The ITO, Ward-8(3),, Ahmedabad v. Shree Bhagwati Flour & Foods Pvt.Ltd.,, Ahmedabad

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'A' BEFORE SHRI T K SHARMA JM & SHRI A N PAHUJA AM ITA NO.2506/AHD/2010 (ASSESSMENT YEAR:-2003-04) INCOME-TAX OFFICER WARD- 8(3) AHMEDABAD V/S SHREE BHAGWATI FLOUR & FOODS PVT. LTD. S NO.430 MORAIYA VILLAGE OPP. NOVA PETROCHEM SARKHEJ BAVLA HIGHWAY CHANGODHAR AHMEDABAD PAN: AAGCS 5920 E [APPELLANT] [RESPONDENT] REVENUE BY :- SHRI R K DHANESTA DR ASSESSEE BY:- SHRI P M MEHTA AR O R D E R A N PAHUJA: THIS IS AN APPEAL BY THE REVENUE AGAINST AN ORDER DATED 26-05-2010 OF THE LD. CIT(APPEALS)-XIV AHMED ABAD FOR THE ASSESSMENT YEAR (AY) 2003-04 RAISING THE FOLLOWING GROUNDS:- 1 THE LD. COMMISSIONER OF INCOME-TAX (APPEALS)-XIV AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE DISALLOWA NCE OF RS.6 50 000/- MADE BY THE AO ON ACCOUNT OF BAD DEBTS. 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A)-XIV AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE AO. 3 IT IS THEREFORE PRAYED THAT THE ORDER OF THE LD. CIT(A)-XIV AHMEDABAD MAY BE SET-ASIDE AND THAT OF THE ORDER OF THE AO BE RESTORED. 2. FACTS IN BRIEF AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.18 71 030/- FILED ON 16-10-2003 BY THE ASSESSEE TRADING IN RAVA SUJI ETC. WAS SELECTED FOR SCRUT INY WITH THE ISSUE OF A NOTICE U/S 143(2) OF THE INCOME-TAX ACT 1961 [HE REINAFTER REFERRED TO AS THE ACT]. SUBSEQUENTLY THE ASSESSMENT WAS COMPLETED ON AN INCOME OF RS.61 27 570/- VIDE ORDER DATED 23.3.2006 U/S 143(3) OF THE ACT. INTER ALIA AN AMOUNT OF RS.6 50 000/- WAS DISALLOWED TOWARDS CLAIM FOR DEDUCTION OF BAD DEBTS. ON APPEA L THE LEARNED CIT(A) ALLOWED THE CLAIM OF THE ASSESSEE VIDE ORDER DATED 29-01- ITA N O.2506/AHD/2010 2 2007. ON FURTHER APPEAL BY THE REVENUE THE TRIBUNA L VIDE THEIR ORDER DATED 14-09-2007 DIRECTED THE AO TO RE-EXAMIN E THE ISSUE IN THE LIGHT OF THE DECISION OF THE HONBLE GUJARAT HI GH COURT IN THE FOLLOWING TERMS:- 6 HAVING HEARD BOTH THE PARTIES AND PERUSING THE I MPUGNED ORDERS OF THE AUTHORITIES BELOW WE FIND THAT THE ISSUE IN CO NTROVERSY IS COVERED BY A RECENT DECISION OF HONBLE GUJARAT HIGH COURT IN TH E CASE OF DHALL ENTERPRISES & ENGINEERS (P) LTD. VS. CIT (207 CSTR (GUJ) 729 WHEREIN HONBLE HIGH COURT HAS CONSIDERED THE ISSUE REGARDI NG BAD DEBT. WE FIND THAT THE AO AND ALSO THE CIT(A) HAD NO OCCASION TO DECIDE THE ISSUE IN THE LIGHT OF THE SAID DECISION OF HONBLE HIGH COURT. T HEREFORE WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER TO T HE FILE OF THE AO TO DECIDE THE ISSUE IN THE LIGHT OF THE DECISION OF HO NBLE GUJARAT HIGH COURT REFERRED TO ABOVE. 2.1 IN TERMS OF THE AFORESAID DIRECTIONS OF THE TR IBUNAL THE AO GRANTED AN OPPORTUNITY TO THE ASSESSEE IN ORDER TO EXAMINE THE AFORESAID CLAIM. IN RESPONSE THE ASSESSEE VIDE LET TER DATED 06-11- 2009 SUBMITTED THAT AN AMOUNT OF RS.5 00 000/- WAS ADVANCED TO M/S GHANSHYAM OIL INDUSTRIES VIDE CHEQUE DATED 29-0 2-2000. SINCE THE SAID ADVANCE WAS NOT RETURNED BY THE PARTY NOR REQUISITE MATERIAL WAS SUPPLIED THE AMOUNT OF RS.5 00 000/- ALONG WITH INTEREST OF RS.1 50 000/- THEREON WAS WRITTEN OFF. RELYING UPON THE DECISIONS IN THE CASE OF CIT VS. GIRISH BHAGWATIPRA SAD 256 ITR 772 (GUJ) CIT VS. PATIDAR SPINNING & PRESSING COMPANY 56 CTR 177 (GUJ) CIT VS. RAJENDRA Y SHAH SLP (C) NO.8364 OF 2009 CIT VS. STAR CHEMICALS PVT. LTD. (2009) 313 ITR 126 (BOM) A ND CIT VS. NELCO LIMITED (2009) 317 ST.6 (SC) THE ASSESSEE CON TENDED THAT THEY HAD NO OPTION BUT TO WRITE OFF THE AMOUNT UNDE R SECTION 36(1)(VII) OF THE ACT. ALTERNATIVELY THE ASSESSEE ARGUED THAT THE CLAIM WAS ADMISSIBLE AS BUSINESS LOSS U/S 28 OF THE ACT. HOWEVER THE AO DID NOT ACCEPT THESE SUBMISSIONS OF THE ASSE SSEE ON THE GROUND THAT THE TRIBUNAL HAD SPECIFICALLY DIRECTED TO FOLLOW THE DECISION OF THE HONBLE GUJARAT HIGH COURT DHALL EN TERPRISED AND ENGINEERS P LTD. VS. CIT 295 ITR 481 WHILE THE ASSE SSEE DID NOT ITA N O.2506/AHD/2010 3 ESTABLISH THAT THE AMOUNT WAS INDEED ADVANCED FOR M AKING PURCHASES OF RAVA AND SUJI ETC.. ACCORDINGLY THE A MOUNT OF RS.6 50 000/- WAS AGAIN DISALLOWED. 3 ON APPEAL THE LEARNED CIT(A) ALLOWED THE CLAIM O F THE ASSESSEE IN THE FOLLOWING TERMS:- 2.2 DURING THE COURSE OF APPELLATE PROCEEDINGS TH E.. LD. REPRESENTATIVE OF THE FURNISHED THE COPIES OF APPEL LATE ORDER PASSED BY THE CIT(A) ON 29-1-07 AS WELL AS THE ITATS ORDER D ATED 1409-2007 WHEREBY THE HON. ITAT HAS UPHELD THE DELETION OF AD DITION OF RS.92 845/- IN RESPECT OF DEPRECIATION ON CAR AND PETROL EXPENS ES AND SETTING ASIDE THE ISSUE IN RESPECT OF CLAIM OF BAD DEBT. IN THE ORDER OF ITAT IT WAS HELD THAT WE FIND THAT THE ISSUE IN CONTROVERSY IS COVERED BY A RECENT DECISION OF HON. GUJARAT HIGH COURT IN THE CASE OF DHALL ENTERP RISES &ENGINEERS (P) LTD. VS. CIT (207 CTR (GUJ) 729 WHEREIN THE HON. H IGH COURT HAS CONSIDERED THE ISSUE REGARDING BAD DEBT. WE FIND TH AT THE AO AND ALSO THE CIT(A) HAD NO OCCASION TO DECIDE THE ISSUE IN THE L IGHT OF THE SAID DECISION OF HON. HIGH COURT. THEREFORE WE SET ASIDE THE ORD ER OF THE CIT(A) AND RESTORE THE MATTER TO THE FILE OF THE AO TO DECIDE THE ISSUE IN THE LIGHT OF THE DECISION OF HON. GUJARAT HIGH COURT REFERRED TO ABO VE. IN THIS RESPECT THE APPELLANT HAS SUBMITTED THAT THE A.O. HAS UNFORTUNA TELY INTERPRETED THIS OBSERVATION AS/A DIRECTION TO DISALLOW THE APPELLAN T'S CLAIM OF BAD DEBT. IN FACT THE HON. TRIBUNAL HAS GIVEN NO SUCH DIRECTION IT MERELY OBSERVED THAT THE LOWER AUTHORITIES BOTH THE A.O. AND CIT (A) HA D NOT REFERRED TO/EXAMINED THE APPLICABILITY OF THE DECISION OF TH E JURISDICTIONAL HIGH COURT IN THE CASE OF M/S. DHALL ENTERPRISE WHICH DEALT WI TH THE ISSUE OF ALLOWABILITY OF BAD DEBT. THE ABOVE ANALYSIS FINDS FAVOUR FROM THE FACT THAT THE TWO LOWER AUTHORITIES HAD TAKEN DIAMETRICALLY O PPOSITE VIEW ON THE ISSUE FOR THEIR OWN REASONS. THE APPELLANT HAS FURT HER SUBMITTED- THAT- THE A.O.: HAD DISALLOWED THE AMOUNT NOT BECAUSE IT WAS A; BAD DEBT OR RIOT BECAUSE IT WAS NOT WRITTEN OFF BUT BECAUSE THE CLAS SIFICATION OF THE SAID AMOUNT IN THE BALANCE SHEET OF THE ASSESSEE DID NOT CORRESPOND TO THE ASSESSE'S NATURE OF BUSINESS. ON THE OTHER HAND TH E CIT(A) ALLOWED THE APPELLANT'S CLAIM ON THE GROUND THAT SINCE THE GOOD S FOR WHICH ADVANCES HAD BEEN MADE WERE NEITHER SUPPLIED NOR WAS ;THE AM OUNT RETURNED AND THE ASSESSEE HAD WRITTEN OFF THE AMOUNT AS BAD DEBT EXAMINING THE HON. ITAT'S OBSERVATIONS IN THE CONTEXT OF THESE TWO DIA METRICALLY OPPOSITE VIEWS OF THE LOWER AUTHORITIES HAD IT BEEN THE INT END OF THE ITAT THAT THE LOWER AUTHORITIES MUST DISALLOW THE CLAIM OF WRITE OFF; THE HON. ITAT WOULD HAVE REMANDED THE MATTER BACK TO: THE CIT (A) AS TH E DECISION TAKEN BY HIM WAS MORE IN CONFORMITY WITH THE DECISION OF THE HON. JURISDICTIONAL HIGH GOURT IN EARLIER CASES VIZ. GIRISH BHAGWATI P RASAD 256 ITR 772 (GUJ) AND PATIDAR GINNING & PRESSING COMPANY 56 CTR (GUJ). THEREFORE IN VIEW OF THE ABOVE THE AOS VIEW THAT THE ITATS DIRECTION WAS TO DISALLOW THE CLAIM IN VIEW OF M/S. DHALL ENTERPRISE S SEEMS TOTALLY ITA N O.2506/AHD/2010 4 MISPLACED. IT WAS FURTHER SUBMITTED THAT THE DISALL OWANCE OF ASSESSEE'S CLAIM THAT SINCE THE WAS NOT IN MONEY LENDING BUSIN ESS THE ADVANCE MADE TO M/S GHANSHYAM OIL INDUSTRIES FOR SUPPLY OF RAVA AND SUJI COULD NOT BE TAKEN AS A TRADE DEBT RUNS CONTRARY TO THE LANDMARK DECISIONS OF HON. APEX COURT IN THE CASE OF MYSORE SUGAR COMPANY LTD. 46 ITR 649 (SC) AND THE HON. MADRAS HIGH COURTS DECISION IN THE CA SE OF DHANALAXMI CORPORATION 46 ITR 649 1031 (MAD). THE APPELLANT FU RTHER REITERATED THE SAME ARGUMENTS AS WERE RAISED BEFORE THE AO. THE AP PELLANT FURTHER STATED THAT FROM THE NARRATION OF AO IT IS EVIDENT THAT THE ONLY GROUND FOR DISALLOWANCE OF APPELLANTS CLAIM IS THE DECISION O F HON. GUJARAT HIGH COURT IN THE CASE OF M/S DHALL ENTERPRISES AND CONT ENDED THAT THE FACTS OF APPELLANTS CASE ARE ENTIRELY DIFFERENT FROM THAT O F THE CASE BEFORE THE HON. HIGH COURT. IN THE CASE BEFORE THE HON. HIGH COURT THERE WERE CLEAR EVIDENCES IN THE FORM OF CORRESPONDENCE BETWEEN THE ASSESSEE AND THEIR DEBTOR TO THE EFFECT THAT THE DEBT WAS STILL IN THE PROCESS OF RECOVERY. IN OTHER WORDS IN THAT THE ASSESSEE HAD STILL NOT LOS T HOPE OF RECOVERY AND THERE WERE CLEAR EVIDENCES TO THAT EFFECT. IN APPEL LANT'S CASE THE RECOVERY HAD FINALLY BEEN GIVEN UP AND THE DEBT HAD ACTUALLY BEEN WRITTEN OFF IN THE BOOKS OF THE ASSESSEE IN THE PREVIOUS YEAR RELEVANT TO THE CURRENT ASST. YEAR. IT IS THEREFORE UNFORTUNATE THAT THE A.O. HA S FAILED TO DISTINGUISH THE VERY BASIC FACT OF DIFFERENCE BETWEEN THE TWO CASES . THE APPELLANT FURTHER SUBMITTED THAT IN THE CASE OF MORTGAN SECURITIES & CREDITS PVT. LTD. 292 TTR 339 (DEL) AND GIT VS. AUTOMETERS LTD. 292 ITR 345 (DEL) ; THE DELHI HIGH COURT HAS FOLLOWED THE DECISION OF HON. GUJARA T HIGH .COURT IN THE CASES OF GIRISH BHAGWATIPRASAD AND PATIDAR GINNING & PRESSING CO. FURTHER THE HON. DELHI HIGH COURT IN THE CASE OF AU TOMETERS LTD. 292 ITR 345 (DEL) THE DELHI HIGH COURT FOLLOWED THE DECISI ONS IN THE CASE OF MORGAN SECURITIES & CREDITS PVT. LTD. & PATIDAR GIN NING & PRESSING CO. FURTHER THE HON. GUJARAT HIGH COURT WHILE DECIDING THE ISSUE BEFORE THEM IN M/S. DHALL ENTERPRISES DID NOT EVEN CONSIDER CI RCULAR NO. 551 DATED 23- 1-1990 WHICH EXPLAINED THE RATIONALE BEHIND AMENDM ENT TO SEC. 36(1)(VII) BY DIRECT TAX LAWS (AMENDMENT) ACT 1989 AND CONTEN DED THAT IN THE CASE OF UCO BANK VS. CIT 237 ITR 889 AND PAPER PRODUCTS LTD. VS. CEE 247 ITR 128 (SC) THE APEX. COURT HAVE HELD THAT THE BO ARD'S CIRCULAR EVEN IF IT WAS INCONSISTENT WITH THE STATUTORY PROVISION W AS STILL BINDING ON THE DEPTT. AUTHORITIES AND THEY TO IT WAS SUBMITTED BY THE APPELLANT THAT WHEN TWO DECISIONS FROM TWO DIFFERENT DIVISION BENCHES O F TWO DIFFERENT HIGH COURT EACH INCLUDING THE JURISDICTIONAL HIGH COURT A SPECIAL BENCH DECISION IN THE CASE OF OMAN INTERNATIONAL BANK (1 00 ITD 284 ITAT MUMBAI) A 3 RD MEMBER DECISION IN THE CASE OF ANIL H. RASTOGI 86 ITD 193 ITAT MUMBAI AND A BOARDS CIRCULAR IN FAVOUR O F THE ASSESSEE THERE CANNOT BE A JUSTIFIABLE REASON FOR ACCEPTING THE DE CISION IN THE CASE OF DHALL ENTERPRISES AS BINDING. THE APPELLANT HAS FUR THER PLACED RELIANCE ON THE FOLLOWING DECISIONS:- (I) GLOBAL CAPITAL LRD. 306 ITR 332 (DEL) (II) STAR CHEMICALS (BOM) PVT. LTD. 313 ITR 126 (BO M) (III) KOTAK SECURITIES LTD. 318 ITR (AT) 268 (MUM) ITA N O.2506/AHD/2010 5 THE APPELLANT THEREFORE SUBMITTED THAT IT WOULD BE EVIDENT THAT WHILE THE DECISION OF M/S DHALL ENTERPRISES IS NOT APPLICABLE TO THE APPELLANTS CASE ON FACTS THERE ARE SEVERAL SUBSEQUENT DECISIONS OF VARIOUS HIGH COURTS TRIBUNAL AND EVEN THAT OF THE HON'BLE SUPREME COURT WHILE DISMISSING THE DEPTT. SLP IN THE CASE OF RAJENDRA Y SHAH SLP (C) NO. 8364 OF 2009 TO SUPPORT OF THE APPELLANTS CONTENTION OF WRITE OFF. 2.3 I HAVE CONSIDERED THE FACTS OF THE CASE AS WELL AS THE SUBMISSIONS MADE BY THE APPELLANT ALONG WITH VARIOUS JUDICIAL D ECISIONS AS RELIED UPON. I AM INCLINED TO ACCEPT THE CONTENTIONS OF THE APPE LLANT IN RESPECT OF A) MISINTERPRETATION OF DIRECTION TO A.O. GIVEN BY THE HON'BLE ITAT WHILE SETTING ASIDE THE ISSUE. B) THE FACTS OF APPELLANT AND THAT OF DHALL ENTERPR ISES & ENGINEERS (P) LTD. SUPRA ARE DISTINGUISHABLE. C) THERE ARE VARIOUS EARLIER AND SUBSEQUENT LEGAL J UDGEMENTS GIVING RELIEF OF ALLOWABILITY OF BAD DEBT IN THE FACTS AND CIRCUMSTANCES OF APPELLANT'S CASE. RECENTLY HON. SUPREME COURT IN THE CASE OF TRF LTD . V. CIT RANCHI VIDE ORDER DATED 9-2-10 IN CIVIL APPEAL NO. 5293 OF 2003 HELD THAT - 'THE POSITION BEFORE 1-4-89 U/S. 36(L)(VII) OF THE ACT WAS TO ESTABLISH THAT DEBT HAS BECOME A BAD DEBT BUT THE SAME IS CHA NGED W.E.F. 01-04-89 IF THE DEBT IS WRITTEN OFF AS IRRECOVERAB LE IN THE ACCOUNTS. IT IS NOT NECESSARY' TO ESTABLISH THAT THE DEBT IN FA CT HAS BECOME IRRECOVERABLE.' THE HON'BLE ITAT WHILE SETTING ASIDE THE ISSUE IN T HE APPELLANT'S CASE HAS GIVEN DIRECTION TO FOLLOW HON. GUJARAT HIGH COURT'S DECISION IN THE CASE OF M/S. DHALL ENTERPRISES SUPRA WHICH CLEARLY SHOWS THAT THE ID. CIT(A)'S ORDER DATED 29-01-07 IN THE APPELLANT'S CASE IN DEL ETING SUCH ADDITION HAS NOT CONSIDERED THE ASPECT OF ESTABLISHMENT OF DEBT BECOMING BAD. IT IS THEREFORE UPHELD THE LD. CIT(A)S VIEW THAT THE AO S VERSION OF TREATING SUCH ADVANCES AND BEING IN DIFFERENT CLASSIFICATION HAS NO SIGNIFICANCE AND SUCH ADVANCE WITH INTEREST IS AN ALLOWABLE DEBT IF IT BECOME BAD SUBJECT TO FINDINGS OF THE JURISDICTIONAL HIGH COURT'S DECISIO N. BUT NOW THAT RATIO OF JURISDICTIONAL HIGH COURT IS NO LONGER BINDING ON A CCOUNT OF HON'BLE SUPREME COURT JUDGMENT IN THE CASE OF TRF LTD. AND FURTHER THE FACTS ARE DISTINGUISHABLE. IT IS THEREFORE THE DISALLOWANCE AND THE SUBSEQUENT ADDITION SO MADE BY THE AO IS NOT JUSTIFIED AND CAN NOT BE HELD / SUSTAINED AS TENABLE IN THE EYES OF LAW. THE SAME IS DIRECTED TO BE DELETED. THE APPELLANT WILL GET RELIEF OF RS.6 50 000/-. ITA N O.2506/AHD/2010 6 4 THE REVENUE IS NOW IN APPEAL BEFORE US AGAINST TH E AFORESAID FINDINGS OF THE LEARNED CIT(A). THE LEARNED DR WHIL E INVITING OUR ATTENTION TO DIRECTIONS OF THE TRIBUNAL IN THEIR OR DER DATED 14-09- 2007 CONTENDED THAT THE LD. CIT(A) TRAVELLED BEYO ND THE DIRECTIONS OF THE TRIBUNAL IN DELETING THE DISALLOWANCE. IN FA CT THE CONDITIONS STIPULATED U/S 36(1)(VII) READ WITH SECTION 36(2) W ERE NOT FULFILLED THE ASSESSEE HAVING NOT OFFERED THE AFORESAID AMOUNT TO TAX IN THE EARLIER YEARS. THE AMOUNT PAID BY WAY OF ADVANCE TO THE AFORESAID PARTY WAS NOT A BAD DEBT WITHIN THE MEANING OF SEC TION 36(1)(VII) READ WITH SECTION 36(2) OF THE ACT. THEREFORE RELI ANCE ON THE DECISION IN THE CASE OF TRF LTD. (SUPRA) BY THE LD. CIT(A) WAS TOTALLY MISPLACED. ON THE OTHER HAND THE LEARNED AR ON BEH ALF OF THE ASSESSEE SUPPORTED THE FINDINGS OF THE LEARNED CIT( A). 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. INDISPUTABLY AS MENTIONED IN PARA 5 OF TH E ORDER DATED 14- 09-2007 OF THE TRIBUNAL AN AMOUNT OF RS.6 50 000/- COMPRISING RS.5 00 000/- ADVANCED TO M/S GHANSHYAM OIL INDUSTR IES VIDE CHEQUE DATED 29-02-2000 AND RS.1 50 000/- INTEREST AT THE RATE OF 15% THEREON WAS WRITTEN OFF IN THE YEAR UNDER CONSI DERATION. THE AMOUNT OF RS.1 50 000/- IS STATED TO HAVE BEEN OFFE RED AS INCOME IN THE AY 2002-03. THUS AT LEAST TO THE EXTENT OF TH IS AMOUNT THE PLEA OF THE LD. DR THAT THE AMOUNT HAD NOT BEEN OFFERED TO TAX IN EARLIER YEARS APPEARS TO BE INCORRECT. HOWEVER THE LD. CI T(A) DID NOT RECORD ANY FINDINGS ON THIS ASPECT NOR EXAMINED AS TO WHETHER OR NOT THE CONDITIONS STIPULATED U/S 36(1)(VII) READ WITH SEC. 36(2) OF THE ACT ARE FULFILLED IN THIS CASE. THE AO IN HIS ORIGI NAL ASSESSMENT ORDER DATED 23.3.2006 DISALLOWED THE CLAIM IN PARA 6 OF H IS ORDER SINCE THE ASSESSEE DEALING IN RAVA AND SUJI ETC. DID NOT FUR NISH ANY EVIDENCE THAT THE AMOUNT WAS PAID TO M/S GHANSHYAM OIL INDUS TRIES FOR PURCHASES REQUIRED FOR THEIR BUSINESS AND ACCORDING LY THE AO CONSIDERED THE AMOUNT TO BE IN THE NATURE OF LOANS/ ADVANCES AND NOT IN THE NATURE OF TRADING DEBT. ON APPEAL THE L D. CIT(A) ALLOWED ITA N O.2506/AHD/2010 7 THE CLAIM WHILE THE ITAT IN THEIR ORDER DATED DIREC TED TO EXAMINE THE CLAIM IN THE LIGHT OF DECISION OF JURISDICTIONAL H IGH COURT IN DHALL ENTERPRISED AND ENGINEERS PVT. LTD.(SUPRA). IN TER MS OF THESE DIRECTIONS OF THE ITAT THE ASSESSEE DID NOT ESTABL ISH BEFORE THE AO THAT THE DEBT HAD BECOME BAD IN THE YEAR UNDER CON SIDERATION NOR FURNISHED ANY EVIDENCE THAT THE ADVANCES WERE MADE TO THE AFORESAID PARTY FOR PURCHASES. ACCORDINGLY THE AO AGAIN DISALLOWED THE CLAIM. ON APPEAL THE LD. CIT(A) MERELY FOLLOW ED THE DECISION OF THE HONBLE APEX COURT IN TRF LTD.(SUPRA) WITHOUT R ECORDING ANY FINDINGS AS TO WHETHER OR NOT THE CONDITIONS STIPUL ATED U/S 36(2) WERE FULFILLED. THE ISSUE REQUIRED TO BE CONSIDERED BY THE LD. CIT(A) IN TERMS OF THE DIRECTIONS OF THE ITAT WAS WHETHER THE DEBT IN QUES TION HAD BECOME A BAD DEBT AND WHETHER THE DEDUCTION WAS ADMISSIBLE ON THE GRO UND THAT IT WAS VALIDLY WRITTEN OFF AS A BAD DEBT IN THE CONTEXT OF THE PRO VISIONS OF SECTION 36(1)(VII) AND SUB-SECTION (2) OF SECTION 36 OF THE ACT. THE RELEV ANT PROVISIONS IN THAT CONTEXT READ AS UNDER: ' 36. OTHER DEDUCTIONS.--(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WI TH THEREIN IN COMPUTING THE INCOME REFERRED TO IN SECTION 28--... (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IR RECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR : PROVIDED THAT IN THE CASE OF AN ASSESSEE TO WHICH C LAUSE (VIIA) APPLIES THE AMOUNT OF THE DEDUCTION RELATIN G TO ANY SUCH DEBT OR PART THEREOF SHALL BE LIMITED TO THE A MOUNT BY WHICH SUCH DEBT OR PART THEREOF EXCEEDS THE CREDIT BALANCE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT MA DE UNDER THAT CLAUSE. EXPLANATION.-FOR THE PURPOSES OF THIS CLAUSE ANY B AD DEBT OR PART THEREOF WRITTEN OFF AS IRRECOVERABLE IN THE AC COUNTS OF THE ASSESSEE SHALL NOT INCLUDE ANY PROVISION FOR BAD AN D DOUBTFUL DEBTS MADE IN THE ACCOUNTS OF THE ASSESSEE; (2) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART THEREOF THE FOLLOWING PROVISIONS SHALL APPLY:- ITA N O.2506/AHD/2010 8 (I) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING TH E INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT O F SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIO US YEAR OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY THE ASSESSEE; THE LD. CIT(A) NOWHERE RECORDED HIS FINDINGS AS TO WHETHER OR NOT THE AFORESAID ADVANCES HAD ACTUALLY BEEN MADE FOR PURCHASES REQU IRED BY THE ASSESSEE NOR AS TO WHETHER OR NOT THE SAID AMOUNT HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE FOR THE YEAR UNDER