES APPEAL, THE ONLY IS SUE ARISES FOR CONSIDERATION IS WITH REGARD TO ADDITION MADE B Y THE ASSESSING OFFICER ON THE GROUND THAT THE ASSESSEE HAS NOT FIL ED ANY PROOF FOR 7 I.T.(SS) A. NO.2/MDS/12 I.T.(SS) A. NO.3/MDS/12 FILING OF RETURN OF INCOME IN THE REGULAR COURSE BE FORE THE DATE OF SEARCH. 7. SHRI S. SRIDHAR, THE LD.COUNSEL FOR THE ASSESSEE , SUBMITTED THAT IN VIEW OF THE JUDGMENT OF THE MADRAS HIGH COU RT IN CIT V. J.K. NARAYANAN (2007) 293 ITR 179, THE INCOME DISCLOSED IN THE RETURN FILED BEFORE THE DATE OF SEARCH COULD NOT BE TREATE D AS UNDISCLOSED INCOME. HOWEVER, THE CONTENTION OF THE DEPARTMENT IS THAT THERE IS NO EVIDENCE TO SHOW THAT THE RETURN WAS FILED BY TH E ASSESSEE. 8. SINCE THE MATTER REGARDING BAD DEBT IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT GIVING ONE MORE OPPORTUNITY TO THE ASS ESSEE TO PRODUCE NECESSARY MATERIAL TO SHOW THAT THE ASSESSEE HAD FI LED RETURN WOULD DEFINITELY PROMOTE THE CAUSE OF JUSTICE. ACCORDING LY, WE SET ASIDE THE ORDERS OF THE LOWER AUTHORITIES AND THE ISSUE I S REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER FOR RE-CONSIDERAT ION. THE ASSESSING OFFICER SHALL CONSIDER THE ISSUE AFRESH IN THE LIGH T OF THE MATERIAL THAT WOULD BE FILED BY THE ASSESSEE AND THEREAFTER DECID E THE ISSUE IN ACCORDANCE WITH LAW AFTER GIVING REASONABLE OPPORTU NITY TO THE ASSESSEE. 8 I.T.(SS) A. NO.2/MDS/12 I.T.(SS) A. NO.3/MDS/12 9. IN THE RESULT, THE APPEAL OF THE REVENUE AS WELL AS THE APPEAL OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 15 TH MAY, 2015 AT CHENNAI. SD/- SD/- (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) (. !' ) ( . . . ) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 2 /DATED, THE 15 TH MAY, 2015. KRI. - *.34 540. /COPY TO: 1. ASSESSEE 2. ASSESSING OFFICER 3. , 6. () /CIT(A), TIRUCHIRAPPALLI. 4. , 6. /CIT, CENTRAL-II, CHENNAI 5. 47 *. /DR 6. 89 : /GF.