ITO,Ward-1(5), Jodhpur V. M/s. The Handicrafts, Jodhpur

ITA 190/JODH/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6250 (ITAT-JODHPUR)
• Duration Of Justice: 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Assessment Year: 2013-2014
• Appeal Filed On: 26-04-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK KHANNA
• Keywords: Retrospective amendment; Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL JODHPUR BENCH (SMC), JODHPUR BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER ITA NO. 190/JODH/2018 (ASSESSMENT YEAR-2013-14 INCOME TAX OFFICER, WARD-1(5), JODHPUR. VS M/S THE HANDICRAFTS, B-24, KRISHNA NAGAR, NEW PALI ROAD, JODHPUR. (ASSESSEE) (RESPONDENT) PAN: AACFT 2393 M C.O. NO. 04/JODH/2018 (ARISING OUT OF ITA NO. 190/JODH/2018) (ASSESSMENT YEAR-2013-14 M/S THE HANDICRAFTS, B-24, KRISHNA NAGAR, NEW PALI ROAD, JODHPUR. VS INCOME TAX OFFICER, WARD-1(5), JODHPUR. (ASSESSEE) (RESPONDENT) PAN: AACFT 2393 M REVENUE BY SH. ASHOK KHANNA JCIT DR ASSESSEE BY SH. AMIT KOTHARI (CA) DATE OF HEARING 25/05/2018 DATE OF PRONOUNCEMENT 25/05/2018 O R D E R PER: R.C. SHARMA, AM THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJEC TION FILED BY THE ASSESSEE ARISE AGAINST THE ORDER OF THE CIT( A)-1, JODHPUR 2 ITA 190/JODH/2018 & CO 04/JODH/2018 ITO VS M/S THE HANDICRAFTS DATED 19/02/2018 FOR THE A.Y. 2013-14 IN THE MATTER OF ORDER U/S 143(3) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REF ERRED TO AS THE ACT, FOR SHORT]. 2. THE GRIEVANCE OF THE REVENUE RELATES TO DELETING THE ADDITION OF RS. 33,23,205/- MADE ON ACCOUNT OF BAD DEBTS/DISCOUNT IN RELATION TO SALES MADE TO M/S GAN DHI INTERIORS, GERMANY. 3. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PER USED. THE FACTS IN BRIEF ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING AND EXPORT OF HANDICRAFT ITEMS. DURIN G THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS WRITTEN OFF R S.33,23,205/- ON ACCOUNT OF BAD DEBTS/DISCOUNT IN RELATION TO SALES MADE TO M/S. GANDHI INTERIORS, GERMANY. THE AO HAS OBSERVED THAT THE AS SESSEE HAD TRANSFERRED RS.33,23,205/- IN DISCOUNT/BAD DEBTS BUT STILL THER E WAS AN OUTSTANDING BALANCE OF RS.64,74,486/- IN THE ACCOUNT OF SAID PA RTY AND DURING THE YEAR UNDER CONSIDERATION ALSO THE SALES BEING WERE MADE A ND PAYMENT BEING WERE RECEIVED. THE AO THEREFORE OBSERVED THAT THE CLAIM OF THE ASSESSEE CANNOT BE ALLOWED. 