Shri Nandubhai P.Vora, Surat V. The ACIT.,Circle-2, Surat

ITA 1037/AHD/2010

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5820 (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
• Assessee Lawyers: BIRJU S SHAH
• 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.1037/AHD/2010 ASSESSMENT YEAR : 2006-07 SHRI NANDUBHAI P.VORA L/3061, SURAT TEXTILE MARKET RING ROAD SURAT VS. THE ACIT CIR-2 SURAT PAN/GIR NO. : AAMPV 5640 D (APPELLANT) .. (RESPONDENT) APPELLANT BY : SHRI BIRJU S. SHAH 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 LEARNED CIT(APPEALS)-II, SURAT DATED 30/12/2009 AND THE ONLY ISSUE IS IN RESPECT OF CLAI M OF BAD DEBT AS PER THE FOLLOWING GROUNDS:- (I) ADDITION OF BAD DEBTS WRITTEN OFF :- (1) THE C.ILT. (A) HAS ERRED IN LAW AND IN FACTS IN UPHOLDING THE ADDITION OF RS.2,56,648/- MADE BY THE LD. A.O. IN R ESPECT OF BAD DEBTS WRITTEN OFF BY THE APPELLANT DURING THE Y EAR UNDER CONSIDERATION. ITA NO.1037/AHD /2010 SHRI NANDUBHAI P.VORA VS. ASST.CIT ASST.YEAR - 2006-07 - 2 - (2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, T HE DECISION OF C.I.T.(A) IS REQUIRED TO BE NULLIFIED BY DELETING T HE ADDITION OF RS.2,56,648/-. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S. 143(3) OF THE I.T. ACT, 1961 DATED 1 9/12/2008 WERE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF C HEMICALS AND DYES. IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSES SEE HAS CLAIMED AN AMOUNT OF RS.2,56,648/- AS BAD DEBT IN THE PROFIT & LOSS ACCOUNT. THE ASSESSING OFFICER HAS HELD THAT MERELY BY DEBITING THE AMOUNT WAS NOT SUFFICIENT TO PROVE THE CLAIM OF BAD DEBT AND IT WA S NECESSARY TO PLACE ON RECORD THE CORRESPONDENCE TO SHOW THAT THE AMOUNT H AD BECOME IRRECOVERABLE. THE ASSESSING OFFICER HAS PLACED RE LIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF IN THE CASE OF DHALL ENTERPRISES & ENGINEERS PVT. LTD. VS. CIT REPORTED AS (2007)295 ITR 481(GUJ.) :: (2007)207 CTR 729 (GUJ.). 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, SHRI BIRJU S.SHA H LEARNED AUTHORISED REPRESENTATIVE OF THE ASSESSEE APPEARED AND PLACED RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT IN THE C ASE OF T.R.F. LTD. VS. CIT REPORTED AS (2010) 323 ITR 397 (SC) HAS HELD TH AT SUBSEQUENT TO THE AMENDMENT MADE IN SECTION 36 OF THE I.T. ACT, 1961 WITH EFFECT FROM ITA NO.1037/AHD /2010 SHRI NANDUBHAI P.VORA VS. ASST.CIT ASST.YEAR - 2006-07 - 3 - 01/04/1989, THE ONLY REQUIREMENT IS TO WRITE-OFF TH E AMOUNT OF BAD DEBT IN THE BOOKS OF ACCOUNT. IN THIS WRITTEN SUBMISSI ON, IT HAS ALSO BEEN MENTIONED THAT THE LEARNED CIT(APPEALS) HAS SIMPLY CITED A DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF DHALL ENT ERPRISES & ENGINEERS PVT. LTD. VS. CIT REPORTED AS (2007)295 ITR 481(GU J.) :: (2007)207 CTR 729 (GUJ.) AND AFFIRMED THE ACTION OF THE ASSESSING OFFICER, HOWEVER, REST OF THE CONDITIONS FOR GRANT OF DEDUCTION OF BA D DEBT WERE OTHERWISE SATISFIED. SO, IT WAS PLEADED TO ALLOW THE CLAIM. 5. FROM THE SIDE OF THE REVENUE LD.CIT-LEARNED DEPA RTMENTAL REPRESENTATIVE SHRI K.MADHUSUDAN APPEARED. AT THE OUTSET, IT WAS VEHEMENTLY ARGUED THAT FOR THE CLAIM OF BAD DEBT, T HE ASSESSEE HAS TO ESTABLISH HIS BONA FIDE FOR WRITING-OFF THE SAME AS IRRECOVERABLE. PLACING RELIANCE ON THE DECISION OF HON'BLE GUJARAT HIGH CO URT IN THE CASE OF DHALL ENTERPRISES & ENGINEERS PVT.LTD.(SUPRA), IT WAS ARGUED THAT THE HON'BLE HIGH COURT HAS HELD THAT REQUIREMENT FOR C LAIMING DEDUCTION ON ACCOUNT OF BAD DEBT IS THAT THE DEBT SHOULD BE WRIT TEN OFF AS IRRECOVERABLE AND THE ASSESSEE SHOULD PROVE THAT THE DEBT HAS BEC OME BAD IN THAT YEAR. MERE DEBITING THE AMOUNT WAS 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 ITA NO.1037/AHD /2010 SHRI NANDUBHAI P.VORA VS. ASST.CIT ASST.YEAR - 2006-07 - 4 - 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-DR WAS THAT, ONCE THE CLAIM OF BAD DEBT IS WITHIN THE PERSONAL KNOWLEDGE OF THE BUSINESS-MAN WHETHER A DEBT HAD BE COME BAD OR NOT, THEN HE HAS TO PLACE ON RECORD THE BASIS OF HIS DEC ISION, AS WELL AS, HE HAS TO ESTABLISH HIS BONA FIDE TO BE DEMONSTRATED THROU GH COGENT EVIDENCE SO AS TO ESTABLISH THAT THE DEBT HAD ACTUALLY BECOME B AD. IT HAS ALSO BEEN INFORMED THAT THE ORDER OF THE SPECIAL BENCH H O F ITAT MUMBAI IN THE CASE OF DY.CIT VS. OMAN INTERNATIONAL BANK REPO RTED AS (2006)100 ITD 285(MUMBAI)[SB] WAS AFFIRMED BY THE HON'BLE MUM BAI HIGH COURT IN THE CASE OF DIRECTOR OF INCOME TAX (INTERNATIONA L TAXATION) VS. OMAN INTERNATIONAL BANK SAOG REPORTED AS (2009) 313 ITR 128(MUM.) BY REJECTING THE REVENUES APPEAL, THEREAFTER, THE RE VENUE HAS PREFERRED SLP BEFORE THE HON'BLE SUPREME COURT WHICH WAS STAT ED TO BE NOW STOOD DISMISSED. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL PLACED BEFORE US AND THE EVIDENCES PLACED IN THE FORM OF C OMPILATION CONSISTING COPY OF LEDGER ACCOUNTS OF THE PARTIES AND THE REAS ONS ASSIGNED FOR CLAIMING THE BAD DEBT. IT WAS DEMONSTRATED THAT T HE SALES HAD TAKEN PLACE FEW YEARS BACK AND THE BALANCE REMAINED UNREC OVERABLE SINCE THEN, THEREFORE, DUE TO THE SAID REASON AND CONSIDERING THE OVERALL ITA NO.1037/AHD /2010 SHRI NANDUBHAI P.VORA VS. ASST.CIT ASST.YEAR - 2006-07 - 5 - CIRCUMSTANCES UNDER WHICH THE RECOVERY OF THE OUTST ANDING BALANCES COULD NOT BE MADE, IT WAS RESOLVED TO TREAT THE O UTSTANDING BALANCE AS BAD DEBT FOR THE ACCOUNTING PERIOD UNDER CONSIDERAT ION. BE THAT AS IT WAS ABOUT THE EVIDENCES, THE LATEST LEGAL POSITION IS THAT THE HON'BLE SUPREME COURT IN THE CASE OF T.R. F. LTD. VS. CIT REPORTED AS (2010) 323 ITR 397 (SC) HAS TAKEN INTO CONSIDERATION THE POSIT ION OF LAW, AFTER 01/04/1989 AND HELD AS UNDER:- 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 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 ITA NO.1037/AHD /2010 SHRI NANDUBHAI P.VORA VS. ASST.CIT ASST.YEAR - 2006-07 - 6 - 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. 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 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