Gujarat High Court
Commissioner Of Income Tax Ahmedabad Iv vs Sambhav Media on 19 February, 2013
Author: Akil Kureshi
Bench: Akil Kureshi
COMMISSIONER OF INCOME TAX AHMEDABAD IV....Appellant(s)V/SSAMBHAV MEDIA LTD....Opponent(s) O/TAXAP/652/2012 ORDER IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 652 of 2012 ================================================================ COMMISSIONER OF INCOME TAX AHMEDABAD IV....Appellant(s) Versus SAMBHAV MEDIA LTD....Opponent(s) ================================================================ Appearance: MR.VARUN K.PATEL, ADVOCATE for the Appellant(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MS JUSTICE SONIA GOKANI Date : 19/02/2013 ORAL ORDER
(PER : HONOURABLE MR.JUSTICE AKIL KURESHI)
1. Revenue is in appeal against the judgment and order of the Income Tax Appellate Tribunal (hereinafter referred to as ITAT ) dated 28.03.2012, raising following substantial questions of law for our consideration:
(a) Whether in the facts and circumstances of the case, the learned ITAT has erred in law in confirming the order of CIT(A) deleting the disallowance of bad debts amounting to Rs.35,26,374/-?
(b) Whether in the facts and circumstances of the case, the learned ITAT has erred in appreciating the fact that the sole objective to postpone claim of bad debts of amount, which had already become bad before amalgamation, was to evade tax liability that the business loss of amalgamating company which is not industrial company could not be allowed the set of in the hand of amalgamated company?
(c) Whether in the facts and circumstances of the case, the learned ITAT has erred in law in rejecting the Revenue's appeal against the order of CIT(A) deleting the addition of Rs.2,67,960/- on account of late payment of employees' provident fund contributions u/s. 36(1)(va) of the Act?
Question
(c) pertains to addition of Rs.2,67,960/- made by the Assessing Officer on account of late payment of employees' provident fund contribution. We noticed that the Tribunal has confirmed the view of CIT(A) under which he had directed the Assessing Officer to allow the benefit, if it was paid within five days of grace period. Amount involved is also not very large. In that view of the matter, we find no reason to interfere with this question.
3. Questions
(a) and (b) arise out of a common issue. The respondent- assessee had claimed bad debts of Rs.35,26,374/-(rounded off) in the Assessment Year 2004-2005. The Assessing Officer noted that the bad debts were those of company M/s. Abhiyan Press & Publication Pvt. Ltd. Such company amalgamated with the assessee company. The Assessing Officer was of the opinion that unless the requirements of Section 72A(7)(aa) of the Act were satisfied, assessee could not claim the bad debts.
Section 72A(7)(aa) of the Act defines Industrial undertaking as under:
(i) the manufacture or. processing of goods; or
(ii) the manufacture of computer software; or
(iii) the business of generation or distribution of electricity or any other form of power;
(iiia) the business of providing telecommunication services, whether basic or cellular, including radio paging, domestic satellite service, network of trunking broadband network and Internet services; or
(iv) mining;
or
(v) the construction of ships, aircrafts or rail systems;
The Assessing Officer held that since the assessee company was engaged in the business of printing of new papers, it does not satisfy such criteria and cannot be stated to be an industrial undertaking .
Assessee carried the matter in appeal and contended that such an issue was decided in favour of the assessee in the Assessment Year 2003-2004 by the Commissioner (Appeals), against which, no further appeal was preferred. In the present year also, the Commissioner reversed the order of the Assessing Officer.
4. Revenue preferred an appeal before the Tribunal. The Tribunal rejected the revenue's appeal observing as under:
5. We have considered the rival submissions, perused the material on record and have gone through the orders of authorities below. We find that Ld. CIT(A) has deleted this disallowance on the basis of the order of Ld. CIT(A) dated 20.09.06 for assessment year 2003-04 in the assessee's own case. The A.O. has also noted this fact that in assessment year 2003-04 the A.O. has also noted this fact that in assessment year 2003-04 the A.O. made similar disallowance. This issue has been decided by the Ld. CIT(A) in favour of the assessee in assessment year 2003-2004 and the Ld. D.R. of the revenue could not show that the decision of Ld. CIT(A) for the assessment year 2003-04 has not been accepted and appeal has been filed by the revenues before ITAT. Now, we are in the year 2012 but still the revenue could not place anything on record to show that in assessment year 2003-2004, the decision of Ld. CIT(A) was reversed by the tribunal. Moreover, this issue is now covered in favour of the assessee by the judgment of Hon'ble Apex Court rendered in the case of TRF Ltd.(supra). Under theses facts, we do not find any reason to interfere in the order of Ld. CIT(A) on this issue. This ground of the revenue is rejected.
5. Since CIT(A) as well as Tribunal both have substantially gone on the basis of the earlier decision of CIT(A) in case of this very assessee, we have also perused such order of the CIT(A) in the assessment year 2003-2004, wherein, this question was considered at length. CIT(A) had, in that order, observed as under:
4.3 I have carefully considered the facts of the case and the submissions as advanced by the appellant along with the judicial decision relied upon. I am inclined to agree with the appellant's contentions. It is only at the discretion of the appellant to decide when the bad debts have become bad and after the amendment in section, the Deptt. cannot examine the year in which the debt has become bad and it has to be allowed in the year in which it is written off in the books. When the amalgamation took place, all the assets and liabilities pass to the appellant company and if there is any bad debts to be written of after that date, it has to be written off by the present appellant and if there is any income, it has to be assessed in the hands of present appellant. In light of the facts and circumstances narrated above, I hold that there is no justification on the part of AO to disallow the claim of bad debt.
4.4 In the case of CIT V.T. Veebadhrarao & K. Koteshwerarao & Co.
& Co. 102 ITR 604, the Hon/ Supreme Court has held that it has been held that when company succeeded the firm the bad debts concerning the predecessor firm were allowed in the hands of company which were the successor of the firm. In view of this it is specifically pleaded that bad debts are written off is eligible for relief. In view of the decision of Hon. Supreme Court and also considering the facts of the case, it is held that the claim of bad debts is allowable. The assessee gets relief on this point.
6. We are in agreement with the view of CIT(A) as noted above that where the amalgamating company carried certain doubtful debts which were, till date of amalgamation, not written off as bad debts and only after amalgamation, they were written off as bad debts in the succeeding year, the transferee company i.e. assessee company could write off such doubtful debts as bad debts. Once amalgamation took place, there could hardly be a matter of dispute that such debts being the liability of the company passed on to the transferee company and after the amendment, it needed to be allowed in the year it was written off in the books. As held by the Supreme Court in the case of T.R.F. Ltd.
Vs/. Commissioner of Income-tax reported in [2010] 323 ITR 397 (SC), after the amendment of section 36(1)(vii) of the Income-tax Act, 1961, in order to obtain a deduction of bad debts, it is not necessary for the assessee to establish that the debt, in fact, had become irrecoverable; it is enough if the bad debts are written off as irrecoverable in the accounts of the assessee.
7. Further in the case of CIT V.T. Veebadhrarao & K. Koteshwerarao & Co. & Co. 102 ITR 604, the Apex Court opined that once firm/company is taken over by the successor-firm, the successor-firm can claim deduction of the predecessor firm under Section 36(2) of the Act.
8. We are of the opinion that the Assessing Officer wrongly placed reliance on Section 72A of the Act. Section 72A pertains to carry forward and set off of the accumulated loss and unabsorbed depreciation allowance in case of amalgamation of company. Had the assessee claimed to carry forward or set off of the accumulated loss or depreciation allowance, the provisions contained therein would apply. In that context, the question whether the assessee company can be stated to be an industrial undertaking as defined in Sub-section 7(aa) of Section 72A of the Act may arise. In the present case, we notice that this was not a case of any carry forward of loss or depreciation of the assessee company, but claiming of bad debts with respect to certain doubtful debts of the amalgamating company, which as discussed above, were written off as bad debts after amalgamation.
In the result, Tax Appeal is dismissed.
(AKIL KURESHI, J.) (MS SONIA GOKANI, J.) Chandrashekhar* Page 4 of 4