The ACIT, Circle-4, Ahmedabad V. Gujarat Gas Finacial Services Limited, Ahmedabad

ITA 2343/AHD/2006

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9452 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 11 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-10-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 20-10-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 06-11-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SOPARKAR
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD AHMEDABAD D BENCH (BEFORE S/SHRI G.D.AGARWAL, VICE-PRESIDENT AND T.K. SHARMA, JUDICIAL MEMBER) ITA NO.2343/AHD/2006 [ASSTT. YEAR : 2003-2004] ACIT, CIR.4 AHMEDABAD. VS. GUJARAT GAS FINANCIAL SERVICES LTD. 2, SHANTI SADAN SOCIETY NR.PARIMAL GARDEN ELLISBRIDGE, AHMEDABAD. (APPELLANT) (RESPONDENT) REVENUE BY : SHRI SHAILENDRA SHARMA ASSESSEE BY : SHRI S.N.SOPARKAR O R D E R PER T.K. SHARMA, JUDICIAL MEMBER : THIS APPEAL IS BY THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-VIII, AHMEDABAD DATED 22.08.2006 ARISING OUT OF THE ORDER OF THE ACIT, CIR.4, AHMEDABAD PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT. THE SOLE GROUND RAISED IN THIS APPEAL READS AS UNDER: 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN DIRECTING TO DELETE THE DISALLOWANCE MADE ON ACCOUNT OF BAD DEBTS AT RS .54,96,589/- 2. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF HIRE PURCHASE/LEASE FINANCE ETC. IT IS A SUBSIDIARY OF GUJARAT GAS COMPANY AND PROVIDES GAS CONNECTION TO DOMESTIC, CO MMERCIAL AND INDUSTRIAL CONSUMERS ON LEASE BASIS. FOR THE ASSESSMENT YEAR IN APPEAL, THE ASSESSEE FILED RETURN OF INCOME ON 21-11-2003 DECLARING TOTAL INCO ME AT RS.4,85,67,121/-. THE AO FRAMED ASSESSMENT UNDER SECTION 143(3) ON 15 .01.2006 ON TOTAL INCOME AT RS.5,40,63,980/-. IN THIS ASSESSMENT ORD ER, THE AO DISALLOWED THE BAD DEBT TO THE TUNE OF RS.54,33,242/- ACTUALLY WR ITTEN OFF BY THE ASSESSEE IN THE BOOKS OF ACCOUNTS. THE REASONING GIVEN BY THE AO IN THE ASSESSMENT ORDER IS THAT THE CLAIM OF BAD DEBTS IN QUESTION IS NOT A CCEPTABLE AS THE ASSESSEE HAS NOT TAKEN ANY LEGAL ACTION FOR RECOVERY. FOR MAKIN G DISALLOWANCE IN THE ITA NO.2343/AHD/2006 -2- ASSESSMENT ORDER, THE AO RELIED UPON THE JUDGMENT O F THE HONBLE GUJARAT HIGH COURT IN THE CASE OF AHMEDABAD ELECTRICITY CO. VS. CIT, 262 ITR 97. ON FIRST APPEAL, IN THE IMPUGNED ORDER, THE LEARNED CI T(A) DELETED THE ABOVE SAID DISALLOWANCE FOR THE DETAILED REASONING GIVEN IN PA RA-4, WHICH READS AS UNDER: 4. I HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF TH E APPELLANT AS WELL AS PERUSED THE ASSESSMENT ORDER. THE AO DISAL LOWED THE BAD DEBT CLAIM QUOTING CERTAIN STEPS AS SUGGESTED BY THE HON BLE GUJARAT HIGH COURT APPLICABLE TO ASSESSMENT YEARS PRIOR TO 01.04 .1989. HE HAS NOT DISPUTED THE WRITE OFF OF BAD DEBT AND OFFERING OF THE SAME AS INCOME PRIOR TO WRITE OFF IN ACCORDANCE WITH THE ACCOUNTIN G PRACTICE. HE HAS ALSO NOT GIVEN ANY FINDING THAT THE WRITE OFF WAS E ITHER ARBITRARY OR IRRATIONAL. THE ONLY GROUND ON WHICH HE EFFECTED T HE DISALLOWANCE WAS THAT VARIOUS STEPS AS TO RECOVERY OF BAD DEBT AND L EGAL ACTIONS WERE EITHER NOT TAKEN OR INADEQUATE. NOW THE APPELLANT CLAIMS THAT THEY HAVE SATISFIED THE REQUIREMENTS OF SECTION 36(1)(VII) AN D THE BAD DEBT WRITE OFF DECISION WAS TAKEN ON THE BASIS OF COMMERCIAL PENDE NCY AND ALSO DERIVED LEGAL SUPPORT FROM THE SUBSEQUENT DECISION OF THE HONBLE GUJARAT HIGH COURT ON THE AMENDED PROVISIONS. THUS , THE ACTION OF THE AO IS NOT SUPPORTED BY EITHER THE FACTS OF THE PRES ENT CASE OR THE LEGAL REQUIREMENTS SO AS TO WRITE OFF OF BAD DEBTS AS GOV ERNED BY THE AMENDED PROVISIONS. IN THE ABSENCE OF ANY FINDING TO THE C ONTRARY AS TO OMISSION OR IRRATIONAL WRITE OFF THE ACTION OF THE AO IS NOT SUSTAINABLE. I ALSO FIND THAT THE APPELLANT HAD FILED A DETAILED REPLY WHICH WAS EXTRACTED IN PARA 3.1 OF THE ASSESSMENT ORDER DISPUTING THAT THE AO T OOK A DECISION WHICH IS AT VARIANCE WITH THE REQUIREMENTS FOR WRITE OFF OF BAD DEBTS AND ITS ALLOWANCE AS APPLICABLE W.E.F. 01.04.1989. IN THAT VIEW OF THE MATTER, THE DISALLOWANCE MADE BY THE AO IS UNTENABLE AND RE SPECTFULLY FOLLOWING THE BINDING DECISION OF THE JURISDICTIONA L HIGH COURT, OTHER FACTUAL REQUIREMENTS BEING NOT IN DISPUTE. 3. AGGRIEVED WITH THE ORDER OF THE CIT(A), THE ASSE SSEE IS IN APPEAL BEFORE US. AT THE TIME OF HEARING BEFORE US, THE LEARNED DR RELIED ON THE REASONING GIVEN IN THE ASSESSMENT ORDER BY THE AO AND CONTEND ED THAT THE ASSESSEE COULD NOT PROVE THE LEGAL STEPS TAKEN FOR RECOVERY OF DEB TS TO THE TUNE OF RS.54,96,859/-. THEREFORE, FOLLOWING THE DECISION OF GUJARAT HIGH COURT IN THE CASE OF AHMEDABAD ELECTRICITY CO. (SUPRA) DISALLOWE D THE CLAIM OF BAD DEBTS. ITA NO.2343/AHD/2006 -3- 4. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE A SSESSEE VEHEMENTLY SUPPORTED THE ORDER OF THE LEARNED CIT(A) . THE LE ARNED COUNSEL RELIED ON THE LATEST DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD. VS. CIT, 323 ITR 394 (SC) WHEREIN IT IS HELD THAT LAW AFTER 1 ST APRIL, 1989 FOR ALLOWANCE OF BAD DEBTS, THE ASSESSEE IS ONLY REQUIR ED TO ESTABLISH THAT THE DEBTS WERE WRITTEN OFF. IT IS NOT NECESSARY TO ESTABLISH THAT THE DEBT HAS IN FACT BECOME IRRECOVERABLE. HE ACCORDINGLY SUBMITTED THA T THE VIEW TAKEN BY THE CIT(A) BE UPHELD. 5. AFTER HEARING BOTH THE SIDES, WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAS ACTUALLY WRITTEN OFF THE BAD DEBTS TO THE TUNE OF RS.54,96,8 59/- IN THE BOOKS OF ACCOUNTS. THE HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD . (SUPRA) HAS HELD AS UNDER: AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE IN COME-TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN ORDER TO O BTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR T HE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECO VERABLE: IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVER ABLE IN THE ACCOUNTS OF THE ASSESSEE. WE, THEREFORE, FOLLOWING THE DECISION OF THE HONBL E SUPREME COURT INCLINED TO UPHOLD THE ORDER OF THE LEARNED CIT(A) ON THIS ISSU E. 6. IN RESULT, THE REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 29 TH OCTOBER, 2010. SD/- SD/- (G.D. AGARWAL) VICE-PRESIDENT (T.K. SHARMA) JUDICIAL MEMBER PLACE : AHMEDABAD DATE : 29-10-2010 ITA NO.2343/AHD/2006 -4- COPY OF THE ORDER FORWARDED TO: 1) : APPELLANT 2) : RESPONDENT 3) : CIT(A) 4) : CIT CONCERNED 5) : DR, ITAT. BY ORDER DR/AR, ITAT, AHMEDABAD