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TMI Blog2013 (12) TMI 481X X X X Extracts X X X X X X X X Extracts X X X X ..... r as per the provisions of the Ac. The prized subscriber is paid prize money after the process of verification and submission of sureties. The company derives 5% of the chit value as 'Foreman Commission'. 3. During the year, assessee had debited an amount of Rs. 28,56,19,123.44 on account of bad debts written off, out of which Rs. 17,05,35,065.60 pertained to the Running Chits, while Rs. 11,50,84,057.84 pertained to the Terminated Chits. Following the ratio of the assessments made in earlier years, the Assessing Officer restricted the claim of bad debt to 5% of amounts due from prized subscribers, which is the Foreman's commission, as the same was offered to income either in the previous year or in the earlier previous years. The remaining 95% of the bad debts, not offered as income in the previous year or any other earlier previous year were brought to tax. In view above, 95% of bad debts of Rs. 28,56,19,123.44, amounting to Rs. 27,13,38,167/- was disallowed and added back to the total income of the assessee. He also rejected the alternative claim of the bad debts u/s 37(1) and as business u/s 28. 4. On appeal, the CIT(A) following the decisions of ITAT on this issue, directed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee has to be allowed on both running and terminated chits if irrecoverable if the prized chit amount has gone out of the hands of the assessee. In other words, bad debts can be allowed to the extent of instalments defaulted by the prized subscribers and written off as bad debt in the books of the assessee. Accordingly, we direct the Assessing Officer to decide the issue in the light of the order of the Tribunal for A.Ys. 1995-96, 1997-98, 1998- 99 and 1999-2000 in ITA No.500/Hyd/1999 and 506/Hyd/1999 (1995-96), 294/Hyd/2010 and 327/Hyd/ 2001 (1997-98), 471/Hyd/2002(1998-99), 1049/Hyd/2002 (1999-2000) in assessee's own case dated 26.7.2004 wherein the Tribunal remitted the issue back to the file of the Assessing Officer to see whether the assessee made a claim of bad debt and written off in the books of account. Thus on similar direction we remit the issue back to the file of the Assessing Officer to re-examine the issue in the light of the order of earlier years i.e., 1995-96, 1997-98, 1998-99 and 1999-2000 (supra). This ground of the assessee is allowed for statistical purposes." 9. Respectfully following the said decision of the coordinate bench, we remit the issue to the fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act on this issue is still pending before the Hon'ble Andhra Pradesh High Court. He, therefore, reiterated the arguments submitted on this issue in the earlier years. 13. On appeal the CIT(A) followed the earlier order of the Tribunal in assessee's own case reported in 83 ITD 792 (Hyd) for A.Y. 1991-92 to 1994-95 wherein the Tribunal observed as follows: "The only issue to be decided was whether the principle of mutuality was applicable to the assessee, which was a chit fund company. Admittedly, the assessee was a commercial entity formed to derive profits and gains from the business of chits. It is a settled proposition of law that the principle of mutuality is not applicable to commercial organisations formed with an object of earning profit of commercial nature. Under consideration was the case of a company which carried on the business of chit funds and not that of an assessee who joined as a subscriber to chits for personal savings or otherwise. The issue on hand was the taxability of the dividend earned by the assessee-company, which joined the chit groups promoted by it either as a foreman in fulfilment of the requirement of law, i.e., Chit Funds Act, 1982 (Central Act 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt is relating to allowability of contribution of the assessee as a foreman in the place of a defaulted subscriber as bad debt u/s. 36(1)(vii) or as a business loss u/s. 28(1) of the Act. Now we are concerned in assessee's case with regard to taxability of foreman dividend received. It was categorically held by the Tribunal in earlier years as there is no applicability of "mutuality" on this income. Being so, we are inclined to follow the earlier order of this Tribunal and dismiss this ground. 14. Since the issue under consideration is materially identical to that of AY 2009-10 (supra), following the decision of coordinate bench in that year, we uphold the order of CIT(A) and dismiss Ground No. 4 & 5 raised by assessee. 15. Ground Nos. 6 & 7 in assessee's appeal are pertaining to levy of interest u/s. 234B and 234C. Charging of interest under these sections is consequential in nature, therefore, the Assessing Officer is directed accordingly. 16. Ground No. 1 & 5 in Revenue's appeal are general in nature. Ground No. 2 has already been decided while deciding assessee's appeal. 17. Ground No. 3 is that the learned CIT(A) ought to have upheld the disallowance made by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce amount of Rs. 74,78,677/- was added back to the total income of the assessee for the year under consideration. 11. On appeal, before the CIT(A), the learned AR of the assessee submitted that the Hon'ble ITAT "B' Bench in its order dated 20/07/2004 held that the method of accounting of commission on cancelled chits adopted by the assessee was correct. After considering the submissions of the assessee, the CIT(A) held that since the accounting treatment given by the assessee to such 'commission' has been upheld by the Hon'ble ITAT in the earlier years, respectfully following the decision of the ITAT, directed the AO to accept the same and deleted the addition of Rs. 74,78,677/- made by the AO. 12. Aggrieved, the revenue is in appeal before us. 13. The learned counsel for the assessee canvassed that the issue in dispute is squarely covered by the decisions of the ITAT in assessee's own case for earlier years. The learned DR, on the other hand, did not controvert the submission made by the learned counsel for the assessee nor brought any contrary decision in this regard. 14. We have heard both the parties and perused the record. We find that the issue is squarely covered by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pletion of chit method and had nothing to do with the type of additional commission receivable in case of substitution of a subscriber as In this case. The natures of Income In both these cases are different. The further commission of 5% receivable from a defaulting subscriber consequent to his removal and substitution on a full and final settlement of a defaulting subscriber account Is* recognised as Income on the finalisation of the issues. This is not an unacceptable proposition. We agree with the submissions of the learned counsel for the. assessee, which are at para 4.11 of this order. In the result, this ground of appeal of the assessee is allowed." Following the aforesaid order of the ITAT, we uphold the order of the CIT (A) and reject the ground raised by the Revenue." 15. Since the issue under consideration is identical to that of AY 2008-09, respectfully following the decision of the coordinate bench in that year, we uphold the order of the CIT(A) in deleting the addition of Rs. 74,78,677/- made by the AO and dismiss the ground of appeal of the revenue. 21. As the issue under consideration is identical to that of AY 2009-10 (supra), respectfully following the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the logo of the holding company In the course of soliciting Its business amongst potential Investors. The conditions of the agreement provided that the assessee shall pay royalty of 0.5% on the annual auction turnover of the assessee determined on the basis of value of auctions fixed during the year. In fact, the assessee has used the logo to the best advantage of business. The assessee was to carry on the business of chit fund In the state of Karnataka and the holding company gradually stopped floating new (grounds as It did In 1984) allowing subsidiary company to expand itself. The growth of business of the assessee over the years of the order of the CIT (A) is very much relevant. The relevant portion reads: 1. Srlram Chits 8r. Investments (P) Ltd. commenced operations In Karnataka In the year 1984. The business of the company In Karnataka Increased over the years upto 1990-91 when the auction turnover touched Rs.80.39 lakhs. 2. Srlram Chits and Investments (P) Ltd. decided to expand its business In Karnataka by forming a subsidiary company Srlram Chits (Bangalore) (P) Ltd. 3. In the year 1990, Srlram Chits (Bangalore) (P) Ltd. was formed and was carrying on the business of C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hancing the growth of Sriram Chits (Bangalore) (P) Ltd. cannot be under estimated." 30. The record also shows that holding company was providing financial assistance time and again to the assessee to help In Its working capital requirements. The record further shows that when the assessee commenced Its operation, ails Its employees were from holding company who had prior experience In this line. It Is claimed that even the assessee looks for managerial support, from Its holding company which Is again provided. The holding company Is also stated to have conducted periodical meetings with the executives of the assessee In order to monitor Its meetings. All these and the table extracted above shows that there has been a substantial Increase In the new business as also auction turnover from what was only 29.49 lakhs In assessment 1990-91 to Rs:225.69 lakhs In the assessment year 1994-95 and Rs.348.29 lakhs In the assessment year 1995- 96 and the business has been substantially growing from year to year. The financing business and conducting of the chit business Is not that easy unless It Is backed by the promoters who have highest Integrity and trustworthiness. MIs Srlram Chits and In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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