Krishnonics Ltd., Ahmedabad V. The Income tax Officer, Ward-4(2), Ahmedabad

ITA 3255/AHD/2010

• Counselvise Citation: 325520514 RSA 2010
• Duration Of Justice: 11 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-11-2011
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 18-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 09-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH, AHMEDABAD BEFORE SHRI G. C. GUPTA, HONBLE VICE PRESIDENT AND SHRI A. K. GARODIA, ACCOUNTANT MEMBER I.T.A. NO.3255 / AHD/2010 (ASSESSMENT YEAR 2006-07) M/S. KRISHNONICS LTD., 701, ANIKET BUILDING, NAVRANGPURA C G ROAD, AHMEDABAD VS. ITO, WARD 4(2), AHMEDABAD PAN/GIR NO. : AAACK5883E (APPELLANT) .. (RESPONDENT) APPELLANT BY: SHRI DHIREN SHAH, AR RESPONDENT BY: SHRI SAMIR TEKRIWAL, SR. DR DATE OF HEARING: 18.11.2011 DATE OF PRONOUNCEMENT: 25. 11.2011 O R D E R PER SHRI A. K. GARODIA, AM:- THIS IS ASSESSEES APPEAL DIRECTED AGAINST THE ORD ER OF LD. CIT(A) XX, AHMEDABAD DATED 14.09.2010 FOR THE ASSESSMENT Y EAR 2006-07. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. THE LD. CIT (A) HAS GROSSLY ERRED IN LAW AND ON FACTS IN DISMISSING THE APPEAL. HE OUGHT TO HAVE ALLOWED THE APPEAL FULLY IN ACCORDANCE WITH THE GROUNDS OF APPEAL RAISED BY THE APPELLANT BEFORE HIM. I. DISALLOWANCE OF CLAIM OF BAD DEBT RS.1,08,000/ - 1. THE LD. CIT (A) HAS ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE OF RS. 1,08,000/- MADE BY THE A.O ON T HE GROUND THAT THE BUSINESS LOSS WAS NOT CRYSTALLIZED IN F.Y. 2005 -06 RELEVANT TO ASSESSMENT YEAR 2006-07. 2. THE LD. A.O HAS ERRED IN LAW AND ON FACTS IN NOT ALLOWING THE BUSINESS LOSS WHICH S OTHERWISE AVAILABLE AS BAD DE BTS. I.T.A.NO. 3255 /AHD/2010 2 THE APPELLANT RESERVES ITS RIGHT TO ADD, AMEND, ALT ER OR MODIFY ANY OF THE GROUNDS STATED HEREINABOVE EITHER BEFORE OR AT THE TIME OF HEARING. P RAY E R THE APPELLANT THEREFORE RESPECTFULLY PRAYS THAT :- 1. THE DISALLOWANCE OF CLAIM OF BAD DEBTS OF RS. 1,08,000/- CONFIRMED BY THE LD. GIT (A) MAY KINDLY BE DELETED. 2. SUCH AND FURTHER RELIEF AS THE NATURE ARID CIRCUMSTANCES OF THE CASE MAY JUSTIFY. 2. THE BRIEF FACTS TILL THE ASSESSMENT STAGE ARE NO TED BY THE LD. CIT(A) IN PARA 4.1 OF HIS ORDER WHICH IS REPRODUCED BELOW: 4.1 IN THIS CASE THE APPELLANT COMPANY HAD PURCHAS ED RAW MATERIALS FROM DAEWOO CHEMICAL COMPANY [A FOREIGN C OMPANY] DURING THE FY 2000 - 2001. AS PER THE TERMS AGREED UPON, THE MATERIAL PURCHASED WAS TO BE UNLOADED AT SABARMATI ICD PORT. HOWEVER THE UNLOADING OF MATERIAL WAS DONE AT MUMBA I PORT AND THE MATERIAL WAS KEPT AT MUMBAI PORT FOR THREE MONT HS AS UNCLEARED. THE APPELLANT COMPANY RECEIVED A CLAIM F ROM M/5 SAHIL SHIPPING COMPANY [INTERNATIONAL FREIGHT FORWARDERS AND CONSOLIDATORS] FOR RS.1,43,000/- TOWARDS THE CARGO HANDLING CHARGES OF THE GOODS PURCHASED BY THE APPELLANT COM PANY AND WRONGLY KEPT AT MUMBAI PORT. SINCE THE GOODS HAD BE EN WRONGLY UNLOADED AT MUMBAI PORT INSTEAD OF SABARMATI ICD PO RT THE APPELLANT COMPANY DISPUTED THE CLAIM OF SAHIL SHIPP ING COMPANY TOWARDS CARGO HANDLING CHARGES. THE APPELLANT COMPA NY III ORDER TO CLEAR THE CARGO OF RAW MATERIAL PURCHASED AND WR ONGLY UNLOADED AT MUMBAI PORT PAID THE EXPENSES AS CLAIMED BY SAHI L SHIPPING COMPANY OF RS.1,43,0007- DURING FY 2000-01 AND CONT INUED THE DISPUTE WITH SAHIL SHIPPING COMPANY. INSPITE OF REP EATED REMINDERS AND FOLLOW-UP THE APPELLANT COULD NOT REC OVER THE ENTIRE AMOUNT OF EXPENSES WRONGLY CLAIMED BY SAHIL SHIPPIN G COMPANY. HOWEVER IN FY 2004 - 05 THE APPELLANT COULD RECOVER AN AMOUNT OF RS.35,0007-. WHEN THE APPELLANT COMPANY LOST THE HO PE OF RECOVERY OF THE OUTSTANDING DUES, THE APPELLANT COM PANY CREATED A PROVISION FOR BAD DEBT IN RESPECT OF THE REMAINING DUES OF RS.1,08, 0007- DURING THE YEAR UNDER CONSIDERATION FOLLOWING THE PRINCIPLES OF CONSERVATISM. IN THE RETURN OF INCOME FILED FOR THE FY 2005 - 06 RELEVANT TO ASSESSMENT YEAR 2006 - 07, THE APPELLAN T COMPANY CLAIMED A SUM OF RS.1,08, 0007- AS BAD DEBTS. I.T.A.NO. 3255 /AHD/2010 3 3. THE A.O. REJECTED THE CLAIM OF THE ASSESSEE REGA RDING THIS CLAIM OF BAD DEBT OF RS.1.08 LACS ON THIS BASIS THAT THE ASS ESSEE HAS NOT WRITTEN OFF THE BAD DEBTS AND HAS SIMPLY MADE PROVISIONS FOR BA D DEBTS. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER IN APPEA L BEFORE LD. CIT(A) BUT WITHOUT SUCCESS AND NOW, THE ASSESSEE IS IN FURTHER APPEAL BEFORE US. 4. IT WAS SUBMITTED BY THE LD. A.R. THAT BAD DEBTS WERE WRITTEN OFF BY DEBITING TO P & L ACCOUNT AND IN SUPPORT OF THIS CO NTENTION, OUR ATTENTION WAS DRAWN TO PAGE 46 OF THE PAPER BOOK AND IT WAS P OINTED THAT THIS AMOUNT OF RS.1.08 LACS WAS DEBITED TO P & L ACCOUNT BY WAY OF BAD DEBTS. AT THIS JUNCTURE, IT WAS ENQUIRED BY THE BE NCH AS TO WHETHER THIS DEBT IN QUESTION WAS WRITTEN OFF BY WAY OF CREDIT T O THE ACCOUNT OF THE DEBTOR, IT WAS SUBMITTED BY THE LD. A.R. THAT LEDGE R COPY OF THE CONCERNED DEBTOR IS AVAILABLE ON PAGE 113 OF THE PA PER BOOK AND FROM THE SAME, IT IS SEEN THAT AT THE END OF THIS YEAR I.E. 31.03.2006, THE ACCOUNT OF THE CONCERNED DEBTOR IS SHOWING DEBIT BALANCE OF RS .1.08 LACS. WHEN THIS FACT WAS POINTED OUT TO LD. A.R. OF THE ASSESSEE, H E HAD NOTHING TO SAY AND HE SIMPLY PLACED RELIANCE ON THE JUDGMENT OF HO NBLE APEX COURT RENDERED IN THE TRF LTD AS REPORTED IN 323 ITR 397. AS AGAINST THIS, IT WAS SUBMITTED BY THE LD. D.R. OF THE REVENUE THAT S INCE THE DEBT IN QUESTION WAS NOT WRITTEN OFF BY THE ASSESSEE IN THE PRESENT YEAR, NO INTERFERENCE IS CALLED FOR IN THE ORDER OF LD. CIT( A). 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS, PERUSE D THE MATERIAL ON RECORD AND HAVE GONE THROUGH THE ORDERS OF AUTHORIT IES BELOW. WE FIND THAT A CLEAR FINDING IS GIVEN IN THE PRESENT CASE T HAT DEBT IS NOT WRITTEN OFF AND THIS COULD NOT BE CONTROVERTED BY THE LD. A.R. IN FACT, AS PER THE COPY OF THE ACCOUNTS FILED BY THE ASSESSEE IN THE P APER BOOK, IT IS SEEN THAT DEBIT BALANCE OF RS.1.08 LACS IS CONTINUING AS ON 3 1.03.2006 IN THE NAME OF THE CONCERNED PARITY. HENCE, IT IS APPARENT THA T THE DEBT WAS NOT ACTUALLY WRITTEN OFF IN THE ACCOUNTS. REGARDING TH E DEBIT IN THE P & L ACCOUNT, WE HAVE OBSERVED THAT EVEN WHEN PROVISION IS CREATED, THE DEBIT I.T.A.NO. 3255 /AHD/2010 4 HAS TO APPEAR IN THE P & L ACCOUNT AND, THEREFORE, DEBIT IN P & L ACCOUNT DOES NOT TANTAMOUNT TO ACTUAL WRITE OFF OF BAD DEBT IN THE BOOKS OF ACCOUNT. IN THIS FACTUAL POSITION, THE JUDGEMENT OF HONBLE APEX COURT RENDERED IN TRF LTD. (SUPRA), IS OF NO HELP TO THE ASSESSEE IN THE PRESENT CASE. AS PER THIS JUDGEMENT, THE ISSUE IS COVERED AGAINST THE ASSESSEE BECAUSE AS PER THE FACTS OF THE PRESENT CASE, THE D EBTS WERE NOT ACTUALLY WRITTEN OFF BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT AND HENCE, DEDUCTION IS NOT ALLOWABLE U/S 36(1)(VII) OF THE ACT. WE WOULD ALSO LIKE TO OBSERVE THAT FOR THE PURPOSE OF ALLOWING DEDUCTION OF BAD D EBTS, TWO CONDITIONS ARE REQUIRED TO BE FULFILLED BY THE ASSESSEE. THE FIRST CONDITION IS ACTUAL WRITE OFF IN THE BOOKS OF ACCOUNT AND SECOND CONDIT ION IS THAT SUCH DEBT MUST HAVE BEEN TAKEN INTO CONSIDERATION AS INCOME I N THAT YEAR OF WRITE OFF OR IN ANY EARLIER YEAR. IN THE PRESENT CASE, T HE ASSESSEE HAS FAILED ON THE FIRST ASPECT ITSELF AND NO ONE HAS GONE INTO TH E 2 ND ASPECT I.E. THE REQUIREMENT OF SECTION 36(2). HENCE, EVEN IN THE Y EAR OF ACTUAL WRITE OFF, WHEN THE ASSESSEE COMPLY WITH THE FIRST REQUIREMENT , THE 2 ND ASPECT HAS TO BE SEEN THAT THE ASSESSEE IS COMPLYING WITH SECTION 36(2) ALSO. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMI SSED. 7. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE M ENTIONED HEREINABOVE. SD./- AS./- (G. C. GUPTA) (A.K. GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER 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 BY ORDER 6. THE GUARD FILE AR,ITAT,AHMEDABAD I.T.A.NO. 3255 /AHD/2010 5 1. DATE OF DICTATION 22/11 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 23/11.OTHER MEMBER 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P .S./P.S.24/11 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 25/11/2011 5. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR. P.S./P.S.25/11 6. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 25/11/2011 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. ..