M/s. Gujarat Borosil Limited, Bharuch V. The Dy.CIT., Bharuch Circle, Bharuch

ITA 3270/AHD/2014

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 2127 (ITAT-SURAT)
• Duration Of Justice: 3 year(s) 7 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2010-2011
• Appeal Filed On: 08-12-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SHRIB P K
• Keywords: Bad and doubtful debts
• Section: 32; 37(1); 250

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL,SURAT BENCH,SURAT , , BEFORE SHRI C.M.GARG, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER . / ITA NO.3270/AHD/2014/SRT [ [ / ASSESSMENT YEAR: 2010-11 M/S. GUJARAT BOROSIL LTD., VILLAGE-GOVALI, TALUKA JHAGADIA, DIST. BHARUCH, BHARUCH. [PAN: AAACG 8440M] VS. DY. COMMISSIONER OF INCOME TAX, BHARUCH CIRCLE, BHARUCH. ( / APPELLANT) ( /RESPONDENT) / ASSESSEE BY : SHRI SUNIL TALATI, C.A /REVENUE BY : SHRIB.P.K. PANDA, SR. D.R /DATE OF HEARING : 28-06-2018 / DATE OF PRONOUNCEMENT : 30-07-2018 / ORDER PERC.M.GARG, JUDICIAL MEMBER : THISAPPEAL HAS BEEN FILED BY THE ASSESSEE DIRECTED AGAINST THEORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-III, BARODA (CIT(A) FOR SHORT) DATED 23.09.2014 FOR THE ASSESSMENT YEAR (A.Y) 2010-11. 2. THE LD. ASSESSEES REPRESENTATIVE (AR) SUBMITTED THAT THE ASSESSEE DOES NOT WANT TO PRESS GROUNDS NO.1, 2, 4 & 5 HENCE, THE SAME 2 ITA NO.3270/AHD/2014/SRT (A.Y: 2010-11) M/S. GUJARAT BOROSIL LTD. ARE DISMISSED AS NOT PRESSED. THEREMAINING SOLE GROUND RAISED BY THE ASSESSEE READS AS FOLLOWS: THE LEARNED CIT(A), BARODA AO HAS ERRED IN CONFIRMING THE DISALLOWANCE OF CLAIM OF BAD DEBTS OF RS. 12,48,000/- ON THE GROUND THAT THE APPELLANT AHS BEEN UNABLE TO SHOW THAT THE CONDITIONS LAID DOWN U/S. 32 HAS BEEN FULFILLED. YOUR APPELLANT SUBMITS THAT SINCE THE AMOUNTS ARE WRITTEN OFF IN THE BOOKS, THE SAME BE ALLOWED AS PER AMENDED PROVISIONS OF THE SECTION 36(1)(VII) OF THE ACT. IT BE HELD SO NOW AND AO BE DIRECTED TO ALLOW THE SAME. 3. WE HAVE HEARD THE ARGUMENTS OF BOTH SIDES AND CAREFULLY PERUSED THE RELEVANT MATERIAL PLACED ON THE RECORD OF THE TRIBUNAL. THE LD. AR SUBMITTED THAT THE FIRST APPELLATE AUTHORITY HAS GROSSLY ERRED IN CONFIRMING DISALLOWANCE OF CLAIM OF BAD DEBTS OF RS. 12,48,000/- ON THE GROUNDS THAT THE APPELLANT HAS BEEN UNABLE TO SHOW THAT THE CONDITIONS LAID DOWN U/S. 32 OF THE INCOME TAX ACT, 1961 (IN SHORT 'THE ACT') HAS BEEN FULFILLED. THE LD. AR FURTHER SUBMITTED THAT SINCE THE AMOUNTS ARE WRITTEN OFF IN THE BOOKS, THE SAME BE ALLOWED AS PER AMENDED PROVISIONS OF THE S. 36(1)(VII) OF THE ACT. IT BE HELD SO NOW AND AO BE DIRECTED TO ALLOW THE SAME. THE LD. AR SUBMITTED THAT THE ASSESSEE SEPARATELY SHOWN SUNDRY DEBITBALANCES WRITTEN OFF ADVANCE GIVEN TO THE VARIOUSSUPPLIERS/EMPLOYEES AND THESE AMOUNTS HAVE BEEN WRITTEN OFF DURING THE PERIOD UNDER CONSIDERATION HENCE, THE SAME IS ALLOWABLE U/S. 36(1)(VII) OF THE ACT.THE LD. AR DREW OUR ATTENTION TOWARDS PG. 1 OF THE ASSESSEE PAPER BOOK AND SUBMITTED THAT THE MAJOR PART OF DEPOSITS IS THE AMOUNT OF ELECTRICITY DEPOSIT WHICH IS REQUIRED TO BE DEPOSITED WITH THE 3 ITA NO.3270/AHD/2014/SRT (A.Y: 2010-11) M/S. GUJARAT BOROSIL LTD. ELECTRICITY DEPT. WHILE PROCURING ELECTRICITY COLLECTIONS AND THE SAME REMAIN IRRECOVERABLE HENCE, WRITTEN OFF. THE LD. AR ALSO SUBMITTED THAT OTHER AMOUNTS PERTAINING TO MAZDA DECORATORS IS BALANCE RECOVERABLE OUT OF LABOUR CHARGES FOR PAINTING AND POLISHING WHICH COULD NOT BE RECOVERED AND AMOUNT OF CVD CLEARING ACCOUNT AND DCGR IMP C&F CHARGES ARE ALSO LIABILITY OF THE RESPECTIVE PARTIES WHICH COULD NOT BE RECOVERED AND HENCE, WRITTEN OFF. THE LD. AR FURTHER PLACING RELIANCE ON THE DECISION OF HON'BLE SUPREME COURT DATED 09.02.2010 IN THE CASE OF TRF LTD. IN CIVIL APPEAL NO.5293/2003 SUBMITTED THAT THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE BOOKS OF ACCOUNTS THEN, NO FURTHER COMPLIANCE IS REQUIRED FOR CLAIMING BAD DEBTS THEREFORE, THE SAME SHOULD BE ALLOWED TO THE ASSESSEE. 4. REPLYING TO THE ABOVE, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THE AO HAS MADE DISALLOWANCE ON THE BASIS THAT THESE ADVANCES WERE NOT TAKEN INTO CONSIDERATION AS INCOME EITHER DURING THE CURRENT YEAR OR IN THE EARLIER YEARS. THE LD. DR FURTHER SUBMITTED THAT THE APPELLANT HAS NOT BEEN ABLE TO CONTROVERT THIS FINDING IN THE SUBMISSIONS FILED DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE ASSESSEE HAS BEEN UNABLE TO SHOW THAT THE CONDITIONS LAID DOWN BY S. 32 OF THE ACT HAS BEEN FULFILLED IN RESPECT OF SAID BAD DEBTS WRITTEN OFF HENCE, THE AO WAS RIGHT IN MAKING DISALLOWANCE AND THE LD. CIT(A) WAS ALSO CORRECT IN UPHOLDING THE SAME. THE LD. DR 4 ITA NO.3270/AHD/2014/SRT (A.Y: 2010-11) M/S. GUJARAT BOROSIL LTD. LASTLY SUBMITTED THAT THE RATIO OF THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA) APPLIES ONLY WHEN THE AO HAS EXAMINED THE ISSUE AS TO WHETHER THE DEBTS HAS, IN FACT, BEING WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE.THEREFORE, THE ISSUE MAY KINDLY BE RESTORED TO THE FILE OF THE A.O FOR SUCH EXAMINATION AND DENOVO CONSIDERATION ONLY FOR THIS PURPOSE ONLY TO THE EXTENT OF AMOUNTS WRITTEN OFF. THE LD. DR PLACING RELIANCE ON THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. ESCOTRAC FINANCE & INVESTMENTS LTD. REPORTED IN 84 TAXMANN.COM 67 (DEL.) AND DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. EPSILON ADVISERS (P.) LTD. REPORTED IN 22 TAXMANN.COM 284 (KAR.) SUBMITTED THAT THE ADVANCES/AMOUNTS GIVEN AS ADVANCE FOR INVESTMENT IN BADLA TRANSACTIONS OR MONEY LEND TO SISTER CONCERN FOR ITS REVIVAL CANNOT BE CLAIMED AS BAD DEBTS, AT BEST THE SAME MAY BE BUSINESS LOSS BUT WOULD BE A BAD DEBT. 5. PLACING REJOINDER TO THE ABOVE, THE LD. AR SUBMITTED THAT AS PER DECISION OF HON'BLE BOMBAY HIGH COURT IN THE CASE OF HARSHAD J. CHOKSI VS. CIT 349 ITR 250 (BOM) AND DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF MOHAN MEAKIN LTD. VS. CIT 348 ITR 109 (DEL.) IF AN AMOUNT CLAIMED AS BAD DEBT, IS HELD TO BE NOT DEDUCTIBLE IN VIEW OF NON- COMPLIANCE OF CONDITION PROVIDED U/S. 36(2) OF THE ACT, THE SAME COULD BE CONSIDERED AS AN ALLOWABLE OF BUSINESS LOSS. HE ALSO PLACED RELIANCE ON THE CBDT CIRCULAR NO.12/2016 DATED 30.05.2016 AND SUBMITTED THAT THE 5 ITA NO.3270/AHD/2014/SRT (A.Y: 2010-11) M/S. GUJARAT BOROSIL LTD. CLAIM FOR ANY DEBT OR PART THEREOF IN ANY PREVIOUS YEAR SHALL BE ADMISSIBLE IF IT IS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE FOR THAT PREVIOUS YEAR. 6. ON CAREFUL CONSIDERATION OF ABOVE RIVAL SUBMISSIONS, FIRST OF ALL, WE MAY POINT OUT THAT THE CBDT CIRCULAR NO.12/2016 (SUPRA) PROVIDES THAT THE CLAIM OF THE ASSESSEE FOR ANY DEBT OR PART THEREOF IN ANY PREVIOUS YEAR SHALL BE ADMISSIBLE U/S. 36(1)(VII) OF THE ACT, IF IT IS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE FOR THAT PREVIOUS YEAR AND THE SAME FULFILLS THE CONDITIONS IS STIPULATED IN SUB S. (2) OF S. 36 OF THE ACT. AS PER THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPRA) THAT AFTER 01.04.1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBTS IN FACT HAS BECOME IRRECOVERABLE IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 7. IN THE PRESENT CASE, THE ASSESSEE HAS SHOWN BAD DEBTS WRITTEN OFF AS IRRECOVERABLE IN ITS ACCOUNTS BUT THE ISSUE AS TO WHETHER IT HAS COMPLIED WITH THE CONDITIONS LAID DOWN IN SUB S. (2) OF S. 36 OF THE ACT HAS NOT BEEN EXAMINED BY THE AUTHORITIES BELOW IN RIGHT PROSPECTIVE. WE FURTHER MAKE IT CLEAR THAT EVEN IF THE ASSESSEE FAILED TO ESTABLISH THAT IT HAS COMPLIED WITH THE SAID CONDITIONS LAID DOWN IN SUB S. (2) S. 36 OF THE ACT THEN, ALSO IN VIEW OF THE DECISION HON'BLE BOMBAY HIGH COURT IN THE 6 ITA NO.3270/AHD/2014/SRT (A.Y: 2010-11) M/S. GUJARAT BOROSIL LTD. CASE OF HARSHAD J. CHOKSI (SUPRA) AND DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF MOHAN MEAKIN LTD. (SUPRA) THE SAME HAS TO BE ALLOWED AS BUSINESS LOSS/EXPENDITURE U/S. 37(1) OF THE ACT. RESPECTFULLY FOLLOWING THE PROPOSITIONS LAID DOWN BY HON'BLE SUPREME COURT AND HON'BLE HIGH COURT AS NOTED ABOVE, THE ISSUE IS RESTORED TO THE FILE OF THE A.O DENOVO CONSIDERATION OF THE ABOVE MENTIONED ASPECTS ONLY TO THE EXTENT OF AMOUNTS WRITTEN OFF. THE DECISION OF HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. ESCOTRAC FINANCE & INVESTMENTS LTD. (SUPRA) AND DECISION OF HON'BLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. EPSILON ADVISERS (P.) LTD. (SUPRA) AS RELIED BY THE LD. DR MAKE IT CLEAR THAT IN A CASE THE CLAIM OF THE ASSESSEE CANNOT BE ALLOWED AS BAD DEBT THEN, THE SAME MAY BE ALLOWED AS BUSINESS LOSS/EXPENDITURE. KEEPING IN VIEW DICTA LAID DOWN BY HON'BLE COURTS AS NOTED ABOVE THE AO IS DIRECTED TO CONSIDER THE CLAIM OF IMPUGNED AMOUNTS AS BAD DEBTS U/S. 36(1)(VIII) OF THE ACT OR ALTERNATIVELY, AS PRAYED BY THE LD. AR, AS BUSINESS LOSS/EXPENDITURE U/S. 37(1) OF THE ACT. ACCORDINGLY, SOLE GROUND OF THE ASSESSEE IS RESTORED TO THE FILE OF THE A.O WITH THE DIRECTIONS AS NOTED ABOVE AND THE SAME IS ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT,APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS DAY OF30 TH JULY, 2018. SD/ - SD/ - 7 ITA NO.3270/AHD/2014/SRT (A.Y: 2010-11) M/S. GUJARAT BOROSIL LTD. / SURAT ; DATED :30 TH JULY, 2018 / EDN / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT ; 3. ( ) / THE CIT(A)-III, BARODA; 4. PRL. CIT-2, SURAT; 5. , , / DR, ITAT, SURAT; 6. / GUARD FILE . ( ) ( O.P.MEENA ) / ACCOUNTANT MEMBER ) ) (C.M.GARG) /JUDICIAL MEMBER