M/s. Prem Service Station, New Delhi V. ACIT, New Delhi

ITA 1797/DEL/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 6657 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 23-08-2016
• Assessment Year: 2008-2009
• Appeal Filed On: 28-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: F R MEENA
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : F NEW DELHI BEFORE SH. H.S. SIDHU, JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO. 1797 /DEL/ 2013 ASSESSMENT YEAR: 2008 - 09 M/S. PREM SERVICE STATION, ANDREW GANJ, NEW DELHI VS. ACIT, CIRCLE - 32(1), NEW DELHI PAN : AAAFP6998C (APPELLANT) (RESPONDENT) APPELLANT BY SH. SANDEEP SAPRA, ADV. RESPONDENT BY SH. F.R. MEENA, SR.DR DATE OF HEARING 24.08.2016 DATE OF PRONOUNCEMENT 18.11.2016 ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER DATED 27/12/2012 PASSED BY LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) - XXVI, LAXMI NAGAR , DELHI - 92, FOR ASSESSMENT YEAR 2008 - 09 RAISING FOLLOWING GROUNDS: 1. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS IN LAW AND ON FACTS IN NOT DELETING THE DISALLOWANCE OF RS. 9,51,280/ - FULLY AS MADE BY LD. AO U/S 36(I)(IV) ON ACCOUNT OF BED DEBTS AND THE IMPUGNED ADDITION HAS BEEN MADE WITHO UT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE AND BY RECORDING INCORRECT FACTS AND FINDINGS. 2. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE ACTION OF LD. AO IN MAKING ADHOC DISALLOWANCE OF RS.32,340/ - ON ACCOUNT OF ADVERTISING EXPENSES. 2 ITA NO. 1797/DEL/2013 AY: 2008 - 09 3. THAT HAVING REGARD TO THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN LAW AND ON FACTS IN NOT DELETING THE DISALLOWANCE OF RS.3,25,851/ - FULLY AS MADE BY LD. AO ON ACCOUNT OF FOREIGN TRAVELING EXPENSES AND THE IMPUGNED ADDITION HAS BEEN MADE WITHOUT APPRECIATING THE FACTS AND CIRCUMSTANCES OF THE CASE AND BY RECORDING INCORRECT FACTS AND FINDINGS. 4. THAT IN ANY CASE AND IN ANY VIEW OF THE MATTER ACTION OF LD. CIT(A ) IN NOT REVERSING THE ACTION OF LD. AO IN MAKING THE IMPUGNED DISALLOWANCES AND FRAMING THE IMPUGNED ASSESSMENT ORDER, AS THE SAME IS NOT SUSTAINABLE ON VARIOUS LEGAL AND FACTUAL GROUNDS AND MORE SO AS THE SAME HAS BEEN PASSED BY RECORDING INCORRECT FACTS AND FINDING AND WITHOUT GIVING ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE. 5.THAT THE APPELLANT CRAVES THE LEAVE TO ADD, MODIFY, AMEND OR DELETE ANY OF THE GROUNDS OF APPEAL AT THE TIME OF HEARING AND ALL THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO E ACH OTHER. 2. THE FACTS IN BRIEF OF THE CASE ARE THAT IN THE RELEVANT ASSESSMENT YEAR, THE ASSESSEE W AS HAVING DEALERSHIP OF BHARAT PETROLEUM CORPORATION L IMITED (BPCL) AND WAS ENGAGED IN TRADING OF PETROLEUM PRODUCTS ETC. THE ASSESSEE FILED RETURN OF INCOME FOR THE ASSESSMENT YEAR IN CONSIDERATION ON 29/09/2008 , DECLARING TOTAL INCOME OF RS.36, 38,930/ - THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTI NY AND NOTICE UNDER SECTION 143(2) OF THE INCOME - TAX ACT, 1961 (FOR SHORT THE ACT ) WAS ISSUED AND COMP LIED WITH. IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE ACT ON 10/12/2010, T OTAL INCOME WAS ASSESSED AT RS.53, 31, 561/ - AFTER MAKING CERTAIN DISALLOWANCES. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS) ALLOWED PART RELIEF TO THE ASSESSEE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS REPRODUCED ABOVE. 3. IN GROUND NO. 1 , THE ASSESSEE HAS CHALLENGED SUSTAINING BY THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) OF AMOUNT OF 3 ITA NO. 1797/DEL/2013 AY: 2008 - 09 RS.9, 51,280/ - DISALLOWE D BY THE ASSESSING OFFICER UNDER SECTION 36(1)(VII) OF THE ACT ON ACCOUNT OF BAD DEBTS. 3.1 THE FACTS IN RESPECT OF ISSUE IN DISPUTE ARE THAT THE ASSESSING OFFICER OBSERVED CLAIM OF BAD DEBT IN RESPECT OF M/S . POORTI R ENTAL C AR AND LOGISTICS PRIVATE L IMIT ED , AMOUNTING TO RS.9,51, 280/ - . ON BEHALF OF THE ASSESSEE, IT WAS EXPLAINED THAT THE ASSESSEE SUPPLIED PETROLEUM PRODUCTS TO THE SAID PARTY AND RECEIVED TWO POST S DATED CHEQUES AMOUNTING TO RS.3,87, 398/ - DATED 26/04/2008 AND RS.2,30, 978/ - DATED 08/05/2008. IT WAS FURTHER EXPLAINED THAT SAID CHEQUE S WERE DISHONOURED AND THE ASSESSEE INITIATED LEGAL PROCEEDING AGAINST THE SAID PARTY WHICH WAS PENDING TRIAL IN COURTS, AND ACCORDINGLY, THE AMOUNT WAS WRITTEN OFF AS BAD DEBT IN THE YEAR UNDER CONSIDERATION. HOWE VER , THE ASSESSING OFFICER OBSERVED THAT IN THE BALANCE SHEET FOR THE YEAR ENDING 2008 THE SAID PARTY WAS APPEARING AS SUNDRY DEBTOR AS ON 31/03/2008. FURTHER , HE OBSERVED THAT THE CHEQUES ISSUED WERE FOR THE PERIOD RELEVANT TO FINANCIAL YEAR 2008 - 09 I.E. ASSESSMENT YEAR 2009 - 10 (SUCCEEDING ASSESSMENT YEAR) AND , THEREFORE , CHEQUE GOT DISHONOURED IN FINANCIAL YEAR CORRESPONDING TO SUBSEQUENT ASSESSMENT YEAR AND THUS ASSESSEE WOULD BE ENTITLED FOR CLAIM OF BAD DEBT IN ASSESSMENT YEAR 2009 - 10. IN VIEW OF THE O BSERVATIONS, THE LEARNED ASSESSING OFFICER DISALLOWED THE CLAIM OF BAD DEBT OF THE ASSESSEE. 3.2 BEFORE THE LEARNED COMMISSIONER OF INCOME - TAX ( APPEALS), THE ASSESSEE SUBMITTED THAT DEBT FROM THE PARTY WAS DUE FROM THE MONTH OF FEBRUARY, 2007 AND AFTER MAKING LOCAL ENQUIRIES THAT THERE WAS NO EXPECTATION OF RECOVERING THE DEBT , THE ASSESSEE WROTE OFF THE DEBT IN ITS BOOKS OF ACCOUNTS DURING THE FINANCIAL YEAR 2007 - 08 AND THE DEBTOR CLOSES BUSINESS ACTIVITIES AND THE WHEREABOUTS WERE NOT KNOWN AT THE TIME OF WRITING OF F DEBT. FURTHER , IT WAS SUBMITTED THAT AT THE TIME OF WRITING OFF THE DEBT DURING FINANCIAL YEAR 2007 - 08, THE ASSESSEE WAS FULLY 4 ITA NO. 1797/DEL/2013 AY: 2008 - 09 AWARE THAT POST DATED CHEQUES HAD BOUNCED AFTER THE CLOSE OF THE FINANCIAL YEAR AND IT WAS A STANDARD PRACTICE T O BOOK THE KNOWN LIABILITIES OF THE FINANCIAL YEAR BEFORE SIGNING OF THE BALANCE SHEET. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT THE AMOUNT IN QUESTION WAS ALIVE TILL THE END OF FINANCIAL YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION AS THE APPELLANT HAD SHOWN THIS AMOUNT IN BOOKS AS ITS SUNDRY DEBTOR AS ON 31/03/2008 , THUS THE AMOUNT IN QUESTION DID NOT BECOME BAD IN ASSESSMENT YEAR UNDER CONSIDERATION AND THE ASSESSEE COULD WRITE O FF AN AMOUNT IN THE CONCERNED ASSESSMENT YEAR , IN WHICH IT IS FOUND AS IRRECOVERABLE. 3.3 BEFORE US, THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE SUBMITTED THAT THE DEBT IN QUESTION WAS WRITTEN OFF IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMEN T YEAR UNDER CONSIDERATION AND THEREFORE RELYING ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF TRF LIMITED VERSUS CIT (2010) 190 TAXMAN 391 (SC), IT WAS CONTENDED THAT DEDUCTION UNDER SECTION 36(1)(VII) IS ALLOWABLE IN THE YEAR OF WRITE OFF O F AMOUNT IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE IRRESPECTIVE OF THE RECOVERABILITY OF THE DEBT. 3.4 THE LEARNED SEN IOR DEPARTMENTAL REPRESENTATIVE , ON THE OTHER HAND, RELIED ON THE FINDING OF THE LOWER AUTHORITIES AND PRAYED THAT ORDER OF THE LEARNED CO MMISSIONER OF INCOME - TAX ( APPEALS) ON THE ISSUE IN DISPUTE MIGHT BE SUSTAINED. 3.5 WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE FACT THAT THE ASSESSEE SUPPLI ED PETROLEUM PRODUCTS WORTH RS.9,51, 280/ - TO M/S . POORTI RENT CAR AND L OG ISTICS PRIVATE L IMITED, IS NOT DISPUTED. THE FACT THAT CHEQUES ISSUED BY THE SAID PARTY WERE DISHONOURED IS ALSO NOT IN DISPUTE BETWEEN THE PARTIES. THE ONLY DISPUTE IS WHETHER THE AMOUNT SHOULD BE WRITTEN OFF IN 5 ITA NO. 1797/DEL/2013 AY: 2008 - 09 THE ASSESSME NT YEAR UNDER CONSIDERATION OR IN SUBSEQUENT ASSESSMENT YEAR WHEN THE CHEQUES WERE DISHONOURED. 3.6 FOR THE PURPOSE OF DEDUCTION UNDER SECTION 36(1)(VII) THE REQUIREMENT IS THAT THE BAD DEBT OR PART THEREOF SHOULD BE WRITTEN OFF AS IRRECOVERABLE IN THE A CCOUNTS OF THE ASSESSEE FOR THE PREV IOUS YEAR. FURTHER, THE HON BLE SUPREME COURT IN THE CASE OF TRF LTD . (SUPRA) HELD AS UNDER: THIS POSITION IN LAW IS WELL - SETTLED. AFTER 1ST 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 ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNT S OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMER'S ACCOUNT IS CREDITED, THUS, CLOSING THE ACCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STATED ABOVE, THE ASSESS ING OFFICER HAS NOT EXAMINED WHETHER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO C ONSIDERATION OF THE ABOVE - MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. 3.7 IN THE INSTANT CASE, THE ASSESSEE , ON ONE HAND , IS CLAIMING THAT THE DEBT OF THE SAID PARTY HAS BEEN WRITTEN OFF IN ITS BOOKS OF ACCOUNTS, HOWEVER , THE ASSESSING OFFICER HAS STATED THAT THE SAID PARTY WAS APPEARING AS DEBTOR IN THE BALANCE SHEET AS ON 31/3/2008. THUS , IN THE CASE , IT NEEDS VERIFICATION WHETHER THE DEBT IN QUESTION WAS WRITTEN OFF IN THE YEAR UNDER CONSIDERATION. IN VIEW OF THE ABOVE, WE FEEL IT APPROPRIATE TO RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER, WHO IS DIRECTED TO ASCERTAIN FROM THE BOOKS OF ACCOUNTS OF THE ASSESSEE, WHETHER THE BAD DEBT IN QUESTION HAS BEEN WRITTEN OFF BY THE ASSESSEE IN ITS ACCOUNTS 6 ITA NO. 1797/DEL/2013 AY: 2008 - 09 FOR THE YEAR UNDER CONSIDERATION AND THEN DECIDE THE ISSUE IN DISPUTE IN ACCORDANCE WITH LAW. THE ASSESSEE SHALL BE AFFORDED SUFFICIENT OPPORT UNITY OF HEARING. ACCORDINGLY, THE GROUND OF THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSE. 4. THE REMAINING GROUNDS OF THE A PPEAL WERE NOT PRESSED BY THE LEARNED AUTHORIZED REPRESENTATIVE OF THE ASSESSEE AND ACCORDINGLY DISMISSED AS INFRUCTUOUS. 5. IN THE RESULT , APPEAL OF THE ASSESSEE IS ALLOWED PARTLY FOR STATISTICAL PURPOSE . THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 1 8 T H NOV. , 2016 . S D / - S D / - ( H.S. SIDHU ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 8 T H NOVEMBER , 2016 . LAPTOP / - COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI