TMI Blog2018 (12) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... e of allowability of bad debts that are written off as irrecoverable cannot be accepted. The matter pertains to grant of disallowance with regard to bad debts. Hence, even insofar as the Circular is concerned, the appeal would have to be dismissed. - INCOME TAX APPEAL No.734 of 2009 c/w INCOME TAX APPEAL No.735 of 2009 - - - Dated:- 19-11-2018 - MR. RAVI MALIMATH AND MR. K. NATARAJAN JJ. APPELLANTS: (BY SRI E I SANMATHI AND SRI K V ARAVIND, ADVOCATES) RESPONDENT: (BY SRI A SHANKAR, SENIOR ADVOCATE A/W SRI M LAVA, ADVOCATE) J U D G M E N T RAVI MALIMATH, J., The assessee is a private limited company carrying on the business as a developer/builder. It commenced a project known as woodsvage at Nandidurga Road, Bangalore. It constructed 25 flats. The total consideration for sale of the flats was ₹ 12,53,30,150/- In respect of the Assessment Year 2003-2004, the assessee filed the return of income claiming a sum of ₹ 6,03,08,000/- as bad debts , which are written off. The Assessing Officer disallowed the claim for bad debts. Aggrieved by the same, an appeal was filed before the CIT (Appeals)-VI, Bangalore, which was allowed. The claim of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No.734 of 2009. Hence, learned counsels have addressed arguments insofar as ITA No.734 of 2009 is concerned. 6. The plea of the assessee is that it is a private limited company consisting of two Directors. That even though there was a partition effected between the brothers of one of the Directors, the other brothers were demanding a share in the properties. One of such properties, standing in the name of the Director, was located at No.78, Nandidurga Road, Bangalore, which was purchased by the assessee-Company consisting of the Director shareholders. The entire property was divided into three blocks. The first two blocks were reserved for sale to outsiders, whereas the third block was sold to the members of the Hindu Undivided Family (HUF) consisting of five members. Five flats were sought to be sold to the shareholders for a total sale consideration of ₹ 6,13,08,000/-. A family arrangement was arrived at between the family members of the HUF. Subsequently, a family settlement arrangement was arrived at on 18.03.2003 between the members of the HUF/their relatives and the Company. It was decided therein that the company had agreed to waive the right to recover the dues of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the debt. That the debt cannot be written off for the very same year it has become due. 8. The same is disputed by the learned Senior counsel Sri A. Shankar appearing for the counsel for the respondent-assessee. It is contended that the finding of the Assessing Officer that the entire scheme is a device to avoid tax cannot be accepted. That the finding of the Assessing Officer is, therefore, not justified. He placed reliance on Section 36(1)(vii) of the Income Tax Act, to contend that as long as the bad debts are shown in the books of accounts, no other question would arise for consideration. The bad debts having been reflected in the books of accounts, the same requires to be allowed. That there is no law prohibiting writing off the bad debts even in the very same year it became due. His further submission is that the Central Board of Direct Taxes (CBDT) have issued Circular No.12 of 2016 with regard to admissibility of claim of deduction of Bad Debt under Section 36 (1)(vii) read with Section 36(2) of the Income Tax Act, 1961 . While referring to the judgment of the Hon ble Supreme Court in the case TRF LTD. vs. COMMISSIONER OF INCOME TAX reported in (2010) 323 ITR 397 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces, for the Revenue to contest the claim of the assessee even after passing of the order under Section 171 of the Act cannot be accepted. The requirement of law would postulate that the said bad debts should be written off in the books of accounts of the assessee. Admittedly, the same has been done. Therefore, on compliance of the provision of law the deduction has been granted by the CIT (Appeals). 13. Therefore, in the facts and circumstances of the case, it can be clearly seen that the reason for entering into a family arrangement was with the hope to avoid all future disputes and litigations inter se between the members of the HUF. It is for this reason, the family arrangement was entered into. Therefore, it cannot be said that it is a colorable device and, therefore, the allowance should not be granted to the assessee. With regard to colorable device adopted by the assessee, we find strength from the judgment of the Supreme Court in the case of COMMISSIONER OF INCOME TAX, GUJARAT VS. A. RAMAN AND CO., reported in (1968) 67 ITR 11 wherein, it was held as follows: But the law does not oblige a trader to make the maximum profit that he can out of his trading trans ..... X X X X Extracts X X X X X X X X Extracts X X X X
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