9911796707
TMI Blog2024 (3) TMI 1445X X X X Extracts X X X X X X X X Extracts X X X X ..... of land for M/s. Unitech Ltd. The assessee appointed Dantras Estate Pvt. Ltd. at Sawantwadi to procure the land for M/s. Unitech Ltd. for which Memorandum of Understanding (MOU) was entered into between assessee and Unitech Ltd. iii) The MOU was also entered into between assessee and Dantras Estate Pvt. Ltd. iv) The assessee arranged for sale of 2,500 acres of land for M/s. Unitech Ltd. on which the assessee earned the profit of Rs. 16,52,38,928/- and paid the tax on 31.03.2008. v) The income from the said transaction was shown under the head "Income from Business". The return income for the assessment year 2008-09 was duly accepted. During the year under consideration the assessee sold 68 acres of land for a sum of Rs. 9,52,00,000/-. All the transactions took place up to 30.06.2008. As on 30.06.2008, the assessee was to receive a sum of Rs. 7,99,37,826/- from M/s. Unitech Ltd. vi) The said amount was not received even after various reminders and the assessee has to write of the amount in their books of account by passing the board resolution. The assessee filed the return showing nil income. vii) The assessing officer vide order dated 19.12.2011 disallowed a sum of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Income Tax Act, it cannot be said that the assessee did not comply with the conditions laid under Section 36(2). The assessee has taken into account the debt so written off in computing the income of the assessee in the previous year in which the amount of such debt is written off. It was further observed that even if the income has been taken into account in the earlier previous year, it cannot be said that the assessee has not complied with the provisions of Section 36(2). It is the case where ultimately no recovery was made by the assessee from M/s. Unitech Ltd. Once the assessee has sold the land to M/s. Unitech Ltd., the debtor and creditor relationship has come into existence and that relationship has come into existence due to the business transaction entered into between the assessee and M/s. Unitech Ltd. 9. The appellant is aggrieved by order dated 11.01.2013 and thus preferred this appeal by invoking Section 260(A) of the Income Tax Act, 1961. 10. This Appeal was admitted vide order dated 01.07.2013 on the following substantial question of law : "Whether the I.T.A.T. was right in deleting disallowance of bad debts under Section 36(1)(vii) claimed by assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olated transactions cannot be considered as a business. x) Income Tax Tribunal has erred in allowing the claim of the assessee towards bad debt and Rs. 7,99,37,826/-. 12. Learned Advocate for the Appellant has relied upon the recent decision of the Hon'ble Supreme Court in the case of Pr. Commissioner of Income Tax 6 Vs. Khyati Realtors Ltd [AIR 2022 SC 4030.]. It is submitted that the decision of this Court in the case of Pr. Commissioner of Income Tax Vs. Khyati Realtors Ltd. dated 30.04.2019 was challenged before the Apex Court and the said decision was set aside on 25.08.2022. The apex Court had considered the law relating to Section 36 of the Income Tax Act. It was observed that merely stating the bad debt and doubtful debt as an irrecoverable write off without the appropriate treatment in the accounts as well as non-compliance with conditions in Section 36(1)(vii), 36(2) and explanation to Section 36(1)(vii) would not entitle the assessee to claim a deduction. 13. Learned Senior Advocate Mr. Pardiwala appearing for the respondent submitted as under: i) The order passed by the assessment officer and the Appellate Authority were erroneous and the said orders were righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s books due to the business transaction entered into by the assessee with M/s. Unitech Ltd. There was clear relationship of debtor and creditor. vii) The assessing officer and the Appellate Authority has ignored the fact that Section 36(1)(vii) as it stood before and after its amendment would show that prior to the amendment, the assessee was required to establish that the debt in question had become bad in the previous year. Subsequent to the amendment to the language of the Section, it sufficient if the bad debt or part thereof is written off as irrecoverable in the accounts of the assessee. 14. Mr. Pardiwala has relied upon the decision of the Supreme Court in the case of T.R.F. Ltd. Vs. Commissioner of Income-tax [2010] 190 Taxman 391 (SC) and the decision of this Court in the case of Director of Income Tax (International Taxation) Vs. Oman International Bank SAOG [2009] 184 Taxman 314 (Bombay). 15. The factual matrix of this case indicate that the assessee filed the return of income on 25.09.2009 declaring income of Rs. Nil. The assessee undertook an assignment of land for M/s. Unitech Ltd. and appointed Dantras Estate Pvt. Ltd. to procure the land for M/s. Unitech Ltd. fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear on the basis of income computation and disclosure standards notified under subsection (2) of Section 145 without recording the same in the accounts, then, such debt or part thereof shall be allowed in the previous year in which such debt or part thereof becomes irrecoverable and it shall be deemed that such debt or part thereof has been written off as irrecoverable in the accounts for the purposes of this clause. Explanation 1.-For the purposes of this clause, any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee. Explanation 2.-For the removal of doubts, it is hereby clarified that for the purposes of the proviso to clause (vii) of this sub-section and clause(v) of sub- section (2), the account referred to therein shall be only one account in respect of provision for bad and doubtful debts under clause (viia) and such account shall relate to all types of advances, including advances made by rural branches;.... *** (2) In making any deduction for a bad debt or part thereof, the following provisions shall apply- (i) no such deduction shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mendment dated 01.04.1989, the board had issued circular No.551 dated 23.01.1990. The issue pertaining to the bad debt was set out in Paragraph 6.6 of the said circular which reads as follows: "In order to eliminate the disputes in the matter of determining the year in which a bad debt can be allowed and also to rationalise the provisions, the Amending Act, 1987 has amended clause (vii) of sub-section (1) and clause (i) of sub-section (2) of the section to provide that the claim for bad debt will be allowed in the year in which such a bad debt has been written off as irrecoverable in the accounts of the assessee. " 20. Another Circular was issued on 30.05.2016 by the Government of India, Ministry of Finance, Department of Revenue Central Board of Direct Taxes Viz. Circular No.12 of 2016. The said Circular reads as follows: Circular No. 12/2016 F. No. 279/Misc./140/2015-ITJ Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes ****** New Delhi, Dated: 30th May, 2016 Subject:- Admissibility of claim of deduction of Bad Debt under section 36(1) (vii) read with section 36(2) of the Income-Tax Act, 1961- reg. Proposals have been recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he bad debt or part thereof is written off as irrecoverable in the accounts of the assessee based on commercial expediency. 22. In the case of Director of Income Tax (International Taxation), V/s. Oman International Bank SAOG (Supra) the Division Bench of this Court considered the question of law whether as per the existing provisions even after the amendment w.e.f. 01.04.1989 is it obligatory on the part of the assessee to prove that the debt written off by him is indeed bad debt for the purpose of allowing it under Section 36(1)(vii). The assessee therein had claimed writing of bad debt in the sum of Rs. 4,59,60,393/-. The contention of the assessee was that the write of done by following RBI guidelines was bonafide and as such contention should be allowed. The Appellate Authority was pleased to hold that as per the amended provisions under Section 36(1)(vii), the assessee is not required to establish that the debt had actually become bad and what was required was whether the amount is written off during the year or not. The order of appellate authority was challenged before the tribunal and it was urged on behalf of the revenue that two conditions had to be satisfied before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23.01.1990 and More particularly Paragraph 6.6 of the said Circular and it was observed that the Circular of the Board clearly spells out that it is to eliminate the dispute in the matter of determining the year in which the bad debt is written off as irrecoverable. If in spite of this provision the assessee is again called upon to establish that the debt has become bad debt, the object behind the amendment will not be achieved. The legislative intent appears to be to avoid litigation and to do away with disputes regarding the allowability of bad debts as a deduction in computing the income of an assessee. The dispute regarding the year in which the debt has to be allowed as a deduction has been resolved by the clear statement of the amended law that the deduction shall be allowed in the year in which the debt has been written off as irrecoverable. Considering these aspects, it would be clear that there is no burden now on the assessee to establish that in fact the debt has become bad. If this interpretation is read with the Board's circular it would be clear that the Board's circular reflects this very object which the Legislature had in its mind while amending the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts of the assessee. When bad debt occurs, the bad debt account is debited and the customer's account is credited, thus, closing the account of the customer. In the case of companies, the provision is deducted from sundry debtors. 27. Learned counsel for the Appellant has heavily relied upon the decision of the apex Court in the case of Pr. Commissioner of Income Tax 6 Vs. Khyati Realtors Ltd. (supra) wherein the decision of this Court was challenged by the revenue. This Court had dismissed the Appeal preferred by the revenue challenging the Judgment of Income Tax Tribunal. The tribunal had come to the conclusion that the transaction undertaken by the assessee was part of business activities. The amount had become irrecoverable and in view of the matter the loss was to assessee's business and was required to be allowed under Section 37(1) of the Act. 28. The Hon'ble Supreme Court analysed Section 36(1)(vii) and Section 37 of the Income Tax Act. It was observed that merely stating a bad and doubtful debt as irrecoverable write off without appropriate treatment in the accounts, as well as non compliance with the conditions in Section 36(1)(vii), 36(2) and explanation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le under Section 36(1)(vii). The assessment officer disallowed sum of Rs. 10 Crores as a bad debt in determining the income under the profits and Gains of Business or profession. The Court observed that merely stating a bad and doubtful debt as an irrecoverable write off without the appropriate treatment in the accounts, as well as non-compliance with the conditions in Section 36(1)(vii), 36(2), and Explanation to Section 36(1)(vii) would not entitle the assessee to claim a deduction. It is relevant to note that the accounts of the assessee nowhere showed that the advance was made by it to M/s. C. Bhansali Developers Pvt. Ltd in the ordinary course of business. Its primary argument was that amount of Rs. 10 Crores was given for the purpose of purchase of constructed premises. However, the amount was written off on 28.03.2009. There was no material to substantiate this submission, in respect of payment of the amount, the time by which the constructed unit was to be given to it, the area agreed to be purchased, etc. In support of the argument that the amount was given as a loan, the assessee nowhere established the duration of the advance, the terms and conditions applicable to it, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f establishing beyond what was brought on record by the assessee was not warranted. The assessee has written off the bad debt. The assessee had placed before the tribunal the schedule of the profit and loss account as well as the copy of the account of M/s. Unitech Ltd. in the ledger of the assessee. It was pointed that the bad debt claimed by the assessee relate to the assessee's business as the income from sale of the land to M/s. Unitech Ltd. has duly been shown as business income and accepted as such. Thus, there is sufficient evidence to show that the income was related to assessee's business. The amount was never recovered by the assessee. There is nothing to infer that the write off was not genuine. The amount was duly written off and the amount has been treated as income due to the assessee in his books due to the business transactions entered into by the assessee with M/s. Unitech Ltd. There was relationship of debtor and creditor. It is pertinent to note that the income from the sale of the land has been accepted by the revenue in the preceding year as such income from business. The assessee has also shown the income as business income. We find that the claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
