Shidimo Interaux Pvt.Ltd., Surat V. The ACIT.,Circle-4, Surat

ITA 1024/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5821 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 18-06-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 05-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI, ACCOUNTANT MEMBER DATE OF HEARING : 18/06/2010 DRAFTED ON: 24 /06/2010 ITA NO.1024/AHD/2010 ASSESSMENT YEAR : 2006-07 SHIDIMO INTERAUX PVT.LTD. SURVEY NO.245 SURAT NAVSARI HIGHWAY LAJPORE 394 235 DIST.SURAT VS. THE ASST.CIT CIRCLE-4 SURAT PAN/GIR NO. : AADCS 3960 R (APPELLANT) .. (RESPONDENT) APPELLANT BY : WRITTEN SUBMISSION RESPONDENT BY: SHRI K.MADHUSUDAN, SR. D.R. O R D E R PER SHRI MUKUL SHRAWAT, JUDICIAL MEMBER : THIS IS AN APPEAL AT THE BEHEST OF THE ASSESSEE W HICH HAS EMANATED FROM THE ORDER OF THE LEARNED CIT(APPEALS) -IV SURAT DATED 16/11/2009 AND THE ONLY SUBSTANTIVE ISSUE IS IN RE SPECT OF DISALLOWANCE OF DISALLOWANCE OF BAD DEBT AS IS EVIDENT FROM THE FOLLOWING GROUND REPRODUCED: (1) DISALLOWANCE OF BAD DEBT RS.9,27,666/- (1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AN D AS PER THE LAW THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WA S NOT JUSTIFIED IN CONFIRMING DISALLOWANCE OF BAD DEBT OF RS.9,27,666/-. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDI NG ASSESSMENT ORDER PASSED U/S. 143(3) OF THE I.T. ACT, 1961 DATED 28/ 11/2008 WERE THAT THE ITA NO.1024/AHD /2010 SHIDIMO INTERAUX PVT.LTD. VS. THE ASST.CIT ASST.YEAR - 2006-07 - 2 - ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURIN G OF DYES, INTERMEDIATES AND TEXTILE AUXILIARIES. IT WAS NOTE D BY THE ASSESSING OFFICER THAT A SUM OF RS.9,27,366/- WAS WRITTEN OFF AS BAD DEBTS. THE ASSESSEE HAS FURNISHED THE COPY OF THE LEDGER ACCOU NT OF THE BAD DEBT. THE ASSESSING OFFICER HAS OBSERVED THAT THERE WAS N O PROOF ABOUT ANY RECOVERY MEASURES TAKEN BY THE ASSESSEE. SO, HE H AS SAID THAT IN THE ABSENCE OF EVIDENCES, IT WAS NOT CERTAIN WHETHER TH E DEBTS HAVE ACTUALLY BECOME BAD. IN HIS OPINION, FOR THE PURPOSE OF SE CTION 36(1)(VII) OF THE I.T. ACT, 1961, ONE OF THE FOREMOST CONDITION IS T HAT THE DEBT SHOULD HAVE ACTUALLY BEEN ESTABLISHED AS BAD. THE EXPLANATION OF THE ASSESSEE WAS THAT THERE WERE THREE PARTIES TO WHOM SALES HAD TAK EN PLACE IN THE YEAR 2000 AND THE ASSESSEE HAS TRIED TO RECOVER FROM THO SE PARTIES BUT DUE TO OBJECTIONS SUCH AS DAMAGE AND QUALITY NO PAYMENT OR RESPONSE WAS RECEIVED AND EVEN AFTER SEVERAL EFFORTS WERE MADE, THE ASSESSEE WAS UNABLE TO COLLECT THE AMOUNT. DUE TO THE SAID REA SON, THE BOARD OF DIRECTORS HAVE DECIDED TO WRITE-OFF THE SAID AMOUNT BEING NOT RECOVERABLE. REFERRING THE AMENDED PROVISIONS WIT H EFFECT FROM 01/04/1989 IN SECTION 36(1)(VII) OF THE I.T. ACT, 1 961, THE CBDT CIRCULAR NO.551 DATED 23/01/1990 AND THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. GIRISH BHAGWATPRASAD REPORTE D AS 256 ITR 772 (GUJ.), IT WAS ARGUED THAT WRITING-OFF OF THE DEBT IS SUFFICIENT. BEFORE THE ASSESSING OFFICER A DECISION OF SPECIAL BENCH O F MUMBAI ITAT IN THE CASE OF OMAN INTERNATIONAL BANK REPORTED AS 102 TTJ 207(MUM.)