M/s. Span Diagnostics Ltd., Surat V. The ACIT., Circle-4, Surat

ITA 1025/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5769 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 23-06-2010
• Assessment Year: 2006-2007
• Appeal Filed On: 05-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GAURAV BATHAM
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BEFORE SHRI MUKUL SHRAWAT, JUDICIAL MEMBER AND SHRI D.C. AGRAWAL, ACCOUNTANT MEMBER DATE OF HEARING : 23/06/2010 DRAFTED ON: 2 3/06/2010 ITA NO.1025/AHD/2010 ASSESSMENT YEAR : 2006-07 SPAN DIAGNOSTICS LTD. 173-B NEW INDUSTRIAL ESTATE ROAD NO.6-G UDHNA, SURAT 394 210 VS. THE ACIT CIRCLE-4 SURAT PAN/GIR NO. : AADCS 3977 Q (APPELLANT) .. (RESPONDENT) APPELLANT BY : MS. URVASHI SHODHAN RESPONDENT BY: SHRI GAURAV BATHAM, 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 30/12/2009 AND THE ONLY SUBSTANTIVE GROUND IS IN RE SPECT OF DISALLOWANCE OF BAD DEBTS OF RS.4,93,397/-. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S. 143(3) OF THE I.T. ACT, 1961 DAT ED 28/11/2008 WERE THAT THE ASSESSEE IS IN THE BUSINESS OF MANUFACTU RING AND MARKETING OF DIAGNOSTIC PRODUCTS. IT WAS NOTICED BY THE ASSESSI NG OFFICER THAT IN THE PROFIT & LOSS ACCOUNT, THE ASSESSEE HAS WRITTEN OF F BAD DEBTS OF RS.4,93,397/- IN RESPECT OF THE FOLLOWING PARTIES:- ITA NO.1025/AHD /2010 SPAN DIAGNOSTICS LTD. VS. ACIT ASST.YEAR - 2006-07 - 2 - SR.NO. PARTY AMOUNT WRITTEN OFF (RS.) 1. KOLKATA MEDICAL CENTRE, KOLKATA 34,600/- 2. SIGNMA MEDICAL SYSTEM, PATNA 65,800/- BALANCE AMOUNT 3. PROTONIC MEDICAL SYSTEM 60,000/- 4. ROURKELA STEEL PLANT 18,240/- 14,757/- BALANCE AMOUNT 5. NATIONAL AIDS CONTROL, DELHI 3,00,000/- 4,93,397/- 2.1. AS NOTED ABOVE, WAS THE OBSERVATION OF THE ASS ESSING OFFICER VIDE PARAGRAPH NO.4 OF THE IMPUGNED ASSESSMENT ORDER AND VIDE PARAGRAPH NO.5, IT WAS NOTED BY THE ASSESSING OFFICER THAT TH E COMPANY HAD CLAIMED THE DEDUCTION OF BAD DEBTS OF RS.4,93,397/- IN THE COMPUTATION OF INCOME. STRANGELY, IT HAS ALSO BEEN NOTED THAT THE IMPUGNED AMOUNT WAS NOT DEBITED IN THE PROFIT & LOSS ACCOUNT FOR T HE PREVIOUS YEAR. IN COMPLIANCE TO THE SHOW-CAUSE NOTICE, IT WAS INFORME D THAT THE COMPANY HAS SOLD ITS PRODUCTS ON CREDIT TERMS AND DUE TO WH ICH THERE WERE DEFAULT IN PAYMENT IN RESPECT OF CERTAIN PARTIES. THE EFFO RTS FOR RECOVERY OF THE AMOUNT HAS ALSO BEEN DEMONSTRATED BEFORE THE ASSESS ING OFFICER. IN SHORT, IN RESPECT OF FEW PARTIES, LEGAL CASES WERE FILED AND IN ONE OF THE PARTIES THE MONEY RETAINED BY THEM WAS WRITTEN OFF AS THE SAME WAS NOT RECOVERABLE EVEN AFTER EFFORTS FOR THE RECOVERY WER E MADE. THE ASSESSEE HAS FURNISHED THE COPIES OF THE LEGAL PETITIONS AND THE SALES BILLS OF EARLIER YEARS. AN ANOTHER FACT HAS ALSO BEEN BROUGHT ON RE CORD THAT DURING THE FINANCIAL YEAR 2003-04, THE COMPANY HAD ALREADY DE BITED TO PROFIT & LOSS ACCOUNT THE SAID SUM BY MAKING A PROVISION, HO WEVER, WRITTEN OFF ITA NO.1025/AHD /2010 SPAN DIAGNOSTICS LTD. VS. ACIT ASST.YEAR - 2006-07 - 3 - DURING THE YEAR UNDER CONSIDERATION. IN THIS CONT EXT, THE ASSESSEE HAS ALSO QUOTED CIRCULAR NO.551 DATED 23/01/1990 AND TH E RELEVANT PORTION AS REFERRED TO ASSESSING OFFICER IS REPRODUCED BELOW:- WE ALSO DRAW YOUR KIND ATTENTION TO CIRCULAR NO.55 1 DATED 23/01/1990 WHEREIN IT HAS BEEN STATED IN PARA 6.6 T HAT THE OLD PROVISIONS OF CLAUSE (VII) OF SUB-SECTION (1) READ WITH SUB-SECTION (2) OF THE SECTION 36 LAID DOWN CONDITIONS NECESSA RY FOR ALLOWABILITY OF BAD DEBTS. IT WAS PROVIDED THAT THE DEBT MUST BE ESTABLISHED TO HAVE BECOME BAD IN THE PREVIOUS YEAR . THIS LED TO ENORMOUS LITIGATION ON THE QUESTION OF ALLOWABILITY OF BAD DEBT IN A PARTICULAR YEAR, BECAUSE THE BAD DEBT WAS NOT NECES SARILY ALLOWED BY THE ASSESSING OFFICER IN THE YEAR IN WHICH THE S AME HAD BEEN WRITTEN OFF ON THE GROUND THAT THE DEBT WAS NOT EST ABLISHED TO HAVE BECOME BAD IN THAT YEAR. IN ORDER TO ELIMINATE THE DISPUTES IN THE MATTER OF DETERMINING THE YEAR IN WHICH A BAD DEBT CAN BE ALLOWED AND ALSO TO RATIONALISE THE PROVISIONS, THE AMENDIN G ACT, 1987, HAS AMENDED CLAUSE (VII) OF SUB-SECTION (1) AND CLAUSE (I) OF SUB- SECTION (2) OF THE SECTION TO PROVIDE THAT THE CLAI M FOR BAD DEBT WILL BE ALLOWED IN THE YEAR IN WHICH SUCH A BAD DEBT HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSE E. 2.2. THE ASSESSING OFFICER WAS NOT CONVINCED AND BY REFERRING THE DECISION OF HON'BLE HIGH COURT IN THE CASE OF CIT VS. AHMEDABAD ELECTRICITY COMPANY REPORTED AS (2003) 262 ITR (GUJ .) DISALLOWED THE CLAIM OF BAD DEBTS. THE MATTER WAS REFERRED TO LE ARNED CIT(APPEALS). 3. AFTER DISCUSSING THE FACTS OF THE CASE, THE LEAR NED CIT(APPEALS) WAS OF THE VIEW THAT THE DEBTS WHICH WERE FOUND TO HAVE BECOME BAD CAN ONLY BE ALLOWED AS A DEDUCTION. IN HIS OPINION, M ERELY BECAUSE CERTAIN DEBTS WERE WRITTEN OFF IN THE ACCOUNTS COULD NOT BE ALLOWED. IN HIS OPINION, SINCE THE APPELLANT HAD NOT PRODUCED ANY E VIDENCE TO SUGGEST THAT THOSE DEBTS HAVE REALLY BECOME BAD, THE ASSESS ING OFFICER HAS ITA NO.1025/AHD /2010 SPAN DIAGNOSTICS LTD. VS. ACIT ASST.YEAR - 2006-07 - 4 - RIGHTLY NOT ALLOWED THE CLAIM. THE ACTION OF THE A SSESSING OFFICER WAS AFFIRMED. 4. PARTIES HEARD AT SOME LENGTH. THE FUNDAMENTAL Q UESTION WHICH WAS TO BE ADDRESSED WAS THAT ONCE A PROVISION HAS B EEN MADE IN THE PAST, THEN HOW THE SAME CLAIM CAN BE ALLOWED AGAIN? IN T HIS REGARD, IT IS TO BE MENTIONED, AT THE OUTSET, THAT THE OBSERVATION OF T HE ASSESSING OFFICER VIDE PARAGRAPH NO.4 QUOTE AS PER THE PROFIT AND LOSS A/C SUBMITTED TO THE INCOME TAX DEPARTMENT, IT IS OBSERVED THAT THE ASSESSEE-COMPANY HAS SHOWN BAD DEBTS WRITTEN OFF TO THE EXTENT OF RS.4,9 3,397/-. UNQUOTE APPEARS TO BE IN CONTRADICTION WITH THE FACTS AS NA RRATED IN PARAGRAPH NO.5, QUOTE IT IS OBSERVED THAT THE ASSESSEE COMPANY HAS CLAIM ED DEDUCTION ON ACCOUNT OF BAD DEBTS AMOUNTING TO RS.4 ,93,397/- IN THE COMPUTATION OF INCOME. IT IS OBSERVED THAT THE SAM E IS NOT DEBITED TO PROFIT & LOSS ACCOUNT A/C. FOR THE PREVIOUS YEAR RE LEVANT TO A.Y. UNDER REFERENCE. UNQUOTE. 5. ON ENQUIRY, THE LEARNED AUTHORISED REPRESENTATIV E OF THE ASSESSEE MS.URVASHI SHODHAN HAS CLARIFIED THE FACTUAL POSITI ON. SHE HAS MENTIONED THAT BY PASSING AN ENTRY AS PER GENERAL VOUCHER THE PROVISION FOR DOUBTFUL DEBT AS APPEARED IN THE PAST WAS DEBITED AND THE CORRESPONDING CREDIT ENTRIES WERE PASSED IN THE ACC OUNTS OF THOSE DEBTORS. IN THIS REGARD, A PHOTOCOPY OF THE SAME IS PLACED O N PAGE NO.33 OF THE COMPILATION. IT HAS ALSO BEEN CLARIFIED THAT THOU GH A PROVISION WAS MADE IN FINANCIAL YEAR 2003-04 (ASSESSMENT YEAR 2004-05) , HOWEVER WHILE COMPUTING THE INCOME, THE SAID PROVISION WAS ADDED BACK SUO MOTU IN THE ITA NO.1025/AHD /2010 SPAN DIAGNOSTICS LTD. VS. ACIT ASST.YEAR - 2006-07 - 5 - COMPUTATION OF TOTAL INCOME. THE LEARNED AUTHORISE D REPRESENTATIVE OF THE ASSESSEE HAS ALSO DEMONSTRATED THAT THE SAID RE TURNED INCOME WAS ACCEPTED AS SUCH BY THE INCOME TAX DEPARTMENT VIDE AN ASSESSMENT ORDER PASSED U/S.143(3) OF THE I.T. ACT, 1961 DATED 22/12/2006 FOR ASSESSMENT YEAR 2004-05. THOUGH THE MATTER WAS DI SCUSSED AT LENGTH AND THE REVENUE DEPARTMENT HAS VEHEMENTLY CONTESTED THAT ONCE THE ASSESSEE HAS NOT DEMONSTRATED THAT THE DEBTS HAVE A CTUALLY BECOME BAD, HOWEVER, IN OUR CONSIDERED OPINION, THE CONTROVERSY AS RAKED UP IN THIS APPEAL BY THE REVENUE DEPARTMENT NOW STOOD RESOLVED BY FOLLOWING TWO DECISIONS:- SL.NO(S) DECISION IN THE CASE OF REPORTED IN 1. T.R.F.LTD. VS. CIT (2010)323 ITR 397(SC) 2. CIT VS. AUTOMETERS LTD. (2007)292 ITR 345(DEL.) 6. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCU MSTANCES OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE ISSUE IS DIR ECTLY COVERED BY THESE DECISIONS, HENCE, GOES IN FAVOUR OF THE ASSESSEE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 25/06/2010. SD/- SD/- ( D.C. AGRAWAL) ( MUKUL SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 25/ 06 /2010 T.C. NAIR, SR. PS ITA NO.1025/AHD /2010 SPAN DIAGNOSTICS LTD. VS. ACIT ASST.YEAR - 2006-07 - 6 - 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