Case Law Details
PCIT Vs VE Commercial Vehicles Ltd (Delhi High Court)
Introduction: In a recent appeal for Assessment Year 2010-11, the Delhi High Court has ruled on an important tax matter. The appeal, filed by the revenue authority, challenged an order from the Income Tax Appellate Tribunal regarding the deduction of bad debts. This article provides a detailed analysis of the case and its implications.
Detailed Analysis: The core issue in this case was the deduction of bad debts acquired by VE Commercial Vehicles Ltd (the respondent/assessee) from its predecessor-in-interest, Eicher Motors Ltd. (EML), as part of a scheme of demerger. The revenue authority argued that the deduction of these bad debts, amounting to Rs 5 crores, was not permissible under Sections 36(1)(vii) and 36(2) of the Income Tax Act, 1961.
However, it was not in dispute that the subject debts had indeed become bad. Furthermore, EML, the predecessor-in-interest, had previously offered these bad debts for taxation.
The Commissioner of Income Tax (CIT(A)) had previously ruled in favor of the respondent/assessee, a decision that was upheld by the Income Tax Appellate Tribunal.
In light of the legal principles established in the Supreme Court’s judgment in Commissioner of Income Tax v. T. Veerabhadra Rao (1985) 155 ITR 152 (SC), as well as the Delhi High Court’s decision in CIT v. Times Business Solution Ltd., 2013:DHC:1783-DB, the High Court found no reason to interfere with the impugned order.
The judgment reinforced the principle that the respondent/assessee could indeed write off the bad debts acquired from its predecessor-in-interest. The disallowance of bad debts amounting to Rs 5,96,20,438 was correctly deleted.
Conclusion: In summary, the Delhi High Court’s decision to uphold the deletion of the disallowance on bad debts reinforces the principles established by relevant legal precedents. This ruling clarifies the treatment of bad debts acquired in a scheme of demerger and will have implications for similar cases. No substantial question of law was found to arise in this matter, and the appeal was closed accordingly.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. This appeal concerns Assessment Year (AY) 2010-11.
2. Via the instant appeal, the appellant/revenue seeks to assail the order dated 30.04.2020, passed by the Income Tax Appellate Tribunal [in short, “Tribunal”].
3. The sole ground on which the impugned order is sought to be assailed before us is that the deduction qua bad debts acquired by the respondent/assessee from its predecessor-in-interest, i.e., Eicher Motors Ltd. [EML], on acquisition of its commercial vehicle division in a scheme of demerger, was not permissible as per the provisions of Sections 36(1)(vii) read with Section 36(2) of the Income Tax Act, 1961 [in short, “Act”].
4. Mr Ruchir Bhatia, learned senior standing counsel, who appears on behalf of the appellant/revenue, does not dispute the fact that the subject debts have become bad.
4.1. It is also not disputed that the predecessor-in-interest i.e., EML had offered for imposition of tax the subject debts at a relevant point in time.
5. Therefore, the only issue which arose for consideration before the statutory authorities was as to whether the successor-in-interest i.e., the respondent/assessee, could have written off the debts which were already turned bad.
6. The Commissioner of Income Tax [in short, “CIT(A)”] via his order dated 20.11.2015 has ruled in favour of the respondent/assessee.
6.1. This view has been sustained by the Tribunal.
7. According to us, this issue is no longer res integra, given the factual matrix arising in the instant matter and in view of the judgment rendered by the Supreme Court in Commissioner of Income Tax v. T. Veerabhadra Rao, (1985) 155 ITR 152 (SC).
7.1. This view has also found resonance with a judgment rendered by the coordinate bench of this court in CIT v. Times Business Solution Ltd., 2013:DHC:1783-DB.
8. Having regard to the factual position and the legal principles enunciated in the judgments referred to hereinabove, we are of the opinion that no interference is called for with the impugned order.
8.1. The disallowance concerning bad debts amounting to Rs.5,96,20,438/-was correctly deleted.
9. In sum, no substantial question of law arises for our consideration.
10. The appeal is, accordingly, closed.
11. Parties will act based on the digitally signed copy of the judgment.
