By Sri v. Chandrashekar, Adv., For.sri. M. Lava, Adv

IN THE HIGH COURT OF KARNATAKA AT BENGALURUDATED THIS THE 14 DAY OF DECEMBER 2070 PRESENT| THE HON’BLE MR. JUSTICE ALOK ARADHE AND THE HON’BLE MR. JUSTICE H.T.NARENDRA PRASAD BETWEEN: ILT.A. NO.432 OF 2016 M/S. BIG BAGS INTERNATIONA (P) LTD.,REP. BY ITS MANAGING DIRECTORSMT. REKHA R KAMATH|NO.61, NADKEERAPPA INDUSTRIAL ESTATE.VISHWANEEDAM POST, PEENYA|BANGALORE-560091. (BY SRI. V. CHANDRASHEKAR, ADV., FOR.SRI. M. LAVA, ADV.,) ... APPELLAN| AND* THE DEPUTY COMMISSIONER OF INCOME-TAX.CIRCLE-1(1)(2), ROOM NO.242_2ND FLOOR, BMTC BUILDING80 FEET ROAD, KORAMANGALABANGALORE-560095., (BY SRI. ARAVIND K.V. ADV.) ~. RESPONDENT THIS ITA IS FILED UNDER SECTION 260-A OF I.T. ACT,|1961L ARISING OUT OF ORDER DATED 06.05.2016 PASSED IN ITANO.1041/BANG/2014(ANNEXURE-A)AND|MISC.PETITIONNO.77/BANG/2016 DATED 26.08.2016 (ANNEXURE-B), FOR THE.ASSESSMENT YEAR 2010-2011, PRAYING TO: (I) FORMULATE THE SUBSTANTIAL QUESTION OF LAW AS.STATED ABOVE AND THE ANSER THE SAME IN FAVOUR OF THEAPPELLAN ][ (II) ALLOW THE APPEAL AND SET ASIDE THE FINDINGS TO)THE EXTENT WHICH IS AGAINST THE APPELLATE IN THE ORDER.PASSED BY THE ITAT IN ITA NO.1041/BANG/2014 DATED06.05.7016|(ANNEXURE-A)AND|MISC.PETITION.NO.77/BANG/2016 DATED 26.08.2016 (ANNEXURE-B) & ETC. THIS ITA COMING ON FOR ADMISSION, THIS’ DAY, | ALOK ARADHE J.,DELIVERED THE FOLLOWING: | JUDGMENT This appeal under Section 260A of the Income TaxAct, 1961 (nereinafter referred to as the Act for short) nas been preferred by the assessee. The subject matterof the appeal pertains to the Assessment year 2010-11.. The appeal was admitted by a bench of this Court vide order dated 02.11.2017 on the following substantial|questions of law:| (1) Whether the Tribunal was Justified in law in denying tne benefit of deduction ofbad debts of Rs.3,33,79,971/- and passed a)perverse order on the facts and circumstanceof the case? (ii) Whether the Tribunal erred in law.in denying the benefit of claim of Bad debts when the amounts which has been claimed.by the appellant as bad debts have beenoffered and assessed to tax In earlierassessment years and the claim is afterfulfilling the conditions as envisaged under.the provisions of section 36 (1)(vil) r.w.s.—36(2) of the Act and consequently passed aperverse finding on the facts under the factsand circumstances of the case? (iii) Whether, the Tribunal was Justified|in law in holding there existed no debt in thebooks and thus the provisions of section36(1)(vil) of the Act are not applicable when.admittedly the amount written off as debtwas offered as income and accepted by the.departmentIn|theearlierYearsandconsequently passed a perverse order on thefacts and circumstance of the case? (iv) Withoutprejudicewhether|theTribunal erred in law in_ not’ grantideduction for bad debts of an amount ofRs.46,08,525/- and consequently passed aperverse order on the facts and circumstanceof the case? (v) Whether, the Tribunal erred in law.in not following the co-ordinate benchdecision of the Tribunal in the appellant'sown case for the earlier assessment year2009-10wherein Undersimilarcircumstancesand|identicalfacts|theTribunal had allowed the claim of bad debtsof the appellant? (vi) Whether the Tribunal was correct|in law in enlarging the scope of the issue.arising for adjudication when the grounds ofthe department clearly mentioned that theorder of the CIT(A) for the earlier year hasnot been accepted and the department is onfurther appeal and despite this fact theTribunal transgressed beyond its scope andpassed a perverse order under the facts andcircumstances of the case? (vil) Whether the Tribunal was correctin law and on facts in not affording theappellantareasonableopportunityofhearing on grounds which was not argued bythe department nor put to the appellant bythe Tribunal at the time of hearing and consequently passed a perverse order whichis in grave violation of principles of naturaljustice under the facts and circumstances of.the case? (vi) Whether the Tribunal was correct|in law in enlarging the scope of the issue.arising for adjudication when the grounds ofthe department clearly mentioned that theorder of the CIT(A) for the earlier year hasnot been accepted and the department is onfurther appeal and despite this fact theTribunal transgressed beyond its scope andpassed a perverse order under the facts andcircumstances of the case? (vil) Whether the Tribunal was correctin law and on facts in not affording theappellantareasonableopportunityofhearing on grounds which was not argued bythe department nor put to the appellant bythe Tribunal at the time of hearing and consequently passed a perverse order whichis in grave violation of principles of naturaljustice under the facts and circumstances of.the case? (vill)Whether the Tribunal wes|correct in law and on facts in dismissing the.Miscellaneous petition filed by the appellantunder the provisions of section 254(2) of theAct,withoutproperlyappreciatingandunderstanding the facts of the case of the.appellant under the facts and circumstancesof the case? 2.|Facts leading to filing of this appeal brieflystated are that assessee is a private limited companyand is engaged in the business of manufacture of PP-FIBC Bags. By a scheme of amalgamation, M/s Big Bags.(India) Private Limited was merged with the assesseecompany with approval of this court with effect from.01.04.2009. The assessee filed its return of Income on.15.02.2011 for the Assessment Year 2010-11 declaringa total income of Rs.1,55,05,2/70/-. The said return was selected for scrutiny and after the return was processedunder Section 143(1) of the Act and the assessment wascompleted under Section 143(3) of the Act by orderdated 22.03.2013 and the Assessing Officer assessedthe income of the assessee at Rs.13,22,6/,166/-. The.Assessing Officer made two additions while assessing|the income of the assessee, firstly of RS.8,33,81,925/-.and secondly being disallowance of bad debts ofRs.3,33,0/9,971/- claimed by the assessee claimedunder Section 36(1) (vii) of the Act. 3. The assessee thereupon filed an appeal. The|Commissioner of Income Tax (Appeals) Dy an orderdated 22.03.2014 deleted tne aforesaid additions made.by the Assessing Officer. The revenue, thereafter filedan appeal before Income Tax Appellate’ Tribunal(hereinafter referred to as the ‘Tribunal for short). TheTribunal by order dated 06.05.2016 partly allowed theappeal preferred by the revenue disallowing the claim ofbad debts to the tune of Rs.3,33,/9,/91/-. Tne assessee thereupon filed a miscellaneous petition before theTribunal, which was dismissed by the Tribunal. In theaforesaid factual background, the assessee has filed this|appeal. 4Learned counsel for the assessee submittedthat the assessee had exported bags to foreigncustomers in the past and had incurred unforeseen andadditional costs on certain imported raw material in.excess of what was anticipated while fixing the supply ofbags to the foreign customers on account of severe.fluctuations in foreign exchange rates. The assessee hadraised debit notes to recover additional costs. However,|foreign customers refused to make payments, therefore,the assessee had no option but to write off the same asbad debts. It is also pointed out that similar claim of baddebts for Assessment Year 2009-10 was accepted by theCommissioner of Income Tax (Appeals) as well as by the.Tribunal and the revenue did not challenge the order ofthe TridDunal before this court and accepted the same. It 4Learned counsel for the assessee submittedthat the assessee had exported bags to foreigncustomers in the past and had incurred unforeseen andadditional costs on certain imported raw material in.excess of what was anticipated while fixing the supply ofbags to the foreign customers on account of severe.fluctuations in foreign exchange rates. The assessee hadraised debit notes to recover additional costs. However,|foreign customers refused to make payments, therefore,the assessee had no option but to write off the same asbad debts. It is also pointed out that similar claim of baddebts for Assessment Year 2009-10 was accepted by theCommissioner of Income Tax (Appeals) as well as by the.Tribunal and the revenue did not challenge the order ofthe TridDunal before this court and accepted the same. It is alSO urged that the assessee has written off the bad.debts of Rs.3,33,/79,/91/- in its books of account. It isalso contended that the finding recorded by the Tribunal that the qamount written off was never a debt due to theassessee is perverse and Tribunal erred in not following|the order of the co-ordinate bench in assessee's own.case. In support of aforesaid submissions reliance has.been placed on decisions in-"TRF LTD. VS. CIT, 323,ITR 397 (SC), VIJAYA BANK VS. CIT 323 166 (SC),"CIT VS. K.RAHEJA DEVELOPMENT CORPORATION,.,195|TAXMAN|7s i(KAR),'CITVS.KRONECOMMUNICATIONS LTD.', 333 ITR 497 (KAR), ‘CITYS, MILLENT ADEVELOPERSPVTLTD.",266TAXMAW|186(SC),"CITYS,MILLENIADEVELOPERS PVT LTD, 260 TAXMAN 142 (KAR),"CIT VS. SAWHNEY EXPORTS’, 303 ITR 93 (DEL),|‘CIT VS. NILOFER I SINGH’, 176 TAXMAN 252(DEL),CBDTCIRCULARNO.12/2016DATED30.05.2016, RBI LETTER DATED 12.03.2013 5.|On the other hand, the learned counsel forthe revenue submitted that since the assessee did not.comply with the conditions mentioned in Section 36(2)oftheAct.and|therefore,|thededuction|under|Section36(1)(viil) of the Act was rightly disallowed. It isalso submitted that a finding of fact has been recorded|by the Tribunal that the pre-requisite conditionsmentioned under Section 36(2) of the Act have not beencomplied with, therefore, no substantial question of law.arises for consideration in this appeal. It is also urgedthat without prejudice to the aforesaid contention, even if its to be assumed that debt existed, as the process ofwrite off is not in terms of law laid down by theSupreme Court in the case ofVIJAYA BANK LTD, SUPRA, the assessee is not entitled to write off of bad.debt as deduction. — 6.|We have considered the submissions made§by learned counsel for the parties and have perused therecord. The assessee had exported bags to foreign customers in the past and had incurred unforeseen.additional costs on certain imported raw material. Inorder to recover the additional costs incurred, theassessee had raised debit notes on the _ foreigcustomers and credited the amount due from them,raised by way of debit notes as income in its books ofaccounts and had offered the same to tax in earlieryears. The customers of the assessee refused to make.payment and therefore, the assessee nad written off theamount as not recoverable. It is pertinent to mentionthat Section 36(1)(vii) of the Act mandates that in orderto claim bad debts, the assessee has to write off theSame in its books of accounts and assessee is not.required to prove that the debt as irrecoverable. In thisconnection, reference may be made to decision of theSupreme Court In)VIJAYA BANK LTD|andTRE LTD.SUPRA. J.It is pertinent to mention here that similarclaim of bad debts was made by the assessee for J.It is pertinent to mention here that similarclaim of bad debts was made by the assessee for Assessment Year 2009-10 arising out of the same set ofcircumstances and the Assessing Officer denied theSame on similar grounds as has been done in this case.|However, the Commissioner of Income Tax (Appeals) as_well as the tribunal accepted the stand of the assesseeand granted the relief to the assessee. The revenue didnot challenge the order passed by the tribunal and.accepted the view in favour of the assessee. Admittedly,in the instant case, the assessee nad written off the baddebts to the tune of Rs.3,33,/9,/91/- in its books ofaccounts and has complied with the mandate containedin Section 36(2) of the Act. The Assessing Officer has—not disputed the aforesaid aspect of the matter. — 8.|TneSupreme.CourtIn|RADHASOAMTISATSANG Vs. COMMISSIONER OF INCOME-TAX’(1992) 60 TAXMAN 248 (SC)has held that eventnougn principles of|res judicatado not apply to incometax proceedings, but wnere a fundamental aspectpermeating through the different Assessment Years has been found as the fact one way or the other and theparties have allowed the position to be sustained by notchallenging the order, it would not be at all appropriate|to allow the position to be changed in subsequent year. |For this reason also, in the facts of the case, a different|view cannot be taken. On literal construction of theprovision of Section 80IB(10) of the Act it is evident thatthe aforesaid provisions do not suffer from anyambiguity, therefore, the decisions rendered by theSupreme Court in the case of DILIP KUMAR andRAMNATH & CQ. supra have no application to theobtaining factual matrix of the case. In view of preceding analysis, the substantial|questions of law framed by a bench of this court areanswered in favour of the assessee and against therevenue. In the result, the order of the tribunal to theextent it disallows tne claim for deduction on account ofDad debts is nereby quashed. ��� �������������������������������������� ����������� �����������