The ACIT, Vapi Circle, Vapi V. M/s. Canbara Industries, SILVASSA

ITA 2359/AHD/2009

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 0299 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2009
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 07-08-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBMISSION
• Assessee Lawyers: NITA SHAH
• Keywords: Recovery proceedings; Bad and doubtful debts
• Section: 14A; 80IB; 207

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL, B-BENCH, AHMEDABAD. BEFORE: SHRI T K SHARMA, JUDICIAL MEMBER, AND SHRI D.C.AGRAWAL, ACCOUNTANT MEMBER. ITA NO.2359/AHD/2009 (ASSESSMENT YEAR 2006-2007) ASSISTANT COMMISSIONER OF INCOME TAX, VAPI CIRCLE, VAPI. VERSUS M/S. CANBARA INDUSTRIES, SURVEY NO. 31/2, PLOT NO.1, KHADIPADA, MASAT VIA: SILVASSA (D.N.H.) (APPELLANT) (RESPONDENT) PAN: AABFC 8608 B FOR THE APPELLANT: SUBMISSION FOR THE RESPONDENT NITA SHAH, DR ORDER PER D C AGRAWAL (ACCOUNTANT MEMBER): ASSESSMENT YEAR 1996-1997 AND 1997-1998 THESE ARE THE 2 APPEALS FILED BY THE REVENUE RAISIN G FOLLOWING GROUNDS. 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT(A) HAS ERRED IN DELETING THE DISALLOWAN CE OF BAD DEBTS AMOUNTING TO RS. 7,16,110/-. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LEARNED LD. COMMISSIONER OF INCOME TAX(APPEALS) HAS FAILED TO APPRECIATE THAT ALLOWANCE OF CLAIM OF BAD DEBT WOUL D AMOUNT TO DOUBLE BENEFIT TO ASSESSEE, AS NO TAX WAS PAID BY T HE A IN THE EARLIER YEARS, ON THE PROFIT ARISEN ON SALES RELATI NG TO THIS CLAIM OF BAD DEBT. 2. THE ASSESSEE FIRM IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF PLASTIC MOLDED COMPONENTS APPLIANCES & MOTORS. THE MANUFACTURING UNIT OF THE FIRM IS LOCATED IN THE UNION TERRITORY OF SI LVASA, DADRA AND NAGAR 2 ITA NO.2359/AHD/2009 (ASSESSMENT YEAR 2006-2007) HAVELI. RETURN OF INCOME WAS FILED ON AN INCOME OF RS. 66,55,496/- AND REVISED TO RS. 50,52,791/-. THE ASSESSING OFFICER, DURING THE COURSE OF ASSESSMENT PROCEEDINGS, FOUND THAT THE ASSESSEE HAS CLAIMED BAD DEBTS AMOUNTING TO RS. 68,97,939/-. IT WAS EXPLAINED THA T THEY REPRESENTED SALES OF EARLIER YEARS. THEY WERE WRITTEN OFF AS B AD DEBTS IN THE ACCOUNT AFTER MAKING NECESSARY RECOVERY PROCEEDINGS WITH TH E CONCERNED PARTIES. THEY WERE CONSIDERED AS IRRECOVERABLE AND ACCORDING LY WRITTEN OFF. THE ASSESSING OFFICER REJECTED THE CLAIM ON THE GROUND THAT THE SALES WERE BOOKED IN THE EARLIER YEARS WHERE ASSESSEE WAS ENTI TLED FOR DEDUCTION UNDER SECTION 80IB AT RATE OF 100% / 75% ON THE PRO FITS AND GAINS OF INDUSTRIAL UNDERTAKING AND NO TAX WAS PAID ON THE P ROFIT ELEMENT OF SUCH SALES. SINCE INCOME WAS EXEMPTED, NO EXPENDITURE A GAINST