Decided on May 29,2014



R.P.TOLANI,JM. - (1.) THIS is revenue's appeal against CIT(A) -V, New Delhi's order dated14 -1 -2010 in appeal no. 118/08 -09 relating to A.Y. 2005 -06. Following effective grounds are raised: "1. The Ld. CIT(A) has erred on facts and in law by directing to delete addition of Rs. 64,45,245/ - on account of disallowance of bad debts/ advances written off ignoring that losses or debts of Fashion Brands International Inc. a subsidiary company and a separate legal entity, could not be allowed to be deducted from the profits of the assessee company. 2. The Ld. CIT(A) has erred on facts and in law by directing to delete addition of Rs. 98,196/ - on account of Employee's contribution to PF/ESI fund made u/s 2(24)(x) read with section 36(1)(va) of the Act ignoring that the fact that these sums were deposited by the assessee in the employee's account in the relevant fund beyond the due dates prescribed under the relevant Acts. 3. The Ld. CIT(A) has erred on facts and in law by directing to delete addition of Rs. 18,53,000/ - on account of sundry creditors of discontinued operations of Pharma Division of the company which was sold under slump sale ignoring the fact that in the slump sale all the liabilities are accounted for and already transferred. Moreover, the business transfer agreement also does not contain any clause repudiating acceptance of any liability by the purchaser of the unit. "
(2.) GROUND no. relatable to payment of PF and ESI is agreed to be covered in favour of the assessee in as much as the amounts were paid before the due date of filing of return. In view thereof, ground no. 2 of the revenue is dismissed.
(3.) APROPOS revenue's ground no. 1 i.e. claim of bad debts/ advances written off, brief facts: The assessee had established a subsidiary company in 2001 in USA by name, Fashion Brands International Inc. ("FBII" in short) to promote the business of export of leather garments. Assessee advances moneys to it for expenses and working capital which were debited as "Apollo USA" a/c. The subsidiary in earlier years carried out important role in the export business of the assessee and earned income also. However, due to rejection of some shipment of leather goods it suffered heavy financial losses. During the course of assessment proceedings the assessee submitted audited copies of annual report of FBII demonstrating the suffering of huge losses and the deficit as on 31 -3 -2003 which stood at $ 1,94,753 and the total liabilities and shareholders' deficit was reflected as $ 3,54,664. Since the amounts became irrecoverable the assessee wrote off this amount in its books of a/cs as bad debt u/s 36(1)(vii) and claimed it. Before assessing officer an alternative plea was also made that in any case it was a business loss suffered by the assessee during the course of carrying on of its business. The assessing officer disallowed the claim on the ground that the loss was of a totally independent concern which was a separate entity i.e. FBII. The assessing officer was of the view that it was a trite proposition that losses or debts of the assessee company alone can be allowed u/s 37 or 36(1)(vii). Therefore it was disallowed. 3.1. Aggrieved, assessee preferred first appeal where the assessee relied on catena of judgments in its support as under: - CIT Vs. Dalmia Cement (B) Ltd. (2002) 254 ITR 377; - Kejriwal Enterprises Vs. CIT 260 ITR 341 (Cal.); - Vassanji Sons and Co. P. Ltd. 125 ITR 462 (Bom.); - Essen Pvt. Ltd. Vs. CIT 65 ITR 625 (SC); - CIT Vs. Amalgamations Pvt. Ltd. 226 ITR 188 (SC); - Turner Morrison and Co. Ltd. Vs. CIT 245 ITR 724 (Cal.); - Phaltan Sugar Works Ltd. 208 ITR 989; - CIT Vs. Wood Ward Governor India P. Ltd. 312 ITR 254 (SC) - CIT Vs. Malayalam Plantation Ltd. 53 ITR 140 (SC) - S.A. Builders Vs. CIT 288 ITR 1 (SC) 3.2. Ld. CIT(A) after considering all the facts and circumstances allowed the assessee's claim by following observations: "I have considered the submissions made by the appellant and on the basis of facts placed before me and the legal submissions made I hold that since, the amount of Rs. 64,45,245/representing bad debts written off by the appellant company was advanced by it as a measure of commercial expediency for business proposed, therefore, in view of the decision of the Hon'ble S.C. in the case of S.A. Builders 288 ITR 1 (SC), the same is an allowable business expenditure u/s 37(1) of the IT Act. Therefore, the addition of Rs. 64,45,245/ - made by AO is hereby deleted. " 3.3. Aggrieved, revenue is before us. Ld. DR reiterated the stand taken by the assessing officer i.e. (i) FBII was a separate and distinct legal entity and undisputedly the losses incurred pertained to the subsidiary only. (ii) The assessee had not suffered any loss. 4.1. In view of these factual submissions ld. DR contended that the order of assessing officer deserves to be upheld. ;

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