Druvraj Construction Co.(G) Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-1(4), Ahmedabad

ITA 1411/AHD/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 80392 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 23-09-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 18-05-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MK SINGH
• Assessee Lawyers: M A
• Keywords: Principle of natural justice; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, AHMEDABAD BEFORE SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER AND SHRI N.S. SAINI , ACCOUNTANT MEMBER ITA NO . 1411 /AHD/20 1 1 A. Y. 200 7 - 0 8 DRUVRAJ CONSTRUCTION CO.(G) PVT. LTD. , AHMEDABAD. PAN: AAACD 8370R VS IT O WARD 1(4), AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI M.K. SINGH , SR. D.R. , ASSESSEE(S) BY : SHRI M.A. PANCHAL , AR / DATE OF HEARING : 23 / 0 9 /201 4 / DATE OF PRONOUNCEMENT: 1 / 10 /201 4 / O R D E R PER SHRI MUKUL KUMAR SHRAWAT, JUDICIAL MEMBER THIS IS AN A PPEAL FILED BY THE ASSESSEE ARISING FROM THE ORDER OF T HE LD. CIT (APPEALS) - VI , AHMEDABAD AND THE GROUNDS WHICH ARE ARGUED BEFORE US ARE DECIDED AS UNDER : 2 . LEARNED HON BLE CIT(A) - VI AHMEDABAD IS ALSO NOT JUSTIFIED IN UPHELDING THE DISALLOWANCE MADE BY LEARNED AO OF THE BAD DEBTS OF RS.81498/ - IN THE NAME OF CADILA PHARMACEUTICAL WAS WRITTEN OFF ON 31.03.2007 WHICH IS ILLEGAL, INCORRECT & AGAINST THE LAW OF NATURAL JUSTICE. 2. FACTS IN BRIEF AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDER PASSED U/S.143(3) DATED 08.12.2009 WERE THAT THE ASSESSEE COMPANY I S IN THE BUSINESS OF CONSTRUCTION ON CONTRACT. IT WAS NOTED BY THE AO THAT THE ASSESSEE HAD WRITTEN OFF BAD DEBT OF RS.81,498/ - . THE ASSESSEE WAS ASKED TO FURNISH NAME, ADDRESS, COPY OF ACCOUNT AND THE TRANSACTION CARRIED OUT WITH THOSE PARTIES. THE ASSESS EE HAS FURNISHED ONLY COPY OF LEDGER ACCOUNT THROUGH WHICH IT WAS FOUND THAT THE AMOUNT IN QUESTION WHICH ITA NO.1411/AHD/2011 DRUVRAJ CONSTRUCTION CO. (G) PVT. LTD. VS. ITO WARD - 1(4) , AHMEDABAD. FOR A.Y. 2007 - 08 - 2 - WAS WRITTEN OFF WAS IN THE NAME OF CADILA PHARMACEUTICALS. THE ASSESSEE HAS INFORMED THAT IT HAD CARRIED OUT THE WORK IN THE FINANCIAL YEAR 1998 - 99 PE RTAINING TO CADILA PHARMACEUTICALS LTD. FOR WHICH NO PAYMENT WAS MADE BY THE PARTY DESPITE THE ASSESSEE S REMINDER. THE PLEA OF THE ASSESSEE WAS THAT THE PAYMENT WAS NOT MADE ON THE ALLEGATION OF DEFECTIVE QUALITY BY THE SAID COMPANY. HOWEVER, THE AO HAS N OTED THAT NO DOCUMENTARY EVIDENCE OR THE COPY OF ACCOUNT FOR THE RELEVANT PERIOD, F.Y.1998 - 99 WAS FURNISHED. THE AO HAS ALSO RAISED A QUESTION THAT IT WAS NOT CLEAR WHETHER THE SAID AMOUNT WAS SHOWN AS AN INCOME OR ACCOUNTED IN THE BOOKS OF ACCOUNTS IN THE SAID RELEVANT FINANCIAL YEAR. THE AO WAS AWARE THAT AS PER THE PROVISIONS OF SECTION 36(I)(VII) AN AMOUNT OF BAD DEBT COULD BE ALLOWED IF IT IS WRITTEN OFF IRREVOCABLE IN A PARTICULAR YEAR. HOWEVER AS PER AO, AS PER THE PROVISIONS OF SECTION 36(2) NO DEDU CTION COULD 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 OF SUCH DEBT OR PART THEREOF IS WRITTEN OF F IN AN EARLIER PREVIOUS YEAR. FINALLY, THE AO HA S CONCLUDED THAT THE ASSESSEE HAD NOT PROVIDED ANY DOCUMENTARY EVIDENCE TO ESTABLISH THAT ANY BUSINESS TRANSACTION HAD ACTUALLY BEEN CARRIED OUT WITH THE SAID CONCERN AND THAT THE ASSESSEE HAD ALSO FAILED TO ESTABLISH THAT THE IMPUGNED AMOUNT WAS TAKEN INT O ACCOUNT FOR COMPUTING THE INCOME OF THE SAID FINANCIAL YEAR. RESULTANTLY, THE CLAIM OF BAD DEBT WAS DISALLOWED. 3. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, LEARNED CIT(A) HAS CONFIRMED THE ADDITION AFTER ASSIGNING FOLLOWING REAS ONS: 3.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND APPELLANT S SUBMISSION. ASSESSING OFFICER DISALLOWED APPELLANT S CLAIM OF BAD ITA NO.1411/AHD/2011 DRUVRAJ CONSTRUCTION CO. (G) PVT. LTD. VS. ITO WARD - 1(4) , AHMEDABAD. FOR A.Y. 2007 - 08 - 3 - DEBTS ON THE GROUND THAT APPELLANT DID NOT SUBMIT DETAILS AND NATURE OF BAD DEBTS AND ALSO HOW THE SAME BE CAME SAD. IN NUTSHELL THE DISALLOWANCE IS ON ACCOUNT OF NONFULFILMENT OF BOTH THE CONDITIONS OF SECTION 36(1)(VII) AND SECTION 36(2) OF IT ACT. NOW APPELLANT REFERRED THE SUPREME COURT DECISION IN THE CASE OF TRF LTD. AS PER WHICH THERE IS NO REQUIREMENT T O ESTABLISH BAD DEBTS AS BAD SINCE 1989. WRITING OFF IN THE BOOKS IS SUFFICIENT. HOWEVER APPELLANT HAS NOT SUBMITTED AS TO HOW CONDITION OF SECTION 36(2) IS FULFILLED IN ABSENCE OF DETAILS AND NATURE OF DEBT. IN VIEW OF THIS THE CLAIM OF BAD DEBTS IS NOT A LLOWABLE EVEN IF THE SAME IS WRITTEN OFF IN THE ACCOUNTS. THE ADDITION MADE BY THE ASSESSING OFFICER IS THEREFORE CONFIRMED. 4. HEARD BOTH THE SIDES. PERUSED THE ORDERS OF THE AUTHORITIES BELOW. FROM THE SIDE OF THE ASSESSEE, LEARNED AR, MR. M.A. PANCHAL APPEARED AND STATED THAT WHEN ONCE A DEBT IS WRITTEN OFF IN THE BOOKS OF ACCOUNT DURING THE YEAR THEN IN THE LIGHT OF THE JUDGMENT OF HON BLE APEX COURT PRONOUNCED IN THE CASE OF TRF LTD. 323 ITR 397 (SC) THE CLAIM OF WRITE OFF OF BAD DEBT IS TO BE ALLOWE D. ON THE OTHER HAND, FROM THE SIDE OF THE REVENUE, LEARNED SR.D.R., MR. M.K. SINGH APPEARED AND ARGUED THAT THE DISALLOWANCE WAS MADE BY THE AO BY INVOKING THE PROVISIONS OF SECTION 36(2) OF IT ACT. WE HAVE ALSO CONSIDERED THIS ASPECT IN THE LIGHT OF THE OBSERVATION OF THE AO AND THE DOCUMENTS FILED. SECTION 36(2) PRESCRIBES THAT IN MAKING ANY DEDUCTION FOR A BAD DEBT NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR . UNDISPUTEDLY , THE AO HAD RAISED CERTAIN INQUIRIES IN THIS REGARD BUT NO SPECIFIC ANSWER WAS PROVIDED TO THE AO. BECAUSE OF THIS REASON WHEN THE PROVISIONS OF SECTION 36(2) HAS BEEN INVOKED BY THE ASSESSEE, THEREFORE, THE DECISION OF TRF LTD. (SUPRA) IS A LSO NOT APPLICABLE ON THE PRESENT SET OF FACTS OF THE CASE. WE, THEREFORE, CONFIRM THE FINDINGS OF LEARNED CIT(A) AND DISMISS THIS GROUND OF THE ASSESSEE. ITA NO.1411/AHD/2011 DRUVRAJ CONSTRUCTION CO. (G) PVT. LTD. VS. ITO WARD - 1(4) , AHMEDABAD. FOR A.Y. 2007 - 08 - 4 - 5. GROUND NO.2 IS REPRODUCED BELOW: LEARNED HONOURABLE CIT(A) - VI AHMEDABAD IS ALSO NOT JUSTIFIED I N UPHELDING THE ADDITION MADE BY LEARNED AO ON ACCOUNT OF CESSATION OF LIABILITY U/S. 41(1). OUTSTANDING LIABILITY OF RS.544525/ - IN THE NAME OF M/S. MOTABHAI PETROLEUM WHICH IS ILLEGAL, INCORRECT & UNJUSTIFIED. 6. ON PERUSING THE OUTSTANDING LIST OF CRE DITORS IN THE BALANCE - SHEET , IT WAS NOTED BY THE AO THAT THERE WAS AN OUTSTANDING BALANCE OF RS.5,44,525/ - IN THE ACCOUNT OF M/S. MOTABHAI PETROLEUM. ACCORDING TO AO, THERE WAS NO TRANSACTION THROUGH OUT THE YEAR I N THAT ACCOUNT THE ASSESSEE HAD SUBMITTED THE DETAILS OF THE SAID ACCOUNT AND ON THAT BASIS AO HAS COMMENTED THAT THE SAID AMOUNT WAS OUTSTANDING SINCE 01.04.2004. BY INVOKING THE PROVISIONS OF SECTION 41(1) THE AO HAS HELD THAT THE SAID LIABILITY WAS OUTSTANDING FOR A PERIOD EXCEEDING FOUR YEARS WHICH WAS NOT PAID OF BY THE ASSESSEE; THEREFORE, IT WAS NO MORE OUTSTANDING IN THE NAME OF THE SAID PARTY. IT WAS CONCLUDED BY THE AO THAT THE SAID LIABILITY WAS NO MORE IN EXISTENCE AS THE ASSESSEE WAS NOT REQUIRED TO PAY OF THE OUTSTANDING AMOUNT, THERE FORE, THE LIABILITY CEASED TO EXIST HENCE IT WAS A DEEMED PROFIT IN THE HANDS OF THE ASSESSEE. RESULTANTLY, THE AMOUNT OF RS.5,44,525/ - WAS TAXED IN THE HANDS OF THE ASSESSEE. 7. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, LEARNED CI T(A) HAS AFFIRMED THE FINDING OF THE AO AS UNDER: 4.3 I HAVE CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND APPELLANT S SUBMISSION. ASSESSING OFFICER TREATED CREDIT OUTSTANDING IN THE NAME OF M/S. MOTABHAI PETROLEUM AS CESSATION OF LIABILITY UNDER SECTION 41(1) OF IT ACT. THE REASONS GIVEN ARE - THE AMOUNT IS OUTSTANDING FOR MORE THAN FOUR YEARS AND STILL OUTSTANDING, CONFIRMATION FROM THE CREDITOR NOT SUBMITTED AND THE PARTY DID NOT EXIST AT THE GIVEN ADDRESS . APPELLANT DID NOT ATTEMPT TO ADDRESS T HESE ISSUES RAISED BY THE ASSESSING OFFICER. INSTEAD, APPELLANT ONLY GAVE LEGAL SUBMISSIONS. WHEN THE CREDITOR DOES NOT EXIST AND CONFIRMATION FROM THE PARTY IS NOT SUBMITTED AND PAYMENT IS OUTSTANDING FOR MANY YEARS, ONUS IS ON THE APPELLANT TO PROVE THAT CREDIT IS GENUINE AND STILL ITA NO.1411/AHD/2011 DRUVRAJ CONSTRUCTION CO. (G) PVT. LTD. VS. ITO WARD - 1(4) , AHMEDABAD. FOR A.Y. 2007 - 08 - 5 - EXISTING. IN ABSENCE OF THIS, ASSESSING OFFICER JUSTIFIED IN MAKING ADDITION. LEGAL SUBMISSIONS COME AFTER DISCHARGING THE PRIMARY ONUS BY SUBMITTING CONFIRMATION OF THE CREDITOR. SINCE APPELLANT HAS NOT DONE ANYTHING TO DISCHA RGE ITS ONUS, THE ADDITION MADE BY THE ASSESSING OFFICER IS CONFIRMED. 8. WITH THIS BRIEF FACTUAL BACKGROUND, WE HAVE HEARD BOTH THE SIDES. THE ADMITTED FACTUAL POSITION IS THAT THE ASSESSEE HAS NOT CLAIMED THE CESSION OF LIABILITY BUT THE AO HAS INVOKED THE PROVISIONS OF SECTION 41(1) UNILATERALLY. HOWEVER, WE ARE OF THE VIEW THAT IN ORDER TO COMPLY WITH THE PROVISIONS OF SECTION 41(1) IT IS REQUISITE TO PLACE ON RECORD THAT SOME BENEFIT H AS ACCRUED TO THE ASSESSEE BY WAY OF REMISSION OR CESSATION OF THE LIA BILITY BUT T HE AO HAS NOT BROUGHT ON RECORD I N THIS CASE THAT THERE WAS ACTUALLY A BENEFIT OBTAINED IN RESPECT OF THE SAID LIABILITY. HE HAS PRESUMED THAT THE LIABILITY WAS NO MORE IN EXISTENCE. HE HAS FURTHER PRESUMED THAT THE LIABILITY SEIZED TO EXIS T. ALTHOUGH SECTION 41(1) INTRODUCES A FICTION THROUGH WHICH IT IS PRESUMED THAT IT IS DEEMED THAT ON ACCOUNT OF REMISSION OF LIABILITY SOME PROFIT OR GAIN H AS ACCRUED TO THE ASSESSEE. BUT THAT DEEMING FICTION DO ES NOT ENLARGE THE SCOPE OF THIS SECTION BY IMPORTING ANOTHER FICTION THAT THE LIABILITY DEEMED TO HAVE SEIZED TO EXIST. AFTER ANALYZING THIS SITUATION FEW HON BLE COURTS HAVE HELD THAT THE LEGAL FICTION AS PROVIDED IN SECTION 41(1) HAS TO BE STRICTLY CONSTRUED. FURTHER , IT HAS BEEN HELD THAT THERE SHOULD NOT BE A UNILATERAL WAY OF TR EATING A LIABILITY AS NOT IN EXISTENCE. IN THE PRESENT CASE, THE AO HAD PRESUMED THAT THE LIABILITY HAD SE IZED TO EXIST AND THEREAFTER HE HAS FURTHER PRESUMED THAT DUE TO THAT PRESUMPTION THE ASSESSEE HAS BEEN BENEFITED OR EARNED PROFIT, WHICH ACCORDING TO US IS NOT PERMISSIBLE IN THE EYES OF LAW. RESULTANTLY AFTER ASSIGNING THESE REASONS WE HEREBY REVERSE THE FINDINGS OF THE AUTHORITIES BELOW AND DIRECT TO DELETE THE ADDITION. THIS GROUND OF THE ASSESSEE IS ALLOWED. ITA NO.1411/AHD/2011 DRUVRAJ CONSTRUCTION CO. (G) PVT. LTD. VS. ITO WARD - 1(4) , AHMEDABAD. FOR A.Y. 2007 - 08 - 6 - 9. IN THE RESULT, THE A PPEAL OF THE ASSESSEE IS PARTLY ALLOWED. SD/ - SD/ - ( N.S. SAINI ) ( MUKUL KR. SHRAWAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; D ATED 1 / 10 / 20 1 4 PRABHAT KR. KESARWANI , SR. P . S . / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / CONCERNED CIT 4. ( ) / THE CIT(A) - III, AHMEDABAD 5. , , / DR, ITAT, AHMEDABAD 6. / GUARD FILE . / BY ORDER, / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD