New Asarwa Chemicals Pvt.Ltd., Ahmedabad V. The Dy.CIT.,Circle-5, Ahmedabad

ITA 2757/AHD/2010

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2324 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 07-01-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 27-09-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: J P SHAH
• Keywords: Bad and doubtful debts; Difference of opinion
• Section: 43B; 143(1); 143(2); 139(1); 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH 'C' BEFORE SHRI MUKUL SHRAWAT,JM & SHRI A N PAHUJA,AM ITA NO.2757/AHD/2010 (ASSESSMENT YEAR:-2006-07) NEW ASARWA CHEMICALS PVT. LTD., 436, GIDC, ODHAV, AHMEDABAD V/S DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE-5, AHMEDABAD PAN: AAACN 5176 B [APPELLANT] [RESPONDENT] ASSESSEE BY :- SHRI J P SHAH, AR REVENUE BY:- SHRI RAJDEEP SINGH, DR O R D E R A N PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATE D 28-06-2010 OF THE LD. CIT(A)(APPEALS)-XVI, AHMEDABA D , RAISES TWO GROUNDS RELATING TO CLAIM FOR DEDUCTION OF AN AMOUN T OF RS.2,08,223/- WRITTEN OFF AS BAD DEBT AND THE DISA LLOWANCE OF EMPLOYEES CONTRIBUTION OF RS.11,393/- TOWARDS PF & ESI . 2 ADVERTING FIRST TO GROUND NO.1, FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT RETURN DECLARING INCOME OF RS.44,2 5,610/- FILED ON 24-12-2006 BY THE ASSESSEE, ENGAGED IN THE BUSINESS OF MANUFACTURE OF DYED CHEMICALS, AFTER BEING PROCESS ED U/S 143(1) OF THE INCOME-TAX ACT, 1961 [HEREINAFTER REFERRED TO A S THE ACT] WAS SELECTED FOR SCRUTINY WITH THE SERVICE OF A NOTICE U/S 143(2) OF THE ACT ON 09-10-2007.DURING THE COURSE OF ASSESSMENT P ROCEEDINGS, THE ASSESSING OFFICER[ AO IN SHORT] NOTICED THAT T HE ASSESSEE DEBITED AN AMOUNT OF RS.2,08,223/- ON ACCOUNT OF SU NDRY BALANCES WRITTEN OFF. TO A QUERY BY THE AO, THE ASSESSEE EXP LAINED THAT THE BAD DEBT WRITTEN OFF DURING THE YEAR PERTAINS TO T WO PARTIES, THE AMOUNT HAVING BEEN OUTSTANDING FOR MORE THAN 3 YEAR S. HOWEVER, THE AO DID NOT ACCEPT THE CLAIM , THE ASSESSEE HAVI NG FAILED TO FURNISH ANY EVIDENCE IN SUPPORT OF THE EFFORTS MADE TO RECOVER THE AMOUNTS NOR HAVING INITIATED ANY LEGAL ACTION AGAINST THE DE BTORS .INTER ALIA, THE AO RELIED UPON DECISIONS IN THE CASE OF CIT VS. AHMEDABAD ELE CTRICITY CO. LTD.,262 ITR 97 ITA N O.2757/A/10 2 (GUJ). ,SOUTH INDIA SURGICAL CO. LTD. V/S. ACIT,287 ITR 62 (MAD) AND RECENT DECISION OF HON'BLE GUJARAT HIGH COURT IN THE CASE OF DHALL ENTERPRISED & ENGINEERS P LTD. VS. CIT, 295 ITR 481(GUJ). 