The ACIT-CC-1, Baroda V. M/s. Navjivan Roller Flour & Pulse Mills Pvt.Ltd., Dahod

ITA 2695/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6595 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-05-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 29-09-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 143(3); 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH C BEFORE SHRI G.D. AGARWAL, VICE-PRESIDENT (AZ) AND SHRI MUKUL KR. SHRAWAT, JUDICIAL MEMBER DATE OF HEARING : 2/5/11 DRAFTED ON: 3/5/11 APPEAL(S) / CO(S) BY SL. NO(S). ITA NO(S) / CO NO(S) ASSESSMENT YEAR(S) APPELLANT (S) RESPONDENT(S) 1. 2695/AHD/2009 2003-04 THE ASST.CIT CC-1, BARODA M/S.NAVJIVAN ROLLER FOUR & PULSE MILLS PVT.LTD. KUMBHARWADA, OPP.MARKET YARD DAHOD PAN :AAACN 7117 Q 2. 2696/AHD/2009 2004-05 -DO- -DO- 3. 2697/AHD/2009 2005-06 -DO- -DO- 4. CO NO.260/AHD/09 (O/O.ITA 2695/A/09) 2003-04 ASSESSEE REVENUE 5. CO NO.261/AHD/09 (O/O.ITA 2696/A/09) ASSESSEE REVENUE 6. CO NO.262/AHD/09 (O/O.ITA 2697/A/09) ASSESSEE REVENUE REVENUE BY : SHRI N.S. DAYAM, CIT-D.R. ASSESSEE BY : SHRI VIJAY RANJAN O R D E R PER BENCH : ALL THE THREE APPEALS HAVE BEEN FILED BY THE REVEN UE ARISING FROM THE ORDERS OF LEARNED CIT(APPEALS)-IV, AHMEDABAD AL L IDENTICALLY DATED 10/07/2009 AND ON THE OTHER HAND THE RESPONDENT-ASS ESSEE HAS FILED CROSS OBJECTIONS FOR THE THREE YEARS INVOLVED. FOR ALL T HE YEARS GROUNDS, OF THE REVENUE ARE IDENTICAL TO BE DECIDED AS FOLLOWS:- ITA NOS.2695-2697/AHD/2009 (BY REVENUE) & CO NOS.290-292/AHD/2009 (BY ASSESSEE) ACIT VS. M/S.NAVJIVAN ROLLOR -FLOUR & PULSE PVT.LTD. ASST.YEARS 2003-04 TO 2005-06 - 2 - ASSESSMENT YEAR 2003-04 (ITA NO.2695/AHD/2009) 1) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS.4,96,505/- (A.Y.2004-05 RS.2,05,980/- & A.Y. 200 5-06 RS.2,79,355/-) ON ACCOUNT OF BAD DEBTS U/S.36(1)(VI I) OF THE I.T. ACT. 2. THE ASSESSING OFFICER VIDE ASSESSMENT ORDER PASS ED U/S.1153A R.W.S, 143(3) OF THE I.T.ACT DATED 24.12.2008 HAS H ELD THAT THE BAD DEBTS AS CLAIMED IN THE PROFIT & LOSS ACCOUNT WERE NOT AL LOWABLE U/S.36(1)(VII) OF THE I.T.ACT FOLLOWING THE DECISION OF DHALL ENTE RPRISES & ENGINEERS PVT.LTD. VS. CIT REPORTED AT [2007]207 CTR 729 (G UJ.). WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHO RITY, THE LEARNED CIT(APPEALS) HAS FOUND THAT THE SALE WHICH WERE MAD E TO SEVERAL PARTIES IN THE PAST COULD NOT BE RECOVERED FROM THOSE PARTI ES BEING MEAGRE AND IN THE NATURE OF KASAR/VATAV APPLYING THE RATIO LAID DOWN IN THE CASE OF BADARMAL RANMAL VS. ITO REPORTED AT 18 TTJ 289 HE H AS HELD THAT THE CLAIM AS WRITTEN OFF BY THE ASSESSEE WAS ALSO IN TH E NATURE OF KASAR/VATAV AND WRITE OFF HIS ALLOWABLE BAD DEBTS. ONCE THE A DMITTED FACTUAL POSITION IS THAT THE ASSESSEE HAS WRITTEN O