M/s. S.Kumar Industries Ltd., Ahmedabad V. The ACIT.,Circle-8, Ahmedabad

ITA 269/AHD/2009

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 1966 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-03-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 04-03-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 28-01-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R K DHANISTA
• Assessee Lawyers: U S BHATI
• Keywords: Bad and doubtful debts; Set aside

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI G. D. AGARWAL, VP AND BHAVNESH SAINI , JM) ITA NO.269/AHD/2009 A. Y.: 2005-06 M/S. S. KUMAR INDUSTRIES LTD., SATYAM CENTRE, GULBAI TEKRA, ELLISBRIDGE, AHMEDABAD VS THE A. C. I. T., CIRCLE-8, AJANTA BUILDING, ASHRAM ROAD, AHMEDABAD PA NO. AAFCS 7875 M (APPELLANT) (RESPONDENT) APPELLANT BY SHRI U.S. BHATI, AR RESPONDENT BY SHRI R.K. DHANISTA, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE LEARNED CIT(A)-XIV, A HMEDABAD DATED 03-11-2008 FOR ASSESSMENT YEAR 2005-06. 2. THE LEARNED COUNSEL FOR THE ASSESSEE DID NOT PRE SS GROUNDS NO.1 AND 2 OF THE APPEAL. THE SAME ARE ACCORDINGLY DISMISSED AS NOT PRESSED. 3. ON GROUND NO.3, THE ASSESSEE CHALLENGED THE DISA LLOWANCE OF RS.2,88,126/- BEING BAD DEBTS. THE AO ASKED THE ASS ESSEE TO FURNISH DETAILS OF THE BAD DEBTS OF RS.16,42,103/- WRITTEN OFF IN THE PROFIT & LOSS ACCOUNT. FROM THE DETAILS FILED BY TH E ASSESSEE, THE AO OBSERVED THAT MOST OF THE WRITE OFF WERE ON ACCOUNT OF GOVERNMENT DEPARTMENTS FOR WHICH NO JUSTIFICATION WAS FURNISHE D EXCEPT THAT THE AMOUNT WRITTEN OFF WERE OUTSTANDING FOR LONG TIME. THE ASSESSEE ITA NO.269/AHD/2009 M/S. S. KUMAR INDUSTRIES LTD. VS ACIT, CIR-8, AHMED ABAD 2 EXPLAINED THAT WRITE OFF HAS BEEN MADE AS IT WAS UN ABLE TO RECOVER THE AMOUNTS FROM THE PARTIES. BUT NO EVIDENCE TO TH AT EFFECT WAS FILED. THE AO OBSERVED THAT THE ASSESSEE HAS MADE CERTAIN TRANSACTIONS DURING THE YEAR WITH VARIOUS GOVERNMENT DEPARTMENTS AND THAT AMOUNTS WERE WRITTEN OFF IN THE NAME OF SUCH PARTIE S TO WHOM THE TRANSACTIONS HAD TAKEN PLACE. THE AO RELIED UPON TH E DECISION OF THE HONBLE GUJARAT HIGH COURT IN THE CASE OF DHALL ENT ERPRISES VS CIT 207 CTR 729 (GUJ) AND HELD THAT ALL THE DEBTS CANNO T BE TERMS AS BAD DEBTS AND IF THE THIRD PARTIES WILLING TO PAY, THAT DEBTS CANNOT BE WRITTEN OFF. THE AO ACCORDINGLY DISALLOWED RS.2,88, 126/-. SAME SUBMISSIONS WERE REITERATED BEFORE THE LEARNED CIT( A) AND IT WAS EXPLAINED THAT THE AO FAILED TO NOTE NATURE OF TRAN SACTIONS WITH THE GOVERNMENT DEPARTMENTS AS THE ACCOUNTS WERE WRITTEN OFF ON ACCOUNT OF SUPPLIES MADE TO DIFFERENT DEPT. BETWEEN 1998-99 TO 2002-03 AND NO AMOUNT WAS RECOVERED FROM THE PARTIES TILL THE DATE OF ASSESSMENT. IT WAS SUBMITTED THAT THE DEBTS WERE WRITTEN OFF IN TH E BOOKS OF ACCOUNT AS PER SECTION 36 (1) (VII) OF THE IT ACT. THE LEAR NED CIT(A) HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND N OTED THAT THERE WAS STILL CHANCES OF RECOVERY OF THE BALANCE AMOUNT FROM THE PARTIES. HE, THEREFORE, AGREED WITH THE FINDING OF THE AO AN D DISMISSED THE APPEAL OF THE ASSESSEE. 4. THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND S UBMITTED THE DETAILS OF THE AMOUNTS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE AND SUBMITTED THAT THE ISSU E IS NOW COVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. ITA NO.269/AHD/2009 M/S. S. KUMAR INDUSTRIES LTD. VS ACIT, CIR-8, AHMED ABAD 3 LTD. VS CIT 323 ITR 397. THE LEARNED DR CONCEDED TH AT THE ISSUE IS NOW COVERED IN FAVOUR OF THE ASSESSEE BY THE JUDGME NT OF THE HONBLE SUPREME COURT MENTIONED ABOVE. 5. ON CONSIDERATION OF THE ABOVE FACTS WE ARE OF TH E VIEW THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE D ECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. (SUPRA). IT IS NOT IN DISPUTE THAT THE AMOUNTS OF BAD DEBTS ARE WRITTEN O FF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YE AR. THE ASSESSEE EXPLAINED THAT THE SUPPLIES WERE MADE TO THE DIFFER ENT GOVERNMENT ORGANIZATIONS SEVERAL YEARS BACK AND THERE WAS NO C HANCE OF RECOVERY OF THE AMOUNTS OUTSTANDING TILL THE DATE O F THE ASSESSMENT. THEREFORE, THE AMOUNTS WERE WRITTEN OFF AS IRRECOVE RABLE IN THE ACCOUNTS OF THE ASSESSEE FOR THE PREVIOUS YEAR. THU S, THE CONDITIONS OF SECTION 36 (1) (VII) OF THE IT ACT HAVE BEEN SAT ISFIED IN THE CASE OF THE ASSESSEE. THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. (SUPRA) HELD AS UNDER : THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CREDITED, THUS, CLOSING THE ACCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STATED ABOVE, THE ASSESSING OFFICER HAS NOT ITA NO.269/AHD/2009 M/S. S. KUMAR INDUSTRIES LTD. VS ACIT, CIR-8, AHMED ABAD 4 EXAMINED WHETHER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE-MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. BY FOLLOWING THE ABOVE DECISION, WE SET ASIDE THE O RDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION. IN THE R ESULT THIS GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED ORDER PRONOUNCED IN THE OPEN COURT ON 10-03-2011 SD/- SD/- (G. D. AGARWAL) VICE PRESIDENT (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 10-03-2011 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD