ADDL CIT RG 22(2), NAVI MUMBAI V. VINOD C. JHUNJHUNWALA, MUMBAI

ITA 1231/MUM/2011

• Counselvise Citation: 123119914 RSA 2011
• Duration Of Justice: 3 year(s) 5 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 24-02-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 10-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH F, MUMBAI BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.1231/M/2011 ASSESSMENT YEAR: 2007-08 ADDL. C.I.T. RG.22(2), O/O. THE ACIT 22(2), 4 TH FLOOR, TOWER NO.6, VASHI RLY. STN. BLDG. COMPLEX, VASHI, NAVI MUMBAI. VS. SHRI VINOD C. JHUNJHUNWALA, 402/403, SWASTIK CHAMBERS, CST ROAD, CHEMBUR 400 071 PAN: AABPJ2068C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI NISHIT GANDHI, A.R. REVENUE BY : SHRI MALLIKARJUN UTTURE, D.R. DATE OF HEARING : 02.06.2014 DATE OF PRONOUNCEMENT : 16.07.2014 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE A GAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [(HEREINAF TER REFERRED TO AS CIT(A)] DATED 15.11.10 RELEVANT TO ASSESSMENT YEAR 2007-08. 2. THE REVENUE THROUGH ITS GROUNDS OF APPEAL HAS AG ITATED THE ACTION OF THE LD. CIT(A) IN DELETING THE ADDITION MADE BY THE ASS ESSING OFFICER (HEREINAFTER REFERRED TO AS THE AO) REJECTING THE CLAIM OF THE A SSESSEE UNDER SECTION 36(1)(VIII) ON ACCOUNT OF BAD DEBTS WRITTEN OFF AMO UNTING TO RS.45,54,306/-. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A PROPRIETOR OF M/S. SPACE INTERNATIONAL WHICH IS CARRYING ON BUSINESS A S MERCHANT EXPORTER OF DYES & CHEMICALS. DURING THE ASSESSMENT PROCEEDINGS U/S 143(3) OF THE ACT, THE ASSESSING OFFICER (HEREIN AFTER REFERRED TO AS AO) NOTICED THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS.45,54,306/- AS BAD DEBT S TO THE P&L ACCOUNT. THE ITA NO. 1231/M/2011 SHRI VINOD C. JHUNJHUNWALA 2 AO ASKED THE ASSESSEE TO FURNISH THE DETAILS OF BAD DEBTS AND TO EXPLAIN AS TO WHEN IT WAS OFFERED FOR TAXATION AND THE DETAILS OF STEPS TAKEN FOR RECOVERY OF SUCH BAD DEBTS. THE ASSESSEE VIDE LETTER DATED 23/1 0/2009 STATED THAT HE HAD GIVEN ADVANCE TO M/S. ACME ADJORBENT NUMERALS PVT. LTD. FOR PURCHASE OF DYES AND CHEMICALS. THE SAID PARTY WAS A REGULAR SU PPLIER AND THE ASSESSEE WAS IN REGULAR PRACTICE OF GIVING ADVANCES TO THIS PART Y RIGHT FROM F.Y 2002-03 TILL F.Y 2006-07. HOWEVER, ADVANCE OF RS.45,54,306/ - WA S NOT RECEIVED FROM M/S ACME ADJORBENT NUMERALS PVT. LTD. THEREFORE IT HAD BEEN CLAIMED AS BAD DEBTS. THE DEBTOR HAD GIVEN A CHEQUE FOR RS.45,54,3 06/- DATED 28/ 12/2006 BUT THE SAME WAS NOT HONOURED, HENCE, THE ASSESSEE FIL ED A COMPLAINT IN THE COURT. BUT THE SAID COMPLAINT HAD BEEN WITHDRAWN. THE ASSE SSEE ALSO FILED BEFORE THE AO THE COPY OF COURT ORDER AND COPY OF LEDGER ACCOU NT OF M/ S. ACME ADJORBENT NUMERALS PVT. LTD. IN THE ASSESSEE'S BOOK S OF ACCOUNTS AS ON 31/3/2007. THE AO HOWEVER NOTICED THAT THE ASSESSEE HAD FILED AN APPLICATION FOR WITHDRAWAL OF SUIT ON 15/1/2008 PLEADING THAT THE D EBTOR HAD AGREED TO PAY THE AMOUNT BUT HE WANTED TIME TO SETTLE THE CLAIM AND T HAT MATTER WAS LIKELY TO BE SETTLED BETWEEN THE PARTIES. ON THE BASIS OF ABOVE SUBMISSIONS MADE IN THE APPLICATION THE MAGISTRATE HAD ALLOWED THE ASSESSEE 'S APPLICATION FOR WITHDRAWAL OF COMPLAINT VIDE ORDER DATED 15.1.2008. THE AO THEREFORE OBSERVED THAT THE DEBTOR M/S ACME ADJORBENT NUMERAL S PVT. LTD. HAD NEVER DENIED THE PAYMENT WHICH WAS DUE TO THE ASSESSEE. HE FURTHER OBSERVED THAT THE DATE OF ORDER OF THE COURT FOR WITHDRAWAL OF CO MPLAINT WAS 15/1/2008. THE ASSESSEE WAS DUTY BOUND TO INFORM THE INCOME TAX DE PARTMENT ABOUT THE COURT'S ORDER DATED 15/1/2008. THE ASSESSEE WAS ALSO LEGALL Y BOUND TO REVISE HIS RETURN OF INCOME AFTER WITHDRAWAL OF THE CASE IN THE COURT . BUT THE ASSESSEE FAILED TO DO SO. THE ASSESSEE HAD ADMITTED BEFORE THE COURT T HAT THE ACCUSED HAS AGREED TO PAY THE FULL AMOUNT. HE FURTHER OBSERVED THAT TH E LEDGER ACCOUNT FURNISHED BY THE ASSESSEE WHEREIN HE HAS WRITTEN-OFF RS.45,54 ,306/- AS BAD DEBT BY ITA NO. 1231/M/2011 SHRI VINOD C. JHUNJHUNWALA 3 MAKING A JOURNAL ENTRY, WAS NOT CORRECT BECAUSE SIN CE THE MATTER WAS PENDING BEFORE THE COURT AND THE DEBTOR HAD CATEGORICALLY A DMITTED TO SETTLE THE ISSUE. HE THEREFORE, DISALLOWED THE ABOVE AMOUNT OF RS.45, 54,306/- AND ADDED TO THE ASSESSEE'S TOTAL INCOME. AGGRIEVED FROM THE SAID AD DITION, THE ASSESSEE FILED AN APPEAL BEFORE THE LD. CIT(A). 4. THE LD. CIT(A), WHILE RELYING UPON THE DECISION OF THE HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF CI T VS. OMAN INTERNATIONAL LTD. (2009) 313 ITR 128 (BOM) AND OTHER RELEVANT D ECISIONS OF THE OTHER HIGH COURTS, DELETED THE ADDITION AND HELD THAT IT WAS T HE BONAFIDE DECISION OF THE ASSESSEE TO WRITE OFF THE DISPUTED AMOUNT AS BAD DE BT SINCE THE SAME HAD BECOME NON RECOVERABLE. THE REVENUE IS THUS IN APP EAL BEFORE US. 5. WE HAVE HEARD THE LD. REPRESENTATIVES OF BOTH T HE PARTIES AND HAVE ALSO GONE THROUGH THE RECORDS. THE LD. AO HAD DISALLOWE D THE CLAIM OF BAD DEBT AND HAD MADE THE ADDITION ON THE GROUND THAT THE AS SESSEE HAD FILED A COMPLAINT AGAINST THE DEBTOR M/S. ACME