M/s. Vahid Paper Convertor, Daman V. The Income tax Officer,Vapi Ward-4, Daman

ITA 1409/AHD/2009

• Counselvise Citation: 140920514 RSA 2009
• Duration Of Justice: 2 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-07-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 04-05-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Reopening of assessment; Depreciation; Principle of natural justice; Bad and doubtful debts
• Section: 43B; 80IB; 148

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI D.K. TYAGI, JM AND A. K. GARODIA, A. M. M/S VAHID PAPER CONVERTOR, GANESH INDUSTRIAL ESTATE, KACHIGAM, DAMAN. INCOME-TAX OFFICER, WARD-4, VAPI, DAMAN. APPELLANT VS. RESPONDENT APPELLANT BY :- SHRI S. N. SOPARKAR, SR.ADVOCATE. RESPONDENT BY:- SHRI SAMIR TEKRIWAL, SR.DR O R D E R DATE OF HEARING -28.07.2011 DATE OF PRONOUNCEMENT -26/8/2011. PER BENCH ALL THESE FOUR APPEALS ARE FILED BY THE ASSESSEE A GAINST DIFFERENT ORDERS DATED 27/02/2009 PASSED BY THE LD. CIT(A). S OME OF THE GROUNDS ARE COMMON. THE YEARWISE GROUNDS TAKEN BY THE ASSES SEE ARE AS UNDER :- ASST. YEAR 2002-03 1. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE ACTION OF LD. AO IN REOPENING OF ASS ESSMENT U/S 148 OF THE ACT. 2. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE ACTION OF LD. AO IN WORKING OUT DEPR ECIATION ON ITA NOS.1409 TO 1412/AHD/2009 ASST. YEARS 2002-03 TO 2005-06 ITA NOS.1409 -1412/AHD/2009 ASST. YEARS 2002-03 TO 2005-06 2 REDUCED WDV WITHOUT APPRECIATING THAT IN FEW OF THE EARLIER YEARS, DEPRECIATION WAS NEITHER CLAIMED NOR ALLOWED /FOISTED UPON THE APPELLANT. 3. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE DISALLOWANCE OF RS.1,500/- IN RESPEC T OF PROFESSIONAL FEES MADE BY THE LD. AO. 4. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE ACTION OF LD. AO IN THRUSTING UPON T HE APPELLANT THE INTEREST OF RS.25,57,121/- ON PARTNERS CAPITAL AND REMUNERATION OF RS.50,000/- TO PARTNER WITHOUT THER E BEING ANY CLAIM TO THAT EFFECT MADE BY THE APPELLANT. 5. THE LD. CIT(A) HAS ERRED IN NOT ENTERTAINING THE CL AIM CHALLENGING THE DISALLOWANCE U/S 43B OF THE ACT. TH E LD. CIT(A) FURTHER ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 30,135/- U/S 43B OF THE ACT BEING THE LATE PAYMENT OF CONTRIBUTI ON TOWARDS PROVIDENT FUND. ASST. YEAR 2003-04 1. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE ACTION OF LD. AO IN REOPENING OF ASSESSMENT U/S 148 OF THE ACT. 2. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE ACTION OF LD. AO IN WORKING OUT DEPRECIATION ON REDUCED WDV WITHOUT APPRECIATING THAT IN FEW OF THE EARLIER YEA RS, DEPRECIATION WAS NEITHER CLAIMED NOR ALLOWED/FOISTED UPON THE AP PELLANT. 3. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE DISALLOWANCE OF RS.3,180/- IN RESPECT OF PRIOR PERIOD EXPENDITURE MADE BY THE LD. AO. 4. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE ACTION OF LD. AO IN THRUSTING UPON THE APPELLAN T THE INTEREST OF RS.17,38,184/- ON PARTNERS CAPITAL AND REMUNERATIO N OF RS.50,000/- TO PARTNER WITHOUT THERE BEING ANY CLAI M TO THAT EFFECT MADE BY THE APPELLANT. 5. THE LD. CIT(A) HAS ERRED IN NOT ENTERTAINING THE CL AIM CHALLENGING THE DISALLOWANCE U/S 43B OF THE ACT. THE LD. CIT(A) FURTHER ERRED ITA NOS.1409 -1412/AHD/2009 ASST. YEARS 2002-03 TO 2005-06 3 IN CONFIRMING THE DISALLOWANCE OF RS.39,507/- U/S 4 3B OF THE ACT BEING THE LATE PAYMENT OF CONTRIBUTION TOWARDS PROV IDENT FUND. ASST. YEAR 2004-05 1. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE ACTION OF LD. AO IN REOPENING OF ASSESSMENT U/S 148 OF THE ACT. 2. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE ACTION OF LD. AO IN WORKING OUT DEPRECIATION ON REDUCED WDV WITHOUT APPRECIATING THAT IN FEW OF THE EARLIER YEA RS, DEPRECIATION WAS NEITHER CLAIMED NOR ALLOWED/FOISTED UPON THE AP PELLANT. 3. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE DISALLOWANCE OF RS.11,212/- WITH RESPECT TO PRI OR PERIOD EXPENDITURE MADE BY THE LD. AO. 4. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE DISALLOWANCE MADE BY THE LD. AO IN RESPECT OF B AD DEBTS OF RS.2,54,729/-. 5. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN NOT ENTERTAINING THE GROUND OF APPEAL IN RESPECT OF RED UCTION OF INTEREST AND REMUNERATION TO PARTNER. 6. BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN PASSING THE ORDERS WITHOUT PROPERLY APPRECIATING THE FACT A ND THAT HE FURTHER ERRED IN GROSSLY IGNORING VARIOUS SUBMISSIONS, EXPL ANATION AND INFORMATION SUBMITTED BY THE APPELLANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BEFORE PASSING THE IM PUGNED ORDER. THIS ACTION OF BOTH THE AUTHORITIES IS IN CLEAR BRE ACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVE S TO BE QUASHED. ASST. YEAR 2005-06 1. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE ACTION OF LD. AO IN WORKING OUT DEPR ECIATION ON REDUCED WDV WITHOUT APPRECIATING THAT IN FEW OF THE EARLIER YEARS, DEPRECIATION WAS NEITHER CLAIMED NOR ALLOWED /FOISTED UPON THE APPELLANT. ITA NOS.1409 -1412/AHD/2009 ASST. YEARS 2002-03 TO 2005-06 4 2. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE DISALLOWANCE OF RS.5,111/- WITH RESP ECT TO PRIOR PERIOD EXPENDITURE MADE BY THE LD. AO. 3. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN CONFIRMING THE DISALLOWANCE MADE BY THE LD. AO IN R ESPECT OF BAD DEBTS OF RS.25,371/-. 4. THE LD. CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACT S IN NOT ADJUDICATING THE GROUND OF APPEAL IN RESPECT OF RED UCTION OF INTEREST AND REMUNERATION TO PARTNER FROM THE PROFI TS OF THE BUSINESS WHILE COMPUTING DEDUCTION U/S 80IB OF THE ACT. 5. BOTH THE LOWER AUTHORITIES HAVE ERRED IN LAW AND ON FACTS IN PASSING THE ORDERS WITHOUT PROPERLY APPRECIATING TH E FACT AND THAT HE FURTHER ERRED IN GROSSLY IGNORING VARIOUS S UBMISSIONS, EXPLANATION AND INFORMATION SUBMITTED BY THE APPELL ANT FROM TIME TO TIME WHICH OUGHT TO HAVE BEEN CONSIDERED BE FORE PASSING THE IMPUGNED ORDER. THIS ACTION OF BOTH THE AUTHORITIES IS IN CLEAR BREACH OF LAW AND PRINCIPLES OF NATURAL JUSTICE AND THEREFORE DESERVES TO BE QUASHED. 2. AT THE OUTSET THE LD. COUNSEL FOR THE ASSESSEE D ID NOT PRESS COMMON GROUND NO.1 FOR ASST. YEAR 2002-03, 2003-04 & 2004- 05 HENCE THE SAME IS DISMISSED AS NOT PRESSED. 3. GROUND NOS.2 FOR ASST. YEAR 2002-03, 2003-04,200 4-05 AND GROUND NO.1 FOR ASST. YEAR 2005-06 ARE COMMON. THES E COMMON GROUNDS RELATE TO ALLOWING DEPRECIATION ON REDUCED WDV OF A SSETS FOR THE PURPOSE OF CLAIMING DEDUCTION U/S 80IB. IN ASST. YEAR 2002- 03 THE AO HAS OBSERVED THAT THE ASSESSEE HAS NOT CLAIMED ANY DEPR ECIATION IN ASST. YEAR 2000-01 AND ASST. YEAR 2001-02. THE ASSESSEE HAS CL AIMED DEDUCTION U/S 80IB. THEREFORE IN ASST. YEAR 2001-02 THE DEPRECIAT ION WAS ALLOWED BEFORE ALLOWING DEDUCTION UNDER CHAPTER VIA. THE AS SESSEE WAS ASKED TO FURNISH REVISED DEPRECIATION CHART FOLLOWING THE WD V FOR ASST. YEAR 2001-02 AND ALSO ASKED AS TO WHY THE REVISED CLAIM BE NOT ALLOWED. THE ITA NOS.1409 -1412/AHD/2009 ASST. YEARS 2002-03 TO 2005-06 5 AO ALLOWED DEPRECIATION OF RS.15,48,558/- AS AGAINS T DEPRECIATION OF RS.23,97,126/- CLAIMED BY THE ASSESSEE. 4. IN APPEAL BEFORE LD. CIT(A) THE ASSESSEE REITERA TED THE SUBMISSIONS MADE BEFORE THE AO. IT WAS ALSO SUBMITTED THAT THE ISSUE IS PENDING BEFORE THE TRIBUNAL AND THE DEPRECIATION SHOULD BE ALLOWED. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE THE LD. CIT(A) OBSERVED THAT THE CALCULATION OF DEPRECIATION IN THE CURRENT YEAR IS IN CONSEQUENCE OF WDV COMING FROM ASST. YEAR 2001-02. THE ASSESSEE CA NNOT HAVE ANY GRIEVANCE IN THE CURRENT YEAR. THE WDV COMING FROM ASST. YEAR 2001-02 HAS TO BE AUTOMATICALLY TAKEN FOR THE PURPOSE OF CA LCULATING DEPRECIATION IN THE CURRENT YEAR. THE ASSESSEE CANNOT CLAIM DEPR ECIATION ON HIGHER WDV WHEN AS PER THE RECORD WDV IS LOWER. THE ACTION OF AO TO ALLOW DEPRECIATION AS PER WDV IS ON RECORD AND ACCORDINGL Y HE CONFIRMED THE ACTION OF THE AO. AGGRIEVED BY THIS ORDER OF THE LD . CIT(A) THE ASSESSEE IS IN APPEAL BEFORE US. 5. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE IS COVERED AG AINST THE ASSESSEE BY THE DECISION OF THE TRIBUNAL AHMEDABAD (SPECIAL BEN CH) IN ASSESSEES OWN CASE FOR ASST. YEAR 2001-02 REPORTED IN 98 ITD 165 (AHD)(SB). ACCORDINGLY, WE HOLD THAT THE FIRST APPELLATE AUTHO RITY WAS JUSTIFIED IN CONFIRMING THE ACTION OF THE AO AND WE CONFIRM THE ORDER OF LD. CIT(A) ON THIS ISSUE. THIS COMMON GROUND RAISED BY THE ASS ESSEE IS DISMISSED FOR ALL THE YEARS MENTIONED ABOVE. 6. GROUND NO.3 OF ASSESSEES APPEALS FOR ASST. YEAR 2002-03, 2003- 04 & 2004-05 AND GROUND NO.2 FOR ASST. YEAR 2005-06 ARE REGARDING CONFIRMATION OF DISALLOWANCE OF IN RESPECT OF PROFE SSIONAL FEES/PRIOR PERIOD EXPENSES MADE BY THE AO. ITA NOS.1409 -1412/AHD/2009 ASST. YEARS 2002-03 TO 2005-06 6 7. DURING THE ASSESSMENT PROCEEDINGS FOR ASST. YEAR 2002-03 THE ASSESSEE CLAIMED PRIOR PERIOD EXPENSES OF RS.1,500/ - IN THE P & L ACCOUNT. THE ASSESSEE WAS ASKED AS TO WHY PRIOR PER IOD EXPENSE SHOULD NOT BE ALLOWED AS THE SAME DOES NOT PERTAIN TO THE YEAR UNDER CONSIDERATION. IN RESPONSE, VIDE LETTER DATED 28.11 .2007 THE ASSESSEE STATED THAT RS.1,500/- DEBITED PERTAINED TO PROFESS IONAL FEES RELATED TO MARCH, 2002. SINCE THE BILL WAS RECEIVED IN THE CUR RENT YEAR AND THE PAYMENT WAS MADE IN THE YEAR UNDER CONSIDERATION TH E SAME IS DEBITED IN THE CURRENT YEAR. THE AO CONSIDERED THE SUBMISSION OF ASSESSEE AND HE HELD THAT THE SAME IS NOT TENABLE FOR THE REASONS T HAT PRIOR PERIOD EXPENSES ARE NOT ALLOWABLE DEDUCTION AS PER I.T. LAW THEREFO RE RS.1,500/- WAS DISALLOWED AND ADDED BACK. 8. IN APPEAL BEFORE LD. CIT(A) THE ASSESSEE REITERA TED THE SUBMISSIONS MADE BEFORE THE AO. AFTER CONSIDERING THE SUBMISSIO N OF THE ASSESSEE THE LD. CIT(A) OBSERVED THAT ADMITTEDLY THE EXPENDITURE PERTAINS TO EARLIER YEARS AND NOT THE CURRENT YEAR. THE RECEIPT OF BILL AND PAYMENT CANNOT MAKE IT THE LIABILITY OF THE CURRENT YEAR. THE ASSE SSEE FAILED TO SHOW HOW THE LIABILITY CRYSTALLIZED DURING THE YEAR AND THE DISALLOWANCE MADE BY THE AO WAS UPHELD. WE FIND NO INFIRMITY IN THE ORDER OF LD. CIT(A) AND THE SAME IS HEREBY UPHELD. THIS GROUND FOR ALL THE YEAR S IS DISMISSED. 9. GROUND NO.4 FOR ASST. YEAR 2002-03, 2003-04, 200 5-06 AND GROUND NO.5 FOR ASST. YEAR 2004-05 IS COMMON. 10. DURING THE COURSE OF ASSESSMENT PROCEEDINGS FOR ASST. YEAR 2002- 03 THE AO OBSERVED THAT AS PER CLAUSE-7 OF THE PART NERSHIP DEED, THE PARTNERS ARE ENTITLED TO CLAIM INTEREST @ 18% ON TH EIR CAPITAL. AT SUB- CLAUSE (II), IT IS STATED THAT RATE OF INTEREST MAY BE NIL OR LOWER THAN 18% ITA NOS.1409 -1412/AHD/2009 ASST. YEARS 2002-03 TO 2005-06 7 AS AGREED UPON BY THE PARTNERS. CLAUSE-18 OF THE PA RTNERSHIP DEED STATES THAT MODIFICATION OR ALTERNATION OF THE PARTNERSHIP DEED SHALL BE MUTUAL CONSENT AND THAT THE SAME SHALL BE REDUCED TO WRITI NG. BUT THE SAME WAS NOT CLAIMED IN THE P & L A/C. THE AO ASKED AS TO W HY INTEREST SHOULD NOT BE PROVIDED. IN REPLY THE ASSESSEE SUBMITTED AS UND ER :- THE ISSUE OF COMPULSORY CLAIM OF INTEREST ON CAPIT AL AND REMUNERATION TO PARTNER WAS DECIDED IN OUR FAVOUR BY THE HONOURABLE CIT(A) FOR ASST. YEAR 2001-02. THE DEPARTMENT FILED A SECOND APPEAL WITH ITAT, AHMEDABAD. THE ISSUE HAS BEEN RESTORED BACK TO THE AO BY ITAT. COPY OF THE ORDER OF THE ITAT IS ATTACHED HEREWITH FOR Y OUR READY REFERENCE. WE HEREBY REQUEST YOU TO TAKE UP THIS ISSUE FOR ASS T. YEAR 2001-02 AND DECIDE THIS MATTER. WE ALSO ATTACHED HEREWITH THE C OPY OF APPEAL ORDERS OF ITAT AHMEDABAD IN CASE OF M/S MUNDRA PACKAGING AND M/S THERMAL SYSTEM & ENGINEERS. BOTH THESE APPEALS ON IDENTICAL ISSUES OF INTEREST ON CAPITAL AND REMUNERATION BEING THRUST UPON THE ASSE SSEE ALTHOUGH NOT DEBITED BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS HA VE BEEN DECIDED BY THE HONBLE ITAT AHMEDABAD IN FAVOUR OF THE ASSESSEE. 11. THE AO CONSIDERED THE SUBMISSION OF THE ASSESSE E AND OBSERVED THAT THE SAME IS NOT ACCEPTABLE FOR THE REASON THAT THE DECISION OF THE ITAT AHMEDABAD HAS NOT BEEN RECEIVED TILL DATE BY T HE DEPARTMENT AND DECISION FOR FILING REFERENCE TO THE HIGH COURT IS YET TO BE TAKEN ON RECEIVING APPELLATE ORDER. THEREFORE, INTEREST @ 18 % IS PROVIDED TO THE PARTNERS. IT WAS ALSO MENTIONED THAT THE ASSESSEE I S ENTITLED TO CLAIM DEDUCTION U/S 80IB OF THE ACT AND BY NOT CLAIMING I NTEREST ON THE CAPITAL BY THE PARTNERS, THE UNDERTAKING CLAIMS DEDUCTION A T HIGHER RATES AND ACCORDINGLY HE MADE THE ADDITION OF RS.25,57,121/-. 12. AS REGARDS REMUNERATION TO THE PARTNERS IT WAS OBSERVED BY THE AO FROM THE PARTNERSHIP DEED THAT THE WORKING PARTNERS WILL BE PAID REMUNERATION BUT ON VERIFICATION OF PROFIT AND LOSS ACCOUNT IT WAS SEEN THAT THE ASSESSEE HAS NOT PROVIDED REMUNERATION. DU RING THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS ASKED BY THE AO TO TH E ASSESSEE AS TO WHY ITA NOS.1409 -1412/AHD/2009 ASST. YEARS 2002-03 TO 2005-06 8 REMUNERATION TO THE PARTNERS SHOULD NOT BE ALLOWED. THE ASSESSEE STATED THAT DUE TO LOSS INCURRED, PROVISIONS OF PROVIDING REMUNERATION DO NOT APPLY. THE ASSESSEES SUBMISSIONS WERE CONSIDERED B UT THE AO DID NOT AGREE AND HE ALLOWED REMUNERATION TO THE EXTENT OF RS.50,000/-. 13. IN APPEAL BEFORE THE LD. CIT(A) THE ASSESSEE RE ITERATED THE SUBMISSIONS MADE BEFORE THE AO. THE LD. CIT(A) CONS IDERED THE SAME AND CONFIRMED THE ACTION OF THE AO. 14. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE AT T HE OUTSET SUBMITTED THAT THE ISSUE INVOLVED IN THIS GROUND HAS BEEN RES TORED TO THE FILE OF AO FOR FRESH ADJUDICATION BY THE HONBLE ITAT FOR ASST . YEAR 2001-02 VIDE ITS ORDER IN ITA NO.1763/AHD/2004. THEREFORE, FOR T HE YEARS UNDER APPEAL ALSO THE MATTER MAY KINDLY BE RESTORED TO THE FILE OF AO. 15. THE LD. DR DID NOT OBJECT TO THIS SUBMISSION OF THE ASSESSEE. THEREFORE, FOLLOWING THE EARLIER ORDER OF THE TRIBU NAL THE ISSUE FOR ALL THE YEARS IS ALSO RESTORED TO THE FILE OF AO. THIS GROU ND OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSE. 16. GROUND NO.5 FOR ASST. YEAR 2002-03 RELATES TO A DDITION MADE U/S 43B OF THE I.T. ACT BY THE AO. THE LD. CIT(A) HAS D ISMISSED THIS GROUND ON THE GROUND THAT ASSESSEE DID NOT TAKE THIS GROUN D OF APPEAL IN THE GROUND OF APPEAL ALONG WITH FORM NO.35 OR BY TAKING ANY ADDITIONAL GROUND DURING THE APPELLATE PROCEEDINGS. SINCE NO G ROUND WAS RAISED BEFORE THE LD. CIT(A) HE HAS RIGHTLY IGNORED THE SU BMISSIONS MADE BY THE ASSESSEE IN THIS REGARD THE ORDER PASSED BY HIM IS HEREBY UPHELD. THIS GROUND OF APPEAL IS DISMISSED. ITA NOS.1409 -1412/AHD/2009 ASST. YEARS 2002-03 TO 2005-06 9 17. GROUND NO.4 IN APPEAL FOR ASST. YEAR 2004-05 AN D GROUND NO.3 FOR ASST. YEAR 2005-06 IS REGARDING DISALLOWANCE MADE B Y AO IN RESPECT OF BAD DEBTS OF RS.2,54,729/- AND RS.25,371/- RESPECTI VELY BEING SUNDRY BALANCE WRITTEN OFF. DURING THE ASSESSMENT PROCEEDI NGS FOR ASST. YEAR 2004-05 THE AO OBSERVED THAT ASSESSEE HAS CLAIMED D EDUCTION OF RS.2,54,729/- IN THE PROFIT AND LOSS ACCOUNT AS SUN DRY BALANCE WRITTEN OFF. THE ASSESSEE WAS ASKED TO SHOW HOW THE SUNDRY BALAN CE CAN BE ALLOWED WHEN THE ASSESSEE HAS ALREADY CLAIMED DEDUCTION U/S 80IB IN RESPECT OF THE SALES IN THE YEAR IN WHICH THEY WERE OFFERED AS INCOME. THE ASSESSEES REPLY WAS THAT SALES WERE BOOKED IN THE EARLIER YEA R AND OUTSTANDING BALANCE BECAME UNRECOVERABLE. THIS EXPLANATION WAS NOT ACCEPTABLE TO THE AO AND HE WAS OF THE VIEW THAT SINCE THE INCOME OF THE INDUSTRIAL UNDERTAKING IN RESPECT OF THE SALES REPRESENTED BY THE BAD DEBT WAS NOT TAXED DUE TO DEDUCTION U/S 80IB, THIS BAD DEBT HAS NOT BEEN TAXED HENCE THEY WERE NOT PART OF THE INCOME TAXED EARLIER. THE REFORE, THERE WAS NO QUESTION OF ALLOWING BAD DEBT AS IT WOULD MEAN TO A LLOW THE EXPENDITURE IN RESPECT OF WHICH INCOME WAS NOT TAXED. HE, THERE FORE, DISALLOWED THE CLAIM. 18. DURING THE APPELLATE PROCEEDINGS THE ASSESSEE R EITERATED THE SAME SUBMISSION AS WERE MADE BEFORE THE AO. THE LD. CIT( A) CONFIRMED THE ACTION OF THE AO BY OBSERVING AS UNDER : 5.3 I HAVE CONSIDERED THE SUBMISSION MADE BY THE A PPELLANT AND THE OBSERVATION OF THE AO. FOR ALLOWING ANY BAD DEBT, T HE BAD DEBT SHOULD HAVE BEEN PART OF ANY INCOME OFFERED IN EARLIER YEA RS. ADMITTEDLY, THESE BAD DEBTS REPRESENT THOSE SALES WHICH WERE NEVER TA XED AS THE PROFIT WAS EXEMPT DUE TO DEDUCTION U/S 80IB. HENCE, THE BAD DE BT CANNOT BE ALLOWED AS IT WOULD AMOUNT TO DEDUCTION WHEN CORRESPONDING INCOME HAS NOT BEEN TAXED. THEREFORE, THE DISALLOWANCE MADE BY THE AO IS CONFIRMED AND THIS GROUND OF APPEAL IS DISMISSED. ITA NOS.1409 -1412/AHD/2009 ASST. YEARS 2002-03 TO 2005-06 10 AGGRIEVED BY THIS ORDER OF THE LD. CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 19. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SAME SUBMISSIONS AS WERE MADE BEFORE THE LOWER AUTHORITIES. 20. ON THE OTHER HAND, THE LD. DR RELIED ON THE ORD ER OF LD. CIT(A). 21. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT THE AO HAS DISALLOWED THE CLAIM OF BAD DEBT U/S 36( 1)(VII) OF THE ACT ON THE GROUND THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 80IB IN RESPECT OF THE SALES IN THE YEAR IN WHICH THEY WERE OFFERED AS INCOME. THE LD. CIT(A) CONFIRMED THIS ACTION OF THE AO. IT IS PERTI NENT TO REFER TO THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT WHICH R EAD AS UNDER :- SEC.36(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOW ING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREI N, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28- (I).. (IA) (IB).. (II) (III) (VI). (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF (ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRECO VERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR); SEC.36(2) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART THEREOF, THE FOLLOWING PROVISIONS SHALL APPLY - (I) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT O F SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIO US YEAR OR ITA NOS.1409 -1412/AHD/2009 ASST. YEARS 2002-03 TO 2005-06 11 REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY LENDING WHICH IS CARRIED ON BY THE ASSESSEE. IT IS CLEAR FROM THE ABOVE THAT FOR CLAIMING DEDUCT ION OF BAD DEBTS THE ONLY REQUIREMENT IS THAT THE ASSESSEE HAS TAKEN DEB T OR PART THEREOF INTO ACCOUNT IN COMPUTING ITS INCOME OF THE PREVIOUS YEA R IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR AN EARLIER YEAR. IN THE INSTANT CASE BEFORE US, IT IS NOT THE CASE OF THE R EVENUE THAT ASSESSEE HAS NOT OFFERED THE BAD DEBT CLAIMED DURING THE YEAR UN DER APPEAL FOR TAXATION. SINCE THE ASSESSEE HAS OFFERED THE SALES IN RESPECT OF WHICH BAD DEBT HAS BEEN CLAIMED FOR TAXATION IN THE RELEVANT YEARS, THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN DENYING THIS CLAI M OF THE ASSESSEE SIMPLY BECAUSE THE ASSESSEE WAS ALSO ENTITLED FOR DEDUCTIO N U/S 80IB OF THE ACT. HENCE THE ACTION OF THE LOWER AUTHORITIES IN DISALL OWING THIS BAD DEBT IS NOT SUSTAINABLE IN LAW AND THE AO IS DIRECTED TO AL LOW THE DEDUCTION TO THE ASSESSEE. 22. IN THE RESULT, THE APPEALS FILED BY THE ASSESSE E ARE PARTLY ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 26/8/2011. SD/- SD/- (A. K. GARODIA) (D.K. TYAGI) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 26/8/2011. MAHATA/- ITA NOS.1409 -1412/AHD/2009 ASST. YEARS 2002-03 TO 2005-06 12 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 23/8/11. 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING MEMBER 24/8/11. /OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..