M/s. Makpar Exports Pvt. Ltd., Raisen V. The Asstt. Commissioner of Income Tax 2(1), Bhopal

CO 5/IND/2011

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 6628 (ITAT-INDORE)
• Duration Of Justice: 9 month(s) 7 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 20-10-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 13-01-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ARUN DEWAN
• Assessee Lawyers: S S DESH
• Keywords: Bad and doubtful debts

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL INDORE BENCH, INDORE BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NOS. 622 TO 624/IND/2010 A.YS. 2004-05 TO 2006-07 ASSTT. COMMISSIONER OF INCOME TAX 1(2) BHOPAL ... APPELLANT VS M/S MAKPAR EXPORTS PVT. LTD. MANDIDEEP PAN AACCM-3434 D ... RESPONDENT CO NOS. 4 TO 6/IND/2010 ARISING OUT OF 622 TO 624/IND/2010 M/S MAKPAR EXPORTS PVT. LTD. MANDIDEEP ... OBJECTOR VS ASSTT. COMMISSIONER OF INCOME TAX 1(2) BHOPAL ... RESPONDENT 2 DEPARTMENT BY : SHRI ARUN DEWAN, SR. DR ASSESSEE BY : SHRI S.S. DESHPANDE DATE OF HEARING : 20.10.2011 DATE OF PRONOUNCEMENT : 20.10.2011 O R D E R PER JOGINDER SINGH THE REVENUE IS IN APPEAL FOR THE ASSESSMENT YEARS 2004- 05 TO 2006-07 AGAINST THE ORDERS OF THE LEARNED COM MISSIONER OF INCOME TAX (APPEALS) ALL DATED 17.2.2010 AND THE ASSESSEE HAS FILED CROSS OBJECTIONS AGAINST THE APPEALS FILE D BY THE REVENUE. 2. THE FIRST GROUND (ASSESSMENT YEAR 2004-05) RAISE D BY THE ASSESSEE PERTAINS TO DELETING THE ADDITION OF RS. 2 4.59,873/- ON ACCOUNT OF BAD DEBTS ON THE PLEA THAT THE REQUISIT E CONDITIONS AS LAID DOWN U/S 36(2)(I) OF THE ACT WERE NOT SATIS FIED BY THE ASSESSEE AND ALSO THE PERIOD TO WHICH INCOME THE CORRESPONDING DEBTS RELATES TO. THE CRUX OF ARGUMEN TS ON BEHALF OF THE REVENUE BY SHRI ARUN DEWAN, THE LEARN ED SR. DR, IS IDENTICAL TO THE GROUND RAISED AND RELIANCE WAS PLACED UPON 3 THE ASSESSMENT ORDER. ON THE OTHER HAND, THE LEARN ED COUNSEL FOR THE ASSESSEE, SHRI S.S. DESHPANDE, SUPPORTED TH E IMPUGNED ORDER BY SUBMITTING THAT THE ASSESSEE COMP ANY SUPPLIED MEDICINAL PRODUCTS TO RADUJA INTERNATIONAL LIMITED, DURING THE YEAR, AMOUNTING TO RS.1,11,05,780/-. OVE R AND ABOVE THIS AMOUNT, A SUM OF RS.77,24,825/- WAS CLAI MED TO BE OUTSTANDING WHICH RELATED TO PAST SUPPLIES. THE MAN AGEMENT OF THE ASSESSEE COMPANY CLAIMED TO HAVE TAKEN A DECISI ON THAT OUT OF THE OUTSTANDING DUES THE IMPUGNED AMOUNT OF RS. 24,59,873/- WAS NOT RECOVERABLE, CONSEQUENTLY, THE SAME WAS WRITTEN OFF AS BAD DEBT. THEREFORE, IT WAS SUBMITTE D THAT IT IS AN ALLOWABLE DEDUCTION. 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PE RUSED THE MATERIAL AVAILABLE ON FILE. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY SUPPLIED MEDICINAL PRODUCTS TO RAD UGA INTERNATIONAL LIMITED AND A SUM OF RS.77,24,825/- W AS OUTSTANDING WHICH RELATES TO PAST SUPPLIES. THE AMO UNT OF RS.24,59,873/- WAS WRITTEN OFF BY THE MANAGEMENT OF THE ASSESSEE COMPANY AS THE SAME WAS NOT RECOVERABLE, 4 CONSEQUENTLY, THE SAME WAS CLAIMED AS BAD DEBT IN P ROFIT AND LOSS ACCOUNT. HOWEVER, THE LEARNED ASSESSING OFFICE R WAS OF THE VIEW THAT MERE WRITING OFF OF BAD DEBT IN THE B OOKS OF ACCOUNT IS NOT SUFFICIENT TO JUSTIFY THE CLAIM. THE LEARNED ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSE E COULD NOT FILE PROPER DETAILS WITH REFERENCE TO THE PERIOD TO WHICH SUCH BAD DEBTS RELATE. THE IMPUGNED AMOUNT WAS ADDED AS INCOME OF THE ASSESSEE. HOWEVER, ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) EXAMINED THE F ACTS AND DELETED THE DISALLOWANCE. THE RELEVANT PORTION AS CONTAINED IN PARA 5.3 (PAGE 4) OF THE IMPUGNED ORDER IS REPRODUC ED HEREUNDER:- 5.3 I HAVE CONSIDERED THE FACTS OF THE CASE. ON GOING THROUGH THE ASSESSMENT ORDER IT IS OBSERVED T HAT THE RELEVANT DETAILS WERE GIVEN BY THE ASSESSEE AND THE SAME WERE ALSO REPRODUCED IN THE ASSESSMENT ORDER. I FIND THAT NO COGENT REASONS HAVE BEEN GIV EN BY THE ASSESSING OFFICER AND SHE IS INCORRECT WHEN SHE STATES THAT HERE IT IS WORTH MENTIONING THAT MERE WRITING OFF OF THE BAD DEBTS IN THE BOOKS OF ACCOUN T IS NOT SUFFICIENT. THE NEXT FEW SENTENCES WRITTEN BY THE A.O. ARE NOT COMPREHENSIBLE. IN VIEW OF THE FACTS MENTIONED IN THE WRITTEN SUBMISSIONS OF THE APPELLA NT, THERE IS NO DOUBT THAT THE ESSENTIAL DETAILS RELEVA NT FOR CONSIDERING THE ALLOWABILITY OF THE CLAIM OF BAD DE BTS WERE SUBMITTED DURING PROCEEDINGS. THE LEGAL POSITI ON IN REGARD TO THIS ISSUE HAS ALSO BEEN CLEARLY ENUNC IATED 5 BY THE SUPREME COURT IN THE CASE OF TRF LTD. IT IS WELL SETTLED NOW THAT SUBSEQUENT TO THE AMENDMENT IN SECTION 36(VII), IT IS SUFFICIENT IF THE ASSESSEE W RITES OFF THE AMOUNT IN ITS BOOKS OF ACCOUNT FOR A VALID CLAI M TO BE MADE. THE ASSESSEE IS NOT OBLIGED TO ESTABLISH T HE IRRECOVERABILITY OF THE AMOUNT CLAIMED AS BAD, AND IT WILL BE SUFFICIENT IF THE SAID AMOUNT IS WRITTEN OF F IN THE BOOKS OF ACCOUNT. IT IS ALSO SEEN THAT THE APPELLA NT HAS OFFERED, IN THE SUBSEQUENT YEAR, THE AMOUNT THAT WA S RECOVERED. UNDER THESE CIRCUMSTANCES, THE ASSESSIN G OFFICER WAS NOT JUSTIFIED IN MAKING THE DISALLOWANC E. THE DISALLOWANCE IS THEREFORE DELETED. THIS GROUND OF APPEAL IS ALLOWED. IN THE LIGHT OF THE AFORESAID UNCONTROVERTED FINDIN G AND ESPECIALLY WHEN THE WRITTEN OFF AMOUNT WAS RECOVERE D AT THE LATER STAGE AND WAS OFFERED FOR TAXATION IN SUBSEQU ENT YEAR, NO GRIEVANCE IS CAUSED TO THE REVENUE. EVEN OTHERWISE , BEFORE A DEBT CAN BECOME BAD OR DOUBTFUL, IT MUST FIRST BE A DEBT. A DEBT IS AN OUTSTANDING WHICH IF RECOVERED WOULD HAV E SWELLED THE PROFIT. HOWEVER, AFTER 1.4.1989, IT IS NOT NEC ESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS B ECOME IRRECOVERABLE. IT IS ENOUGH IF BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. THE EFFECT OF AMENDMENT TO SECTION 36(1)(VII) READ WITH SECTION 3 6(2) WITH EFFECT FROM 1.4.1989, THE SITUATION HAS CHANGED, TH EREFORE, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT TH E DEBTS HAVE 6 BECOME BAD IN THE PREVIOUS YEAR, THEREFORE, MERE WR ITING OFF AS IRRECOVERABLE IS ENOUGH AND IS SUBSTANTIAL COMPLIAN CE OF THE PROVISIONS OF THE ACT. OUR VIEW IS FINDING STRENGT H FROM THE DECISION FROM HON'BLE APEX COURT IN TRF LIMITED VS. CIT (2010) 190 TAXMAN 391/323 ITR 397 (HON'BLE SUPREME COURT), CIT V. KOHLI BROTHERS COLOUR LAB. PVT. LTD.; 186 TA XMAN 62 (ALL), CIT V. AUTOMETERS LTD.; 292 ITR 345 (DEL), CIT V. MORGAN SECURITIES & CREDITS PVT. LTD.; 162 TAXMAN 124 (DEL ), SURE GAGGAL V. ITO; 180 TAXMAN 90 (HP); LAWLYS ENTERPRIS ES PRIVATE LIMITED V. CIT; 314 ITR 297 (PAT), DIT VS. OMAN INTERNATIONAL BANK SAOG; 184 TAXMAN 314 (BOM), CIT V. SMT. NILOPHER I. SINGH; 309 ITR 233 (DEL), THE RATIO LAI D DOWN IN KASHMIR TRADING COMPANY; 291 ITR 228 (RAJ). 4. HOWEVER, THE ASSESSING OFFICER HAS POWER TO INQUIRE INTO GENUINENESS OF WRITE OFF ENTRY. THE ONLY EFFECT OF THE AMENDMENT MADE WITH EFFECT FROM 1.4.1989 IS THAT TH E ASSESSEE NEED NOT ANY LONGER ESTABLISH THAT THE DEB T HAS BECOME BAD DURING THE PREVIOUS YEAR. IT WILL SUFFI CE IF THE DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS. NEVE R-THE-LESS, THE 7 ASSESSING OFFICER IS FULLY EMPOWERED TO MAKE AN INQ UIRY AS TO WHETHER THE WRITE OFF ENTRY IS GENUINE ENTRY AND NO T AN IMAGINARY AND FANCIFUL ENTRY. WHILE UNDERTAKING THI S EXERCISE, THE ASSESSING OFFICER SHOULD NOT HOWEVER QUESTION T HE WISDOM OF THE ASSESSEE NOR SHOULD DEMAND DEMONSTRATIVE OR INFALLIBLE PROOF OF DEBT HAVING BECOME BAD. COMMERCIAL EXPEDI ENCY IS TO BE SEEN FROM THE POINT OF VIEW OF THE ASSESSEE D EPENDING ON THE NATURE OF TRANSACTION, CAPACITY OF DEBTORS, ETC . HOWEVER, THE DEBTS DUE FROM GOVERNMENT INSTITUTIONS CANNOT B E SUMMARILY WRITTEN OFF AS BAD DEBT AS WAS HELD BY HO N'BLE MADRAS HIGH COURT IN SOUTH INDIA SURGICAL COMPANY L IMITED V. ACIT; 153 TAXMAN 491 (MAD.). 5. IF THE AFORESAID JUDICIAL PRONOUNCEMENTS A ND THE FACTS OF THE PRESENT APPEAL ARE KEPT IN JUXTAPOSITION, ONE C LEAR FACT IS OOZING OUT THAT THE ASSESSEE HAS GENUINELY WRITTEN OFF THE DEBTS AS BAD DEBTS, THEREFORE, WE FIND NO INFIRMITY IN THE CONCLUSION DRAWN BY THE LEARNED COMMISSIONER OF INC OME TAX (APPEALS) AND CONFIRM THE SAME. CONSEQUENTLY, THIS GROUND OF THE REVENUE IS HAVING NO MERIT AND DISMISSED AS SUC H. 8 6. THE NEXT GROUND PERTAINS TO DELETING THE ADDITION OF RS.20,19,600/- MADE ON ACCOUNT OF EXPENDITURE DEBI TED UNDER QUALITY REJECTIONS WHEN THE ASSESSEE HAD CREDITED T HE PROVISION ACCOUNT IN THIS REGARD WHICH WAS NOT IN ACCORDANCE WITH THE MERCANTILE SYSTEM OF ACCOUNTING. DURING HEARING TH E LEARNED SR. DR DEFENDED THE ASSESSMENT ORDER WHEREAS THE LE ARNED COUNSEL FOR THE ASSESSEE RELIED UPON THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS) BY FURTHER SUB MITTING THAT THE ASSESSEE SUPPLIED CERTAIN CONSUMABLE GOODS TO UKRINE AND OUT OF THEM PART OF THE GOODS WERE REJECTED AS THE SAME WERE NOT FOUND SATISFACTORY FOR HUMAN CONSUMPTION. THE LEARNED COUNSEL FOR THE ASSESSEE INVITED OUR ATTEN TION TO PAGE 90 OF THE PAPER BOOK. IT WAS ARGUED THAT THE DIREC TOR OF THE ASSESSEE COMPANY WENT TO UKRINE AND SATISFIED THE C ONCERNED DEPARTMENT, GOT THE GOODS PASSED AND OFFERED THE IN COME WHEN MONEY WAS RECOVERED FROM THE CONCERNED PARTY. THIS ASSERTION OF THE ASSESSEE WAS NOT CONTROVERTED BY T HE REVENUE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON FILE. BRIEF FACTS OF THE CASE ARE THAT 9 THE ASSESSEE SUPPLIED CERTAIN GOODS/PRODUCTS TO M/S RADUGA INTERNATIONAL, UKRINE. HOWEVER, THE AUTHORITIES OF THAT COUNTRY REJECTED PART OF THE SUPPLY SO MADE, THEREFORE, M/S RADUGA INTERNATIONAL LIMITED RAISED A DEBIT NOTE ON THE AS SESSEE COMPANY (PAGE 19 OF THE PAPER BOOK).THEREAFTER THE ASSESSEE MADE A PROVISION FOR SUCH DEBIT NOTE IN ITS BOOKS O F ACCOUNT BY CHARGING IT TO THE PROFIT AND LOSS ACCOUNT. HOWEVE R, THE ASSESSING OFFICER REJECTED THE CLAIM OF THE ASSESSE E ON THE GROUND (I) THAT THE AMOUNT OF DEBIT NOTE, ISSUED BY M/S RADUGA INTERNATIONAL LIMITED, WAS NOT CREDITED TO THE ACCO UNT OF THE ABOVESAID CUSTOMER BUT WAS INSTEAD CREDITED TO PROV ISIONS ACCOUNT (II) NO SATISFACTORY EXPLANATION WAS FURNIS HED REGARDING THE REJECTED MATERIAL, IF ANY, RECEIVED BY THE ASSE SSEE COMPANY (III) THE ORIGINAL INVOICE AGAINST WHICH TH E MATERIAL WAS SUPPLIED WAS NOT PRODUCED. HOWEVER, AT THE FIRST APPELLATE STAGE THE ASSESSEE EXPLAINED THAT SUCH DEBIT NOTE R ELATING TO REJECTION OF MATERIAL WAS DULY SUPPLIED BEFORE THE ASSESSING OFFICER AND THE COPY OF SUCH DEBIT NOTE WAS ALSO FI LED BEFORE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS). HOWEVER, 10 IT WAS CLAIMED THAT THE REJECTED MATERIAL WAS NOT B ROUGHT BACK TO INDIA AND THE CORRESPONDENCE BETWEEN THE ASSESSE E AND THE IMPORTER WERE DULY FILED BEFORE THE LD. FIRST A PPELLATE AUTHORITY. THE CONCLUSION DRAWN BY THE LEARNED COMM ISSIONER OF INCOME TAX (APPEALS) (PAGE 5) IS REPRODUCED HERE UNDER :- I HAVE CONSIDERED THE FACTS OF THE CASE. I AM IN AGREEMENT WITH THE APPELLANTS CONTENTION THAT THE DISALLOWANCE WAS MADE ON THE BASIS OF REASONS WHICH ARE NOT RELEVANT TO THE DETERMINATION OF THE ISSUE. WHETHER THE DEBIT IS MADE TO PROVISION ACCOUNT OR TO THE ACCOUNT OF M/S RADUGA WILL HAVE NO BEARING ON THE ALLOWABILITY OF THE ISSUE. IT WAS SUBMITTED THAT THE ASSESSEE HAD DEBITED EXPENDITURE ACCOUNT AND CREDITED PROVISION FOR EXPENSES ACCOUNT . SUBSEQUENTLY, AFTER VERIFICATION OF THE FACTS, THE ASSESSEE WOULD CREDIT M/S RADUGAS ACCOUNT. IT EXPLAINED THAT THIS WAS ONLY AN INTERNAL MECHANISM ADOPTED BY THE ASSESSEE. THE ALLOWABILITY OR NOT OF THE ISSUE RELATES TO THE GENUINENESS OF THE CLAIM. THE CORRESPONDENCE BETWEEN THE APPELLANT AND M/S RADUGA ARE PART OF THE RECORD. THE AUTHENTICITY OF THE DEBIT NOTE FILLED BY THE APPELLANT HAS NOT BEEN QUESTIONED OR CHALLENGED BY THE ASSESSING OFFICER. THE FACT OF REJECTION OF THE MATERIAL HAS NOT BEEN NEGATED BY THE ASSESSING OFFICER. THE DOCUMENTS CLEARLY SHOW THAT PART OF THE MATERIAL SUPPLIED WAS REJECTED BY THE AUTHORITIES IN UKRAINE. IT IS ALSO LOGICAL TO ASSUME THAT WHAT WAS FOUND TO BE UNFIT F OR HUMAN CONSUMPTION IN UKRAINE WOULD ALSO BE UNFIT FOR CONSUMPTION BY HUMAN BEINGS IN INDIA AND THEREFORE THE QUESTION OF FURTHER APPLICATION OF TH E REJECTED MATERIAL RAISED BY THE ASSESSING OFFICER I S 11 NOT A RELEVANT CONSIDERATION. UNDER THE CIRCUMSTANCES I AM OF THE VIEW THAT THE DISALLOWANC E MADE BY THE ASSESSING OFFICER IS UNJUSTIFIED. THE DISALLOWANCE IS DELETED AND THIS GROUND OF THE APPEAL IS ALLOWED. THERE IS A CATEGORICAL FINDING IN PARA 6.2 OF THE IMPUGNED ORDER THAT THE AUTHENTICITY OF THE DEBIT NOTE, FILE D BY THE ASSESSEE WAS NEITHER QUESTIONED NOR CHALLENGED BY T HE ASSESSING OFFICER. EVEN THE REJECTION OF MATERIAL W AS ALSO NOT NEGATED BY THE DEPARTMENT. IT IS ALSO AN ADMITTED POSITION THAT PART OF THE MATERIAL WAS REJECTED BY THE AUTHORITIE S IN UKRINE AS THE SAME WAS FOUND UNFIT FOR HUMAN CONSUMPTION, CONSEQUENTLY, THE GENUINENESS OF THE CLAIM IS NOT I N DOUBT. IN VIEW OF THESE FACTS, WE DO NOT FIND ANY INFIRMITY I N THE STAND OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) AN D CONFIRM THE SAME. THEREFORE, THIS GROUND OF THE REV ENUE IS ALSO DISMISSED. 8. IN THE ASSESSMENT YEAR 2005-06 THE ONLY GROUN D RAISED BY THE REVENUE PERTAINS TO BAD DEBTS, THEREFORE, AS DI SCUSSED 12 SUPRA, ON THE SAME REASONING, BEING THE FACTS IDENT ICAL, THIS GROUND OF THE REVENUE IS ALSO DISMISSED. 9. IN THE ASSESSMENT YEAR 2006-07 BOTH THE GROUND ARE IDENTICAL TO ASSESSMENT YEAR 2004-05, THEREFORE, BE ING THE FACTS ARE SAME, CONSEQUENTLY ON THE SAME REASONING, THE APPEAL OF THE REVENUE IS HAVING NO MERIT, THEREBFOR E WE DISMISS THE SAME. 10. NOW WE SHALL TAKE UP CROSS OBJECTIONS FILE D BY THE ASSESSEE WHEREIN VALIDITY AND SERVICE OF NOTICE AND INITIATION OF ASSESSMENT PROCEEDINGS HAS BEEN CHALLENGED. AFTER CONSIDERING THE FACTS AND THE ARGUMENTS CONTAINED I N THE IMPUGNED ORDER, WE FIND NO INFIRMITY IN THE CONCLUS ION DRAWN BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS), T HEREFORE, THESE CROSS OBJECTIONS ARE HAVING NO MERIT, THEREFO RE, DISMISSED. FINALLY, THE APPEALS OF THE REVENUE AS WELL A S THE CROSS OBJECTIONS OF THE ASSESSEE ARE DISMISSED. 13 ORDER WAS PRONOUNCED IN THE OPEN IN THE PRESE NCE OF LEARNED REPRESENTATIVES FROM BOTH THE SIDES AT THE CONCLUSION OF THE HEARING. SD SDS (R.C.SHARMA) (JOGINDER SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 20.10.2011 COPY TO: APPELLANT, RESPONDENT, CIT, CIT(A), DR, GU ARD FILE DN/-