SUCH EXEMPTED INCOME CAN BE CLAIMED. SECONDLY, IN THE Y EAR UNDER CONSIDERATION, WHICH IS 10 TH YEAR OF OPERATION OF THE UNDERTAKING AN ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 80 IB AT A RATE OF 25%, OF THE ELIGIBLE PROFITS, THE ASSESSEE HAS DEBITED THE BAD DEBTS BY FURTHER GETTING BENEFIT OF 75% THOUGH IT COULD HAVE CLAIMED ENTIRE AMOUNT OF DEBTS IN EARLIER YEARS WHEN IT WAS ENTITLED TO 100% DEDUCTION. THUS, ASSESSEE HAS CLAIMED 75% OF THE EXEMPTED PROFIT AS BAD DEBTS. HE ACCORDINGLY, CALCULATED THE 75% ELEMENT AT RS. 7,61 ,110/- ON TOTAL BAD DEBTS OF RS. 68,91,939/- AND DISALLOWED THE SAME. 3. THE LD. COMMISSIONER OF INCOME TAX(APPEALS) HELD THAT IT IS IMMATERIAL THAT PROFITS ON THE SALE HAVE BEEN TAXED OR NOT IF THE SALES IN RELATION TO WHICH DEBT HAS BEEN CLAIMED AS BAD DEBT HAS BEEN TAKEN INTO ACCOUNT IN SOME EARLIER YEARS. THE LD. COMMISSIONE R OF INCOME TAX(APPEALS) REFERRED TO THE DECISION OF ITAT, MUMB AI BENCH IN DY. C.I.T. VS. OMAN INTERNATIONAL BANK SAOG 102 TTJ 207 (SPECIAL BENCH) 3 ITA NO.2359/AHD/2009 (ASSESSMENT YEAR 2006-2007) FOR THE PROPOSITION THAT IF THE AMOUNT IS WRITTEN O F IN THE BOOKS, THEN CLAIM HAS TO BE ALLOWED. HE ACCORDINGLY, DELETED T HE ADDITION. 4. THE LEARNED DR SUBMITTED THAT THE LEARNED COMMIS SIONER OF INCOME TAX(APPEALS) HAS NOT COUNTERED THE ARGUMENTS OF THE ASSESSING OFFICER FOR DISALLOWING OF THE CLAIM. THE FIRST IS THAT THE BAD DEBTS RELATED TO THE PERIOD WHEN 100% PROFITS WERE EXEMPT UNDER S ECTION 80IB AND SECONDLY, THE ASSESSEE IS CLAIMING DOUBLE DEDUCTION , FIRST 100% UNDER SECTION 80IB AND SECOND AS BAD DEBT. IN THE ALTERN ATIVE LEARNED, DR SUBMITTED THAT THE PROFIT ELEMENT SHOULD BE DISALLO WED UNDER SECTION 14A. 5. ON THE OTHER HAND LEARNED AR OF THE ASSESSEE REL IED ON THE ORDER OF LD. COMMISSIONER OF INCOME TAX(APPEALS). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PER USED THE MATERIAL ON RECORD. WE ARE OF THE CONSIDERED VIEW THAT THER E IS NO CASE FOR INTERFERENCE IN THE ORDER OF LEARNED COMMISSIONER O F INCOME TAX(APPEALS). THE REASONS ARE THAT BAD DEBTS HAVE TO BE CONSIDERED ON ITEM TO ITEM BASIS AND NOT ON PROFIT ELEMENT BASIS. IT HAS TO BE FIRST SEEN WHAT IS AMOUNT OF DEBT AND AGAINST WHOM; IN WHICH Y EAR IT HAS ARISEN, AND WHETHER IT WAS BEEN TAKEN INTO ACCOUNT WHILE COMPUT ING THE PROFITS IN SOME EARLIER YEARS AND FINALLY IF IT IS WRITTEN OF IN THE BOOKS CONSIDERING IT AS IRRECOVERABLE IN THE SUBSEQUENT YEAR, THEN THE S AME HAS TO BE ALLOWED AS BAD DEBT UNDER SECTION 36(1)(VII) READ WITH SECT ION 36(2). THEREFORE PROFIT ELEMENT ALONE INVOLVED IN THE DEBT CANNOT BE CONSIDERED AS BAD. THERE IS NO MATERIAL ON RECORD TO SUGGEST THAT IT I S ONLY PROFIT ELEMENT WHICH HAS NOT BECOME BAD AND THEREFORE THE SAME CAN NOT BE ALLOWED. IF RECOVERY FROM CUSTOMER IS BAD AND CANNOT BE MADE, A N ASSESSEE CAN WRITE OFF THE SAME IN THE BOOKS, THEN ENTIRE DEBT AS WHOL E 4 ITA NO.2359/AHD/2009 (ASSESSMENT YEAR 2006-2007) SHOULD BE CONSIDERED AS BAD UNLESS THERE ARE MATERI ALS ON RECORD TO SUGGEST THAT ONLY PART OF THE DEBT HAS BECOME BAD O R PART OF IT REMAINED GOOD. THE ASSESSING OFFICER HAS TAKEN THE GROUND T HAT SINCE PROFIT ELEMENT INVOLVED IN DEBT WAS ALLOWED AS DEDUCTION U NDER SECTION 80IB, THEREFORE THE SAME COULD NOT BE CONSIDERED AS BAD A ND COULD NOT BE ALLOWED AS DEDUCTION IN SUBSEQUENT YEAR. IN OUR VI EW, THIS IS EQUIVALENT TO ENACTING A PROVISION OR PUTTING AN ADDITIONAL CO NDITION IN SECTION 36(1)(III) OR IN SECTION 36(2) EQUIVALENT TO SECTIO N 14A WHEREBY BAD DEBTS SHOULD NOT BE ALLOWED TO THE EXTENT OF PROFIT WHICH ARE ALLOWED AS DEDUCTION IN SOME EARLIER YEAR. IN OUR CONSIDERED VIEW, THERE IS NO SUCH PROVISION IN LAW AND PROVISIONS OF SECTION 14A CANN OT BE INVOKED TO DISALLOW CLAIM OF BAD DEBTS. SECTION 14A RELATES T O DISALLOWANCE OF EXPENDITURE IN RELATION TO INCOME WHICH IS EARNED D URING THE SAME YEAR. SECTION 14A CANNOT BE INVOKED TO DISALLOW THE CLAIM OF INCOME WHICH IS ALREADY SUBJECTED TO TAX IN SOME EARLIER YEAR. IN ANY CASE, PROFIT ELEMENT SO DISALLOWED, CANNOT BE EQUATED TO EXPENDITURE AND THEREFORE CANNOT BE CONSIDERED FOR DISALLOWANCE UNDER SECTION 14A. 7. FURTHER, WE ARE OF THE CONSIDERED VIEW THAT IF L EGISLATURE CONFERS DOUBLE BENEFIT TO THE ASSESSEE THEN IT CANNOT BE DE NIED BY THE ASSESSING OFFICER. IN A CASE, WHERE RETURNED INCOME IS LOSS OR BELOW TAXABLE LIMIT, AND NO TAX IS PAID BY THE ASSESSEE, BUT IN SUBSEQUE NT YEAR, IF DEBT BECOMES BAD WHICH IS TAKEN INTO ACCOUNT WHILE COMPUTING INC OME OF AN EARLIER YEAR WHERE NO TAX IS PAYABLE, THEN A BAD DEBT CANNO T BE DISALLOWED MERELY ON THE GROUND THAT NO TAX IS PAYABLE IN AN E ARLIER YEAR. THE REASONING GIVEN BY THE ASSESSING OFFICER IS FALLACI OUS AND IS RIGHTLY NOT ACCEPTED BY THE LD. COMMISSIONER OF INCOME TAX(APPE ALS). 5 ITA NO.2359/AHD/2009 (ASSESSMENT YEAR 2006-2007) 8. AS A RESULT, WE DO NOT FIND ANY MERIT IN THE APP EAL FILED BY THE REVENUE THE SAME IS DISMISSED. THIS ORDER IS PRONOUNCED IN OPEN COURT ON DATED 16 TH OCTOBER, 2009. SD/- SD/- (T.K. SHARMA) (D.C. AGRAWAL) JUDICIAL MEMBER ACCOUNTA NT MEMBER AHMEDABAD; DATED: 16/10/2009 ANKIT* COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) CONCERNED 4. THE CIT, 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, ASSTT. REGISTRAR/ DEPUTY REGISTRAR ITAT, AHMEDABAD BENCHES, AHMEDABAD.