2012 (8) TMI 975

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....t of Rs. 38,30,13,456/-on account of bad debts written off during the relevant previous year and out of which Rs. 21,65,33,326/- pertaining to running chits while Rs. 16,64,80,128/- pertaining to the terminated chits. The assessee explained before the AO that these amounts were due and payable by defaulting prized subscribers. The assessee submitted before the AO that with regard to bad debts in respect of terminated chits, the assessee explained that irrecoverable amounts of subscription in respect of terminated chit groups outstanding as on 31-3-2008 were written off. The AO observed that chit fund transactions do not partake character of debt, and as such the relationship between chit organisation and the subscriber is not a relationship of creditor and debtor. The AO further concluded that since the assessee is in chit fund business and not money lending business, the bad debts to the extent of which is offered as income on accrual basis in the previous year or any earlier previous year shall alone be eligible for deduction u/s 36(1)(xii) of the Act. Therefore, he restricted the claim of bad debts to 5% of the amount due from prized subscriber. The remaining 95% of the bad debt....

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....ed by the assessee. 9. In the result, the appeal filed by the assessee stands dismissed. ITA No.390/Hyd/2012- Revenue's appeal) 10. In ground No.2 the revenue has challenged the order of the CIT (A) with regard to his finding on claim of bad debts on running and terminated chits. In view of our finding in ground Nos. 2 and 3 raised in assessee's appeal, the ground raised by the revenue is rejected. 11. In ground No.3, the revenue has challenged the deletion of the amount of Rs. 1,62,45,800/- towards commission on cancelled chits. We find identical issue came up before the ITAT, Hyderabad Bench in assessee's own case passed in ITA No.120/Hyd/2010 the ITAT following its earlier order passed in assessee's own case upheld the order of the CIT (A) in allowing the commission on cancelled chits. The observation of the ITAT in para-15 which is extracted hereunder:- "15. Similar issue came up for consideration before this Tribunal in assessee's own case in earlier orders for the assessment years 1998899, 1999-2000 in ITA Nos.471/H/2002 & 1049/H/2002 respectively wherein the Tribunal held in Para 6.3 as follows: 6.3. Time of recognition of Income from commis....

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.... following manner:- "20. Similar issue came up for consideration before this Tribunal for the assessment years 2004-05! 2005~06 and 2006-07. The Tribunal vide its order dated 26.7.2004 in Para 20 held as follows: Page 136, 137, 138 of PB. 6.7(lv): We are convinced with the arguments of the learned counsel for the assessee. The Bangalore Bench of the Tribunal In ITA No.751, *750, 749 &. 748/(Bang.)/1998 In the case of M/s Srlram Chits (Bangalore) Ltd. Vs. DCIT (assistant) Special Range, Bangalore held as follows: "29. We have carefully gone through the records and consideration the rival contentions. M/s Sriram Chits &. Investment (P) Ltd. having registered office at Madras was the absolute owner of the copy right relating to existing artistic work "Srlram Chits" logo registered as such under the provisions of the Copy Right Act, 1957 with the Registrar of Copyrights bearing registration No.A/49899/88 dated 7.7.1988. The assessee entered Into an agreement with the holding company for exclusive use of the logo of the holding company In the course of soliciting Its business amongst potential Investors. The conditions of the agreement provided that the assess....

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....am Chlts and Investments (P) Ltd. does not end with merely transferring the right to sue Its logo to Its subsidiary company. It also assumes the responsibility to ensure that the name which It has built up over the years Is maintained by Srlram Chits (Bangalore) (P) Ltd. Towards thl, Srlram Chits and Investments (P) Ltd. has provided financial assistance time and again to Srlram Chits (Bangalore) (P) Ltd. to help Its working capital requirements. When Srlram Chits (Bangalore) (P) Ltd. commenced operations, all Its employees were from Srlram' Chits a. Investments (P) Ltd. who had prior experience In this line. Even now, Srlram Chits (Bangalore) {P} Ltd. looks for managerial support from Srlram Chits and Investments (P) Ltd. which Is being provided. In addition to this, the entire software package of Srlram Chits and Investments {P} Ltd. which was* being used by It for Its operations was transferred to Srlram Chits. ,. (Bangalore) (P) Ltd. for carrying out Its day to day routines. The Holding company also holds periodical meetings with the executives of the subsidiary Company In order to monitor Its activities. : ... 10. The reasonability of 0.5% royal. The use ....