(PER : HONOURABLE MR.JUSTICE M.R. SHAH)
1. The present appeal has been preferred by the appellant-revenue challenging the impugned order passed by the Income Tax Appellate Tribunal, Ahmedabad D Bench, Ahmedabad dated 14/09/2012 by which in an appeal preferred by the respondent-assessee the learned tribunal has allowed the said appeal.
2. At the outset, it is required to be noted that the following two substantial questions of law are proposed by the appellant-revenue for determination in the present appeal.
Whether on the facts and in the circumstances of the case, the Tribunal was justified in law in setting aside the issue of addition of Rs.1,88,87,419/- directing to recompute interest already offered in earlier years, which have become final and directing the same to be set off against instant year s income?
Whether on facts and in the circumstances of the case, Tribunal has erred in law in deleting disallowance of Rs.21,08,918/- made on account of advance written off without appreciating that provisions of Section 36(1)(vii) were not applicable and the business loss had not crystallized yet?
3. So far as question no. 1 is concerned, it is an admitted position that the said question is squarely covered by the decisions of this Court in Tax Appeal Nos. 514/2012 and 515/2012 with respect to the very assessee but for the earlier assessment years. Dealing with the similar question with respect to the earlier assessment years and considering the fact that as such the learned tribunal remanded the matter to the Assessing Officer, the Division Bench has dismissed the said appeal qua the aforesaid question. Considering the aforesaid and for the reasons stated in the orders passed in the aforesaid Tax Appeals and even otherwise we are also of the opinion that as the matter has been remanded by the learned tribunal no prejudice shall be caused to the revenue, the present appeal is dismissed qua the proposed question no. 1.
4. Now so far as the proposed question no. 2 and the order passed by the learned tribunal in deleting the disallowance of Rs.21,08,918/- made on account of advance written off considering the provisions of Section 36(1)(vii) is concerned, it appears that while deleting the said disallowance the learned tribunal considered and observed in paragraph nos. 18 to 21 as under;
18. Ground no. 5 is against confirming the disallowance of advances amounting to Rs.21,08,918/-. The factual matrix of the case is that the assessee had written off following amounts;
Advance to Shree Narmada Fertilizers Staff Credit & Consumer Co.op Society Rs. 14,22,273/-
Advance to Narmada Scientific and Education Research Society (NE&SRS) Rent Deposit Rs. 6,59,845/-
Assessing Officer has given reasonable opportunity of being heard during the course of assessment proceeding. The appellant had filed the suit which was still pending and learned A.O. Concluded that there was a hope of recovery of money and therefore, it cannot be said to have become irrecoverable. The appellant is not a banking company. Therefore, principal amount cannot be claimed as bad debts. Thus, the ld. A.O. made the addition of Rs.21,08,918/-.
Being aggrieved by the order of the A.O. the assessee went in appeal before the CIT(A) who had dismissed the appeal by observing as under;
17.3.
I have carefully considered the rival contentions. In my view the amounts written off by the appellant are not in the nature of bad debts but could be categorized as business loss. The business loss would be allowable only in the assessment year in which the recovered amount is determined. There is a distinction in allowability of bad debts and business loss. The bad debt is allowable if all the conditions as stipulated in Section 36(i)(vii) are satisfied. On the other hand conditions for allowability of business loss have not been laid down in the Act and in my view the business loss could be allowed in the year in which the quantum is finally ascertained. Therefore, the advances written off in my view are not allowable in the instant assessment year. Ground No. 14 is thus rejected.
20. Now the matter is before us. Ld. Counsel for the assessee contended that Rs.14,22,273/- was advanced to Narmada Fertilizers Staff Credit & Consumers Co-operative Society. The society gave contractor to run petrol pump but the contractor had defrauded the society. Thereafter, contract was cancelled by it. Whatever amount paid to contractor was outstanding which could not be recovered. The society filed a criminal complaint in Court of Judicial Magistrate against the contractor, Bharuch. Rs.6,59,845/- was given by the appellant for running English medium College to Narmada Scientific and Education Research Society (NE&SRS). Due to economic conditions of institution, it compelled the appellant to waive the interest of Rs.6,59,845/-, Rs.22,800 was paid to the landlord for office premises and Rs.4000/- deposit was given to commercial tax department.
Therefore, he claimed it is a business loss and allowable under Section 37 of the Income Tax Act. From the side of the Revenue, the ld. CIR.DR relied upon the orders of the authorities below.
21. We have heard the rival contentions and perused the facts of the case. The appellant had 6000 employees. For them, there is a Staff Credit & Consumers Co-operative Society. The appellant had obligation to provide certain facilities to the employees to motivate them as per management principle to get committed services from them. The appellant does not have any hope of recovery of this amount. Therefore, we reverse the order of CIT(A) on this ground. The assesse s appeal on this ground is allowed.
5. Considering the fact that the amount of Rs.14,22,273/- was advanced to the Co-operative Society, whose members are the employees of the assessee-Company, to run the petrol pump for the employees of the assessee, however, the Co-operative Society instead of running the petrol pump gave it to the contractor who defrauded the Society and it was found by the assessee that the aforesaid amount was not recoverable at all, the assessee written off the same as business loss and claimed reduction under Section 36(1)(vii) of the Act. The Assessing Officer disallowed the same, which was confirmed by the CIT(A), which came to be set aside by the learned tribunal and the learned tribunal by impugned order deleted the said disallowance of Rs.21,08,918/-, which was given on advance and, therefore, it cannot be said that the learned tribunal has committed any error and/or it raises any question of law, much less substantial question of law. Under the circumstances, we see no reason to interfere with the said appeal and the said appeal deserves to be dismissed and is accordingly dismissed.
(M.R.SHAH, J.) (MS SONIA GOKANI, J.) Siji Page 6 of 6