M/s Malnad Finance Corporation (R), Bangalore V. Asst.C.I.T., Bangalore

ITA 121/BANG/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8574 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 14-02-2017
• Assessment Year: 1998-1999
• Appeal Filed On: 04-02-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: AR V SREENIVAS
• Keywords: Bad and doubtful debts
• Section: 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL SMC-A BENCH : BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NOS.121-124/BANG/2016 ASSESSMENT YEARS : 1998-99, 2001-02 TO 2003-04 M/S. MALNAD FINANCE CORPORATION (R), NO. 126, 1 ST MAIN, SESHADRIPURAM, BENGALURU. PAN : AAEFM3215D VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE 6(1), BENGALURU. APPELLANT RESPONDENT ASSESSEE BY : SHRI. BALRAM R RAO, ADVOCATE REVENUE BY : SHRI. AR. V. SREENIVAS, JCIT DATE OF HEARING : 15.02.2017 DATE OF PRONOUNCEMENT : 21.02.2017 O R D E R PER A.K. GARODIA, ACCOUNTANT MEMBER ALL THESE 4 APPEALS ARE FILED BY THE ASSESSEE WHIC H ARE DIRECTED AGAINST 4 SEPARATE ORDERS OF LEARNED CIT (APPEALS), BENGALURU-2, BENGALURU DATED 04.11.2015, FOR THE ASSESSMENT YEAR S 1998-99, 2001-02 TO 2003-04. ITA NOS.121-124/BANG/2016 PAGE 2 OF 6 2. ALL THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DISPOSED BY WAY OF THIS COMMON ORDER FOR THE SAKE OF CONVENIENC E. 3. IN THE AY 1998-99, ALTHOUGH THE ASSESSEE HAS RAISED 5 GROUNDS OF APPEAL, THE EFFECTIVE GRIEVANCES OF THE ASSESSEE IS REGARDING ADDITION OF RS.4,01,000/- WHICH IS MADE BY THE AO UNDER SECT ION 68 AND CONSEQUENT DISALLOWANCE OF INTEREST OF RS.72,180/- IN RESPECT OF THE DEPOSITS. IN THIS MANNER, TOTAL ADDITION MADE IN T HIS YEAR IS RS.4,72,180/-. 4. IN THE AY 2001-02 ALSO, HE HAS MADE SIMILAR ADDITIO N UNDER SECTION 68 OF THE IT ACT OF RS.6,08,000/- AND CONSE QUENTIALLY DISALLOWED THE INTEREST OF RS.1,03,337/-. IN ADD ITION TO THAT, IN AY 2001-02, HE HAS ALSO MADE DISALLOWANCE OF RS.16,45, 400/- BY DISALLOWING THE CLAIM OF THE ASSESSEE IN RESPECT OF WRITE OFF OF BAD DEBTS UNDER SECTION 36(1)(VII) OF THE IT ACT. 5. IN AY 2002-03 ALSO, SIMILAR ADDITION OF RS.8,73,500 /- WAS MADE UNDER SECTION 68 AND CONSEQUENT DISALLOWANCE OF INT EREST WAS ALSO MADE OF RS.1,57,230/- . IN ADDITION TO THIS, IN TH E AY 2002-03 DISALLOWANCE OF RS.13,65,000/- WAS MADE BY DISALLOW ING THE CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 36(1)(VII) FOR WRITE OFF OF BAD DEBTS. ITA NOS.121-124/BANG/2016 PAGE 3 OF 6 6. IN THE AY 2003-04 ALSO, ADDITION UNDER SECTION 68 O F RS.2,51,793/- WAS MADE AND DISALLOWANCE OF RS.10,30 7/- ON ACCOUNT OF INTEREST WAS ALSO MADE. BUT THIS ADDITION UNDER SE CTION 68 AND DISALLOWANCE OF INTEREST IS NOT BEING AGITATED BEFO RE THE TRIBUNAL AND THE ONLY ISSUE RAISED IN THIS YEAR IS REGARDING DIS ALLOWANCE OF RS.16,44,820/- IN RESPECT OF CLAIM OF THE ASSESSEE UNDER SECTION 36(1)(VII) ON ACCOUNT OF WRITE OFF OF BAD DEBTS. 7. HENCE IT IS SEEN THAT ONE ISSUE IN FIRST 3 YEARS IS ABOUT ADDITION UNDER SECTION 68 AND CONSEQUENT DISALLOWANCE OF INT EREST. THE 2 ND ISSUE IS REGARDING DISALLOWANCE OF THE CLAIM OF THE ASSESSEE UNDER SECTION 36(1)(VII) IN RESPECT OF WRITE OFF OF BAD D EBTS IN LATER 3 YEARS. 8. IT WAS SUBMITTED BY LEARNED AR OF THE ASSESSEE THAT ADDRESSES OF THE PERSONS FROM WHOM DEPOSITS WERE RECEIVED WAS PR OVIDED BY THE ASSESSEE TO THE AO BUT AO DID NOT MAKE EFFORTS TO M AKE VERIFICATION FROM THESE PERSONS. AT THIS JUNCTURE, A QUERY WAS RAISED BY THE BENCH AS TO WHETHER THE ASSESSEE HAD FULFILLED ITS OBLIGA TIONS OF ESTABLISHING THE IDENTITY AND CREDIT WORTHINESS OF THE PERSONS F ROM WHOM THE CASH CREDIT WAS RECEIVED AND ESTABLISHING THE GENUINENES S OF THE TRANSACTIONS AS REQUIRED UNDER SECTION 68. IN REPLY, THE LEARNE D AR OF THE ASSESSEE COULD NOT PRODUCE ANYTHING IN RESPECT OF IDENTITY A ND CREDIT WORTHINESS OF THE PERSONS FROM WHOM CASH CREDIT IN QUESTION WA S RECEIVED. REGARDING THE 2 ND ISSUE I.E., WRITING OFF OF BAD DEBTS, IT WAS SUBMI TTED BY LEARNED AR OF THE ASSESSEE THAT THE BOOKS OF ACC OUNTS OF THE ITA NOS.121-124/BANG/2016 PAGE 4 OF 6 ASSESSEE WERE IMPOUNDED IN SEPTEMBER, 2003 AND THER EFORE, THE ASSESSEE COULD NOT MAKE ENTRIES IN THE BOOKS OF ACC OUNTS FOR WRITING OFF OF BAD DEBTS. HE SUBMITTED THAT COPY OF BALANCE SH EET AND P & L ACCOUNTS FOR ALL THE 4 YEARS ARE AVAILABLE ON PAGES 1-22 OF THE PAPER BOOK AND FROM THE SAME, IT CAN BE SEEN THAT IN EACH OF THE YEAR WHERE THE ASSESSEE HAS CLAIMED DEDUCTION ON ACCOUNT OF WR ITE OFF OF BAD DEBTS, DEBIT HAS BEEN MADE IN THE P&L ACCOUNT AS BA D AND DOUBTFUL DEBTS OF RS.16,65,400/- IN AY 2001-02 AS PER PAGE 8 OF PAPER BOOK, OF RS.36,54,400/- IN 2002-03 IN PAGE 12 OF PAPER BOOK AND RS.16,44,820/- IN AY 2003-04 AS PER PAGE 22 OF PAPER BOOK. HE HAS ALSO SUBMITTED THAT THE ASSESSEE IS FOLLOWING CASH SYSTEM OF ACCOU NTING. 9. WHEN A QUERY WAS RAISED BY THE BENCH REGARDING EFFE CT OF WRITING OFF OF BAD DEBTS IN THE BALANCE SHEET, HE S UBMITTED THAT IN THE BALANCE SHEET, NET AMOUNT OF DEPOSIT AFTER WRITING OFF IS APPEARING. HE PLACED RELIANCE ON THE JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF VITHALDAS DHANJIBHARI V. CO MMISSIONER OF INCOME TAX 130 ITR 95 AND POINTED OUT THAT IT WAS H ELD BY HONBLE GUJARAT HIGH COURT IN THIS CASE THAT IF AN AMOUNT O F BAD DEBT IS DEBITED TO P&L ACCOUNT BY DEBIT TO P&L ACCOUNT AND CREDITIN G BAD DEBTS RESERVE ACCOUNT, IT AMOUNTS TO WRITE OFF OF BAD DEB TS. AT THIS JUNCTURE, IT WAS POINTED OUT BY THE BENCH THAT THIS JUDGMENT DATED 20.08.1980 IS INVOLVING AY 1967-68 AND 1969-70 BUT THERE ARE AMEN DMENTS IN THE PROVISIONS OF SECTION 36(1)(VII) AND 36(2) W.E.F. 0 1.04.1989 AND THEREFORE, HOW THIS JUDGMENT