M/s. MSK Construction (P) Ltd., CHENNAI v. DCIT, CHENNAI

ITA 411/CHNY/2010 | 2006-2007
Pronouncement Date: 30-07-2010 | Result: Allowed

Appeal Details

RSA Number 41121714 RSA 2010
Assessee PAN AAACM2608R
Bench Chennai
Appeal Number ITA 411/CHNY/2010
Duration Of Justice 3 month(s) 25 day(s)
Appellant M/s. MSK Construction (P) Ltd., CHENNAI
Respondent DCIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-07-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Tribunal Order Date 30-07-2010
Date Of Final Hearing 21-07-2010
Next Hearing Date 21-07-2010
Assessment Year 2006-2007
Appeal Filed On 05-04-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL BENCH B CHENNAI BEFORE SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER AN D SHRI GEORGE MATHAN JUDICIAL MEMBER .. I.T.A. NOS. 411/MDS/2010 ASSESSMENT YEAR :2006-07 M/S. M.S.K. CONSTRUCTION (P) LTD. A2 UMA SHANTHI RESIDENCE NEW NO.75 HABIBULLAH ROAD T. NAGAR CHENNAI-600 017 VS. THE DY. COMMISSIONER OF INCOME TAX CO. CIRCLE-IV(3) CHENNAI. (PAN:AAACM 2608R) (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S. SRIDHAR RESPONDENT BY : SHRI P.B. SEKARAN O R D E R PER GEORGE MATHAN JUDICIAL MEMBER : THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE LEARNED CI T(A)-V CHENNAI IN APPEAL NO. ITA 215/08-09 DATED 15-03-201 0 FOR THE ASSESSMENT YEAR 2006-07. 2. SHRI S. SRIDHAR ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI P.B. SEKARAN LEARNED CIT-DR REPRESENTED ON BEHALF OF THE REVENUE. I.T.A. NO.411/MDS/2010 2 3. IT WAS SUBMITTED BY THE LEARNED AUTHORIZED REPRE SENTATIVE THAT THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LEARNED C IT(A) IN CONFIRMING THE DISALLOWANCE OF THE BAD DEBTS WRITTEN OFF RELATING TO SHRI K. MURUGESAN TO THE EXTENT OF RS. 43 11 461/- SHRI K. RAJA TO THE EXTE NT OF RS. 35 13 574/- MRS. M. JAYALAKSHMI TO THE EXTENT OF RS. 29 92 177/- AND M/ S. J.L. BUILDERS PROPRIETOR OF KINGS PARK TO THE EXTENT OF RS. 2 84 77 879/-. IT WAS THE SUBMISSION THAT THE ASSESSEE HAD WRITTENOFF THE BAD DEBTS IN RESPECT OF SHRI K. MURUGESAN MRS. M. JAYALAKSHMI AND SHRI K. RAJA OUT OF THE INTEREST C HARGED ON THE LOANS ADVANCED TO THE SAID THREE PERSONS WHO WERE THE DIRECTORS O F M/S. J.L. BUILDERS. IT WAS THE SUBMISSION THAT THE AMOUNT OF BAD DEBTS WRITTEN OFF IN RESPECT OF M/S. J.L. BUILDERS WAS IN RESPECT OF THE ELECTRICITY CHARGES DUE FROM M/S. J.L. BUILDERS TO THE ASSESSEE COMPANY. IT WAS THE SUBMISSION THAT THE W RITE OFF OF BAD DEBTS IN RESPECT OF THE DIRECTORS WERE OUT OF THE INTEREST D UE FROM THE DIRECTORS. IT WAS THE SUBMISSION THAT THE INTEREST HAD BEEN SHOWN