Nila Bauart Engineering Limited, Baroda V. The ACIT., Circle-4, Baroda

ITA 2713/AHD/2010

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73118 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 11-03-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 17-09-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIMALENDU VERMA
• Assessee Lawyers: S N SOPARKAR
• Keywords: Bad and doubtful debts

Judgement Text

, , , , , , , , IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D BENCH, AHMEDABAD .., ! '# '# '# '# $ %&, ! BEFORE SHRI N.S. SAINI, ACCOUNTANT MEMBER AND SHRI KUL BHARAT, JUDICIAL MEMBER #./ I.T.A. NO.2713/AHD/2010 ( ( ')( ( ')( ( ')( ( ')( / / / / ASSESSMENT YEAR : 2007-08) NILA BAURAT ENGINEERING LTD. 611, YASHKAMAL BUILDING SAYAJIGUNJ, BARODA / VS. THE ACIT CIRCLE-4 BARODA !* #./+, #./ PAN/GIR NO. : AAACN 7066 N ( *- / // / APPELLANT ) .. ( ./*- / RESPONDENT ) *- 0 / APPELLANT BY : SHRI S.N. SOPARKAR, A.R. ./*- 1 0 / RESPONDENT BY : SHRI VIMALENDU VERMA, CIT-DR $'2 1 & / / / / DATE OF HEARING :11/03/2014 34) 1 & / DATE OF PRONOUNCEMENT :28/03/2014 5 / O R D E R PER SHRI KUL BHARAT, JUDICIAL MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX(APPEALS)-III, BARODA (CIT(A) FOR SHORT) DATED 02/06/2010 PERTAINING TO ASSESSMENT Y EAR (AY) 2007-08. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF A PPEAL:- (1) THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS IN CONFIRMING ACTION OF THE ASSESSING OFFICER IN DISAL LOWING THE DEDUCTION OF BAD DEBTS WRITTEN OFF OF RS.10,12,75,7 33/- AS CLAIMED BY US. (2) THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER, ED IT, DELETE, MODIFY OR CHANGE ALL OR ANY OF THE GROUNDS OF APPEA L AT TIME OF OR BEFORE THE HEARING OF THE APPEAL. ITA NO.2713/AHD /2010 NILA BAUART ENGINEERING LTD. VS. ACIT ASST.YEAR 2007-08 - 2 - 2. BRIEFLY STATED FACTS ARE THAT THE CASE OF THE A SSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT AND THE ASSESSMENT U/S.143( 3) OF THE INCOME TAX ACT,1961 (HEREINAFTER REFERRED TO AS THE ACT) WAS FRAMED VIDE ORDER DATED 24/12/2009, THEREBY THE ASSESSING OFFICER(AO) MADE ADDITION OF RS.10,12,75,733/- AS THE DISALLOWANCE OF BAD DEBT A ND DISALLOWANCE OF PRIOR PERIOD EXPENSES AMOUNTING TO RS.3,00,000/-. AGAINST THIS, THE ASSESSEE FILED AN APPEAL BEFORE THE LD.CIT(A), WHO AFTER CONSIDERING THE SUBMISSIONS, DISMISSED THE APPEAL. 3. NOW THE ONLY ISSUE RAISED BEFORE US FOR DETERMIN ATION IS WITH REGARD TO THE DISALLOWANCE OF BAD DEBT WRITTEN OFF AMOUNTING TO RS.10,12,75,733/-. THE LD.SR.COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE ISSUE IS SQUARELY COVERED BY THE HONBLE APEX COURT RENDERED IN THE CASE OF TRF LTD. VS. CIT (2010) REPORTED AT 323 ITR 397( SC). HE FURTHER SUBMITTED THAT THE AO HAD MADE DISALLOWANCE FOLLOWI NG THE JUDGEMENT OF HONBLE GUJARAT HIGH COURT RENDERED IN THE CASE OF DHALL ENTERPRISES & EQUIPMENTS REPORTED AT 207 ITR 729 (GUJ.). HE SU BMITTED THAT THE JUDGEMENT OF THE HONBLE HIGH COURT IN THE CASE OF DHALL ENTERPRISES & EQUIPMENTS HAS BEEN OVERRULED BY THE HONBLE APEX COURT DECLARING IT AS NOT A GOOD LAW. 3.1. ON THE CONTRARY, LD.CIT-DR SHRI VIMALENDU VERM A VEHEMENTLY ARGUED THAT THE FACTS ARE DISTINGUISHABLE IN THIS C ASE. HE SUBMITTED THAT A LETTER WAS WRITTEN TO THE ENGINEERING PROJECTS (IND IA) LTD. WHO HAS WRITTEN THAT ONLY RS.58,39,241/- WAS PAYABLE. HE F URTHER SUBMITTED THAT IN RESPECT OF M/S.RAMESHWAR TOLL & INFRASTRUCTURE P VT.LTD. THE AMOUNT PAYABLE WAS RS.8,21,500/- AGAINST THE CLAIM OF THE ASSESSEE OF ITA NO.2713/AHD /2010 NILA BAUART ENGINEERING LTD. VS. ACIT ASST.YEAR 2007-08 - 3 - RS.22,40,263/- AND THIS AMOUNT OF RS.8,21,500/- WAS PAID BY M/S.RAMESHWAR TOLL & INFRASTRUCTURE PVT.LTD. TO THE ASSESSEE. THEREFORE, THE BAD DEBT WAS CLAIMED BY THE ASSESSEE WAS NOT EXISTING. 3.2. IN REJOINDER, LD.SR.COUNSEL FOR THE ASSESSEE S UBMITTED THAT THE CLAIM OF THE ASSESSEE IS AGAINST THE DIFFERENT PARTIES AS GIVEN PARA-3 OF THE ORDER OF THE AO. HE SUBMITTED THAT THE CLAIM WAS TO THE EXTENT OF THE AMOUNT AS STATED IN BOOKS OF ACCOUNTS, BUT THE OTHER PARTY MAY NOT ACCEPT SINCE THERE IS A DISPUTE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE AO IN THE ASSESSMENT ORDER RECORDED THE SUBMISS IONS OF THE ASSESSEE THAT THE DEBTS HAVE BEEN WRITTEN OFF` DUE TO DISPUT E WITH THE PARTIES. THE AO DID NOT ACCEPT THE EXPLANATION GIVEN BY THE ASSE SSEE ON THE BASIS THAT THE ASSESSEE HAS TO PROVE THAT THE DEBTS HAVE ACTUA LLY BECOME BAD DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR U NDER CONSIDERATION. THE CLAIM OF THE ASSESSEE SHOULD BE SUPPORTED WITH THE EVIDENCE TO SHOW THAT THE ASSESSEE HAS MADE SINCERE EFFORTS TO RECOV ER THE DEBTS BY INVOKING VARIOUS METHODS OF RECOVERY INCLUDING LEGA L ACTION, MEETING WITH DEBTORS, REMINDERS, ETC. THE AO ALSO OBSERVED THAT THE ASSESSEE IN THE STATEMENT SUBMITTED WITH REGARD TO MAJOR DEBTOR S AGGREGATING TO RS.13,59,90,012/-, THE ASSESSEE HAS STATED THAT THE SE DEBTS HAVE BEEN WRITTEN DUE TO DISPUTE WITH THE PARTIES AND REMAINI NG AMOUNT WAS WRITTEN OFF. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE THAT AFTER THE AMENDED PROVISIONS IN SECTION 36(1)(VII), THERE IS NO NEED TO ESTABLISH ITA NO.2713/AHD /2010 NILA BAUART ENGINEERING LTD. VS. ACIT ASST.YEAR 2007-08 - 4 - THAT THE DEBTS HAVE ACTUALLY BECOME BAD DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION. THE AO AFTER FOLLOWING THE JUDGEMENT OF HONBLE JURISDICTIONAL HIGH COURT IN T HE CASE OF DHALL ENTERPRISES & EQUIPMENTS (SUPRA), DISALLOWED THE CL AIM OF THE ASSESSEE. THE D.CIT(A) ALSO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND OBSERVED THAT FOR ALLOWING THE CLAIM OF BAD DEBT, THE FIRST PREREQUISITE IS THAT THE AMOUNT MUST HAVE BEEN SHOWN AS INCOME EARL IER. THE FINDING OF LD.CIT(A) AS CONTAINED IN PARA-5.2. IS REPRODUCE D HEREINBELOW FOR THE SAKE OF CLARITY. 5.2. I HAVE GIVEN MY CAREFUL CONSIDERATION TO THE SUBMISSIONS AS ALSO THE FACTS OF THE CASE. FOR ALLOWING THE CLAIM OF B AD DEBT, THE FIRST PREREQUISITE IS THAT THE AMOUNT MUST HAVE BEEN SHOW N AS INCOME EARLIER. THE APPELLANT HAS NOT PRODUCED ANY EVIDENCE THAT TH ESE AMOUNTS WERE OFFERED AS INCOME. THIS ISSUE PARTICULARLY BECOMES PERTINENT IN VIEW OF THE DENIAL BY M/S.ENGINEER PROJECT INDIA LTD., (EPI L) A GOVT. OF INDIA ENTERPRISE. FROM LETTER DATED 25.11.2009 ADDRESSED TO THE AO, THE FOLLOWING INFORMATION WAS GIVEN. THIS IS WITH REFERENCE TO YOUR LETTER NO.CIR.4/AAACN7066N/2009-10 DATED 06.11.2009 ON THE CAPTIONED SUBJECT. IT IS TO INFORM YOU THAT THERE WAS NO AMOUNT DUE TO M/S.NILA BAURAT ENGINEERING PROJECTS (INDIA) LTD. FOR THE FINANCIAL YEAR 2006-07 EXCEPT RETENTION MONEY PAYAB LE AMOUNTING TO RS.58,39,241/- TO BE ADJUSTED AGAINST AMOUNT RECOVERABLE FROM THEM. THUS, QUESTION OF OFFERING AN AMOUNT OF RS.5,16,28,520/- AS OUR INCOME ON CESSATION OF LIAB ILITY U/S.41 OF THE INCOME-TAX ACT, 1961 DOES NOT ARISE. FOLLOWING IS THE FINANCIAL STATUS OF M/S.NILA BAURA T ENGINEERING LTD. AS PER OUR BOOKS OF ACCOUNT FOR THE FINANCIAL YEAR 2006-07. AMOUNT RECOVERABLE FROM M/S.NILA BAURAT ENGINEERING LTD. ON DIFFERENT HEAD. RS.3,91,46,70 8.29 LESS :RETENTION MONEY PAYABLE TO BE ADJUSTED AGAINST AMOUNT RECOVERABLE RS. 58,39,24 1.00 ITA NO.2713/AHD /2010 NILA BAUART ENGINEERING LTD. VS. ACIT ASST.YEAR 2007-08 - 5 - BALANCE AMOUNT TO BE RECOVERED RS.3,33,07,467.29 WE ARE ALSO FURNISHING BELOW THE FINANCIAL STATUS O F M/S.NILA BAURAT ENGINEERING LTD. AS ON 31.03.2009. TOTAL AMOUNT RECOVERY LESS : ADJUSTABLE AGAINST FOLLOWING RETENTION MONEY PAYABLE RS.58,39,241.00 ENCASHMENT OF BANK GUARANTEE RS.1,91,43,260.00 BANK GUARANTEE PENDING WITH COURT RS. 75,00,00 0.00 RS.3,24,82,501.00 BALANCE RECOVERABLE. RS.66,64,207.09 IT HAS NOT BEEN EXPLAINED BY THE APPELLANT HOW M/S. EPIL HAS WORKED OUT THE AMOUNT RECOVERABLE FROM THE APPELLANT WHEN THE APPELLANT IS WRITING OFF HUGE AMOUNTS AS BAD DEBTS. IT IS NOT A CASE WHERE THE OTHER PARTY IS DISPUTING THE LIABILITY. IN FACT, THE OTH ER PARTY HAS ENCASHED BANK GUARANTEE AND APPROPRIATED GUARANTEE MONEY AND STILL CLAIMING FURTHER RECOVERABLE. THUS, THE WHOLE DYNAMICS OF T HE DISPUTE HAS GOT DIFFERENT COLOUR THAN WHAT THE APPELLANT IS STATING . THE APPELLANT HAS RELIED ON A CASE LAWS TO THE PROPOSITION THAT ONCE THE AMOUNT HAS BEEN WRITTEN OFF, NO ENQUIRY SHOULD BE MADE. IT MUST BE EMPHASIZED THAT THE DISALLOWANCE WAS NOT MADE BECAUSE THERE WAS NO EFFE CT FOR MONEY. THIS ARGUMENT IS THEREFORE MISPLACED BECAUSE UNLESS IT I S ESTABLISHED THAT THERE WAS VALID DEBT, THERE IS NO QUESTION OF ANY C LAIM OF BAD DEBT. THE APPELLANT HAS FAILED AT THE VERY THRESHOLD AND THER EFORE THE CLAIM IN RESPECT OF EIPL IS NOT ALLOWABLE. IN RESPECT OF M/S.RAMESHWAR TOLL PVT.LTD. SINCE THE AMOUNT PAYABLE WAS ONLY RS.8,21,500/- AND WHICH WAS SUBSEQUENTLY P AID, THE CLAIM OF BAD DEBT BECOMES INFRUCTUOUS. IN RESPECT OF OTHER CLAIM OF BAD DEBTS ALSO, THE APPELLANT HAS NOT GIVEN ANY EVIDENCE AS T O WHEN THESE AMOUNTS WERE OFFERED AS INCOME IN THE ABSENCE OF WHICH THE CLAIM IS NOT ALLOWABLE. IN THE ABSENCE OF RELEVANT DOCUMENTS, A S TO WHEN THE BILLS WERE RAISED AND WHEN THEY WERE OFFERED TO TAX, THE CLAIM OF THE APPELLANT CANNOT BE PROCESSED UNDER THE RELEVANT PR OVISIONS OF LAW. THE APPELLANT HAS STATED THAT THESE AMOUNTS WERE OF FERED TO TAX IN EARLIER YEARS. HOWEVER, NO VERIFIABLE SUPPORTING D OCUMENTS HAVE BEEN FILED. ACCORDINGLY, THIS GROUND IS DISMISSED. ITA NO.2713/AHD /2010 NILA BAUART ENGINEERING LTD. VS. ACIT ASST.YEAR 2007-08 - 6 - 5. WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION TO TH E RIVAL CONTENTIONS OF THE PARTIES. THE UNDISPUTED FACT RE MAINS THAT THE ASSESSEE HAS CLAIMED BAD DEBTS IN ITS BOOKS OF ACCOUNTS PERT AINING TO DIFFERENT PARTIES. THE AO HAS DISALLOWED THE CLAIM ON THE B ASIS THAT THE ASSESSEE HAS TO PROVE THAT THE DEBTS HAVE ACTUALLY BECOME BA D DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDER ATION. HOWEVER, THE LD.CIT(A) CONFIRMED THE ADDITION ON THE BASIS THAT FOR ALLOWING THE CLAIM OF BAD DEBT THE FIRST PREREQUISITE IS THAT AMOUNT M UST HAVE BEEN SHOWN AS INCOME EARLIER. THE LD.CIT(A) HAS OBSERVED THAT TH E ASSESSEE HAS NOT PRODUCED ANY EVIDENCE THAT THESE AMOUNTS WERE OFFER ED FOR INCOME. HE FURTHER OBSERVED THAT THE APPELLANT HAS RELIED ON A CASE-LAW TO THE PROPOSITION THAT ONCE THE AMOUNT HAS BEEN WRITTEN O FF, NO ENQUIRY SHOULD BE MADE. HE OBSERVED THAT THE DISALLOWANCE WAS NOT MADE BECAUSE THERE WAS NO EFFECT FOR MONEY. THIS ARGUMENT IS THEREFOR E MISPLACED BECAUSE UNLESS IT IS ESTABLISHED THAT THERE WAS VALID DEBT, THERE IS NO QUESTION OF ANY CLAIM OF BAD DEBT. FROM THE OBSERVATION OF THE LD.CIT(A), IT IS EVIDENT THAT HIS OBJECTIONS ARE TWO FOLD; FIRSTLY T HE ASSESSEE HAS NOT DECLARED THE INCOME IN EARLIER YEARS AND SECONDLY T HE ASSESSEE HAS NOT PROVED THAT THE DEBT AS CLAIMED IS A VALID DEBT. ONE OF THE GROUNDS OF THE ASSESSEE BEFORE THE LD.CIT(A) WAS THAT IT HAS C OMPLIED WITH THE REQUIREMENT OF SECTIONS 36(1)(VII) AND 36 (2) OF TH E ACT. AS PER SECTION 36(2)(I) OF THE ACT, NO SUCH DEDUCTION SHALL BE ALL OWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMP UTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOU NT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YE AR, OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANK ING OR MONEY-LENDING ITA NO.2713/AHD /2010 NILA BAUART ENGINEERING LTD. VS. ACIT ASST.YEAR 2007-08 - 7 - WHICH IS CARRIED ON BY THE ASSESSEE. THE LD.CIT(A) HAS GIVEN A FINDING THAT THE ASSESSEE HAS NOT PRODUCED ANY EVIDENCE THA T THESE AMOUNTS WERE OFFERED AS INCOME. IN SUPPORT OF ITS CONTENTION TH AT THE AMOUNTS WRITTEN OFF AS BAD DEBTS IN RESPECT OF DIFFERENT DEBTORS HA D BEEN OFFERED FOR TAX IN EARLIER YEARS, NO EVIDENCE HAS BEEN PRODUCED. THE REFORE, IN THE ABSENCE OF THE SAME, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE LD.CIT(A) AND THE JUDGEMENT OF THE HONBLE APEX COURT RENDERE D IN THE CASE OF TRF LTD. VS. CIT (2010) REPORTED AT 323 ITR 397(SC) AS RELIED UPON BY THE LD.SR.COUNSEL FOR THE ASSESSEE WOULD NOT HELP T O THE ASSESSEE SINCE NO EVIDENCE HAS BEEN PLACED ON RECORD IN SUPPORT OF IT S CONTENTION THAT ALL THE AMOUNTS WRITTEN OFF AS BAD DEBTS IN RESPECT OF DIFFERENT DEBTORS HAD BEEN OFFERED/IS ARISING OUT OF INCOME OFFERED FOR T AX IN EARLIER YEARS. THUS, THE GROUND OF THE ASSESSEES APPEAL IS DISMIS SED. 6. GROUND NO.2 IS GENERAL IN NATURE, HENCE NEEDS NO SEPARATE ADJUDICATION. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED IN COURT ON THE DATE MENTIONED HER EINABOVE AT CAPTION PAGE SD/- SD/- ( .. ) ($ %&) ! ! ( N.S. SAINI ) ( KUL BHARAT ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD; DATED 28/ 03 /2014 8.., '.../ T.C. NAIR, SR. PS ITA NO.2713/AHD /2010 NILA BAUART ENGINEERING LTD. VS. ACIT ASST.YEAR 2007-08 - 8 - 5 1 .&9 :9)& 5 1 .&9 :9)& 5 1 .&9 :9)& 5 1 .&9 :9)&/ COPY OF THE ORDER FORWARDED TO : 1. *- / THE APPELLANT 2. ./*- / THE RESPONDENT. 3. ## & $; / CONCERNED CIT 4. $;() / THE CIT(A)-III, BARODA 5. 9'%< .& , , / DR, ITAT, AHMEDABAD 6. <( =2 / GUARD FILE. 5$ 5$ 5$ 5$ / BY ORDER, /9& .& //TRUE COPY// > >> >/ // / #+ #+ #+ #+ ( DY./ASSTT.REGISTRAR) , , , , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 13.3.14/24.3.14 (DICTATION-PA D 11-PAGES ATTACHED AT THE END OF THIS FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 18.3.14/24.3.14 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 FAIR ORDER PLACED BEFORE OTHER MEMBER 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.28.3.14 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 28.3.14 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER