Dy.CIT, Circle-2(1), Hyderabad V. M/s Karvy Insurance Broking Limited, Hyderabad

ITA 1025/HYD/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82425 (ITAT-HYDERABAD)
• Duration Of Justice: 1 year(s) 3 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-10-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 27-06-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: KIRAN KATTA
• Assessee Lawyers: P MURALIKRISHNA
• Keywords: Opportunity of being heard; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI P.M. JAGTAP, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER ITA NO. 1025/HYD/2013 ASSESSMENT YEAR : 2009-10 DY. COMMISSIONER OF INCOME- TAX, CIRCLE 2(1), HYDERABAD. M/S KARVY INSURANCE BROKING LTD., HYDERABAD PAN AACCK 3588L (APPELLANT) (RESPONDENT) REVENUE BY SHRI KIRAN KATTA ASSESSEE BY SHRI P. MURALI KRISHNA DATE OF HEARING 21-08-2014 DATE OF PRONOUNCEMENT 15-10-2014 O R D E R PER SAKTIJIT DEY, J.M.: THIS IS AN APPEAL BY THE DEPARTMENT AGAINST THE OR DER DATED 30/04/2013 OF CIT(A), HYDERABAD FOR THE AY 2009-10. FOLLOWING ARE THE EFFECTIVE GROUNDS RAISED BY THE DEPARTMENT: 2. THE CIT(A) ERRED IN GIVING A FINDING THAT AO DID NOT DOUBT THE GENUINENESS OF THE CLAIM BECAUSE IN THE FIRST P LACE NO DETAILS WERE FILED BY THE ASSESSEE FOR VERIFICATION OF SUCH CLAIM. 3. THE CIT(A) ERRED IN DELETING THE ADDITION THOUGH DETAILS OF INDIVIDUAL TRANSACTIONS ARE NOT FILED AND ALSO IT I S NOT KNOWN THAT AMOUNTS DUE FROM FOUR COMPANIES ARE OFFERED AS INCOME IN EARLIER YEARS OR NOT. 4. THE CIT(A) ERRED ON FACTS AND IN LAW IN RELYING ON THE DECISION OF SUPREME COURT IN THE CASE OF TRF LTD. ( 323 ITR 397) WHICH IS NOT APPLICABLE TO FACTS OF THE PRESEN T CASE. 2 ITA NO.1025/HYD/2013 M/S KARVY INSURANCE BROKING LTD. 2. AS CAN BE SEEN, THE SOLITARY ISSUE ARISING OUT OF THE GROUNDS RAISED IS IN RESPECT OF ADDITION OF AN AMOUNT OF RS . 1,49,42,017 BY AO, BUT, DELETED BY CIT(A). 3. BRIEFLY THE FACTS RELATING TO THE ISSUE IN DISPU TE ARE, ASSESSEE A COMPANY IS ENGAGED IN THE BUSINESS OF INSURANCE B ROKING. FOR THE ASSESSMENT YEAR, IT FILED ITS RETURN OF INCOME ON 29/09/2009 DECLARING TOTAL INCOME OF RS. 7,92,680. DURING THE SCRUTINY ASSESSMENT PROCEEDING, AO WHILE EXAMINING P&L ACCOU NT, NOTICED THAT ASSESSEE HAS DEBITED BAD DEBTS/SUNDRY BALANCES WRITTEN OFF AMOUNTING TO RS. 1,49,42,016. ON A QUERY RAISED BY AO, ASSESSEE SUBMITTED A STATEMENT OF BAD DEBTS WRITTEN OFF DURI NG THE YEAR WITH A NOTE APPENDED THERETO. ON GOING THROUGH THE SAME, AO NOTICED THAT BAD DEBTS CLAIM ARE AS UNDER: 1. TATA AIG INSURANCE COMPANY LTD. 59,13,393 2. MAX NEWYORK LIFE INSURANCE