WIN CABLE & DATACOM P.LTD, MUMBAI V. DCIT 9(3), MUMBAI

ITA 3274/MUM/2010

• Counselvise Citation: 327419914 RSA 2010
• Duration Of Justice: 1 year(s) 1 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 31-05-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 27-04-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K MAYAK PER R K
• Keywords: Bad and doubtful debts

Judgement Text

1 ITA NO. 3274/MUM/2010 WIN CABLE & DATACOM P. LTD. IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI G BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI D K AGRAWAL, JM & SHRI R K PANDA, AM ITA NO. 3274/MUM/2010 (ASST YEAR 2005-06) WIN CABLE & DATACOM PVT. LTD., RAHEJAS, 4 TH FLOOR, PLOT NO. 8C, SANTACRUZ (WEST), MUMBAI 400 054 PAN AAACH1675B VS DCIT , 9(3), AAYAKAR BHAWAN, M.K. MARG, MUMBAI -20. (APPELLANT) (RESPONDENT) APPELLANT BY SHRI NITESH JOSHI RESPONDENT BY SHRI A.K. MAYAK PER R K PANDA, AM THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER DATED 12.02.2010 OF THE CIT(A)- 20, MUMBAI RELATING TO AS SESSMENT YEAR 2005-06. 2. THE FIRST ISSUE IN THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE RELATES TO THE BAD DEBTS WRITTEN OFF TO THE EXTENT OF ` 1,12,39,083/-. 2.1 FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF DISTRIBUTION AND TRANSMISSION OF TV SIG NALS THROUGH CABLE NETWORK AS MAIN SERVICE OPERATOR. THE ASSESSEE HAD DEBITED AN AMOUNT OF ` 1,66,33,780 TO THE PROFIT AND LOSS ACCOUNT UNDER TH E HEAD, BAD DEBTS. THE AO ASKED THE ASSESSEE TO EXPLAIN THE STEPS TAKEN BE FORE WRITING OFF THE SAID DEBTS. THE ASSESSEE EXPLAINED THAT THE SAID SUM REP RESENTED OLD OUTSTANDING AMOUNTS AND EXCESS BILLED AMOUNTS WHICH WERE WRITTEN OFF AS BAD DEBTS AS THEY WERE DISPUTED BY THE CABLE OPERAT ORS. IT WAS NOT IN A POSITION TO ENFORCE RECOVERY AS THE CABLE OPERATORS WERE HIGHLY IRREGULAR IN THEIR PAYMENTS, DISPUTED SUBSCRIPTION RATES AS WELL AS NUMBER OF 2 ITA NO. 3274/MUM/2010 WIN CABLE & DATACOM P. LTD. SUBSCRIBERS FOR WHICH THEY SHOULD PAY. IN THIS PROC ESS THEIR BALANCES WHICH REMAINED OUTSTANDING WERE NO LONGER RECEIVABLE AND THEREFORE WERE WRITTEN OFF. THE ASSESSEE SUBMITTED THAT THE WRITTEN OFF AM OUNTS INCLUDED AN AGGREGATE SUM OF ` 1,07,78,229 COMPRISING DUES OF ` 60,00,000 FROM SONALI CABLE VISION, MUMBAI, ` 27,00,000 FROM DATTATRAY CABLE NETWORK, MUMBAI AND ` 20,78,279 FROM CLASSIC CABLE NETWORKS, DELHI. THE CORRESPONDENCE WITH THESE PARTIES INCLUDING CREDIT NOTES ISSUED TO THEM WERE SUBMITTED ALONG WITH JUSTIFICATION FOR THEIR WRITE OFF. IT WA S SUBMITTED THAT IT HAD TO WRITE OFF THEIR DUES AS THESE PARTIES THREATENED TO MOVE TO OTHER SERVICE PROVIDERS. IT WAS THUS SUBMITTED THAT IT HAD REASON ABLE CAUSE TO WRITE OFF THE AMOUNTS. WITHOUT PREJUDICE, THE ASSESSEE CONTENTED THAT AFTER THE AMENDMENT FROM A.Y. 89-90 NO ONUS LIES ON IT TO EST ABLISH THAT DEBT HAS BECOME BAD AND ONCE IT CONSIDERED THE DEBT TO HAVE BECOME BAD AND IRRECOVERABLE IT WAS ONLY REQUIRED TO ESTABLISH THE SAME BY WRITING IT OFF IN ITS BOOKS OF ACCOUNTS. THE ASSESSEE, THEREFORE, SUBMITT ED THAT THE AMOUNT OF ` 1,66,33,780 SHOULD BE ALLOWED AS DEDUCTION OF BAD D EBTS. 2.2 THE A.O., HOWEVER, WAS NOT SATISFIED WITH SUCH EXPLANATION. HE OBSERVED THAT THE ASSESEE HAD GIVEN A GENERAL EXPLA NATION WITHOUT SHOWING WHAT CONCRETE STEPS IT TOOK FOR RECOVERY. HE FURTHE R OBSERVED THAT THE AGE OF THE DEBT WAS ALSO RELEVANT. THE ASSESSEE WAS CONTIN UING THE BUSINESS WITH THESE PARTIES AND IT WAS NOT THE CASE THAT THE PART IES WERE UNABLE TO PAY THE DUES DUE TO FINANCIAL PROBLEM OR WERE NOT TRACEABLE . HE REJECTED THE CLAIM THAT THERE WAS EXCESSIVE BILLING WHEN THE AMOUNTS W RITTEN OFF IN SOME CASES WERE OF THE ORDER OF ` 20 LACS OR MORE. HE OBSERVED THAT NO CASE HAD BEEN MADE OUT AS TO HOW THERE WAS EXCESSIVE BILLING. THE A.O., FURTHER OBSERVED THAT EVEN ISSUANCE OF CREDIT NOTES WAS ONLY INDICAT IVE OF NOTHING BUT SETTLING THE ACCOUNT TO THE EXTENT OF AMOUNT OUTSTANDING AFT ER MUTUAL DISCUSSION. IN VIEW OF THE FOREGOING, THE A.O. HELD THAT THE DEBTS PERTAINING TO FINANCIAL YEARS 2003-04 AND 2004-05 WHICH AGGREGATED TO ` 1,12,38,883 WERE NOT RIPE TO BE WRITTEN OFF AS BAD DEBTS AND DISALLOWED THE CLAIM OF DEDUCTION TO THIS EXTENT. 3 ITA NO. 3274/MUM/2010 WIN CABLE & DATACOM P. LTD. 2.2 IN APPEAL, THE LD. CIT(A) WHILE UPHOLDING THE O RDER OF THE A.O. NOTED THAT ALTHOUGH THE IMPUGNED DEBTS WERE TAKEN INTO AC COUNT WHILE COMPUTING INCOME OF THE ASSESSEE OF THE RELEVANT YEAR AND ALT HOUGH THE SAID DEBTS HAVE BEEN WRITTEN OFF IN THE ACCOUNTS OF THE RELEVANT YE ARS, STILL THE STATUTE CASTS A DUTY ON THE A.O. TO EXAMINE THE ONUS OF THE ASSESSE E TO PROVE THAT THE DEBT WRITTEN OFF AS IRRECOVERABLE IS NOT A MERE PROVISIO N FOR BAD DEBT OR IN OTHER WORDS A DOUBTFUL DEBT. SUCH PROVISION FOR BAD DEBT OR DOUBTFUL DEBT, EVEN IF WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE, IS NOT A BAD DEBT ELIGIBLE FOR DEDUCTION U/S 36(1)(VII) OF THE ACT. SINCE IN THE INSTANT CASE THE ASSESSEE FAILED TO SHOW ANYTHING AS TO HOW THE DEBT S TURNED BAD AND WHY IT DOES NOT SEE IT TO BE A RECOVERABLE DEBT SINCE THE AGE OF THE DEBT DEFINITELY IS AN INDICATOR OF THE BONAFIDE OF THE CLAIM, THEREFOR E, HE REJECTED THE CLAIM OF THE ASSESSEE AND UPHELD THE ADDITION MADE BY THE A. O. 2.3 AGGRIEVED BY SUCH ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 3. WE HAVE HEARD THE RIVAL ARGUMENTS MADE BY BOTH T HE SIDES, PERUSED THE ORDERS OF A.O. AND THE CIT(A) AND THE PAPER BOO K FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECIS IONS CITED BEFORE US. IN THE INSTANT CASE, THERE IS NO DISPUTE TO THE FACT T HAT THE DEBTS WERE TAKEN INTO ACCOUNT WHILE COMPUTING THE INCOME OF THE ASSE SSEE FOR THE RELEVANT A.Y. AND THE DEBTS HAVE BEEN WRITTEN OFF IN THE ACC OUNTS. IT HAS BEEN HELD BY THE HONBLE SUPREME COURT IN THE CASE OF TRF LTD. V S. CIT 323 ITR 397THAT AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE I. T. ACT, 1961 W.E.F. 1.4.89, IN ORDER TO OBTAIN THE DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FAC T, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE RELEVANT DEBT IS WRITTEN OFF BY THE ASSESSEE AS IRRECOVERABLE IN ITS BOOKS OF ACCOUNT. SINCE THE A SSESSEE IN THE INSTANT CASE HAS WRITTEN OFF THE BAD DEBTS IN THE BOOKS OF ACCOU NT, THEREFORE, IT IS NOT REQUIRED TO PROVE THAT IT IS BAD. IN VIEW OF THE B INDING DECISION OF THE 4 ITA NO. 3274/MUM/2010 WIN CABLE & DATACOM P. LTD. HONBLE SUPREME COURT IN THE CASE OF TRF LTD. (SUPR A), WE HOLD THAT THE ASSESSEE IS ENTITLED TO CLAIM BAD DEBTS OF ` 1,12,39,083/-. ACCORDINGLY, THE ORDER OF THE LD. CIT(A) IS SET ASIDE AND THE GROUND RAISED BY THE ASSESSEE IS ALLOWED. 4. IN THE SECOND GROUND, THE ASSESSEE CHALLENGED TH E ORDER OF THE LD. CIT(A) IN CONFIRMING THE ACTION OF THE A.O. IN DISA LLOWING A SUM OF ` 83,993/- ( ` 72,508/- + ` 11,485/-) BEING PAYMENTS OF EMPLOYEES CONTRIBUTIONS TO PF AND ESIC. 4.1 AFTER HEARING BOTH THE SIDES, WE FIND THE A.O. DISALLOWED AN AMOUNT OF ` 2,27,651/- BEING PAYMENTS MADE TOWARDS EMPLOYEES CONTRIBUTION TO PF AND ESIC ON THE GROUND THAT THEY WERE MADE BEYOND T HE PRESCRIBED DUE DATE UNDER THE RELEVANT STATUTE. IN APPEAL, THE LD. CIT(A) NOTED THAT THE PAYMENT OF PF CONTRIBUTIONS TOTALLING ` 1,43,658/- FOR THE MONTHS OF DECEMBER, 2004 AND MARCH 2005 WERE MADE WITHIN THE GRACE PERIOD. HE, THEREFORE, DIRECTED THE A.O. TO ALLOW DEDUCTION OF THE AFORESAID AMOUNT. THUS ON THE BALANCE AMOUNT OF ` 83,993/-, HE CONFIRMED THE ACTION OF THE A.O. WE FIND FROM THE BODY OF THE ASSESSMENT ORDER THAT THE A.O. HAD GIVEN DETAILS OF DATE-WISE PAYMENT OF ` 83,993/- ACCORDING TO WHICH ALL THE PAYMENTS WERE MADE BEFORE THE DUE DATE OF THE FILIN G OF RETURN. THE CO- ORDINATE BENCHES OF THE TRIBUNAL BY FOLLOWING THE D ECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. AIMIL LTD. AS REPORTED IN 321 ITR 508 ARE TAKING THE CONSISTENT VIEW THAT EMPLOYEES CONTRIBUTION TOWARDS PF AND ESIC, IF PAID BEFORE THE DUE DATE PRESCRIBED FO R FILING THE RETURN OF INCOME, SHALL BE ALLOWED AS DEDUCTION. SINCE IN THE INSTANT CASE, THE ASSESSEE HAD DEPOSITED THE EMPLOYEES CONTRIBUTION TOWARDS PF AND ESIC BEFORE THE DUE TO DATE OF FILING OF THE RETURN, THE REFORE, IN VIEW OF THE CONSISTENT VIEW TAKEN BY THE CO-ORDINATE BENCHES OF TRIBUNAL, THE ASSESSEE, IN OUR OPINION, IS ENTITLED TO GET DEDUCTION OF THE AMOUNT OF ` 83,993/-. WE 5 ITA NO. 3274/MUM/2010 WIN CABLE & DATACOM P. LTD. HOLD AND DIRECT ACCORDINGLY. GROUND NO. 2 OF ASSES SEES APPEAL IS ACCORDINGLY ALLOWED. 4 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ITSELF I.E. ON 31.5.2011. SD/- SD/- ( D K AGRAWAL ) JUDICIAL MEMBER ( R K PANDA ) ACCOUNTANT MEMBER PLACE: MUMBAI : DATED: 31 ST MAY 2011 RK COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT, CITY -9, MUMBAI 4 CIT(A) -20, MUMBAI 5 DR BENCH G 6 MASTER FILE /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI 6 ITA NO. 3274/MUM/2010 WIN CABLE & DATACOM P. LTD. 1 DRAFT DICTATED ON 31.5.11 SR PS 2 DRAFT PLACED BEFORE AUTHOR ON 31.5.11 SR P S 3 DRAFT PROPOSED & PLACE BEFORE THE 2 ND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY 2 ND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR PS SR.PS 6 KEPT FOR PRONOUNCEMENT ON SR PS 7 FILE SENT TO THE BENCH CLER K SR PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DESPATCH SR PS