1. The assessee has filed the present Miscellaneous application seeking rectification of the order passed by this Tribunal on 31-8-2006 in department's appeal bearing ITA No. 1948/ Mum./2003 for assessment year 1998-99 on the ground that the said order discloses certain mistakes apparent from record which, according to the assessee, need correction.
2. Briefly stated, the f acts of the case are that the assessee had written off a sum of Rs. 23,93,882 as bad debts under the head "Project advances", i.e., the advances given to various parties for purchase of plant and machinery and other expenses relating to the new project being set up by the assessee. The assessee had also written back a sum of Rs. 8,75,799. Thus the net write off under the head "Project advances" amounted to Rs. 15,18,083. It was the case of the assessee before the assessing officer that the aforesaid amounts were given to the various parties in connection with the new project being set up by the assessee. It was also claimed by the assessee that the aforesaid amounts had become irrecoverable, as they were very old and therefore they were written off in the accounts. The assessing officer examined the aforesaid explanation and held that the aforesaid amounts were never taken into account in computing the total income of the assessee either in earlier years or in the previous year relevant to the assessment year under appeal. According to the assessing officer, the aforesaid advances were admittedly given for new project that was being set up by the assessee. The assessing officer therefore held that the primary condition of Section 36(2) was not satisfied and therefore he disallowed the claim of the assessee to the extent of Rs. 15,18,083. In addition to the aforesaid, the assessee had also claimed bad debt of Rs. 34,51,801 being the amount given to the parties for supply of packing materials and raw materials. The assessee had written back a sum of Rs. 30,07,313 being advances received which were not required to be paid. Thus the net advance written off under the second category was of Rs. 4,44,088. The assessing officer has disallowed the aforesaid bad debt also on the ground that the said parties from which the debts were due were solvent and that the assessee had continued to make purchases from them and payments were also made to them. The assessing officer held that the advances recoverable from them were not irrecoverable and hence were not eligible for deduction under Section 36(1)(vii). The assessing officer also held that the assessee-company had only made a provision in the books of account regarding the amounts being of doubtful nature and for this reason also he disallowed the claim of the assessee.
3. On appeal, the learned Commissioner (Appeals) has allowed the claim of the assessee with the following observations: As regards the claim of the assessee for write off of advances for purchase of raw material as well as for purchase of Plant & Machinery as well as for project expenses etc, it is clear that the total amount written off is Rs. 23,93,882 towards advances for purchase of plant & machinery & projects and for purchase of raw material and packing material of Rs. 34,51,801. As against this, there are write backs of Rs. 8,75,799 and Rs. 30,07,713 from the same account. In effect, the net advances written off was Rs. 19,62,171 (4,44,088 + 15,18,083). It is also exp) ained that there are some possibilities of accounting errors due to which debits and credits have not been matched properly and therefore, are appearing in two different accounts ie., debits and credits. It is also submitted that all these advances are in the normal course of business and it really does not make a difference whether it is for purchase of raw material or plant and machinery etc. In this respect, reliance is placed by the appellant's representative on the ratio laid down of T.J. Lalvani (supra). I have considered the submissions and I am in agreement with the submissions made by the appellant's representative. For the reasons mentioned in the previous para, I allow the write off of these net amounts of Rs. 19,62,171 as business loss under Section 28 read with Section 37 and direct the assessing officer to allow the deduction.
4. The aforesaid order of the Commissioner (Appeals) was agitated by the department in its appeal bearing ITA No. 1948/Mum./2003 for assessment year 1998-99filed before this Tribunal. The Tribunal considered the aforesaid order of the Commissioner (Appeals) restored the matter to his file for a fresh decision with the following observations: 8. As regards the other claim of the assessee seeking to write off Rs. 19,62,171 being advances for purchase of raw materials, plant and machinery and for meeting project expenses, etc. we find that the learned Commissioner (Appeals) has allowed the claim of the assessee on the ground that mere writing off of advances is suffici for claiming the deduction. We find that similar issue has recently come up for consideration before the Hon'ble Madras High Court in South India Surgical Co. Ltd. v. ACIT (Judgment dated 6-1-2006 in Tax Case No. 40 of 2002 in Appeal No. 17 of 2002 for assessment year 1996-97). In the aforesaid case also the assessee had supplied goods to reputed hospitals but did not receive the payments and therefore had written off the amount. It was found that the assessee in that case was carrying on business with all those debtors and receiving payments. The Hon'ble High Court held that unilateral act on the part of the assessee to write off the amounts as bad debts was not suffici without there being any material on record to show that the amounts were not recoverable. In our view, the issue under consideration needs to be decided in the light of the aforesaid principles. Besides, it is also mentioned by learned Commissioner (Appeals) that the advances so written off related not only to raw materials but also to plant and machinery and project expenses. In our humble view, a debt can be written off only when it is in the revenue field, as specifically spelt out in Section 36(2) of the Income Tax Act. This aspect of the matter also seems to have escaped the attention of the learned Commissioner (Appeals). The amounts so written off by the assessee cannot be allo wed under the general provisions of Section 37 when there is a specific provision in this behalf in Section 36(l)(vn) read with Section 36(2) of the Income Tax Act. In this view of the matter, the order of the learned Commissioner (Appeals) is set aside and the matter is restored to his file for a fresh decision with regard to the claim of the assessee for write off of Rs. 19,62,171 in accordance with law.
Ground No. 2(i) is partly allowed.
5. The assessee has now filed MA seeking rectification of the aforesaid order on the following grounds: (a) The assessee can claim loss on account of irrecoverability of loans and advances both under Section 28/37 as also under Section 36(1)( vii) of the Income Tax Act, in terms of the judgment in T.J. Lalvaniv. CIT . The assessee has claimed the impugned amounts as business loss under Section 28/37 of the Income Tax Act and hence the Tribunal has committed an error in adjudicating upon the claim under Section 36(1)( vii) read with Section 36(2) of the Income Tax Act.
(b) The Tribunal has committed a grave error in ignoring the binding decision of jurisdictional High Courtin T.J. Lalvani's case (supra) andthereby in refusing to allow the claim of the assessee under Section28/37 of the Income Tax Act.
(c) The decision in South India Surgical Co. Ltd. v. Asstt. CIT relied upon by the Tribunal in its order is not applicable to the facts of the case of the assessee. It is f urther submitted that the aforesaid judgment of the Hon'ble Madras High Court cannot be applied in view of the decision of a Special Bench of this Tribunal in Dy. CIT v. Oman International Bank, SAOG (2006)1001TD 285 (Mum.) and other orders of the Tribunal.
6. It is claimed by the assessee that the order passed by this Tribunal on 31-8-2006 suffers from the aforesaid mistakes and therefore the order should be amended and the claim of the assessee allowed.
7. In reply, the learned departmental Representative submitted that the mistakes pointed out by the assessee were not at all apparent from the record. According to him, the assessee was seeking a review of the Tribunal's order, which is not permissible under Section 254(2) of the Income Tax Act. He supported his submissions by reference to the decision of the Hon'ble Bombay High Court in CIT v. Ramesh Electric & Trading Co. .
8. We have heard the parties. The first submission of the assessee the MA is that it has claimed the impugned loss as trading loss under Sections 28 & 37 and hence the Tribunal was not justified in considering the claim of the assessee under Section 36(1)(vii)/36(2) of the Income Tax Act. In this connection, the Tribunal has stated in para 8 of its order dated 31 -8-2006 that the impugned "amounts written off by the assessee cannot be allowed under the general provisions of Section 37 when there is a specific provision in this behalf in Section 36(1)(vii) read with Section 36(2) of the Income Tax Act." In Ramchandar Shivnarayan v. CIT the Hon'ble Supreme Court has held that the trading loss of a business is deductible in computing the profits earned by the business even though there is no specific provision f or allowances thereof. In the case before us there is a specific provision, namely, Section 36(l)(vu)/36(2) dealing with writing off of bad debts and it: is in this background that the Tribunal has made the aforesaid observations. In any case, the mistake alleged by the assessee is not a patent or apparent mistake. Be whatever it may, two propositions clearly emerge from the aforesaid judgment: (1) The claim of trading loss can be admitted under Section 27/37 v/hen there is no special provision relating to the allowance of that expenditure/loss in the Income Tax Act; and (2) The loss eligible for allowance under Section 28/ 37 is only a trading loss and not a capital loss. The Tribunal has recorded a conscious finding that Section 36(l)(v2) being a special provision will apply to the case of the assessee and not the general provisions of Section 37. This is more so as Section 29 of the Income Tax Act provides, in particular, that the income referred to in Section 28 shall be computed in accordance with the provisions contained in Sections 30 to 43D.Likewise Section 37 of the Income Tax Act provides that any expenditure, not being expenditure of the nature referred to in Sections 30 to 36, shall be eligible for deduction upon the fulfilment of conditions laid down in Section 37. Both the aforesaid provisions make it absolutely clear that when there are special provisions, like the one in Section 36(1)(vii)/36(2) regarding allowance of bad debt, the general provisions of Section 28/37 will not apply to the aforesaid extent. We shall now turn to the second aspect as to whether any kind of loss can be allowed under Section 28/37 or only trading loss not covered by specific provisions of Sections 30 to 43 D which alone can be considered for deduction under Section 28 of the Income Tax Act. In this case, major portion of the expenditure was incurred on procurement of plant and machinery etc. for a new project being set up by the assessee. The departmental authorities did not examine as to whether mere writing off of the advances given for purchase of plant and machinery for setting up a new project would at all be eligible for treatment as trading loss.
9. Second submissions of the assessee is that this Tribunal has committed a grave error in prefer-ring the judgment of Hon'ble Madras High Court in South India Surgical Co. Ltd. 's case (supra) over the decision of a Special Bench of this Tribunal in Oman International Bank SAOG's case (supra). According to him, the decision of a Special Bench of this Tribunal will prevail over the judgment of Hon'ble Madras High Court in South India Surgical Co. Ltd. 's case (supra). The plea taken by the assessee can better be answered by reference to the judgment of Hon'ble Supreme court in Asstt. CCE v. Duntop India Ltd. in which it has been held that the better wisdom of the court below must yield to the higher wisdom of the court above. The Hon'ble Supreme court has further observed that in a hierarchical system of Courts, which exists in our country, it is necessary for each lower tier to accept loyally the decision of the higher tiers. It can be nobody's case that High Courts are not superior Courts as compared to Tribunals. In the face of such clear enunciation of law by the highest court of the land, we are unable to hold as a universal proposition of law that the decisions of this Tribunal will always and necessarily prevail over the judgments of superior courts like High Courts. It is well appreciated that the judgments of non-jurisdictional High Courts do not carry the same weight and authority as those of the jurisdictional High Court but this proposition cannot be stretched to further contend that the orders of the Tribunals should be preferred over the judgments of High Courts.
10. The assessee has ref erred to the judgment of the Hon'ble Bombay High Court in T.J. Lalvani's case (supra) which was rendered in the context of the provisions in the old Income Tax Act of 1922. In that case also the Hon'ble High Court has held that in order to claim business loss, it is not necessary that the loss must be necessarily referable to any specific or direct transaction in the course of carrying on of the financier's business and that the activity of financing by the assessee of the business of others in the import of goods, etc, is assessee's activity in the course of assessee's business and the loss arising in the course of such activity was incidental to assessee's business and is therefore allowable as trading loss. The factual matrix in the case before us is altogether different. Here the assessee has written off certain amounts, which were advanced for procurement of plant and machinery and for meeting such expenses in connection with the new project that was being set up by the assessee.
The relevant question, in terms of the aforesaid decision also, is as to whether the alleged loss on account of writing off of advances given for supply of plant and machinery and for meeting other expenses in connection with new project can at all be said to be trading loss.
Besides, the judgment in that case had proceeded on the basis of law existing then.
11. The issues on the basis of which the assessee has sought rectification of the order of the Tribunal are matters of debate and require elaborate reasoning and hence they cannot be taken up in a petition under Section254(2) of the Income Tax Act. The Tribunal has already restored the matter to the file of the Commissioner (Appeals) for a fresh decision. The assessee shall be free to make all its submissions when the matter comes up for hearing before him. Learned Commissioner (Appeals) is directed to consider them while passing his appellate order. Both the parties are directed to supply a copy of this order to the learned Commissioner (Appeals) well before the matter comes up for hearing before him.
12. We are well aware of the fact that the issue under consideration has been restored to the file of the Commissioner (Appeals) for a fresh decision and that the Commissioner (Appeals) may be influenced by the observations made in this Order. We wish to clarify that the observations made in this order have been made for the disposal of the MA filed by the assessee and to show as to how the mistakes pointed out by the assessee are not apparent from the record. While deciding the issue afresh, the Commissioner (Appeals) shall independently examine all the relevant aspects of the case uninfluenced by the observations made in this Order.
13. In view of the foregoing, the MA filed by the assessee is dismissed.