AS INCO ME DURING THE EARLIER ASSESSMENT YEARS AND THE SAME HAD ALSO BEEN OFFERED FOR TAXATION. IT WAS FURTHER SUBMITTED THAT IN RESPECT OF THE ELECTRICITY SOLD T O M/S. J.L. BUILDERS THE SAME HAD BEEN BILLED FOR AN AMOUNT OF RS.4 43 13 856/- AND T HE SAME HAD ALSO BEEN OFFERED TO TAX DURING THE RELEVANT ASSESSMENT YEARS AND IT WAS ONLY ON ACCOUNT OF THE NON-RECOVERY OF THE AMOUNT FROM M/S. J.L. BUILDERS THE SAME HAD BEEN WRITTEN OFF AS BAD DEBT. THE LEARNED AUTHORIZED REPRESENTATIVE RELIED UPON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. V. RAMAKRISHNA & SONS LTD. I.T.A. NO.411/MDS/2010 3 REPORTED IN (2010) TIOL-64-HC- MAD-IT WHEREIN THE H ON'BLE HIGH COURT HAS HELD AS FOLLOWS: INCOME TAX SECTION36(1)(VII) ASSESSEE IS ENGAG ED IN MONEY LENDING BUSINESS AO DISALLOWS THE CLAIM OF THE BAD DEBTS ON THE GROUND THAT WHEN THE INTEREST IS NOT RECEIVED FOR EARLIER A.Y. THE PAYMENT OF FURTH ER ADVANCES IN FAVOUR OF THE SUBSIDIARY COMPANY CANNOT BE CONSTRUED AS AN ADVANCEMENT OF LOANS DURING THE COU RSE OF BUSINESS AND THEREFORE THE ASSESSEE NOT ENTITLED TO CLAIM BAD DEBT AO ALSO HOLDS THAT THE AMOUNT HAVI NG BEEN GIVEN ONLY TO TIDE OVER THE FINANCIAL DIFFICUL TIES OF THE SUBSIDIARY COMPANY THE SAME CANNOT BE CONSTRUE D AS A LOAN OR ADVANCE MADE IN THE COURSE OF BUSINESS CIT (A) ALLOWS ASSESSEES APPEAL BY HOLDING THAT TH ERE IS NO DISPUTE REGARDING THE GENUINENESS OR BONAFIDES O F THE TRANSACTIONS THE FACT THAT FOR THE SUBSEQUENT ADVANCES NO INTEREST RECEIVED BY ITSELF CANNOT BE A GROUND FOR DISALLOWANCE AS BAD DEBT AND THE AMOUNT HAVING BEEN GIVEN TOWARDS COMMERCIAL EXPEDIENCY IN ORDER TO PROTECT THE INTEREST OF THE ASSESSEE TO PR OP-UP THE SAGGING BUSINESS OF THE SUBSIDIARY COMPANY THE SAME WOULD AMOUNT TO A BAD DEBT ALLOWABLE U/S 36(1)(VII) TRIBUNAL CONFIRMS CIT(A) ORDER HELD BOTH THE FIRST APPELLATE AUTHORITY AS WELL AS THE TRIBUN AL HAVE CONSIDERED THE MATERIALS ON RECORD AND CAME TO THE CONCLUSION THAT THE TRANSACTIONS INVOLVED ARE TRUE AND GENUINE. THEY HAVE ALSO HELD THAT THE ADVANCES HAV E I.T.A. NO.411/MDS/2010 4 BEEN MADE DURING THE COURSE OF THE BUSINESS AND THE Y HAVE BECOME IRRECOVERABLE AS BAD DEBTS AND HENCE TH E ASSESSEE IS ENTITLED TO THE BENEFIT U/S 36(1)(VII). THE SAID DECISION BEING BASED UPON FINDINGS OF FACTS T HE SAME CANNOT BE AGITATED BEFORE THIS COURT. THE QUE STION AS TO WHETHER A DEBT HAD BECAME BAD OR NOT IS A PUR E QUESTION OF FACT AND THEREFORE THE SAME CANNOT BE CONSTRUED AS A QUESTION OF LAW. REVENUES APPEAL DISMISSED BOTH ON FACTS AND LAW. THE LEARNED AUTHORIZED REPRESENTATIVE ALSO RELIED O N THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF T.R.F. LTD. C. CIT (32 3 ITR 397) (SC) WHEREIN IT HAS BEEN HELD THAT AFTER 1.4.1989 IT IS NOT NECESSARY F OR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE. IT IS E NOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSE E. 4. IN REPLY THE LEARNED D.R. VEHEMENTLY SUPPORTED THE ORDERS OF THE LEARNED CIT(A) AND THE ASSESSING OFFICER. IT WAS THE SUBMIS SION THAT THE ASSESSEE HAS NOT PROVED THAT THE TAX HAD BECOME BAD. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS. A PERUSAL OF THE ASSESSMENT ORDER SHOWS THAT THE ASSESSEE HAS CLAIMED BAD DEBTS AMOUN TING TO RS. 3 92 95 091/- AND THIS AMOUNT REPRESENTS THE FOUR BAD DEBTS CLAIM ED. IT IS ALSO NOTICED THAT THE ASSESSING OFFICER HAS RECOGNIZED THAT THE BAD DEBTS HAD BEEN WRITTEN OFF DURING THE YEAR IN THE P&L ACCOUNT. IT IS NOTICED THAT TH E ASSESSING OFFICER HAS I.T.A. NO.411/MDS/2010 5 DISALLOWED THE BAD DEBTS BY STATING THAT THE ENTIRE CLAIM OF BAD DEBTS ON THE AMOUNT RECEIVABLE FROM THE DIRECTORS ARE NOT FOR AN Y BUSINESS PURPOSE AND THAT AS PER THE PROVISIONS OF THE LAW IN COMPUTING THE BUSI NESS INCOME OR TOTAL INCOME THEREAFTER THE BAD DEBT IS NOT ALLOWABLE. HOW THE ASSESSING OFFICER HAS REACHED SUCH CONCLUSION THAT THE BAD DEBT CLAIMED IS NOT FO R THE PURPOSE OF THE BUSINESS IS NOT COMING OUT OF THE ASSESSMENT ORDER. WHEN THE A SSESSEE OFFERED THE INTEREST ACCRUED ON THE LOANS AS INTEREST INCOME THE SAME WA S ASSESSED AS BUSINESS INCOME. BUT WHEN THE ASSESSEE WRITES OFF THE SAME AS A BAD DEBT THEN HOW SUCH INTEREST INCOME SUDDENLY BECOMES NON-BUSINESS PURPO SE IS NOT CLEAR FROM THE ASSESSMENT ORDER. FURTHER AS PER THE PROVISIONS O F THE LAW IN THE COMPUTATION OF THE BUSINESS OR TOTAL INCOME THE BAD DEBT WRITTEN O FF IS NOT PERMISSIBLE TO BE CLAIMED IS ALSO NOT SHOWN. AS PER THE PROVISIONS O F SEC. 36(1)(VII) OF THE ACT AS ALSO THE DECISION OF THE HON'BLE SUPREME COURT IN T HE CASE OF T.R.F. LTD. AFTER 1-4- 1989 ALL THAT THE ASSESSEE HAS TO DO IS TO WRITE OF F THE DEBT AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE WHICH EVEN ACCORDING TO TH E ASSESSING OFFICER HAS BEEN DONE. IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTA BLISH THAT THE DEBT HAS IN FACT BECOME BAD. 6. IN RESPECT OF THE WRITE OFF OF THE AMOUNT DUE FR OM M/S. J.L. BUILDERS IT IS NOTICED THAT THE ASSESSING OFFICER HAS RECOGNIZED T HAT THE ASSESSEE HAS BEEN GENERATING ELECTRICITY THROUGH ITS WINDMILLS AND HA S BEEN SELLING THE SAME RIGHT FROM THE ASSESSMENT YEAR 1994-95 AND HAS BEEN RECEI VING INCOME THEREFROM. I.T.A. NO.411/MDS/2010 6 THE ELECTRICITY CHARGES HAVE ALSO BEEN CHARGED UPON M/S. J.L. BUILDERS. IN FACT IT IS ONLY AFTER 1-4-1998 THAT THE ACCOUNT WITH M/S. J .L. BUILDERS STARTED BECOMING PROGRESSIVELY BAD. HERE ONE SHOULD ALSO APPRECIATE THAT M/S. J.L. BUILDERS IS AFTER ALL A SISTER CONCERN OF THE ASSESSEE AND THE ASSESS EE HAS ONLY ATTEMPTED TO REVIVE THE BUSINESS OF THE SISTER CONCERN AS ALSO COMPLY W ITH THE CONTRACT ENTERED. AS A PRUDENT BUSINESS MAN THE ASSESSEE HAS ATTEMPTED TO PROTECT THE INTERESTS OF THE SISTER CONCERN SO THAT THE ASSESSEE ALSO WOULD BENE FIT FROM ITS GROWTH. OBVIOUSLY ALL DECISIONS NEED NOT BE CORRECT. MANY MIGHT FAIL . JUST BECAUSE THE DECISION WAS A WRONG DECISION IT WOULD NOT MAKE THE CLAIM OF BAD DEBT TO BE NOT AVAILABLE ESPECIALLY WHEN AS PER THE PROVISIONS OF SECTION 36 (1)(VII) THE CLAIM IS ALLOWABLE. ONE SHOULD KEEP IN MIND HERE THAT THE ASSESSEE HAS BEEN OFFERING THE CHARGES BILLED ON J.L. BUILDERS ON ACCOUNT OF THE ELECTRICI TY CHARGES AS ITS INCOME DURING THE RELEVANT ASSESSMENT YEAR AND HAS ALSO PAID THE TAXES THEREON. NOW WHEN THE ASSESSEE IS NOT ABLE TO RECOVER THE SAID AMOUNT TH E SAME WOULD OBVIOUSLY BE AN ALLOWABLE DEDUCTION U/S. 36(1)(VII) OF THE ACT. TH E ASSESSING OFFICER HAS RECORDED A FINDING THAT THE COMPANY HAD DELIBERATELY ALLOWED THE DEBT TO GROW WITHOUT ANY CARE FOR RECOVERY. IT SHOULD ALSO BE APPRECIATED T HAT IN THE GROWTH OF THE DEBT THE SAME IS REPRESENTED BY THE INCOME WHICH HAS BEEN OF FERED TO TAX AS THE DEBT IS AFTER ALL NOTHING BUT THE ELECTRICITY CHARGES RECEI VABLE FROM J.L. BUILDERS. IN THE CIRCUMSTANCES AS IT IS NOTICED THAT THE DEBTS AS W RITTEN OFF IN RESPECT OF SHRI K. MURUGESAN SHRI K. RAJA SMT. M. JAYALAKSHMI AND M /S. J.L. BUILDERS ARE BAD I.T.A. NO.411/MDS/2010 7 DEBTS AND THE SAME HAVE BEEN WRITTEN OFF IN THE BOO KS OF ACCOUNT RESPECTFULLY FOLLOWING THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF T.R.F. LTD. THE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLO WANCE OF THE CLAIM OF BAD DEBTS AS MADE IN THE ASSESSMENT ORDER. IN THE CIRCUMSTAN CES THE ORDER OF THE LEARNED CIT(A) IS REVERSED AND THE ADDITION AS MADE BY THE ASSESSING OFFICER BY DISALLOWING BAD DEBTS CLAIMED BY THE ASSESSEE IN R ESPECT OF K. MURUGESAN SHRI K. RAJA SMT. M. JAYALAKSHMI AND M/S. J.L.BUILDERS PR OPRIETOR OF KINGS PARK STANDS DELETED. IN THE CIRCUMSTANCES THE APPEAL OF THE A SSESSEE IS ALLOWED. 7. THE ORDER WAS PRONOUNCED IN THE COURT ON 30-07-2 010. SD/- SD/- (ABRAHAM P. GEORGE) (GEORGE MATHAN) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI DATED THE 30 TH JULY 2010. H. COPY TO: ASSESSEE/AO/CIT (A)/CIT/D.R./GUARD FILE