Karnataka High Court
The Commissioner Of Income Tax vs M/S K Raheja Development Corporation on 21 July, 2010
Bench: N.Kumar, B.V.Nagarathna
BANc;1A1.oRp:.
IN T}-{E HIGH COURT or KARNATAKA AT BA NGALORE DATED THIS THE 215% 1:')/\Y OFJULY. .2010 PRI13-Si+3N'I' T T 'I'HE HON'BL1§ MR. JUS'I'IC1.~3 N_ KU xvi/'J§..._.' : ' f ANI...) « V' ' T! IE 1~ioN'1-3L1«; MRS. .JUs'r1<::
i.T.A. No.2s51f2o_d.5 ."'V 1 A 'I 'V BETWEEN: VT I A }..THE COMMISSIONERQF INCOME--TAX. V C.R.BUILDING.
QUEENS ROAD.
IESANGAIJORF/-ESGOVOVO 1. "
2.THE ;jXSSIS*I*ANT c1oM.1;_\/nsslom 14;;-2 OF INCOMEe3'"E1!~\X;' '-~._ ' CENTRAL c1--RcL§«:_:1 (34).. "
c.R.BU11,£5n\;G._ '_ * "
QUISPZNVS 1f2c)A1>_. » ' . AI-'Pf£LLAN'!'S A r , {E3 Y SR§.'M._V.SESHACI"iALA, ADV.) M /s".";<. m'§1¥1r.~:;jA D EVELOPM EBNT . .,COR1DoRA:T1oN, . _N0,2_5--2'7, M.G.ROAD.
1f3ANGALORI'§. .. R:a:s1:><)N1> ENT {BY SR! 1\.SI"'i.ANKAR. J\I.')\~".) TEIIS ETA IS I"II,I.*ZD U/."3.2(*50--/-\ OF" l.'I'.AC'I'. 1961 ARISINC': OUT OF ORLJICR I")./\'i"I'Ci) 28/3/2{)()i3 PASSFII.) EN ITA N().34C)6/BANG/2004 FOR "l'I"!Ii ASSICSESMICNI' YEAR \§V/ i:ermi11at,ed ancil yet. 'c":11'1(')l.}1t.'1' ag,{re=.c=,1[11e1'1i oi" <-3ve:'1 ciat..e came to into existence under which. M/s.Vir1a_ya-1}1a El'1ft.'1'pI'iS('S 21f;{1'c(.=c.i E10 1"(==;':)21_\= R.~;.E2 ('if.f1m'(*$ 1-1'1fs..(:"t"«.._ésri-1'1 additiorlai comper1sat:i011 of Rs.6 Crores .g1i--1c1 ,_(u)'u'i"= ' Rs.'l2 Crores. :1 sum of C'I"'{I)I'.f,:'S "r%>'pei:i'i.:!._f_i;)y.. M / s.\/inayaka Enterprises. '1'I'T:e"".bé{«1ai1c:e "a!_;1"1-0.1.1111" wgiS~. not paid. Thmefore, the fi1<:d_ "2; V'iiéf.i1rf1 01" V income for the assess3n3e111.A..yEi';-=uf *iZC)'QI-02 '(f1'é1i'i"1:1iI1g the followiflg debts as writE.(-311.[_'(.)i'f§~--. i} I'1'ir':cig)a1arr';-r)1.z11i§ p;L_,i(lV'L«'_') _ M/s.Vi11ei£.yak;i'"En:§%1*;')1'iE~, 9% F29.'E"G'j82,9IS.2f_JE /- :;_j<:o111pz%1:ga114:. V1-m§i'<:;-_§}_;1a~_ _-- Rs. e-_~s.<_>(>. o0.oo0/ iii}AInVte1'est tiE_1. D€?'1'1.rL'_[VAi'.I"'£}f".