3. ON APPEAL, THE LD. CIT(A) UPHELD THE DISALLOWANC E IN THE FOLLOWING TERMS: 2.3 I HAVE BEEN HOLDING THAT THE HON'BLE SUPREME C OURT IN THE CASE OF T R F LTD NOWHERE MENTIONED THAT ALL THE DEBTS WRIT TEN OFF BY THE ASSESSEE IN HIS BOOKS ARE ELIGIBLE AS ALLOWABLE EXPENDITURE. IN FACT THE HON'BLE SUPREME COURT HAS HELD THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECO VERABLE. IT IS ENOUGH IF THE BAD DEBT WRITTEN OFF AS IRRECOVERABLE IN THE AC COUNTS OF THE ASSESSEE. IN OTHER WORDS, EVEN THE SUPREME COURT SAYS THAT TH E BAD DEBT IS TO BE WRITTEN OFF AS IRRECOVERABLE, IN THE ACCOUNT OF THE ASSESSEE. IT DOES NOT TALK OF ANY DEBT WRITTEN OFF AS IRRECOVERABLE. IN THE PR ESENT CASE THE APPELLANT WAS ASKED TO PROVE THAT THE DEBT IN QUESTION WERE B AD IN THE SENSE THAT THERE WAS SOME ELEMENT OF BADNESS . HOWEVER THE AR HAS NOT EVEN FILED THE COPY OF THE ACCOUNT OF THE SUCH DEBTORS BEFORE ME. IN THE ABSENCE THEREOF I CONFIRM THE ORDER OF THE AO ON THE GROUND THAT THE APPELLANT HAS NOT EVEN PROVED THE BADNESS IN THE DEBT SO WRITTEN OFF. THIS GROUND IS THEREFORE DISMISSED. 4. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGAINS T THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LEARNED A R ON BEHALF OF THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFO RE THE LD. CIT(A) CONTENDED THAT THE ISSUE IS SQUARELY COVERED IN FAV OUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT IN TRF LIMITED VS. CIT 323 ITR 397 (SC) . THE LEARNED DR, ON THE O THER HAND, DID NOT OPPOSE THESE SUBMISSIONS ON BEHALF OF THE ASSES SEE. 5. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE AS ALSO THE DECISION RELIED UPON. WE FIND THAT THE HON'BLE SUPREME COURT IN THE CASE OF TRF LIMITED VS. CIT 32 3 ITR 397 (SC) WHILE ADJUDICATING A SIMILAR CLAIM CONCLUDED AS UND ER: THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1ST A PRIL,1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FAC T, HAS BECOME IRRECOVERABLE. IT ITA N O.2757/A/10 3 IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOV ERABLE IN THE ACCOUNTS OF THE ASSESSEE... 5.1. IN THE LIGHT OF VIEW TAKEN BY THE HONBLE APE X COURT IN THEIR AFORESAID DECISION IN TRF LTD.(SUPRA) AND INDISPUTA BLY DEBTS HAVING BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS, APPAREN TLY THE AMOUNT OF RS.2,08,223 IS ADMISSIBLE DEDUCTION IN TERMS OF PRO VISIONS OF SEC. 36(1)(VII) R.W.S. 36(2) OF THE ACT. THEREFORE, GROUND RELATI NG TO CLAIM FOR DEDUCTION OF BAD DEBTS IS ALLOWED. . 6. AS REGARDS GROUND NO.2, RELATING TO DISALLOWANCE OF RS.11,393/- TOWARDS EMPLOYEES CONTRIBUTION TO PF & ESI, THE AO NOTICED THAT THE ASSESSEE PAID AN AMOUNT OF RS.9, 978/- TOWARDS PF AND RS.1,415/- TOWARDS ESI CONTRIBUTED BY THE EMPLO YEES FOR THE MONTH OF DECEMBER,2005, AFTER A DELAY OF 4 DAYS. SI NCE THE AMOUNTS WERE PAID BEYOND THE DUE DATE STIPULATED IN SECTIO N 36(1)(VA) OF THE ACT, THE AO DISALLOWED THE AMOUNT. 