Delhi High Court
Commissioner Of Income Tax ... vs Khaitan Chemicals & Fertilizers ... on 8 February, 2010
Author: Badar Durrez Ahmed
THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment delivered on: 08.02.2010
+ ITA 164/2007
COMMISSIONER OF INCOME TAX DELHI-II ... Appellant
- versus -
KHAITAN CHEMICALS & FERTILIZERS LTD ... Respondent
Advocates who appeared in this case:-
For the Appellant : Mr Sanjeev Sabharwal
For the Respondent : Mr Satyen Sethi with Mr Johnson Bara
CORAM:
HON'BLE MR JUSTICE BADAR DURREZ AHMED
HON'BLE MR JUSTICE SIDDHARTH MRIDUL
1. Whether Reporters of local papers may be allowed
to see the judgment?
2. To be referred to the Reporter or not?
3. Whether the judgment should be reported in Digest?
BADAR DURREZ AHMED, J (ORAL)
1. This appeal filed by the revenue is directed against the order dated
05.05.2006 passed by the Income Tax Appellate Tribunal in ITA 5314/D/
1996 pertaining to the assessment year 1990-1991.
2. The learned counsel for the revenue contended that the Tribunal's
findings are incorrect on two grounds. The first ground of challenge is that
the Tribunal has erred in holding that the amount of Rs 14.79 lacs claimed
by the assessee was allowable as a bad debt under Section 36(1)(vii) of the
Income Tax Act, 1961 (hereinafter referred to as 'the said Act'). Secondly,
the learned counsel for the revenue contended that the Tribunal had gone
wrong in holding that even if the said amount was not to be treated as a bad
debt, it would still be an expenditure under Section 37(1) of the said Act
incurred for the purposes of the business of the assessee and was, therefore,
allowable as a deduction.
3. The facts are that in the year in question, the assessee had written off
an amount of Rs 14.79 lacs by way of subsidy not received, which had been
shown in the earlier year as a receivable, as per the mercantile system of
accounting followed by it. The assessee claimed this amount as a bad debt
under Section 36(1)(vii) of the said Act.
4. The Assessing Officer did not agree with the view taken by the
assessee and came to the conclusion that the said amount did not fall within
the purview of Section 36(1)(vii) of the said Act inasmuch as it did not
amount to a bad debt. The Assessing Officer took the view that the assessee
did not have a legal right to claim the subsidy and, therefore, could not take
the matter to court by way of a suit to claim the same. As such, it was not a
bad debt in the terms described in Section 36(1)(vii) of the said Act.
Consequently, the Assessing Officer disallowed the claim of deduction by
the assessee.
5. The Commissioner of Income Tax (Appeals) confirmed the view
taken by the Assessing Officer. However, the Income Tax Appellate
Tribunal, in the appeal preferred by the assessee, came to the conclusion that
it was an allowable expenditure. The Tribunal, of course, did not return a
definite finding as to whether the said amount represented a bad debt or not
inasmuch as the Tribunal came to the conclusion that even if it were not to
be a bad debt, it would amount to an expenditure under Section 37(1) of the
said Act, incurred by the assessee for the purposes of its business and which
would be allowable to the assessee.
6. We find that insofar as the question of the said amount representing a
bad debt is concerned, the contention of the learned counsel for the revenue
is correct that it cannot be termed as a bad debt. The subsidy that was to be
received from the government by the assessee was not a matter of right.
There was no debtor-creditor relationship established and, therefore, the
same cannot be treated as a debt and, consequently, as a bad debt.
7. It is true that the subsidy was given by the government to the assessee,
who was in the business of selling fertilizers so that fertilizers were available
at a lower price to the farmers. The assessee had calculated the subsidy in
the earlier year provisionally on the basis of the claim made. However,
when the final rates of the subsidy were communicated by the Fertilizer
Industry Coordination Committee (FICC), the same were sought to be
adjusted as subsidy not received. We agree with the learned counsel for the
appellant/ revenue that the assessee had wrongly claimed it as a bad debt
under Section 36(1)(vii) of the said Act. However, we find that the Tribunal
has examined the matter in the correct light and allowed the same as an
expenditure under Section 37(1) of the said Act. A plea was raised by the
learned counsel for the revenue that the Tribunal ought not to have done this
and ought to have remanded the matter to the Assessing Officer to determine
as to whether the claim was allowable under Section 37(1) of the said Act or
not. However, we find that the decisions cited by the learned counsel for the
assessee, namely, CIT v. Mahalaxmi Textile Mills Ltd: 66 ITR 710 and
CIT v. Rose Services Apartment India Pvt. Ltd: ITA 777/2008 decided on
20.02.2009, give a clear indication that the Tribunal was empowered to deal
with the issue of allowability of the said amount of Rs 14.79 lacs and as to
whether the assessee was entitled to claim it as a bad debt or as an
expenditure under Section 37(1).
8. We see no reason to disagree with the view taken by the Tribunal. In
any event, no substantial question of law arises for our consideration.
The appeal is dismissed.
BADAR DURREZ AHMED, J
SIDDHARTH MRIDUL, J
FEBRUARY 08, 2010
SR
