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TMI Blog2012 (8) TMI 975X X X X Extracts X X X X X X X X Extracts X X X X ..... judication. 3. In ground Nos. 2 and 3, the assessee has challenged the order of the CIT (A) in not allowing deduction of irrecoverable amounts in respect of running and terminated chits as loss in course of carrying on business. 4. The assessee during the year had debited an amount of ₹ 38,30,13,456/-on account of bad debts written off during the relevant previous year and out of which ₹ 21,65,33,326/- pertaining to running chits while ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing manner:- The next two grounds in assessee s appeal are related to levy of interest u/ss 234D and 234B which are mandatory and consequential in nature. Accordingly, these two grounds raised by the assessee are dismissed. Following the aforesaid order of the ITAT, we reject the grounds raised 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 ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAT, we uphold the order of the CIT (A) and reject the ground raised by the Revenue. 12. Ground No. 4 relates to deletion of the royalty payment of ₹ 3,34,31,583/-. Similar issue came up before the ITAT for the earlier assessment year in iTA No. 490/Hyd/10, ITA No.720/Hyd/10 and the ITAT held in the 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 Copyrig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Auction Turnover 29.49 95.9 181.15 225.69 348.29 542.28 753.23 . 6. The right to use the logo from the Holding Company Srlram Chits and Investments (P) Ltd. was formally given to Sri ram Chits (8angalore) (P) Ltd. the subsidiary company In the year 1994 vide an agreement entered Into, which provided for the payment of certain 010 of the Auction turnover as royalty to Srlram Chits and Investments (P) Ltd. 7. By the agreement, Sriram Chits and Investments (P) Ltd., has formally committed Itself to the growth and development of Srlram Chits (Bangalore) (P) Ltd. for a further period of 7 years. 8. The duty of Srlram 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 lakh as royalty Is sufficient to produce the business of the magnitude procured by the assessee over the years. The holding company has entered Into similar agreements with other subsidiary companies and the CIT(A) has considered the same to be reasonable business outflow property under a specific agreement executed by the parties Is very much reasonable and should have been accepted as a business expenditure allowable as deduction. We, therefore, delete the disallowance for these two years. The disallowance has been primarily based on a suspicion and Incorrect appreciation of ahrd realities of the business by the revenue authorities. The disallowance Is accordingly deleted.' Following the aforesaid finding of the ITAT, we uphold the order of the CIT (A) and reject the ground raised by the Revenue. 13. In Ground No.5, the revenue challenged the deduction allowed by the CIT (A) towards contribution to PF and ESI u/s 36(1)(ba). Briefly the facts are during the relevant previous year, in course of assessment proceedings the AO found from the report submitted in form 3CD that the assessee has not remitted the employees contribution towards PF amounting to ₹ 25,97,84 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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