The ACIT, Ahmedabad Circle-3, Ahmedabad V. M/s. Kanak N.Shah, Ahmedabad

ITA 1478/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 6677 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 22-03-2010
• Assessment Year: 2001-2002
• Appeal Filed On: 12-04-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SMR NEETA SHAH
• Keywords: Bad and doubtful debts
• Section: 28

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL, VP AND BHAVNESH SAINI , JM) ITA NO.1478/AHD/2007 A. Y.: 2001-02 THE A. C. I. T., CIRCLE-3, AHMEDABAD VS M/S. KANAK N. SHAH, 3, NILAY APARTMENT, NR. MITHAKHALI SIX ROAD, AHMEDABAD PA NO AADFC 2962E (APPELLANT) (RESPONDENT) APPELLANT BY SMR. NEETA SHAH, DR RESPONDENT BY NONE O R D E R PER BHAVNESH SAINI: THIS APPEAL BY REVENUE IS DIRECTED AGAINST ORDER OF THE CIT(A)-VII, AHMEDABAD DATED 25 -1-2007 FOR ASSESSMENT YEAR 2001-02 CHALLENGING CANCELLATION OF PENALTY LEVIED U/S 271(1) ( C ) OF THE INCOME TAX ACT ON THE DISALLOWA NCE OF RS.7,51,984/- BEING BAD DEBTS WRITTEN OFF. 2. WE HAVE HEARD THE LEARNED DR AND PERUSED THE FIN DINGS OF THE AUTHORITIES BELOW. NONE APPEARED ON BEHALF OF THE A SSESSEE DESPITE SERVICE OF NOTICE. THE ASSESSEE IS, THEREFORE, PROC EEDED EX-PARTE. 3. BRIEFLY, THE FACTS OF THE CASE ARE THAT PENALTY U/S 271(1) ( C ) OF THE IT ACT HAS BEEN IMPOSED BY HOLDING RS.7,51,984/- AS CONCEALED INCOME WHICH WAS CLAIMED AS BAD DEBTS WRITTEN OFF IN THE A CCOUNT OF SHRI MITESH VACHANI, A CLIENT THE ASSESSEE FIRM. THE AO DISALLO WED THE CLAIM OF BAD DEBTS WHICH IS ALSO CONFIRMED BY THE LEARNED CIT(A) . VIDE SEPARATE ORDER PENALTY U/S 271 (1) ( C ) OF THE IT ACT WAS IMPOSED . IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT ASSESSEE HAD DONE TR ANSACTION ON BEHALF OF ITA NO.1478/AHD/2007 M/S. KANAK N. SHAH 2 SHRI MITESH VACHANI FROM 1-4-1999 TO 31-3-2000. DUR ING THIS PERIOD, THE NET AMOUNT PAYABLE TO T HE ASSESSEE FIRM BY SHRI MI TESH VACHANI WAS WORKED OUT AT RS.2,00,703/-. DURING THE PERIOD 1-4 -2000 TO 31-1-2001, THE SAME AMOUNT INCREASED TO RS.7,51,984/- WHICH WA S WRITTEN OFF AS BAD DEBTS BY THE ASSESSEE FIRM ON 31-1-2001 AS THE SAME AMOUNT WAS NOT RECOVERABLE FROM SHRI MITESH VACHANI. IT WAS SU BMITTED THAT THE TRANSACTION WITH THIS PERSON WAS GENUINE WHICH IS A PPARENT FROM THE STATEMENT OF HIS FATHER WHO HAS DONE TRANSACTION IN THE NAME OF SHRI MITESH VACHANI. SHRI A. G. VACHANI, FATHER OF SHRI MITESH VACHANI APPEARED BEFORE THE AO AND CONFIRMED THE TRANSACTIO N. SINCE SHRI VACHANI WAS NOT IN A POSITION TO PAY THE DUES, THER EFORE, THE SAME WAS WRITTEN OFF AS BAD DEBTS BY THE ASSESSEE FIRM IN TH E BOOKS OF ACCOUNT. THE AO DISALLOWED THE CLAIM BECAUSE THE ASSESSEE FAILED TO PROVE THAT THE DEBT HAS BECOME BAD. THE ALTERNATE CLAIM OF THE ASS ESSEE FOR BUSINESS LOSS WAS ALSO REJECTED BY THE AO. IT WAS, THEREFORE , ARGUED ON BEHALF OF THE ASSESSEE THAT DISALLOWANCE OF THE CLAIM OF DEDU CTION WILL NOT AMOUNT TO CONCEALMENT OF INCOME. 4. THE LEARNED CIT(A) CONSIDERING THE SUBMISSIONS O F THE ASSESSEE AND MATERIAL ON RECORD ALSO CONSIDERED THE ORDER OF THE CIT(A) IN CONFIRMING ADDITION OF QUANTUM IN WHICH THE LEARNED CIT(A) ON QUANTUM NOTED THAT THERE IS NOTHING ON RECORD TO SHOW THAT ANY ATTEMPT WAS MADE BY THE ASSESSEE TO RECOVER THE SUM DUE. SINCE NO EF FORT WAS MADE BY THE ASSESSEE TO RECOVER THE AMOUNT, THEREFORE, CLAIM OF THE ASSESSEE WAS NOT ACCEPTED AND ADDITION ON ACCOUNT OF BAD DEBT WAS CO NFIRMED. THE LEARNED CIT(A) ON PENALTY CONSIDERING THE ABOVE MAT TER NOTED THAT MERELY BECAUSE ADDITION IS MADE ON ACCOUNT OF DISALLOWANCE OF BAD DEBT WOULD NOT AMOUNT TO CONCEALMENT OF INCOME. THE LEARNED CI T(A) ALSO NOTED THAT PARTIES HAVE FILED CONFIRMATION CONFIRMING THE TRAN SACTION WITH THE ASSESSEE, THEREFORE, THERE IS NO OTHER MATERIAL ON RECORD TO SUGGEST THAT THE ASSESSEE HAD MISREPRESENTED OR SUPPRESSED THE F ACTS. THE LEARNED ITA NO.1478/AHD/2007 M/S. KANAK N. SHAH 3 CIT(A) ALSO NOTED THAT DUE TO THE PRICE INCREASE ET C. THERE WAS INCREASE IN THE AMOUNT WHICH WAS SQUARED UP BY THE ASSESSEE. TH E AMOUNT IS WRITTEN OFF IN THE BOOKS OF ACCOUNT AS IRRECOVERABL E AND WAS CLAIMED AS BAD DEBT. THE LEARNED CIT(A) CONSIDERING THE ABOVE FACTS NOTED THAT DISALLOWANCE OF THE BAD DEBTS CANNOT BE CONSIDERED AS CONCEALMENT OF INCOME AND ACCORDINGLY CANCELED THE PENALTY. 