ACIT Cir -I Aurangabad, Aurangabad V. M/s Nath Seeds Ltd, Aurangabad

ITA 255/PUN/2012

• Counselvise Citation: 25524514 RSA 2012
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 30-09-2013
• Assessment Year: 2003-2004
• Appeal Filed On: 07-02-2012
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: CHETAN KARIA
• Keywords: Depreciation; Opportunity of being heard; Bad and doubtful debts; Revised return
• Section: 139(5); 148; 28; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH A, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 254 AND 255/PN/2012 (ASSTT.YEARS : 2001-02 & 2003-04) ACIT, CIRCLE-I, AURANGABAD .. APPELLANT VS. M/S. NATH SEEDS LIMITED, NATH HOUSE, PAITHAN ROAD, AURANGABAD .. RESPONDENT PAN NO.AAACN9213B APPELLANT BY : SMT. SHAILJA RAI RESPONDENT BY : SHRI CHETAN KARIA DATE OF HEARING : 30-09-2013 DATE OF PRONOUNCEMENT : 29-11-2013 ORDER PER R.K. PANDA, AM : THE ABOVE 2 APPEALS FILED BY THE REVENUE ARE DIRECT ED AGAINST THE SEPARATE ORDERS DATED 28-11-2011 OF THE CIT(A), AUR ANGABAD RELATING TO ASSESSMENT YEARS 2001-02 AND 2003-04 RESPECTIVELY. FOR THE SAKE OF CONVENIENCE BOTH THE APPEALS WERE HEARD TOGETHER AN D ARE BEING DISPOSED OF BY THIS COMMON ORDER. ITA NO.254/PN/2012 (A.Y. 2001-02) : 2. THIS IS THE SECOND ROUND OF LITIGATION BEFORE TH E TRIBUNAL. FACTS OF THE CASE, IN BRIEF, ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN PRODUCTION OF CERTIFIED SEEDS. THE ORIGINAL RETURN OF INCOME IN THIS CASE WAS FILED ON 25-10- 2001 DECLARING LOSS OF RS.11,27,84,272/- AND CAPITA L LOSS OF RS.32,64,23,000/-. THE RETURN WAS PROCESSED ON 28-03-2002. SUBSEQUENT LY, THE ASSESSING OFFICER ISSUED NOTICE U/S.148 AS PER REASONS GIVEN IN PARA 2 OF THE ASSESSMENT ORDER. IN RESPONSE TO THE SAME, THE ASSESSEE FILED RETURN ON 28-02-2005 2 DECLARING LOSS OF RS.10,27,84,272/-. IN THE COMPUT ATION OF INCOME THE CLAIM OF INTEREST PAID TO MSFC WAS RESTRICTED TO RS.15 LA KHS AS AGAINST RS.1.15 CRORES MADE IN THE ORIGINAL RETURN FILED. THE ASSE SSING OFFICER NOTED THAT THE ASSESSEE ALONG WITH COMPUTATION OF INCOME HAD FILED NOTES STATING THE SAME AS FORMING PART OF RETURN OF INCOME. THESE NOTES AR E AS UNDER : A) THE COMPANY HAD WRITTEN OFF RS.9,76,60,000/- WH ICH CONSISTED RS.4,12,11,000/- AS IRRECOVERABLE BAD DEBTS FROM SUNDRY DEBTORS AND RS.5,62,49,000/- AS IRRECOVERABLE ADVANCES. THE ADVANC ES SO WRITTEN OFF WERE GIVEN IN THE COURSE OF BUSINESS AND CAN BE PROVED THAT THEY BECAME IRRECOVERABLE. THE IRRECOVERABLE ADVANCES, IF NOT AL LOWED U/S. 36(2), HAS TO BE ALLOWED AS LOSS OF WORKING CAPITAL U/S.28 OF THE I.T. A CT. THUS, THERE WAS NO ESCAPEMENT. B) AS FAR AS MSFC INTEREST IS CONCERNED, THE MISTAKE INCURRED WAS BONA FIDE MISTAKE AND IN REALITY DID NOT RESULT IN ESCAPEME NT. C) THIS WAS A CASE OF MISTAKE APPARENT FROM RECORDS AN D COVERED U/S. 154. THUS, THERE WAS TECHNICALLY NO ESCAPEMENT OF INCOME IN REAL SENSE. THIS MISTAKE COULD HAVE BEEN ATTENDED TO EITHER U/S. 143(1 ) BY THE AO OR IN A REVISED RETURN BY THE ASSESSEE. SINCE THE TIME FOR FILIN G REVISED RETURN EXPIRED, THIS COULD HAVE BEEN ATTENDED TO U/S. 154 BY THE AO H IMSELF. IT IS LIKE A MISTAKE IN DEPRECIATION. THE PROCEEDINGS U/S. 148 DOES NOT ARI SE AND THE CONSEQUENCES DO NOT FLOW FROM THEM. HOWEVER, THE REVISED RETURN I S BEING FILED AS IF IT IS A REVISED RETURN U/S. 139(5) REDUCING THE LOSS OF RS.11.2 8 CRORES BY RS. 1 CR. THE EFFECT IS THAT RECTIFICATION NOT DONE U/S. 143(1) IS D ONE IN THE REVISED RETURN. IN THIS MANNER, THE REVISED RETURN IS BEING FILED AND TH E SAME MAY KINDLY BE ACCEPTED. 3. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTED THAT IN THE ORIGINAL RETURN THE ASSESSEE HAD NOT GIVEN THE DETAILED BIFURCATION OF THE AMOUNT WRITTEN OFF. HOWEVER, IN THE COMPUTATION OF INCOME THE ASSESSEE HAD GIVEN A NOTE AS UNDER : RS.562.49 LACS -- ADVANCES WRITTEN OFF CLAIMED TO BE ALLOWED U/S.28. RS.412.11 LACS -- BAD DEBTS CLAIMED TO BE ALLOWED U/S. 36(2). -------------------- RS.974.60 LACS -------------------- THE ASSESSING OFFICER, THEREFORE, ASKED THE ASSESSE E TO GIVE DETAILED BIFURCATION OF THE AMOUNTS WRITTEN OFF AT RS.974.60 LAKHS. IN RESPONSE TO THE ABOVE, THE ASSESSEE FILED THE DETAILS WHICH ARE AS UNDER : 3 SR.NO. PARTICULARS AMOUNT IN RS. 01 DAVANGERE BR. DEBTORS 8752128.61 02 HYDERABAD BR. DEBTORS 31248560.75 03 AURANGABAD BR. DEBTORS 1210791.01 BAD DEBTS W/OFF 41211480.37 04 DEPOSIT WITH OTHERS (OLD) 305130.30 05 PROCUREMENT CREDITORS/GROWERS 55961654.12 06 NON RECOVERABLE ADVANCE W/OFF 56266784.12 TOTAL AMOUNT W/OFF 97478264.49 3.1 FROM THE DETAILS FILED BY THE ASSESSEE THE ASSE SSING OFFICER NOTED THAT THE AMOUNT OF RS.3,05,130/- WAS ACTUALLY VARIOUS DE POSITS ADVANCED EARLIER. AS SUCH, THE SAME COULD NOT BE CONSIDERED AS AMOUNT TA KEN INTO ACCOUNT IN COMPUTING INCOME OF THE ASSESSEE AS ENVISAGED IN THE PROVISIO NS OF SEC.36(2)(I) OF THE ACT. SIMILARLY, THE AMOUNT OF RS.5,59,61,654/- WAS STAT ED TO BE THE ADVANCES GIVEN FOR PROCUREMENT OF SEEDS FROM GROWERS. THE REMAINING A MOUNT OF RS.4,12,11,480/- WAS MENTIONED TO BE ON ACCOUNT OF DEBTORS RECORDED AT VARIOUS BRANCHES. HE, THEREFORE, AGAIN ASKED THE ASSESSEE TO SUBSTANTIATE THE CLAIM OF DEBTORS TO THE EXTENT OF RS.4.12 CRORES WHICH WERE WRITTEN OFF ALO NG WITH CONFIRMATION FROM BIG DEBTORS. SO FAR AS THE REMAINING AMOUNT OF RS. 5,62,66,784/- IS CONCERNED HE ASKED THE ASSESSEE TO GIVE THE REASONS AS TO WHY THE SAME SHOULD BE ALLOWED AS BAD DEBTS WRITTEN OFF. 3.2 IN RESPONSE TO THE ABOVE THE ASSESSEE SUBMITTED THAT IN RESPECT OF BAD DEBTS OF RS.4,12,11,480/-, INCOME HAS ALREADY BEEN BOOKED IN EARLIER YEAR/S AND WHICH CAN BE ESTABLISHED AS BONA FIDE CLAIM. SINCE THE MATTER IS VERY OLD, IT HAS NO ALTERNATIVE THAN TO LEAVE THE CLAIM TO THE DISCR ETION OF TAX AUTHORITIES WITHOUT RECOURSE OF PENAL PROCEEDINGS. AS REGARDS T HE ADVANCES GIVEN TO SEED SUPPLIER/AGENTS, IT WAS SUBMITTED THAT THESE PARTIE S ARE SUPPLYING SEEDS TO FARMERS WHO GROW SEEDS WHICH HAS TO BE PURCHASED BY THE COMPANY AS RAW MATERIAL. IT WAS SUBMITTED THAT THE ASSESSEE HAS N EITHER RECEIVED THE SEEDS NOR COULD RECOVER THE ADVANCES GIVEN TO AGENTS. 4 4. HOWEVER, THE ASSESSING OFFICER WAS NOT SATISFIED WITH THE EXPLANATION GIVEN BY THE ASSESSEE AND REJECTED THE CLAIM OF BAD DEBT BY OBSERVING AS UNDER: 10.9 CONTENTIONS OF THE ASSESSEE ARE CONSIDERED. T HE SAME IS HOWEVER NOT ACCEPTABLE FOR THE FOLLOWING REASONS 1) IN THE RETURN FILED ORIGINALLY, THE CLAIM OF D EDUCTION OF RS.562.49 LACS STATED TO HAD BEEN MADE U/S.28 OF THE ACT. SEC. 28 IS A CHARGING SECTION WHICH DEFINES THE INCOME CHARGEABLE TO TAX UNDER THE HEAD 'BUSINESS & PROFESSION'. AS SUCH, SEC.28 DOES NOT GIVE ANY DEDU CTION FROM THE INCOME. 