Neptune Polymers Pvt.Ltd., Ahmedabad V. The Dy.CIT.,Circle-5, Ahmedabad

ITA 2074/AHD/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 85683 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-02-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 23-08-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: ROOP CHAND
• Assessee Lawyers: C N SHAH
• Keywords: Search and seizure; Bad and doubtful debts

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD .., , BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER ./ I.T.A. NO.2074/AHD/2011 ( / ASSESSMENT YEAR : 2007-08) NEPTUNE POLYMERS PVT.LTD. OLD DALIA BUILDING OPP. TOWN HALL ELLISBRIDGE 380 006 / VS. THE DY.CIT AHMEDABAD ./ ./ PAN/GIR NO. : AAACN 9080 A ( # / APPELLANT ) .. ( $% # / RESPONDENT ) #& / APPELLANT BY : SHRI C.N. SHAH, A.R. $% #'& / RESPONDENT BY : SHRI ROOP CHAND, SR. D.R. ()'* / DATE OF HEARING 02/02/2015 +,-.'* / DATE OF PRONOUNCEMENT 13/02/2015 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-XI, AHMEDABA D (CIT(A) IN SHORT) DATED 17/06/2011 PERTAINING TO ASSESSMENT Y EAR (AY) 2007-08. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL:- 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT(APPEALS) ERRED IN DISALLOWANCE OF BAD D EBTS IN RESPECT OF RELIANCE INDUSTRIES LTD. TO THE EXTENT OF RS.237 554/- AS THE SAME ITA NO.2074/AHD /2011 NEPTUNE POLYMERS PVT.LTD. VS. DY.CIT ASST.YEAR 2007-08 - 2 - WAS TRANSFERRED TO SUNDRY CREDIT/DEBIT BALANCE WRIT TEN OFF ACCOUNTS INSTEAD OF THE ACCOUNT BAD DEBTS WRITTEN OFF. 2. THE CIT(APPEALS) FAILED TO APPRECIATE THAT WRITING OFF IRRECOVERABLE IN THE ACCOUNT IS SATISFIED AS ACCOUNT OF RELIANCE INDUSTRIES LTD. IS CREDITED AND SUNDRY CREDIT/DEBIT BALANCE IS DEBITED WHICH GOES TO EXPENSE ACCOUNT. THUS THE CONDITION LAID DOWN IN T HE CASE OF TRF LTD. IS SATISFIED. 3. THE CIT(APPEALS) OUGHT TO HAVE APPRECIATED THAT THE EXPRESSION WRITE-OFF AS DEFINED IN DICTIONARY FOR ACCOUNTS O F BY ERIC L.KOHAR AS TRANSFER THE BALANCE OF AN ACCOUNT PREVIOUSLY RE GARDED AS AN ASSET TO AN EXPENSE A/C OR TO THE P&L A/C IS SATISF IED. 4. THE CIT(APPEALS) HAS OBJECTION IN WRITING OFF THE A CCOUNTS IN THE MIDDLE OF THE YEAR IN PLACE OF AT THE END OF THE YE AR. 5. THE CIT(APPEALS) SHOULD HAVE ALLOWED THE ACCOUNTS A CTUALLY WRITTEN OFF FOLLOWING THE RATIO LAID DOWN BY HONBLE SUPREM E COURT IN THE CASE OF TRF LTD. 6. THE CIT(APPEALS) ALSO ERRED IN DISALLOWING FOLLOWIN G ACCOUNTS AGGREGATING RS.73674/- ACTUALLY WRITTEN OFF IN PART YS ACCOUNTS WRONGLY CLUBBED IN PRIYANKA CARBON & CHEMICALS LTD. AND TRANSFERRED TO SUNDRY BALANCES CR/DR.WRITTEN OFF: SR.NO. NAME AMOUNT (IN RS.) 1. PRIYANKA CARBON & CHEMICALS LTD. 4128/- 2. RCF THAL. 57664/- 3. R.R.BANGUL BROS. 1000/- 4. SUNTEX. 