2012 (12) TMI 719 - AT - Income Tax

Write off of bad debt in the books of account u/s 36(1)(vii) Held that - Following the decision in case of T.R.F. LTD. Versus COMMISSIONER OF INCOME-TAX 2010 (2) TMI 211 - SUPREME COURT to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt,in fact has become irrecoverable. It is enough of the bad debt is written off as irrecoverable in the accounts of the assessee - matter remanded to the Assessing officer to examine, solely to the extent of write off, whether the debt or part thereof was written off in the accounts of the assessee. Sale tax collection - capital v/s revenue receipt - assessee has been granted subsidy in respect of sales tax receipt Held that - As decided in Sahney Steel & Press Works Ltd v CIT 1997 (9) TMI 3 - SUPREME COURT the subsidy by way of refund of sales tax on purchase of machinery is operational subsidy and hence revenue receipt - set aside the issue to the files of the AO to consider whether the present subsidy scheme enjoyed by the Assessee is identical with that of the scheme framed by the Government of Maharashtra in 1979, considered in the case of DCIT Versus Reliance Industries Limited 2003 (10) TMI 255 - ITAT BOMBAY-J and if so teat it as a capital receipt. Disallowance of discount given to stockists Held that - What is offered by the assessee to the stockists are nothing but discount because the assessee sells the goods to the stockists, who is turn sells the goods to the consumer. In the sale transaction between the assessee and the stockists there cannot be payment of commission to the purchaser himself. Here stockists themselves are buying goods and it cannot be said that they are rendering any service in the course of such buying of goods which will render any payment to them as commission. Thus confirming findings of the CIT(A) that what was offered to the stockists is nothing but discount under provisions to sec.194H will not apply in favour of assessee. Computation of capital gains arising from transfer of undertaking Held that - Merely because the land was not conveyed by means of a registered conveyance deed, it cannot be said that the transferee who was permitted to enjoy complete domain over the land is not owner of the land. (Mysore minerals). Hence,transfer of the undertaking by the Assessee for a lumsum consideration should be considered as a slump sale to which provisions of sec 50B will be applicable. Hence in such cases provisions of sec 50C can not be applied in view of Explanation (2) to sec 2(42C) which has clarified that assignment of value for land and building the purpose of registration would not affect the computation of capital gains u/s 50B. Further in this case there was no stamped conveyance deed for transferring land - Order of the CIT(A) is upheld - revenue s appeal is dismissed on this issue - In the result, the appeal of the revenue is partly allowed for statistical purposes.

Summary

Issues Involved:
1. Allowance of bad debts under Section 36(1)(vii) of the Income Tax Act.
2. Treatment of sales tax collection as capital receipt due to subsidy.
3. Disallowance of discount given to stockists.
4. Computation of capital gains arising from the transfer of an undertaking.

Detailed Analysis:

1. Allowance of Bad Debts under Section 36(1)(vii) of the Income Tax Act:
The first issue pertains to the allowance of bad debts written off in the books of accounts. The Assessing Officer (AO) disallowed the bad debts claimed by the assessee due to a lack of evidence proving that the debts were part of the income in earlier years and that necessary recovery steps had been taken. The CIT(A) allowed the appeal, stating that the debts were indeed part of earlier income and written off in the current year, and it was not necessary for the assessee to prove the irrecoverability of the debts. This decision was supported by various case laws, including the Supreme Court's decision in TRF Ltd Vs CIT, which held that post-amendment of Section 36(1)(vii), it is sufficient if the bad debt is written off in the accounts. The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision.

2. Treatment of Sales Tax Collection as Capital Receipt:
The second issue involves the treatment of sales tax subsidy received by the assessee under the Maharashtra Government Scheme as a capital receipt. The AO treated the sales tax collection as a trading receipt, citing several case laws. However, the CIT(A) allowed the appeal, stating that the subsidy was granted to set up an industry in a backward area and should be treated as a capital receipt, not liable for tax. This decision was supported by the Special Bench of ITAT in Reliance Industries Ltd. and other judicial precedents. The Tribunal set aside the issue to the AO to verify if the subsidy scheme was identical to the one considered in Reliance Industries Ltd. If so, it should be treated as a capital receipt.

3. Disallowance of Discount Given to Stockists:
The third issue concerns the disallowance of discounts given to stockists, which the AO treated as commission subject to TDS under Section 194H. The CIT(A) allowed the assessee's claim, differentiating between discounts and commissions and noting that discounts are abatements in sale prices, not commissions. The Tribunal upheld the CIT(A)'s decision, emphasizing that the discounts given to stockists were not commissions and thus not subject to TDS under Section 194H.

4. Computation of Capital Gains from Transfer of Undertaking:
The fourth issue involves the computation of capital gains arising from the transfer of the assessee's heavy engineering division. The AO applied Section 50C, treating the transaction as a sale of assets and computing capital gains accordingly. The CIT(A) ruled in favor of the assessee, stating that the transfer was a slump sale and not governed by Section 50C. The Tribunal upheld this decision, noting that Section 50C does not apply in the absence of a registered sale deed and that the transfer should be treated as a slump sale under Section 50B.

Conclusion:
The Tribunal's decision resulted in the partial allowance of the revenue's appeals for statistical purposes, affirming the CIT(A)'s decisions on the allowance of bad debts and the disallowance of discounts given to stockists, while remanding the issue of sales tax subsidy and the computation of capital gains for further examination by the AO.