CONSI DERATION OR OF AN EARLIER PREVIOUS YEAR OR REPRESENTS MONEY LENT IN THE ORDI NARY COURSE OF THE BUSINESS OF BANKING OR MONEY-LENDING IF ANY CARRIED ON BY THE ASSESSEE. WITHOUT EXAMINING THE FACTUAL ASPECTS IN THE LIGHT OF THESE PROVISIONS THE LD. CIT(A) MERELY FOLLOWED THE DECISION IN TRF LTD. (SUPRA) AND ALLOWED THE CLAIM. THE APPLICABILITY OF ANY PRECEDE NT HAS TO BE EXAMINED IN THE CONTEXT OF FACTS OF THE EACH CASE. IN THIS CONTEXT HONBLE SUPREME COURT IN THE CASE OF CIT VS. SUN EN GINEERING WORKS PVT. LTD. 198 ITR 257 OBSERVED : IT IS NEITHER DESIRABLE NOR PERMISSIBLE TO PICK OU T A WORD OR A SENTENCE FROM THE JUDGMENT OF THIS COURT DIVORCED FROM THE CONTEXT O F THE QUESTION UNDER CONSIDERATION AND TREAT IT TO BE THE COMPLETE ' LAW ' DECLARED BY THIS COURT. THE JUDGMENT MUST BE READ AS A WHOLE AND THE OBSERVATIO NS FROM THE JUDGMENT HAVE TO BE CONSIDERED IN THE LIGHT OF THE QUESTIONS WHIC H WERE BEFORE THIS COURT. A DECISION OF THIS COURT TAKES ITS COLOUR FROM THE QU ESTIONS INVOLVED IN THE CASE IN WHICH IT IS RENDERED AND WHILE APPLYING THE DECISI ON TO A LATER CASE THE COURTS MUST CAREFULLY TRY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECISION OF THIS COURT AND NOT TO PICK OUT WORDS OR SENTENCES FROM T HE JUDGMENT DIVORCED FROM THE CONTEXT OF THE QUESTIONS UNDER CONSIDERATION BY THIS COURT TO SUPPORT THEIR REASONINGS. IN MADHAV RAO JIVAJI RAO SCINDIA BAHADU R V. UNION OF INDIA [1971] 3 SCR 9; AIR 1971 SC 530 THIS COURT CAUTIONED (AT PA GE 578 OF AIR 1971 SC). ' IT IS NOT PROPER TO REGARD A WORD A CLAUSE OR A SENTENCE OCCURRING IN A JUDGMENT OF THE SUPREME COURT DIVORCED FROM ITS CONTEXT AS CONTAINING A FULL EXPOSITION OF THE LAW ON A QUESTI ON WHEN THE QUESTION DID NOT EVEN FALL TO BE ANSWERED IN THAT JUDGMENT. ' ITA N O.2506/AHD/2010 9 6.1 LIKEWISE HONBLE SUPREME COURT CAUTIONED IN ANOTHER DECISION DATED 6.3.2009 IN THE CASE OF STATE OF AP VS. M.RA DHA KRISHNA MURTHY [CRIMINAL APPEAL NO. 386 OF 2002] IN THE FOLLOWING TERMS: 6. COURTS SHOULD NOT PLACE RELIANCE ON DECI SIONS WITHOUT DISCUSSING AS TO HOW THE FACTUAL SITUATION FITS IN WITH THE FACT SIT UATION OF THE DECISION ON WHICH RELIANCE IS PLACED. OBSERVATIONS OF COURTS ARE NEIT HER TO BE READ AS EUCLID'S THEOREMS NOR AS PROVISIONS OF THE STATUTE AND THAT TOO TAKEN OUT OF THEIR CONTEXT. THESE OBSERVATIONS MUST BE READ IN THE CONTEXT IN W HICH THEY APPEAR TO HAVE BEEN STATED. JUDGMENTS OF COURTS ARE NOT TO BE CONS TRUED AS STATUTES. TO INTERPRET WORDS PHRASES AND PROVISIONS OF A STATUTE IT MAY BECOME NECESSARY FOR JUDGES TO EMBARK INTO LENGTHY DISCUSSIONS BUT THE DISCUSSI ON IS MEANT TO EXPLAIN AND NOT TO DEFINE. JUDGES INTERPRET STATUTES THEY DO NOT I NTERPRET JUDGMENTS. THEY INTERPRET WORDS OF STATUTES; THEIR WORDS ARE NOT TO BE INTERPRETED AS STATUTES . 8. CIRCUMSTANTIAL FLEXIBILITY ONE ADDITIONAL OR DIFFERENT FACT MAY MAKE A WORLD OF DIFFERENCE BETWEEN CONCLUSIONS IN TWO CASES. DISPOS AL OF CASES BY BLINDLY PLACING RELIANCE ON A DECISION IS NOT PROPER. 9. THE FOLLOWING WORDS OF LORD DENNING IN THE MA TTER OF APPLYING PRECEDENTS HAVE BECOME LOCUS CLASSICUS: 'EACH CASE DEPENDS ON ITS OWN FACTS AND A CLOSE SIMILARITY BETWEEN ONE CASE AND ANOTHER IS NOT ENOUGH BECAUSE EVEN A SING LE SIGNIFICANT DETAIL MAY ALTER THE ENTIRE ASPECT IN DECIDING SUCH CASES O NE SHOULD AVOID THE TEMPTATION TO DECIDE CASES (AS SAID BY CORDOZO) BY MATCHING T HE COLOUR OF ONE CASE AGAINST THE COLOUR OF ANOTHER. TO DECIDE THEREFORE ON WHI CH SIDE OF THE LINE A CASE FALLS THE BROAD RESEMBLANCE TO ANOTHER CASE IS NOT AT ALL DECISIVE.' *** *** *** 'PRECEDENT SHOULD BE FOLLOWED ONLY SO FAR AS IT MARKS THE PATH OF JUSTICE BUT YOU MUST CUT THE DEAD WOOD AND TRIM OFF THE SIDE B RANCHES ELSE YOU WILL FIND YOURSELF LOST IN THICKETS AND BRANCHES. MY PLEA I S TO KEEP THE PATH TO JUSTICE CLEAR OF OBSTRUCTIONS WHICH COULD IMPEDE IT.' 7. IN VIEW OF THE FOREGOING ESPECIALLY WHEN TH E LD. CIT(A) MERELY FOLLOWED DECISION OF THE HONBLE APEX COURT IN TRF LTD.(SUPRA) WITHOUT EXAMINING THE FACTUAL MATRIX IN THE INSTANT CASE NOR EXAMINED AS TO WHETHER OR NOT THE AMOUNT OF RS . 5 LACS WAS ACTUALLY ADVANCED FOR PURCHASES OR THAT THE CONDIT IONS STIPULATED IN TERMS OF PROVISIONS OF SEC. 36(2) OF THE ACT ARE FU LFILLED AND NOR EVEN RECORDED ANY FINDINGS ON THE ALTERNATE CLAIM O F THE ASSESSEE BEFORE THE AO REGARDING THE APPLICABILITY PROVISION S OF SEC. 28 OF THE ACT IN THE INTEREST OF JUSTICE WE CONSIDER IT F AIR AND APPROPRIATE TO SET ASIDE THE ORDER OF THE LD. CIT(A) AND RESTORE THE M ATTER TO HIS FILE FOR DECIDING THE ITA N O.2506/AHD/2010 10 ISSUE OF CLAIM FOR DEDUCTION OF AMOUNT OF RS. 6.50 LACS IN ACCORDANCE WITH LAW AFTER ALLOWING SUFFICIENT OPPORTUNITY TO BOTH THE P ARTIES . NEEDLESS TO SAY THAT WHILE REDECIDING THE APPEAL THE LEARNED CIT(A) SHALL PAS S A SPEAKING ORDER KEEPING IN MIND INTER ALIA THE MANDATE OF PROVISIONS OF SEC. 250(6) OF THE ACT AND BRINGING OUT CLEARLY AS TO WHETHER OR NOT THE ADVANCE WAS IN DEED MADE FOR PURCHASE OF RAVA AND SUJI AND CONDITIONS STIPULATED U/S 36(2) OF THE ACT ARE FULFILLED IN THE INSTANT CASE. WITH THESE DIRECTIONS GROUND NO. 1 IN THE APPEAL FILED BY THE REVENUE IS DISPOSED OF. 8. GROUND NOS. 2 & 3 BEING MERE PRAYER NOR ANY SU BMISSIONS HAVING BEEN MADE ON THESE GROUNDS DO NOT REQUIRE A NY SEPARATE ADJUDICATION AND ARE THEREFORE DISMISSED. 9. IN THE RESULT APPEAL IS ALLOWED BUT FOR STATI STICAL PURPOSES. ORDER PRONOUNCED IN THE COURT TODAY ON 11 -02-2011 SD/- SD/- (T K SHARMA) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATED : 11 -02-2011 COPY OF THE ORDER FORWARDED TO: 1. SHREE BHAGWATI FLOUR & FOODS PVT. LTD. S NO.430 MORAIYA VILLAGE OPP. NOVA PETROCHEM SARKHEJ BAVLA HIGHWAY CHANGODHAR AHMEDABAD 2. ITO WARD-8(3) AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XIV AHMEDABAD 5. DR ITAT AHMEDABAD BENCH-A AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT AHMEDABAD