31/3=/20-00 « Rs. 2.41,15.989/-
. __ 'ib1.a1 ' Rs. IEJ.24.0€'3>.£28U/--
Officer who prmesseci the rem«rns.__'disallowed the ciaim of i',]'1.C a1s.<;esse:e in respeC'{ _ 0f debt. claimed 01: the gr0u1'1d. i.11z:1i': the C1(.=b'mr i':_aCi'*imt. be-:c:0n1e insoivem eu"1.d had I'€SO1£I'C'(':S to pay " "m<).ney and had aiso not s£"<_>1:J13c:<'i }::):--1_vme11t's'a as they hzid made part payment and mat they were 1101' d1'sow1'1i:'1g the liabiiitics but on the c::o.mr;i:u'y. they had ad1m'tted '{,ht'_'. liability had issued C11:-';'ques-3 and were tryitig ikgr settlement with the '¢'l.SS('S.'%3C'() 2-11i1('l that Civil ;.11"1c.l --«<_""1"i1_.'i"'i«ii'i;_;l proceedings were iriitiatecl to rc:(é()\.='ei' the ajiitl a.iii'<:S"1iiii'iif "
Thus, in the View of the I)C'.pE1I'fl7E'l'('I'1{:G'ill? ('1.€.'l'_'ll)'L'-V'4l']Ei{'1--.:if¥l(.l'lj*v' become t.ime--bar1'ed. Aggi"i(3xre'€iV by'. the ._s'a.1i'i.e.," --,"'1:li1e'. preferred an appere1i:,:i3:3l'<)1'eit '£;h.§ of lrieomewtax. T he t:(.>fil15e" diegniisserd upholding the order Ji.i_lliVe,l It is agairisi these lldd preferrecl an 21I)I3ea'l 1'el'1'1'ibm"12-1l held that. the acjvtilcifi (t()r3i'rary to the provisiolntzsl of i~;'](vii} of the Act and the llositif >11 has"i0_VbC. ?;ool4;ed' inu) as on the date. of vvrite off 'end"~--IilOi?--f'0n""the poééibilii_.y of recovery of a subsequent 2'i.11'iC;_eri.iz1.ifraudaie,Since till the (late of fi.l.l11g of the 1*et.1,.11'1'i of in--<.7_()I1ie.' Iieitlilrig wens 1"eceive('l._ 1.l'}e1'ef(')1"c, there was 110 lhopje of "17(§(?0\'€I'y. The iiiitiauioii ol' legal p1'(_>(:ee(li1'1gs ll . 1l":'-oi'a~e()11di1':i()i'1 ])l'CC(,'Ci(.'l"}1' for claim of bad cilebix. Tl1el'e * it-3~7r1o p1'ol1ibii.ioI1 for iI1iiia.i,i()i"1 of legal pi'oce<=-rdirigs after " the debt is w1'ii:ten off. The decision has to be arrived 2:11' on the (.T()1'lll"[l(')I1 sense and 21.9 to wliat 2:1 p1'i1c'l(;.-in. prudent business men by tatcing a iroirirnon sense view ivithout aCli.iatl._i; spe(:ifyi'.r'1g the specific i.n.stances and its correlation to the provisions of the Act' and (:or1seqi.i.eritly recorded a perverse_lii'idir"i_o '.9
iii) Whether, the Tribunal failed to takeV.....i.nto"Wj; Vt Consideration the fact that the assessee not even giveup the claim for recovery..V.ol--fA_t.a' sum of Rs.9,24_.O9,280/~ _/rem,M/sQVir"io;ijaI<av _' Enterprises as the assessee has «.1/ited' s--:.iiVtV V/or recovery of this arnounii»and '~if1et"prop'ert_ijvI' .
which was agreed robe t.r-ciris;/er'r~ed t'1aTs. been standing as a ctiargefor the" debt t'ari1d._'i:he assessee had r'ecei.ved"i'h»;jost cta't'e_d'r--*i1ecj::.ies some of which are l,9c7iin{,z_' " v!f1o'n_oiired' ~(,;1.IA'Al(Zf_.':U'lL"' rest of d istiorioiozred ch'eqi,_te;s--. the assessee has initi.at'ed criminal'pr'oce'ed'irigsj2§:=recovery 1%'
iv) Wheioher;* lithe _jTrfibn*r1a::l takirig into ::*tCcoi;z-ntf. the 7_'pr'ov'i.si"oris _]_or' allowing bad debts fcziled io"Vd;g9.I5iJ_ i;.t'r_I_(-3'"~pi"o;;)os£tiori of law to the fa::ts«of the'e_a$e<i'n"'tfj1e proper prospective ? V) , I/Vhether, the Tribiiriat was correct in holding 1 that sinee-the assessee was under a bond/'ide ' !j:eAtie"f..&t'f1.at:' hehas inc?1u'red loss" he was not z.ir'u:ter_ari_ obligation to pat.) advance tax as per ' of the Act and th.ere_/"ore no ' ir'i1i'er;estI= under section 2348 of the Act could be lefvi.ed when these provisions has been .. held mandatory 'P ' 5. Learned counsel appearing for ~~-appe1la1ni.--revemie siibmitttecl that: tzfze ma{;e1"ial on 1'eC()r(i clearly discloses that the Clebtor has repaid 2'11 portion of the amotint recreiveci urider the 21,g§1'e<;:111oi'it. F1.l]'U[1€1', if V. erores which they have shown in their ret:u1'ns lei' the aforesaid sums and ha\~'e paid tax For the said 2i1111()1,11'1l. It is thereafter. they choose to claim ded'ueti01'1--"aftc1" writing off the said amouiats as bad debts.
8. Section 36[l}[vii} of the Act: .4_t.l1a'I"i subject to the p1'ovisi01'1s of Sub§:secl.i.(m} the a111.l(A'>tl1..3jiif of any bad debt: or part lf.l'1C'l'L".{:)'l'. wl:.i_cl; is w'1'rI;tAt,e_i'1 0i;"f irrecoverable in the ae(:oL111t.s"".()l tlie assessee} for the previous year is liable. tT0_b_e sjji'ecl"u_c't1e'dl._ The condition precedents for Ac:lainii:ng~v..<;:u(9l1_=.;1ecluetIio'1i is that tl"1e
-sh(Juicy-W1*it.e"~._g$i'§7._the said debt as a bad debt and as "jretfioyefable." _S-ul')--se<:t"i(>11 {2} provides that in ma;»?;3ingl'a.Iiy dedLt(_:tiQ,n for bad clelst or part tht':1'e()EI the fijlliawi-.ug~tcgfidition should be satisfied viz... that no s'uc.Ih delcit1jetAilo11 shall be aliowetil unless debt or part thereof been taken into accouiit in c01.1'1pt.1t.iug the " iliebnie of the assessee of the prcvioiis year in which the aimotint. of such debt or part tliereof is writieri 09!'. Once that coiidition is fulfilled anti the. assessee in his accounts writes off a debt as 2.1 l.')a<_1 debt. 1l"'1ei'1 he has the right: to claim deduct.ion umler Sectioii 36 of the Act.
9. In the inst'ar1t: case. the material or1H r.ecord discloses that the assessee has shown in 11is;"i'e'tr-t..t_1'=:1s _ the previous years Rs.12 Crores plus 'Rs';6.i:C»roVres_ as com ensation lus t.he inte1'est:V=_of C'.rores a:'1d"1:«r1* p all. Rs.19,24.09.280/-- as tlite-.2_1.rnot:1nt'V' Vutidehr the agreemerlt deued 27 / 6 / tax on the said amount. It 'accounts he has written off the sgtid ;m'to.1§'r1t as it was irrec:o\re1'able., 2 conditions ltjtvii) and Sub-Section (2) (1') with and therefore, the assessee is'er1t.itled to 'de,:Ci11(étion. The authorities have proceeded on th'e-'a.ss_umptior1 that there was a chance V*_Vof_reeove_ryr 'oféttrhe said amount: and the debtor had not become ihsoifxesiqt and there was a charge created on the Iproperty in respect. of which. the amount was advanced I ~i3_;r1ciVtc--rjminal and civil proceedings were i1'1it.iated 1'11 a sum of Rs.11..15.OO.O00/W was uirecovered and therefore, the saicl debt could not have been tireated as a bad debt. 111 other words, the authorities have taken into eons1'derat.1'on the 1'/.
subsequent events after the debt has been deelaiedas a bad debt. to decide whether it is a bad debt. or not'; the authorities have to taken note of ()I1".'ll.'l'l€V said debt was declared as a bad""debt.
and Written off and c1ain1edvdedtl{et.ioAni. all ingredients on which i*eliaiit:'e.ejlJ:iis.plaoed Even 'otherwise. as 'the of the return being filed by was required was to write off: irreeoverable in the booksilolf proof of the said"
debt of the Department going the of the declaration was Atimperrnissible even; though after such declaration l."the"e'--asisessee deduction. Subsequently, the Vass;esse.e"~..is fii,0t prevented from recovering the said amo«.unt;_.*' in this case. the amount so recovered is doffered 'to: tax and tax has been paid and therefore, seen ll . froriiany angle, the int.erest of the revenue is in no way " -»affect,ed. It is in that: context, the 'I'ribL1na1»ls:eeping in mind the statutory provisions and the said legal position has rightly set aside the order passed by the Assessing V. Of1"iCe1' as well as H10 f1'rst appell.=;2te e1L1t}'1c)ri_t:y-.__and upheld the claim of Cf€dL1C1ii()l1.
10. In that View of the :1ié{it'1'ea',_ 'the; s §1b:st.jg1'I'1tiaI'« questions of law framed are answered've1ggjai1ist';fheW revenue and in favour of the.@rsscessecé..__wev-3dd;n()t see any merit in this appeal amelfl .é1er;or'd_i.ngly, diemiss the appeal.
*r'nus , . .....