R.Eswaran (HUF), Tiruppur V. DCIT, Tiruppur

ITA 168/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8156 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 05-10-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 29-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH IRS
• Assessee Lawyers: T BANUSEKAR
• Keywords: Bad and doubtful debts

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , ! . '#'$ , % !& ' [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./ I.T.A.NO.168/MDS/2016 / ASSESSMENT YEAR : 2011-2012 SHRI. R. ESWARAN (HUF) NO.2/1004, KURUMANKUTTAI THOTTAM, PALAVANAJIPALAYAM ROAD, VEERAPANDI POST, TIRUPUR 641 605. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE I, TIRUPUR. [PAN AACHR0736G] ./ I.T.A. NO. 421/MDS/2016 / ASSESSMENT YEAR : 2011-2012 THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2, TIRUPUR VS. SHRI. R. ESWARAN (HUF) NO.2/1004, KURUMANKUTTAI THOTTAM, PALAVANAJIPALAYAM ROAD, VEERAPANDI POST, TIRUPUR 641 605. [PAN AACHR0736G] ( () / APPELLANT) ( *+() /RESPONDENT) ASSESSEE BY : SHRI. T. BANUSEKAR, C.A. DEPARTMENT BY : SHRI. A.V. SREEKANTH, IRS, JCIT. / DATE OF HEARING : 05-10-2016 / DATE OF PRONOUNCEMENT : 21-10-2016 ITA NOS.168 & 421/2016 :- 2 -: / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER THESE ARE APPEALS FILED BY THE ASSESSEE AND REVE NUE RESPECTIVELY DIRECTED AGAINST THE ORDER DATED 27.11 .2015 OF COMMISSIONER OF INCOME TAX (APPEALS)-3, COIMBATORE. 2. THE APPEAL OF THE REVENUE HAS BEEN FILED WITH A DEL AY OF FIVE DAYS AND CONDONATION PETITION HAS BEEN FILED. REASONS SHOWN FOR THE DELAY ARE JUSTIFIED. DELAY IS CONDONED. APPEAL IS ADMITTED. 3. THE REVENUE THROUGH ITS NINE GROUNDS ASSAIL ALLOWA NCE OF CLAIM OF BAD DEBTS BY LD. COMMISSIONER OF INCOME TA X (APPEALS) TO THE EXTENT OF A70,09,095/-. AS AGAINST THIS, ASSESS EE IS IN APPEAL AGAINST THE SUSTENANCE OF DISALLOWANCE TO THE EXTE NT OF A1,29,55,546/-. 4. FACTS APROPOS ARE THAT THE ASSESSEE ENGAGED IN THE BUSINESS OF FINANCE AND REAL ESTATE HAD FILED A R ETURN DISCLOSING AN INCOME OF A3,05,81,530/- WHICH WAS LATER REVISED T O A7,56,81,530/-. THERE WAS SURVEY IN THE BUSINESS PREMISES OF THE AS SESSEE ON 21.7.2011. IT SEEMS DURING THE COURSE OF SURVEY, T HE ASSESSEE AGREED FOR AN ADDITIONAL INCOME OF A9,99,50,051/- AGAINST AMOUNTS INTRODUCED IN ITS CASH BOOK, FOR WHICH NO SOURCE WERE THERE. HOWEVER, WHEN RETURN OF INCOME WAS FILED, AGAINST THE ABOVE OFFER ED INCOME, ITA NOS.168 & 421/2016 :- 3 -: ASSESSEE HAS CLAIMED BAD DEBTS OF A3,40,12,641/-. T HE LD. ASSESSING OFFICER WAS OF THE OPINION THAT CLAIM OF BAD DEBTS COULD NOT BE ALLOWED SINCE ASSESSEE HAD TREATED ALL THE LOANS AS ON 31.0 3.2011 AS BAD DEBTS AND CLOSED THE LOAN PARTY ACCOUNTS. FURTHER, AS PE R THE LD. ASSESSING OFFICER, AS ON THE DATE OF SURVEY, THE BOOKS OF A CCOUNTS OF THE ASSESSEE DID NOT SHOW ANY DEBT WRITE OFF EXCEPT FOR A SUM OF A1,18,08,000/-. THE LD. ASSESSING OFFICER ALSO NO TED THAT APART FOR THIS AMOUNT ASSESSEE WAS ALSO ELIGIBLE TO CLAIM BA D DEBTS IN RELATION TO DEBT SHOWN AGAINST THREE PARTIES SINCE THEY HAD CONFIRMED THEIR INABILITY TO PAY THE BACK AMOUNTS TAKEN FROM THE A SSESSEE. THESE THREE PARTIES AND RESPECTIVE DEBTS WERE AS UNDER:- A.K.G ANBU : A5,25,000/- B.N. MURALI : A10,00,000/- C.B. MOHAN PRAKASH : A7,15,000/- --------------------- A22,40,000/- ---------------------- BUT FOR THESE AS PER LD. ASSESSING OFFICER BALANCE OF THE CLAIM OF BAD DEBTS WAS NOT ALLOWABLE. LD. ASSESSING OFFICER HEL D THAT THE WRITE OFF EFFECTED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT AF TER DATE OF SURVEY WERE NOT BONAFIDE BUT WERE ARTIFICIAL. FURTHER, ACC ORDING TO LD. ASSESSING OFFICER, ASSESSEE ALSO COULD NOT PROVE T HAT BAD DEBTS HAD BECOME BAD. SO, OUT OF CLAIM OF THE BAD DEBT CLAI M OF A3,40,12,641/- ITA NOS.168 & 421/2016 :- 4 -: A SUM OF A1,40,48,000/- WAS ALLOWED, AND BALANCE OF A1,99,64,641/- WAS DISALLOWED AND ADDED TO THE INCOME OF THE ASSE SSEE. 5. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). ARGUMENT OF T HE ASSESSEE WAS THAT THE ACCOUNTS OF THE FINANCIAL YEAR 31.03.2011 WAS NOT CLOSED AS ON DATE OF SURVEY VIZ 21.07.2011. AS PER ASSESSEE , NEED TO WRITE OFF THE ACCOUNTS WHICH TURNED BAD, WOULD NOT ARISE UNT IL THE PREPARATION OF THE ACCOUNTS FOR FILING THE RETURN OF INCOME. AS PER THE ASSESSEE, THE PARTIES WERE UNTRACEABLE AND THERE WAS NO SCOPE FOR RECOVERY. ASSESSEE ALSO SUBMITTED THAT SUBSEQUENT TO AMENDMEN T U/S.36(1)(VII) BY FINANCE ACT, 1987, IT WAS NOT REQUIRED TO SHOW T HAT DEBTS HD BECOME BAD. AS PER ASSESSEE IT WAS ONLY REQUIRED TO EFFECT A WRITE OFF IN THE BOOKS OF ACCOUNTS, AND THIS WAS DULY DONE BY IT. IT ALSO RELIED ON PARA 6.6 OF CBDT CIRCULAR NO.44 DATED 23.01.1990 . RELIANCE WAS ALSO PLACED ON THE JUDGMENT OF APEX COURT IN THE CA SE OF TRF LTD. VS. CIT 323 ITR 397. LD. COMMISSIONER OF INCOME TAX (APPEALS) AFTER GOING THROUGH THE SUBMISSIONS OF THE LD. AUTHORISED REPRESENTATIVE HELD THAT THE LAW LAID DOWN BY APEX COURT IN TRF L TD (SUPRA) COULD ONLY BE APPLIED IN NORMAL CIRCUMSTANCES AND NOT WH ERE THE CLAIM ITSELF WAS A PERVERSE ONE. HOWEVER, ACCORDING TO HIM, A54 ,00,000/- RELATING TO SHRI. K.L. PALANISAMY AND SUMS OF A3,30,830/- A ND A3,59,160/- DUE ITA NOS.168 & 421/2016 :- 5 -: FROM SHRI. A.T. NARAYANAMOORTHY, WERE ALLOWABLE AS BAD DEBTS. IN THE FORMER CASE, AS PER THE LD. COMMISSIONER OF IN COME TAX (APPEALS) THE CONCERNED PERSON HAD EXPIRED AND IN LATTER CASE CONCERNED PERSON HAD EXPRESSED HIS INABILITY TO REPAY. IN SO FAR AS LOANS LESS OF AMUNTS THAN A2 LAKHS IN EACH CASE, AGGREGATING TO A9,19,1 05/- IS CONCERNED, LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS OF THE OPINION THAT THE WRITE OFF EFFECTED BY THE ASSESSEE AFTER DATE OF SURVEY WAS SUFFICIENT. THUS, HE ALLOWED A FURTHER SUM OF A70,09,095/-. IN OTHER WORDS HE SUSTAINED A DISALLOWANCE OF A1,29,55,546/-. 6. NOW BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE SUB MITTED THAT ONLY GENUINE WRITE OFF WHICH WAS EFFECTED BY THE ASSESSEE IN ITS BOOKS WAS A1,18,08,000/- RELATING TO SHRI. B. RATH INASAMY. AS PER LD. DEPARTMENTAL REPRESENTATIVE ALL OTHER WRITE OFF WE RE NOT GENUINE SINCE THE INTENTION OF SUCH WRITE OFF WAS ONLY TO B RING DOWN THE ADDITIONAL INCOME OF A 9,99,50,051/- OFFERED BY THE ASSESSEE DURING THE COURSE OF SURVEY. ACCORDING TO HIM, LD. COMMIS SIONER OF INCOME TAX (APPEALS) FELL IN ERROR IN ACCEPTING THE CLAIM OF THE ASSESSEE SO FAR AS IT RELATED TO BAD DEBTS CLAIM TOTALING TO A 70,0 9,095/-. AS FOR THE DISALLOWANCE WHICH WERE SUSTAINED, LD. DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS). ITA NOS.168 & 421/2016 :- 6 -: 7. PER CONTRA AND IN SUPPORT OF ITS OWN APPEAL, LD. AU THORISED REPRESENTATIVE ONCE AGAIN PLACED RELIANCE ON THE J UDGMENT OF APEX COURT IN THE CASE OF TRF LTD (SUPRA). ACCORDING TO HIM, WRITE OFF OF BAD DEBTS COULD BE EFFECTED ONLY AT THE TIME OF FIN ALIZATION OF ACCOUNTS WHEN THE ASSESSEE ASSESSED THE NATURE OF DEBTS AND THE CHANCES OF RECOVERY. ACCORDING TO HIM, JUST BECAUSE THE BOOK S DID NOT SHOW THE WRITE OFF OF DEBTS AT THE TIME OF SURVEY COULD NOT BE A REASON TO DISALLOW A GENUINE THE CLAIM. THEREFORE ACCORDING TO HIM, LD. COMMISSIONER OF INCOME TAX (APPEALS) FELL IN ERROR IN NOT ALLOWING THE CLAIM OF BAD DEBTS IN FULL. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. IT IS NOT DISPUTE D THAT THERE WAS A SURVEY IN THE PREMISES OF THE ASSESSEE ON 21.7.2011 . THE RELEVANT PREVIOUS YEAR FOR THE IMPUGNED ASSESSMENT YEAR FOR THE YEAR ENDING 31.03.2011. IT IS ALSO NOT DISPUTED THAT BOOKS OF A CCOUNTS WERE AVAILABLE AT THE TIME OF SURVEY. CLAIM OF THE ASSE SSEE IS THAT WRITE OFF OF BAD DEBTS WERE DONE BY IT ONLY AT THE TIME OF FI NALIZATION OF ITS ACCOUNTS. IT IS NOT DISPUTED BY THE ASSESSEE THAT DURING THE COURSE OF SURVEY, IT HAD OFFERED AN ADDITIONAL INCOME OF A 9, 99,50,051/-. WHAT WE FIND IS THAT ON DATE OF SURVEY, THE BOOKS OF AC COUNTS WERE EXAMINED BY SURVEY OFFICIALS. THERE WAS ATLEAST ON E ENTRY OF BAD DEBT ITA NOS.168 & 421/2016 :- 7 -: WRITE OFF IN SUCH BOOKS. ASSESSEE ITSELF HAD POINT ED OUT THAT BOOKS WHICH WERE IMPOUNDED DURING THE SURVEY REFLECTED W RITE OFF OF BAD DEBT OF A1,18,08,000/-. THE DATE OF THE ENTRY IN TH E BOOKS WAS 31.03.2011. THUS THE BOOKS OF ACCOUNT FOUND DURING THE COURSE OF SURVEY DID NOT HAVE IN IT ANY OTHER BAD DEBT WRITE OFF. IT MAY BE TRUE THAT BY VIRTUE OF JUDGMENT OF APEX COURT IN THE CAS E OF TRF LTD (SUPRA), SUBSEQUENT TO AMENDMENT TO SEC. 36(1)(VII) THROUGH FINANCE ACT, 1987, IT IS NOT A NECESSARY FOR AN ASSESSEE TO ESTABLISH THAT A DEBT HAD BECOME BAD. WHAT IS NECESSARY IS THAT THERE S HOULD BE A WRITE OFF OF BAD DEBTS AS IRRECOVERABLE. IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE AND FOUND ON THE DATE OF SURVEY VI Z 21.07.2011, THERE WAS NO ENTRY FOR BAD DEBTS WRITE OFF, OTHER THAN ONE RELATING TO B. RATHINASAMY FOR A SUM OF A1,18,08,000/-. CONTEN TION OF THE ASSESSEE THAT IT HAD EFFECTED THE WRITE OFF BALA NCE OF THE DEBTS AT THE TIME OF FINALIZATION OF ACCOUNTS, WHEN IT FOUND THAT DEBTS WERE UNCOLLECTABLE, CANNOT IN OUR OPINION BE ACCEPTED A S A GENUINE WRITE OFF. IF ASSESSEE HAD INDEED EFFECTED WRITE OFF OF BAD DEBT, IT WOULD HAVE BEEN REFLECTED IN THE BOOKS FOUND BY SURVEY OF FICIALS ON 21.07.2011, SINCE THE ACCOUNTS FOR THE RELEVANT PRE VIOUS YEAR CLOSED LONG BACK ON 31.03.2011. THUS, IN OUR OPINION THERE WAS NO ACTUAL WRITE OFF BY THE ASSESSEE IN THE BOOKS, BUT FOR TH E SUM OF A1,18,08,800/-. LAW LAID DOWN BY HONBLE APEX COURT IN THE CASE OF ITA NOS.168 & 421/2016 :- 8 -: TRF LTD (SUPRA ) CANNOT BE EXTENDED TO A CASE WHERE THE WRITE OF F ATTEMPTED BY AN ASSESSEE IS FARCICAL. WE, THEREFOR E OF THE OPINION THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) FELL IN ER ROR IN ALLOWING THE CLAIM OF THE ASSESSEE TO THE EXTENT OF A70,09,095/- . IN OUR OPINION, LD. ASSESSING OFFICER WAS JUSTIFIED IN MAKING DISALLOWA NCE OF A1,99,64,641/- AGAINST THE CLAIM OF BAD DEBTS. WE THEREFORE, HAVE NO HESITATION IN SETTING ASIDE THE ORDER OF THE LD. CO MMISSIONER OF INCOME TAX (APPEALS) AND REINSTATING THE DISALLOWANCE MADE BY LD. ASSESSING OFFICER. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOWED WHEREAS THAT OF THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 21ST DAY OF OCTOBE R, 2016, AT CHENNAI. SD/- SD/- ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . '#'$ ) (ABRAHAM P. GEORGE) % / ACCOUNTANT MEMBER / CHENNAI ! / DATED: 21ST OCTOBER, 2016 KV !' # $% &% / COPY TO: 1 . '( / APPELLANT 3. ) () / CIT(A) 5. %+, # - / DR 2. #.'( / RESPONDENT 4. ) / CIT 6. ,/ 0 / GF