2012 (10) TMI 1049 - AT - Income Tax

Disallowance of bad debts on running and terminated chits - disallowance made by the AO towards commission on cancellation chits - disallowance of royalty payment

Summary

Issues Involved:
1. Deletion of disallowance of bad debts on running and terminated chits.
2. Deletion of disallowance made by the AO towards commission on cancellation chits.
3. Deletion of disallowance of royalty payment made by the AO.

Issue-wise Detailed Analysis:

1. Deletion of disallowance of bad debts on running and terminated chits:

The assessee had written off bad debts totaling Rs. 32,16,07,099.61, with Rs. 16,51,09,672.70 related to running chits and Rs. 15,64,97,426.91 to terminated chits. The AO restricted the bad debt claim to 5% of amounts due from prized subscribers, totaling Rs. 1,60,80,355/-, and disallowed the remaining Rs. 30,55,26,745/-. The CIT(A) allowed the bad debts claim, referencing prior decisions in the assessee's favor for AYs 2004-05 to 2008-09, including the ITAT's dismissal of the departmental appeal. The ITAT confirmed the CIT(A)'s order, noting the issue was covered by earlier ITAT decisions in the assessee's own cases for multiple assessment years.

2. Deletion of disallowance made by the AO towards commission on cancellation chits:

The AO added back Rs. 74,78,677/- to the assessee's income, arguing that commission on cancelled chits should be recognized on completion of the chit series, not on actual payment. The CIT(A) deleted the addition, following the ITAT's earlier decisions upholding the assessee's method of accounting for such commissions. The ITAT confirmed the CIT(A)'s order, referencing consistent ITAT rulings in the assessee's favor for previous years, including AY 2008-09.

3. Deletion of disallowance of royalty payment made by the AO:

The AO disallowed Rs. 3,29,63,986/- paid as royalty to M/s Shriram Financial Services Holdings P. Ltd., arguing the payment lacked a rational basis and was not wholly and exclusively for business purposes. The CIT(A) allowed the deduction, citing ITAT decisions for AY 2004-05 and subsequent years, which recognized the royalty payments as legitimate business expenses. The ITAT upheld the CIT(A)'s decision, noting the issue was consistently decided in the assessee's favor in earlier years, including AY 2008-09.

Conclusion:

The ITAT dismissed the revenue's appeal, confirming the CIT(A)'s orders on all issues, which were consistent with prior ITAT decisions in the assessee's own cases. The judgment underscores the importance of consistency in tax treatment across assessment years and adherence to established judicial precedents.