Shri Maheshkumar K.Jhawar, Ahmedabad V. The Income tax Officer,Ward-(OSD)-II,Range-II, Ahmedabad

ITA 1862/AHD/2012

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 67568 (ITAT-AHMEDABAD)
• Duration Of Justice: 11 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 12-07-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 27-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: O P BATHEJA
• Assessee Lawyers: M K PATEL
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

ITA NO 1862 /AHD/2012 . A.Y. 2009- 10 1 IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD (BEFORE SHRI G.C.GUPTA VICE PRESIDENT & SHRI ANIL C HATURVEDI, A.M.) I.T. A. NO. 1862/AHD/2012 (ASSESSMENT YEAR:2009-10) SHRI MAHESH KUMAR K. JHAWAR PROP: K. M. AGENCY, 78, NEW CLOTH MARKET, O/S RAIPUR GATE, AHMEDABAD (APPELLANT) VS. THE I.T.O. WARD (OSD)-II, RANGE-II, AHMEDABAD (RESPONDENT) PAN:AASPJ4437A APPELLANT BY : SHRI M.K. PATEL. A.R. RESPONDENT BY : SHRI O.P. BATHEJA. SR. D.R. ( )/ ORDER DATE OF HEARING : 12-07-2013 DATE OF PRONOUNCEMENT : 16-08-2013 PER SHRI ANIL CHATURVEDI,A.M. 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A)-XVI, AHMEDABAD DATED 25.06.2012 FOR ASSESSMENT YEAR 2009 -10. 2. THE FACTS AS CULLED OUT FROM THE LOWER AUTHORITI ES ARE AS UNDER: 3. ASSESSEE IS AN INDIVIDUAL AND PROPRIETOR OF K.M AGENCY ENGAGED IN THE BUSINESS OF SALE OF DIFFERENT TYPES OF CLOTHS AS A COMMISSION AGENT. THE ITA NO 1862 /AHD/2012 . A.Y. 2009- 10 2 ASSESSEE FILED HIS RETURN OF INCOME FOR A.Y. 2009-1 0 ON 22.02.2010 DECLARING TOTAL INCOME OF RS. 2,86,150/- THE CASE WAS SELECTE D FOR SCRUTINY AND THEREAFTER THE ASSESSMENT WAS FRAMED UNDER SECTION 143(3) VIDE ORDER DATED 22.12.2011 AND THE TOTAL INCOME WAS DETERMINED AT R S. 42,12,485/-. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASSESS EE CARRIED THE MATTER BEFORE CIT(A). CIT(A) VIDE ORDER DATED 25.06.2012 DISMISSED THE APPEAL OF THE ASSESSEE. AGGRIEVED BY THE ORDER OF CIT(A) ASS ESSEE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS: 1. THAT ON FACTS AND IN LAW, THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN CONFIRMING THE ADDITION OF RS.39,26,335/- AS ALLEGED UNACCOUNTED COMMISSION INCOME. 2. THAT ON FACTS, AND IN LAW, THE LEARNED CIT(A) HAS GRIEVOUSLY ERRED IN NOT GRANTING THE DEDUCTION OF RS.39,26,335/-AS BAD DEBT U/S.36(L)(VII) OF THE ACT . 3. THAT ON FACTS AND IN LAW, IT OUGHT TO HAVE BEEN HEL D THAT NO UNACCOUNTED COMMISSION IS RECEIVED, AND THE ENTIRE AMOUNT OUGHT TO HAVE BEEN ALLOWED AS BED DEB T WRITTEN OFF, AS PRAYED FOR. SINCE ALL THE THREE GROUNDS RAISED ARE INTERCONNECT ED ALL ARE CONSIDERED TOGETHER. 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, ASS ESSING OFFICER NOTICED THAT TOTAL INCOME FROM COMMISSION RECEIVED BY THE ASSESS EE AS PER ITS DETAILS RECEIVED BY HIM WAS RS. 63,20,063/-. ASSESSING OFFI CER WAS THEREFORE OF THE VIEW THAT SINCE THE ASSESSEES INCOME WAS MORE THAN RS. 40 LAKHS, THE ASSESSEES ACCOUNTS SHOULD HAVE BEEN AUDITED AS PER SECTION 44AB OF THE ACT. HE FURTHER NOTICED THAT IN THE RETURN FILED B Y THE ASSESSEE, IT WAS STATED THAT HIS CASE WAS NOT COVERED FOR COMPULSORY AUDIT UNDER SECTION 44AB. THE ASSESSEE WAS THEREFORE ASKED TO SUBSTANTIATE HIS ST AND. THE ASSESSEE INTERALIA SUBMITTED THAT HE HAD NOT INCLUDED THE CO MMISSION FROM LOYAL TEXTILE MILLS LIMITED AMOUNTING TO RS. 38,31,395/- AS HE HA S NOT CONSIDERED IT AS INCOME FOR THE REASON THAT LOYAL TEXTILE MILLS LIMI TED HAD FILED THE CRIMINAL ITA NO 1862 /AHD/2012 . A.Y. 2009- 10 3 COMPLAINT AGAINST THE ASSESSEE AND THEREFORE THE AS SESSEE WAS DOUBTFUL OF ITS RECOVERY AND IT WAS TREATED AS BAD DEBTS AND T HEREFORE NOT INCLUDED IN THE INCOME. SINCE THE COMMISSION INCOME WAS SHOWN NET O F BAD DEBTS AND SINCE IT WAS LESS THAN LIMIT PRESCRIBED FOR AUDIT U/S 44A B, THE STATEMENT WAS MADE IN THE RETURN WITH RESPECT TO NON APPLICABILITY OF TAX AUDIT. THE SUBMISSIONS OF THE ASSESSEE WAS NOT FOUND ACCEPTABLE TO THE ASSESS ING OFFICER FOR THE REASON THAT THE GROSS COMMISSION RECEIPTS OF THE YE AR UNDER CONSIDERATION WAS RS. 63,35,209/- BUT THE ASSESSEE HAD ONLY REFLE CTED RS. 24,08,874/- IN THE RETURN OF INCOME. THE ASSESSING OFFICER WAS FU RTHER OF THE VIEW THAT THE CLAIM OF BAD DEBTS WAS NOT ACCEPTABLE BECAUSE NO BA D DEBTS WAS SHOWN EITHER IN THE RETURN OF INCOME OR IN THE PROFIT AND LOSS ACCOUNT. FURTHER THE ASSESSEE HAD FILED HIS RETURN OF INCOME ON 22.02.20 10 BUT THE CRIMINAL SUIT WAS FILED BY LOYAL TEXTILE MILLS LTD. ON 29.09.2010 WHICH THEREFORE MEANS THAT ON THE LAST OF THE FINANCIAL YEAR THAT IS ON 31/03/ 2009, THERE WAS NO CONTROVERSY BETWEEN BOTH THE PARTIES WITH RESPECT T O THE COMMISSION INCOME. THE ASSESSING OFFICER WAS THUS OF THE VIEW THAT THE ASSESSEE IN THE INITIAL STAGE HAD NOT DISCLOSED THE COMMISSION RECEIPTS FRO M LOYAL TEXTILE BUT LATER ON HE HAS TRIED TO HIDE THE REAL FACTS TO AVOID THE TAX LIABILITIES. MOREOVER, WITHOUT OFFERING COMMISSION RECEIPT AS INCOME, THE ASSESSEE HAS DIRECTLY CLAIMED BAD DEBTS WHICH ARE NOT ACTUALLY BAD. HE A LSO NOTED THAT HAD DONE BUSINESS WITH THE SAID COMPANY IN THE NEXT YEAR ALS O. HE ACCORDINGLY CONSIDERED THE DIFFERENCE BETWEEN THE COMMISSION AS PER ITS DETAILS AND THE COMMISSION SHOWN IN THE RETURN OF INCOME OF RS. 39, 26,335/- AS UNACCOUNTED/UNRECORDED COMMISSION. 5. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER, ASS ESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONSIDERING THE SUBMIS SIONS OF THE ASSESSEE UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER B Y HOLDING AS UNDER: 2.7.AS PER THE FACTS OF THE CASE, EXISTENT IN THIS CASE RETURN DECLARING INCOME OF RS. 2,86,150/- WAS FILED BY THE APPELLANT ON 20- 02-2010 USING E-FILING MODE. ON INITIATION OF SCRUTINY PROCEEDINGS U/S. 14 3(2), THE A.O. OBSERVED FROM PERUSAL OF PROFIT & LOSS ACCOUNT THAT THE APPE LLANT HAD DISCLOSED ITA NO 1862 /AHD/2012 . A.Y. 2009- 10 4 COMMISSION RECEIPTS AMOUNTING TO RS. 24,08,874/-. T HE A.O. WHILE EXAMINING THE ITS 26AS DETAILS NOTED THAT THE APPELLANT HAD RECEIVED COMMISSION FROM VARIOUS PARTIES AMOUNTING TO RS. 63,20,063/-. PERUS AL OF THE DETAILS FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS INDICAT ED THAT THE APPELLANT HAD MADE A CLAIM OF BAD DEBT U/S. 36(1)(VII) OF RS. 38, 31,395/-.WHICH WAS NOT INDICATED IN THE PROFIT AND LOSS ACCOUNT OF THE APP ELLANT. ON BEING QUERIED, THE APPELLANT SUBMITTED THAT THE APPELLANT HAS BEEN DEA LING WITH THE PARTY BY THE NAME OF LOYAL TEXTILE MILLS LTD (LTML). DURING THE YEAR UNDER CONSIDERATION, AN AMOUNT OF RS. 38,31,395/- WAS TO BE RECEIVED FRO M THE SAID PARTY, HOWEVER, OWING TO SOME COMMERCIAL DISPUTES THE SAME WAS NOT PAID BY THE SAID PARTY. THE APPELLANT INSTEAD OF TAKING THIS AM OUNT TO THE PROFIT & LOSS ACCOUNT, SIMPLY REDUCED THIS AMOUNT AS BAD DEBTS FR OM THE LEDGER ACCOUNT OF INCOME FROM COMMISSION PERTAINING TO F Y 2008-09. T HUS, AFTER NETTING OFF OF COMMISSION INCOME, BY CLAIMING AMOUNT RECEIVABLE FR OM LTML AS BAD DEBTS, THE APPELLANT HAS OFFERED FOR TAXATION INCOME FROM COMMISSION AMOUNTING OF RS. 24,08,874/-. THE APPELLANT EXPLAINED THAT THE S AID PARTY WAS NOT RESPONDING TO APPELLANTS REQUEST FOR PAYMENT AND HA D IN FACT, WITH A VIEW OF AVOID PAYMENT, HAD LODGED POLICE COMPLAINT AGAINST THE APPELLANT IN CHENNAI, TAMILNADU. THE APPELLANT SUBMITTED THAT JUDICIAL CI TATIONS ON THE MATTER AS IN THE CASE OF TRF LIMITED PRONOUNCED BY HON'BLE APEX COURT AND REDIFF.COM INDIA PVT LTD PRONOUNCED BY HON'BLE TRIBUNAL, MUMBA I CONFIRM THE ACTION OF THE APPELLANT. 2.8 IN THE ABOVE BACKGROUND, THE ARGUMENT OF THE AP PELLANT ARE ANALYZED HEREUNDER:- I) TO BEGIN WITH IT IS SEEN THAT THE ARGUMENT OF TH E APPELLANT THAT ITS CASE IS SQUARELY COVERED BY JUDICIAL CITATIONS ON T HE MATTER AS IN THE CASE OF TRF LIMITED PRONOUNCED BY HON'BLE APEX COUR T AND REDIFF.COM INDIA PVT LTD PRONOUNCED BY HON'BLE TRIB UNAL, MUMBAI IS BASED UPON MISPLACED AND INAPPROPRIATE UNDERSTANDIN G OF THE RATIOS LAID DOWN IN THE CITED JUDGEMENTS. THERE IS NO DENY ING THE FACT THAT THE HON'BLE APEX COURT IN THE CASE OF TRF LIMITED H AVE HELD THAT AS PER AMENDMENTS INTRODUCED IN SECTION 36(1)(VII) OF THE I T ACT AFTER 1- 4-1989, ' IT IS NOT NECESSARY FOR THE ASSESSEE TO E STABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE. IT IS ENO UGH, IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN ACCOU NTS OF THE ASSESSEE......WHEN THE BAD DEBT OCCURS, THE BAD DEB T ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CREDITED THUS CLOSING THE ACCOUNT OF THE CUSTOMER.' LAYING THE ABOVE RATIO, I N THE CASE OF TRF LIMITED, THE HON'BLE APEX COURT DIRECTED THE A.O. T O EXAMINE AS TO WHETHER BAD DEBTS WERE ACTUALLY WRITTEN OFF BY THE ASSESSEE IN ITS ACCOUNTS IN JUSTIFICATION OF ITS CLAIM. IN THE CASE OF REDIFF.COM, HON'BLE TRIBUNAL HAS FOLLOWED THE SAID RATIO LAID DOWN BY T HE HON'BLE APEX COURT. THE POINT WHICH APPELLANT HAS TOTALLY MISSED WHILE PLACING RELIANCE ON THE CITED JUDGMENT IS THAT THE RATIO OF THE ABOVE CASE LAWS ITA NO 1862 /AHD/2012 . A.Y. 2009- 10 5 IS APPLICABLE ONLY IN CASES WHERE PROVISIONS OF SEC TION 36(1)(VII) READ WITH SECTION 36(2) HAVE BEEN FOLLOWED. THUS, TO LAY A CLAIM ON THE ALLOWABILITY OF BAD DEBT, THE APPELLANT IS REQUIRED TO FULFILL CONDITIONS OF SECTION 36(1)(VII) READ WITH SECTION 36(2). THERE C ANNOT BE A CASE OF AN APPELLANTS CLAIM BEING ADMITTED IN SITUATION WHE RE THE ABOVE STATUTORY PROVISIONS HAVE NOT BEEN COMPLIED WITH. S ECTION 36(2) SUPRA, PRESCRIBE THAT ' NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOU NT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF A N EARLIER PREVIOUS YEAR. THUS THE LAW IS CRYSTAL CLEAR THAT HON'BLE APEX COURT IN THE CASE OF TRF LIMITED WHEREIN THE HON'BLE COURT WHILE PRESCRIBING THE RATIO HAVE DIRECTED THE A.O. TO VERIFY AS TO WHETHE R THE BAD DEBT WAS WRITTEN OFF BY THE ASSESSEE OR NOT. THAT IS TO SAY HON'BLE APEX COURT IN THE CASE OF TRF LIMITED HAVE PRESCRIBED THAT THE CLAIM OF AN ASSESSEE FOR BAD DEBT WOULD NOT BE ADMISSIBLE, IF T HE SAME HAS NOT BEEN CLAIMED WITHIN THE MEANING OF 36(1)(VII) READ WITH SECTION 36(2). COMING TO THE FACTS OF THE INSTANT CASE, THE APPELL ANT IN ITS OWN ARGUMENT HAS ADMITTED THAT THE BAD DEBTS CLAIMED BY IT WERE NOT ROUTED THROUGH THE PROFIT AND LOSS ACCOUNTS I.E. NE ITHER THE COMMISSION INCOME FROM LTML WAS CREDITED TO THE PRO FIT AND LOSS ACCOUNT NOR WAS IT DEBITED TO THE PROFIT AND LOSS A CCOUNT AS A BED DEBT. THE CLAIM OF THE APPELLANT THUS, SQUARELY FAI LS. II) THE ARGUMENT OF THE APPELLANT THAT ITS CLAIM IS JUSTIFIED SINCE IT HAD NETTED THE COMMISSION INCOME BY DIRECTLY DEBITING T HE COMMISSION ACCOUNT AND TAKING ONLY THE NET COMMISSION TO THE P & L ACCOUNT IS INCORRECT SINCE THE PRINCIPLES OF ACCOUNTING ARE RE QUIRED TO BE FOLLOWED FOR MAKING CLAIMS. DEVIATIONS THEREOF ON T HE REASONING THAT ACCOUNTANT WAS PART TIME OR NOT FULLY CONVERSANT WI TH LAW CANNOT BE AN EXCUSE IN SUPPORT THEREOF. THE ARGUMENTS ARE ACC ORDINGLY REJECTED. III) THE ARGUMENT OF THE APPELLANT THAT HAS MADE SE VERAL ATTEMPTS TO RECOVER THIS AMOUNT OF COMMISSION FROM LTML AND THA T LTML WITH A VIEW TO AVOID PAYMENT INITIATED POLICE ACTION AGAIN ST THE APPELLANT ARE ALSO UNFOUNDED. THE YEAR UNDER CONSIDERATION IS A Y 2009-10 RELEVANT TO F Y 2008-09. THUS, LTML WAS REQUIRED TO HAVE PAID THIS AMOUNT OF MONEY DURING THE CURRENCY OF F Y 2008-09. THE ARGUMENT THAT INSTEAD OF PAYING THE SAID AMOUNT LTML , WITH A VIEW TO AVOID PAYMENT, INITIATED POLICE ACTION AGAINST THE APPELL ANT ARE NOT SUPPORTED BY THE FACTS. TO BEGIN WITH AS PER DETAIL S FURNISHED BY THE APPELLANT, LTML HAS FILED TWO FIRS BEFORE POLICE AU THORITIES IN TAMILNADU DATED 27-01-2010 AND 28-09-2010. TRUE, TH E FIRS CONTAINED THE NAME OF APPELLANT AS AN ACCUSED. FACT HOWEVER REMAINS THAT THE SAME WERE FILED IN F Y 2010-11. TH US, DURING F Y 2008-09, THERE WAS NO DISPUTE BETWEEN THE APPELLANT AND THE LTML. FURTHER, THE FIRS FILED BY LTML ARE NOT PERTAINING TO ANY DISPUTE OVER ITA NO 1862 /AHD/2012 . A.Y. 2009- 10 6 ANY COMMISSION TO BE PAID BY LTML TO THE APPELLANT. PERUSAL OF THE FIRS, INDICATE THAT THE SAME HAS BEEN FILED BY LTML UNDER PROVISIONS OF CRPC TOWARDS CHEATING, FORGERY, MISAPPROPRIATION ETC. THUS, LTML IN THE SAID FIRS HAVE ACCUSED APPELLANT AND OT HERS FOR TAKING ILLEGAL POSSESSION OF GOODS BELONGING TO LTML, THRO UGH CONSPIRACY AND WITHOUT PAYING THE DUE AMOUNT OF MONIES TO LTML . THUS, THE ARGUMENT THAT COMMISSION AMOUNTS WERE NOT PAID BY L TML OWING TO DISPUTES IS INCORRECT AND IS ACCORDINGLY REJECTED. III) THE ARGUMENT OF THE APPELLANT THAT MERELY BECA USE 26AS INDICATED THAT COMMISSION HAS BEEN PAID BY LTML TO THE APPELLANT AND TDS HAS BEEN DEDUCTED THEREIN DOES NOT EVIDENCE S THAT COMMISSION HAS BEEN RECEIVED BY THE APPELLANT. 26AS STATEMENT GIVES DETAILS OF AMOUNT OF MONIES PAID / PAYABLE BY A DEDUCTOR TO THE DEDUCTEE AND THE CORRESPONDING TAX DEDUCTED THEREUP ON. IN THE INSTANT CASE, 26AS INDICATED THAT LTML HAS PAID COM MISSION OF RS. 38,31,395/- TO THE APPELLANT ON WHICH TDS OF RS. 6, 79,790/- WAS MADE. THE ARGUMENT OF THE APPELLANT IS UNTENABLE SI NCE LTML WOULD DEDUCT TDS AND DEPOSIT THE SAME TO GOVERNMENT ACCOU NT ONLY IF THEY ARE CONVINCED THAT RS. 38,31,395/- IS REQUIRED TO B E PAID BY THEM TO THE APPELLANT. IN THE ABSENCE OF THIS SATISFACTION WITH THE LTML, THERE WOULD BE NO NEED FOR THEM TO PAY RS. 6,79,790/- TO THE GOVERNMENT ACCOUNT. ASSUMING WITHOUT CONCEDING THAT LTML DID N OT ACTUALLY PAY TO THE APPELLANT BUT MERELY CREDITED APPELLANTS ACC OUNT, THE FACT REMAINS THAT THE SAID COMMISSION BECAME INCOME OF T HE APPELLANT ON ACCRUAL BASIS MORE SO AS THE APPELLANT IS MAINTAINI NG BOOKS OF ACCOUNTS ON MERCANTILE BASIS. THE ARGUMENT OF THE A PPELLANT ACCORDINGLY FAILS. IV) THE ARGUMENT OF THE APPELLANT THAT SINCE IT HAD NOT CLAIMED DEDUCTION OF TDS MADE BY LTML IN ITS RETURN OF INCO ME IT HAD NOT DISCLOSED COMMISSION INCOME FROM LTML. THIS ARGUMEN T IS TOTALLY UNACCEPTABLE MERELY BECAUSE TAX CREDIT HAS NOT BEEN MADE DOES NOT MEANS THAT THE CORRESPONDING INCOME WOULD ALSO NOT BE OFFERED TO TAX. WITHOUT PREJUDICE TO THE SAME, DURING THE COUR SE OF APPELLATE PROCEEDINGS, IT WAS LEARNT THAT THE APPELLANT VIDE HIS REQUEST DATED 2- 3-2012 HAD MADE A PETITION U/S. 154 FOR GRANT OF TD S CREDIT IN RESPECT OF AMOUNT DEDUCTED BY LTML. AS PER RECORDS, ORDER U /S. 154 WAS PASSED BY A.O. ON 9-3-2012 GRANTING THE SAID CREDIT OF RS. 6,79,790/- TO THE APPELLANT. THE ARGUMENT OF THE APPELLANT CON SEQUENTLY FAILS V) THE ARGUMENT OF THE APPELLANT THAT THE RELIANCE BY THE A.O. ON 129 TAXMAN 190 GUJARAT IS INCORRECT IN VIEW OF DECISION OF HON'BLE APEX COURT IN THE CASE OF TRF LIMITED. THE MATTER HAS AL READY BEEN EXAMINED IN THE PRECEDING PARAS AND HENCE THE ARGUM ENTS OF THE APPELLANT HAVE BEEN FOUND TO BE UNFOUNDED. VI) THE A.O. HAS ARGUED THAT THE APPELLANT WAS NOT HAVING ANY DISPUTES WITH THE LTML AND IN SUPPORT OF HIS OBSERV ATIONS HE RELIED UPON THE FACT THAT APPELLANT CONTINUED TO DO BUSINE SS WITH LTML AS ITA NO 1862 /AHD/2012 . A.Y. 2009- 10 7 OBSERVED FROM THE FACT THAT IN F Y 2009-10 APPELLAN T HAS RECEIVED COMMISSION INCOME FROM LTML OF RS. 16,05,584/-. THE APPELLANT HAS SUBMITTED THAT IT WAS MAINTAINING BUSINESS RELATION S WITH LTML ONLY IN ANTICIPATION OF REALIZATION OF COMMISSION DUE. T HE YEAR UNDER CONSIDERATION IS A Y 2009-10 RELEVANT TO F Y 2008-0 9. THE ASSESSEE'S F Y CLOSES ON 31-03-2009. THE AMOUNT OF BAD DEBT HAS BEEN WRITTEN OFF AS ON 31-03-2009. NOW ON NOW.ONE H AND THE APPELLANT SAYS THAT SINCE THERE WERE NO CHANCES OF RECOVERY OF THE IMPUGNED AMOUNT OF COMMISSION, IT CLAIMED THE SAME AS BAD DEBT AS ON 31-03-2009 AND DEBITED ITS BOOKS OF ACCOUNTS. ON THE SAME HAND, WHILE JUSTIFYING TRANSACTIONS UNDERTAKEN WITH THE P ARTY BETWEEN F Y 2009 -10, THE APPELLANT SAYS THAT IT CONTINUED TO T RANSACT AS THERE WERE CHANCES OF RECOVERY. THUS, THERE IS INHERENT C ONTRADICTION IN THE STATEMENTS MADE BY THE APPELLANT. THE COMMISSION AC COUNT FOR FY 2008-09 EXTRACTED ABOVE SHOWS THAT LTML PAID RS. 2, 00,000/- EACH TO APPELLANT ON 15-05-2009 AND 08-07-2009 RESPECTIV ELY FOLLOWED BY ANOTHER PAYMENT OF RS. 3,00,000/- ON 2-9-2009. TILL SUCH TIME, NO BILL OF ANY COMMISSION WAS RAISED BY THE APPELLANT. IT W AS ONLY ON 31-03- 2010 THAT THE APPELLANT MAKES A COMMISSION ENTRY OF RS. 16,05,584/- IN THE NAME OF LTML. NOW ON ONE HAND APPELLANT SAYS THAT BECAUSE OF DISPUTES, LTML DID NOT PAY HIM ANY AMOUNT IN RES PECT OF AMOUNTS DUE UPTO 31-03-2009 WHEREAS LTML MAKES HIM PAYMENT OF RS. 7,00,000/- BETWEEN 15-5-2009 TO 2-9-2009 EVEN THOUG H NO BILL WAS RAISED. THE ARGUMENTS OF THE APPELLANT ARE HENCE TO TALLY UNTENABLE. AFTER TAKING INTO CONSIDERATION VARIOUS FACTS OF TH E CASE DISCUSSED ABOVE, IT IS CLEAR THAT THE ASSESSEE HAD ATTEMPTED NOT TO DISCLOSE THE AMOUNT OF RS. 38,31,395/- BEING COMMISSION EARNED F ROM LTML IN ITS RETURN OF INCOME FOR A Y 2009-10. ON DETECTION OF T HE SAID AMOUNT OF MONEY BY THE A.O. DURING PROCEEDINGS U/S. 143(2), T HE APPELLANT HAS TRIED TO CREATE A STORY OF SAID AMOUNTS NOT BEING R ECEIVED FROM LTML AND HENCE WRITTEN OFF AS BAD DEBTS SO AS TO AVOID I NCIDENCE OF TAXATION THEREIN. THE EVIDENCES PRODUCED HOWEVER DO NOT SUPPORT THE HYPOTHESIS TAKEN BY THE. IT IS PERTINENT TO POINT O UT THAT DURING THE COURSE OF THIS APPELLATE PROCEEDINGS, THE APPELLANT WAS ASKED TO FILE A CONFIRM COPY OF ACCOUNT FROM LTML IN SUPPORT OF I TS HYPOTHESIS. IT WAS SUBMITTED THAT GIVEN THE CURRENT ACRIMONY AND D ISPUTE WITH LTML, THE SAME IS NOT POSSIBLE. IT IS ACCORDINGLY H ELD THAT THE ADDITION MADE BY THE A.O. OF RS. 39,26,335/- ON ACC OUNT OF UNACCOUNTED COMMISSION INCOME ( INCLUSIVE OF RS. 38 .31.395/- RECEIVED FROM LTML) IS BASED UPON CORRECT UNDERSTAN DING AND APPRECIATION OF THE FACTS AND HENCE THE SAME IS SUS TAINED AND THE GROUND OF APPEAL IS DISMISSED. IT IS PERTINENT TO P OINT OUT THAT THE APPELLANT HAS NOT FILED ANY EVIDENCES AS REGARDS TH E ADDITION ON ACCOUNT OF COMMISSION AMOUNTING TO RS. 94.940/- BEI NG THE DIFFERENCE BETWEEN RS. 39,26,335/- MINUS RS. 38,31, 395/-. ITA NO 1862 /AHD/2012 . A.Y. 2009- 10 8 THE NEXT GROUND OF APPEAL IS REGARDING INITIATION O F PENALTY U/S. 271B CANNOT BE A GROUND FOR GRIEVANCE AS THE SAME IS PRE MATURE. THE ASSESSEE WILL GET ENOUGH OPPORTUNITY BEFORE THE A.O . AT THE TIME OF PENALTY PROCEEDINGS. HENCE THIS GROUND OF APPEAL IS DISMISSED. 5.0 IN THE RESULT, THE APPEAL IS DISMISSED. 6. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSEE I S NOW IN APPEAL BEFORE US. 7. BEFORE US, THE LEARNED A.R. REITERATED THE SUBMI SSIONS MADE BEFORE LOWER AUTHORITIES. HE FURTHER SUBMITTED THAT THE COMMISS ION DUE FROM LOYAL TEXTILE MILLS LTD. AMOUNTED TO RS. 38,31,395/- AND HE HAS N OT RECEIVED A SINGLE RUPEE AGAINST THESE BILLS IN THE YEAR UNDER APPEAL. THE ASSESSEE CONSIDERING THAT THERE WAS NO CHANCE OF REALIZATION OF COMMISSION FR OM THE SAID PARTY AND KEEPING IN VIEW THE BUSINESS PRUDENCE AND COMMERCIA L EXPEDIENCY, HAD WRITTEN OFF THE SAID AMOUNT IN THE BOOKS OF ACCOUNT AS IRRECOVERABLE. HE FURTHER SUBMITTED THAT LOYAL TEXTILE MILLS HAD DEDU CTED TDS ON THE AMOUNT OF 38,31,395/- AND FILED ITS TDS RETURN BUT DID NOT MA KE ANY PAYMENT TO THE ASSESSEE TOWARDS THE COMMISSION. SINCE THE ASSESSE E HAD WRITTEN OFF THE ENTIRE AMOUNT, HE HAD NOT CLAIMED CREDIT FOR TDS DE DUCTED BY LOYAL TEXTILES EVEN THOUGH THE SAME WAS REFLECTED IN FORM 26 AS OF THE ASSESSEE. THE LEARNED A.R. FURTHER SUBMITTED THAT IN THE PROFIT A ND LOSS ACCOUNT, THE COMMISSION INCOME OF RS. 24,08,874/- WAS THE NET CO MMISSION INCOME AFTER WRITING OFF BAD DEBTS. HE FURTHER SUBMITTED THAT M ERE REFLECTION OF ENTRIES IN FORM 26 AS WOULD NOT TANTAMOUNT TO THE FACT THAT TH E ASSESSEE HAS ACTUALLY RECEIVED THE AMOUNT OF COMMISSION INCOME. HE FURTH ER SUBMITTED THAT THE RELATIONS WITH LOYAL TEXTILE HAVE BEEN SPOILED AS A PROOF OF WHICH HE SUBMITTED THAT LOYAL TEXTILE MILLS FILED A CRIMINAL SUIT AGAINST THE ASSESSEE. CONSIDERING ALL THE FACTORS THE ASSESSEE CONSIDER ED IT PRUDENT TO WRITE OFF THE ENTIRE AMOUNT DUE FROM LOYAL TEXTILE MILLS LTD. AS BAD DEBTS NOT RECOVERABLE. HE FURTHER SUBMITTED THAT THE CLAIM O F WRITING OF AS BAD DEBTS WAS FULLY JUSTIFIED AND FOR WHICH HE ALSO RELIED ON THE DECISION IN THE CASE OF TRF LTD. 323 ITR 397 VS. CIT 2010 190 TAXMANN 391 ( SC) AND THE DECISION ITA NO 1862 /AHD/2012 . A.Y. 2009- 10 9 IN THE CASE OF DCIT VS. REDIFF. COM. INDIA PVT. LTD . REPORTED IN 2011 TAXMANN. COM. 22 (MUM). 8. HE ALSO PLACED ON RECORD AT PAGE 6 OF THE PAPER BOOK THE LEDGER OF LOYAL TEXTILE MILLS LTD. WHEREIN THE AMOUNT OF BAD DEBTS HAS BEEN WRITTEN OFF. HE ALSO PLACED ON RECORD AT PAGE 23 TO 32 THE COPIES O F FIRST INFORMATION REPORT FILED BY LOYAL TEXTILE MILLS LTD. AGAINST THE ASSE SSEE. THE LEARNED A.R. FURTHER SUBMITTED THAT IN SUBSEQUENT YEAR THAT IS I N A.Y. 2010-11, TO THE EXTENT OF COMMISSION WHICH WAS RECEIVED FROM LOYAL TEXTILE MILLS LTD. WAS OFFERED FOR TAX. HE PLACED ON RECORD AT PAGE 77, THE COPY OF LEDGER ACCOUNT OF COMMISSION FOR A.Y. 2010-11 AND FROM IT, HE POINTED OUT TO THE AMOUNT OF RS. 16,05,584/- BEING THE COMMISSION INCOME RECEIVED FR OM LOYAL TEXTILE MILLS. THE LEARNED A.R. THUS SUBMITTED THE ASSESSEE IS ENT ITLED TO CLAIM DEDUCTION UNDER SECTION 36(1)(VII) AND THE CLAIM OF THE ASSES SEE BE UPHELD. THE LEARNED D.R. ON THE OTHER HAND SUBMITTED THAT AS PE R FORM 26 AS, THE ASSESSEE IS REPORTED TO HAVE RECEIVED COMMISSION AG GREGATING TO RS. 63,35,209/- FROM VARIOUS PARTIES. HOWEVER, IN THE PROFIT AND LOSS ACCOUNT THE ASSESSEE HAS SHOWN AND OFFER FOR TAX, THE COMMISSIO N ONLY TO THE EXTENT OF RS. 24,08,874/-. THE LEARNED D.R. FURTHER SUBMITTED THAT THE ASSESSEE HAS CONTINUED TO HAVE BUSINESS RELATIONSHIP WITH LOYAL TEXTILE MILLS LTD. AS IS EVIDENT FROM THE RECEIPT OF COMMISSION FROM IT IN S UBSEQUENT YEARS. THE LEARNED D.R. FURTHER SUBMITTED THAT THE ASSESSEE WR ITTEN OFF BAD DEBTS INCLUDING THE TDS. HE SUBMITTED THAT THE TDS CANNOT BE CONSIDERED AS BAD DEBT. THE LEARNED D.R. FURTHER SUBMITTED THAT THE A SSESSEE WOULD HAVE ALREADY CLAIMED WITH CREDIT TDS OF RS. 3 LAC IN SUB SEQUENT YEARS WITH THE APPEAL IS DECIDED IN FAVOUR OF THE ASSESSEE THEN DI RECTION MAY BE GIVEN THAT THE CREDIT OF TDS ALREADY GIVEN IN SUBSEQUENT YEARS BE WITHDRAWN AND THE ASSESSEE BE DIRECTED TO MAKE THE PAYMENT OF THE SAM E. THE LEARNED D.R. ALSO RELIED ON THE DECISION OF BANGLORE TRIBUNAL IN THE CASE OF EMBASSY CLASSIC PVT. LTD. VS. ACIT (2012) 20 TAXMANN. COM. 291 (BANGLORE). ITA NO 1862 /AHD/2012 . A.Y. 2009- 10 10 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SALE OF DIFFERENT TYPES OF CLOTHS AS A COMMISSION AGENT. I N FORM 26 AS IT IS REPORTED THAT ASSESSEE HAS RECEIVED TOTAL COMMISSION OF RS. 63,35,209/- THE AMOUNT OF COMMISSION DUE FROM LOYAL TEXTILE AGENCY AT RS. 38,31,395/-. THE ASSESSEE HAD NOT CONSIDERED THE SAME AS INCOME FOR THE REASON THAT HE WAS DOUBTFUL OF ITS RECOVERY MORE SO, IN VIEW OF THE FA CT THAT LOYAL TEXTILE MILLS LTD. HAD FILED A CRIMINAL COMPLAINT AGAINST THE ASSESSEE . THE ASSESSEES SUBMISSION IS THAT OUT OF THE AMOUNT OF RS. 38,31,3 95/- WHICH HAS BEEN WRITTEN OFF AS BAD DEBTS, THE ASSESSEE HAS NOT RECE IVED A SINGLE RUPEE AND SINCE HE WAS DOUBTFUL OF ITS RECOVERY, THE SAME WAS WRITTEN OFF. THE ASSESSEE HAS ALSO SUBMITTED WHEN THE AMOUNT OF RS. 16,05,584/- WAS RECEIVED IN SUBSEQUENT YEARS, THE SAME WAS OFFERED TO TAX. FROM THE COPIES OF THE ACCOUNTS FILED IN PAPER BOOK, IT IS SEEN THA T THE ASSESSEE HAS CONSIDERED THE NET COMMISSION AFTER WRITING OFF AMO UNT DUE FROM LOYAL TEXTILE MILLS AS ITS INCOME AND THIS ACCORDING TO ASSESSEE IS BAD DEBTS WRITTEN OFF IN THE BOOKS OF ACCOUNTS IN THE CASE OF TRF LTD VS. CI T(SUPRA) THE HON. SUPREME COURT HAS HELD THAT AFTER 1.04.1989 IT IS N OT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BEC OME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNT OF THE ASSESSEE. IN THE PRESENT CASE THE FILING OF A CRIM INAL COMPLAINT AGAINST THE ASSESSEE ALSO SUPPORTS THE CASE OF THE ASSESSEE THA T IT WAS DOUBTFUL OF RECOVERY OF BAD DEBTS. BEFORE US THE LEARNED A.R. H AS ALSO SUBMITTED THAT THE AMOUNT OF COMMISSION RECEIVED BY HIM FROM LOYAL TEX TILE IN SUBSEQUENT YEARS HAS BEEN OFFERED FOR TAX. THE AFORESAID SUBM ISSIONS COULD NOT BE CONTROVERTED BY LEARNED D.R. BY BRINGING ANY CONTRA RY MATERIAL ON RECORD. 10. IN THE CASE OF DCIT VS. REDIFF. COM. INDIA PVT. LTD. (SUPRA) THE CO-ORDINATE BENCH OF THE TRIBUNAL SUCH HELD AS UNDER: SECTION 36(1)(VII) OF THE INCOME-TAX ACT 1961 - BAD DEBTS - ASSESSMENT YEAR 2002-03 - ASSESSEE-COMPANY HAD DEBITED BAD DEBTS WR ITTEN OFF ASSESSING OFFICER DISALLOWED CLAIM OF BAD DEBTS ON GROUND THA T TRANSACTIONS PERTAINED TO ITA NO 1862 /AHD/2012 . A.Y. 2009- 10 11 CURRENT YEAR AND SAME WERE WRITTEN OFF BY ASSESSEE IN SAME YEAR ITSELF - WHETHER AFTER AMENDMENT OF SECTION 36(1)(VII) WITH EFFECT FROM 1-4-1989, IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBT S, IT IS NOT NECESSARY FOR ASSESSEE TO ESTABLISH THAT DEBT, IN FACT, HAS BECOM E IRRECOVERABLE - HELD, YES -WHETHER SINCE ASSESSEE HAD WRITTEN OFF AMOUNT OF B AD DEBTS IN BOOKS OF ACCOUNT, ITS CLAIM FOR BAD DEBT WAS TO BE ALLOWED - HELD, YES 11. IN VIEW OF THE AFORESAID FACTS AND RELYING OF THE A FORESAID DECISION, WE ARE OF THE VIEW THAT THE ASSESSEE CLAIM FOR BAD DEBTS IS A LLOWABLE IN THE PRESENT CASE AND ACCORDINGLY THE GROUNDS OF APPEAL OF ASSES SEE ARE ALLOWED. WE HOWEVER FURTHER DIRECT THAT THE REVENUE MAY VERIFY ITS RECORD FOR RELEVANT YEARS AND IN CASE THE ASSESSEE HAS CLAIMED THE CRED IT FOR TDS ON THE AFORESAID AMOUNT THE SAME NEEDS TO BE ADJUSTED/RECO VERED FROM ASSESSEE. THUS THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 16 - 08 - 2013. SD/- SD/- (G.C.GUPTA) (ANIL CHATURVEDI) VICE PRESIDENT ACCOUNTANT MEMBER AHMEDABAD. RAJESH TRUE COPY COPY OF THE ORDER FORWARDED TO: - 1. THE APPELLANT. 2. THE RESPONDENT. 3. THE CIT (APPEALS) 4. THE CIT CONCERNED. 5. THE DR., ITAT, AHMEDABAD. 6. GUARD FILE. BY ORDER DEPUTY/ASSTT.REGISTRAR ITA T,AHMEDABAD