- (1.) HEARD learned counsel for the parties.
(2.) THIS appeal had been admitted for deciding the following question of law: Whether loss of Rs.8,35,483/, which represented the written down value of fixed assets of the assessee company, which got vested in Nigerian company due to certain restrictions imposed by the Government of Nigeria, is a capital loss or trading loss? At the outset, we may observe that in the impugned order passed by the Tribunal dated 27th May, 2002, this core issue has not been decided and we are of the considered opinion that even facts of the case have not been properly appreciated, much less appreciation of the contention of the parties. However, facts of the present case are that the Assessing Officer made several additions and many of the additions were in respect of bad debt. The assessee company claimed bad debt of Rs.2,28,57,374/. The Assessing Officer asked the assessee to explain as to how this amount had become bad debt. The assessee's contention is that in accordance with the provision of Federal Decree of the Government of Nigeria, the assets and liabilities were vested in the MECON (Nigeria) Ltd. One of the facts noticed by the Assessing Officer was that the assessee could not produce the Federal Decree of the Government of Nigeria, by which the assets and liabilities of the assessee were vested in the MECON (Nigeria) Ltd. The assessee furnished details, which revealed that total assets had been shown at Rs.4,70.97,404/ and net liability at Rs.2,50,75,503/ and thus, difference came out to be Rs.2,20,21,891/. The value of fixed asset written off was Rs.8,35,482/, which had been added and the total sum came to be Rs.2,28,57,374/ and the same had been claimed to be bad debt. The assessee produced the agreement between the assessee and the MECON (Nigeria) Ltd. According to the agreement, M/s. MECON (Nigeria) Ltd. was appointed by the assessee as subcontractor and the assessee authorized M/s. MECON (Nigeria) Ltd. to receive payment due to the assesseecompany obviously in Nigeria. The assessee claimed that the amount from sundry debtors could not be realized and hence it constituted bad debt. The Assessing Officer then observed that right to realize the sundry debtors was vested in M/s. MECON (Nigeria) Ltd., which is admittedly subsidiary company of the assessee and it realized the sundry debtor on behalf of the assessee company and therefore, this bad debt of Rs.2,28,57,374/ was not allowed.
(3.) AGAINST the assessment order dated 31.12.1991, the respondentassessee went in appeal before the Commissioner of Income Tax (Appeals), Ranchi. The appellate authority held that the respondent's claim could not be considered under section 36(1)(vii) of the Income Tax Act. However, the appellate authority held that the Assessing Officer was correct in holding that there is no element of bad debt in whole of the transaction. The respondent transferred certain assets to the Nigerian company for utilization in that company but due to certain restrictions imposed by the Nigerian Government, they lost control over those assets and the assets ceased to belong to assessee. The sundry debtors of the respondent became the sundry debtors of the Nigerian company. Other assets like cash and bank balance, stockintrade etc. continued to belong to the Nigerian company. According to the appellate authority, after all efforts for recovery of assets from Nigeria, the assessee failed in getting anything and therefore, the assessee wrote off the value of the assets in their accounts. The appellate authority observed that the debts, which existed with the respondentcompany, only took a different manifestation and in any case, the Nigerian company was not a debtor to the respondentcompany, nor the debtors of foreign company remained the debtors of the assesseecompany any longer. The appellate authority held that since there was no debtor for the respondentcompany, there was no question of any debt becoming bad. The Commissioner of Income Tax observed that the claim of the respondentcompany can be considered as a trading loss with reference to the provisions of section 29 of the Income Tax Act and after relying upon some judgments, Commissioner of Income Tax (Appeals) allowed relief of Rs.2,20,21,891/, which represented trading loss but did not allow the relief of Rs.8,35,482/, which represented written down value of the fixed assets of the assessee, which, according to the appellant, is held by M/s. MECON (Nigeria) Ltd.;