Ceejay Finance Ltd., Nadiad V. The Addl.CIT.,Kheda Range, Nadiad

ITA 1858/AHD/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2299 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 19-01-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 04-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANURAG SHARMA
• Assessee Lawyers: ANIL KSHTRIYA
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD C BENCH (BEFORE S/SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND N.S. SAINI, ACCOUNTANT MEMBER) ITA NO.1858/AHD/2009 [ASSTT. YEAR : 2005-2006] DICTATED ON: 19-01-2011 CEEJAY FINANCE LTD., CEEJAY HOUSE, MOTA PORE NADIAD 387 001. PAN : AAACH 5108 H VS. ACIT, KHEDA RANGE NADIAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ANIL KSHTRIYA REVENUE BY : MR.ANURAG SHARMA O R D E R PER BHAVNESH SAINI, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF I NCOME-TAX(APPEALS)-IV, BARODA DATED 19.03.2009 FOR THE ASSESSMENT YEAR 2005-2006 CHALLENGING SUSTENANCE OF ADDITION OF RS.3,50,000/- OUT OF BAD DEBTS OF RS.1 2,03,500/-. 2. BRIEFLY STATED FACTS IN ISSUE ARE THAT THE AO DI SALLOWED RS.12,03,500/- BEING 25% OF THE BAD DEBTS. THE AO DIRECTED THE AS SESSEE TO SUBMIT DETAILS OF THE BAD DEBTS CLAIM OF RS.49.14 LAKHS ALONG WITH CO PIES OF THE ACCOUNTS IN RESPECT OF WHOM THE BAD DEBTS WERE WRITTEN OFF IN T HE BOOKS OF ACCOUNTS. THE ASSESSEE SUBMITTED DETAILS AND ACCOUNTS OF THE PART IES TO EXPLAIN THAT THE AMOUNTS WERE WRITTEN OFF IN THE BOOKS OF ACCOUNTS B ECAUSE THESE PARTIES WERE NOT REGULAR IN PAYMENT OF INSTALMENTS AND EVEN IN M ANY CASES CHEQUES WERE RETURNED DISHONOURED AND THERE WAS NO CHANCE OF REC OVERY. IT WAS FURTHER EXPLAINED THAT OUTSIDE AGENTS WERE APPOINTED TO MAK E THE RECOVERY BUT NO FURTHER RECOVERY COULD BE MADE. THE ASSESSEE ALSO FILED PROCEEDINGS UNDER SECTION 138 OF THE NEGOTIABLE INSTRUMENT ACT FOR RE COVERY, BUT NOTHING COULD BE RECOVERED, THEREFORE, THE ASSESSEE WRITTEN OFF T HE AMOUNTS AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS AND CLAIMED BAD DEBTS. THE A O, HOWEVER, DISALLOWED 25% OF THE BAD DEBTS CLAIMED AND MADE ADDITION. TH E SAME SUBMISSIONS WERE REITERATED BEFORE THE LEARNED CIT(A) AND DETAILS WE RE FILED TO SHOW THAT DESPITE ITA NO.1858/AHD/2009 -2- MAKING BEST EFFORTS, THE RECOVERY OF BAD DEBTS AMOU NTS WAS NOT POSSIBLE, THEREFORE, BAD DEBTS WERE WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. THE LEARNED CIT(A) HOWEVER DID NOT ACCEPT THE CONTENTIONS OF THE ASSESSEE PARTLY AND DISALLOWED 5 % OF THE BAD DEBTS AND MADE THE PART ADDITION. HIS FINDINGS IN PARA 4.2 ARE RE PRODUCED AS UNDER: 4.2 I HAVE CONSIDERED THE SUBMISSIONS AND THE FACT S OF THE CASE. THE APPELLANT HAS WRITTEN OFF THE CONCERNED AMOUNTS IN ITS BOOKS OF ACCOUNTS AND TO THIS EXTENT, CONDITION U/S. 36(1)(VII) OF TH E INCOME TAX ACT IS SATISFIED. HOWEVER, AS HELD BY GUJARAT HIGH COURT I N THE CASE OF DHALL ENTERPRISES AND ENGINEERS PVT. LTD. (2007), 207 CTR , 0729 (GUJARAT), MERELY DEBITING THE AMOUNT IS NOT SUFFICIENT AND TH E ASSESSEE SHOULD ALSO PROVE THAT DEBT HAS BECOME BAD IN THAT PARTICULAR Y EAR. THE HON'BLE AHMEDABAD ITAT IN THIS CASE HAD HELD THAT 'IRRESPEC TIVE OF THEIR POSSIBILITY OF RECOVERY, IT WAS NOT THE OBJECT OF T HE STATUTE THAT ALL DEBTS ARE ALLOWABLE AS BAD DEBT'. THUS, ALTHOUGH STRICT O R INFALLIBLE PROOF IS NO LONGER REQUIRED REGARDING THE DEBT HAVING BECOME BAD; AT THE SAME TIME, THE DEBT WRITTEN OFF SHOULD BE PRIMA FACIE BA D. THE APPELLANT IS IN SUCH A BUSINESS WHERE BAD DEBTS DO OCCUR. APPELLANT HAS WRITTEN OFF THOSE DEBTS, WHERE THERE WERE NO REPOSSESSED ASSETS . DURING FINANCIAL YEAR 2004-05, THERE WAS RECOVERY OF RS.3,02,349/- O UT OF BAD DEBTS WRITTEN OFF EARLIER. THE DEBTS WRITTEN OFF BY THE A PPELLANT AS BAD, THEREFORE, INCLUDED DEBTS WHERE THERE WAS SCOPE OF RECOVERY. SINCE, IT IS NOT POSSIBLE TO CARRY OUT CASE BY CASE ANALYSIS CON SIDERING THE LARGE NUMBER OF BAD DEBT CASES, IT WAS JUSTIFIED TO DISAL LOW A PROPORTION OF THE TOTAL AMOUNT CLAIMED AS BAD DEBTS. THE DISALLOWANCE MADE BY THE ASSESSING OFFICER, HOWEVER, APPEARS TO BE ON HIGHER SIDE. IN A.Y.2006-- 07, ASSESSING OFFICER MADE DISALLOWANCE OF 5% OF TH E BAD DEBTS CLAIMED, AFTER OBSERVING THAT THERE WAS AN ELEMENT OF OVER PRECAUTION ON PART OF THE APPELLANT IN CLAIMING THE BAD DEBTS. CO NSIDERING ALL ASPECTS, OUT OF DISALLOWANCE OF RS.12,03,500/-, RS.3,50,000/ - IS SUSTAINED AND BALANCE IS CANCELLED. ITA NO.1858/AHD/2009 -3- 3. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND RELIED UPON THE DE CISIONS OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT, 323 ITR 397 AS WELL AS THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F VIJAY BANK VS. CIT, 190 TAXMAN 257. THE LEARNED DR, ON THE OTHER HAND, REL IED UPON THE ORDERS OF THE AUTHORITIES BELOW. 4. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND DO NOT APPROVE THE ORDERS OF THE AUTHORITIES BELOW. ACCORDING TO SECTION 36(1)( VII) THE DEDUCTION WOULD BE ALLOWED TO THE ASSESSEE SUBJECT TO PROVISIONS OF SU B-SECTION 2, WHEN THE AMOUNT OF BAD DEBTS OR PART THEREOF IS WRITTEN OFF AS IRRE COVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. HONBLE SUPREME CO URT CONSIDERING THE AMENDED PROVISIONS OF LAW IN THE CASE OF TRF LTD. ( SUPRA) HELD THAT AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE INCOME-TAX A CT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN ORDER TO OBTAIN A DEDUCTION IN RE LATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE : IT IS ENOUGH IF THE BAD DEBT IS WRI TTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. THE SUPREME COURT ACCORDI NGLY REMANDED THE MATTER TO THE ASSESSING OFFICER TO EXAMINE, SOLELY TO THE EXTENT OF WRITE OFF, WHETHER THE DEBT OR PART THEREOF WAS WRITTEN OFF IN THE ACC OUNTS OF THE ASSESSEE. CONSIDERING THE FACTS OF THE CASE, IN THE LIGHT OF THE ABOVE DECISION AND THE PROVISIONS OF LAW, WE ARE OF THE VIEW THAT THE ENTI RE ADDITION IS NOT SUSTAINABLE IN LAW. THE ASSESSEE MADE THE CLAIM OF BAD DEBT OF RS.49.14 LAKHS, BUT THE AO DISALLOWED 25% OF THE BAD DEBTS AND THE LEARNED CIT (A) DISALLOWED 5% OF THE BAD DEBTS. ACCORDING TO THE ABOVE PROVISIONS, THE BAD DEBTS HAVE TO BE ALLOWED FULLY OTHERWISE THERE IS NO PROVISION TO ALLOW THE BAD DEBTS IN PERCENTAGE. THE ULTIMATE FINDING OF THE AUTHORITIES BELOW ARE ALIEN TO THE PROVISIONS OF SECTION 36(1)(VII) OF THE ACT. THE ISSUE IS SQUARELY COVER ED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CA SE OF TRF LTD. (SUPRA), WE ITA NO.1858/AHD/2009 -4- ACCORDINGLY SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ENTIRE ADDITION. 5. IN RESULT, THE ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 21 ST JANUARY, 2011 SD/- SD/- (N.S. SAINI) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER PLACE : AHMEDABAD DATE : 21-01-2011 COPY OF THE ORDER FORWARDED TO: 1) : ASSESSEE 2) : DEPARTMENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD