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2016 (6) TMI 54 - ITAT HYDERABAD

2016 (6) TMI 54 - ITAT HYDERABAD - TMI - Computation of irrecoverable amounts in respect of running and terminated chits - Held that:- This issue had arisen in the earlier AYs as well wherein held that we have to mention that this issue has not come up during the course of arguments of the case. If the assessee has made the claim as indicated, no prejudice would be caused to him by setting aside the matter. Similarly no prejudice would be caused to revenue on this count as it can examine the cla .....

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icer is directed to re-compute the bad debts relatable to running chits as per the directions of the ITAT in its order cited supra as in the earlier years. Accordingly, this ground raised by the assessee as well as Revenue is dismissed

Taxability of foreman dividend - Held that:- The assessee fairly admitted that this issue also is covered against the assessee by the above decision for the A.Y 2007-08 upholding the taxability of foreman dividend

Addition towards commission .....

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e correct position. Otherwise in case of a non prized subscriber the amount of 5% would be deducted from the amounts due to him much before the settlement of his account and recognised as income by way of transfer from current liabilities to profit and loss account - ITA No. 1187/Hyd/2015, ITA No. 1224/Hyd/2015 - Dated:- 29-4-2016 - Shri P. Madhavi Devi, Judicial Member And Shri B. Ramakotaiah, Accountant Member For the Assessee : Shri K. C. Devadas For the Revenue : Shri D. Srinivas, DR ORDER P .....

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chits was deductible u/s 28 of the I.T. Act, 1961, as a loss arising in the course of carrying on business bythe Appellant. 3. The learned CIT (A)-3 Hyderabad failed to note that the AO for the earlier years followng the directins of ITAT allowed the deduction of bad debts in respect of running chits and therefore erred in giving the directions once again to compute the irrecoverable amounts in respect of running chits, instead of directing its deduction absolutely. 4. The learned CIT (A)-3 Hyd .....

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ated chits, instead of directing its deduction absolutely by following the decision of ITAT in the earlier years. 3. Brief facts of the case are that the assessee company, engaged in the chit fund business, filed its return of income for the relevant A.Y on 23.09.2012 declaring a total income of ₹ 51,95,51,430. During the assessment proceedings u/s 143(3) of the Act, the AO observed that the assessee has debited an amount of ₹ 38,34,09,104.35 on account of bad debts written off durin .....

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ebt u/s 36(1)(vii) r.w.s. 36(2) are to be fulfilled. He observed that in the case of the assessee, the chit fund transactions will not partake the character of debt and as such the relationship between the chit organization and the subscriber is not the relationship of a creditor and debtor and that the debt is not part of income for previous year or any earlier previous years and that chit fund business is not money lending business. The AO, after taking note of the Hon'ble Supreme Court ju .....

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on, as the same was offered to tax either in the relevant or earlier previous years. He thereafter, disallowed the balance 95% of the claim of the assessee. He also observed that in the assessee s own case for the earlier A.Y, the tribunal has granted relief to the assessee, but that the disallowance is made to keep the issue alive as the revenue has carried the matter in further appeal before the Hon'ble High Court. Aggrieved, assessee preferred an appeal to the CIT (A), who allowed the sam .....

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Ys as well before this Tribunal and vide orders dated 11.03.2011 in ITA No.490/Hyd/2010 for the A.Y 2007-08, this Tribunal has held as under: 4. On appeal the CIT(A) held that the bad debts relatable to terminated chits are to be allowed in view of the order of this Tribunal dated 26.7.2004 in ITA Nos. 500, 506/H/2009, ITA No.294, 327/H/2001, ITA No.471 & 1049/H/2004. However, in the case of running chits, he has set aside the matter to the file of Assessing Officer with a direction to compu .....

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upheld. The amount of loss can definitely be allowed to the extent that the foreman has put in his funds and has come to a conclusion that his funds are not recoverable due to the account becoming sticky and to the extent he has taken an honest decision for writing off the same in his books. In other words, bad debts can be allowed to the extent of the instalments defaulted by the prized subscriber, and written off as bad debt in the books by the assessee. But for the future instalments that ar .....

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olicy. 6.6.(xxi). We have to mention that this issue has not come up during the course of arguments of the case. If the assessee has made the claim as indicated above, no prejudice would be caused to him by setting aside the matter. Similarly no prejudice would be caused to revenue on this count as it can examine the claim afresh. To allow the claim to the extent indicated above fresh collection of facts and figures are required and thus we set aside the issue to the file of the Assessing Office .....

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be set aside for fresh consideration of the Assessing Officer. 6. On the other hand, the Learned Departmental Representative has relied on the order of the CIT(A). 7. We have heard both the parties and perused the materials available on record. Similar issues came up for consideration on earlier occasions before this Tribunal. The Tribunal has considered this issue vide its order dated 26.7.2004 in ITA Nos.500, 506/H/1999, ITA Nos.294, 327/H/2001 and ITA Nos.471 & 1049/H/2002 for the assessm .....

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has not come up during the course of arguments of the case. If the assessee has made the claim as indicated, no prejudice would be caused to him by setting aside the matter. Similarly no prejudice would be caused to revenue on this count as it can examine the claim afresh. To allow the claim to the extent indicated above fresh collection of facts and figures are required and thus we set aside the issue to the file of the Assessing Officer for considering the claim afresh in the light of this or .....

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. 8. In view of the above order of this Tribunal, we do not find any infirmity in the order of the CIT(A) and the same is confirmed. Accordingly, these two grounds raised by the assessee are dismissed. 8. In view of the above order of this Tribunal, we do not find any infirmity in the order of the CIT(A) and the same is confirmed. Accordingly, these two grounds raised by the assessee are dismissed . 5. Respectfully following the same, we do not find any infirmity in the order of the CIT (A). The .....

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4. The CIT(A) Hyderabad erred in upholding the taxability of foreman dividend at ₹ 10,59,45,915/- 5. The CIT(A) ought to have clearly held that the foreman dividend was not taxable on the principles of mutuality. 10. Similar issues came up for considered before this Tribunal and the Tribunal has decided these issues in assessee s own case reported in 83 ITD 792. Respectfully following the same ratio laid down by the Tribunal in assessee s own case, we dismiss the two grounds taken by the a .....

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g mercantile system of accounting and all the incomes and expenditures are to be accounted for on accrual basis . 3. The learned CIT (A) erred in deleting the disallowance of Royalty payment of ₹ 3,76,81,919 to M/s Shriram Ownership Trust, not considering the observations of the AO that the said expenditure is not incurred wholly and exclusively for the purpose of business as per the provisions of section 37(1) of the Act. 4. Any other ground(s) that may be urged at the time of hearing . 1 .....

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properly dealt by the assessee company as per the guidelines of Sec.21(3) of the Andhra Pradesh Chit Fund Act, 1971. 15. Similar issue came up for consideration before this Tribunal in assessee s own case in earlier orders for the assessment years 1998-99, 1999-2000 in ITA Nos.471/H/2002 & 1049/H/2002 respectively wherein the Tribunal held in Para 6.3 as follows: 6.3. Time of recognition of income from commission on cancelled chits. This issue is involved in the assessee s appeals for assess .....

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e regular commission income of the assessee. Thus the stand of the assessee that the commission income accrues when the accounts have been finally settled to the defaulting non subscriber to our mind appears to be the correct position. Otherwise in case of a non prized subscriber the amount of 5% would be deducted from the amounts due to him much before the settlement of his account and recognised as income by way of transfer from current liabilities to profit and loss account. Reliance was plac .....

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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. 16. In view of the above order o .....

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unal vide its order dated 26.7.2004 in Para 20 held as follows: Page 136, 137, 138 of PB. 6.7 (iv): We are convinced with the arguments of the learned counsel for the assessee. The Bangalore Bench of the Tribunal in ITA No.751, 750, 749 & 748/(Bang.)/1998 in the case of M/s Sriram Chits (Bangalore) Ltd. Vs. DCIT (assistant) Special Range, Bangalore held as follows: 29. We have carefully gone through the records and consideration the rival contentions. M/s Sriram Chits & Investment (P) Lt .....

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nt 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 Karnatka 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 t .....

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s (Bangalore) (P) Ltd. was formed and was carrying on the business of Chit Funds in the State of Karnataka and Sriram Chits and Investments (P) Ltd. gradually stopped floating new groups allowing the subsidiary company to expand. 4. Sriram Chits (Bangalore) (P) Ltd. since inception continued to book new business by using the logo of its Holding Company. 5. The business growth of Sriram Chits (Bangalore) (P) Ltd. over the years can be inferred from the following figures : FY 1990-91 1991-92 1992- .....

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am Chits and Investments (P) Ltd. 7. By the agreement, Sriram Chits and Investments (P) Ltd., has formally committed itself to the growth and development of Sriram Chits (Bangalore) (P) Ltd. for a further period of 7 years. 8. The duty of Sriram Chiuts and Investments (P) Ltd. does not end with merely transferring the right to sue its logo to its subsidiary company. It also assumes the responsibility to ensure that the name which it has built up over the years is maintained by Sriram Chits (Bang .....

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vided. In addition to this, the entire software package of Sriram Chits and Investments (P) Ltd. which was being used by it for its operations was transferred to Sriram Chits (Bangalore) (P) Ltd. for carrying out its day to day routines. The Holding company also holds periodical meetings with the executives of the subsidiary Company in order to monitor its activities. 10. The reasonability of 0.5% royal. The use of logo is enhancing the growth of Sriram Chits (Bangalore) (P) Ltd. cannot be under .....

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iodical 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 ₹ 225.69 lakhs in the assessment year 1994-95 and ₹ 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 chi .....

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