Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI G.S. PANNU & SHRI PAWAN SINGH
The captioned appeal by the assessee is directed against the order of CIT(A)-7, Mumbai dated 10.03.2011, pertaining to the Assessment Year 2003-04, which in turn has arisen from the order passed by the DCIT-3(3), Mumbai dated 31.10.2008 under section 143(3) r.w.s. 147 of the Act.
In its appeal, the assessee has raised the following Grounds of appeal :-
“1.(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing officer to re-open the assessment u/s.147 of the Income Tax Act, 1961 in the appellant's case and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and the Rules made thereunder.
(b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in holding that the reassessment opened u/s. 147 is legal and valid.
2.(a) On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in upholding the charging to tax recovery of bad debts of Rs.50,00,000/- u/s. 41(1) and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and the Rules made thereunder.
(b) The learned Commissioner of Income Tax (Appeals) failed to appreciate that said recovery of bad debts pertains to bad debts written-off prior to the assessment year from which the appellant became liable to pay income tax and hence the same is not liable to tax u/s.41(4) in absence of any benefit of deduction claimed u/s.36(1)(vii).
On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) ought to have held that interest cannot be levied u/s. 234D as the said section is not applicable for assessment year 2003-04 and not doing so is wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and the Rules made thereunder.
On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) alternatively ought to have held that interest of Rs.17,07,486/- cannot be charged u/s. 234D on the amount of refund granted pursuant to order giving effect to Commissioner of Income Tax (Appeals)'s order and not doing so is wrong and contrary to the facts and circumstances o the case, provisions of the Income Tax Act, 1961 and the Rules made thereunder.”
3. In this appeal, the substantive dispute arises from an addition of Rs.2,15,03,988/- made by the Assessing Officer by invoking Sec. 41(4) of the Act.
4. In brief, the relevant facts are that the assessee-company filed its return of income originally on 27.11.2003 declaring total income of Rs.221,78,00,932/-, which was subject to a scrutiny assessment u/s 143(3) of the Act dated 28.1.2005 determining the total income at Rs.402,89,50,550/-. Subsequently, the assessment was reopened by issuance of a notice u/s 148 of the Act on 30.3.2008, as according to the Assessing Officer certain income chargeable to tax had escaped assessment. In the ensuing assessment made u/s 143(3) r.w.s. 147 of the Act, the Assessing Officer made an addition of Rs.2,15,03,988/- u/s 41(4) of the Act. According to the Assessing Officer, assessee had recovered bad debts of Rs.2,15,03,988/-, and since assessee “gets deduction u/s 36(1)(viia)”, the recovery was liable to be taxed u/s 41(4) of the Act. The stand of the assessee before the Assessing Officer was that the ‘bad debts recovery’ in question of Rs.2,15,03,988/- has not been allowed as deduction as bad debts u/s 36(1)(vii) and, therefore, there was no scope for taxing such recovery u/s 41(4) of the Act. However, the Assessing Officer rejected the plea of the assessee, as according to him, assessee could not establish that the bad debts recovered are out of those bad debts which have been disallowed; and, that the provisions of Sec. 36(1) and 41(4) are independent. Therefore, he made an addition of Rs.2,15,03,988/- to the total income of the assessee taking recourse to Sec. 41(4) of the Act.
Before the CIT(A), the plea of the assessee was that since in the earlier years, the claim of bad debts has not been accepted, recovery of such bad debts cannot be taxed. The CIT(A) has accepted the aforesaid plea in principle. The CIT(A) examined the details of the impugned sum and with respect to a sum of Rs.50,00,000/- in the name of M/s. Poustik Milk, he has noted the submission of the assessee that it relates to a claim of bad debt for the year prior to Assessment Year 2002-03, when assessee was not a taxable entity. The CIT(A) held that this bad debt “stands as claimed and allowed and therefore it is a recovery”, which has been rightly taxed by the Assessing Officer. With regard to the sums of Rs.26,00,000/- and Rs.75,00,000/- pertaining to M/s. Madusudan Leasing and M/s. Apple Finance respectively, the CIT(A) directed the Assessing Officer to go by the final status of these two amounts as the issue of such bad debts was pending before the Tribunal and observed that if the claim of bad debt in the earlier years was accepted, only then the recovery made during the year would be taxed. Similarly, with regard to the sum of Rs.64,00,000/- pertaining to Premier Paper Boards, he observed that the assessee was allowed the bad debt in preceding year and therefore the amount needs to be taxed in this year due to its recovery.
In this background, the assessee is in further appeal before us. At the time of hearing, the learned representative for the assessee referred to the judgment of the Hon'ble Bombay High Court in the case of the assessee for Assessment Year 2002-03, being of 2012 dated 12.9.2012, wherein it has been held that in view of Sec. 50 of Small Industries Development Bank of India Act, 1989, assessee was not liable to pay any income tax in respect of any income derived by it for the period ending on 31.3.2002. It was, therefore, canvassed that upto Assessment Year 2002-03 assessee enjoyed exemption from income tax and, therefore, it could not be said that any of the bad debts out of sum of Rs.2,15,03,988/- was allowed as a deduction in the past years. Therefore, according to the learned representative, no amount out of Rs.2,15,03,988/- could be brought to tax in the instant year u/s 41(4) of the Act.
Pertinently, in the Memo of appeal, assessee has raised the issue of Rs.50,00,000/- pertaining to M/s. Poustik Milk, whereas an additional Ground has been raised with regard to the sums of Rs.64,00,000/-, Rs.26,00,000/- and Rs.75,00,000/- which have been found to be taxable by CIT(A). Ostensibly, the said bad debts were written-off in Assessment Year 2002-03. The learned representative explained that the judgment of the Hon'ble Bombay High Court in the case of the assessee for Assessment Year 2002-03 was dated 12.9.2012, which came subsequent to the impugned decision of the CIT(A). The learned representative pointed out that in view of the judgment of the Hon'ble Bombay High Court, the bad debt written-off in Assessment Year 2002- 03, and which have been recovered in the instant year, could also not be taxed u/s 41(4) of the Act as there was no tax liability on the assessee for Assessment Year 2002-03 as its income was exempt. The learned representative pointed out that the fresh claim is within the four corners of law and, in any case, it has sprung-up as a consequence of the judgment of the Hon'ble Bombay High Court dated 12.9.2012 (supra) in the case of the assessee. Therefore, such an additional claim be admitted for adjudication since the necessary facts are already on record.
On the other hand, the ld. DR appearing for the Revenue has not controverted the factual matrix brought out by the learned representative for the assessee, but relied upon the order of the authorities below in support of the case of the Revenue.
We have considered the rival submissions. Sec. 41(4) of the Act prescribes that where a deduction has been allowed in respect of a bad debt or part thereof under the provisions of Sec. 36(1)(vii) of the Act, then, if the amount is subsequently recovered, such amount is liable to be taxed as income of the year in which it is recovered. In the instant case, the Assessing Officer sought to tax a sum of Rs.2,15,03,988/- as the same represented ‘recovery of bad debt’. In this context, at the time of hearing, the learned representative for the assessee had referred to Note no. 33 annexed to the return of income originally filed by the assessee u/s 139(1) of the Act, which reads as under :-
“33. The assessee company submits that the Bad Debts recovered amounting to Rs.2,15,03,988 pertains to claims which were not claimed as deduction u/s 36(1)(vii). Hence same are not liable to tax u/s 41(4). Accordingly the amount has been reduced from the income.”
Even at the time of the reassessment proceedings, the assessee reiterated that the bad debts recovered of Rs.2,15,03,988/- were not claimed as deduction u/s 36(1)(vii) of the Act in the past and, therefore, the same could not be taxed u/s 41(4) of the Act. Be that as it may, as of now, the judgment of the Hon'ble Bombay High Court dated 12.9.2012 in the case of the assessee for Assessment Year 2002-03 (supra) subsists, which has ruled that any income, profits and gains received by the assessee is exempt from income tax upto Assessment Year 2002-03. The necessary implication is that for the Assessment Year 2002-03, no income has been computed under Chapter IV – Part ‘D’ - Profits and gains of business or profession’; which, inter-alia, contains Sec. 36(1)(vii) dealing with bad debts. Thus, it could not be said that assessee has been allowed any deduction u/s 36(1)(vii) of the Act on account of bad debts upto the Assessment Year 2002-03. Therefore, under these circumstances, the provisions of Sec. 41(4) of the Act would not be triggered in this year qua the impugned sum of Rs.2,15,03,988/- inasmuch as this amount of ‘bad debts recovered’ can be taxed only if the corresponding amount has been allowed as deduction on an earlier occasion. Ostensibly, that is not the case herein. Therefore, in our view, there was no justification for the income tax authorities to have added the sum of Rs.2,15,03,988/- u/s 41(4) of the Act. Thus, on this aspect, assessee succeeds.
Insofar as the fresh claim made by the assessee with regard to bad debts recovered of Rs.64,00,000/-, Rs.26,00,000/- and Rs.75,00,000/- is concerned, the same is arising primarily as a consequence of the decision of the Hon'ble Bombay High Court dated 12.9.2012 (supra). Therefore, the same is liable to be admitted, and since it has not been examined by the lower authorities, we deem it fit and proper to restore it back to the file of the Assessing Officer who shall examine the claim afresh in accordance with law. Needless to say, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and only thereafter adjudicate the claim as per law, keeping in mind the judgment of the Hon'ble Bombay High Court dated 12.09.2012 (supra) in the case of assessee.
The other issue in this appeal is with regard to the validity of the proceedings initiated u/s 147/148 of the Act, which is rendered academic since assessee has been allowed the necessary relief on merits. Therefore, the said plea is not being adjudicated.
The last plea of the assessee is with regard to charging of interest u/s 234D of the Act, which is consequential in nature and no specific adjudication is required.
In the result, appeal of the assessee is allowed, as above.
Order pronounced in the open court on 15th September, 2017.