Tca/1187/2009 Of Dr K Chandrasekaran v. Commissioner Of Income Tax

IN THE HIGH COURT OF JUDICATURE AT MADRAS CORAM THE HONOURABLE MR.JUSTICE R.MAHADEVANANDTHE HONOURABLE MR.JUSTICE MOHAMMED SHAFFIQ Dr.K.Chandrasekaran... Appellant/Appellant .Vs. The Commissioner of Income Tax,Coimbatore.... Respondent/Respondent PRAYER:- Appeal under Section 260A of the Income Tax Act, 1961against the order dated 20.12.2007 made in IT.SS.A.No.38(Mds)/2003 on the file of the Income Tax Appellate Tribunal, Madras'D' Bench for the Block Assessment period 1988-89 to 1998-99. Preferred against the Order passed by the Commissioner ofIncome Tax (Appeals)-II, Coimbatore, dated 29/01/2003 made inAppeal No.41-C/2002-2003 preferred against the Order passed bythe Deputy Commissioner of Income Tax, Central Circle-II,Coimbatore, dated 28/03/2002. For Respondent : M/s.M.V.PushpaJunior Standing CounselFor Mr.M.SwaminathanSenior Standing Counsel JUDGMENT MOHAMMED SHAFFIQ, J. Calling in question the order dated 20.12.2007 passed by theIncome Tax Appellate Tribunal, Madras 'D' Bench, in IT (SS)A.No.38/Mds/2003, relating to the block assessment period 1988- https://hcservices.ecourts.gov.in/hcservices/ 89 to 1998-99, the appellant/assessee has come up with this taxcase appeal, raising the following substantial questions of law: 1.Whether on the facts and in the circumstances of thecase, the Tribunal was justified in law in rejectingthe claim of bad debt/trading loss of the amountadvanced by the assessee in the course of its money-lending activity?case, the Tribunal was justified in law in rejectingthe claim of bad debt/trading loss of the amountadvanced by the assessee in the course of its money-lending activity? 2.Whether the Tribunal was justified in law in confirmingthe disallowance of bad debt without adverting to thematerial placed on record as to the inability of thedebtor to pay the interest and the principal amount?the disallowance of bad debt without adverting to thematerial placed on record as to the inability of thedebtor to pay the interest and the principal amount? 3.Whether the Tribunal is justified in law in confirmingthe disallowance even while its conclusion is notbacked by any reasoning as to the rejection of the baddebt/trading loss claimed by the assessee?the disallowance even while its conclusion is notbacked by any reasoning as to the rejection of the baddebt/trading loss claimed by the assessee? 4.Whether on the facts and in the circumstances of thecase, the claim of the assessee as to bad debt/tradingloss should have been allowed in the light of theobservations of the Madras High Court in the case ofDevi Films reported in 49 ITR 874 and the Gujarat HighCourt in the decision reported in 226 ITR 605? case, the claim of the assessee as to bad debt/tradingloss should have been allowed in the light of theobservations of the Madras High Court in the case ofDevi Films reported in 49 ITR 874 and the Gujarat HighCourt in the decision reported in 226 ITR 605? 5.Whether the Tribunal was not justified in law infollowing the Madras High Court decision in South IndiaSurgical Co.Ltd ( 287 ITR 62) when the facts of thatcase and the facts in the assessee's case did not matchat all and therefore that decision does not apply onall fours to the case on hand? following the Madras High Court decision in South IndiaSurgical Co.Ltd ( 287 ITR 62) when the facts of thatcase and the facts in the assessee's case did not matchat all and therefore that decision does not apply onall fours to the case on hand? 5.Whether the Tribunal was not justified in law infollowing the Madras High Court decision in South IndiaSurgical Co.Ltd ( 287 ITR 62) when the facts of thatcase and the facts in the assessee's case did not matchat all and therefore that decision does not apply onall fours to the case on hand? following the Madras High Court decision in South IndiaSurgical Co.Ltd ( 287 ITR 62) when the facts of thatcase and the facts in the assessee's case did not matchat all and therefore that decision does not apply onall fours to the case on hand? 2. The appellant is a practising ophthalmic surgeon in Salemand also derives agricultural income from coffee grown in hislands at Yercaud. His family is also engaged in money lendingbusiness. While so, there was a search operation under section132 of the Income Tax Act in the business and residentialpremises of the appellant and other family members on 22.12.1997which was completed on 23.12.1997. Pursuant thereto, noticeunder section 158BC was issued on 27.04.1998, to which, theappellant filed his returns on 01.06.1998 for the block periodcommencing on 01.04.1987 and ending on 22/23.12.1997. He, inworking out the net income from money lending, claimed set offof bad debts to the extent of Rs.25.55 lakhs. The assessingofficer disallowed the entire claim of bad debts, inasmuch asthe same were not written off in the books in terms of Section36(1)(vii) and accordingly, passed the assessment order on20.12.1999 under section 158BC r/w section 143(3) of the IncomeTax Act. 3. On appeal, the appellant/assessee raised a fresh pleathat the bad debts may be alternatively treated as trading loss.The Commissioner of Income Tax (Appeals) remanded the matterback to the assessing officer to examine the alternate plea. Onremand, the assessing officer, while accepting the claim oftrading loss with regard to the advance to four personsamounting to Rs.13.5 lakhs, rejected the claim of the assesseerelating to one Mani for an advance of Rs.12.5 lakhs andaccordingly, passed the fresh assessment order under section 143(3) r/w section 251 on 28.03.2002. The said assessment order ofthe assessing officer was confirmed by the Commissioner ofIncome Tax (Appeals), with the following observations: “...The very fact that the appellant's mother or thefirm have not considered the loan as not recoverableis of considerable significance while evaluating theclaim of the appellant.... ...On a careful consideration of the all the aspectsof this issue, I agree with the assessing officerthat the claim of trade loss or bad debt of Rs.12.50lakhs relating to the loan advanced to Mani is notwell founded..... ... Also, the debtor is having substantial income. Inview of the above, the disallowance of Rs.12.50 lakhsis sustained.” 4. The matter was carried by way of further appeal by theappellant before the Income Tax Appellate Tribunal. The Tribunalalso confirmed the order of the Commissioner of Income Tax(Appeals) and the relevant portion of the said order isextracted hereunder: “We have heard both the parties and perused thematerials on record. In this case, the assessee hasadvanced money to Shri.Mani on 11.6.96 and the blockperiod ended on 22.12.97. The statement of theassessee that the debt has become bad in such a shortperiod of time is not acceptable. It is not statementfor the assessee to say that he became pessimisticabout the prospect of recovery of the debt inquestion. He must feel honestly convinced that thefinancial position of the debtor was so precariousand shaky and that it would be impossible to collectany money from him. The question is really one offact depending upon the various facts and diversecircumstances bearing on the debtor's pecuniaryposition, his commitments and obligations. The “We have heard both the parties and perused thematerials on record. In this case, the assessee hasadvanced money to Shri.Mani on 11.6.96 and the blockperiod ended on 22.12.97. The statement of theassessee that the debt has become bad in such a shortperiod of time is not acceptable. It is not statementfor the assessee to say that he became pessimisticabout the prospect of recovery of the debt inquestion. He must feel honestly convinced that thefinancial position of the debtor was so precariousand shaky and that it would be impossible to collectany money from him. The question is really one offact depending upon the various facts and diversecircumstances bearing on the debtor's pecuniaryposition, his commitments and obligations. The Judgment of the assessee in regarding the debt as abad debt must be an honest judgment. The judgment ofthe assessee must be established to have been takenon relevant facts and circumstances, which shouldshow that the debt is not realizable for some faulton the part of the debtor or some superveningimpossibility on the part of the debtor to pay butnot possible difficulties or hurdles the assessee mayhave to incur to compel the recalcitrant debtor topay. The assessee for his convenience may decide thatthe debt is too small and it is not worthwhile topursue the debtor but that judgment would not be anhonest judgment, which would establish that the debthas become a bad debt. The same view was taken by thejurisdictional High court in the case of South IndiaSurgical Co. Ltd Vs ACIT ( 287 ITR (62) ( Mad). Hencewe decline to accept the plea of the assessee and theclaim of bad debt is rejected. We confirm the orderof the learned Commissioner of Income-tax( Appeals)and dismiss the appeal filed by the assessee. Aggrieved over the order of the Tribunal, the appellant/assesseefiled the present appeal. 5. On 10.11.2009, this appeal was admitted on the followingsubstantial question of law: “Whether on the facts and in the circumstancesof the case, the Tribunal was justified in law inrejecting the claim of bad debt/trading loss of theamount advanced by assessee in the course of itsmoney leading activity?” 6. Heard both sides and perused the materials placed beforethis court, more particulars, the order impugned herein. 7. We find that the claim of bad debts made by theappellant/assessee was found unacceptable by the Tribunal,inasmuch as for treating a debt as having turned bad, it isnecessary to make an objective decision on the facts as to theimpossibility of collection/recovery of the debt, such anopinion must be honest and ought to be made after taking intoaccount all the relevant factors, whereas the opinion of theappellant was not honest nor objective, keeping in view therelevant factors. Therefore, the Tribunal rejected the plea ofthe assessee and confirmed the order of the Commissioner ofIncome Tax (Appeals). 8. Be it noted, whether a debt turned bad is a question offact, which would clear from the Judgment of the Supreme Court https://hcservices.ecourts.gov.in/hcservices/ in Travancore Tea Estates Co. Ltd. v. CIT, (1998) 8 SCC 667 atpage 667, wherein it is held as follows: “It is well settled that whether a debt has becomebad or the point of time when it became bad are purequestions of fact.” 9. In this context, it is relevant to point out theobservation of the supreme court in the case of Bank of BiharLtd. v. CIT, [(1962) 45 ITR 427] which reads as under: “6. The question whether a debt is a bad debt isone of fact and if there is some evidence to justifythe conclusion it is not open to the High Court in areference under Section 66 of the Indian Income TaxAct to reappreciate the evidence. As observed bytheir Lordships of the Privy Council in CITv.S.M.Chitnavis in interpreting Section 24of the Indian Income Tax Act, 1922, in Travancore Tea Estates Co. Ltd. v. CIT, (1998) 8 SCC 667 atpage 667, wherein it is held as follows: “It is well settled that whether a debt has becomebad or the point of time when it became bad are purequestions of fact.” 9. In this context, it is relevant to point out theobservation of the supreme court in the case of Bank of BiharLtd. v. CIT, [(1962) 45 ITR 427] which reads as under: “6. The question whether a debt is a bad debt isone of fact and if there is some evidence to justifythe conclusion it is not open to the High Court in areference under Section 66 of the Indian Income TaxAct to reappreciate the evidence. As observed bytheir Lordships of the Privy Council in CITv.S.M.Chitnavis in interpreting Section 24of the Indian Income Tax Act, 1922, “Whether a debt is a bad debt, and, if so, atwhat point of time it became a bad debt, arequestions which in their Lordships' view arequestions of fact, to be decided in the event ofdispute by the appropriate tribunal, and not by theipse dixit of anyone else. The assessee has nooption of declaring a debt as bad…. In every case itis a question of fact, to be determined afterconsideration of all relevant circumstances.” 10. In the light of the aforesaid legal proposition, we findno reason to interfere with the concurrent findings of theAuthorities below in as much as whether a debt is bad, beingessentially a question of fact. As the appellant has not madeout any question of law much less substantial question of law,this tax case appeal deserves to be dismissed and isaccordingly, dismissed. No costs. Sd/- Assistant Registrar(CS II) //True Copy// Sub Assistant Registrar smn To 1.The Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai. 2.The Commissioner of Income Tax,Coimbatore.Coimbatore. 3.The Commissioner of Income Tax (Appeals)-II,Coimbatore.Coimbatore. 4.The Deputy Commissioner of Income Tax,Central Circle-II, Coimbatore. +1cc to Mr.M.Swaminathan, Advocate, S.R.No.3270 T.C.A.NO.1187 OF 2009 PM(CO)PBS/07/02/2022