9040/- 5. TARPAULINE TRADERS. 1842/- 7. THE APPELLANT ALSO RELIES ON THE DECISION OF A HMEDABAD BENCH B OF INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF NEPTUNE TEXTILE MILLS LTD. AHMEABAD V/S. THE ACIT CO. CIRCL E 7 (5) AHMEDABAD IN ITA NO.1788/AHD/98 ASST.YEAR 1992-93 W HEREIN ITA NO.2074/AHD /2011 NEPTUNE POLYMERS PVT.LTD. VS. DY.CIT ASST.YEAR 2007-08 - 3 - ACCOUNT DEBITED TO SUNDRY BALANCE CR/DR.WRITTEN OFF WAS ALLOWED U/S.36(I) (VII). 8. THE APPELLANT CRAVES LEAVE TO ADD, TO AMEND OR ALTER THE ABOVE GROUNDS AS MAY BE DEEMED NECESSARY. 2. GROUND NOS.1 TO 7 ARE INTER-CONNECTED. THEREFO RE, THE SAME ARE DECIDED TOGETHER. GROUND NO.8 IS GENERAL IN NATUR E NEEDS NO INDEPENDENT ADJUDICATION. 2.1. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 03/11/2009, THEREBY THE ASSESSING OFFICER (AO IN SHORT)MADE VARIOUS DISALLOWANCES; NAMELY, ON ACCOUNT OF LATE P AYMENT OF PF/ESI, ON ACCOUNT OF PENALTY EXPENDITURE, ON ACCOUNT OF PENAL TY EXP./LATE DELIVERY AND ON ACCOUNT OF DISALLOWANCE OUT OF BAD DEBT. AG AINST THIS, THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS AND PERUSING THE RECORDS PARTLY ALLOWED THE APPEAL. WHILE PARTLY ALLOWING THE APPEAL, THE LD.CIT(A) DELETED T HE DISALLOWANCE MADE ON ACCOUNT OF LATE PAYMENT OF PF/ESI, DISALLOWANCE MADE ON ACCOUNT OF INTEREST ON PAYMENT OF EXCISE, DISALLOWANCE MADE ON ACCOUNT OF PENALTY/LATE DELIVERY EXPENSES AND IN RESPECT OF DI SALLOWANCE OF BAD DEBT, THE LD.CIT(A) RESTRICTED THE DISALLOWANCE OF RS.2,9 5,218/- AGAINST THE DISALLOWANCE OF RS.3,11,228/-. AGAINST THIS, CONFI RMATION OF ITA NO.2074/AHD /2011 NEPTUNE POLYMERS PVT.LTD. VS. DY.CIT ASST.YEAR 2007-08 - 4 - DISALLOWANCE, THE ASSESSEE HAS FILED THE PRESENT AP PEAL. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS ISSUE IS COVER ED BY THE JUDGEMENT OF HONBLE SUPREME COURT RENDERED IN THE CASE OF TRF L TD. VS. CIT REPORTED AT (2010) 230 CTR 14(SC). THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AUTHORITIES BELOW WERE NOT JUSTI FIED IN MAKING THE DISALLOWANCE. HE SUBMITTED THAT ONCE THE ASSESSEE HAS WRITTEN OFF THE DEBT AS IRRECOVERABLE IN ITS ACCOUNTS, I.E. SUFFICI ENT FOR THE PURPOSE OF ALLOWING THE BAD DEBT IN THE LIGHT OF THE JUDGEMENT OF HONBLE APEX COURT IN THE CASE OF TRF LTD. VS. CIT(SUPRA). 3. ON THE CONTRARY, THE LD.SR.DR VEHEMENTLY ARGUED THAT THE JUDGEMENT OF THE HONBLE APEX COURT AS RELIED UPON BY THE LD.COUNSEL FOR THE ASSESSEE IN THE CASE OF TRF LTD. VS. CIT(SU PRA) IS NOT APPLICABLE ON THE FACTS OF THE PRESENT CASE. HE DREW OUR ATTE NTION TOWARDS PARA-6.2.7 OF THE ORDER OF THE LD.CIT(A), WHEREIN THE LD.CIT(A ) HAS GIVEN A FINDING THAT THE CONDITION OF WRITING OFF IS NOT FULFILLE D, THEREFORE THE BENEFIT OF BAD DEBT WRITTEN OFF IS NOT AVAILABLE TO THE ASSE SSEE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE FIND THAT THE LD.CIT(A) HAS DECIDED THIS ISSUE I N PARAS-6.1 TO 6.2.7 OF HIS ORDER, BY OBSERVING AS UNDER:- ITA NO.2074/AHD /2011 NEPTUNE POLYMERS PVT.LTD. VS. DY.CIT ASST.YEAR 2007-08 - 5 - 6.1. IN THE WRITTEN SUBMISSIONS, IT IS SUBMITTED B Y THE A.R. OF THE APPELLANT THAT THE ASSESSING OFFICER HAS DISALLOWED THE BAD DEBTS ON THE GROUND THAT BAD DEBT CAN BE ALLOWED ON ESTAB LISHING BY THE ASSESSEE THAT THE DEBT HAS BECOME FINALLY IRRECOVER ABLE AND BAD. THE A.R. FURTHER SUBMITTED THAT ACCORDING TO HIM ME RELY WRITTEN OFF BAD DEBT IS NOT ONLY CRITERIA. THE A.O. HAS IGNORE D THE LAW NOW WELL SETTLED IN VIEW OF THE DECISION IN THE CASE OF T.R.F. LTD. VS. CIT (230 CTR 14)(SC) TO THE EFFECT THAT ONCE THE DE BTS ARE WRITTEN OFF BAD IN THE BOOKS OF ACCOUNTS THEY ARE TO BE ALL OWED AS BAD DEBTS U/S.36(I) (VII) OF THE I.T.ACT. THE A.R. ARG UED THAT IT IS NOT INCUMBENT OF THE APPELLANT TO PROVE THAT THE DEBTS BECOME BAD. 6.2. I HAVE CAREFULLY CONSIDERED THE FACTS OF TH E CASE AND LEGAL POSITION AS IT EXISTS FOR WRITING OFF THE BAD DEBTS . I AM INCLINED TO AGREE WITH THE A.R. THAT IN VIEW OF TRF LTD., CASE, THE BAD DEBT WRITTEN OFF CAN NOT BE DISALLOWED SOLELY ON THE GRO UND THAT THE DEBTS HAVE NOT BECOME BAD. HOWEVER, WE HAVE TO SEE THE FACTUAL POSITION OF THE DEBTS AND THE SAME IS DISCUSSED IN THE FOLLOWING PARAS. 6.2.1DURING THE APPELLATE PROCEEDINGS, THE A.R. HAS FILED COPY OF BAD DEBT WRITTEN OFF ACCOUNT. PERUSAL OF THIS ACCO UNT REVEALS THAT FOLLOWING BAD DEBTS HAVE BEEN WRITTEN OFF. SR.NO. NAME DATE AMT. (IN RS.) (1) RELIANCE INDUSTRIES LTD. 30.4.2006 RS.2,37,554/- (2) PRIYANKA CARBON & 28.2.2007 RS. 73,674/- CHEMICALS P.LTD. ---------------- TOTAL : RS.3,11,228/- ---------------------------------------- SCRUTINY OF PRIYANKA CARBON & CHEMICALS P&L A/C REV EALS THAT THE FOLLOWING AMOUNTS ARE WRITTEN OFF. ITA NO.2074/AHD /2011 NEPTUNE POLYMERS PVT.LTD. VS. DY.CIT ASST.YEAR 2007-08 - 6 - S.NO. NAME AMT.(IN RS.) 1. PRIYANKA CARBON & CHEMICALS LTD. 4,128 2. RCF THAL. 57,664 3. R.R.BANGUL BROS. 1,000 4. SUNTEX. 9,040 5. TARPAULINE TRADERS. 1,842 THE SCRUTINY OF THESE ACCOUNTS FURTHER REVEALS THAT THE BAD DEBTS IN THESE ACCOUNTS ARE DIRECTLY TRANSFERRED TO THE SUND RY CR/DR B/IN/ OFF ACCOUNT. HOWEVER IN THE SUNDRY CR.DR.BW/OFF A CCOUNT ALL THESE BALANCES ARE CLUBBED IN THE NAME OF PRIYANKA CARBON & CHEMICALS P.L. TO THIS EXTENT THE ACCOUNTS OF THE ASSESSEE IS INCORRECT. 6.2.2. THE ACCOUNTS OF RIL & RCF THAL ARE RUNNING ACCOUNTS AND THE ASSESSEE HAS SELECTED ONE ENTRY FOR WRITE OFF F ROM THESE ACCOUNTS. THE ACCOUNTS WERE KEPT LIVE BEFORE AS WE LL AS AFTER THIS ENTRY. IN FACT RIL ENTRY WAS WRITTEN OFF ON 30.4.2 006 AND AFTER THIS THERE ARE HUNDRED OF ENTRIES IN THAT ACCOUNT DURING THIS YEAR ITSELF. THE ACCOUNT IS LIVE IN THE SUCCEEDING YEARS ALSO. SAME CONDITION PREVAILS WITH RCF THAL. THE ALLOWANCE OF BAD DEBTS IN RESPECT OF THESE PARTIES IS TO BE EXAMINED WITH THIS FACTUAL M ATRIX. 6.2.3. AS PER THE PROVISIONS OF SECTION 36(1)(VII) THE CONDITIONS FOR ALLOWANCE OF BAD DEBT ARE (1) IT MUST BE A PROPER DEBT OR A PART THEREOF. (2) IT MUST BE OF A REVENUE NATURE. (3) IT MUST BE WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS. ALL THE ABOVE MENTIONED CONDITIONS ARE TO BE FULL F ILLED CONSECUTIVELY TO QUALIFY FOR THE DEDUCTIONS. THE O NUS IS ON ASSESSEE TO PROVE THAT ALL THESE CONDITIONS ARE FUL FILLED. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF TRANVAN CORE TEA ESTATES CO.LTD. VS. CIT (1992) 197 ITR 528 (KER.) ITA NO.2074/AHD /2011 NEPTUNE POLYMERS PVT.LTD. VS. DY.CIT ASST.YEAR 2007-08 - 7 - 6.2.4. EVALUATION OF FACTS ON RECORD REVEALS THAT I N THE INSTANT CASE THE FULFILLMENT OF THIRD CONDITION IS DOUBTFUL. IT IS A MATTER OF RECORD THAT THE ENTRIES FOR WRITE OFF WERE PICKED F ROM A RUNNING ACCOUNT, AND THE ACCOUNT REMAINED LIVE BEFORE AND A FTER THE ENTRY WAS PICKED UP FOR WRITE OFF. I AM AFRAID, THIS IS NOT A RIGHT WAY TO WRITE OFF THE DEBTS. THE EXPRESSION WRITE OFF HA S BEEN DEFINED IN DICTIONARY FOR ACCOUNTS ERIC L. KOHOR AS TRANSFER THE BALANCE OF AN ACCOUNT PREVIOUSLY REGARDED AS AN ASSET TO AN EX PENSE A/C OR TO THE P&L A/C. 6.2.5. EVEN IN THE CASE OF TRF LTD. RELIED UPON BY THE ASSESSEE, IT HAS BEEN OBSERVED . . HOWEVER, IN THE PRESENT CASE, THE A.O. HAS NOT EXAMINED WHETHER THE DEBTS HAS, IN FAC T, BEEN WRITTEN OFF IN THE BOOKS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUS TOMERS A/C IS CREDITED, THUS CLOSING THE ACCOUNT OF THE CU STOMER.. 