COMMISSIONER OF INCOME TAX vs. CITI FINANCE CONSUMER FINANCE INDIA LTD

IN THE HIGH COURT OF DELHI AT NEW DELHI . 04.03.2011 . Present: Ms. Prem Lata Bansal, Sr. Advocate with Mr. Deepak Anand, Jr. Advocate for the appellant/Revenue. Mr. C.S. Aggarwal, Sr. Advocate with Mr. Prakash Kumar, Advocate for the respondent/assessee. . + ITA 451/2011 and CM APPL. 4381/2011 . . This appeal pertains to the assessment year 2002-03. Reassessment order was framed by the Assessing Officer under Section 143 (3) on 25TH February, 2005. However, thereafter, notice was issued on 7th November, 2006 under Section 148 of the Income-Tax Act, (hereinafter referred to as ?the Act?), qua reassessment on the following grounds:- (i) The assessee had claimed renovation expenses on leased premises as revenue expenditure but the Assessing Officer wanted to treat the same as capital expenditure. (ii) The assessee had claimed loss on the repossessed assets under the head ?administrative and marketing expenses?. The AO stated that the assessee was not the owner and the assets were registered in the name of purchasers and, therefore, the assessee was not entitled to the aforesaid loss on repossessed assets. (iii) The assessee had claimed loss on account of forward contracts in foreign currency on revaluation at the end of the year which according to the Assessing Officer was not allowable. . On these grounds, the Assessing Officer observed that the income had escaped assessment due to failure on the part of the assessee to disclose truly and fully all material facts. Leading to the aforesaid issues, notice under Section 148 of the Act was issued. The reassessment was framed thereafter. The assessee preferred appeal thereagainst before the CIT (A) . The CIT (A) dismissed the appeal of the assessee herein upholding the validity of the notice under Section 147 of the Act as well as on merits thereby confirming the additions made by the AO. The ITAT has, however, not only quashed the proceedings i.e. issuance of notice under Section 148 of the Act, even on merits it has held that the assessee was entitled to deduction of ` 569.26 lacs under the ?administrative and marketing expenses? as loss on repossessed assets in the following manner:- ?We have heard the rival submissions and have gone through the material available on record. We find that it has been noted by the Ld. CIT (A) in para 3.3 of his order that it was submitted before him that the assessee has claimed . . an amount of ` 56,926,000/- on account of loss on sale of repossessed assets as revenue expenditure. It is also noted that it is the claim of the assessee that the claim of the assessee is nothing but bad debts incurred by the assessee during the course of its normal business operations. Ld. CIT (A) has decided this issue against the assessee on the basis that this loss is related to write off of repossessed assets and is not related to debts as such. We are of the considered opinion that this loss is allowable to the assessee since the loss has been incurred in normal course of business. Repossession of the asset was taken by the assessee in the course of normal business operations and such repossessed assets were sold and loss incurred in this process is a normal business loss allowable to the assessee. The same is allowable u/s 36 (1) (vii) of the Act also as write off of bad debts because when there is loss on sale of repossessed assets, such deficiency is realization from the customer but since the assessee has written off of the same in the P and L A/c instead of debiting it to the customer account, it is equal to write off of bad debts and by now, it is a settled legal position that after the amendment in Section 36(1)(vii) of the Act w.e.f. 1/4/1989, only write off of debt is sufficient and the assessee is not required to how that the debts has become bad. We, therefore, decide this issue in favour of the assessee since we are in agreement with the ld counsel of the assessee that the judgment of Hon?ble Allahabad High Court followed by the authorities below is not applicable because of change in law as we have noted that section 36(1) (vii) of the Act has been amended w.e.f. 1/4/1989. We, therefore, decide this issue also in favour of the assessee.? . Against this order, the present appeal is preferred. Though, the order of the ITAT is challenged on both counts, it is not necessary to go into the issue on validity of the initiation of reassessment proceedings, inasmuch as, on merits, we find that the addition is not sustainable and the assessee was entitled to loss on sale of repossessed assets under Section (1) (vii) read with Section 36 (2) of the Act. This very issue has been decided by this Court in the case of CIT Vs. Citicorp Maruti Finance Ltd. (ITA 1712/2010 and 1714/2010) vide judgment dated 9th November, 2010. The assessee here is also a non-banking financial company like Citicorp Maruti Finance Ltd (supra) in the aforesaid appeal. Following that judgment, this appeal is also dismissed holding that no question of law arises. . A.K. SIKRI, J. . . M.L.MEHTA, J. MARCH 4,2011 skb . . 4#