ADJORBENT NU MERALS PVT. LTD. AND LATER ON THE SAID COMPLAINT WAS WITHDRAWN BY THE AS SESSEE ON 15.01.08 FROM THE COURT OF THE ADDITIONAL CHIEF METROPOLITAN MAGI STRATE. THE AO OBSERVED THAT SINCE THE ASSESSEE WAS PURSUING THE CASE AFTER 31.03.07 AND THE COMPLAINT WAS WITHDRAWN ONLY ON 15.01.08 AND HENCE THE DEBT H AD NOT BECOME BAD DURING THE YEAR AND THE AMOUNT IN QUESTION WAS RECE IVABLE FROM THE DEBTOR AS ON 31.03.07. 6. WE ARE NOT INCLINED TO ACCEPT THE REASONING GIV EN BY THE AO WHILE DISALLOWING THE CLAIM OF BAD DEBT. IN OUR VIEW, IT IS THE OWN PRUDENCE OF THE BUSINESSMAN WHILE CONDUCTING THE BUSINESS TO DECIDE AS TO WHETHER THE DEBITED AMOUNT HAS BECOME NON RECOVERABLE OR NOT. IF HE IS OF THE BONAFIDE VIEW THAT THE DEBT HAS BECOME BAD AND THUS HE HAS WRITTEN OFF THE SAME, EVEN THOUGH, HE CONTINUES TO CONTEST THE SUIT/COMPLAINT FOR RECOVER Y OF THE SAID DEBT, IT DOES NOT ITA NO. 1231/M/2011 SHRI VINOD C. JHUNJHUNWALA 4 MEAN THAT HIS DECISION WAS NOT BONAFIDE. OUR VIEW F INDS SUPPORT FROM THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF JETHABHAI HIRJI AND JETHABHAI RAMDAS VS. CIT (1979) 120 ITR 792. THOU GH, WHILE WITHDRAWING THE COMPLAINT THE ASSESSEE HAD STATED BEFORE THE CO URT THAT THE ACCUSED HAD AGREED TO PAY THE AMOUNT AND THE MATTER WAS LIKELY TO SETTLE BETWEEN THE PARTIES, IT GIVES NO PRESUMPTION THAT THE ACCUSED/D EBTOR HAD ACTUALLY PAID THE AMOUNT TO THE ASSESSEE. THERE MAY BE SO MANY REASON S FOR A BUSINESSMAN WHICH MAY REQUIRE HIM TO WITHDRAW THE CRIMINAL COMP LAINT AGAINST THE DEBTOR TAKING INTO CONSIDERATION THE ASSOCIATED FACTS AND CIRCUMSTANCES AND HIS COMMERCIAL PRUDENCE & WISDOM. MERE WITHDRAWING OF A COMPLAINT DOES NOT IN ANY MANNER PROVE THAT THE ASSESSEE HAD RECEIVED THE PAYMENT OR THE DEBT HAD NOT BECOME BAD. THE FILING OF A CRIMINAL COMPLAINT AGAINST THE DEBTOR IS A FACT WHICH PROVES THAT THE AMOUNT WAS NOT RECOVERABLE OT HERWISE AND THE ASSESSEE IN THE NORMAL COURSE OF BUSINESS WAS NOT SUPPOSED T O MAKE ROUNDS OF THE COURT FOR THE RECOVERY OF THE AMOUNT FROM THE DEBTOR. WE, THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD. CIT(A) WHILE DELE TING THE DISALLOWANCE MADE BY THE AO ON ACCOUNT OF BAD DEBTS. 7. IN THE RESULT, THE APPEAL OF THE REVENUE IS HER EBY DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.07. 2014. SD/- SD/- (R.C. SHARMA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 16.07.2014. * KISHORE, SR. P.S. ITA NO. 1231/M/2011 SHRI VINOD C. JHUNJHUNWALA 5 COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.