5. THE LEARNED DR RELIED UPON THE ORDERS OF THE AO AND SUBMITTED THAT SINCE IT WAS NOT PROVED THAT DEBIT HAS BECOME BAD, THEREFORE, THE AO WAS JUSTIFIED IN LEVYING PENALTY U/S 271 (1) ( C ) OF THE IT ACT AND THE LEARNED CIT(A) WAS NOT JUSTIFIED IN CANCELING THE S AME. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. SECTION 36(1) (VII) O F THE IT ACT PROVIDES AS UNDER: (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING C LAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THE REIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 . (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF [ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN O FF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR T HE PREVIOUS YEAR]: 6.1 THE HONBLE SUPREME COURT IN ITS RECENT JUDGMEN T IN THE CASE OF T. R. F. LIMITED VS CIT IN CIVIL APPEAL NO.5293/2003 VIDE ORDER DATED 09-02-2010 CONSIDERING THE ABOVE PROVISIONS AND THE EARLIER PROVISIONS ON THE SAME ISSUE HELD THAT THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTE N OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ITA NO.1478/AHD/2007 M/S. KANAK N. SHAH 4 ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CR EDITED, THUS, CLOSING THE ACCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STATE D ABOVE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER, IN FACT , THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF T HE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING O FFICER FOR DE NOVO CONSIDERATION OF THE ABOVE-MENTIONED ASPECT ON LY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. 6.2 CONSIDERING THE ABOVE FACTS AND IN THE LIGHT OF THE ABOVE PROVISIONS, IT IS CLEAR THAT FATHER OF SHRI MITESH VACHANI CONFIRMED TRANSACTION BETWEEN THE ASSESSEE AND HIS SON. IT WA S ALSO CLEAR THAT SHRI VACHANI WAS NOT IN A POSITION TO PAY THE DUES WHICH HAVE BEEN WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS OF TH E ASSESSEE. THE LEARNED CIT(A) IN THE IMPUGNED ORDER NOTED THAT THE LEARNED CIT(A) ON QUANTUM CONFIRMED THE ADDITION ON ACCOUNT OF DISALLOWANCE O F THE BAD DEBT BECAUSE NO MATERIAL WAS PRODUCED ON RECORD TO SHOW IF ANY ATTEMPT WAS MADE BY THE ASSESSEE TO RECOVER THE AMOUNT IN QUEST ION. SAID FINDING OF THE LEARNED CIT(A) ON QUANTUM WOULD NOT BE RELEVANT IN VIEW OF THE PROVISIONS OF SECTION 36(1) (VII) OF THE IT ACT AS HAVE BEEN CONSIDERED AND DECIDED BY THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LIMITED (SUPRA). SINCE THE ASSESSEE COMPLIED WITH THE ABOVE PROVISIONS, THEREFORE, LEARNED CIT(A) WAS JUSTIFIED IN HOLDING THAT MERE D ISALLOWANCE OF THE BAD DEBT CANNOT BE TREATED AS CONCEALED INCOME. ALL FA CTS WERE BROUGHT TO THE NOTICE OF THE AO. THEREFORE, IT IS NOT A CASE O F FILING OF INACCURATE PARTICULARS OR CONCEALMENT OF ANY PARTICULARS OF IN COME. IN VIEW OF THE ABOVE DISCUSSIONS, WE ARE OF THE VIEW THAT THE LEAR NED CIT(A) WAS JUSTIFIED IN CANCELING THE PENALTY U/S 271(1) ( C ) OF THE IT ACT. WE DO NOT FIND ANY INFIRMITY IN HIS ORDER. WE CONFIRM HIS ORD ER AND DISMISS THE APPEAL OF THE REVENUE. ITA NO.1478/AHD/2007 M/S. KANAK N. SHAH 5 7. AS A RESULT, THE DEPARTMENTAL APPEAL IS DISMISSE D. ORDER PRONOUNCED ON 01-04-2010 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 01- 04-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER D Y. REGISTRAR, ITAT, AHMEDABAD