Mothers Commerce Company Pvt Ltd., Pusducherry V. ITO Ward 1, Pondicherry

ITA 1351/CHNY/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 0147 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 23-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAY KUMAR PUNNAH JR
• Assessee Lawyers: B RAMAKRISHNAN
• Keywords: Bad and doubtful debts
• Section: 40A(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , , ' # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.1351/CHNY/2018 & '& / ASSESSMENT YEAR : 2014-15 M/S MOTHERS COMMERCE COMPANY PVT. LTD., FIRST FLOOR, NO.40, MONTORSIER STREET, PUDUCHERRY 605 001. PAN : AAACM 5355 M V. THE INCOME TAX OFFICER, WARD 1, PUDUCHERRY. ()*/ APPELLANT) (+,)*/ RESPONDENT) )*/ APPELLANT BY : SH. B. RAMAKRISHNAN, CA +,)*/ RESPONDENT BY : SHRI VIJAY KUMAR PUNNAH, JR. STANDING COUNSEL - . /' / DATE OF HEARING : 10.07.2018 01' . /' / DATE OF PRONOUNCEMENT : 19.09.2018 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), PUDUCHERR Y, DATED 01.03.2018 AND PERTAINS TO ASSESSMENT YEAR 2014-15. 2. SH. B. RAMAKRISHNAN, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE FIRST ISSUE ARISES FOR CONSIDERATION IS 2 I.T.A. NO.1351/CHNY/18 DISALLOWANCE OF 44,78,207/- UNDER SECTION 40A(3) OF THE INCOME- TAX ACT, 1961 (IN SHORT 'THE ACT'). REFERRING TO T HE ASSESSMENT ORDER, THE LD. REPRESENTATIVE SUBMITTED THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF INCENSE STICKS, TAPERSTRIES, PERFUMES AND HANDICRAFTS. IN THE COUR SE OF BUSINESS, ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSEE P URCHASED INCENSE STICKS FROM THREE PROPRIETORSHIP CONCERNS. THE PROPRIETORS ARE DIRECTORS IN THE ASSESSEE-COMPANY. ACCORDING T O THE LD. REPRESENTATIVE, PART OF AMOUNT WAS PAID BY CHEQUE. HOWEVER, THE REMAINING AMOUNT OF 44,78,207/- WAS PAID BY CASH. REFERRING TO THE LEDGER ACCOUNT OF THE ASSESSEE-COMPANY, THE LD. REPRESENTATIVE SUBMITTED THAT ALL THE PAYMENTS WERE MADE LESS THAN 20,000/- IN A DAY. IN OTHER WORDS, NO PAYMENT EXCEEDED 20,000/- IN A DAY. THEREFORE, ACCORDING TO THE LD. REPRESENTATIVE, SEC TION 40A(3) OF THE ACT IS NOT APPLICABLE AT ALL. 3. ON THE CONTRARY, SHRI VIJAY KUMAR PUNNAH, THE LD . JR. STANDING COUNSEL FOR THE REVENUE, SUBMITTED THAT TH E VOUCHERS PRODUCED BY THE ASSESSEE WERE FOUND TO BE AFTERTHOU GHT AND COOKED UP. ACCORDING TO THE LD. JR. STANDING COUNS EL, THE ASSESSING OFFICER FOUND THAT THE EXPENSES WERE BOOK ED IN CASH IN 3 I.T.A. NO.1351/CHNY/18 SUCH A MANNER WHICH ENABLES THE ASSESSEE-COMPANY TO BYPASS THE STATUTORY BURDEN AND OBLIGATIONS CAST UNDER THE PRO VISIONS OF THE INCOME-TAX ACT. ON A QUERY FROM THE BENCH WHEN THE PAYMENT DOES NOT EXCEED 20,000/-, HOW CAN THE ASSESSING OFFICER DISALLOW THE CLAIM OF THE ASSESSEE? THE LD. JR. STANDING CO UNSEL SUBMITTED THAT THE DISALLOWANCE WAS NOT MADE ONLY UNDER SECTI ON 40A(3) OF THE ACT, IT WAS ALSO MADE SINCE THE PAYMENT WAS NOT GENUINE. SINCE THE ASSESSING OFFICER DOUBTED THE GENUINENESS OF PAYMENT, ACCORDING TO THE LD. JR. STANDING COUNSEL, THE DISA LLOWANCE WAS MADE. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE PAYMENT MADE BY THE ASSESSEE DOES NOT EXCEED 20,000/- IN A DAY. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 40A(3) OF THE ACT WHICH READS AS FOLLOWS :- 40A. (3) WHERE THE ASSESSEE INCURS ANY EXPENDITURE IN RESPECT OF WHICH A PAYMENT OR AGGREGATE OF PAYMENTS MADE TO A PERSON IN A DAY, OTHERWISE THAN BY AN ACCOUNT PAYEE CHEQUE DRAWN ON A BANK OR ACCOUNT PAYEE BANK DRAFT, EXCEEDS TWENTY THOUSAND RUPEES, NO DEDUCTION SHALL B E ALLOWED IN RESPECT OF SUCH EXPENDITURE. 4 I.T.A. NO.1351/CHNY/18 5. IN VIEW OF THE ABOVE, WHEN THE ASSESSEE INCURS A NY EXPENDITURE IN RESPECT OF PAYMENT OR AGGREGATE OF P AYMENTS MADE TO A PERSON IN A DAY BY CASH EXCEEDING 20,000/-, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF SUCH EXPENDITURE. I N THIS CASE, PAYMENT DOES NOT EXCEED 20,000/-. THEREFORE, THE PROVISIONS OF SECTION 40A(3) OF THE ACT MAY NOT BE APPLICABLE TO THE FACTS OF THE CASE. THE ASSESSING OFFICER ALSO FOUND THAT THE AS SESSEE BOOKED THE EXPENDITURE IN CASH IN SUCH A MANNER WHICH ENAB LES THE COMPANY TO BYPASS THE STATUTORY BURDEN AND OBLIGATI ONS CAST UNDER THE ACT. THE ASSESSING OFFICER HAS FOUND THAT THE CLAIM OF THE ASSESSEE IS AFTERTHOUGHT AND COOKED UP. THE CIT(AP PEALS) AT PARA 5.4 OF HIS IMPUGNED ORDER FOUND THAT THE ACCOUNTING PROCEDURE WAS NOT FOLLOWED, THEREFORE, THIS LED TO CONCLUDE THAT THE PAYMENTS WERE NOT GENUINE. 6. SINCE THE ASSESSING OFFICER DOUBTED THE GENUINEN ESS OF PAYMENT, HE HAS NOT EXAMINED WHETHER THE INCENSE ST ICKS WERE USED IN MANUFACTURING ACTIVITY BY THE ASSESSEE OR N OT? IT NEEDS TO BE EXAMINED WHETHER THE ASSESSEE COULD HAVE MANUFAC TURED INCENSE STICKS OR OTHER PRODUCTS AND SOLD THE SAME FOR THE PURPOSE OF EARNING THE PROFIT WITHOUT CORRESPONDING PURCHAS E? THESE 5 I.T.A. NO.1351/CHNY/18 ASPECTS WERE NOT EXAMINED BY THE ASSESSING OFFICER. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE MATTER NEEDS TO BE RE-EXAMINED BY THE ASSESSING OFFICER. ACCORDINGLY, ORDERS OF BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE ENTIRE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASS ESSING OFFICER SHALL RE-EXAMINE THE MATTER AND BRING ON RECORD THE ENTIRE FACTUAL ASPECT WITH REGARD TO PURCHASE OF INCENSE STICKS AN D PAYMENTS OF CASH AND THEREAFTER DECIDE THE ISSUE AFRESH IN ACCO RDANCE WITH LAW, AFTER GIVING A REASONABLE OPPORTUNITY TO THE ASSESS EE. 7. THE NEXT GROUND ARISES FOR CONSIDERATION IS DISA LLOWANCE OF BAD DEBTS TO THE EXTENT OF 8,20,856/-. 8. SH. B. RAMAKRISHNAN, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT THE ADVANCE MADE BY THE AS SESSEE FOR PURCHASE OF RAW MATERIAL DURING THE ASSESSMENT YEAR 1993-94 WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT AS BAD DEBT. H OWEVER, ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSING OFFICER DI SALLOWED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT THE DETAILS REGA RDING STEPS TAKEN BY THE ASSESSEE TO RECOVER THE AMOUNT WERE NOT PLAC ED BEFORE HIM. THE FACT REMAINS THAT THE DEBT WAS OUTSTANDING FOR THE LAST 23 YEARS, THEREFORE, THE ASSESSEE HAS WRITTEN OFF IN THE BOOK S OF ACCOUNT. 6 I.T.A. NO.1351/CHNY/18 ACCORDING TO THE LD. REPRESENTATIVE, ONCE THE DEBT WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT AS BAD DEBT, THE ASSESSING OFF ICER CANNOT DOUBT THE GENUINENESS. 9. ON THE CONTRARY, SHRI VIJAY KUMAR PUNNAH, THE LD . JR. STANDING COUNSEL FOR THE REVENUE, SUBMITTED THAT EV EN THOUGH THE ASSESSEE CLAIMS THAT THE ADVANCE WAS MADE FOR THE P URCHASE OF RAW MATERIAL DURING THE YEAR 1993-394, NO MATERIAL WAS FILED BEFORE THE ASSESSING OFFICER. ACCORDING TO THE LD. JR. ST ANDING COUNSEL, THE SO-CALLED BAD DEBT OF 8,20,856/- WAS CLASSIFIED AS OTHER EXPENSES WITHOUT FURNISHING ANY DETAILS OF THE SAME , THEREFORE, THE ASSESSING OFFICER FOUND THAT THE SO-CALLED BAD DEBT CLAIMED CANNOT BE ALLOWED AND THE CIT(APPEALS) HAS RIGHTLY CONFIRM ED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EIT HER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE CLAIMS 8,20,856/- AS BAD DEBT. THE ASSESSING OFFICER DISALLOWED THE SAME ON THE GROUND THAT THE SO- CALLED BAD DEBT WAS CLASSIFIED UNDER THE HEAD OTHE R EXPENSES AND THE ASSESSEE HAS NOT FURNISHED ANY DETAILS OF T HE SAME. THE ASSESSING OFFICER HAS ALSO FOUND THAT THE STEPS TAK EN BY THE 7 I.T.A. NO.1351/CHNY/18 ASSESSEE TO RECOVER THE AMOUNT WERE NOT FURNISHED T O HIM. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT WHEN THE ASSESSEE HAS WRITTEN OFF IN THE BOOKS OF ACCOUNT THE DEBT OUTSTA NDING, IT WOULD NOT BE PROPER FOR THE ASSESSING OFFICER TO EXAMINE THE STEP TAKEN BY THE ASSESSEE TO RECOVER THE AMOUNT. THE ASSESSEE, BEIN G A BUSINESSMAN, WAS THE BEST JUDGE TO DECIDE WHETHER T HE OUTSTANDING AMOUNT IS RECOVERABLE OR IRRECOVERABLE. WHEN THE A SSESSEE FOUND THAT IT IS DIFFICULT TO RECOVER THE MONEY AND WRITT EN OFF IN THE BOOKS OF ACCOUNT, THEN THE ASSESSING OFFICER CANNOT DOUBT TH E GENUINENESS. 11. IN THE CASE BEFORE US, THE ASSESSEE HAS CLASSIF IED THE DEBT UNDER THE HEAD OTHER EXPENSES WITHOUT FURNISHING ANY DETAILS. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINI ON THAT THE MATTER NEEDS TO BE RE-EXAMINED. ACCORDINGLY, ORDERS OF BO TH THE AUTHORITIES BELOW ARE SET ASIDE AND THE DISALLOWANC E OF 8,20,856/- TOWARDS BAD DEBT IS REMITTED BACK TO THE FILE OF TH E ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE TH E MATTER IN THE LIGHT OF THE MATERIAL THAT MAY BE FILED BY THE ASSE SSEE AND THEREAFTER DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW, AFT ER GIVING A REASONABLE OPPORTUNITY TO THE ASSESSEE. 8 I.T.A. NO.1351/CHNY/18 12. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE COURT ON 19 TH SEPTEMBER, 2018 AT CHENNAI. SD/- SD/- ( ) ( . . . ) (S. JAYARAMAN) (N.R.S. GANESAN) ' / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 3 /DATED, THE 19 TH SEPTEMBER, 2018. KRI. . +/45 65'/ /COPY TO: 1. APPELLANT 2. +,)*/ RESPONDENT 3. - 7/ () /CIT(A), PUDUCHERRY 4. PRINCIPAL CIT, PUDUCHERRY 5. 58 +/ /DR 6. 9& : /GF.