CO. LTD. 62,21,472 3. LIC OF INDIA 18,92,399 4. SBI LIFE INSURANCE CO. LTD. 9,14,753 1,49,42,017 ========== AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE, AO N OTED THAT BAD DEBTS WRITTEN OFF PERTAINED TO REPUTED COMPANIES AN D FURTHER THE BAD DEBTS WRITTEN OFF CLAIMED DURING THE YEAR ITSEL F. AO OBSERVED THAT ASSESSEE ITSELF STATED THAT BAD DEBTS MAY BE D UE TO REQUEST OF THE CUSTOMER OR BY MISPLACEMENT OF POLICIES ETC AND THE RESPECTIVE MARKETING PEOPLE DO NOT BRING THIS TO NOTICE APPREH ENDING THEY WILL LOOSE THE COMMISSION. AO OBSERVED THAT AS ASSESSEE HAS NOT FURNISHED ANY DOCUMENTARY EVIDENCE LIKE CLAIM INVOI CES SENT BY ASSESSEE TO THE PARTIES, ANY CORRESPONDENCE, ETC. T HE CLAIM OF BAD DEBT CANNOT BE ALLOWED. ACCORDINGLY, HE ADDED BACK THE AMOUNT OF 3 ITA NO.1025/HYD/2013 M/S KARVY INSURANCE BROKING LTD. RS. 1,49,42,017 TO THE INCOME OF ASSESSEE. BEING AG GRIEVED OF SUCH ADDITION, ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). 4. BEFORE THE FIRST APPELLATE AUTHORITY, ASSESSEE R EITERATED THE SUBMISSIONS MADE IN COURSE OF ASSESSMENT PROCEEDING . CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF ASSESSEE AND F ACTS AND MATERIALS AVAILABLE ON RECORD AND FOLLOWING THE RAT IO LAID DOWN BY THE HONBLE SUPREME COURT IN CASE OF TRF LTD., 323 ITR 397, DELETED THE ADDITION BY HOLDING AS UNDER: 5.3 FROM THE ABOVE DECISION IT IS CLEAR THAT THE APPELLANT DOES NOT HAVE TO ESTABLISH BEYOND DOUBT THAT THE DEBT HAD INDEED BECOME BAD. THE JUDGMENT OF THE APP ELLANT THAT IN ITS COURSE OF BUSINESS THE DEBT IS IRRECOVE RABLE WOULD SUFFICE. IN THE PRESENT CASE THE AO HAS NOT DOUBTED THE FACT THAT THE DEBTS HAVE BEEN WRITTEN OFF IN THE BOOKS O F ACCOUNT. HE HAS ALSO NOT DOUBTED THE GENUINENESS OF THE ENTR IES. THEREFORE, THERE IS NO REASON TO HOLD THAT THE BAD DEBTS WRITTEN OFF ARE NOT ALLOWABLE. I AM FORTIFIED IN MY VIEW BY THE DECISION OF THE HONBLE JURISDICTION HIGH COURT IN THE CASE OF CIT VS. SIRPUR PAPER MILLS LTD., 334 ITR 656. 5. THE LEARNED DR SUBMITTED BEFORE US THAT ASSESSEE HAS NOT FURNISHED ANY DETAILS AT THE TIME OF ASSESSMENT PRO CEEDING TO PROVE THE FACT THAT THE BAD DEBT CLAIMED WAS TAKEN INTO ACCOUNT FOR COMPUTATION OF INCOME EITHER IN THE ASSESSMENT YEAR UNDER CONSIDERATION OR IN ANY EARLIER AY. HE FURTHER SUBM ITTED THAT ASSESSEE ALSO DID NOT FURNISH ANY DETAILS AS TO WHE N DEBTS BECOME IRRECOVERABLE. THEREFORE, IN ABSENCE OF DETAILS, AO WAS JUSTIFIED IN DISALLOWING THE CLAIM. LEARNED DR SUBMITTED THAT C IT(A) WITHOUT CONSIDERING ALL THESE ASPECTS HAS SIMPLY ALLOWED TH E CLAIM OF ASSESSEE BY FOLLOWING RATIO IN CASE OF TRF LTD. (SU PRA) WITHOUT EXAMINING THE FACT AS TO WHETHER BAD DEBT CLAIMED W ERE OFFERED AS INCOME IN ANY EARLIER ASSESSMENT YEAR. FURTHER, CIT (A) WAS NOT CORRECT IN ALLOWING ASSESSEES CLAIM WITHOUT GIVING AN OPPORTUNITY 4 ITA NO.1025/HYD/2013 M/S KARVY INSURANCE BROKING LTD. TO AO TO VERIFY THE ASSESSEES CLAIM AS NO DETAILS WERE PLACED BEFORE THE AO EARLIER DURING ASSESSMENT PROCEEDING. 6. THE LEARNED AR, ON THE OTHER HAND, STRONGLY SUPP ORTING THE ORDER OF LEARNED CIT(A) SUBMITTED BEFORE US THAT TH E CIT(A) CANNOT BE FAULTED FOR HAVING DELETED THE ADDITION AS THERE WERE EVIDENCES TO SHOW THAT NOT ONLY THE DEBTS HAVE BECOME BAD BUT , THEY WERE ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNT. IN TH IS CONTEXT, LEARNED AR REFERRED TO THE P&L ACCOUNT SUBMITTED IN ITS PAP ER BOOK AS WELL AS THE DETAILS OF BAD DEBTS FORMING PART OF THE SCH EDULE TO THE ACCOUNTS. SO FAR AS THE ALLEGATION OF LEARNED DR TH AT THESE DEBTS WERE NOT SHOWN AS INCOME IN THE CURRENT ASSESSMENT YEAR AS WELL AS IN THE EARLIER ASSESSMENT YEARS, LEARNED AR REFE RRING TO THE DETAILS SUBMITTED IN THE PAPER BOOK CONTENDED THAT BUT DEBTS CLAIMED WERE TAKEN INTO ACCOUNT BY ASSESSEE WHILE C OMPUTING INCOME IN THE RESPECTIVE ASSESSMENT YEARS. IN SUPPO RT OF HIS CLAIM, LEARNED AR SPECIFICALLY REFERRED TO THE DETAILS IN RESPECT OF THE BROKERAGE AND SERVICE TAX PAID TO FOUR ENTITIES, WH ICH ARE PLACED AT PAGES 39, 169, 242, AND 269 OF THE ASSESSEES PAPER BOOK. LEARNED AR RELYING UPON THE DECISION OF THE HONBLE SUPREME COURT IN CASE OF TRF LTD. (SUPRA) SUBMITTED THAT AS THE AMOUNTS CLAIMED AS BAD DEBTS WERE TAKEN INTO ACCOUNT WHILE COMPUTING INCOME FOR THE PRECEDING AY AND THE SAME WERE ACTUA LLY WRITTEN OFF IN THE BOOKS OF ACCOUNT, ASSESSEE WILL BE ENTITLED TO CLAIM DEDUCTION U/S 36(1)(VII). REGARDING THE ALLEGATION OF AO, THAT NO DETAILS WERE PRODUCED, LEARNED AR SUBMITTED THAT VI DE LETTER DATED 08/11/2011 ASSESSEE HAD SUBMITTED DETAILS RELATING TO BAD DEBTS CLAIMED AS DEDUCTION. 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PARTIE S AND PERUSED THE MATERIALS ON RECORD AS WELL AS THE ORDE RS OF THE 5 ITA NO.1025/HYD/2013 M/S KARVY INSURANCE BROKING LTD. REVENUE AUTHORITIES. THERE CANNOT BE ANY TWO OPINIO NS IN RESPECT OF RATIO LAID DOWN BY THE HONBLE SUPREME COURT THAT I F BAD DEBTS ARE WRITTEN OFF IN THE BOOKS OF ACCOUNT BY DEBITING THE BAD DEBT ACCOUNT AND CREDITING CUSTOMERS ACCOUNT, THE DEDUCTION HAS TO BE ALLOWED U/S 36(1)(VII). HOWEVER, THE PROVISION U/S 36(1)(VI I) ARE SUBJECT TO THE CONDITIONS SPECIFIED UNDER SUB-SECTION (2) OF S ECTION 36, WHICH SAYS THAT ANY