ACIT, Jaipur V. FATEHPURIA TRANSFORMERS & SWITCH, Jaipur

ITA 167/JPR/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 82731 (ITAT-JAIPUR)
• Duration Of Justice: 3 year(s) 5 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-12-2011
• Assessment Year: 2007-2008
• Appeal Filed On: 24-02-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C SHARMA
• Assessee Lawyers: SATISH AJMERA
• Keywords: Bad and doubtful debts
• Section: 40A(3); 194C

Judgement Text

IN THE INCOMETAX APPELLATE TRIBUNAL JAIPUR BENCH: JAIPUR (BEFORE SHRI R.P. TOLANI AND SHRI T.R. MEENA) I.T.A. NO. 167/JP/2011 ASSTT. YEAR- 2007-08 PAN NO. AAACF 3456 E THE A.C.I.T., M/S FATEHPURIA TRANSFORMERS & CIRCLE-1, JAIPUR. VRS. SWITCH GEARS PVT. LTD., ANAND CHAMBER, BABA HARISH CHANDRA MARG, JAIPUR. (APPELLANT) (RESPONDENT) DEPARTMENT BY :- SHRI D.C. SHARMA. ASSESSEE BY :- SHRI SATISH AJMERA. DATE OF HEARING : 17/07/2014 DATE OF PRONOUNCEMENT : 08/08/2014 O R D E R PER: T.R. MEENA, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 01/12/2010 OF THE LEARNED C.I.T.(A)-I, JAIPUR FOR TH E A.Y. 2007-08. THE EFFECTIVE GROUNDS OF APPEAL ARE AS UNDER:- WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW THE LEARNED CIT(A) IS JUSTIFIED IN:- (I) ALLOWING THE CLAIM OF BAD DEBTS OF RS. 49,51,990 /-. (II) REDUCING THE DISALLOWANCE U/S 40(A)(IA) TO RS. 3,26,000/- AS AGAINST RS. 4,69,396/- THOUGH THE PAYMENT MADE BY T HE ASSESSEE AND EXCEEDS RS. 20,000/- IN EACH CASES, BUT THE ASS ESSEE HAD NOT DEDUCTED TAX AT SOURCE. (III) DELETING ADDITION MADE U/S 40A(3) OF THE I.T. ACT IN THOSE CASES WHERE THE ADDITION MADE U/S 40(A)(IA) OF THE I.T. ACT HAS BEEN DELETED AS THERE IS NO SPECIFIC EXCLUSION OF DOUBLE DISALLOWANCE UNDER BOTH THE SECTIONS IN THE I.T. ACT, 1961. 2 2. THE FIRST GROUND OF APPEAL IS AGAINST ALLOWING THE BAD DEBT OF RS. 49,51,990/-. THE LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSEE IS ENGAGED IN MANUFACTURING OF TRANSFORMERS AND ELECTR ICAL ITEMS AND SUPPLIED TO VARIOUS ELECTRICITY BOARDS. THE ASSESSEE HAD CLAIMED BAD DEBT OF RS. 49,51,990/-. THE LEARNED ASSESSING OFFICER ASKED TO EXPLAIN THE BAD DEBT CLAIM DURING THE YEAR AS PER SECTION 36(1)(VII) OF THE IN COME TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSEE REPLIED VIDE LETTER DATED 11/ 08/2009 TO THE ASSESSING OFFICER. AFTER CONSIDERING THE ASSESSEES REPLY, TH E ASSESSING OFFICER HELD THAT ASSESSEES CLAIM IS ALIVE. THE DEBTORS ARE GOVERNMEN T ENTITIES AND HAVING PAYING CAPACITY. THE ASSESSEE HAD MADE CONTINUOUS TR ANSACTIONS WITH THEM. THE ASSESSEE HAD NOT ABLE TO ESTABLISH THE YEAR IN WH ICH THE DEBT HAD BEEN TAKEN INTO ACCOUNT COMPUTING ITS INCOME. THE SECURIT Y DEPOSIT ALSO CLAIMED BAD DEBT. SIMILAR FINDINGS WERE GIVEN IN RESPECT OF BAD DEBT CLAIM IN CASE OF MAHARASHTRA STATE ELECTRICITY BOARD, PUNJAB STATE E LECTRICITY BOARD, ALFA BEARING INDIA PVT. LTD., HARYANA STATE ELECTRICITY BOARD,IPCON, MANISH RAJPUT, RAJASTHAN STATE JUTE INDUSTRIES, SHYAM TELELINK, SI NGH ENTERPRISES AND BARDIA CORPORATION. THUS, HE MADE THE ADDITION OF RS. 49,51 ,990/-. 3. BEING AGGRIEVED BY THE ORDER OF THE LEARNED ASSE SSING OFFICER, THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A), WHO HAD ALLOWED THE APPEAL BY OBSERVING THAT THE ASSESSEE MADE THE EFFO RTS OF RECOVERY AND ABLE TO PROVE THE SUPPLY OF GOODS THROUGH CONTRACT. THESE REPLIED OF THE ASSESSEE 3 WERE FORWARDED BY THE LEARNED CIT(A) TO THE ASSESSING OFFICER BUT HE AGAIN FOUND NO EFFORTS OF THE RECOVERY BY THE APPELLANT. HE FURTHER HELD AS UNDER:- THE STATE ELECTRICITY BOARDS/COMPANIES ARE NOT SOV EREIGN POWERS AND, THEREFORE, TO THAT EXTENT ALSO THE ASSESSING OFFICE RS OBSERVATION IS NOT CORRECT. THE SECURITY MONEY/EARNEST MONEY/BANK GUARA NTEES WERE FORFEITED AND THE APPELLANT WAS SIMPLY INFORMED. HOWE VER, THOUGH THERE MAY BE RUNNING ACCOUNT WITH EACH ELECTRICITY BOARDS IN THE BOOKS OF ACCOUNTS AS THERE IS NO SEPARATE CONTRACT AND TENDE RS WERE FLOATED FOR DIFFERENT CONTRACTS. THE ENTIRE CORRESPONDENCE RELAT ES TO SPECIFIC CONTRACT. A PARTICULAR CONTRACT WAS FUNDED BY ASIAN DEVELOPMENT BANK AND IN RESPECT OF THAT ARBITRATION PROCEEDINGS STAR TED BUT THE AMOUNT HAS STILL NOT BEEN WRITTEN OFF IN BOOKS OF ACCOUNTS. THE ASSESSING OFFICERS OBSERVATION IN THIS REGARD HAS NO BEARING ON THE ISSUE. THUS IN THE PRESENT CASE FROM THE COPIES OF CORRESPONDENCE MADE AVAILABLE BY THE A.R., ONE CAN SEE THAT EFFORTS FOR RECOVERY HAV E BEEN MADE THOUGH CONSIDERING THE FACT OF MONOPOLY OF ELECTRICITY BOA RDS/COMPANIES, IT MAY NOT BE PRACTICABLE TO GO INTO LITIGATION AGAINST TH E BOARD. IN ANY CASE, AS PER PROVISIONS OF SECTION 36(1)(VII) THE ONLY CONDI TION IS THAT THE ASSESSEE SHOULD HAVE WRITTEN OFF BAD DEBTS AS IRRECO VERABLE AND THE DEBTS SHOULD HAVE BEEN CONSIDERED IN PREVIOUS YEARS AS INCOME WHILE COMPUTING THE TOTAL INCOME. THE APPELLANT COULD SUCC ESSFULLY EXPLAINED THAT DEBTS WERE INCLUDED IN THE COMPUTATION OF INCOM E IN EARLIER YEARS AND THE AMOUNTS HAVE BEEN WRITTEN OFF IRRECOVERABLE IN THE BOOKS OF ACCOUNTS OF THE APPELLANT. THERE WERE NO TRANSACTIONS WITH THESE PARTIES DURING THE YEAR UNDER CONSIDERATION. IN THE LIST OF DEBTORS FOR IMMEDIATE SUCCEEDING YEAR NEITHER THERE IS ANY RECOVERY OUT O F THESE DEBTS NOR THEY APPEAR IN THE LIST OF DEBTORS. THE CLAIM MADE B Y THE APPELLANT IS THUS ALLOWABLE. THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO ALLOW THE CLAIM OF BAD DEBTS OF RS. 4951990/- IN RESPECT OF E LECTRICITY BOARDS/COMPANIES AS WELL AS SMALL PRIVATE PARTIES. TH E 1 ST GROUND OF APPEAL IS DECIDED IN FAVOUR OF THE APPELLANT. NOW THE REVENUE IS IN APPEAL BEFORE US. 4. THE LEARNED D.R. SUPPORTED THE ORDER OF THE LEARN ED ASSESSING OFFICER AND AT THE OUTSET, THE LEARNED A.R. FOR THE ASSESSE E RELIED UPON THE ORDER OF THE LEARNED CIT(A) AND ARGUED THAT AS PER SECTION 3 6(1)(VII) OF THE ACT, THE 4 ASSESSEE IS TO WRITE OFF THE BAD DEBT IN THE BOOKS O F ACCOUNT. THERE IS NO OBLIGATION ON THE PART OF THE ASSESSEE TO PROVE THE EFFORTS BEING MADE FOR RECOVERY. THEREFORE, THE LEARNED CIT(A) RIGHTLY ALLOWE D THE APPEAL IN FAVOUR OF THE ASSESSEE. 5. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. NOW SECTION 36(1)( VII) OF THE ACT HAS AMENDED W.E.F. 01/4/1989 AND ONLY CONDITION HAS BEEN LAID DOWN BY THE LAW AMOUNT OF ANY BAD DEBT SHOULD BE WRITTEN OFF AS IRRE COVERABLE IN THE ACCOUNTS OF ASSESSEE FOR PREVIOUS YEAR. THE HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. VS CIT (2010) 323 ITR 397, WHICH WAS FOLLOWED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF MADHAV MARBLES AND GRANITES VS . I.T.A.T. & ANOTHER (2014) 362 ITR 647 (RAJ) HELD THAT W.E.F. 01/4/1989 T HAT DEBT NEED NO LONGER BE PROVED TO HAVE TURNED BAD. MERELY WRITING OFF SUC H ADVANCES OR DEBTS AS BAD DEBTS IN BOOKS OF ACCOUNT AND DEBITING IN PROFI T AND LOSS ACCOUNT IS SUFFICIENT COMPLIANCE OF SECTION 36(1)(VII) OF THE ACT. THE ASSESSEE HAS WRITTEN OFF BAD DEBT IN THE BOOKS OF ACCOUNT, WHICH HAS BEEN INDORSED BY THE ASSESSING OFFICER IN HIS ASSESSMENT ORDER IN PREVIO US YEAR. THEREFORE, IT IS THE PROPER COMPLIANCE OF LAW, ACCORDINGLY, WE CONFIRM THE ORDER OF THE LEARNED CIT(A). 6. THE SECOND AND THIRD GROUND OF THE APPEAL ARE INT ERLINKED. THE LEARNED CIT(A) REDUCED THE ADDITION MADE OF RS. 4,69,396/- T O RS. 3,26,000/- U/S 40(A)(IA) OF THE ACT AND DISALLOWANCE MADE U/S 40A(3 ) OF THE ACT. THE 5 ASSESSING OFFICER OBSERVED THAT THE ASSESSEE HAD IN CURRED EXPENDITURE UNDER THE HEAD RAILWAY FREIGHT, CARTRIDGES EXPENSES AMOUNT ING TO RS. 31,35,625/-. THE ASSESSEE WAS ASKED TO GIVE DETAILS OF THESE EXPEN SES. ON VERIFICATION OF THESE DETAILS, IT WAS FOUND BY HER THAT THE ASSESSEE HAD MADE PAYMENT MORE THAN RS. 20,000/- TO VARIOUS PARTIES AS MENTIONED O N PAGES 11,12 AND 13 OF ASSESSMENT ORDER WITHOUT DEDUCTING TAX U/S 194C OF T HE ACT. AS PER SECTION 194C OF THE ACT, THE ASSESSEE IS REQUIRED TO DEDUCT TAX @ 2% ON TOTAL PAYMENT BUT SAME HAS NOT BEEN DEDUCTED. THIS DEFAULT HAD BEEN ACCEPTED BY THE A.R. OF THE ASSESSEE ON 20/11/2009, THUS SHE MA DE ADDITION OF RS. 4,69,396/-. THE ASSESSEE ALSO MADE CASH PAYMENT EXCE EDING RS. 20,000/-, WHICH IS VIOLATION OF SECTION 40A(3) OF THE ACT. THE LEARNED ASSESSING OFFICER DISALLOWED 20% OUT OF RS. 4,69,396/- AT RS. 93,879/- AND ADDED BACK IN THE INCOME OF THE ASSESSEE. 7. BEING AGGRIEVED BY THE ORDER OF THE LEARNED ASSE SSING OFFICER, THE ASSESSEE CARRIED THE MATTER TO THE LEARNED CIT(A), W HO HAD CONFIRMED THE ADDITION TO THE EXTENT OF RS. 3,26,000/- U/S 40(A)( IA) OF THE ACT AND DELETED THE ADDITION OF RS. 93,879/- ON THE BASIS OF DOUBLE ADDITION OF THE SAME EXPENSES. NOW THE REVENUE IS IN APPEAL BEFORE US. 8. THE LEARNED D.R. SUPPORTED THE ORDER OF THE ASSES SING OFFICER WHEREAS THE LEARNED A.R. FOR THE ASSESSEE RELIED UPON THE O RDER OF THE LEARNED CIT(A). 9. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE LEARNED D.R. HAS NOT CONTROV ERTED THE FINDING GIVEN BY 6 THE LEARNED CIT(A). THE LEARNED CIT(A) HAD VERIFIED TH E PAYMENTS MORE THAN RS. 20,000/- AND COLLECTIVELY PAYMENT EXCEEDING RS. 50,000/- IN RESPECT OF ONE PARTY IN A YEAR. AFTER VERIFICATION HE EXCLUDED THE SE PAYMENTS AND CONFIRMED THE REMAINING ADDITION, ON WHICH NO TDS HAD BEEN DEDU CTED BY THE ASSESSEE. REGARDING ADDITION OF RS. 93,879/-, THE SAME EXPENS ES DISALLOWED U/S 40A(3) OF THE ACT, WHICH IS DOUBLE ADDITION OF THE SAME EX PENSES, WHICH IS NOT JUSTIFIED AS PER LAW. THEREFORE, WE CONFIRM THE ORDER OF THE LEARNED CIT(A). 10. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/08/2014. SD/- SD/- (R.P. TOLANI) (T.R. MEENA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR, DATED : 08 TH AUGUST, 2014 * RANJAN COPY FORWARDED TO :- 1. THE ACIT, CIRCLE-1, JAIPUR. 2. M/S FATEHPURIA TRANSFORMERS & SWITCH GEARS PVT. LT D., JAIPUR. 3. THE CIT (A) 4. THE CIT 5. THE D/R GUARD FILE (I.T.A. NO. 167/JP/2011) BY ORDER, AR ITAT JAIPUR.