The DCIT,(OSD)Circle-8, Ahmedabad V. M/s. Stalmec Engineering Pvt.Ltd., Ahmedabad

ITA 2058/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6903 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-04-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-03-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 26-06-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS R K TOPIWALA
• Assessee Lawyers: P M MEHTA

Judgement Text

- 1 - IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C AHMEDABAD BEFORE S/SHRI D.K. TYAGI, JM AND D.C.AGRAWAL, AM DY. C.I.T.(OSD), CIRCLE- 8,AHMEDABAD. VS. STALMEC ENGINEERING (P) LTD., PLOT. NO.365-368, GIDC, ESTATE, ODHAV, AHMEDABAD. (APPELLANT) .. (RESPONDENT) APPELLANT BY :- MRS. R.K. TOPIWALA, DR RESPONDENT BY:- SHRI P. M. MEHTA, AR O R D E R PER D.C. AGRAWAL, ACCOUNTANT MEMBER . THIS IS AN APPEAL FILED BY THE REVENUE RAISING FOL LOWING GROUNDS:- (1) THE LD. CIT(A)XIV, AHMEDABAD ERRED IN LAW AND ON FA CTS IN DIRECTING TO ALLOW THE CLAIM OF SUNDRY BALANCES WRI TTEN OFF OF RS.4,80,928/- (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A)XIV, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE AO. AND AGAINST THIS THE ASSESSEE HAS FILED CROSS OBJEC TION RAISING FOLLOWING GROUNDS :- (1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE OF BAD DEBT OF RS. 1,52,027/- IN RESPECT OF M/S KEERTHY AGENCIES. ITA NO.2058/AHD/2009 ALONG WITH C.O.NO.168/AHD/2009 ASST. YEAR 2006-07 ITA NO.2058/AHD/2009 ALONG WITH C.O.NO./AHD/2009 ASST. YEAR 2006-07 2 (2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A)ERRED IN CONFIRMING THE DISALLOWANCE OF RS.4, 70,464 OUT OF THE AMOUNTS GIVEN TO THE LABOUR CONTRACTORS WHIC H WERE CONSIDERED BY THE ASSESSEE AS NOT LIKELY TO BE RECOVERED/ADJUSTED. (3) THE RESPONDENT CRAVES LEAVE TO ADD, ALTER, AMEND AN D/OR WITHDRAW ANY GROUND OR GROUNDS OF CROSS OBJECTIONS EITHER BEFORE OR DURING THE COURSE OF HEARING OF THE SAME. 2. THE ISSUE IN THE REVENUES APPEAL AS WELL AS IN ASSESSEES C.O. RELATES TO DISALLOWANCE OF SUNDRY BALANCE WRITTEN O FF. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT ASSES SEE HAS DEBITED A SUM OF RS.11,03,418/- WHICH WERE SUNDRY BALANCE WRI TTEN OFF. WHEN ASSESSEE WAS ASKED TO EXPLAIN, IT WAS SUBMITTED THA T AS RECOVERY COULD NOT BE EFFECTED IN THE F.Y., AS PER INSTRUCTION OF THE DIRECTOR, AMOUNT WAS WRITTEN OFF. THE DETAILS OF THE PARTIES IN RESPECT OF WHOM SUCH AMOUNT WAS WRITTEN OFF WERE ALSO GIVEN AS UNDER :- SL.NO. PARTICULARS AMOUNT (RS.) 1. DEBTORS 6,06,708 2. ADVANCE TO LABOUR CONTRACTOR & BUSINESS ADVANCES 4,70,464 3 LOANS TO EMPLOYEES 1,00,000 4. KASAR 4,287 5 CREDIT BALANCE WRITTEN BACK (78,041) IT FURTHER PROVIDED THE DETAILS OF PARTIES WHICH WE RE WRITTEN OFF AS UNDER :- ITA NO.2058/AHD/2009 ALONG WITH C.O.NO./AHD/2009 ASST. YEAR 2006-07 3 NAME OF PARTY BALANCE WRITTEN OFF REMARKS M/S ACME GLOBAL 3,57,246 DISPUTE WITH PARTY AND COR RESPONDENCE WAS MADE WITH THE PARTIES. FURTHER, CERTAIN DEBIT NOTES PERTAINING TO EARLIER YEARS WERE ALSO ACCEPTED WHICH WAS CLASSIFIED AS BAD DEBT. AS NO SUCH AMOUNT WAS RECOVERED, SAME WAS WRITTEN OFF AS BAD DEBT. M/S NIMESH KUMAR G. PARMAR 1,974 SHORT PAYMENT RECEIVED AGAINST SALES TO PARTY . INSTEAD OF DEBITING THE SAME TO KASAR ACCOUNT IT IS DEBITED TO BALANCE WRITTEN OFF. M/S KEERTY AGENCIES 1,52,027 RS.1,21,892 IS OUT OF OPENING OUTSTANDING BALANCE AMOUNT OF RS.30,135 IS OUT OF CURRENT YEAR SALE. AS THERE IS DISPUTE WITH PARTY, SUCH AMOUNT WAS WRITTEN OFF AS BAD DEBT. HOWEVER, AFTER TWO YEARS, ASSESSEE IS ABLE TO RECOVER SUCH AMOUNT AND SAME HAS BEEN OFFERED FOR TAX IN ASST. YEAR 2008-09 M/S VENUS ROTARY PRINTING 16,332 OUT OF CURRENT YEAR SALE OF RS.18,179, ASSES SEE WAS ABLE TO RECOVER ONLY 1847 AND AS THERE WAS DISPUTE WITH SAID PARTY, ASSESSEE HAS WRITTEN OFF SAID AMOUNT IN CURRENT YEAR. TILL TODAY, NO SUCH AMOUNT IS RECEIVED. A COPY OF CORRESPONDENCES IS ENCLOSED AS ANNEXURE-E. TRIVENI METAL INDUSTRIES 1,245 SHORT PAYMENT RECEIVED AGAINST SALE DATED 8 TH AUGUST 2005 BASICALLY IT IS KASAR ONLY. KSB PUMPS LTD. 5,400 THE AFORESAID AMOUNT IS OUT OF CURRENT YEAR SALE AND NOT REALIZED HENCE WRITTEN OFF AS BAD DEBT. M/S PIONEER PROCESSING 72,661 DISPUTE WITH PARTY REGARDING QUALITY PROBLEM S FOR BILLS ISSUED BY APPELLANT. THE CORRESPONDENCES WERE MADE BUT NOT RECOVERED HENCE SAME IS WRITTEN OFF AS BAD DEBT. TOTAL BAD DEBT 6,06,708 ADD: KASAR 4,287 SMALL AMOUNT NOT RECOVERED AGAINST SALES BILLS OF 5 PARTIES HENCE WRITTEN OFF AS BAD DEBT. GRAND TOTAL 6,10,995 THE ASSESSEE ALSO EXPLAINED CERTAIN MAJOR WRITE OFF AS UNDER :- (1) M/S ACME GLOBAL FOR RS.3,57,246/- THAT THE PARTY HAS RAISED DEBIT NOTES FOR DISCOUNT RATE DIFFERENCE, NON SUPPLY OF G OODS, TRANSPORT CHARGES RELEVANT TO FY 2003-04 TO 2005-06. THESE NOTES WER E NOT ACCEPTED IN THOSE YEARS AND LATER ACCEPTED AND PARTIES ACCOUNTS WERE CREDITED BUT LATER ITA NO.2058/AHD/2009 ALONG WITH C.O.NO./AHD/2009 ASST. YEAR 2006-07 4 WRITTEN OFF IN ASST. YEAR 2006-07. FURTHER ANOTHER SUM OF RS.1,15,461/- AGAINST THIS PARTY WAS ALSO WRITTEN OFF AS BAD DEBT IN THE CURRENT ASST. YEAR. THE COPIES OF ACCOUNTS OF THE PARTIES WERE SU BMITTED