BAD DEBT WRITTEN OFF TO BE ALLOWED U/ S 36(1)(VII) MUST HAVE BEEN TAKEN INTO ACCOUNT FOR COMPUTING INCOME I N RELEVANT PY OR ANY EARLIER PY. THEREFORE, FOR CLAIMING DEDUCTIO N U/S 36(1)(VII), ASSESSEE NOT ONLY HAS TO PROVE THAT BAD DEBTS HAVE ACTUALLY BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT BUT THE AMOUNTS WERE TAKEN INTO ACCOUNT IN COMPUTING THE INCOME IN THE SAID PY OR I N ANY EARLIER PY. IT IS THE SPECIFIC CONTENTION OF THE DEPARTMENT AND IT IS ALSO THE ALLEGATION OF AO THAT IN COURSE OF ASSESSMENT PROCE EDING, ASSESSEE HAS NOT FURNISHED ANY DETAILS REGARDING BA D DEBTS CLAIMED AND WHETHER THEY WERE TAKEN INTO ACCOUNT WH ILE COMPUTING INCOME IN ANY EARLIER AY. . THE ORDER OF LEARNED CI T(A) IS ALSO SILENT ON THIS FACTUAL ASPECT. FROM THE OBSERVATION OF THE CIT(A) IN PARA 5.2 OF HIS ORDER IT APPEARS HE HAS ALLOWED ASS ESSEES CLAIM SIMPLY ON THE REASON THAT ASSESSEE HAS WRITTEN OFF THE BAD DEBTS IN THE BOOKS OF ACCOUNT. HE HAS NOT AT ALL DEALT WITH THE FACTUAL ASPECT OF THE ISSUE AS TO WHETHER THE BAD DEBTS CLAIMED IN THE IMPUGNED ASSESSMENT YEAR WERE TAKEN INTO ACCOUNT WHILE COMPU TING INCOME IN THE PY RELEVANT TO AY UNDER CONSIDERATION OR IN ANY EARLIER PY. THOUGH FROM THE DETAILS FURNISHED IN THE PAPER BOOK , IT APPEARS THAT THE AMOUNTS CLAIMED AS BAD DEBTS WERE TAKEN IN TO A CCOUNT WHILE COMPUTING THE INCOME IN THE PY RELEVANT TO AY UNDER DISPUTE, HOWEVER, WE ARE NOT SURE WHETHER THESE WERE EXAMINE D EITHER BY AO OR BY CIT(A). AS THE FACTUAL ASPECT RELATING TO CLAIM OF BAD DEBT HAS NOT BEEN PROPERLY DEALT WITH EITHER IN THE ASSE SSMENT ORDER OR IN THE ORDER OF CIT(A), WE ARE INCLINED TO REMIT TH E ISSUES BACK TO 6 ITA NO.1025/HYD/2013 M/S KARVY INSURANCE BROKING LTD. THE FILE OF AO FOR CONSIDERING AFRESH AFTER AFFORDI NG DUE OPPORTUNITY OF BEING HEARD TO ASSESSEE. WE HOWEVER MAKE IT CLEA R THAT IF ASSESSEE IS ABLE TO ESTABLISH THAT THE CONDITIONS I N SECTION 36(1)(VII) READ WITH SUB-SECTION (2) OF SECTION 36 ARE FULFILLED, AO HAS TO ALLOW ASSESSEES CLAIM OF BAD DEBT WRITTEN O FF BY FOLLOWING RATIO LAID DOWN BY HONBLE SUPREME COURT IN CASE OF TRF LTD. (SUPRA). 8. IN THE RESULT, APPEAL OF THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 15 TH OCTOBER, 2014 SD/- SD/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JU DICIAL MEMBER HYDERABAD, DATED: 15 TH OCTOBER, 2014 KV COPY TO:- 1) DCIT, CIRCLE 2(1), HYDERABAD 2) M/S KARVY INSURANCE BROKING LTD., 46, AVENUE-4, STREET NO. 1, BANJARA HILLS, HYDERABAD 500 034.. 3) CIT(A)-III HYDERABAD. 4) CIT-II, HYDERABAD 5)THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDER ABAD.