7. ON APPEAL, THE LEARNED CIT(A) HAS UPHELD THE DIS ALLOWANCE IN THE FOLLOWING TERMS:- 3. AS REGARDS THE SECOND GROUND, IT WAS STATED BY THE AR THAT THE CASE OF THE APPELLANT IS COVERED BY THE JU DGEMENT OF KARNATAKA HIGH COURT IN ANZ INFORMATION TECHNOLOGY 318-ITR 123 WHICH HELD THAT DELAY IN PAYMENT OF EMPLOYEES CONTRIBUTION CANNOT BE TREATED AS INCOME OF THE ASS ESSEE U/S 36(1)(VA) R.W.S. 2(24](X) IN VIEW OF THE A SECTION 43B OF THE I T ACT. RELIANCE WAS ALSO PLACED ON THE DECISION OF HO N'BLE ITAT IN THE CASE OF SAI CONSULTANT & ENGINEERS PVT LTD. I HAVE BEEN HOLDING THAT EMPLOYEES CONTRIBUTION IS NOT COVERED BY SECTION 43B BUT BY SECTION 36(1) (VA) OF THE I T ACT. THIS VIEW IS TAKEN BY THE SPECIAL BENCH OF ITAT, KOLKATA IN THE CASE O F I T C LTD 112 ITD 57 (KOL). AS THERE IS DIFFERENCE OF OPINION ON THIS POINT, FOLLOWING THE DECISION OF SPECIAL BENCH OF I TAT, THE DISALLOWANCE OF RS.11,393/-IS UPHELD. 8. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(A). THE LEARNED AR ON BEHAL F OF THE ASSESSEE WHILE REITERATING THEIR SUBMISSIONS BEFORE THE L D. CIT(A) CONTENDED ITA N O.2757/A/10 4 THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE APEX COURT IN CIT VS ALOM E XTRUSIONS LTD 319 ITR 306 (SC) APART FROM DECISIONS IN CIT VS. ANZ INFORM ATION TECHNOLOGY P LTD.,318 ITR 123(KAR) AND CIT VS. NEXUS COMPUTER (P) LTD., 3 13 ITR 144(MAD.)THE LD. DR,ON THE OTHER HAND, SUPPORTED THE FINDINGS OF THE LOWER AUTHORITIES. 9. WE HAVE HEARD BOTH THE PARTIES AND GONE TH ROUGH THE FACTS OF THE CASE. AS REGARDS EMPLOYERS AND EMPLOYEES CONTRIBUTION TOWA RDS PF/ESI , WE FIND THAT THE ITAT AHMEDABAD BENCHES HAVE BEEN CONSISTENTLY F OLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT V. P.M.ELECTRONICS LTD., 220 CTR 635 (DELHI), WHEREIN FOLLOWING THE DECISION OF HON BLE APEX COURT IN THE CASE OF CIT VS. VINAY CEMENT LTD.,213 CTR (SC) 268 , THE H ONBLE COURT CONCURRED WITH THE VIEW TAKEN BY THE HONBLE MADRAS HIGH COURT IN NEXUS COMPUTER (P) LTD.,219 CTR(MAD) 54 IN HOLDING THAT EMPLOYER/EMPLOYEES CO NTRIBUTION TOWARDS PROVIDENT FUND PAYMENTS MADE AFTER THE DUE DATE PRE SCRIBED UNDER THE EMPLOYEES PROVIDENT FUND ACT AND RULES MADE THEREUN DER AND BEFORE THE DUE DATE FOR FURNISHING THE RETURN OF INCOME UNDER SUB SEC. 1 OF SEC. 139 OF THE ACT, ARE ALLOWABLE UNDER S.36(1)(VA) READ WITH SEC. 2(24 (X) AND SEC. 43B OF THE ACT. 9.1 MOREOVER, RECENTLY HONBLE APEX COURT IN THE CASE O F CIT VS ALOM EXTRUSIONS LTD 319 ITR 306 (SC) HELD THAT THE OMISS ION OF THE SECOND PROVISO TO SECTION 43B OF THE ACT BY THE FINANCE ACT, 2003, OP ERATED, RETROSPECTIVELY, IS WITH EFFECT FROM, APRIL 1, 1988 AND NOT PROSPECTIVELY FR OM APRIL 1, 2004. HONBLE COURT OBSERVED THAT EARLIER UNDER THE SECOND PROVISO TO SECTION 43B AS AMENDED BY THE FINANCE ACT, 1989, THE ASSESSEES WERE ENTITLED TO DEDUCTION ONLY IF THE CONTRIBUTION STOOD CREDITED ON OR BEFORE THE DUE DA TE GIVEN IN THE PROVIDENT FUNDS ACT. THIS CREATED FURTHER DIFFICULTIES AND O N A REPRESENTATION MADE TO THE FINANCE MINISTRY ONE MORE AMENDMENT WAS MADE BY THE FINANCE ACT, 2003. THOUGH THIS AMENDMENT WAS MADE APPLICABLE WITH EFFE CT FROM APRIL 1, 2004, THE AMENDMENT WAS CURATIVE IN NATURE AND APPLIED RETROS PECTIVELY WITH EFFECT FROM APRIL 1, 1988.IT WAS CLARIFIED THAT WHEN A PROVISO IN A SECTION IS INSERTED TO REMEDY UNINTENDED CONSEQUENCES AND TO MAKE THE SECTION WOR KABLE, THE PROVISO WHICH ITA N O.2757/A/10 5 SUPPLIES AN OBVIOUS OMISSION THEREIN IS REQUIRED TO BE READ RETROSPECTIVELY IN OPERATION, PARTICULARLY TO GIVE EFFECT TO THE SECTI ON AS A WHOLE. 9.2 HONBLE KARNATAKA HIGH COURT IN THEIR DECIS ION IN ANZ INFORMATION TECHNOLOGY P LTD.(SUPRA) WHILE FOLLOWING THEIR EARL IER DECISION IN CIT VS. SABARI ENTERPRISES,298 ITR 141(KAR.) CONCLUDED THAT DEPOS ITS MADE BY THE EMPLOYER OF THE EMPLOYEES CONTRIBUTION BELATEDLY AND CONTRIBUT ION TOWARDS ESI & PF UNDER THE RELEVANT ENACTMENTS CAN NOT BE TREATED AS INCOM E OF THE ASSESSEE U/S 36(1)(VA) READ WITH SEC. 2(24)(X) IN VIEW OF PROVI SIONS OF SEC. 43B OF THE ACT. 9.3 HONBLE DELHI HIGH COURT IN ANOTHER DECISION DATED 23.12.2009 IN CIT VS. AIMIL LTD.(DELHI)IN ITA NO. 1063/2008 OBSERVED THAT SEC. 2(24)(X) PROVIDES THAT AMOUNTS RECEIVED BY AN ASSESSEE FROM EMPLOYEES TOWA RDS PF CONTRIBUTIONS ETC SHALL BE INCOME. S. 36 (1) (VA) PROVIDES THAT IF SUCH SUMS ARE CONTRIBUTED TO THE EMPLOYEES ACCOUNT IN THE RELEVANT FUND ON OR BEFORE THE DUE DATE SPECIFIED IN THE PF LEGISLATION, THE ASSESSEE SHALL BE ENTITLED TO A DEDUCTION. THE SECOND PROVISO TO S. 43B (B) PROVIDED THAT ANY SUM PAID BY THE ASS ESSEE AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVIDENT FUND SHALL BE ALLO WED AS A DEDUCTION ONLY IF PAID ON OR BEFORE THE DUE DATE SPECIFIED IN 36(1)(VA) OF THE ACT. AFTER THE OMISSION OF THE SECOND PROVISO W.E.F 1.4.2004, THE DEDUCTION IS ALLOWABLE UNDER THE FIRST PROVISO IF THE PAYMENT IS MADE ON OR BEFORE THE DUE DATE FOR FURNISHING THE RETURN OF INCOME. THE HONBLE HIGH COURT WHILE CONSIDERING WHETHER THE BENEFIT OF S. 43B CAN BE EXTENDED TO EMPLOYEES CONTRIBUTION AS W ELL, WHICH ARE PAID AFTER THE DUE DATE UNDER THE PF LAW BUT BEFORE THE DUE DATE F OR FILING THE RETURN, HELD THAT (I) THOUGH THE REVENUE HAS ARGUED THAT A DISTINCTIO N IS TO BE MADE BETWEEN EMPLOYERS CONTRIBUTION AND EMPLOYEES CONTRIBUT ION AND THAT EMPLOYEES CONTRIBUTION BEING IN THE NATURE OF TRUST MONEY IN THE HANDS OF THE ASSESSEE CANNOT BE ALLOWED AS A DEDUCTION IF NOT PAID ON OR BEFORE THE DUE DATE SPECIFIED IN THE PF ETC LAW, THE SCHEME OF THE ACT IS THAT EM PLOYEES CONTRIBUTION IS TREATED AS INCOME U/S 2 (24) (X) ON RECEIPT BY THE ASSESSEE AND ALLOWED AS A DEDUCTION U/S 36 (1) (VA) ON MAKING DEPOSIT WITH THE CONCERNE D AUTHORITIES. S. 43B (B) STIPULATES THAT SUCH DEDUCTION WOULD BE PERMISSIBLE ONLY ON ACTUAL PAYMENT; (II) THE QUESTION AS TO WHEN ACTUAL PAYMENT SHOULD BE MADE IS ANSWERED BY VINAY CEMENTS 213 CTR 268 WHERE THE DELETION OF THE SECOND PROVI SO TO S. 43B W.E.F 1.4.2004 WAS HELD APPLICABLE TO EARLIER YEARS AS WELL. AS THE DELETION OF THE 2ND PROVISO IS RETROSPECTIVE, THE CASE HAS TO BE GO VERNED BY THE FIRST PROVISO. ITA N O.2757/A/10 6 DHARMENDRA SHARMA 297 ITR 320 (DEL) & P.M. ELECTRONICS 313 ITR 161 (DELHI) FOLLOWED; (III) IF THE EMPLOYEES CONTRIBUTION IS NOT DEPOSIT ED BY THE DUE DATE PRESCRIBED UNDER THE RELEVANT ACTS AND IS DEPOSITED LATE, THE EMPLOYER NOT ONLY PAYS INTEREST ON DELAYED PAYMENT BUT CAN INCUR PENALTIES ALSO, FO R WHICH SPECIFIC PROVISIONS ARE MADE IN THE PROVIDENT FUND ACT AS WELL AS THE ESI A CT. THEREFORE, THE ACT PERMITS THE EMPLOYER TO MAKE THE DEPOSIT WITH SOME DELAYS, SUBJECT TO THE AFORESAID CONSEQUENCES. INSOFAR AS THE INCOME-TAX ACT IS CONCERNED, THE ASS ESSEE CAN GET THE BENEFIT IF THE ACTUAL PAYMENT IS MADE B EFORE THE RETURN IS FILED, AS PER THE PRINCIPLE LAID DOWN IN VINAY CEMENT . 9.4 IN VIEW OF THE FOREGOING, WE HAVE NO HESITA TION IN HOLDING THAT THE EMPLOYEES CONTRIBUTION TOWARDS PF/ESI HAVING BEEN MADE BY THE ASSESSEE BEFORE THE DUE DATE OF FILING OF RETURN U/S 139(1) OF THE ACT FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, THERE IS NO GROUND FOR DI SALLOWING THE SAME. THEREFORE, WE HAVE NO HESITATION IN VACATING THE FINDINGS OF L OWER AUTHORITIES. CONSEQUENTLY, THE AO IS DIRECTED TO ALLOW THE CLAIM OF THE ASSESSEE. THUS, GROUND NOS.2(1 TO 2.4) IN THE APPEAL ARE ALLO WED. 10. NO ADDITIONAL GROUND HAVING BEEN RAISED IN TE RMS OF THE RESIDUARY GROUND IN THE APPEAL, ACCORDINGLY, THIS G ROUND IS DISMISSED. 11 IN THE RESULT, APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE COURT TODAY ON 13 -01-2011 SD/- SD/- (MUKUL SHRAWAT) JUDICIAL MEMBER (A N PAHUJA) ACCOUNTANT MEMBER DATE : 13 -01-2011 COPY OF THE ORDER FORWARDED TO: 1. NEW ASARWA CHEMICALS PVT. LTD., 436, GIDC, ODHAV , AHMEDABAD 2. DCIT, CIRCLE-5, AHMEDABAD 3. CIT CONCERNED 4. CIT(A)-XVI, AHMEDABAD ITA N O.2757/A/10 7 5. DR, ITAT, AHMEDABAD BENCH-C, AHMEDABAD 6. GUARD FILE BY ORDER DEPUTY REGISTRAR ASSISTANT REGISTRAR ITAT, AHMEDABAD