FF THE IMPUGNED DEBTS AS BAD DEBTS IN ITS BOOKS OF ACCOUNT IN THE YEAR UNDER CONSIDERATION, THEREFORE, THE ISSUE NOW STOOD COVERED BY A LATEST DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TRF LTD.VS. CIT REPOR TED AT (2010) 323 ITR 397 (SC), WHEREIN THE HON'BLE APEX COURT HAS TAKEN INTO CONSIDERATION THE POSITION OF LAW, AFTER 01/04/1989 AND HELD AS UNDER:- THIS POSITION IN LAW IS WELL-SETTLED. AFTER APRI L 1, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS ITA NOS.2695-2697/AHD/2009 (BY REVENUE) & CO NOS.290-292/AHD/2009 (BY ASSESSEE) ACIT VS. M/S.NAVJIVAN ROLLOR -FLOUR & PULSE PVT.LTD. ASST.YEARS 2003-04 TO 2005-06 - 3 - BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOW EVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINE D 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 DEB ITED AND THE CUSTOMERS ACCOUNT IS CREDITED, THUS, CLOSING THE A CCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STATED ABOVE, THE ASSESSI NG OFFICER HAS NOT 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, T HE MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSI DERATION OF THE ABOVEMENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE-OFF. 2.1. ONCE THE HON'BLE APEX COURT HAS HELD THAT IT I S ENOUGH IF THE BAD DEBT IS WRITTEN-OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE, THEN IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAD BECOME IRRECOVERABLE. THEREFORE, THIS GROUND OF TH E REVENUE IS DISMISSED. 3. GROUND NO.2 (EXTRACTED FROM ITA NO.2695/AHD/20 09 -A.Y.2003-04) 2) THE LD. CIT(A) HAS ERRED IN LAW AND ON FACTS AN D CIRCUMSTANCES OF THE CASE IN DELETING THE ADDITION OF RS.7,57,407/- (FOR A.Y. 2004-05 RS.7,37,447 AND FOR A.Y. 2005-06 RS.8,21,136) ON ACCOUNT OF DISALLOWANCE OF ITA NOS.2695-2697/AHD/2009 (BY REVENUE) & CO NOS.290-292/AHD/2009 (BY ASSESSEE) ACIT VS. M/S.NAVJIVAN ROLLOR -FLOUR & PULSE PVT.LTD. ASST.YEARS 2003-04 TO 2005-06 - 4 - PAYMENT MADE TO PERSONS SPECIFIED U/S.40A(2)(B) OF THE I.T. ACT. 3.1. IT WAS NOTICED BY THE ASSESSING OFFICER THAT PAYMENT OF INTEREST WAS MADE TO CERTAIN PERSONS WHICH WERE COVERED BY T HE PERSONS PRESCRIBED U/S.40A(2)(B) OF THE I.T.ACT. AS PER A SSESSING OFFICER, ON COMPARISON OF THE INTEREST TO DIRECTORS AND RELATIV ES IT WAS FOUND THAT HIGHER INTEREST RATE BY 1% PER ANNUM WAS PAID TO SU CH SPECIFIED PERSONS. THE EXPLANATION OF THE ASSESSEE WAS THAT THE INTERE ST ON THOSE DEPOSITS WAS ON HIGHER RATE OWING TO THE FACT THAT THOSE DEP OSITS WERE KEPT FOR A LONG PERIOD. THE ASSESSING OFFICER HAS INVOKED THE PROVISIONS OF THE SAID SECTION AND HELD THAT THE INTEREST WAS EXCESSI VE AND THE PAYMENT OF INTEREST SHOULD BE UNIFORM RATE, HENCE, COMPUTED A DISALLOWANCE ACCORDINGLY FOR ALL THE YEARS. WHEN THE MATTER WAS