DCIT Circle - 11(1), V. M/s Ascent Circuits P. Ltd.,

ITA 114/BANG/2013

• Counselvise Citation: 11421114 RSA 2013
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2014
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 07-08-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 01-02-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts; Condonation of delay

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH C : BANGALORE BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P.BOAZ, ACCOUNTANT MEMBER ITA NO.114/BANG/2013 (ASSESSMENT YEAR: 2006 - 07) DEPUTY COMMISSIONER OF INCOME - TAX, CIRCLE 1 1(1), BANGALORE. APPELLANT VS. M/S.ASCENT CIRCUITS PVT. LTD. B - 13, ITI, ANCILLARY ESTATE, MAHADEVAPURA, BANGALORE - 48. PA NO. :AABCR2074D RESPONDENT AND ITA NO. 207 / BANG/20 1 3 (ASSESSMENT YEAR: 20 0 6 - 07 ) (BY THE ASSESSEE) ** ****** REVENUE BY: SHRI M.K.BIJU, JCIT (DR) ASSESSEE BY: SHRI S.PARTHASARATHI, ADVOCATE. DATE OF HEARING : 07 - 08 - 2014 . DATE OF PRONOUNCEMENT: 22 - 08 - 2014 . O R D E R PER SMT. P.MADHAVI DEVI, JM : THESE ARE CROSS APPEALS BY BOTH THE RE VENUE AND THE ASSESSEE DIRECTED AGAINST THE ORDER OF THE CIT(A) - I, BANGALORE, DATED 6 - 11 - 2012 FOR THE ASSESSMENT YEAR 2006 - 07. ITA NO S114 & 207 /BANG/20 13 M/S.ASCENT CIRCUITS PVT.LTD. PAGE 2 OF 9 2. IN THE REVENUE S APPEAL VIZ. ITA NO.114/BANG/2013 , THE REVENUE IS AGGRIEVED BY THE ORDER OF THE CIT(A) IN CONDONING THE DELAY OF 854 DAYS IN FILING OF THE APPEAL BEFORE THE CIT(A) ON THE BASIS OF AN AFFIDAVIT FILED BY THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE WITHOUT CALLING FOR A REMAND REPORT TO CHECK THE VERACITY OF THE SUBMISSIONS MADE. THE REVENUE IS ALSO AGGRIEVED BY THE ORDER OF THE CIT(A) IN ALLOWING THE RELIEF OF RS.30,53,898/ - AS BAD DEBT WRITTEN OFF RELYING ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF TRF LTD., (323 ITR 397) . THE THIRD ISSUE AGAINST WHICH THE REVENUE IS IN APPEAL IS AGAINST THE ORDE R OF THE CIT(A) IN DELETING ADDITION MADE ON ACCOUNT OF PROVISIONS FOR WARRANTY BY APPLYING THE DECISION OF THE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA (P) LTD. WITHOUT APPRECIATING THE DIFFERENCE IN FACTS OF THE ASSESSEE S CASE AND THOSE IN THE CA SE OF ROTORK CONTROLS INDIA (P) LTD. 3. IN THE ASSESSEE S APPEAL VIZ., ITA NO.207/BANG/2013 , THE ASSESSEE HAS RAISED GROUNDS OF APPEAL SEEKING A DIRECTION FROM THIS TRIBUNAL TO ALLOW THE BAD DEBT DISALLOWED IN THE EARLIER ASSESSMENT YEAR 2005 - 06 ON THE GR OUND THAT IT WAS NOT WRITTEN OFF D URING THE PREVIOUS YEAR 2003 - 04 BUT WAS WRITTEN OFF DURING THE RELEVANT PREVIOUS YEAR I.E 2004 - 05 . ITA NO S114 & 207 /BANG/20 13 M/S.ASCENT CIRCUITS PVT.LTD. PAGE 3 OF 9 4. BEFORE GOING INTO THE MERITS OF THE GROUNDS RAISED BY THE REVENUE AS WELL AS THE ASSESSEE ON ACCOUNT OF BAD DEBTS AND PR OVISION FOR WARRANTY, WE HAVE TO FIRST DISPOSE OF THE REVENUE S GROUND A GAINST THE CONDONATION OF DELAY OF 854 DAYS. 4.1 BRIEF FACTS OF THE CASE ARE THAT THE ASSESSMENT ORDER FOR THE RELEVANT ASSESSMENT YEAR WAS PASSED ON 29 - 12 - 2008 AND THE SAME WAS ALSO SERVED ON THE REPRESENTATIVE OF THE ASSESSEE THEREAFTER. HOWEVER, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT(A) ONLY ON 23 - 6 - 2011 RESULTING IN DELAY OF 854 DAYS, IF THE DATE OF ASSESSMENT ORDER IS TAKEN AS THE DATE OF RECEIPT OF THE SAME BY THE ASS ESSEE. THE ASSESSEE HA D FILED A LETTER DATED 19 - 10 - 2012 BEFORE THE CIT(A) EXPLAINING REASONS FOR THE DELAY. THE ASSESSEE HAD EXPLAINED THAT THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAD RECEIVED THE ASSESSMENT ORDER BUT HAD MISPLACED THE SAME DUE TO WHICH ASSESSEE WAS NOT AWARE OF THE ASSESSMENT ORDER AND THE APPEAL WAS NOT FILED IN TIME AND IT WAS ONLY WHEN THE DEMAND NOTICE ALONG WITH THE ORDER WAS SERVED ON THE ASSESSEE THAT THE ASSESSEE CAME TO KNOW OF THE ASSESSMENT ORDER AND HAS TAKEN IMMEDIA TE STEPS TO FILE AN APPEAL BEFORE THE CIT(A) WHICH HAS RESULTED IN THE DELAY OF 845 DAYS. IT WAS SUBMITTED THAT THE ASSESSEE IS A REGULAR INCOME - TAX ASSESSEE AND HAS REGULARLY FILED HIS INCOME - TAX RETURNS AND THE DELAY IS NOT BECAUSE OF ANY WILLFUL OR NEG LIGENT ACT ON THE PART OF THE ASSESSEE. THE AFFIDAVIT OF THE AUDITOR OF THE ASSESSEE ITA NO S114 & 207 /BANG/20 13 M/S.ASCENT CIRCUITS PVT.LTD. PAGE 4 OF 9 WAS ALSO FILED IN SUPPORT OF THE SAID CONTENTION. THE CIT(A) CONSIDERED THE ASSESSEE S CONTENTION AND HAS CONDONED THE DELAY AND PROCEEDED TO DISPOSE OF THE APPEAL ON ME RITS. 4.2 THE LEARNED DEPARTMENTAL REPRESENTATIVE STRONGLY OPPOSED THE CONDONATION OF DELAY BY THE CIT(A) AND SUBMITTED THAT THE ASSESSEE , BEING A COMPANY, WAS ASSISTED AND REPRESENTED BY A CHARTERED ACCOUNTANT. IT WAS THE DUTY OF THE ASSESSEE TO MAKE EN QUIRY ABOUT THE ASSESSMENT ORDER SINCE IT HAS ALSO PARTICIPATED IN THE ASSESSMENT PROCEEDINGS. THUS, ACCORDING TO HIM, THE ASSESSEE HAS BEEN NEGLIGENT IN FOLLOWING UP THE ASSESSMENT PROCEEDINGS AND THEREFORE THE DELAY OF 854 DAYS SHOULD NOT HAVE BEEN CONDO NED BY THE CIT(A). 4.3 THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, SUPPORTED THE ORDER OF THE CIT(A) AND SUBMITTED THAT THE ASSESSEE HAD, IN FACT, BEEN VIGILANT AND HAD ALSO ENQUIRED ABOUT THE ASSESSMENT ORDER BUT THE AUDITOR OF THE ASSESSE E HAS MISPLACED THE ASSESSMENT ORDER AND ONLY SUBSEQUENTLY WHEN THE ASSESSEE HAS COME TO KNOW ABOUT THE ASSESSMENT ORDER BEING PASSED , HAS IMMEDIATELY FILED THE APPEAL BEFORE THE CIT(A). HE SUBMITTED THAT THE ASSESSEE HAD, IN FACT, FILED A COMPLAINT AGAIN ST THE SAID AUDITOR AND THE DISCIPLINARY PROCEEDINGS HAD BEEN INITIATED AGAINST THE AUDITOR AND THE AUDITOR HAS BEEN BLACK - LISTED. HE SUBMITTED THAT FOR THE FAULT OF THE AUDITOR, THE ITA NO S114 & 207 /BANG/20 13 M/S.ASCENT CIRCUITS PVT.LTD. PAGE 5 OF 9 ASSESSEE SHOULD NOT BE PENALIZED PARTICULARLY WHEN THE ISSUES ARE COVERE D IN FAVOUR OF THE ASSESSEE BY THE DECISIONS OF THE APEX COURT ON BOTH THE ISSUES. HE FURTHER PLACED RELIANCE ON THE DECISION OF THE B BENCH OF THIS TRIBUNAL IN THE CASE OF SMT.NANDINI ALVA IN ITA NO.134/BANG/2012 DATED 13 - 11 - 2013 FOR THE ASSESSMENT YE AR 2006 - 07 WHEREIN THE TRIBUNAL HAD CONDONED THE DELAY OF 109 DAYS BY FOLLOWING THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF COLLECTOR, LAND ACQUISITION VS. MST. KHATIJI & OTHERS (167 ITR 471)(SC), CIT VS. WEST BENGAL INFRASTRUCTURE DEVELOPMENT FINANCE CORPORATION LTD. (334 ITR 269)(SC) AND THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ISRO SATELLITE CENTRE (ITA NO.532/2008 DATED 28 - 12 - 2011). 4.4 HAVING HEARD BOTH THE PARTIES AND HAVING CONSIDERED THE RIVAL CONTENTIONS AND THE MATERIAL ON RECORD, WE FIND THAT IT IS THE CONTENTION OF THE ASSESSEE THAT THE AUDITOR OF THE ASSESSEE - COMPANY HAD NOT INFORMED THE ASSESSEE ABOUT RECEIPT OF THE ASSESSMENT ORDER NOR HAS HE ADVISED THE ASSESSEE TO FILE AN APPEAL. IN FACT, THE C.A. HAD FILED AN AFFIDAVIT BEFORE THE CIT(A) TO CONFIRM THE CONTENTIONS OF THE ASSESSEE. THIS FACT HAS NOT BEEN REBUTTED BY THE REVENUE BEFORE US. SINCE THE DELAY IS NOT ON ACCOUNT OF ANY WILLFUL OR NEGLIGENT ACT ON THE PART OF THE ASSESSEE BUT DUE TO THE ACT OF THE NEGLIGENCE OF THE AUDITOR, WE ITA NO S114 & 207 /BANG/20 13 M/S.ASCENT CIRCUITS PVT.LTD. PAGE 6 OF 9 ARE OF THE OPINION THAT THE CONDONATION OF DELAY BY THE CIT(A) IS TO BE UPHELD. 4.5 THE HON BLE SUPREME COURT , IN THE CASE OF MST.KHATIJI & OTHERS (CITED SUPRA) , HAS HELD THAT SUBSTANTIAL JUSTICE SHOULD PREVAIL OVER T ECHNICAL CONSIDERATIONS AND THE CONDITION THAT EVERY DAY S DELAY MUST BE EXPLAINED , DOES NOT MEAN THAT PEDANTIC APPROACH SHOULD BE TAKEN BUT THE DOCTRINE MUST BE APPLIED IN A NATURAL, COMMON SENSE AND PRAGMATIC MANNER. SIMILAR VIEW HAS BEEN EXPRESSED BY T HE HON BLE SUPREME COURT AND THE JURISDICTIONAL HIGH COURTS IN THE CASES RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE. IN VIEW OF THE SAME, WE ARE UPHOLDING THE ORDER OF THE CIT(A) IN CONDONING THE DELAY AND DISMISS THIS GROUND OF APPEAL OF THE REV ENUE. 5. AS REGARDS THE GROUND RELATING TO BAD DEBT ALLOWED BY THE CIT(A), WE FIND THAT THE CIT(A) HAS OBSERVED THAT THE SUM OF RS.30,53,898/ - AS AGAINST THE CLAIM OF RS.54,18,928/ - HAS BEEN VERIFIED AND HAS BEEN FOUND TO HAVE BEEN WRITTEN OFF IN THE BOOK S OF ACCOUNT BEFORE GRANTING RELIEF TO THE ASSESSEE. IN THE ASSESSMENT ORDER ALSO, THE AO HAS OBSERVED THAT THE ASSESSEE HAS NOT WRITTEN OFF THE ENTIRE SUM OF RS.54,18,928/ - AS BAD DEBT. NO EVIDENCE TO THE CONTRARY HAS BEEN FURNISHED BEFORE US TO THE EFF ECT THAT THE SUM OF RS.30,53,898/ - HAS NOT BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THEREFORE, W E DO NOT SEE ITA NO S114 & 207 /BANG/20 13 M/S.ASCENT CIRCUITS PVT.LTD. PAGE 7 OF 9 ANY REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS ISSUE. 6. AS REGARDS THE THIRD ISSUE I.E. PROVISION FOR WARRANTY AL LOWED BY THE CIT(A), WE FIND THAT THE CIT(A) HAS FOLLOWED THE DECISION OF THE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD. VS. CIT (314 ITR 62) . BEFORE COMING TO THE CONCLUSION, THE AO AND THE CIT(A) OUGHT TO HAVE EXAMINED THE FACTS OF THE CA SE AND SEE N WHETHER THE PROVISION IS BASED UPON ANY SCIENTIFIC METHOD AND IS BASED ON THE PAST HISTORY OF SUCH EXPENSES CLAIMED BY THE ASSESSEE IN THE PAST . WE FIND THAT THOUGH THE CIT(A) HAS RIGHTLY FOLLOWED THE DECISION OF THE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD. (CITED SUPRA), HAS NOT VERIFIED THE DETAILS AS TO WHETHER THE METHOD ADOPTED BY THE ASSESSEE IN MAKING THE PROVISION FOR WARRANTY IS SCIENTIFIC OR OTHERWISE. IN VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO REMIT THIS ISSUE TO THE FILE OF THE AO FOR RE - CONSIDERATION AS TO WHETHER THE METHOD FOLLOWED BY THE ASSESSEE IN MAKING THE PROVISION FOR WARRANTY WAS ON THE LINES /GUIDELINES ISSUED BY THE APEX COURT IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD. (CITED SUPRA). IT IS NEED LESS TO MENTION THAT T HE AO SHALL GIVE THE ASSESSEE A FAIR OPPORTUNITY OF HEARING BEFORE DECIDING THE ISSUE IN ACCORDANCE WITH LAW. THIS GROUND OF APPEAL IS ACCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO S114 & 207 /BANG/20 13 M/S.ASCENT CIRCUITS PVT.LTD. PAGE 8 OF 9 7. IN THE ASSESSEE S APPEAL, THE ONLY ISSUE IS WITH REGARD TO THE CLAIM OF BAD DEBT WRITTEN OFF BY THE ASSESSEE TO THE EXTENT OF RS.18,83,620/ - WHICH WAS DISALLOWED IN THE EARLIER YEAR I.E. ASSESSMENT YEAR 2005 - 06 ON THE GROUND THAT IT WAS NOT WRITTEN OFF IN THE RELEVANT PREVIOUS YEAR. IT IS THE CONTENTIO N OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT THIS SUM W AS NOT WRITTEN OFF IN THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 200 5 - 06 AND THEREFORE WAS RIGHTLY DISALLOWED BY THE AO AND THE CIT(A) IN ASSESSMENT YEAR 2005 - 06, BUT SINCE IT WAS WRITTEN OFF DURI NG THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR 2006 - 07 THE AO SHOULD BE DIRECTED TO ALLOW THE CLAIM OF BAD DEBT DURING THE RELEVANT ASSESSMENT YEAR. THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS ALSO HEARD. 8. CONSIDERING THE FACTS OF THE CASE , WE FIND THAT THE CLAIM OF BAD DEBTS WAS HELD TO BE NOT ALLOWABLE IN THE ASSESSMENT YEAR 200 5 - 06 ON THE GROUND THAT IT WAS NOT WRITTEN OFF IN THE BOOKS OF ACCOUNT OF THE ASSESSEE DURING THE RELEVANT PREVIOUS YEAR BUT THE CONTENTION OF THE ASSESSEE THAT THE SE BAD DEBTS HAVE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT DURING RELEVANT PREVIOUS YEAR NEEDS VERIFICATION BY THE AO. IN VIEW OF THE SAME, WE DEEM IT FIT AND PROPER TO REMAND THIS ISSUE ALSO TO THE FILE OF THE AO FOR DE NOVO CONSIDERATION IN ACCORDANCE W ITH LAW. IF IT IS FOUND THAT THESE AMOUNTS HAVE BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT IN ITA NO S114 & 207 /BANG/20 13 M/S.ASCENT CIRCUITS PVT.LTD. PAGE 9 OF 9 THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2006 - 07, THEN THE SAME MAY BE ALLOWED BY THE AO. 9. IN THE RESULT, BOTH THE REVENUE S APPEAL AND THE ASSESSEE S APPE AL ARE ALLOWED FOR STATISTICAL PURPOSES. PRON OUNCED IN THE OPEN COURT ON 22 ND OF AUGUST, 201 4. S D / - SD/ - (JASON P BOAZ ) ( SMT. P.MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL M EMBER EKSRINIVASULU COPY TO: 1. APPELLANT 2. RES PONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE TRIBUNAL BANG ALORE