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Dy. Commissioner of Income Tax, Central Circle – 9, Pune Versus Kinetic Communications Limited,

2015 (12) TMI 843 - ITAT PUNE

Claim of writing off of bad debts - CIT(A) allowed the claim - main contention of the Department is that the assessee has written off the debts of Kinetic Motor Co. Ltd. a group concern, to reduce the profits of the assessee company and thereby reducing the tax liability - Held that:- A perusal of the facts clearly shows that Kinetic Motor Co. Ltd. was in financial distress and it could pay only part of its debts. Since, the assessee in its books of account had written off bad debts, the assesse .....

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ssessee as well as Kinetic Motor Co. Ltd. are separate legal entities and the assessee have been able to show that Kinetic Motor Co. Ltd. is a loss making company. Thus, we reject the contention of the ld. DR that the assessee and the debtor company are the part of same group, writing off of bad debts is a colourable device to set off the profits of one group company from the loss of other group companies being devoid of merit. - Decided against revenue - ITA No. 294/PN/2014 - Dated:- 30-9-2015 .....

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The brief facts of the case are : The assessee is a company registered under the provisions of Companies Act, 1956. The assessee company is engaged in manufacturing and trading of electronic equipments like colour Monitor, UPS. CD Rom, DVD, Modem, Mother Board and Auto Electronic Components. The assessee is also providing Engineering and Design services and IT services. The assessee filed its return of income for the assessment year 2010-11 on 14-10-2010 declaring total income as Nil. The asses .....

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red an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) vide impugned order accepted the appeal of the assessee in toto. The Revenue is in appeal before the Tribunal against the findings of the Commissioner of Income Tax (Appeals) in allowing writing off of bad debts. 3. Shri Dheeraj Kumar Jain representing the department submitted that the Commissioner of Income Tax (Appeals) has erred in accepting the claim of the assessee by allowing writing off .....

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the Tribunal in the case of Embassy Classic P. Ltd. Vs. ACIT reported as 7 ITR (T) 287 (Bangalore) and the decision of Hon'ble Madras High Court in the case of South India Surgical Co. Ltd. Vs. ACIT reported as 287 ITR 62 (Madras). 4. Shri C.H. Naniwadekar appearing on behalf of the assessee strongly supported the findings of Commissioner of Income Tax (Appeals). The ld. AR submitted that for claiming writing off of bad debts, the assessee has to only write off the bad debts in its books of .....

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l crisis and even in future there was no chance to recover any amount whatsoever from the said company. The ld. AR placed on record the list of creditors of Kinetic Motor Co. Ltd. with which the said company had made one time settlement. 5. We have heard the submissions made by the representatives of both the sides and have perused the orders of the authorities below. The only issue raised in the appeal by the Department is, whether the Commissioner of Income Tax (Appeals) was justified in accep .....

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ant extract of the order of the Commissioner of Income Tax (Appeals) reads as under: 6. I have carefully considered the facts of the case as well as reply of the appellant, in this case, it is seen that KMCL which is an Associate concern of the appellant company, was engaged in manufacture of two wheelers. During the year 2008-09, KMCL entered into agreement with Mahindra 2 Wheelers Pvt. Ltd. (MTWL) for sale of Plant & Machinery and land pertaining to 2 wheeler business. Liability to vendors .....

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respect of KMCL. To understand the issue, the learned counsel of the appellant was asked to give the details of settlement and payment by KMCL to other vendors compared to the total Debts, The appellant submitted that percentage of amount paid in respect of total dues was 57.19% compared to 46.32% of the appellant. However, it was further submitted that, the above % of 57.19% includes secure debts of banks which was required to be given priority and if the debts of banks are excluded then the p .....

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ge compared to other vendors by KMCL in respect of one time settlement. Accordingly, it is held that the Assessing Officer was not justified in holding that writing off Bad Debts was necessitated on account of group considerations and not on account of irrecoverability of debts pertaining to the appellant company. Accordingly, the Assessing Officer is directed to delete the addition of ₹ 1,27,58,427/-. Thus, the ground is allowed. 7. The Revenue in its appeal has not challenged the finding .....

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nk 1. Total amount payable before the time settlement Rs.100,59,42,834 Rs.59,95,10,775/- 2. Total paid by KMCL as one Time settlement Rs.57,53,48,899 Rs.25,10,96,892 3. Percentage of amount paid to total dues 57.19% 41.88% 4. Percentage of amount paid to KCL to total dues 46.32% 46.32% 8. A perusal of the facts clearly shows that Kinetic Motor Co. Ltd. was in financial distress and it could pay only part of its debts. Since, the assessee in its books of account had written off bad debts, the ass .....

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ench of the Tribunal in the case of Embassy Classic P. Ltd. Vs. ACIT (supra) wherein the Co-ordinate Bench of the Tribunal after considering the judgment of Hon'ble Supreme Court of India in the case of TRF Limited Vs. CIT (supra) has distinguish the same. In the said case the assessee had written off bad debts in the books of account. However, the amount was recovered by the assessee before filing of the return itself. Thus, at the time of filing of return of income, no debt was due. The Tr .....

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case of Embassy Classic P. Ltd. Vs. ACIT (supra) will have no application in the facts and circumstances of the present case. 10. The ld. DR has also placed reliance on the decision of Hon'ble Madras High Court in the case of South India Surgical Co. Ltd. Vs. ACIT (supra). In the said case the assessee had written of the debts due from the Government as bad debts. The Hon'ble High Court held that it would be preposterous to consider that the Government was not in a position to discharge .....

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