(SB) HAS ALSO BEEN CITED HOWEVER, THE AS SESSING OFFICER WAS NOT CONVINCED AND HELD THAT IT WAS ASSESSEES B URDEN TO PROVE THAT THE DEBTS HAVE BECOME BAD AND HE HAD NO REASONABLE EXPECTATION OF ITA NO.1024/AHD /2010 SHIDIMO INTERAUX PVT.LTD. VS. THE ASST.CIT ASST.YEAR - 2006-07 - 3 - RECOVERY, THEN ONLY IT IS ALLOWABLE. REFERRING FEW CASE LAWS ON THE SUBJECT, THE AMOUNT WAS ADDED BACK IN THE INCOME OF THE ASSESSEE. BEING AGGRIEVED, THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY. 3. THE LEARNED CIT(APPEALS) HAS AGAIN REITERATED TH OSE FACTS AS WELL AS THE CASE LAWS AND THEREAFTER ALMOST IN IDENTICAL MANNER HAS AFFIRMED THE ACTION OF THE ASSESSING OFFICER. 4. FROM THE SIDE OF THE APPELLANT (THROUGH WRITTEN SUBMISSION), IT WAS SUBMITTED THAT ON THESE FACTS, THE HON'BLE SUPREME COURT IN THE CASE OF T.R.F. LTD. VS. CIT REPORTED AS (2010) 323 ITR 397 (SC) HAS HELD THAT SUBSEQUENT TO THE AMENDMENT MADE IN SECTION 36 OF T HE I.T. ACT, 1961 WITH EFFECT FROM 01/04/1989, THE ONLY REQUIREMENT I S TO WRITE-OFF THE AMOUNT OF BAD DEBT IN THE BOOKS OF ACCOUNT. IN TH IS WRITTEN SUBMISSION, IT HAS ALSO BEEN MENTIONED THAT THE LEARNED CIT(APP EALS) HAS SIMPLY CITED A DECISION OF HON'BLE GUJARAT HIGH COURT IN T HE CASE OF DHALL ENTERPRISES & ENGINEERS PVT. LTD. VS. CIT REPORTED AS (2007)295 ITR 481(GUJ.) :: (2007)207 CTR 729 (GUJ.) AND AFFIRMED THE ACTION OF THE ASSESSING OFFICER, HOWEVER, REST OF THE CONDITIONS FOR GRANT OF DEDUCTION OF BAD DEBT WERE OTHERWISE SATISFIED. SO, IT WAS P LEADED TO ALLOW THE CLAIM. 5. FROM THE SIDE OF THE REVENUE LD.CIT-LEARNED DEPA RTMENTAL REPRESENTATIVE SHRI K.MADHUSUDAN APPEARED AND ASSES SEE HAS FILED A WRITTEN SUBMISSION. AT THE OUTSET, IT WAS VEHEMEN TLY ARGUED THAT FOR THE CLAIM OF BAD DEBT, THE ASSESSEE HAS TO ESTABLISH HI S BONA FIDE FOR WRITING- ITA NO.1024/AHD /2010 SHIDIMO INTERAUX PVT.LTD. VS. THE ASST.CIT ASST.YEAR - 2006-07 - 4 - OFF THE SAME AS IRRECOVERABLE. PLACING RELIANCE O N THE DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF DHALL ENT ERPRISES & ENGINEERS PVT.LTD.(SUPRA), IT WAS ARGUED THAT THE HON'BLE HIG H COURT HAS HELD THAT REQUIREMENT FOR CLAIMING DEDUCTION ON ACCOUNT OF BA D DEBT IS THAT THE DEBT SHOULD BE WRITTEN OFF AS IRRECOVERABLE AND THE ASSESSEE SHOULD PROVE THAT THE DEBT HAS BECOME BAD IN THAT YEAR. MERE D EBITING THE AMOUNT IS NOT SUFFICIENT. 5.1. FURTHER, THE LEARNED DEPARTMENTAL REPRESENTATI VE HAS PLACED RELIANCE ON THE DECISION OF THE SPECIAL BENCH OF IT AT MUMBAI IN THE CASE OF OMAN INTERNATIONAL BANK REPORTED AS 102 T TJ 207(MUM.) FOR THE PROPOSITION THAT THE BURDEN IS ON THE ASSESSEE TO ESTABLISH THAT, IN FACT, HE HAD BONA FIDE REASON FOR CLAIMING A PARTICULAR D EBT AS A BAD DEBT. THE ARGUMENT BEFORE US IS THAT THE ASSESSEE HAS TO ESTA BLISH THE REASONS ON THE BASIS OF WHICH THE COMMERCIAL DECISION OF CLAIMING BAD DEBT WAS MADE AND SUCH A DECISION WAS NOT A WHIMSICAL OR FANCIFUL DECISION. HE HAS STRESSED THAT THE DECISION FOR CLAIMING BAD DEBT MU ST BE BASED UPON SOME MATERIAL THAT THE DEBT IN FACT WAS NOT RECOVERABLE. EARLIER THIS CASE WAS CITED AS 286 ITR(AT) 08 [SB] WHEN THE ISSUE WAS DEC IDED BY THE TRIBUNAL. THE INTERPRETATION OF THE SAID DECISION OF THE TRIBUNAL BY THE LD.CIT-LEARNED DEPARTMENTAL REPRESENTATIVE WAS THAT , ONCE THE CLAIM OF BAD DEBT IS WITHIN THE PERSONAL KNOWLEDGE OF THE BU SINESS-MAN WHETHER A DEBT HAD BECOME BAD OR NOT, THEN HE HAS TO PLACE ON RECORD THE BASIS OF HIS DECISION AS WELL AS HE HAS TO ESTABLISH HIS BON A FIDE DEMONSTRATING THROUGH COGENT EVIDENCE TO ESTABLISH THAT THE DEBT HAD ACTUALLY BECOME BAD. SINCE THE ORDER OF THE SPECIAL BENCH WAS AFFI RMED BY THE HON'BLE ITA NO.1024/AHD /2010 SHIDIMO INTERAUX PVT.LTD. VS. THE ASST.CIT ASST.YEAR - 2006-07 - 5 - MUMBAI HIGH COURT BY REJECTING THE REVENUES APPEAL , THEREAFTER, THE REVENUE HAS PREFERRED SLP BEFORE THE HON'BLE SUPREM E COURT WHICH WAS STATED TO BE DISMISSED. 6. WE HAVE HEARD THE LD.DR AND CONSIDERED THE WRITT EN SUBMISSIONS PLACED BEFORE US AND THE EVIDENCES PLACED IN THE FO RM OF COMPILATION CONSISTING COPY OF LEDGER ACCOUNTS OF THE PARTIES A ND THE REASONS ASSIGNED FOR CLAIMING THE BAD DEBT. IT WAS DEMONSTRATED TH AT THE SALES HAD TAKEN PLACE FEW YEARS BACK AND THE BALANCE REMAINED UNREC OVERABLE SINCE THEN DUE TO THE SAID REASON AND CONSIDERING THE OVERALL CIRCUMSTANCES UNDER WHICH THE RECOVERY OF THE OUTSTANDING BALANCES COUL D NOT BE MADE, IT WAS RESOLVED BY THE DIRECTORS IN A BOARD MEETING TO TRE AT THE OUTSTANDING BALANCE AS BAD DEBT FOR THE ACCOUNTING PERIOD UNDER CONSIDERATION. RESOLUTION OF THE BOARD OF DIRECTORS HAD ALSO BEEN PLACED ON PAGE NO.9 OF THE COMPILATION. BE THAT AS IT WAS ABOUT THE E VIDENCES, THE LATEST LEGAL POSITION IS THAT THE HON'BLE SUPREME COURT IN THE C ASE OF T.R. F. LTD. VS. CIT REPORTED AS (2010) 323 ITR 397 (SC) HAS TAKEN I NTO CONSIDERATION THE POSITION OF LAW, AFTER 01/04/1989 AND HELD AS U NDER:- THIS POSITION IN LAW IS WELL-SETTLED. AFTER APRI L 1, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOW EVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINE D WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. WHEN A BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEB ITED AND THE CUSTOMERS ACCOUNT IS CREDITED, THUS, CLOSING THE A CCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STATED ABOVE, THE ASSESSI NG OFFICER HAS NOT EXAMINED WHETHER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT ITA NO.1024/AHD /2010 SHIDIMO INTERAUX PVT.LTD. VS. THE ASST.CIT ASST.YEAR - 2006-07 - 6 - BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, T HE MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSI DERATION OF THE ABOVEMENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE-OFF. 6.1. ONCE THE HON'BLE COURT HAS HELD THAT IT IS ENO UGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE, THEN IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAD BECOME IRRECOVERABLE. 6.2. WE ARE GOVERNED BY THE VIEW TAKEN BY THE HON'B LE SUPREME COURT AND, THEREFORE, ALL THE ARGUMENTS AS RAISED FROM TH E SIDE OF THE REVENUE HAVE, THUS, RENDERED FUTILE. IN THE RESULT, VIEW TAKEN BY THE REVENUE AUTHORITIES IS HEREBY REVERSED AND IT WAS DIRECTED TO ALLOW THE CLAIM. THIS GROUND IS, THEREFORE, ALLOWED. 7. REST OF THE GROUNDS PERTAINING TO CHARGING OF IN TEREST U/S.234-B & 234-C OF THE I.T. ACT, 1961 ARE CONSEQUENTIAL IN NA TURE NEED NO INDEPENDENT ADJUDICATION. 8. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 30/ 06 /2010. SD/- SD/- ( N.S. SAINI ) ( MUKUL SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 30/ 06 /2010 T.C. NAIR, SR. PS ITA NO.1024/AHD /2010 SHIDIMO INTERAUX PVT.LTD. VS. THE ASST.CIT ASST.YEAR - 2006-07 - 7 - COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT(APPEALS)-IV, SURAT 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD