ACIT, CHENNAI V. M/s. VI Micro Systems Pvt. Ltd., CHENNAI

ITA 2033/CHNY/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64106 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 07-08-2012
• Assessment Year: 2004-2005
• Appeal Filed On: 12-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K E B RENGARAJAN JUNIOR
• Assessee Lawyers: G GOPALSAMY
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER I.T.A. NO. 2033/MDS/2011 ASSESSMENT YEAR : 2004-05 THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE III(4), CHENNAI - 600 034. (APPELLANT) V. M/S VI MICRO SYSTEMS PVT. LTD., 75, ELECTRONICS ESTATE, PERUNGUDI, CHENNAI - 600 096. PAN : AAACV0909J (RESPONDENT) APPELLANT BY : SHRI K.E.B. RENGARAJAN, JUNIOR STANDING COUNSEL RESPONDENT BY : SHRI G. GOPALSAMY, CA DATE OF HEARING : 07.08.2012 DATE OF PRONOUNCEMENT : 07.08.2012 O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER : IN THIS APPEAL FILED BY THE REVENUE, ITS GRIEVANC E IS THAT CIT(APPEALS) DELETED DISALLOWANCE OF ` 24,91,268/- MADE BY THE A.O., AGAINST BAD DEBTS CLAIMED BY THE ASSESSEE. AS PER THE REVENUE, CIT(APPEALS) SHOULD HAVE REMITTED THE ISSUE BACK TO THE FILE OF THE A.O. IN VIEW OF THE DECISION OF HONBLE APEX COURT IN TH E CASE OF TRF LTD. V. CIT (323 ITR 397) FOR EXAMINING WHETHER THE AMOUNTS WERE ACTUALLY WRITTEN OFF IN THE ACCOUNTS. 2 I.T.A. NO. 2033/MDS/11 2. FACTS APROPOS ARE THAT ASSESSEE, A COMPANY ENGAG ED IN MANUFACTURING SCIENTIFIC EQUIPMENTS, HAD FILED ITS RETURN FOR IMPUGNED ASSESSMENT YEAR DECLARING INCOME OF ` 22,99,829/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS NOTED BY THE A.O. THAT ASSESSEE HAD DEBITED ` 26,81,941/- AS BAD DEBT IN ITS PROFIT & LOSS ACCOU NT. EXPLANATIONS WERE SOUGHT. AS PER ASSESSEE, IT WAS A SUPPLIER OF SCIENTIFIC INSTRUMENTS TO COLLEGES AND RESEARCH INS TITUTIONS AND DEBT BECAME BAD DUE TO NON-PAYMENT OF BILLS BY SUCH INST ITUTIONS. ASSESSEE ALSO GAVE REASONS WHY IT WAS WRITING OFF SUCH DEBTS . SUCH REASONS INCLUDED COST BENEFIT PROBLEMS, NON-WILLINGNESS OF THE PARTIES TO PAY, CHANGE OF PRINCIPALS IN CERTAIN COLLEGES, NON-PAYME NT DUE TO INABILITY TO CHANGE DESIGN AND SETTLEMENT OF CERTAIN DISPUTES. HOWEVER, THE A.O. WAS NOT IMPRESSED. ACCORDING TO HIM, IT WAS NOT SU FFICIENT FOR THE ASSESSEE TO SAY THAT DEBT HAD BECOME BAD BUT IT HAD TO SHOW THAT IT WAS IMPOSSIBLE TO COLLECT THE MONEY FROM DEBTORS. ASSE SSEE HAD TO SHOW HOW IT REACHED A JUDGMENT THAT THE MONEY COULD NOT BE REALIZED. ASSESSEE COULD NOT ON IN ITS OWN EFFECT A WRITE OFF OF DEBT. CERTAIN AMOUNTS WERE WRITTEN OFF ONLY BECAUSE OF NON-FULFIL LMENT OF CONTRACTUAL OBLIGATION BY THE ASSESSEE AND ALSO DUE MISAPPROPRI ATION BY MIDDLEMEN, WHO HAD VANISHED WITH THE MONEY COLLECTE D FROM DEBTORS. 3 I.T.A. NO. 2033/MDS/11 THUS THE CLAIM, AS PER THE A.O., WAS UNTENABLE. HE , THEREFORE, DISALLOWED SUCH CLAIM OF BAD DEBT. 3. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF T HE ASSESSEE WAS THAT THE DEBTS WERE INDEED BAD. SINCE IT HAD WRITTE N OFF SUCH DEBTS, ASSESSING OFFICER COULD NOT HAVE MADE THE DISALLOWA NCE. CIT(APPEALS) WAS APPRECIATIVE OF THIS CONTENTION. HE, THEREFORE , RELYING ON THE DECISION OF HONBLE APEX COURT IN THE CASE OF TRF L TD. (SUPRA), DELETED THE DISALLOWANCE OF BAD DEBT CLAIMED BY THE ASSESSE E. 4. NOW BEFORE US, LEARNED D.R. STRONGLY ASSAILING T HE ORDER OF CIT(APPEALS), SUBMITTED THAT IN SOME OF THE CASES W HERE BAD DEBTS WERE WRITTEN OFF, ASSESSEE WAS HAVING RUNNING ACCOU NT WITH DEBTORS. ASSESSEE COULD NOT FURNISH AN HONEST REASON WHY IT COULD NOT RECOVER THE MONEY. ACCORDING TO HIM, ASSESSEE HAD ELECTED FOR A WRITE OFF ONLY TO SUPPRESS THE INCOME FOR IMPUGNED ASSESSMENT YEAR . IF SO ALLOWED, ASSESSEE WOULD ACT ACCORDING TO ITS WHIMS AND FANCI ES AND WRITE OFF BAD DEBTS SO AS TO SUPPRESS ITS INCOME AND THUS EVADE P AYMENT OF LEGITIMATE TAX. 5. PER CONTRA, LEARNED A.R. STRONGLY SUPPORTED THE ORDER OF CIT(APPEALS). 4 I.T.A. NO. 2033/MDS/11 6. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. TWO THINGS ARE CLEAR FROM ASSESSMENT ORDER. FIRST IS THAT DEBTS HAD ARISEN OUT OF SUPPLIES MADE BY THE ASSESSEE TO ITS VARIOUS CUSTOMERS. ASSESSEE WAS ENGAGED IN SUPPLY OF SCIENTIFIC INSTRU MENTS TO RESEARCH INSTITUTIONS AND DEBTS WERE ARISING OUT OF SUCH SUP PLIES. SECOND IS THAT ASSESSEE HAD EFFECTED A WRITE OFF OF BAD DEBTS IN I TS PROFIT & LOSS ACCOUNT. SECTION 36(1)(VII) OF THE ACT STATES THAT A DEDUCTION SHALL BE ALLOWED TO AN ASSESSEE FOR THE AMOUNT OF ANY BAD DE BT OR PART THEREOF WRITTEN-OFF AS IRRECOVERABLE IN ITS ACCOUNTS SUBJEC T TO SUB-SECTION (2) THEREOF. SUCH SUB-SECTION (2) SPECIFY THAT A DEDUC TION OF BAD DEBT SHALL BE ALLOWED ONLY IF SUCH DEBT OR PART THEREOF WAS TA KEN INTO ACCOUNT FOR COMPUTING INCOME OF THE ASSESSEE OF THE PREVIOUS YE AR IN WHICH THE AMOUNT OF SUCH DEBT OR PART WAS WRITTEN OFF, OR OF AN EARLIER PREVIOUS YEAR. HERE, THERE IS NO DISPUTE THAT THE DEBT THAT WAS CLAIMED AS BAD AROSE OUT OF TRADING TRANSACTIONS AND SUCH TRADING TRANSACTIONS WERE TAKEN INTO ACCOUNT FOR COMPUTING INCOME OF THE ASSE SSEE FOR THE RELEVANT PREVIOUS YEAR OR EARLIER YEARS. THUS, IN OUR OPINI ON, ASSESSEE HAD SATISFIED THE CONDITION SPECIFIED IN SECTION 36(1)( VII) AND 36(2) OF THE ACT. HONBLE APEX COURT IN THE CASE OF TRF LTD. (SUPRA) HAS CLEARLY HELD THAT AFTER 1 ST APRIL, 1989, IT WAS NOT NECESSARY FOR AN ASSESSEE TO ESTABLISH THAT THE DEBT HAD IN FACT BECOME IRRECOVERABLE. IT WAS ENOUGH IF THE DEBT WAS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. IN 5 I.T.A. NO. 2033/MDS/11 OTHER WORDS, IT WOULD ONLY MEAN THAT THE REVENUE CA NNOT SIT IN THE CHAIR OF A BUSINESSMAN AND DECIDE WHEN THE DEBT HAD BECOM E BAD. BUSINESSMAN IS THE BEST JUDGE TO DECIDE THE RECOVER ABILITY OR IRRECOVERABILITY OF A DEBT AND ONCE A WRITE-OFF IS EFFECTED IN ITS BOOKS, THE CLAIM HAS TO BE ALLOWED. CIT(APPEALS) WAS, THEREFO RE, JUSTIFIED IN DELETING THE DISALLOWANCE. WE DO NOT FIND ANY REAS ON TO INTERFERE WITH THE ORDER OF CIT(APPEALS). 7. IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED. THE ORDER WAS PRONOUNCED IN THE COURT ON TUESDAY, T HE 7 TH OF AUGUST, 2012, AT CHENNAI. SD/- SD/- (CHALLA NAGENDRA PRASAD) (ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER CHENNAI, DATED THE 7 TH AUGUST, 2012. KRI. COPY TO: (1) APPELLANT (2) RESPONDENT (3) CIT(A)-III, CHENNAI (4) CIT, CHENNAI-I, CHENNAI (5) D.R. (6) GUARD FILE