2013 (5) TMI 227 - AT - Income Tax

Appeal on Bad Debts Deduction and Chit Funds Taxability

The appeal addressed the deduction of bad debts related to running and terminated chits for the assessment year 2009-10. The Tribunal upheld the allowance ... Bad debts in respect of chit groups - Held that:- The amount of loss incurred by the assessee has to be allowed on both running and terminated chits if irrecoverable if the prized chit amount has gone out of the hands of the assessee. Bad debts can be allowed to the extent of instalments defaulted by the prized subscribers and written off as bad debt in the books of the assessee. Accordingly, AO directed to decide the issue in the light of the order in assessee's own case dated 26.7.2004 wherein the Tribunal remitted the issue back to the file of the Assessing Officer to see whether the assessee made a claim of bad debt and written off in the books of account. Taxability of foreman dividend upheld - Held that:- The issue considered by the Madras High Court in CIT vs. Shriram Chits and Investments Ltd. [2012 (12) TMI 134 - MADRAS HIGH COURT] as relied upon by assessee is relating to allowability of contribution of the assessee as a foreman in the place of a defaulted subscriber as bad debt u/s. 36(1)(vii) or as a business loss u/s. 28(1). As concerned in assessee's present case with regard to taxability of foreman dividend received it was categorically held by the Tribunal in earlier years as there is no applicability of 'mutuality' on this income. Being so, we are inclined to follow the earlier order of this Tribunal and dismiss this ground. Issues:1. Deduction of irrecoverable amounts in respect of running and terminated chits under sec. 28 of the IT Act, 1961.2. Taxability of foreman dividend received on company's chits.3. Levy of interest u/s. 234B and 234C.Issue 1: Deduction of Irrecoverable Amounts in Respect of Running and Terminated Chits:The appeal concerned the allowance of bad debts written off by the assessee in relation to running and terminated chits for the assessment year 2009-10. The assessee claimed that these amounts were due from defaulting prized subscribers and were written off as bad debts. The CIT(A) allowed the claim for bad debts related to terminated chits based on previous decisions, and directed the Assessing Officer to compute bad debts for running chits in accordance with Tribunal orders. The Tribunal upheld the assessee's claim, emphasizing that bad debts can be allowed for defaulted instalments by prized subscribers. The issue was remitted back to the Assessing Officer for further examination based on earlier Tribunal orders, and the ground was allowed for statistical purposes.Issue 2: Taxability of Foreman Dividend Received on Company's Chits:The second issue revolved around the taxability of foreman dividend received on the company's chits. The Assessing Officer rejected the claim of exemption of foreman's dividend, citing Tribunal decisions and the principle of mutuality not applying to commercial organizations formed for profit. The CIT(A) followed earlier Tribunal orders, and the Tribunal upheld the taxability of foreman dividend, stating that the principle of mutuality did not apply to income from commercial pursuits. The assessee's plea was dismissed, and the Tribunal upheld the decision based on previous rulings.Issue 3: Levy of Interest u/s. 234B and 234C:Regarding the levy of interest under sections 234B and 234C, it was noted that the Assessing Officer was required to compute and levy interest while passing the giving effect order. The levy of interest under these sections was considered consequential and mandatory. The appeal of the assessee was partly allowed for statistical purposes, and the order was pronounced on 5th April 2013.This detailed analysis covers the issues of deduction of irrecoverable amounts in respect of running and terminated chits, the taxability of foreman dividend received on company's chits, and the levy of interest under sections 234B and 234C as per the judgment delivered by the Appellate Tribunal ITAT Hyderabad in 2013.