2013 (2) TMI 267 - HC - Income Tax

Disallowance of business loss - Tribunal sett aside the matter of to the file of AO - Held that - When the Tribunal has taken care to remand the issue to the AO to examine all relevant aspects of the matter, such as, whether the payment was actually made, whether Bombay High Court had allowed such claim and whether the assessee had made such a claim for any subsequent years, to our mind, there is nos reason to interfere -in favour of assessee for statistical purposes. Disallowance of bad debts - ITAT deleted the addition - Held that - Tribunal committed no error in deleting the addition as assessee having bad debts written off in the books of accounts, it was thereafter not necessary any further to establish that bad debt had in fact become bad - in favour of assessee. Disallowance of loss on wind mills and change in the method of valuation of stock - ITAT deleted the addition - Held that - As the assessee company in the annual report of the Board of Directors had noted that the Government was not coming out with long term policy for development of non-conventional energy sources which prompted the Company to reduce the energy devision during the year. The machines were also seized by the Bank having a first charge under the order of the Bombay High Court. Considering such aspects, finding that the title of the machines was also in doubt, the Company decided to write off the same. Revenue s objection that the same was a capital loss was rejected observing that windmills were treated as stock in trade in the assessee s project. The Revenue s contention that the assessee had altered its method of valuation was also dealt with observing that the assessee found that windmill had no realizable value and therefore its valuation was changed to adopt to the cost or its realizable value whichever is less. Such method was found acceptable by different High Courts. Here also, the Tribunal having considered all relevant aspects of the matter and having come to the conclusion that the assessee was justified in writing off the investment in the windmills as bad debt - in favour of assessee.

Summary

Issues:
1. Disallowance of business loss claimed by the assessee.
2. Disallowance of bad debts.
3. Disallowance of loss on windmills and change in the method of valuation of stock.

Issue 1: Disallowance of Business Loss
The Revenue appealed against the Tribunal's decision regarding the disallowance of Rs.48.62 lacs claimed by the assessee as a business loss. The Tribunal remanded the issue to the Assessing Officer for fresh consideration. The Tribunal emphasized the need for verifying whether the payment was actually made, if the Bombay High Court had allowed the claim, and if the assessee had made similar claims in subsequent years. The High Court upheld the Tribunal's decision, stating that there was no reason to interfere since the Tribunal had instructed a thorough examination of all relevant aspects.

Issue 2: Disallowance of Bad Debts
Regarding the disallowance of bad debts amounting to Rs.54.59 lacs, the Assessing Officer initially rejected the claim, but both the CIT(A) and the Tribunal overturned this decision. The Tribunal noted that the debts were written off in the assessee's books of accounts, and the CIT(A) had provided a well-reasoned order justifying the claim. The High Court affirmed the Tribunal's decision, stating that it was unnecessary to further prove that the bad debts had indeed become bad once they were written off in the books.

Issue 3: Disallowance of Loss on Windmills
The assessee claimed Rs.3.61 crores as a loss on windmills, which the Assessing Officer disallowed. However, the CIT(A) allowed the claim, and the Tribunal extensively analyzed the issue, addressing the objections raised by the Revenue. The Tribunal considered the circumstances leading to the write-off of the windmills, including the lack of a long-term policy for non-conventional energy sources and the machines being seized by the Bank under a court order. The Tribunal rejected the Revenue's argument that it was a capital loss, stating that windmills were treated as stock in trade. Additionally, the Tribunal found the method of valuation change acceptable, as it was based on the realizable value of the windmills. The High Court concluded that no legal question arose, and thus dismissed the Tax Appeal.

This comprehensive analysis of the judgment addresses the issues of disallowance of business loss, bad debts, and loss on windmills, providing a detailed overview of the Tribunal's decisions and the High Court's affirmations.