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2004 DIGILAW 936 (MP)

Gita Sanghi v. Commissioner of Income Tax.

2004-11-24

A.M.SAPRE, ASHOK KUMAR TIWARI

body2004
Judgment ( 1. ) THIS is an appeal filed by an assessee under Section 260a of the IT Act, against an order dt. 18th Feb. , 1999 (Annex. B), passed by Tribunal (ITAT) in ITA No. 589/ind/1995. ( 2. ) AT the outset, it may be mentioned that this appeal was dismissed by this Court on 16th Oct. , 2000, by passing following order: "16. 10. 2000 Shri M. S. Choudhary, learned counsel for the appellant. Shri R. L. Jain, learned counsel for the respondents. Heard on admission. As we find no substantial question of law, the appeal is dismissed. (R. D. Vyas, J.) (Shambhoo Singh, J.)" ( 3. ) THE assessee then filed an appeal (SLP) to Supreme Court being SLP No. (C) 8076 of 2000. Their Lordships granted leave to appeal in CA No. 2036 of 2003. By order dt. 7th March, 2003, the Supreme Court allowed the appeal, set aside the aforementioned order passed by this Court and remanded the case to this Court after framing the substantial question of law for deciding the appeal on merits. This is what their Lordships observed : "leave is granted limited to the question in the notice. This appeal is from the order of the High Court of Madhya Pradesh, Bench at Indore, in IT Appeal No. 72 of 1999, dt. ,16th Oct. , 2000. The appellant filed the IT appeal, under Section 260a of the IT Act, 1961, in the High Court against the order of the Tribunal, dt. 10th Feb. , 1999. The High Court made the following order: Heard on admission. As we find no substantial question of law, the appeal is dismissed. Having heard Mr. Verma, the learned senior counsel for the appellant, and Mr. Raval, the learned Solicitor General for the respondents, we are of the view that the following substantial question of law does arise for consideration : whether the amount of Rs. 3,51,178 which was written off in the previous year of the assessee should not be treated as a debt for the purpose of Section 36 (2) (i) of the IT Act ? We are afraid we cannot accede to the contention of the learned Solicitor General that the issue is covered by the judgment of this Court in A. V. Thomas and Co. Ltd. v. CIT (1963) 48 ITR 67 (SC), relied upon by the Tribunal. We are afraid we cannot accede to the contention of the learned Solicitor General that the issue is covered by the judgment of this Court in A. V. Thomas and Co. Ltd. v. CIT (1963) 48 ITR 67 (SC), relied upon by the Tribunal. In that case, the question related to a deduction under Section 10 (2) (xv) of the IT Act, 1922. The appellant herein claims deduction under Section 36 (2) (i) of the IT Act, 1961, which is entirely a different provision. We, therefore, set aside the order under challenge and restore the appeal (IT Appeal No. 72 of 1999) to the file of the High Court. The High Court shall now dispose of the appeal after deciding the aforementioned question of law, on merits in accordance with law. The appeal is, accordingly, allowed. " ( 4. ) THIS is how this appeal is again listed for hearing on merits pursuant to a remand order passed by their Lordship quoted supra. ( 5. ) THE appellant is an assessee. For the asst. yr. 1990-91, the appellant filed return in her capacity as individual. The AO found that assessee had claimed a deduction of Rs. 3,51,178 as bad debt. According to assessee, she had given a loan to one company known as M/s Techno Cast (P) Ltd. (for short called company ). However, for some years the debtor, i. e. , company paid interest on the loan to the assessee but in later years, the company failed to pay any interest. The company then claimed to have suffered recurring losses and hence applied to BIFR under the provisions of SICA for seeking a declaration of it being a sick industrial undertaking. The BIFR also declared the company to be sick and directed the business of the company to be closed. It is on the basis of these facts, the assessee claimed that, since the loan amount of Rs. 3,51,178 given to the company has become a bad debt and hence liable to be written off as contemplated under Section 36 (2) (i) of the Act. ( 6. ) THE AO did not accept the explanation of the assessee and hence did not allow the said deduction. However, CIT (A) by order dt. 17th May, 1995 (Annex. D) allowed the appeal and set aside the order of AO on this issue. ( 6. ) THE AO did not accept the explanation of the assessee and hence did not allow the said deduction. However, CIT (A) by order dt. 17th May, 1995 (Annex. D) allowed the appeal and set aside the order of AO on this issue. In the opinion of CIT (A), the assessee was entitled to claim deduction treating the amount to be a bad debt. The Revenue then carried the matter in appeal to the Tribunal, having felt aggrieved of the order of CIT (A ). The Tribunal by impugned order (Annex. E) allowed the appeal and set aside the order of CIT (A ). In the opinion of the Tribunal, the amount in question was not debt and hence no deduction was permissible. Accordingly, the Tribunal restored the order of AO. As observed supra, this Court having upheld the order of Tribunal, the same was set aside by the Supreme Court resulting in remand to this Court for deciding the appeal on merits. ( 7. ) HEARD Mr. G. M. Chaphekar, learned senior advocate with Mr. P. M. Choudhary, learned counsel for appellant, and Mr. R. L. Jain, learned senior advocate with Ms. V. Mandlik, learned counsel for the respondents. ( 8. ) SUBMISSION of the learned counsel for the assessee was that the amount in question is in fact a bad debt and since it satisfies the requirement of Section 36 (2) (i) ibid, the assessee was entitled to claim deduction as provided in Section 36 (2) (i) ibid. While computing her income referred to in Section 28 ibid. In reply, learned counsel for the Revenue supported the view taken by the Tribunal and urged for its upholding. ( 9. ) HAVING heard the learned counsel for the parties and having perused the record of the case, we are inclined to allow the appeal and set aside the impugned order. ( 10. ) IN substance, the question that arises for consideration in this appeal is whether amount in question, i. e. , Rs. 3,51,178 should be treated as debt for the purpose of Section 36 (2) (i) of the Act ? ( 11. ) SECTION 36 (2) (i) which is the relevant section for this appeal, reads as under: "36. ( 10. ) IN substance, the question that arises for consideration in this appeal is whether amount in question, i. e. , Rs. 3,51,178 should be treated as debt for the purpose of Section 36 (2) (i) of the Act ? ( 11. ) SECTION 36 (2) (i) which is the relevant section for this appeal, reads as under: "36. Other deductions (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in Section 28 (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply (i) no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, or represents money lent in the ordinary course of the business of banking or moneylending which is carried on by the assessee;" ( 12. ) PERUSAL of aforesaid Sub-section indicates that in order to enable any assessee to claim deduction of an amount which he/she claims to be a bad debt it is necessary for her/him to show that such debt or its part thereof is taken into account in computing the income of the assessee of previous year and it is written off. In other words, what is required to be seen is whether assessee has declared the debt to be a written off debt in the previous year in his/her accounts or not. If it is so shown, then assessee is entitled to claim deduction of that portion of the amount which is declared as written off in the year in question. ( 13. ) IN our opinion, the assessee is able to prove the requirement of Section 36 (2) (i) in this case in relation to a sum of Rs. 3,51,178 and hence entitled to claim deduction of the said amount as bad debt. Though neither the AO, nor CIT (A) nor Tribunal has recorded a categorical finding as to whether this particular amount was shown and written off as bad debt in the previous year, yet in our view, perusal of order of BIFR (Annex. B) and statement of accounts (Annex. Though neither the AO, nor CIT (A) nor Tribunal has recorded a categorical finding as to whether this particular amount was shown and written off as bad debt in the previous year, yet in our view, perusal of order of BIFR (Annex. B) and statement of accounts (Annex. F) in clear term proves that the amount in question was given to the company by way of loan and the same was written off in the previous year. In other words, these documents do justify the claim of assessee to be the one falling in Section 36 (2) (i) thereby entitling the assessee to claim deduction from her gross total income. ( 14. ) IN our opinion, the Tribunal committed an error of law in placing reliance on a case reported in A. V. Thomas and Co. Ltd. v. CTT (1963) 48 TTR 67 (SC ). Their Lordships of the Supreme Court while remanding the case, has distinguished the case reported in (1963) 48 ITR 67 (SC) (supra) with the facts of this case. This itself is enough for us to set aside the order of Tribunal because the Tribunal while deciding the issue in favour of Revenue had recorded their findings only on the basis of the view taken in (1963) 48 FTR 67 (SC) (supra ). In other words, the Tribunal ought not to have placed reliance on the law laid down in the case of (1963) 48 FTR 67 (SC) (supra) because it has no application to the facts of this case. Since their Lordships have already dealt with this issue against the Revenue, we are bound by the finding of the Supreme Court insofar as this submission of Revenue is concerned. ( 15. ) ONCE we hold that conditions required for claiming deduction as provided in Section 36 (2) (i) ibid are satisfied, then, it necessarily follows that assessee is entitled to claim deduction to the extent the amount is declared as written off in the previous year. ( 16. ) LEARNED counsel for Revenue contended that the debt in question is not a debt but it is a bogus transaction between the assessee and the company. It was his submission that the transaction in question was at best in the nature of advance and hence the same does not fall in Section 36 ibid. We do not agree to this submission. It was his submission that the transaction in question was at best in the nature of advance and hence the same does not fall in Section 36 ibid. We do not agree to this submission. In the first place, no substantial question of law as such is framed on the nature of the transaction so as to entitle this Court to examine the same on those lines. Secondly, even assuming that this Court can go into this question on the strength of question framed then also, in our opinion, the same has to be held in assessees favour. Thirdly, on the strength of order passed by BIFR (Annex. B) and statement of accounts (Annex. F), this Court is inclined to hold that the amount in question is in the nature of debt and the same having been written off in the earlier previous years by the assessee in her accounts, a case for deduction under Section 36 (2) (i) ibid, is made out. ( 17. ) ACCORDINGLY, and in view of aforesaid discussion, the appeal succeeds and is allowed. Impugned order dt. 10th Feb. , 1999, passed by Tribunal in ITA No. 589/ind/1995 (Annex. E) is set aside.