2) THE ALTERNATIVE ARGUMENT MADE IN THE RETURN FI LED IN RESPONSE TO NOTICE U/S.148 WAS THAT THE AMOUNT REPRESENTS LOSS IN CAPITAL. THUS, THE ASSESSEE ITSELF HAD ADMITTED THAT THE SAID LOSS WAS A CA PITAL LOSS. THERE IS NO PROVISION IN THE I.T ACT TO ALLOW THE CLAIM OF LOSS I N CAPITAL AS A DEDUCTION. 3) AS MENTIONED, THE AMOUNT OF RS. 562. 49 LACS S TATED TO HAVE BEEN GIVEN FOR PROCUREMENT OF SEEDS. THE ASSESSEE 'S NATURE OF BUSINESS IS THAT IT PURCHASES SEEDS GROWN BY THE GROWERS AS PER ITS REQ UIREMENT AND SELLS IT AFTER CERTIFICATION. THUS, THE SEED GROWERS ARE THE RAW M ATERIAL SUPPLIERS OF THE COMPANY. THUS, THE SUPPLIER IS NOTHING BUT A CREDITOR OF THE COMPANY. IN OTHER WORDS, THE SEED GROWERS ARE CREDITORS OF THE COMPANY. THE LIST OF SUCH SEED GROWERS FURNISHED BY THE ASSESSEE SUBSTANTIATE THIS INFERENCE. THE LISTS CLEARLY INDICATE THE SEED GROWERS AS PROCUREMENT CREDITORS. IF ANY ADVANCE IS BEING GIVEN TO THEM, THE BASIC FACT THAT THESE PERSONS AR E CREDITORS WILL NOT CHANGE. AT THE MOST, THESE CREDITORS COULD BE CONSIDERED AS CRED ITORS WITH DEBIT BALANCE. THUS, WRITING OFF SUCH BALANCES WILL NOT BE WRITING OFF 'BAD DEBTS'. 4) PERUSAL OF THE LIST REVEALS THAT THE BALANCES IN M ANY CASES HAVE BEEN WRITTEN OFF DURING THE YEAR ITSELF. SOME OF SUCH CASES ARE MENTIONED HEREUNDER :- SR.NO. TRANSACTION DATE NAME OF THE PERSON AMOUNT IN RS. 01 30/06/2000 AMIGO TRADING PVT LTD 1,50,43,976 / - 02 20/06/2000 GAYATRI SEEDS AGENCY 12,71,347 / - 03 01/02/2000 H.H.PATEL. 6,85,010 / - 04 05/05/2000 M.K.PATEL. 7,97,018 / - FROM THE ABOVE MENTIONED DETAILS, IT IS CLEAR THAT TH ERE IS NO NEXUS BETWEEN WRITING OFF ADVANCES WITH FAILURE TO SUPPLY SEEDS. SOME BALANCES HAVE BEEN WRITTEN OFF DURING THE YEAR ITSELF. THIS SHOWS THAT THE BALANCES HAVE BEEN WRITTEN OFF AT SWEET WILL OF THE ASSESSEE AND NOTHING TO DO WITH FAILURE TO FULFILL THE COMMITMENTS OF SUPPLY OF SEEDS. 5 5) AS REGARDS THE REMAINING BAD DEBTS CLAIMED OF R S.412.11 LACS., AS PER THE SUBSEQUENT RETURN THIS AMOUNT CONSISTS OF SUNDRY DE BTORS AND ADVANCES AGAIN. IN OTHER WORDS, THESE DEBTORS WERE NOT THE TRADE DE BTORS. AS SUCH, THIS AMOUNT ALSO CANNOT BE CLAIMED AS BAD DEBTS WRITTEN OFF. TH US, THE ENTIRE CLAIM OF RS.974.60 LACS. FOUND OUT TO BE NOT ON ACCOUNT OF W RITING OFF OF TRADE DEBTS. HENCE, THIS CLAIM IS DISALLOWED AND THE AMOUNT OF RS.9, 74,78,265/- IS ADDED BACK TO THE INCOME OF THE ASSESSEE. 10.10 IT IS SEEN THAT THE ASSESSEE HAS MADE THE CL AIM OF RS.9,74,78,265/- AS BAD DEBTS WRITTEN OFF, THOUGH HE WAS FULLY AWARE OF THE FACT THAT THE DEBTORS WRITTEN OFF WERE NOT THE TRADE DEBTORS. THE NOTE GIVEN IN T HE COMPUTATION OF INCOME FILED ALONG WITH THE ORIGINAL RETURN OF INCOME SUBSTANTIA TES THIS FACT. DURING THE COURSE OF HEARING, AMPLE OPPORTUNITIES WERE GIVEN TO FURNI SH THE DETAILS OF TRADE DEBTS. HOWEVER, NO SUCH DETAILS HAVE BEEN GIVEN. THEREFORE , IT IS HELD THAT THE ASSESSEE HAS FILED THE INACCURATE PARTICULARS OF INCOME TO T HE EXTENT OF RS.9,74,78,265/- THEREFORE, PENALTY PROCEEDINGS U/S. 271(1)(C) ARE I NITIATED SEPARATELY ON THIS COUNTRY. 5. IN APPEAL THE LD.CIT(A) GAVE PART RELIEF TO THE ASSESSEE WHEREIN HE CONFIRMED THE ADDITION MADE BY THE ASSESSING OFFICE R TO THE EXTENT OF RS.9,73,78,265/- AND GAVE RELIEF OF ONLY RS. 1 LAKH . WHILE DOING SO, HE OBSERVED THAT THERE WAS MISMATCH OF FIGURES WHEN CO MPARED WITH BALANCE SHEET FIGURES AS ON 31-03-2000 WHICH WAS NOT EXPLAI NED BY THE ASSESSEE TO THE ASSESSING OFFICER AT ANY STAGE AND NOT IN APPELLATE PROCEEDINGS. SINCE THE ASSESSEE DID NOT FURNISH THE FULL PARTY-WISE DETAIL S THE CIT(A) GAVE RELIEF OF ONLY RS.1 LAKH. THE ASSESSEE PREFERRED AN APPEAL B EFORE THE TRIBUNAL AND THE TRIBUNAL VIDE ORDER DATED 11-10-2007 RESTORED THE I SSUE TO THE FILE OF THE CIT(A) WITH CERTAIN DIRECTIONS. IN THE SETTING-ASI DE PROCEEDINGS THE LD.CIT(A) GRANTED RELIEF TO THE ASSESSEE BY OBSERVI NG AS UNDER : 8. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE C ASE, THE ASSESSMENT ORDER OF THE A.O., THE ORDER OF THE HON'BLE ITAT, P UNE, REMAND REPORT OF THE A.O. AND SUBMISSIONS OF THE APPELLANT AND I PROCEED TO DEC IDE THE APPEAL OF THE APPELLANT COMPANY IN RESPECT OF THE THREE ADDITIONS CONTESTED BY THE APPELLANT. 8.1 DISALLOWANCE OF BAD DEBTS IN RESPECT OF TRA DE DEBTORS RS.4,12,11,480/- : THE SAID DEBTORS WRITTEN OFF BY THE APPELLANT ARE TRA DE DEBTORS IN RESPECT OF 268 PARTIES OF DEVANGERE BRANCH, HYDERAB AD BRANCH AND AURANGABAD BRANCH. THE APPELLANT HAS FILED DETAILS OF THE SAID DEBTORS AND ALSO COPIES OF THE CREDIT NOTES ISSUED BY THE APPELLANT COMPANY TO THE SAID DEBTORS. THE APPELLANT HAS WRITTEN OFF THE SAID BAD DEBTS IN THE BO OKS OF ACCOUNTS. IT IS KNOWN FACT, EVIDENT FROM NEWS APPEARING IN NEWSPAPERS OF THE RELEVANT 6 PERIOD THAT GERMINATION PROBLEM IN RESPECT OF SEEDS SO LD BY THE APPELLANT COMPANY HAS OCCURRED IN THE CERTAIN AREAS OF THE CO UNTRY AND DUE TO CROP FAILURE THE APPELLANT HAS TO WRITE OFF DEBIT BALANC ES OF THE DEBTORS. THE A.O. HAS DISALLOWED THE SAID BAD DEBTS STATING THAT THE APPELL ANT HAS NOT TAKEN STEPS TO RECOVER THE SAID DEBTS AND HAS NOT EXPLAINED THE CIRC UMSTANCES IN WHICH THE APPELLANT HAS TO WRITE OFF THE SAID DEBTS AS BAD DEBT S. THE A.O. HAS FURTHER STATED THAT THE CLAIM OF BAD DEBTS IS NOT JUSTIFIED AS THE ASSESSEE IS HAVING REGULAR BUSINESS TRANSACTIONS WITH THE SAID DEBTORS WH OSE DEBTS HAVE BEEN WRITTEN OFF; THE ASSESSEE COMPANY HAS NOT FORFEITED T HE DEPOSITS OF THE DEALERS WHOSE DEBTS HAVE BEEN WRITTEN OFF. THE APPELLANT HAS REBUTTED THE ABOVE CONTENTIONS OF THE A.O. STATING THE REASONS FOR HAVIN G TRANSACTIONS WITH THE SAID DEBTORS AND REASONS FOR NOT FORFEITING THE DEPOS ITS OF THE DEALERS. IT IS SETTLED LAW THAT IN VIEW OF AMENDMENT TO SECT ION 36(1)(VII) R.W.S. 36(2) W.E.F. 01/04/1989, THE ASSESSEE IS NOT REQUIRED TO ESTABLISH THAT THE DEBT HAS IN FACT BECOME BAD FOR WRITING OFF THE SAME A S BAD DEBT; WHAT IS REQUIRED IS THAT THE ASSESSEE SHOULD HAVE REASONABLE BELIEF THAT THE DEBT IS NOT RECOVERABLE. IT HAS BEEN PROVIDED IN SECTION 36(2) TH AT IF THE DEBT WRITTEN OFF AS BAD DEBT HAS BEEN SUBSEQUENTLY RECOVERED THEN TH E SAME IS TO BE OFFERED TO TAX AS INCOME. IT HAS ALSO BEEN LAID DOWN BY HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT 323 ITR 397 THAT IT IS NOT NECESS ARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT HAS IN FACT BECAME IRRECOVERAB LE BEFORE WRITING OFF THE SAME AS BAD DEBT. WHAT IS REQUIRED IS THAT THE ASSESSE E HAS TO WRITE OFF THE DEBT IN THE BOOKS OF ACCOUNTS AND SHOULD REDUCE THE DEBIT BALANCE OF THE DEBTOR TO THAT EXTENT. THE APPELLANT HAS COMPLIED WI TH ALL THE CONDITIONS FOR CLAIMING THE DEBT OF RS.4,12,11,480/- AS BAD DEBT. I N VIEW OF THE ABOVE FACTS AND DISCUSSION, I AM OF THE CONSIDERED VIEW THAT THE AD DITION OF RS.4,12,11,480/- IS NOT JUSTIFIED. THE A.O. IS, THEREF ORE, DIRECTED TO DELETE THE ADDITION OF RS.4,12,11,480/-. 8.2 DISALLOWANCE OF TRADE ADVANCES WRITTEN OFF RS.5.62,66,784/- : THE SAID ADVANCES WRITTEN OFF BY THE APPELLANT ARE IN RESPECT OF ADVANCES GIVEN TO SEED GROWERS AND SEED PROCUREMENT CREDITORS. IN THIS REGARD THE APPELLANT HAS FILED COMPLETE LIST OF PARTIES AND PLACE S IN RESPECT OF WHOM TRADE ADVANCES WERE WRITTEN OFF. THE APPELLANT HAS ALSO FIL ED COPIES OF CREDIT NOTES ISSUED TO THE SAID SEED GROWERS. THE SAID TRADE ADVANC ES ALONGWITH FOUNDATION SEEDS WERE GIVEN BY THE APPELLANT FOR PROCURING SEED S TO THE GROWERS OF THE SEEDS. THE ADVANCES WERE ALSO GIVEN TO THE PROCUREME NT CREDITORS I.E. THE PERSONS WHO PROCURE THE SEEDS FROM THE FARMERS BY P AYING ADVANCES TO THE FARMERS AND ALSO DISTRIBUTE THEM FOUNDATION SEEDS SUP PLIED BY THE APPELLANT COMPANY. IT IS KNOWN FACT, EVIDENT FROM NEWS APPEARING IN NEWSPAPERS OF THE RELEVANT PERIOD THAT GERMINATION PROBLEM IN RESPECT OF SEEDS SUPPLIED BY THE APPELLANT COMPANY HAS OCCURRED IN THE CERTAIN AREAS O F THE COUNTRY AND DUE TO CROP FAILURE THE APPELLANT HAS TO WRITE OFF ADVANCES GIVEN TO SEED GROWERS AND SEED PROCUREMENT CREDITORS. IN SUPPORT OF THE ABOVE CLAIM THE APPELLANT HAS RELIED ON FOLLOWING DECISIONS (I) CIT VS. MYSORE SUGAR CO.LTD. (1962) 46 IT R 649 (SC) (II) LALVANI (TJ) VS. CIT (1970) 78 ITR 176 (B OM) (III) CIT VS. ABDUL RAZZAK & COMPANY (1983) 1 36 ITR 825 (GUJ) (IV) CIT VS. ANJANI KUMAR & CO.LTD. (2003) 259 ITR 114 (RAJ) (V) THACKER HP. & CO. VS. CIT (1982) 134 ITR 2 1 (MP) THE A.O. HAS REJECTED THE CLAIM OF THE APPELLANT STA TING THAT THE ASSESSEE HAS NOT TAKEN ANY STEPS TO RECOVER SUCH ADVANCES; T HE ASSESSEE HAS NOT EXPLAINED THE CIRCUMSTANCES WHICH HAVE COMPELLED IT T O WRITE OFF THE ADVANCES. THE CONTENTIONS RAISED BY THE A.O. HAVE BEEN REBUTTED BY THE APPELLANT IN THE COUNTER COMMENTS ON REMAND REPORT OF THE A.O. 7 IT IS SETTLED LAW THAT THE TRADE ADVANCES GIVEN IN THE REGULAR COURSE OF BUSINESS WHICH HAVE BECOME IRRECOVERABLE CAN BE CLAIMED AS ALLOWABLE EXPENDITURE. THIS PROPOSITION OF LAW IS SUPPORTED BY THE RATIO LAID DOWN BY THE DECISIONS RELIED ON BY THE APPELLANT. IT HAS BEEN LAID DOWN BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT VS. MYSORE SUGAR C O. LTD. (1962) 461 ITR 649 THAT LOSS ON ACCOUNT OF FAILURE OF CROPS OF SUGARCAN E GROWERS TO WHOM ASSESSEE HAS ADVANCED MONEY, SEEDLINGS AND FERTILIZERS TO BE AD JUSTED AGAINST SUPPLY OF SUGARCANE IS A REVENUE LOSS FOR ASSESSEE WHO IS A SUG AR MANUFACTURER. IN THE CASE OF CIT VS. INDANE BISELERS 181 ITR 69, THE HON 'BLE MADRAS HIGH COURT HAS HELD THAT NON RECOVERY OF ADVANCES TO TRANSPORTERS TO MAINTAIN REGULAR SUPPLY OF ASSESSEE'S GOODS WAS ALLOWABLE AS TRADING LOSS BE ING INCIDENTAL TO THE BUSINESS OF THE ASSESSEE. IN VIEW OF THE ABOVE FACTS OF THE CASE AND DISCUSSION AND ALSO IN VIEW OF RATIO LAID DOWN BY THE ABOVE MENTIONED DECISIONS, I AM O F THE CONSIDERED VIEW THAT THE A.O. IS NOT JUSTIFIED IN DISALLOWING TRADE ADVAN CES OF RS.5,62,66,784/- WRITTEN OFF BY THE APPELLANT AS IRRECOVERABLE. THE A DDITION OF RS.5,62,66,784/- IS, THEREFORE, DELETED AND THE A.O. IS DIRECTED ACC ORDINGLY. 6. AGGRIEVED WITH SUCH ORDER OF THE CIT(A) THE REVE NUE IS IN APPEAL BEFORE US WITH THE FOLLOWING GROUNDS : 1. WHETHER ON THE BASIS OF FACTS AND IN THE CIRCUM STANCES OF THE CASE. LD.CIT(A) WAS CORRECT IN DELETING THE ADDITION ON A CCOUNT OF BAD DEBTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, WHETHER CIT(A) IS CORRECT IN DECIDING THAT ASSESSEE IS ELIGIBLE FOR C LAIMING BAD DEBTS EVEN THOUGH THE ACCOUNT OF THE DEBTORS HAS NOT BEEN CREDITED AN D CLOSED. 3. THE ORDER OF THE AO BE RESTORED AND THAT OF THE CIT(A) BE VACATED. 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY GROUNDS OF APPEAL . 7. THE LD. DEPARTMENTAL REPRESENTATIVE HEAVILY RELI ED ON THE ORDER OF THE ASSESSING OFFICER. REFERRING TO THE STATEMENT OF F ACTS FILED BY THE REVENUE SHE DREW THE ATTENTION OF THE BENCH TO THE COMMENTS OF THE ASSESSING OFFICER AND SUBMITTED THAT THE DECISION OF THE LD. CIT(A) I S NOT ACCEPTABLE FOR THE FOLLOWING REASONS: (I) IN THIS CASE, THE AO HAS SUBMITTED REMAND REPORT O N 27-11-2006 WHERE THE AO HAS MADE DETAILED ENQUIRY ON THE ADDITI ONAL GROUND SUBMITTED BEFORE THE CIT(A). IN RESPECT OF BAD DEBTS WRITTEN OF F, IT WAS SEEN THAT ASSESSEE HAS GIVEN CONSOLIDATED LIST OF THREE BRANCHES, NAMELY: DAVANGIRE BRANCH DEBTORS : RS. 87,52,128/ - HYDERABAD BRACH DEBTORS : RS.3,12,48,560/- AURANGABAD BRANCH DEBTORS : RS. 12,10,791/- ---------------------- TOTAL : RS.4,12 ,11,479/- ---- ------------------- 8 (II) IT WAS OBSERVED THAT THE ASSESSEE HAS NOT CREDITED IN DIVIDUAL DEBTORS ACCOUNT SO THAT THE DEBTORS CAN BE WRITTEN OFF INSTEAD THE ASSESSEE HAS MADE GROUPING AS MENTIONED ABOVE. FURTHER, IN THE CASE OF AMRUTODABHA KRISHI KENDRA, MYSORE, DAVANGIRE BRANCH, WHO WAS THE DEBTOR OF THE ASSESSEE, THE ACCOUNT WAS WRITTEN OFF ONLY AFTER 10 DAYS FROM THE D ATE OF LAST D.D. RECEIVED BY THE ASSESSEE. FURTHER, THE ASSESSEE HAS NOT FORFEITED THE SECURITY DEPOSIT OF THE DEBTORS INSTEAD ASSESSEE HAS CREDITED WITH INTEREST O N SECURITY DEPOSITS. THEN HOW, THE SAID PARTY TURNED TO BE BAD DEBTORS. TH ERE WERE MANY INSTANCES OBSERVED BY THE AO DURING THE COURSE OF SCRUTINY ASSESSMEN T AND IN REMAND REPORT. FURTHER, THE PARTIES WHO ACCOUNTS WERE WRITTE N OFF BY THE ASSESSEE ARE REGULARLY HAVING BUSINESS TRANSACTIONS WITH THE ASSESSEE AND THEIR NAMES WERE ALSO APPEARING IN THE FOLLOWING ASSESSMENT YEARS. IT IS WO RTHWHILE TO MENTION HERE THAT THE ASSESSEE HAS WRITTEN OFF THE AMOUNT LYING WITH ANDHRA PRADESH STATE SEEDS CORPORATION, HYDERABAD WHICH IS A GOVERNM ENT AGENCY. FROM THE ABOVE CRYSTAL CLEAR THAT BAD DEBT AMOUNTS HAVE BEEN D EBITED TO P & L ACCOUNT AT THE SWEET WILL OF THE ASSESSEE. THE DECISION OF HON'BL E SUPREME COURT IN THE CASE OF MC-DOWELL CO. (154 ITR 148) IS APPLICABLE IN THIS CASE. (III) IN RESPECT OF OUTSTANDING DEBTORS OF RS.5.62 CROR ES, THE ASSESSEE HAS WRITTEN OFF THE AMOUNTS LYING WITH GOVERNMENT DEPART MENT IN COURT, POST OFFICE AND AMOUNT LYING WITH MUNICIPAL CORPORATION. (IV) IN RESPECT OF TRADE DEBTORS, THE ASSESSEE HAS MADE SUB MISSION BEFORE THE ITAT AND BEFORE THE CIT(A) WHICH WAS FORWARDED TO THIS OFFICE FOR VERIFICATION. ON GOING THROUGH THE SAME, IT WAS OB SERVED THAT THE ASSESSEE HAS NOT TAKEN ANY STEPS TO RECOVER SUCH ADVANCES AND IT IS N OT AVAILABLE ON THE RECORD THAT, WHAT WERE CIRCUMSTANCES WHICH ENFORCED T HE ASSESSEE TO WRITE OFF SOME ADVANCES AT ONCE AND NOT THE OTHER ADVANCE. THE CLAIM OF ASSESSEE THAT ADVANCES WERE MADE TO GROWERS ONLY IS NOT CORRECT. AS P ER RECORDS AVAILABLE THE COMPONENTS OF WRITE OFF OF ADVANCES ARE I) PROCUREMENT CREDITORS : 4.73 C RORES. II) GROWERS : 1.16 CRORES 5.89 CRORES PROVISION REVERSED .29 CRORES 5.59 CRORES. SO, ADVANCE TO GROWERS IS ONLY RS.1.16 CRORES (LESS THESE 25% OF ADVANCES). REST ARE PROCUREMENT CREDITORS HAVING DR. BALANCE, SO, THERE IS NO JUSTIFICATION REGARDING WRITE OFF THESE DEBIT BALANCE WITHOUT PROP ER STEPS TAKEN. REGARDING GROWERS EVEN FOR A TIME BEING IT IS CONSIDERED THAT TH E ADVANCED WAS IRRECOVERABLE BUT ON WHAT BASIS ASSESSEE CAME TO CONCLUSI ON IS NOT PRODUCED, SO THE CASE LAWS CITED BY ASSESSES IS NOT APPLICABLE REGARDI NG BUSINESS LOSS CLAIMED BY ASSESSEE. SHE ACCORDINGLY SUBMITTED THAT THE ORDER OF LD.CIT( A) BE REVERSED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 8. THE LD. COUNSEL FOR THE ASSESSEE ON THE OTHER HA ND WHILE SUPPORTING THE ORDER OF THE CIT(A) SUBMITTED THAT THE ISSUE ST ANDS COVERED IN VIEW OF THE REMAND REPORT FILED BY THE ASSESSING OFFICER AS WEL L AS THE ORDER OF THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPR A). 9 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS MADE BY BOTH SIDES. PERUSED THE ORDER OF THE ASSESSING OFFICER & CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED TH E VARIOUS DECISIONS BROUGHT TO OUR NOTICE. WE FIND IN THE INSTANT CASE THE LD.CIT(A) FOLLOWING THE DECISION OF HONBLE SUPREME COURT IN THE CASE O F TRF LTD. (SUPRA) DELETED THE BAD DEBT CLAIMED BY THE ASSESSEE AMOUNT ING TO RS.4,12,11,480/- SIMILARLY, FOLLOWING VARIOUS DECISIONS THE LD.CIT( A) DELETED THE ADDITION OF RS.562.49 LAKHS MADE BY THE ASSESSING OFFICER ON AC COUNT OF ADVANCES WRITTEN OFF. 9.1 SO FAR AS THE AMOUNT WRITTEN OFF ON ACCOUNT OF BAD DEBT IS CONCERNED WE FIND THE ASSESSEE HAS NOT ADJUSTED THE SECURITY DEPOSITS OF THE DEBTORS FROM SUCH BAD DEBT. THE HONBLE SUPREME COURT IN THE CA SE OF TRF LTD. (SUPRA) WHICH HAS BEEN RELIED ON BY THE LD. CIT(A) HAS HEL D AS UNDER : HEARD LEARNED COUNSEL ON BOTH SIDES. IN THESE APPEALS, WE ARE CONCERNED WITH THE ASSESSMENT Y EAR 1990-91 AND THE ASSESSMENT YEAR 1993-94. PRIOR TO APRIL 1, 1989, EVERY ASSESSEE HAD TO ESTABLISH, AS A MATTER OF FACT, THAT THE DEBT ADVANCED BY THE ASSESSEE HAD, IN FACT, BECOME IRRECOVERABLE. THAT POSITION GOT ALTER ED BY DELETION OF THE WORD ESTABLISHED, WHICH EARLIER EXISTED IN SECTION 36(1)(V II) OF THE INCOME-TAX ACT, 1961 (THE ACT, FOR SHORT). FOR THE SAKE OF CLARITY, WE REPRODUCE HEREINBELOW TH E PROVISIONS OF SECTION 36(1)(VII) OF THE ACT, BOTH PRIOR TO APRIL 1, 1989 AND POST APRIL 1, 1989 : PRE-APRIL 1, 1989 : 36. OTHER DEDUCTIONS (1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECTION 28 -- . . . (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF ANY DEBT, OR PART THEREOF, WHICH IS ESTABLISHED TO HAVE BE COME A BAD DEBT IN THE PREVIOUS YEAR. POST-APRIL 1 1989 : 36. OTHER DEDUCTIONS (1) THE DEDUCTIONS PROVIDED FOR IN THAT FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE M ATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO IN SECT ION 28 -- . . . 10 (VII) SUBJECT TO THE PROVISIONS OF SUB-SECTION (2), THE AMOUNT OF ANY BAD DEBT OR PART THEREOF WHICH IS WRITTEN OFF AS IRRE COVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. THIS POSITION IN LAW IS WELL-SETTLED. AFTER APRIL 1, 1 989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BEC OME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABL E IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICE R HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. WHEN A BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CREDITED, THUS, CLOSING THE ACCOUN T OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SU NDRY DEBTORS. AS STATED ABOVE, THE ASSESSING OFFICER HAS NOT EXAMINED WHE THER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS O F THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER . HENCE, THE MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDER ATION OF THE ABOVEMENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE-OFF. FROM THE ABOVE, IT IS CLEAR THAT CUSTOMERS ACCOUNT HAS TO BE CLOSED FOR CLAIMING OF BAD DEBT WHICH HAS NOT BEEN DONE IN THI S CASE. WE, THEREFORE, RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFF ICER TO VERIFY THE ACCOUNTS OF THE DEBTORS AND ALLOW THE BAD DEBT AFTER DEDUCTING THE SECURITY DEPOSIT TO THE CUSTOMERS IN THE LIGHT OF THE DECISION OF HONBLE S UPREME COURT CITED (SUPRA) AND IN ACCORDANCE WITH LAW. 9.2 SO FAR AS THE DEDUCTION ON ACCOUNT OF ADVANCES WRITTEN OFF IS CONCERNED, WE FIND THE ASSESSEE HAS NOT GIVEN THE D ETAILS OF RETURN OF SEEDS FROM THE GROWERS/PROCUREMENT CREDITORS. THE SEEDS MAY HAVE GERMINATION PROBLEM, BUT ITS NUTRITIVE VALUE IS NOT LOST AT ALL . THE ASSESSEE HAS NOT QUANTIFIED THE VALUE OF THE SAME. IT WAS STATED IN THE CASE OF SISTER CONCERN, I.E. BARKHA FARMS PVT. LTD. THAT SUCH SEEDS WERE PU RCHASED FROM CUSTOMERS ON BEHALF OF NATH SEEDS. THIS ASPECT WAS COMPLETEL Y IGNORED BY THE LD.CIT(A). CONSIDERING THE TOTALITY OF THE FACTS O F THE CASE AND IN THE INTEREST OF JUSTICE, WE DEEM IT PROPER TO RESTORE THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER WITH A DIRECTION TO DECIDE THE ISSUE AFRESH AND IN ACCORDANCE WITH LAW KEEPING IN MIND THE ABOVE DISCUSSION. NEEDLESS TO SAY, THE ASSESSING OFFICER SHALL GIVE DUE OPPORTUNITY OF BEING HEARD TO THE AS SESSEE. WE HOLD & DIRECT 11 ACCORDINGLY. THIS APPEAL FILED BY THE REVENUE IS A CCORDINGLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO.255/PN/2012 (A.Y. 2003-04) : 10. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER : 1. WHETHER ON THE BASIS OF FACTS AND IN THE CIRCUM STANCES OF THE CASE. LD.CIT(A) WAS CORRECT IN DELETING THE ADDITIO N ON ACCOUNT OF BAD DEBTS. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE ORDER OF THE AO BE RESTORED AND THAT OF THE CIT(A) BE VACATE D. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE APPELLANT CRAVES LEAVE TO ADD, AMEND OR ALTER ANY GROUNDS OF APPEAL. 11. AFTER HEARING BOTH THE SIDES, WE FIND THE ABOVE GROUNDS BY THE REVENUE ARE IDENTICAL TO THE GROUNDS OF APPEAL IN ITA NO.25 4/PN/2012 FOR A.Y. 2001- 02. WE HAVE ALREADY DECIDED THE ISSUE AND THE MATT ER HAS BEEN RESTORED TO THE FILE OF THE ASSESSING OFFICER WITH CERTAIN DIRECTIO NS. FOLLOWING THE SAME RATIO, THE GROUNDS RAISED BY THE REVENUE ARE ALLOWED FOR S TATISTICAL PURPOSES. 12. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE ARE ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 29-11-2013. SD/- SD/- (SHAILENDRA KUMAR YADAV) (R. K. PANDA) JUDICIAL MEMBER ACCOUNTANT MEMBER PUNE, DATED : 29 TH NOVEMBER, 2013 SATISH COPY OF THE ORDER IS FORWARDED TO : 1. THE ASSESSEE 2. THE DEPARTMENT 3. THE CIT(A), AURANGABAD 4. THE CIT, AURANGABAD 5. D.R. A BENCH, PUNE 6. GUARD FILE BY ORDER // TRUE COPY // SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, PUNE