PRINCIPAL COMMISSIONER OF I T JAIPUR-2 vs. M/S RAJ STATE BEVERAGES CORP LTD

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ITA/150/2016HC RajasthanRJHC02082159201604 August 20164 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the first two issues concerning privilege fees and the deduction under Section 36(1)(va) for PF & ESI were covered by its previous judgments in the assessee's own cases. In those judgments, the Court had held privilege fees to be revenue expenditure and allowed the PF & ESI claim, finding that the amounts were deposited on or before the due date for furnishing the return of income, relying on its decisions in Commissioner of Income Tax Vs. State Bank of Bikaner & Jaipur and Commissioner of Income Tax Vs. Jaipur Vidyut Vitaran Nigam Ltd. (2014) 363 ITR 70 (Raj.). Regarding the bad debt of Rs. 12,79,968/-, the Court noted that the amounts related to old outstanding supplier balances from 2005-06 and 2007-08. Both the CIT(A) and the Tribunal had found these amounts to be irrecoverable and written off in accordance with Section 36(1)(vii), relying on the Apex Court's decision in T.R.F. Ltd. Vs. CIT: (2010) 323 ITR 397. The Court agreed that the amounts had become irrecoverable and were rightly written off, stating that merely not filing a suit for recovery or not providing specific proof of efforts did not invalidate the claim when the debt was demonstrably bad and old. The Court concluded that no substantial question of law arose from the Tribunal's order on the bad debt issue, as it was essentially based on findings of fact.

What were the facts?

The appeal by the Principal Commissioner of Income Tax, Jaipur-2, challenges an order dated 06.11.2015 passed by the Income Tax Appellate Tribunal, Jaipur Bench, for the assessment year 2009-10. The revenue conceded that two main issues – the claim of privilege fees amounting to Rs. 26.00 Crores and the deduction under Section 36(1)(va) for Rs. 17,80,765/- – were covered by this Court's previous judgments in the assessee's own cases for assessment years 2003-04 to 2008-09. However, the revenue sought to raise an additional issue concerning a bad debt of Rs. 12,79,968/-, arguing that the assessee failed to prove how it became a bad debt and did not make recovery efforts.

What were the issues?

1. Whether the privilege fees amounting to Rs. 26.00 Crores are allowable as a revenue expenditure, turning on the nature of the expenditure under the Income Tax Act, 1961. 2. Whether the deduction of Rs. 17,80,765/- on account of Provident Fund (PF) and ESI is allowable under Section 36(1)(va) of the Act, considering the timing of deposit relative to the due date for furnishing the return of income. 3. Whether the write-off of Rs. 12,79,968/- as bad debt is justified under Section 36(1)(vii) of the Act, and if the assessee's inability to prove recovery efforts or the debt becoming bad through acceptable evidence warrants disallowance. Assessee's Contentions: Not explicitly recorded for the issues covered by previous judgments. For bad debt, the assessee claimed the advances were for business purposes, but supply was not received, and the amounts were old and outstanding, written off in accordance with Section 36(1)(vii). The CIT(A) and Tribunal found the amounts irrecoverable. Revenue's Contentions: For privilege fees and PF/ESI, the revenue implicitly accepted these were covered by prior judgments. For bad debt, the revenue argued the assessee failed to prove how it became bad, did not make recovery efforts, and merely writing off in books was insufficient. The revenue contended the Tribunal's deletion of the addition was perverse, raising a substantial question of law.

Which sections of the Income-tax Act were involved?

Section 260A,Section 36(1)(va),Section 36(1)(VII)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN JAIPUR BENCH, JAIPUR O.R.D.E.R D.B. Income Tax Appeal No.150/2016 Principal Commissioner of Income Tax, Jaipur-2 Vs. M/s. Rajasthan State Beverages Corpn. Ltd. Date of Order: 04/08/2016 HON'BLE MR. JUSTICE AJAY RASTOGI HON'BLE MR. JUSTICE J.K. RANKA Mr. Nikhil Simlote Adv., for appellant. 1. Instant income tax appeal u/Sec.260A of the Income Tax Act (in short, 'the Act') is directed against the order dt. 06.11.2015 passed by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur (in short 'the Tribunal') it relates to the assessment year 2009-10. 2. Counsel for the revenue at the outset conceded that the main question about the claim of privilege fees amounting to Rs.26.00 Crores and claim of deduction u/Sec. 36 (1) (va) amounting to Rs.17,80,765/- has been considered by this Court in assessee's own case in a bunch of cases vide judgment/order dt.26.05.2016 in DB Income Tax Appeal No.99/2009 Commissioner of income Tax Vs. M/s. Rajasthan State Ganganagar Sugar Mills Ltd. & D.B. Income Tax Appeal No.66/2015, Principal Commissioner of Income Tax Vs. M/s. Rajasthan State Beverages Corpn. Ltd., which relates to the assessment years 2003-04, 2004-05, 2005-06, 2006-07, 2007-08 & 2008-09 respectively. 2 3. However, he sought to raise one more question relating to bad debt to the extent of Rs.12,79,968/- which was written off by the assessee in its books of account as the assessee was unable to prove as to how it became a bad debt and no efforts were made by the assessee for recovery of the said amount and no explanation was offered in this regard and merely writing off in the books of account was not justified as it had to be proved by acceptable evidence that debt became bad and in view of this fact the finding of the Tribunal in deleting the addition is perverse and contended that substantial question of law does arise. 4. We have heard the counsel for the appellant and have perused the material available on record. 5. So far as the question relating to privilege fees amounting to Rs.26.00 Crores in the instant year as well as the deduction of claim of Rs.17,80,765/- on account of Provident Fund (PF) and ESI is concerned, this Court has extensively considered the aforesaid two

questions in assessee's own case vide judgment and order dt.26.05.2016 referred to (supra) and has held that the privilege fees being a revenue expenditure, is required to be allowed as a revenue expenditure. This court in the aforesaid case has also allowed the claim of the assessee, in so far as payment of PF & ESI etc. is 3 concerned, on the finding of fact that the amounts in question were deposited on or before the due date of furnishing of the return of income and taking in consideration judgment of this Court in Commissioner of Income Tax Vs. State Bank of Bikaner & Jaipur and In so far as the claim about bad debt of Rs.12,79,968/- is concerned, we notice that the said amount relates to debit balances of the supplier which remained outstanding since 2005-06 and 2007-08 and it was the claim of the assessee that the advances were given to the suppliers for business purposes but supply of liquor was not received and there is a finding of fact recorded by the CIT (A) as well as the Tribunal and could not be disputed by the counsel for the Revenue that the amounts were old and outstanding and the said amount was written off in accordance with the provisions contained in Sec.36 (1) (VII) of the Act. The CIT (A) as well as the Tribunal has taken into consideration the judgment of the Apex Court in the case of T.R.F. Ltd Vs. CIT : (2010) 323 ITR 397 and recorded a finding of fact that the said amount having become irrecoverable, the assessee has rightly written off the same and merely because the assessee has not filed any claim, that could not be considered to be a ground for 4 disallowing a bad debt.

6.1.

Admittedly, the amounts were lying outstanding for the last couple of years and the assessee has rightly written off the said amount in the books of account and merely because a suit was not filed and that cannot be considered to be a cogent reason to disallow the claim which became bad. One need not incur good money for recovery of the so called irrecoverable or a bad money and file a suit which remains pending for years and with uncertainty.

7.

In the light of the judgment in assessee's own case, the first two questions being covered against the revenue, no more remains substantial question of law which can be considered by this court and so far as question of bad debt is concerned, essentially it is based on a finding of fact and no substantial question of law can be said to emerge out of the order of the Tribunal.

8.

Accordingly, the appeal being devoid of merit, is hereby dismissed. (J.K. RANKA), J. (AJAY RASTOGI), J. S Kumawat/-

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