CARRIED BEFORE THE FIRST APPELLATE AUTHORITY, THE LD.CIT(A) HAS HELD T HAT A RATE OF INTEREST PAID TO DIRECTORS AND FAMILY MEMBERS @ 11% WAS MARGINALL Y HIGHER THAN THE RATE OF INTEREST PAID TO OTHERS AT 10%. ACCORDING TO HIM, IT WAS NOT EXCESSIVE ESPECIALLY WHEN NO EVIDENCE OR COMPARABLE INSTANCE WAS FURNISHED BY THE REVENUE DEPARTMENT. THE DISALLOW ANCE WAS HELD AS UNJUSTIFIED. NOW REVENUE IS BEFORE US. 4. AT THE OUTSET, FROM THE SIDE OF THE RESPONDENT-A SSESSEE AN ORDER OF ITAT A BENCH AHMEDABAD IN THE CASE OF SHRI RAMESH KANTILAL SHETH VS. ITO BEARING ITA NO.109/AHD/2006 FOR ASSESSMENT YEAR 2002-03 DATED 05/12/2008 HAS BEEN FILED, WHEREIN ALMOST ON IDENTICAL FACTS IT WAS HELD AS UNDER:- ITA NOS.2695-2697/AHD/2009 (BY REVENUE) & CO NOS.290-292/AHD/2009 (BY ASSESSEE) ACIT VS. M/S.NAVJIVAN ROLLOR -FLOUR & PULSE PVT.LTD. ASST.YEARS 2003-04 TO 2005-06 - 5 - 4. WE HAVE HEARD BOTH THE PARTIES. AT THE TIME OF HEARING IT WAS SUBMITTED THAT THIS TRIBUNAL, IN IDENTICAL CIRC UMSTANCES, HAS ALLOWED THE CLAIM OF THE ASSESSEE IN ITS ORDER DATE D 25-4-2008 (A.Y. 2000-01). THE TRIBUNAL HAS MADE THE FOLLOWIN G OBSERVATIONS IN THE AFORESAID CASE: 5. HAVING CONSIDERED THE RIVAL SUBMISSIONS AND TH E FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION TH AT SO FAR AS PAYMENT OF INTEREST IS CONCERNED, IT IS TO BE PAID AS PER MUTUAL CONSENT OF THE PARTIES AND THE BUSINESS EXIGENCY OR EXPEDIENCY AND, THEREFORE, IT IS PREROGATIVE OF THE BUSINESS M AN TO SEE AS TO WHAT RATE THE INTEREST SHOULD BE PAID SO THAT ITS B USINESS GETS MAXIMUM BENEFIT AND THE REVENUE HAS NO PART TO PLAY IN THIS RESPECT. MANY A TIMES, SPECIALLY, WHEN A BUSINESS MAN HAS TO SEEK LOAN FROM PRIVATE PARTIES, HE FAILED TO GET BE CAUSE OF SO MANY REASONS AND IN THAT SITUATION, HE HAS NO OPTIO N BUT TO APPROACH THE CLOSE RELATIVE AND FRIENDS AND IF IN T HAT SITUATION, HE IS COMPELLED TO PAY INTEREST AT A MARGINALLY HIG HER RATE, THERE IS NO ILLEGALITY IN ACCEPTING THE LOANS AND PAY A L ITTLE BIT HIGHER INTEREST. THE OVER ALL POSITION TO BE SEEN IS AS T O WHETHER THE ASSESSEE HAS EARNED THE PROFIT OR NOT; I.E. WHETHER THE ASSESSEE IS PAYING INTEREST MORE THAN THE PROFIT OR NOT. THE FACT THAT SUCH LOANS ARE FROM CLOSE RELATIVES AND FRIENDS, IN OUR OPINION, IS OF NO USE TO COME TO THE CONCLUSION THAT HE SHOULD NOT HAVE PAID INTEREST ON SUCH A HIGHER RATE. 6. IN THE PRESENT CASE, THERE IS DOUBT THAT THE ASS ESSEE WAS PAYING INTEREST TO OUTSIDERS @ 12%, BUT IF IT HAD T O PAY INTEREST @ 18% TO THE DIRECTORS, IT CANNOT BE SAID THAT THE ASSESSEE WAS PAYING HIGHER INTEREST TO THE DIRECTORS INTENTIONAL LY. THE REVENUE, IN THE PRESENT CASE, HAS NOT DISPUTED THE ASSESSEES CLAIM THAT THE INTEREST TO DIRECTORS AS WELL AS THE OUTSIDERS WAS BEING PAID AS PER MUTUAL CONSENT AND IF THAT WAS TH E CASE, THEN IN OUR OPINION, THE ASSESSEE HAD NOT COMMITTED ANY DEF AULT WHICH COULD CLOTHE THE ASSESSING OFFICER TO INVOKE THE PR OVISIONS OF ITA NOS.2695-2697/AHD/2009 (BY REVENUE) & CO NOS.290-292/AHD/2009 (BY ASSESSEE) ACIT VS. M/S.NAVJIVAN ROLLOR -FLOUR & PULSE PVT.LTD. ASST.YEARS 2003-04 TO 2005-06 - 6 - SECTION 40A(2)(B) OF THE ACT. CONSEQUENTLY, WE DO NOT SEE ANY INFIRMITY IN THE ORDER OF THE LEARNED CIT(APPEALS), WHICH IS CONFIRMED. 5. THE MATERIAL FACTS IN THE PRESENT CASE ARE SIMI LAR TO THESE INVOLVED IN THE AFORESAID CASE DECIDED BY THIS TRIB UNAL. IN THIS VIEW OF THE MATTER, GROUND NO.1 TAKEN BY THE ASSESS EE IS ALLOWED AND THEREFORE, GROUND NO.2 TAKEN BY THE ASSESSEE DO ES NOT REQUIRE ANY ADJUDICATION BY US. 4.1. THE ISSUE APPEARS TO BE COVERED IN FAVOUR O F THE ASSESSEE BY THE AFORESAID DECISION OF THE TRIBUNAL SPECIALLY WHEN T HE REVENUE DEPARTMENT HAS NOT FURNISHED ANY COGENT MATERIAL OR COMPARABLE INSTANCES THROUGH WHICH IT COULD BE ESTABLISHED THA T THE PAYMENT OF INTEREST WAS EXCESSIVE OR UNREASONABLE. WE, THEREF ORE, FIND NO FORCE IN THIS GROUND OF THE REVENUE AND HEREBY DISMISS THE G ROUND FOR ALL THE THREE YEARS. 5. GROUND NOS.3 & 4 ARE GENERAL IN NATURE REQUIRE NO INDEPENDEN3T ADJUDICATION. 6. CROSS OBJECTIONS BY THE ASSESSEE (CO NOS.260, 26 1 & 262/AHD/2009) 6.1. IN THE CROSS OBJECTIONS IN ALL THE GROUNDS, TH E CROSS OBJECTOR HAS PRIMARILY CHALLENGED THE VALIDITY OF THE ASSESSMENT FRAMED U/S.153A OF THE I.T.ACT. HOWEVER, DURING THE COURSE OF HEARING , THE LD. LEARNED ITA NOS.2695-2697/AHD/2009 (BY REVENUE) & CO NOS.290-292/AHD/2009 (BY ASSESSEE) ACIT VS. M/S.NAVJIVAN ROLLOR -FLOUR & PULSE PVT.LTD. ASST.YEARS 2003-04 TO 2005-06 - 7 - AUTHORISED REPRESENTATIVE MR. VIJAY RANJAN HAS EXPR ESSED NOT TO PRESS ALL THE THREE COS. THEREFORE, THESE CROSS OBJECTIO NS ARE DISMISSED AS WITHDRAWN. 7. IN THE RESULT, REVENUES APPEALS ARE DISMISSED A ND CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED AS W ITHDRAWN. ORDER SIGNED, DATED AND PRONOUNCED IN THE COURT ON 20/ 5 /2011. SD/- SD/- ( G.D. AGARWAL ) ( MUKUL KR. SHRAWAT ) VICE PRESIDENT (AZ) JUDICIAL ME MBER AHMEDABAD; DATED 20/ 05 /2011 T.C. NAIR, SR. PS COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE DEP ARTMENT. 3. THE CIT CONCERNED. 4. THE LD. CIT( APPEALS)-VI, AHMEDABAD 5. THE DR, AHMEDABAD BENCH 6. THE GUARD FILE. BY ORDER, //TRUE COPY// (DY./ASSTT.REGISTRAR), ITAT, AHMEDABAD 1. DATE OF DICTATION..2/5/11 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 3/5/11 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S 20/05/2011 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 20/05/2011 7. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 9. DATE OF DESPATCH OF THE ORDER