3 ITA 190/JODH/2018 & CO 04/JODH/2018 ITO VS M/S THE HANDICRAFTS 4. BY THE IMPUGNED ORDER, THE LD. CIT(A) HAS DELETE D THE DISALLOWANCE AFTER OBSERVING AS UNDER: 4.2 I HAVE CONSIDERED THE ASSESSMENT ORDER, ASSESS EES SUBMISSIONS AND DOCUMENTS ON RECORD. I FIND THAT THE ASSESSEES CLA IM OF DISCOUNT OR BAD DEBTS WAS NOT RIGHTLY REJECTED BY THE AO. PERHAPS, HE HAD SIMPLY GONE BY THE NOMENCLATURE OF THE ACCOUNT HEAD WITHOUT APPRECIATI NG THE REAL NATURE OF EXPENDITURE CLAIMED BY THE ASSESSEE AND ACTED MEREL Y ON A VERY TECHNICAL GROUND. THE PROVISIONS OF THE INCOME TAX ACT ARE NO T TO TAKE BENEFIT EITHER BY THE ASSESSEE OR BY THE DEPARTMENT ON SUCH TECHNI CAL GROUNDS. IT IS NOT A TAX ON THE GROSS INCOME THAT IS LIABLE TO BE TAXED BUT THE NET INCOME REALLY EARNED BY THE ASSESSEE AFTER DEDUCTING ALL INCURRED NECESSARY DEDUCTIONS. IN THE PRESENT CASE, THE ASSESSEE IS FOLLOWING THE MER CANTILE SYSTEM OF ACCOUNTING AND IT IS AN ACCEPTED PRINCIPAL OF ACCOU NTANCY THAT BAD DEBTS IN THE MERCANTILE SYSTEM OF ACCOUNTING HAVE TO BE ALLO WED TO; BE WRITTEN OFF IN THAT PARTICULAR YEAR, YEAR IN WHICH SAME ARE WRITTE N OFF. IN THIS CASE, THE ASSESSEE HAS DONE ALL HIS BEST EFFORTS, BUT COULD N OT REALIZE THE AMOUNT OF RS.33,23,205/- EVEN AFTER APPROACHING TO THE EXPORT CREDIT GUARANTEE CORPORATION (ECGC) AND OTHER AGENCIES ETC. THEREFOR E, THERE IS NO DOUBT THAT THE ASSESSEE SUFFERED A LOSS OF RS.33,23,205/- AS B AD DEBTS AND THAT AMOUNT OF RS.33,23,205/- IS LIABLE TO BE WRITTEN OFF DURIN G THE YEAR UNDER CONSIDERATION. THE ASSESSEE SUCCEEDS ON THIS GROUND AND ACCORDINGLY, THIS GROUND IS ALLOWED. 5. NOW THE REVENUE IS IN FURTHER APPEAL AGAINST THE ORDER OF THE LD. CIT(A) AND THE ASSESSEE HAS FILED CROSS OBJ ECTION WITH REGARD TO SUSTAINING THE AD HOC DISALLOWANCE OF RS. 2,52,895/- OUT OF EXPENSES MADE BY THE ASSESSING OFFICER. 6. I HAVE HEARD THE RIVAL CONTENTIONS AND CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. FROM T HE RECORD, I FOUND THAT IN RESPECT OF EXPORT SALES MADE TO M/S G ANDHI 4 ITA 190/JODH/2018 & CO 04/JODH/2018 ITO VS M/S THE HANDICRAFTS INTERIORS, GERMANY, THE ASSESSEE HAS DEDUCTED AN AM OUNT OF RS. 33,23,205/- ON ACCOUNT OF BAD DEBTS/DISCOUNT. THE A SSESSEE WAS MAKING REGULAR SUPPLIES TO THE AFORESAID PARTY AND REGULAR CONTAINERS WERE BEING SENT TO THE SAID PARTY. THE SAID PARTY HAD DI SPUTED THE QUALITY OF SOME MATERIAL AND DELAY IN SUPPLY OF SOME MATERIAL. THE ASSESSEE ALSO CONTACTED DEBT RECOVERY AGENCY FOR RECOVERY OF OUTSTANDING DU ES BUT AFTER PRELIMINARY FOLLOW UPS THERE WAS NO POSITIVE BREAK THROUGH AND TH E COST OF RECOVERY AND OTHER LEGAL FEES WERE ALSO TOO HIGH WITH UNCERTAINTY OF RECOVERY. EVEN THE CUSTOMS DEPARTMENT WITHDREW THE AMOUNT OF DUTY DRAWBAC K ON THE SAID EXPORTS MADE AND THE DUTY DRAW BACK AVAILED WAS REQUI RED TO BE REFUNDED BACK. 7. I ALSO OBSERVE THAT THE REAL NATURE OF THE AMOUN T IN QUESTION IS A CLAIM OF BAD DEBTS AND THE SALES WHICH HAD BEEN MADE COULD NOT BE RECOVERED DESPITE BEST EFFECTS. IN THIS CASE THE ASSESSEE IS MAINTAINING HIS ACCOUNTS ON MERCANTILE SYSTEM, A LIABILITY OF THE YEAR, IT WOULD BE A PROPER FOR MAKE ACCOUNTING TO SUCH BAD DEBTS WHILE WORKING OUT THE PR OFITS AND GAINS OF HIS BUSINESS, REGARD BEING HAD TO BE ACCEPTED PRINCIPLE S OF COMMERCIAL PRACTICE AND ACCOUNTANCY. AFTER INSERTION OF EXPLANATION TO SECTION 36(L)(VII) BY THE FINANCE ACT, 2001 WITH RETROSPECTIVE EFFECT FROM 1.4 .1989, THE BAD DEBTS 5 ITA 190/JODH/2018 & CO 04/JODH/2018 ITO VS M/S THE HANDICRAFTS WRITTEN ARE ALLOWABLE IN THE YEAR THE SAME IS WRITTEN OFF IN THE BOOKS OF ACCOUNTS. 8. THE ADDITION MADE ON ACCOUNT OF BAD-DEBTS CLAIME D BY THE ASSESSEE IS APPARENTLY CONTRARY TO THE BINDING DECISION OF HON' BLE SUPREME COURT IN THE CASE OF T R F LTD. V. CIT REPORTED IN 323 ITR 397 ( SC), WHICH PROVIDES IN ORDER TO CLAIM OF BAD DEBTS THE ONLY REQUIREMENT OF THE LAW IS THAT THE SAME SHOULD BE WRITTEN OFF IN THE BOOKS OF ACCOUNTS AND I T IS NO LONGER NECESSARY TO ESTABLISH THAT THE DEBTS HAD BECOME IRRECOVERABL E. SIMILAR VIEW HAD BEEN RECENTLY EXPRESSED IN THE CASE BEFORE DELHI HIGH CO URT IN THE CASE OF CIT V. SAMARA INDIA P. LTD. REPORTED IN 216 TAXMAN 93. IN THE CASE OF THE ASSESSEE ALSO, IT IS NOT IN DISPUTE THAT THE AMOUNT IN QUESTION WRITTEN OFF REPRESENTS THE AMOUNT DUE FROM DEBTOR ON ACCOUNT OF SALE BEING MADE, AND THE AMOUNT COULD NOT BE RECEIVED . SIMILAR VIEW HAD ALSO BEEN EXPRESSED BY THE JURISDICTIONAL RAJASTHAN HIGH COURT IN THE CASE OF MADHAV MARBLES AND GRANITES V. ITAT 2011-LL-219-33. 9. IN VIEW OF THE ABOVE DISCUSSION, I AM INCLINED TO AGREE WITH THE CONTENTION OF LD. AR OF THE ASSESSEE MR. AMIT KOTHA RI THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE SO MADE BY THE ASSE SSING OFFICER AMOUNTING TO RS. 33,23,205/- ON ACCOUNT OF BAD DEBTS. 6 ITA 190/JODH/2018 & CO 04/JODH/2018 ITO VS M/S THE HANDICRAFTS 10. IN THE CROSS OBJECTION, THE ASSESSEE IS AGGRIEV ED BY THE ACTION OF THE LD. CIT(A) FOR UPHOLDING AD HOC DISALLOWANCE OF 15% OUT OF THE EXPENSES. 11. RIVAL CONTENTIONS HAVE BEEN HEARD AND RECORD PE RUSED. FROM THE RECORD, I FOUND THAT THE ASSESSING OFFICER HAS MADE AD HOC DISALLOWANCE OUT OF EXPENDITURE INCURRED OF JOB WORK, PACKING, CARRIA GE AND FORWARDING EXPENSES ETC.. KEEPING IN VIEW THE NATURE OF TRADE T HE ASSESSEE WAS ENGAGED VIS A VIS NATURE OF EXPENDITURE SO INCURRED , I DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE @ 5%. I DIRECT A CCORDINGLY. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED WHEREAS THE C.O. FILED BY THE ASSESSEE IS ALLOWED IN PART. ORDER PRONOUNCED IN THE OPEN COURT ON 25/05/2018. SD/- [R.C. SHARMA] ACCOUNTANT MEMBER DATED : 25/05/2018 *RANJAN COPY TO : 1. THE ASSESSEE 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 6. GUARD FILE (ITA NO. 190/JODH/2018 & C.O. 04/JODH /2018) ASSISTANT REGISTRAR JODHPUR BENCH