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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ : NEW DELHI
Before: SHRI J.S. REDDY & SHRI A.T. VARKEY
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘A’ : NEW DELHI) BEFORE SHRI J.S. REDDY, ACCOUNTANT MEMBER and SHRI A.T. VARKEY, JUDICIAL MEMBER ITA No.2094/Del./2013 (ASSESSMENT YEAR : 2008-09) ACIT, Circle 1 (1), vs. M/s. American Express (India) Pvt.Ltd., New Delhi. MGF Metropolitan, 7th Floor, Saket District Centre, Saket, New Delhi – 110 017. (PAN : AAACA8163F) ITA No.2165/Del./2013 (ASSESSMENT YEAR : 2008-09) M/s. American Express (India) Pvt.Ltd., vs. ACIT, Circle 1 (1), MGF Metropolitan, New Delhi. 7th Floor, Saket District Centre, Saket, New Delhi – 110 017. (PAN : AAACA8163F) (APPELLANT) (RESPONDENT) ASSESSEE BY : S/Shri Nageshwar Rao and Sandeep S. Karhail, Advocates REVENUE BY : Shri Ravi Jain, CIT DR O R D E R PER A.T. VARKEY, JUDICIAL MEMBER :
These cross appeals by the revenue and the assessee are filed against the order of the CIT (Appeals)-IV, New Delhi dated 02.01.2013 for the assessment year 2008-09.
ITA No.2165/Del/2013 (REVENUE’S APPEAL)
The sole issue that is before us in the revenue’s appeal is against allowing the claim of deduction of Rs.51,89,67,939/- u/s 10A of the Income-tax Act, 1961 (hereinafter ‘the Act’)
The assessee is a service provider and has set up a new unit and has claimed a deduction of Rs.51,89,69,939/- u/s 10A of the Act which was disallowed by the AO by following earlier order of his predecessor AO.
At the outset itself, the ld. Counsel of the assessee brought to our notice that the Tribunal in AY 2003-04 has upheld the order of the CIT (A) allowing deduction u/s 10A of the Act and in AY 2007-08 also, the Tribunal took the same view. So, he does not want us to disturb the order of the CIT (A).
The ld. DR could not bring to our notice any change in facts or law, which could have persuaded us to take a different view.
We have heard both the parties and have perused the record and we find that the Tribunal in assessee’s own case for AY 2003-04 has held as under :-
“36. We have heard both the parties and perused the material placed before us. We find that the CIT(A) has considered all the parameters which may be necessary for adjudicating whether the set up of the new unit is by way of splitting up of the existing business or it is a new set up over and above the existing set up. He has recorded the finding that the physical location of both the units is different. The nature of activities is different, separate license is obtained for the new unit, separate infrastructure is created in the new unit, fresh funds have been invested in the new unit and even after the setting up of the new unit, the turnover of the old unit has not reduced but, on the other hand, increased. During AY 2002-03, when no new unit was in existence, the turnover of old unit was Rs.129 crores which, after the setting up of the new unit, has increased to Rs.294 crores in AY 2008-09. In view of the above facts, we do not find any infirmity in the order of ld. CIT(A). The same is sustained and ground no. 3 of the Revenue’s appeal is rejected.”
Respectfully following the decision of the Tribunal, we hold that the assessee was entitled for deduction u/s 10A of the Act as it had established a new unit.
Therefore, we confirm the order of the ld. CIT (A) and dismiss the appeal of the revenue.
In the result, the appeal of the revenue is dismissed.
ITA No.2165/Del/2013 (ASSESSEE’S APPEAL)
The sole ground of the assessee’s appeal is regarding confirmation of the addition of Rs.18,73,121/- on account of bad debts written off claimed by the assessee u/s 36(1)(vii) of the Act.
The brief facts of the case are that the assessee had claimed a deduction of bad debts being written off in the books of account of irrecoverability. The said debts were transferred on acquisition of travel business of AEBL by the assessee. The AO disallowed the said bad debts stating that there was no documentary evidence in support of this claim. However, we note that the CIT (A) has stated that the AO disallowed the said bad debts on the basis that the debt in issue pertained to the purchased company i.e. AEBL. Aggrieved, the assessee preferred an appeal before the CIT (A) who dismissed the claim of the assessee. Aggrieved by the said order of the CIT (A), the assessee is in appeal before us.
Ld. AR for the assessee submitted that actual bad debts relating to travel unit have been written off in the books of accounts which were incurred by AEBL and were transferred along with travel business to the assessee. He explained that the travel unit, AEBL was acquired and the debts incurred by AEBL were transferred to the assessee along with other assets and liabilities.
According to him, the said debts basically is in the nature of unresolved amounts between the airlines payables recorded as GMAX (Amex Internal Financial Capture System) and the airlines payables as per the BSP (the party) statement. According to him, such unresolved amounts, if do not get resolved or do not get billed to the respective customer, are written off in the books of account on account of irrecoverability. He further submitted that the amounts receivable from the customers of AEBL which on account of some dispute became irrecoverable are written off in the books of account. He further submitted that during the subject year, such debts have become irrecoverable and accordingly, the assessee had debited it in the profit & loss account with the said amount. It was also brought to our knowledge that simultaneous reduction has been reflected in the value of debtors. In the light of the above, he stated that the assessee had claimed deduction under clause (vii) of sub-section (1) of section 36 of the Act in the computation of income in the relevant assessment year and since the assessee is entitled to claim deduction under the same, which has to be allowed. Therefore, the ld. AR contended that since these were the said debts incurred by AEBL and were transferred to the assessee along with the other assets and liabilities by the transfer of such debt, the assessee gets right to recover such debts. Ld. AR pointed out that this issue is no longer res integra and Hon’ble Supreme Court has held that in the case of CIT vs. T. Veerbhadra Rao – 155 ITR 152 (SC) wherein it was held that if a business along with assets and liabilities is transferred by one owner to another, a debt so transferred would be entitled to the same treatment in the hands of the successor. The recovery of debt is a right transferred and where law permits the transferor to treat the debt as irrecoverable and to claim deduction, the same rights should be recognized in the hands of the transferee also. Further, if the debt had been taken into account in computing the income of the predecessor only and had subsequently been written off as irrecoverable in the accounts of the assessee, the assessee would still have been entitled to a deduction of the amount written off as a bad debt. Therefore, he pleaded that the amount written off by the assessee should be allowed as a deduction in the relevant assessment year.
On the other hand, the ld. DR for the revenue only pointed out to the fact that if an amount has to be claimed as a bad debt the assessee should have offered it as income from some previous year. In this case, the assessee has never credited this amount in the books of account and so, in order to write off claim, the assessee has to prove that this amount has been claimed as an income in the previous year by AEBL before being acquired by the assessee, which assessee has not done, so the CIT (A) rightly disallowed the claim. Therefore, he does not want us to interfere in the matter.
We have heard both the parties and perused the records. We find force in the contention of the revenue that before the claim writing off bad debt is made, the income must have been credited in the books. The case of the assessee is that the income has been credited in the books of accounts of AEBL which has been acquired by the assessee which has become irrecoverable so it has been written off by the assessee. In such a scenario, on a query by the Bench to the ld. AR, whether the assessee would be able to prove before the AO, the fact that the income has been credited in the books of AEBL the ld. AR agrees to do so.
In the light of the aforesaid facts and circumstances, in the interest of justice, we set aside the order of the CIT (A) on this issue and remand the matter back to the file of the AO to verify whether AEBL had credited this amount as income in some previous year which has now being claimed by the assessee as bad debt being irrecoverable. In case, if the assessee succeeds in showing that AEBL has in fact credited this amount in its books of account in some previous assessment years then, as held by Hon’ble Supreme Court in CIT vs. T. Veerbhadra Rao (supra), the assessee has every right to claim the deduction u/s 36(1)(vii) of the Act and then it has to be allowed. Needless to say, the AO to give opportunity to assessee to bring in the evidence as stated and pass fresh order on this issue.
In the result, the appeal of the assessee is allowed for statistical purposes on the above terms.
To sum up : the appeal of the revenue is dismissed and the appeal of the assessee is allowed for statistical purposes.
Order pronounced in open court on this 4th day of March, 2016.