DCIT, New Delhi V. The Indian Thernit Corporation Ltd, Gwalior

ITA 3210/DEL/2009

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3776 (ITAT-DELHI)
• Duration Of Justice: 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-06-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 02-06-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 14-07-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MONA MOHANTY
• Keywords: Bad and doubtful debts
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C: NEW DELHI BEFORE SHRI C.L. SETHI, JUDICIAL MEMBER & SHRI K.D. RANJAN, ACCOUNTANT MEMBER ITA NO. 3210/DEL/2009 ASSESSMENT YEAR: 2004-05 DY. COMMISSIONER OF INCOME TAX, CIRCLE 16(1), NEW DELHI VS. THE INDIA THERNIT CORPORATION LTD., SHREE BHAWAN, SARAFA BAZAR, LASKAR, GWALIOR PAN: AAACT 7462 Q APPELLANT RESPONDENT APPELLANT BY : SMT. MONA MOHANTY , SR. DR RESPONDENT BY : SHRI SURENDER KUMAR, CA O R D E R PER: C.L. SETHI, J.M. THE REVENUE IS IN APPEAL AGAINST THE ORDER DATED 1 7.03.2009 PASSED BY THE LD. CIT(A) IN THE MATTER OF AN ASSESSMENT MADE U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) PERTAINING TO THE A.Y. 2 004-05. 2. THE GROUND NO. 1 IS DIRECTED AGAINST THE CIT(A) S ORDER IN DELETING THE DISALLOWANCE OF RS.3,02,604/- MADE BY THE AO ON ACC OUNT OF BAD DEBT. 3. ASSESSEES CLAIM OF DEDUCTION OF BAD DEBT AMOUNT ING TO RS. 3,02,604/- WAS DISALLOWED BY THE AO FOR THE REASON THAT THE ASSESSEE FAILED TO PRODUCE ANY PROOF WITH REGARD TO THE EFFORTS MAD E BY THE ASSESSEE TO RECOVER AND REALIZE THE AMOUNT, WHICH HAS BEEN CLAI MED AS BAD DEBTS. ON AN APPEAL, THE CIT(A) DELETED THE ADDITION BY OBSERVIN G THAT AS PER THE ITA NO. 3210/DEL/2009 PAGE 2 OF 4 PROVISIONS OF SECTION 36(1)(VII) OF THE ACT, AS IT STAND AMENDED W,E.F. 01.04.1989, IT IS SUFFICIENT TO WRITE OFF OF DEBT I N THE BOOKS OF ACCOUNTS IN ENABLING THE ASSESSEE TO CLAIM DEDUCTION U/S. 36(1) (VII) OF THE ACT, AND IT IS NOT NECESSARY TO PROVE AND ESTABLISH THAT THE ASSES SEE MADE EFFORTS TO RECOVER OR RECEIVE THE AMOUNT IN THAT YEAR. 4. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PA RTIES AND PROVISIONS OF LAW CONTAINED IN SECTION 36(1)(VII), WE ARE OF T HE CONSIDERED OPINION THAT THE LD. CIT(A) HAS RIGHTLY DELETED THE DISALLOWANCE IN AS MUCH AS, UNDER THE EXISTING PROVISIONS OF SECTION 36(1)(VII) W.E.F. AP RIL 1, 1989, IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE BAD DEBT, IN FACT, H AS BECOME IRRECOVERABLE: IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERA BLE IN THE ACCOUNTS OF THE ASSESSEE. THIS IS SO HELD BY THE HONBLE SUPREME C OURT IN THE CASE OF TRF LTD. VS. CIT (2010) 323 ITR 397 (SC). THE ORDER OF THE LD. CIT(A) ON THIS ISSUE IS, THUS, UPHELD. 5. GROUND NO. 2 IS DIRECTED AGAINST THE CIT(A)S OR DER IN DELETING THE DISALLOWANCE OF RS. 30,03,935/- MADE BY THE AO ON A CCOUNT OF COMMISSION PAID TO THE DIRECTORS. THE PAYMENT OF COMMISSION T O THE DIRECTORS CLAIMED AS DEDUCTION BY THE ASSESSEE HAS BEEN DISALLOWED BY THE AO BY OBSERVING AS UNDER:- ITA NO. 3210/DEL/2009 PAGE 3 OF 4 THE ASSESSEE PAID COMMISSION OF RS. 30,03,935/- TO ITS MANAGING DIRECTOR, AND TO OTHER DIRECTORS. ASSESSE E WAS ASKED TO SUBSTANTIATE THE CLAIM OF COMMISSION PAID TO THE DIRECTORS BY NARRATING THE SPECIFIC EFFORTS DONE BY THE DIRECTORS, RESULT OUT-COME OF IT AND WHETHER IT WAS ACCORDING TO RATIO OF PROFIT EARNED. ASSESSEE REPL IED THAT THE TURN-OVER OF THE COMPANY INCREASED AND FOREIGN SALES ALSO INCREASED AND ARGUED THAT BOARD OF DIRECTORS A RE BRAIN OF THE COMPANY AND HENCE ARGUMENTS ITSELF SUBSTANTIATE DIRECTORS COMMISSION. ASSESSEES CON TENTION IS NOT SATISFACTORY. DIRECTORS ARE GETTING REMUNER ATION FOR THEIR NORMAL FUNCTIONING. RECEIPT OF COMMISSION IS ONLY REASONABLE IF THEY MAKE SPECIFIC EFFORTS BEYOND THE IR LINE OF DUTY ENABLING COMPANY TO EARN SUBSTANTIAL PROFIT. THE PROFIT OF THE COMPANY IS GRADUALLY REDUCING. IN ASSESSMENT YEAR 2001-02 IT WAS 39% AND THIS YEAR I T IS 31%. THE HISTORY OF ASSESSEE REPORTS GRADUAL LOSS IN G.P. WHICH ITSELF CONTRADICTS ASSESSEES CONTENTION. SI NCE THE COMMISSION PAID TO THE MANAGING DIRECTOR, OTHER DIRECTORS & FOREIGN DIRECTORS AMOUNTING TO RS. 30,03,935/- RESPECTIVELY COULD NOT BE SUBSTANTIATED , THE SAME IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. PENALTY PROCEEDINGS U/S. 271(1)(C) ARE INITIATED. 6. ON AN APPEAL, THE CIT(A) ALLOWED THE ASSESSEES CLAIM OF PAYMENT OF COMMISSION TO DIRECTORS BY FOLLOWING THE DECISION O F ITAT IN ASSESSEES OWN CASE PERTAINING TO THE A.Y. 2002-03 (ITA NO. 50 4/AGR/2005 DATED 20.06.2008, ITAT AGRA BENCH, AGRA). 7. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE M ATERIAL ON RECORD. 8. IN THE COURSE OF HEARING OF THIS APPEAL, THE LD. DR HAS MERELY RELIED UPON THE AOS ORDER. ITA NO. 3210/DEL/2009 PAGE 4 OF 4 9. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER H AND, SUPPORTED THE LD. CIT(A)S ORDER BY CONTENDING THAT THE ISSUE HAS BEE N DECIDED IN ASSESSEES FAVOUR BY THE TRIBUNAL IN A.Y. 2002-03. 10. IN THE ABSENCE OF MATERIAL REBUTTING THE FINDIN G RECORDED BY THE LD. CIT(A) THAT THE ASSESSEES CLAIM OF COMMISSION PAID TO MANAGING DIRECTOR AND TWO DIRECTORS, IS COVERED BY THE ORDER OF THE T RIBUNAL, WE ARE INCLINED TO UPHELD THE ORDER OF THE CIT(A) IN DELETING THE DISA LLOWANCE MADE BY THE AO SINCE IN THE ASSESSEES OWN CASE, AN IDENTICAL DISA LLOWANCE HAS BEEN DELETED BY THE TRIBUNAL. THE ORDER OF THE LD. CIT(A) IS, T HUS, UPHELD. 11. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. 12. THIS DECISION WAS PRONOUNCED IN THE OPEN COURT ON 2 ND JUNE, 2010. SD/- (K.D. RANJAN) ACCOUNTANT MEMBER SD/- (C.L. SETHI) JUDICIAL MEMBER DATED: 2 ND JUNE, 2010 *NITASHA COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, NEW DELHI. BY ORDER DEPUTY REGISTRAR