TO THE AO. (2) M/S KEERTY AGENCIES FOR RS.1,52,027/- IT WAS PARTLY OPENING OUTSTANDING BALANCE. DISPUTE AROSE WITH THAT PARTY AND THE AMOUNT WAS WRITTEN OFF IN THE BOOK. HOWEVER, IN ASST. YEAR 200 8-09 IT HAS BEEN RECOVERED FROM THAT PARTY AND HAS BEEN OFFERED FOR TAX U/S 41(4). (3) M/S PIONEER PROCESSING FOR RS.74,874/- - THERE WAS DISPUTE ON QUALITY AND PROBLEMS AROSE IN RESPECT OF BILLS ISSU ED BY THE ASSESSEE. THE ASSESSEE WAS NOT ABLE TO RECOVER THE SAID SUM AND H ENCE IT WAS WRITTEN OFF. 3. THE AO, HOWEVER, DID NOT AGREE WITH THE SUBMISSI ONS AND DISALLOWED THE CLAIM AND HELD THAT AMOUNTS MOSTLY P ERTAINED TO THE CURRENT YEAR AND THEY HAVE BEEN WRITTEN OFF WITHOUT TAKING ANY EFFORTS FOR RECOVERY. THE ASSESSEE HAS ALSO NOT ESTABLISHED THA T SAID AMOUNT HAS BECOME BAD. THE ACTION OF THE ASSESSEE WAS NOT OF A PRUDENT BUSINESSMAN IN WRITING OFF THESE AMOUNTS. 4. WHEN THE MATTER CAME UP BEFORE THE LD. CIT(A) HE DISALLOWED THE CLAIM IN RESPECT OF SUM OF RS.1,52,027/- ON THE GRO UND THAT THE SAID SUM HAS NOT BECOME BAD AS IT WAS RECOVERED IN ASST. YEA R 2008-09. THE LD. CIT(A) ALSO CONFIRMED THE DISALLOWANCE OF RS.4,76,4 64/- BEING ADVANCES GIVEN TO LABOUR CONTRACTORS. 5. THE REVENUE IS IN APPEAL AGAINST ALLOWANCE OF CL AIM OF BAD DEBT OF RS.4,80,928/- WHEREAS THE ASSESSEE HAS FILED THE CR OSS OBJECTION IN ITA NO.2058/AHD/2009 ALONG WITH C.O.NO./AHD/2009 ASST. YEAR 2006-07 5 RESPECT OF DISALLOWANCE SUSTAINED TO THE EXTENT OF RS.1,52,027/- AND OF RS.4,70,464/-. 6. SINCE THE ISSUE IN BOTH THE APPEAL AS WELL AS CR OSS OBJECTION IS ABOUT BAD DEBT, THE SAME IS DISCUSSED TOGETHER AS U NDER. 7. THE LD. DR RELIED ON THE ORDER OF AO FOR THE ADD ITIONS MADE BY HIM AND SUBMITTED THAT HOW AN AMOUNT CAN BE CONSIDE RED AS BAD IF IT IS RAISED IN THE CURRENT YEAR. REASONABLE AMOUNT OF TI ME SHOULD BE GIVEN SO AS TO APPRECIATE THAT AMOUNT COULD HAVE BECOME BAD. 8. THE LD. AR ON THE OTHER HAND, SUBMITTED THAT THE ISSUE IS NOW FULLY COVERED BY THE DECISION OF HON. SUPREME COURT IN TH E CASE OF T. R. F. LTD. VS CIT 323 ITR 397 (SC). ACCORDING TO THIS JUD GMENT MERELY WRITING OFF IN THE BOOKS IS SUFFICIENT FOR ALLOWING THE CLAIM. THE AO IS NOT REQUIRED TO LOOK INTO WHETHER THE DEBT HAS BECO ME BAD OR NOT. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. IN OUR CONSIDERED VIEW THE ENQUIRY ABOUT THE DEBT HAVING BECOME BAD IS NOT REQUIRED TO BE CARRIED OUT AFTER THE DECISION OF HON. SUPREME COURT IN T. R. F. LTD. VS CIT (SUPRA)S CAS E. THOUGH IT MAY APPEAR UNUSUAL AS TO ON THE BASIS OF WHAT FACTS AS SESSEE COULD ARRIVE AT A DECISION THAT AMOUNT HAS BECOME BAD AND THEREAFTER HE DECIDE TO WRITE THEM OFF. TO NORMAL PRUDENT MAN A DEBT IS ALWAYS GO OD UNLESS SOMETHING HAPPENS TO CONSIDER IT BAD. AS TO WHAT HAS HAPPENED AND OR WHAT EVENTS TOOK PLACE WHICH MADE THE ASSESSEE TO BELIEVE THE D EBT HAS BECOME BAD ARE REQUIRED TO BE EXPLAINED TO THE AO. BUT IN OUR VIEW THE DECISION OF HON. SUPREME COURT IN TRF LTD. VS. CIT (SUPRA) SHU TS THE DOOR EVEN FOR THESE ENQUIRIES. IF AS A BUSINESSMAN ASSESSEE ARRIV ES AT A DECISION THAT THE DEBT HAS BECOME BAD THEN THE AO NEED NOT GO ACCORDI NG TO THE ABOVE ITA NO.2058/AHD/2009 ALONG WITH C.O.NO./AHD/2009 ASST. YEAR 2006-07 6 DECISION OF THE HON. SUPREME COURT INTO THE RATIONA L OF THIS DECISION OF THE ASSESSEE. IT HAS BEEN CLEARLY HELD IN THE ABOVE DECISION IN TRF LTD. (SUPRA) THAT IT IS NOT NECESSARY TO ESTABLISH THAT DEBT HAS BECOME BAD OR IRRECOVERABLE. UNDER THIS SITUATION, WE ARE OF THE VIEW THAT ACCOUNTING ENTRY OF WRITING OFF BY DEBITING THE PROFIT AND LOS S AND CREDITING TO THE PARTIES ACCOUNT WOULD BE SUFFICIENT FOR ALLOWING TH E CLAIM SUBJECT TO THE OTHER CONDITION THAT SUCH AMOUNT HAS BEEN TAKEN INT O ACCOUNT WHILE COMPUTING PROFITS IN THE CURRENT YEAR OR IN ANY EAR LIER YEARS. THIS ALSO GIVES ANSWER TO THE ISSUE RAISED BY THE LD. AO AS T O HOW AN AMOUNT COULD BE CONSIDERED BAD IN THE CURRENT YEAR. ONCE PROVISI ONS OF SECTION 36(2) PROVIDES THAT SUCH AMOUNT HAS BEEN TAKEN INTO ACCOU NT WHILE COMPUTING INCOME OF THE CURRENT YEAR OR OF AN EARLIER YEAR TH EN IT IS CLEAR THE AMOUNT OF DEBT CREATED IN THE CURRENT YEAR COULD BE WRITTE N OFF AS BAD DEBT. IN VIEW OF THIS ENTIRE CLAIM MADE BY THE ASSESSEE HAS TO BE ALLOWED FOLLOWING THE DECISION OF HON. SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA). AS A RESULT, THE APPEAL FILED BY THE REVEN UE IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE CROSS OBJECTION FILED BY THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN OPEN COURT ON 8/4/11. SD/- SD/- (D. K. TYAGI) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMB ER AHMEDABAD, DATED : 8/4/11. MAHATA/- ITA NO.2058/AHD/2009 ALONG WITH C.O.NO./AHD/2009 ASST. YEAR 2006-07 7 COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)- 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD 1.DATE OF DICTATION 31/3/2011 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E DICTATING 4/4/ 2011 MEMBER.OTHER MEMBER. 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT.. 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK .. 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER..