ITO 2(1)(1) MUMBAI vs ARONI CHEMICAL INDUSTRIES LTD MUMBAI

1 ITA No938/Mum/2010 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH ‘ G ’ MUMBAI BEFORE SHRI R K PANDA, AM & SHRI VIJAY PAL RAO, JM ITA No.

938/Mum/2010 (Assessment Year 2002-03) The Income Tax Officer Ward 2(1)(1), Mumbai Vs M/s Aroni Chemical Industries Ltd 29 Bank St Fort Mumbai 23 (Appellant) (Respondent) PAN AAACA8974A Assessee by: Shri Vijay Mehta Revenue by: Shri Goli Srinivas Rao O R D E R PER R K PANDA: This appeal filed by the revenue is directed against the order dated 17.11.2009 of the CIT(A)-4, Mumbai relating to assessment year 2002-03.

2 The facts of the case, in brief, are that the assessee company is engaged in the business of trading and investment in shares and securities.

The Assessing Officer, during the course of assessment proceedings noted that in the P&L account the assessee has debited bad debts of ` 30,48,002/- under the head “administrative & other expenses”.

The Assessing Officer asked the assessee to explain the name and the debtors against which these debts have been written off and relates to which period.

The assessee vide its letter dated 27.1.2005 and 19.2.2005 filed details of such bad debts.

From the details filed by the assessee, the Assessing Officer noted that all these loans and advances were made before 1.4.1999.

According to the Assessing Officer, the assessee company was into the business of Aluminium Chloride and Wind Power Generation till 16.3.1999 and when this business was sold, lock stock and barrel and all the assets and liabilities were handed over to one company with the name and style “Nagda Orgo-Chem Pvt Ltd as a going concern for lump sum consideration of `.

19.88 crores.

The scheme was approved by the Hon’ble Bombay High Court and became effect from 16.3.1999.

The profit was also declared by the assessee company in the Assessment Year 1999-00.

2 ITA No938/Mum/2010 2.1 In view of the above, the Assessing Officer came to the conclusion that debts prior to 16.3.1999 belong to Nagda Orgo Chem Pvt Ltd. m Pvt Ltd.

These borrowers were no longer the debtors of the assessee company; therefore, he disallowed the claim of bad debt claimed by the assessee.

While doing so, he further noted that the CIT(A) has confirmed the disallowance of bad debts in Assessment Year 2000-01.

3 Before the CIT(A), it was submitted that all though the assessee has transferred its business of aluminium chloride and wind power generation to Nagda Orgo Chem P Ltd, the assessee company is continuing its trading and advancing of loan as well as discounting of bills etc.

This business was never transferred to any other entity and it is continuing till now.

The claim of said bad debts pertain to the existing business of financing, which is still being continued.

Therefore, bad debts not being related to the transferred business has to be allowed as bad debts and the Assessing Officer is factually incorrect in holding that the debts relate to the transferred business.

It was also submitted that the bad debts confirmed by the CIT(A) in the Assessment Year 2000-01 are relating to Aluminium Chloride and Wind Power Generation business.

3.1 Based on the arguments advanced by the assessee, the CIT(A) deleted the addition by holding as under: “12.

I have duly considered the submissions of the AR and I find that after transfer of aluminium chloride and wind power generation in 1999 the assessee is left with the business of share trading and advancing of loans.

The assessee has been showing interest income from these advances since then,.

Hence, the claim of bad debt is required to be allowed in the hands of the assessee as under the amended provisions of sec.

36(1)(vii) the assessee is required to write off the debt in the books of account.

The assessee has filed ledger A/c of these parties which shows the amount given on loan and subsequently written off in the books of account.

Hence, the basic requirements have been fulfilled and the debt is allowable as bad debt. bad debt.

Reliance is placed on the decision of Oman International Bank 313 ITR 123 and Star Chemicals 313 ITR 126.

The Assessing Officer is directed to allow the claim of bad debts.

This ground of appeal is allowed.” 3.2 Aggrieved with such order of the CIT(A), the revenue is in appeal here before us with the following ground: “On the facts and the circumstances of the case and in law, the CIT(A) erred in allowing bad debt of ` 30,48,002/- by observing that by writing off debts in the books of accounts, the debts are allowance as bad debt without appreciating the fact that the assessee had not furnished the proof of debts having become bad which is contrary to the provisions of sec.

36(1)(vii) of the I T Act and the decision of the 3 ITA No938/Mum/2010 Bombay High Court in the case of Oman International Bank (313 ITR 128)(2009) (Bom) which lays down that the write off of bad debt has to be a bonafide decision” 4 The ld DR supported the order of the Assessing Officer.

The ld counsel for the assessee, on the other hand while supporting the order of the CIT(A) submitted that what is sold is chemical business whereas the financing and bill discounting business are still continuing.

The bad debt relates to the business of financing and bill discounting, the details of which were already furnished before the Assessing Officer as well as before the CIT(A).

Referring to the decision of the jurisdictional High Court in the case of Oman International Bank (SAOG) reported in 313 ITR 128, he submitted that this issue stands covered in favour of the assessee and against the revenue by the decision of the jurisdictional High Court.

Therefore, the ground raised by the revenue has to be dismissed.

5 We have considered the rival submissions made by both the parties, perused the orders of the Assessing Officer and CIT(A) and the decisions cited before us.

We find from the order of the Assessing Officer that the assessee had given full details of such bad debt. bad debt.

The submissions of the assessee before the Assessing Officer as well as CIT(A) that it has only transferred its chemical business and continuing its financing and bill discounting business has not been controverted by the revenue at any point of time.

Further, the submission of the assessee before the CIT(A) that bad debt relates to such financing and bill discounting business also could not be controverted by the ld DR.

Since the ld counsel for the assessee has successfully demonstrated that the bad debt relates to financing and bill discounting business being carried on by the assessee and since the assessee has written off the bad debt in its books of account; therefore, in view of the decision of the jurisdictional High Court in the case of Oman International Bank (SAOG) (supra) such bad debt has to be allowed.

In this view of the matter, we do not find any infirmity in the order of the CIT(A).

Accordingly, the ground taken by the revenue is dismissed.

6 In the result, the appeal filed by the revenue is dismissed.

Order pronounced on the 13th, day of Oct 2010.

Sd/- Sd/- (VIJAY PAL RAO ) Judicial Member ( R K PANDA ) Accountant Member Place: Mumbai : Dated: 13th, Oct 2010 Raj* 4 ITA No938/Mum/2010 Copy forwarded to: 1 Appellant 2 Respondent 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER Dy /AR, ITAT, Mumbai