6.2.6. THIS OBSERVATION OF SUPREME COURT FURTHER SU PPORTS THE DEFINITION MENTIONED ABOVE. IN FACT WRITE OFF MEAN TRANSFER OF BALANCE AMOUNT TO P&L A/C OR THE SUNDRY BALANCES WR ITTEN OFF A/C AS THE CASE MAY BE AND CLOSING THE ACCOUNT OF THE C USTOMER. THE WRITE OFF IN THE INSTANT CASE IS TO BE EXAMINED WIT H REFERENCE TO THE ABOVEMENTIONED DEFINITION & S.C. OBSERVATIONS. 6.2.7. IN THE INSTANT CASE, THE BALANCE OF RELIANCE INDUSTRIES LTD. OR RCF WAS NEVER TRANSFERRED TO THE SUNDRY BALANCE WRITTEN OFF ACCOUNT. THE ASSESSEE HAS ONLY TRANSFERRED ONE ENT RY TO THE SUNDRY BALANCE WRITTEN OFF A/C. THUS THE WRITE OFF COND ITION IS NOT FULFILLED AND THE BENEFIT OF BAD DEBTS WRITE OFF IS NOT AVAILABLE TO THE ASSESSEE ON THESE AMOUNT. ITA NO.2074/AHD /2011 NEPTUNE POLYMERS PVT.LTD. VS. DY.CIT ASST.YEAR 2007-08 - 8 - 4.1. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF T HE LD.CIT(A) AS HE HAS GIVEN A FINDING ON FACT THAT THE CONDITION HAS ENVISAGED U/S.36(1)(VII) OF THE ACT IS NOT COMPLIED WITH BY THE ASSESSEE AND THE FINDING OF THE LD.CIT(A) ON FACT IS NOT CONTROVERTED BY THE ASSESS EE BY PLACING ANY MATERIAL CONTRARY ON RECORD SUGGESTING THAT THE CON DITIONS FOR WRITING OFF HAS BEEN FULFILLED. THEREFORE, IN OUR CONSIDE RED VIEW, THE JUDGEMENT OF HONBLE APEX COURT IN THE CASE OF TRF LTD. VS. C IT(SUPRA) AS RELIED UPON BY THE LD.COUNSEL FOR THE ASSESSEE WOULD NOT H ELP TO THE ASSESSEE. UNDER THESE FACTS, WE SEE NO REASON TO TAKE A DIFFE RENT VIEW THAN TAKEN BY THE LD.CIT(A). THUS, GROUND NOS.1 TO 7 RAISED IN T HE ASSESSEES APPEAL ARE REJECTED. 5. IN THE RESULT, ASSESSEES APPEAL IS DISMISS ED. ORDER PRONOUNCED IN THE COURT ON FRIDAY, THE 13 TH OF FEBRUARY, 2015 AT AHMEDABAD. SD/- SD/- ( .. ) ( ) ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 13/ 02 /2015 2*..,(.../ T.C. NAIR, SR. PS ITA NO.2074/AHD /2011 NEPTUNE POLYMERS PVT.LTD. VS. DY.CIT ASST.YEAR 2007-08 - 9 - !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. # / THE APPELLANT 2. $% # / THE RESPONDENT. 3. 345 6 / CONCERNED CIT 4. 6 ( ) / THE CIT(A)-XI, AHMEDABAD 5. 7(8$45 , *45. , 3 / DR, ITAT, AHMEDABAD 6. 8:;<) / GUARD FILE. / BY ORDER, %7$ //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 4.2.15 (DICTATION-PAD 7- PA GES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER ..4.2.15 3. OTHER MEMBER... 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.13.2.15 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 13.2.15 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER