TaxTMI 
TaxTMI 
2013 (5) TMI 227
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....s was deductible u/s. 28 of the IT Act, 1961 as a loss arising in the course of carrying on business by the appellant. 3. Brief facts of the issue are that the assessee has debited an amount of Rs. 32,15,07,099.61 as bad debts written off. Out of this Rs. 16,51,09,672.70 pertains to running chits and an amount of Rs. 15,64,97,426.91 pertains to terminated chits. The assessee explained before the Assessing Officer that these amounts were due and payable by defaulting prized subscribers. The assessee submitted that sec. 22 of the Chit Funds Act enjoins upon the Foreman, i.e. the assessee company, an obligation to pump in money on behalf of the defaulting prized subscribers in order to complete the cycle of a particular chit group. It was a....
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....he assessee alternatively submitted that the amounts not recovered from the defaulting prized subscribers should be considered as trading loss per se arising in the course of. carrying on of the business by way of providing guarantee within the meaning of sec. 22 of the Chit Funds Act. 7. On appeal the CIT(A) observed that an identical issue has been decided in the assessee's appeal for asst. years 2004-05 to 2008-09 also. It was observed in those orders that for asst. years 1995 96 and 1997-98, bad debts in respect of terminated chits had been allowed as deduction by CIT (Appeals), and the departmental appeal in this regard was dismissed by the Tribunal. In view of the above, bad debts relatable to Terminated Chits were directed to be a....
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....e has been allowed by the Tribunal and on that basis the present claim is to be allowed. He relied on the order of the Tribunal dated 12.10.2012 in ITA No. 975/12 for A.Y. 2009-10. While disposing the appeal for A.Y. 2009-10, the Tribunal relied on the earlier order of the Tribunal for A.Ys. 1995-96 to 1999-2000, 2002-03 to 2006-07 and 2008-09. In earlier year, the Tribunal remitted the issue for computing the bad debts relatable to running chits. We have no dispute with regard to the findings of the Tribunal on earlier occasion. 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. In other words, bad debts can....
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....ing as dividend on the chit subscribed by the Foreman is not distributed among the subscribers but among the share holders of the assessee company. He further found that Department's contention had been upheld by the Tribunal for Asst. Years 1999-2000, 2000-01 and 2001-02 as reported in 83 ITD 792, besides in the assessee's own appeals for the A.Ys. 2002-03 to 2007-08. He also referred to the decision of the Tribunal Delhi Bench in the case of Sarvpriya Chits Pvt. Ltd. vs. CIT (60 ITD 674) wherein it was held that in case of chit fund business, principle of mutuality will not apply. Accordingly, the claim of exemption of Foreman's dividend was rejected and addition under reference was made. 12. During the appellate proceedings, the repre....
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....of necessity or expediency of its business and not by choice. It was not the case of the assessee-company that it participated in chits promoted by other companies or entities. The basic principle of mutuality cannot be applied to income from commercial pursuits. Profit earning was the motto of the assessee-company. The profits in question arose and accrued from the trade or vocation which it carried on. The principles of mutuality are based on the concept that no one can make profits out of himself. The essence of mutuality is of complete identity between the contributor and the participator. Under section 21 of the Chit Funds Act, 1982, the foreman 5 role and rights are at variance with the other participators and contributors. The for....