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TMI Blog2007 (2) TMI 349X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer on the basis of the discussions made in the order for the assessment year 1997-98, whereinafter enquiries ADIT (Investigation), Kanpur concluded that the assets are really not in existence. This claim of the assessee was disallowed. The matter was carried before the CIT(A). 3. It is seen that similar ground was agitated before the Tribunal in assessee's own case for the assessment year 1997-98 and the issue was remanded back to the file of the Assessing Officer by the order of the Tribunal dated 13-2-2006, observing as under :- "In the light of the above discussion, we consider it fit and proper to remit the matter to the file of the Assessing Officer for ascertaining the interest element in the lease rental receipts and reduce balance amount i.e. towards principal, from taxable income of the assessee. The assessee will furnish necessary information to the satisfaction of the Assessing Officer for the said purpose. The assessee gets relief accordingly." Following the decision of the Tribunal in assessee's own case, we remand the matter back to the file of the Assessing Officer for fresh adjudication. Hence, this ground of appeal by the assessee is allowed for statis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been adjusted is untenable in law as security deposit was for the equipment, which was leased out to them. 6. CIT(A) held, on the basis of the material on record, it is not established that the recovery has really become bad and hence he held, the claim of the assessee for deduction of bad debts cannot be allowed under section 36. He held, against the outstanding recovery of Rs. 12,45,146 assessee was having an amount of Rs. 16,48,000 received from the other party as deposit. He held even after adjustment assessee would have been left with a surplus of Rs. 4,12,000 on account of deposits. Hence he confirmed the order of the Assessing Officer. 7. Coming to the next issue, CIT(A) confirmed the disallowance of bad debts amounting to Rs. 18,68,890, vide Para 4.2 of his order, observing as under :- "I have considered the forgoing submissions and I have also perused the impugned order of assessment. For the same reasons as recorded in respect of ground No. 3 above with reference to the applicability of provisions of section 36 of the IT Act, I am of the considered view that in respect of this ground also, the disallowance of Rs. 18,68,890 made by the Assessing Officer deserves t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be impossible to collect any money from him. The question is really one of fact depending upon the various facts and diverse circumstances bearing on the debtor's pecuniary position, his commitments and obligations. The judgment of the assessee regarding the debt as bad must be an honest judgment and not a convenient judgment. The judgment of the assessee must be established to have been taken on relevant facts and circumstances, which should show that the debt is not realizable for some fault on the part of the debtor or some supervening impossibility on the part of the debtor to pay, but not possible difficulties or hurdles the assessee may have to incur to compel the recalcitrant debtor to pay. The assessee for his convenience may decide that the debt is too small and it is not worthwhile to pursue the debtor but that judgment would not be an honest judgment, which would establish that the debt has become a bad debt. A time-barred debt can be assumed to be bad, but is not necessarily bad because of expiry of limitation for recovery of the same." Hence, learned DR submitted, now the Tribunal cannot take cognizance of the decision of the Special Bench but it is bound to follow th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) is fully binding on the Hon'ble Bench. In support of the proposition that the decision of the Co-ordinate Bench is binding, learned counsel placed reliance upon the decision in the case of Smt. Pratima H. Mehta v. Dy. CIT [IT Appeal 2203 (Mum.) of 2002, dated 25-5-2005]. 12. In support of the proposition that the decision of non-jurisdictional High Court is not binding upon the Bench, assessee's counsel relied upon the decision of the jurisdictional High Court in the case of CIT v. Thana Electricity Supply Ltd. [1994] 206 ITR 727 (Bom.). Learned counsel submitted that the earlier decision of the jurisdictional High Court in the case of CIT v. Smt. Godavaridevi Saraf [1978] 113 ITR 589 (Bom.) has been considered in the later decision and came to this conclusion. Hence, learned counsel submitted, this decision is to be followed. Learned counsel further relied upon the decision of the Tribunal, Mumbai Bench in the case of Associated Capital Market Management (P.) Ltd. v. Joint CIT [IT Appeal Nos. 1103, 1104 and 3057 (Mum.) of 2001, dated 31-3-2003] wherein the Tribunal has not followed the decision of the Calcutta High Court but followed the decision of the Tribunal, Mumbai Bench a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever be the ratio decidendi of the judgment and does not have any binding force. (d) It is further submitted that, having noted at starting of Para 11 that there are diversions of opinions amongst various Benches of the Tribunal, the Hon'ble Third Member ought not to have made any remark, more particularly when the decision of the Special Bench in the case of Oman International Bank SAOG (supra) was reversed at that point of time. In any case, the Hon'ble Third Member was bound by the decision of the jurisdictional High Court in the case of P.C. Puri v. CIT [1985] 151 ITR 584 (Delhi), according to which, the Third Member decision is as good as decision of the Special Bench. Therefore, the Hon'ble Third Member ought to have followed the decision in the case of ITO v. Anil H. Rastogi [2003] 86 ITD 193 (TM)(Bom.). (e) In any case, the decision of the Hon'ble Third Member is merely an observation, as the two Member Bench has not dealt with the issue at all. In the light of this, the decision is not a decision of 'Third Member Bench' proper. 14. Learned Counsel submitted, it is incorrect to say that the Tribunal in the case of Oman International Bank SAOG (supra) has stated that wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , it has no precedent over the decision of the Special Bench of the Tribunal. 17. First we deal with the decision of the Hon'ble Madras High Court in the case of South India Surgical Co. Ltd. (supra). This appeal was relevant for the assessment year 1996-97. The questions of law referred to the Hon'ble High Court read as under :- "1. Whether, on the facts and circumstances of the case, the Tribunal was right in disallowing the claim relating to the variation in exchange rate in respect of the liability due to the foreign suppliers taking a view that it is applicable only to the bankers and persons carrying on money-lending business? 2. Whether the Tribunal was right in holding that the debt had not become bad as it was recoverable from the Government?" The Hon'ble High Court declined to answer Question No. 1 as it was not pressed. Coming to the second question, the Hon'ble High Court held that the assessee's claim for deduction of bad debts could not be allowed as all its debtors are either Government hospitals or other reputed hospitals, having acknowledged the debts and have nor refused to pay the dues, no case is made out that these debts are irrecoverable. Vide Para 9 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ealing with the pre-amended law. As such, the decision has no applicability after the amendment brought in section 36(1)(vii). 18. Considering the rival submissions, we find no much conflict between the decision relied upon by the revenue in the case of South India Surgical Co. Ltd. (supra) and the Special Bench decision relied upon by the assessee in the case of Oman International Bank SAOG (supra). Hereinabove vide Para 18 of our order, we have noted the observation of the Hon'ble Madras High Court. On the basis of the facts recorded by the Tribunal, the Hon'ble High Court came to the conclusion that the write off by the assessee was not an honest judgment having regard to the financial position of the hospitals. Hospital were of the Government and they have acknowledged the debts and the postponement in the settlement of dues was possibly, their Lordships observed, either due to paucity of allocated funds and fund flow problem. Coming to the decision of the Special Bench of the Tribunal in the case of Oman International Bank SAOG (supra), in Para 48 of its order, Tribunal observed as under :- "48. Now coming to the expression 'bad debt' in section 36(1)(vii), it may be pointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etermining such question of fact." Judicial Member held that "mere writing off the debt is not sufficient for claiming deduction under section 36(1)(vii) of the Act effective from 1-4-1989. In addition, the assessee is also under obligation to show, at least prima facie that the debt has become bad. Whether a debt has become bad or not would depend on the facts of each case". The real difference between the majority and the dissenting order is that according to the Judicial Member (dissenting), even after the amendment that brought in section 36(1)(vii) with effect from 1-4-1989, the assessee should prima facie establish that the debt has become bad; whereas according to the majority view, revenue cannot demand from the assessee a demonstrative proof to establish that the debt has actually become bad after the write off. The writing off by the assessee is a prima facie evidence itself. In other words, the difference between the minority view and that of majority is the onus of proof that lies on whom, even after the write off of the debt ? According to the majority, revenue cannot demand a demonstrative proof further once the debt is written off, whereas according to the Judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax or deferment of the tax liability to some future year or years. Section 36 cannot be allowed to be misused for claiming deduction of an amount by projecting a sum as irrecoverable even though the facts show that the amount is squarely recoverable. In the appellant's case facts are still more glaring inasmuch as against the outstanding recovery of Rs. 12,45,146 from Sarigram Steels Ltd. The appellant already has a much bigger amount for adjustment as discussed earlier. As such, the disallowance made by the Assessing Officer is confirmed and this ground of appeal is confirmed." According to the learned CIT(A), the assessee was to receive an amount of Rs. 12,45,146 on account of lease rent. As against this, the assessee is having a deposit of Rs. 16,48,000 from the same party, i.e., M/s. Sarigram Steels Ltd. as a deposit. Learned counsel for the assessee, rebutting this view, submitted that the deposit is against an asset costing a sum of Rs. 41,86,000, which was leased out to M/s. Sarigram Steels Ltd. Assessee was also to receive Rs. 11,40,000 per annum as lease rental for the next three years amounting to Rs. 34,20,000. The security deposit of Rs. 16,48,000 was refundable af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee for that accounting year in which the claim for deduction is made. In our opinion a debt becoming bad or irrecoverable are but two sides of the same coin. The CIT(A) had endorsed the reasoning of the Assessing Officer to the effect that assessee has merely written off the debts at the end of the year and so that its taxable income gets reduced. The CIT(A) as well as the Assessing Officer were influenced by the fact that there had been no previous dealings between the assessee and Shithir Housing and Construction (P.) Ltd.; no security was taken for the loan and the sequence of events from the advance of the loan to its writing off did not span across even one year. To the contrary, it appears to us that these factors would be relevant if the stand of the Department is that the transaction itself was sham or false. Once it is accepted that the transaction actually took place, these factors would, in fact, quell an doubt that the decision to write off the loan as a bad debt was a consequence of an honest judgment. Any prudent person, on learning that an unsecured loan had become perilously unrecoverable, would expeditiously initiate each and every legal remedy availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the debt as bad, the revenue cannot any more demand a demonstrative proof to establish that the debt has actually become bad. On the contrary, it is for the revenue to establish that the debt has not become bad. In the instant case of the assessee, the learned DR's contention is that the assessee is in possession of Rs. 16,48,000 received from the same party as a deposit. According to the assessee, this amount is against the goods leased to M/s. Sarigram Steels Ltd., therefore, it is not possible to adjust the amount against the lease rent. This argument of the assessee cannot be faulted with. Thus, we are of the view that the write off by the assessee is to be accepted and the stand of the revenue that the amount should have been utilised against the deposit has no merit. Hence, this ground of appeal by the assessee is allowed.
24. Coming to other contention of the learned counsel with regard to precedent of the Special Bench over the decisions of the other High Courts, other than jurisdictional High Court, it is not necessary to deal with since we have allowed the claim of the assessee on merit. In the result, appeal of the assessee stands allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X
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