DCIT, CHENNAI V. Parry Enterprises India Ltd., CHENNAI

ITA 16/CHNY/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4985 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2009-2010
• Appeal Filed On: 03-01-2017
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH JCITD R
• Assessee Lawyers: S KRISHNANC A
• Keywords: Bad and doubtful debts

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI , . !' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NO.16 /MDS./2017 ( / ASSESSMENT YEAR :2009-10) THE DCIT, CORPORATE CIRCLE 5(1), CHENNAI. VS. M/S.PARRY ENTERPRISES INDIA LTD., 2,DARE HOUSE, NSC BOSE ROAD, CHENNAI 600 001. PAN AAA CP 3643 D ( #$ / APPELLANT ) ( %&#$ / RESPONDENT ) / APPELLANT BY : MR.A.V.SREEKANTH,JCIT,D.R /RESPONDENT BY : MR. S.KRISHNAN,C.A / DATE OF HEARING : 21 .03.2017 !' / DATE OF PRONOUNCEMENT : 12 .4 .2017 ' / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-3,CHENNAI DAT ED 30.09.2016 PERTAINING TO ASSESSMENT YEAR 2009-10. TTA NO.16 /MDS./2017 :- 2 -: 2. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS FO R OUR CONSIDERATION. 1. THE LD. CIT(A) HAS ERRED IN FACT AND LAW IN ALLO WING THE BAD DEBTS CLAIMED BY THE ASSESSEE IN THE COMPUTATION OF INCOM E. 2. THE LD.CIT(A) HAS ERRED IN FACT AND LAW IN NOT C ONSIDERING THAT THE ASSESSEE HAD NOT ROUTED THE CLAIM OF BAD DEBTS THRO UGH P&L ACCOUNT. 3. THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THE DECISION OF THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS HOT EL AMBASSADOR IN 121 TAXMAN 437 (KER.), WHEREIN IT WAS HELD THAT THE WRITING OFF THE BAD DEBTS WITHOUT CHARGING THE SAME IN P&L ACCOUNT IS NOT A WRITE OFF. 4. THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING THAT THOUGH THE ASSESSEE HAD CLAIMED TO HAVE ROUTED THE BAD DEBTS THROUGH P& L ACCOUNT AND TAXES HAD BEEN PAID IN THE EARLIER YEARS, THE ASSES SEE FAILED TO FURNISH ANY EVIDENCES IN SUPPORT OF ITS CLAIM. 5. THE LD. CIT(A) HAS ERRED IN LAW AND FACT THAT TH E ASSESSEE IN A.Y. HAS ONLY FURNISHED THAT AN AMOUNT OF RS.118.18 LAKHS AS PART OF BUSINESS PURCHASE IN A.Y. 2005-06, WHICH FORMS THE BASE FIG URE FOR THE CLAIM OF BAD DEBTS OF 121.22 LAKHS AND NOT ESTABLISHED TH AT THE AMOUNT WAS ACTUALLY OFFERED FOR TAXATION IN THAT ASSESSMEN T YEAR. 6. WITHOUT PREJUDICE, THE LD. CIT(A) HAS ERRED IN L AW IN ALLOWING THE CLAIM WITHOUT APPRECIATING THAT THE DECISION OF SUP REME COURT IN THE CASE OF M/S. TRF LTD VS CIT 190 TAXMANN 391(SC) AND ALSO CBDT CIRCULAR 12/2016 DATED 30.05.2016 REQUIRE THAT THE CONDITION UNDER SUBSECTION (2) OF SECTION 36 SHOULD BE SATISFIED TH AT SUCH DEBT WHICH TTA NO.16 /MDS./2017 :- 3 -: IS WRITTEN OFF SHOULD HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE PREVIOUS OR EARLIER PREVIOUS YEARS. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSES SEE HAD GIVEN WRITTEN OFF BAD DEBTS/ADVANCES TO THE EXTENT OF RS. 65.30 LAKHS AND HAD ALSO DEDUCTED ` 1,21,22,601/- AS BAD DEBTS WITHOUT CHARGING THE SAME TO P&L A/C. THE MAIN CONTENTION OF THE LD.A.R BEFORE LOWER AUTHORITIES IS THAT THE BAD DEBTS CAN BE CLAIMED ON LY BY ROUTING THE SAME THROUGH P&L A/C AND SUCH PROVISIONS WAS ADDED TO THE PROFIT/ SUBTRACTED FROM THE LOSS IN THE COMPUTATION OF INCO ME. THE ABOVE SAID AMOUNT OF ` 1,21,22,601/- WAS FORMED PART OF OPENING BALANCE AS ON 01.04.2008 AND AS THE AMOUNT WAS FOUND TO BE IRRECO VERABLE AND AS THE TAX HAS PAID IN EARLIER YEARS RECOGNIZING INDIV IDUAL AMOUNTS FORMING THE PART OF ` 1,21,22,601/-, THE SAME WAS WRITTEN OFF IN COMPUTATION OF INCOME FORMING THE PART OF RETURN OF INCOME FOR ASSESSMENT YEAR 2009-10(YEAR ENDED ON 31.03.2009), SO THERE WAS NO DOUBLE DEDUCTION. THE AO WAS OF THE OPINION THAT S INCE BAD DEBTS IS NOT ROUTED THROUGH P & L A/C AND ALSO ASSESSEE HAS NOT FURNISHED THE DETAILS IN SUPPORT OF THE FACT THAT THE BAD DEBTS W RITTEN OFF IN THE EARLIER YEARS WERE OFFERED TO TAXATION IN THE COMPU TATION OF INCOME OF THOSE YEARS. HENCE, THE LD. ASSESSING OFFICER PASSE D THE ASSESSMENT ORDER DATED 24.11.2014 CONSEQUENT TO THE DIRECTION OF LD. CIT U/S.263 OF THE ACT DATED 18.03.2014, WHEREIN LD. CIT OBSERV ED THAT ....IN THE TTA NO.16 /MDS./2017 :- 4 -: PRESENT CASE, BAD DEBTS HAVE NOT BEEN ROUTED THROUG H P&L A/C. THE ASSESSEE HAS CLAIMED BAD DEBTS WRITTEN OFF IN THE C OMPUTATION OF INCOME WITHOUT ROUTING THE SAME THROUGH P&L A/C. THEREFORE, THE LD. ASSESSING OFFICER DISALLOWED THE CLAIM OF ASSESSEE. AGGRIEVED, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). O N APPEAL, THE LD.CIT(A) ALLOWED THE CLAIM OF ASSESSEE BY PLACING RELIANCE ON THE CBDT CIRCULAR 12/2016 DATED 30.05.2016. AGAINST THI S, THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN CONTENTION OF THE LD.A.R IS THAT T HE ASSESSEE HAS FOLLOWED THE SAME METHOD OF ACCOUNTING TO WRITE OFF ITS BAD DEBTS FROM YEAR TO YEAR. IN OTHER WAY, IT WAS EXPLAINED B Y THE LD.A.R THAT THE ASSESSEE MADE PROVISIONS IN EACH YEAR TOWARDS B AD AND DOUBTFUL DEBTS AS FOLLOWS:- PROFIT AND LOSS A/C. DR. XXX TO PROVISION FOR BAD AND DOUBTFUL DEBTS CR. XXX THUS, PROVISIONS FOR BAD DEBTS WAS DEDUCTED FROM TO TAL DEBTS IN THE BALANCE SHEET AND ALSO THE SAME AMOUNT WAS CHARGED TO P&L A/C AS AN EXPENDITURE, WHEN THE ABOVE PROVISIONS WAS MADE. HOWEVER, THE PROVISION WAS ADDED IN THE COMPUTATION OF INCOME OF EACH ASSESSMENT YEAR AS IT WAS NOT AN ACTUAL BAD DEBT. PROVISIONS F OR BAD DEBTS WERE TTA NO.16 /MDS./2017 :- 5 -: REVERSED, WHEN THE ASSESSEE HAS ACTUALLY WRITTEN OF F BAD DEBTS AS FOLLOWS: PROVISIONS FOR BAD DEBTS AND DOUBTFUL - DR. XXX TO INDIVIDUAL DEBTORS A/C - CR. XXX ON WRITTEN OFF AS ABOVE, THE ASSESSEE CLAIMED DEDUC TION AS BAD DEBTS. FOR THIS PURPOSE, HE HAS TAKEN THE SUPPORT OF ORDER OF MUMBAI TRIBUNAL IN THE CASE OF ARROW COATED PRODUCTS LTD. , VS. ACIT IN [2012] 22 TAXMANN.COM 31(MUM) WHEREIN HELD THAT:- IN THE LIGHT OF THE OBSERVATIONS OF THE SUPREME COU RT, IT IS REASONABLE TO HOLD THAT THERE IS NO PROHIBITION TO CLAIM DEDUCTION ON ACCOUNT OF BAD DEBTS IN THE YEAR IN WHICH THE DE BTORS ACCOUNT IS SQUARED OFF BY CREDITING BAD DEBTS. THE ONLY CON DITION WHEN A CLAIM FOR DEDUCTION IS MADE IN THE YEAR IN WHICH TH E DEBTORS ACCOUNT IS SQUARED OFF WOULD BE TO SEE THAT THE DED UCTION SHOULD NOT HAVE BEEN CLAIMED IN THE YEAR IN WHICH THE PROV ISION FOR BAD DEBTS WAS WRITTEN OFF IN THE PROFIT AND LOSS ACCOUN T AND CORRESPONDING REDUCTION OF THE DEBTORS IS SHOWN IN THE BALANCE SHEET SO LONG AS THERE IS NO DOUBLE DEDUCTION, THER E CANNOT BE ANY OBJECTION FOR ALLOWING THE CLAIM OF THE ASSESSE E FOR DEDUCTION ON ACCOUNT OF BAD DEBTS. [PARA 11] THE FACTS OF THE PRESENT CASE CLEARLY SHOW THAT THE ASSESSEE HAD NOT CLAIMED DEDUCTION ON ACCOUNT OF BAD DEBTS IN AS SESSMENT YEAR 2004-05. THUS, THERE IS NO DOUBLE DEDUCTION CL AIMED BY THE ASSESSEE OR ANY APPREHENSION THAT THE ASSESSEE MIGH T CLAIM DOUBLE DEDUCTION. IN SUCH CIRCUMSTANCES, THE CLAIM OF THE ASSESSEE DESERVES TO BE ACCEPTED. IT IS ALSO OPINED THAT IF THE TTA NO.16 /MDS./2017 :- 6 -: CLAIM OF THE ASSESSEE IS NOT ALLOWED, THEN IT WOULD AMOUNT TO DOUBLE TAXATION OF THE SAME INCOME BECAUSE THE SUM OF RS. 70,00,000, OF WHICH RS. 20,36,000 IS A PART, HAD AL READY BEEN DEBITED TO THE PROFIT AND LOSS ACCOUNT IN ASSESSMEN T YEAR 2004- 05 BUT ADDED IN THE COMPUTATION OF TOTAL INCOME FOR THAT YEAR. IN THE LIGHT OF THE DISCUSSION AS ABOVE, IF IS HELD TH AT THE CLAIM OF THE ASSESSEE FOR DEDUCTION ON ACCOUNT OF BAD DEBTS HAS TO BE ALLOWED. 4.1 ON THE OTHER HAND, LD.D.R SUBMITTED THAT THER E IS NO EVIDENCE PRODUCED BY THE ASSESSEE TO THE FACT THAT BAD DEBTS WRITTEN OFF IN EARLIER YEARS WERE OFFERED FOR TAXATION IN THE COM PUTATION OF INCOME OF THOSE YEARS. WE FIND FORCE IN THE ARGUMENT OF LD .D.R WHEN ORIGINALLY ASSESSEE PASSED THE ENTRY AS ABOVE, THE ASSESSEE CA NNOT CLAIM DEDUCTION AS IT IS ONLY OF PROVISIONS FOR BAD AND D OUBTFUL DEBTS. WHEN THE ASSESSEE HAS ACTUALLY WRITTEN OFF DEBTS BY CRED ITING THE INDIVIDUAL ACCOUNT BY REVERSING THE PROVISIONS, THE ASSESSEE C AN CLAIM BAD DEBTS, THOUGH IT WAS NOT ROUTED THROUGH P&L A/C IN ASSESS MENT YEAR UNDER CONSIDERATION AS THAT WAS ALREADY OVER, IN EARLIER A.Y, WHEN THE BAD DEBTS WRITTEN OFF THROUGH PROVISIONS OF BAD AND DOU BTFUL AND OFFERED TO TAXATION IN EARLIER YEAR ADDING THE SAME TO INCOME. HENCE, WITH THIS OBSERVATION, WE REMIT THE ISSUE TO THE FILE OF AO T O EXAMINE WHETHER THE ASSESSEE HAS OFFERED FOR TAXATION THE PROVISION S MADE IN EARLIER YEAR TO TAXATION BY ADDING THE SAME TO THE INCOME O F ASSESSEE IN TTA NO.16 /MDS./2017 :- 7 -: COMPUTATION OF INCOME FOR THE RELEVANT TO ASSESSMEN T YEAR. HENCE, THIS GROUND RAISED BY REVENUE IS ALLOWED FOR STATIS TICAL PURPOSES. 5. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 12 TH APRIL, 2017, AT CHENNAI. SD/ - SD/ - ( . ) ( G.PAVAN KUMAR ) / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 12 TH APRIL, 2017. K S SUNDARAM &'(()*( +* / COPY TO: ( 1 . / APPELLANT 3. ( ,(- . / CIT(A) 5. */0 (1 / DR 2. / RESPONDENT 4. ( , / CIT 6. 02(3 / GF