Regent Granito India Ltd., Himatnagar V. The Addl.CIT.,TDS Range, Ahmedabad

ITA 2908/AHD/2009

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 6443 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 04-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 23-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S A BOHRA
• Assessee Lawyers: SUNIL S TALATI
• Keywords: Bad and doubtful debts
• Section: 143(3); 37; 28; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH A BEFORE SHRI D. K. TYAGI, JUDICIAL MEMBER AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.2908 / AHD/2009 (ASSESSMENT YEAR 2006-07) M/S. REGENT GRANITO INDIA LTD., HAJIPUR, HIMATNAGAR VS. ACIT, TDS RANGE, AHMEDABAD I.T.A.NO. 3329/AHD/2009 (ASSESSMENT YEAR 2006-07) ACIT, TDS RANGE, AHMEDABAD VS. M/S. REGENT GRANITO INDIA LTD., HAJIPUR, HIMATNAGAR PAN/GIR NO. :AACCR5441B (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI SUNIL S. TALATI, AR RESPONDENT BY: SHRI S A BOHRA, JCIT O R D E R PER SHRI A.K. GARODIA, AM:- THESE ARE CROSS APPEALS BY THE ASSESSEE AND THE RE VENUE WHICH ARE DIRECTED AGAINST THE ORDER OF LD. CIT(A) X, AHMEDAB AD DATED 01.09.2009 FOR THE ASSESSMENT YEAR 2006-07. SINCE ONE ISSUE I NVOLVED IS COMMON, BOTH THESE APPEALS WERE HEARD TOGETHER AND ARE BEING DIS POSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. I.T.A.NO. 2908, 3329 /AHD/2009 2 2. GROUND NO.1 RAISED BY THE ASSESSEE AND THE GROUN DS RAISED BY THE REVENUE IN ITS APPEAL ARE INTERCONNECTED. A DISALL OWANCE WAS MADE BY THE A.O. OF RS.85,87,311/- ON ACCOUNT OF EXPENSES CLAIM ED BY THE ASSESSEE IN RESPECT OF DAMAGE AND DISCOUNT. OUT OF THIS, LD. C IT(A) HAS DELETED THE DISALLOWANCE OF RS.21,46,828/- I.E. TO THE EXTENT O F 25% OF THE TOTAL DISALLOWANCE AND HAD CONFIRMED THE BALANCE AMOUNT O F DISALLOWANCE TO THE EXTENT OF RS.64,40,483/-. THE REVENUE IS IN APPEAL FOR THE DELETION OF PART DISALLOWANCE WHEREAS THE ASSESSEE IS IN APPEAL FOR THE CONFIRMATION OF THE PART DISALLOWANCE. 3. THE BRIEF FACTS OF THE CASE REGARDING THIS ISSUE TILL ASSESSMENT STAGE ARE NOTED BY THE LD. CIT(A) IN PARA 4 OF HIS ORDER AND HENCE PARA 4 OF THE ORDER OF LD. CIT(A) IS REPRODUCED BELOW: 4. THE FIRST TWO GROUNDS OF APPEAL ARE DIRECTED AG AINST ADDITION OF RS.85,57,311/- ON ACCOUNT OF REJECTION OF APPELLATE CLAIM FOR DAMAGE OR DISCOUNT GIVEN TO VARIOUS PARTIES. DURING THE A SSESSMENT PROCEEDINGS THE A.O. NOTED THAT THE APPELLANT HAD A LLOWED DISCOUNT TO VARIOUS PARTIES OUT OF SALES MADE TO THEM. HE EXAM INED THE DETAILS OF THESE PARTIES AND THE REASONS FOR ALLOWING SUCH DIS COUNT BY THE APPELLANT. AFTER ANALYZING SUCH DETAIL HE CAME TO THE CONCLUSION THAT THE DISCOUNT ALLOWED TO 22 PARTIES WAS NOT JUSTIFIE D. HE ACCORDINGLY REJECTED THE CLAIM FOR SUCH DISCOUNT AND ADDED RS.8 5,87,311/- IN THE INCOME OF THE APPELLANT. THE DETAILED ANALYSIS AND THE REASONS FOR REJECTION OF APPELLANTS CLAIM OF DISCOUNT CAN BE SE EN ON PAGES 15 TO 24 OF THE ASSESSMENT ORDER. 4. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A). LD. CIT(A) HAS HELD THAT IT WOULD BE APPRO PRIATE THAT 25% OF SALE VALUE MAY BE ALLOWED AS DISCOUNT IN CASE OF SUCH 22 PARTIES AND ACCORDINGLY, HE DIRECTED THE A.O. TO RESTRICT THE DISCOUNT UP TO 25% OF THE SALES PRICE IN RESPECT OF THESE PARTIES AND WHERE THE ASSESSEE HAS ITSELF ALLOWED DISCOUNT OF LESS THAN 25%, IT WILL NOT BE DISTURBED WHILE GIVIN G EFFECT TO HIS ORDER. NOW, I.T.A.NO. 2908, 3329 /AHD/2009 3 THE REVENUE IS IN APPEAL FOR THE DISALLOWANCE DELET ED BY CIT(A) WHEREAS ASSESSEE IS IN FURTHER APPEAL BEFORE US FOR THE DIS ALLOWANCE CONFIRMED BY THE LD. CIT(A). 5. LD. D.R. SUPPORTED THE ASSESSMENT ORDER WHEREAS IT IS SUBMITTED BY THE LD. A.R. THAT NO PAT OF DISALLOWANCE MADE BY TH E A.O. SHOULD BE CONFIRMED AND THE WHOLE OF THE DISALLOWANCE SHOULD BE DELETED BECAUSE SUCH DISCOUNT WAS ALLOWED ON THE GROUND OF BUSINESS EXPE DIENCY AS ENVISAGED U/S 28 READ WITH SECTION 37 OF THE INCOME TAX ACT, 1961 . IT IS ALSO SUBMITTED THAT WHEN A MANUFACTURER OR SUPPLIER SELLS THE GOOD S, THERE ARE CASES OF COMPLAINT/NON SATISFACTION BY THE RECIPIENT / TRADE RS. IT IS ALSO SUBMITTED THAT IN NORMAL CIRCUMSTANCES, AS PER ACCOUNTING PRACTICE , SUCH SHORTFALL OF AMOUNT BILLED AS PER SALE BILL, SHOULD BE REDUCED F ROM THE SALE BY ISSUING CREDIT NOTE BECAUSE THERE IS NO EFFECTIVE SALE AFFE CTED BY THE ASSESSEE IN AS MUCH AS GOODS RECEIVED BY THE BUYER WERE NOT AS PER THE SPECIFICATION OR WERE DAMAGED. IT IS SUBMITTED THAT IN CERAMIC TILE S BUSINESS, SUCH DAMAGED TILES HAVE NO SCARP VALUE AT ALL AND IN FACT, RECIP IENT / DEALER HAD TO INCUR COST TO DISPOSE IT OFF. IT IS SUBMITTED THAT PROPER ACC OUNTING PRACTICE SHOULD HAVE BEEN TO ISSUE CREDIT NOTE AND REDUCE THE VALUE OF T HIS FROM THE SALES. IT IS SUBMITTED THAT BECAUSE A DIFFERENT TREATMENT HAS BE EN GIVEN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNTS BY DEBITING THE SAME TO DA MAGE/DISCOUNT ACCOUNT, NO ADVERSE INFERENCE SHOULD BE DRAWN AND THE ENTIRE DISALLOWANCE SHOULD BE DELETED. IT IS ALSO SUBMITTED THAT IN THE SUBSEQUEN T YEARS ALSO, ON SIMILAR BASIS, DEDUCTION FOR TOTAL DAMAGE AND DISCOUNT WAS CLAIMED BY THE ASSESSEE AS UNDER: ASSESSMENT YEAR AMOUNT RS. 2007-08 148.01 LACS 2008-09 114.91 LACS 2009-10 145.56 LACS I.T.A.NO. 2908, 3329 /AHD/2009 4 1010-11 144.80 LACS 6. IT IS SUBMITTED THAT IN ASSESSMENT YEAR 2007-08, THE ASSESSMENT WAS COMPLETED BY THE A.O. U/S 143(3), AND HE SUBMITTED A COPY OF THE ASSESSMENT ORDER OF THIS YEAR DATED 23.12.2009 AND POINTED OUT THAT AS PER THIS ASSESSMENT ORDER, THERE IS NO DISALLOWANCE ON THIS ACCOUNT. IT IS SUBMITTED THAT FOR THE ASSESSMENT YEAR 2008-09 ALSO , ASSESSMENT HAS BEEN COMPLETED BY THE A.O. U/S 143(3) AND HE SUBMITTED A COPY OF THE ASSESSMENT ORDER FOR THIS YEAR ALSO WHICH IS DATED 24.11.2010 AND POINTED OUT THAT IN THIS YEAR ALSO THERE IS NO DISALLOWANCE ON THIS ACCOUNT. HE POINTED OUT THAT SINCE NO DISALLOWANCE WAS MADE BY THE A.O. HIMSELF IN THE SUBSEQUENT YEAS UNDER IDENTICAL FACTS, IN THE PRESENT YEAR ALSO, NO DISAL LOWANCE IS JUSTIFIED. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT THE ASSESSEE HAS SUBMITTED COPIES OF ASSESSMENT ORD ERS FOR TWO SUBSEQUENT YEARS I.E. ASSESSMENT YEARS 2007-08 AND 2008-09. I N BOTH THESE YEARS, THE ASSESSMENT HAS BEEN COMPLETED BY THE A.O. U/S 143(3 ) AND NO DISALLOWANCE HAS BEEN MADE BY THE A.O. ON THIS ACCOUNT IN THESE TWO SUBSEQUENT YEARS. AS PER THE DETAILS SUBMITTED BY THE ASSESSEE BEFORE US, THE ASSESSEE HAS CLAIMED SIMILAR EXPENSES IN THOSE TWO YEARS ALSO TO THE EXTENT OF RS.148.01 LACS AND RS.114.91 LACS RESPECTIVELY. REGARDING F URTHER TWO SUBSEQUENT YEARS, BEING ASSESSMENT YEARS 2009-10 AND 2010-11, IT HAS BEEN SUBMITTED BY THE LD. A.R. BEFORE US THAT ALTHOUGH NO SCRUTINY ASSESSMENT HAD BEEN MADE IN THESE TWO YEARS, BUT THERE IS NO DISALLOWAN CE ON THIS ACCOUNT IN THOSE TWO YEARS ALSO. LD. D.R. COULD NOT POINT OUT ANY DIFFERENCE IN FACTS IN THE PRESENT YEAR AND THE SUBSEQUENT YEARS AND HENCE , WE ARE OF THE CONSIDERED OPINION THAT THE DISALLOWANCE MADE BY TH E A.O. IN THE PRESENT I.T.A.NO. 2908, 3329 /AHD/2009 5 YEAR IS NOT JUSTIFIED BECAUSE SIMILAR CLAIMS OF THE ASSESSEE UNDER SIMILAR FACTS HAVE BEEN ACCEPTED BY THE A.O. IN THE TWO SUBSEQUEN T YEARS IN THE COURSE OF SCRUTINY ASSESSMENTS U/S 143(3). MOREOVER, WE FIND FORCE IN THIS SUBMISSION OF THE LD. A.R. THAT THE CLAIM MADE BY THE ASSESSEE IS THIS THAT DISCOUNT WAS ALLOWED BY THE ASSESSEE TO THE BUYERS BECAUSE OF BU SINESS EXPEDIENCY. IT IS BY NOW, A SETTLED POSITION OF LAW THAT THE A.O. CAN NOT SIT ON THE CHAIR OF BUSINESSMAN AND DECIDE AS TO HOW TO RUN THE BUSINES S. IT IS FOR THE ASSESSEE BUSINESSMAN TO DECIDE AS TO HOW MUCH DISCOUNT OR CR EDIT TO BE GIVEN TO WHICH PARTY AND AT WHAT RATE AND WHAT AMOUNT AND UN DER WHAT CIRCUMSTANCES. UNLESS THE A.O. ESTABLISHES THAT TH E CLAIM OF THE ASSESSEE IS BOGUS, HE CANNOT REJECT SUCH CLAIM OF THE ASSESSEE. IN THE PRESENT CASE, THE A.O. HAS MERELY DOUBTED THAT THE ASSESSEE IS WRITIN G OFF THE AMOUNT AND GIVING CREDIT TO THE CUSTOMERS TO REDUCE ITS PROFIT BUT THE A.O. COULD NOT CORROBORATE THE SAME BY BRINGING ON RECORD AT LEAST SOME CORROBORATIVE EVIDENCE. IT IS ALSO TO BE NOTED THAT IT IS NOT A CASE OF ALLOWING DISCOUNT SIMPLICITOR. DISCOUNTS WERE ALLOWED ON ACCOUNT OF BREAKAGE OR DEFECTS IN QUALITY. IF WE PURCHASE SOME THING & WHEN THE GOOD S ARE DELIVERED TO OUR HOUSE AND IF WE FIND THAT THE GOODS DELIVERED IS IN BROKEN CONDITION OR IS NOT OF AGREED QUALITY, WE WILL NOT SETTLE FOR ANYTHING LESS THAN REPLACEMENT OF SUCH BROKEN / DEFECTIVE GOODS BY A PROPER GOODS IN PROPER CONDITION AND QUALITY OR TO REFUSE THE GOODS AND RETURN OF PRICE IF ALREADY PAID OR NON- PAYMENT. BROKEN TILES HAVE NO SCRAP VALUE AND IN F ACT, SOME COST HAS TO BE INCURRED FOR ITS DISPOSAL. AS PER THE DETAILS NOTE D BY THE A.O. ON PAGES 4 5 OF THE ASSESSMENT ORDER, IT IS SEEN THAT IN MANY CA SES, DISCOUNT ALLOWED IS LESS THAN THE SALE VALUE. THE CONTENTION OF LD. A. R. OF THE ASSESSEE IS THAT DISCOUNT WAS ALLOWED AFTER REDUCING THE SCRAP VALUE FROM SALE VALUE WHERE IT WAS ON ACCOUNT OF SUCH DEFECT THAT IT CAN FETCH SOM E SCRAP VALUE. IT IS NOT A I.T.A.NO. 2908, 3329 /AHD/2009 6 CASE OF TRANSACTION WITH A RELATED PARTY AND HENCE IN THE ABSENCE OF ANY ADVERSE CORROBORATIVE MATERIAL ON RECORD, IT CANNOT BE ACCEPTED THAT THE ASSESSEE HAS ALLOWED UNREASONABLE/EXCESSIVE DISCOUN T THAT TOO TO AN UNRELATED PARTY. 8. IN VIEW OF ABOVE DISCUSSION AND PARTICULARLY IN THE LIGHT OF THIS FACT THAT THE A.O. HIMSELF HAS ALLOWED SIMILAR CLAIMS OF THE ASSESSEE IN FULL IN SUBSEQUENT TWO YEARS, WE ARE OF THE CONSIDERED OPIN ION THAT NO PART OF DISALLOWANCE MADE BY THE A.O. IS JUSTIFIED. HENCE, WE DELETE THE ENTIRE DISALLOWANCE MADE BY THE A.O. ON THIS ACCOUNT. ACC ORDINGLY, GROUND NO.1 OF THE ASSESSEES APPEAL IS ALLOWED AND GROUNDS RAI SED BY THE REVENUE ARE REJECTED. THERE IS NO OTHER ISSUE RAISED BY THE RE VENUE. 9. THE ASSESSEE HAS RAISED ONE MORE GROUND I.E. GRO UND NO.2 REGARDING CONFIRMATION BY LD. CIT(A) OF ADDITION MADE BY THE A.O. BY WAY OF DISALLOWANCE OF THE CLAIM OF THE ASSESSEE REGARDING WRITE OFF OF BAD DEBTS OF RS.76,40,471/-. 10. THE BRIEF FACTS OF THE CASE REGARDING THIS ISSU E TILL ASSESSMENT STAGE ARE NOTED BY LD. CIT(A) IN PARA 5 OF HIS ORDER WHICH IS REPRODUCED BELOW: THE THIRD AND FOURTH GROUNDS OF APPEAL ARE DIRECTE D AGAINST THE DISALLOWANCE OF APPELLANTS CLAIM FOR DEDUCTION FOR BAD DEBTS AMOUNTING TO RS.76,40,471/-. DURING THE ASSESSMENT PROCEEDINGS, THE A.O. ANALYZED THE CLAIM OF THE APPELLANT WITH REGAR D TO BAD DEBT IN RESPECT OF VARIOUS PARTIES. HE ISSUED VARIOUS SHOW CAUSE NOTICES TO THE APPELLANT AND OBTAINED HIS EXPLANATION WITH REG ARD TO MALLEABILITY OF SUCH CLAIM IN TERNS OF THE PROVISIONS OF SEC. 36 (1)(VII) OF THE ACT. AFTER SUCH DETAILED ANALYSIS HE FOUND THAT THE APPE LLANTS CLAIM FOR BAD DEBT IN RESPECT OF 44 PARTIES DID NOT FULFILL THE C RITERIA AS LAID DOWN IN SECTION 36(1)(VII) OF THE ACT AND THE GUIDELINES LA ID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT OF GUJARAT FOR AL LOWANCE OF SUCH CLAIM IN THE CASE OF DHALL ENTERPRISES ENGINEERS PV T. LTD. VS CIT 207 CTR 729. HE ACCORDINGLY DISALLOWED THE APPELLANTS CLAIM FOR SUCH DEDUCTION AMOUNTING TO RS.76,40,471/- AND ADDED THE SAME IN ITS I.T.A.NO. 2908, 3329 /AHD/2009 7 INCOME FOR THE RELEVANT PERIOD. THE A.O.S ANALYSI S IN THIS REGARD AND THE FINDINGS CAN BE SEEN ON PAGES 25 TO 47 OF THE A SSESSMENT ORDER. 11. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTE R IN APPEAL BEFORE CIT(A) BUT WITHOUT SUCCESS AND NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 12. LD. A.R. OF THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF TRF LTD CIT AS REPORTED IN 323 ITR 397. LD. D.R. SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 13. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, GONE THROUGH THE MATERIAL ON RECORD AND THE ORDERS OF AUTHORITIES BELOW AND T HE JUDGEMENT OF THE HONBLE APEX COURT CITED BY THE LD. A.R. IN THE P RESENT CASE, THE OBJECTION OF THE A.O. IS THAT THE ASSESSEE COULD NOT ESTABLIS H THAT THE DEBT IN QUESTION HAS BECOME BAD. THE SPECIFIC OBJECTION OF THE A.O. IS THIS THAT ONLY DEBIT OF THE AMOUNT IN THE BOOKS OF ACCOUNTS IS NOT SUFFICIE NT REASON TO CLAIM THE BAD DEBT. NOW, WE HAVE THE BENEFIT OF THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF TRF LTD (SUPRA). IN THAT CA SE, IT HAS BEEN HELD BY THE HONBLE APEX COURT THAT AFTER 01.04.1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BEC OME IRRECOVERABLE. IT IS ALSO HELD THAT IT IS ENOUGH IF THE BAD DEBT IS WRITTEN O FF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HENCE, THIS OBJECTION O F THE A.O. IS NOT VALID THAT THE ASSESSEE COULD NOT ESTABLISH THAT THE DEBTS HAV E BECOME BAD AND THEREFORE, DEDUCTION CLAIMED BY THE ASSESSEE IS NOT ALLOWABLE. IT IS NOT THE CASE OF THE A.O. THAT THE ASSESSEE HAD NOT WRITTEN OFF THE DEBT IN QUESTION IN ITS BOOKS OF ACCOUNTS. HENCE, BY RESPECTFULLY FOLL OWING THIS JUDGMENT OF HONBLE APEX COURT, WE HOLD THAT HE DISALLOWANCE MA DE BY THE A.O. AND CONFIRMED BY THE LD. CIT(A) IS NOT JUSTIFIED BECAUS E THE ASSESSEE HAS I.T.A.NO. 2908, 3329 /AHD/2009 8 ACTUALLY WRITTEN OFF THE DEBTS IN ITS BOOKS OF ACCO UNT. WE DELETE THIS DISALLOWANCE AND THE GROUND NO.2 OF THE ASSESSEES APPEAL STANDS ALLOWED. 14. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D AND THE APPEAL OF THE REVENUE IS DISMISSED. 15. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE 2011. SD./- SD./- (D. K. TYAGI) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED : 17 TH JUNE, 2011 SP COPY OF THE ORDER FORWARDED TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE LD. CIT (APPEALS) 5. THE DR, AHMEDABAD 6. THE GUARD FILE 1. DATE OF DICTATION 6/6/11 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 7/6/11 OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S. 9/6/11 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 17/6/11 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S. 17/6/11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 17/6/11 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. ..