2012 (8) TMI 975 - AT - Income Tax

Deduction of irrecoverable amounts in respect of running and terminated chits as loss in course of carrying on business - disallowance of foreman dividend - levy of interest u/s 234B and 234C - addition commission on cancelled chits - addition on royalty payment - deduction allowed by the CIT (A) towards contribution to PF and ESI u/s 36(1)(ba) -

Issues Involved:
1. Deduction of irrecoverable amounts in respect of running and terminated chits as loss.
2. Disallowance of foreman dividend.
3. Levy of interest under sections 234B and 234C.
4. Claim of bad debts on running and terminated chits.
5. Deletion of the amount towards commission on canceled chits.
6. Deletion of royalty payment.
7. Deduction towards contribution to PF and ESI under section 36(1)(ba).

Detailed Analysis:

1. Deduction of Irrecoverable Amounts in Respect of Running and Terminated Chits as Loss:
The assessee challenged the CIT (A)'s order for not allowing the deduction of irrecoverable amounts related to running and terminated chits. The assessee had debited Rs. 38,30,13,456 as bad debts, with Rs. 21,65,33,326 pertaining to running chits and Rs. 16,64,80,128 to terminated chits. The AO observed that the relationship between the chit organization and the subscriber is not of creditor and debtor and restricted the bad debts claim to 5% of the amount due from prized subscribers. The CIT (A) followed the ITAT's previous order allowing bad debts for terminated chits and set aside the computation for running chits. The ITAT upheld the CIT (A)'s directions, rejecting the assessee's grounds.

2. Disallowance of Foreman Dividend:
The assessee contested the disallowance of foreman dividend amounting to Rs. 7,99,69,867. The ITAT, referencing its earlier decision in the assessee's own case, upheld the CIT (A)'s order and dismissed the assessee's grounds.

3. Levy of Interest Under Sections 234B and 234C:
The assessee raised issues regarding the levy of interest under sections 234B and 234C. The ITAT, following its earlier decision, held that the levy of interest under these sections is mandatory and consequential, thereby dismissing the grounds raised by the assessee.

4. Claim of Bad Debts on Running and Terminated Chits:
The revenue challenged the CIT (A)'s finding on the claim of bad debts for running and terminated chits. The ITAT, in view of its findings in the assessee's appeal, rejected the revenue's ground.

5. Deletion of the Amount Towards Commission on Canceled Chits:
The revenue contested the deletion of Rs. 1,62,45,800 towards commission on canceled chits. The ITAT referred to its earlier decisions in the assessee's own case, where it upheld the CIT (A)'s order allowing the commission on canceled chits. The ITAT reiterated that the commission income accrues upon the final settlement of the defaulting subscriber's account, thus rejecting the revenue's ground.

6. Deletion of Royalty Payment:
The revenue challenged the deletion of royalty payment of Rs. 3,34,31,583. The ITAT, citing its previous rulings, upheld the CIT (A)'s order, noting that the royalty payment was a legitimate business expenditure and should be allowed as a deduction. The ITAT emphasized the reasonable nature of the royalty payment for the use of the logo, which contributed significantly to the business growth.

7. Deduction Towards Contribution to PF and ESI Under Section 36(1)(ba):
The revenue disputed the deduction allowed by the CIT (A) for contributions to PF and ESI. The AO had disallowed these contributions as they were not remitted within the due dates. However, the CIT (A) allowed the deductions, following the Supreme Court and Delhi High Court rulings that contributions paid before the due date of filing the return should be allowed. The ITAT upheld the CIT (A)'s order, referencing the judgments of the Supreme Court and Delhi High Court.

Conclusion:
Both the appeals filed by the assessee and the revenue were dismissed. The ITAT upheld the CIT (A)'s orders on all contested issues, following precedents set in the assessee's own previous cases and relevant judicial rulings.

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