IS APPLICABLE IN THE PRESENT YEAR. IN REPLY, LEARNED AR OF THE ASSESSEE HAD NOTHING TO SA Y. LEARNED DR OF THE REVENUE SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. ITA NOS.121-124/BANG/2016 PAGE 5 OF 6 10. I HAVE CONSIDERED THE RIVAL SUBMISSIONS ON BOTH THE ISSUES. REGARDING THE 1 ST ISSUE I.E., ADDITION MADE BY THE AO UNDER SECTION 68 IN RESPECT OF CASH CREDIT ON ACCOUNT OF RECEIPT OF DEPOSITS BY THE ASSESSEE AND CONSEQUENT DISALLOWANCE OF INTEREST ON SUCH CASH CREDIT, I FIND THAT THIS IS A SETTLED POSITION OF LAW BY NOW THAT FOR THE PURPOSE OF SECTION 68, THE BURDEN IS ON THE ASSESSEE TO ESTABL ISH IDENTITY OF THE CASH CREDIT OR AND HIS CREDIT WORTHINESS AND GENUIN ENESS OF THE TRANSACTIONS. IN THE PRESENT CASE, THE ASSESSEE HA S FAILED TO CARRY OUT HIS OBLIGATIONS AND HENCE, THE BURDEN CANNOT BE SHIFTED TO THE REVENUE TO FIND OUT FROM THE CREDITORS ABOUT THEIR IDENTITY AN D CREDIT WORTHINESS AFTER RECEIVING THE NAMES AND ADDRESSES OF THE CRED ITORS. HENCE, IN THE FACTS OF THE PRESENT CASE, I FIND NO INFIRMITY IN T HE ORDERS OF THE AUTHORITIES BELOW ON THIS ISSUE. 11. REGARDING THE 2 ND ISSUE I.E., REGARDING CLAIM OF THE ASSESSEE FOR DEDUCTION UNDER SECTION 36(1)(VII) IN RESPECT OF WR ITE OFF OF BAD DEBTS, I FIND THAT FOR THIS DEDUCTION, THE ASSESSEE HAS TO E STABLISH THAT THE BAD DEBTS IN QUESTION WERE ACTUALLY WRITTEN OFF BY THE ASSESSEE AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR T HE RELEVANT PREVIOUS YEAR. 12. IN THE PRESENT CASE, IT IS SEEN THAT THE BOOKS OF A CCOUNTS OF THE ASSESSEE WERE IMPOUNDED IN THE MONTH OF SEPTEMBER 2 003 AND THEREFORE, THE ENTRIES COULD BE MADE IN ALL THE 4 Y EARS WHICH ARE IN DISPUTE BEFORE ME BECAUSE THE BOOKS OF ACCOUNTS WER E VERY MUCH AVAILABLE WITH THE ASSESSEE DURING RELEVANT TIME AN D IT IS NOT SHOWN BY THE ASSESSEE THAT THE ASSESSEE HAS WRITTEN OFF THE BAD DEBTS IN THE BOOKS ITA NOS.121-124/BANG/2016 PAGE 6 OF 6 OF ACCOUNTS. HENCE, AFTER AMENDMENTS IN THE PROVIS ION OF SECTION 36(1)(VII) W.E.F. 1.40.1989, THE CLAIM OF THE ASSES SEE IS NOT ALLOWABLE IN THE ABSENCE OF ACTUAL WRITE OFF IN THE BOOKS OF ACC OUNTS. THE JUDGMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF VITHALDAS DHANJIBHARI V. COMMISSIONER OF INCOME TAX (SUPRA) O N WHICH RELIANCE HAS BEEN PLACED BY THE LEARNED AR OF THE ASSESSEE I S NOT APPLICABLE IN THE PRESENT CASE BECAUSE THIS JUDGMENT IS FOR A PER IOD PRIOR TO THE AMENDMENT IN SECTION 36(1)(VII). HENCE, ON THIS IS SUE ALSO, I FIND NO REASON TO INTERFERE IN THE ORDER OF THE CIT(A). 13. IN THE RESULT, ALL THE 4 APPEALS OF THE ASSESSEE AR E DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 21 ST DAY OF FEBRUARY, 2017. SD/- (A.K. GARODIA) ACCOUNTANT MEMBER BANGALORE, DATED: 21 ST FEBRUARY, 2017. /NS/ COPY TO: 1. APPELLANTS 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE.