M/S S.R. Chits & Finance, Visakhapatnam V. The DCIT, Circle-3(1) Visakhapatnam, Visakhapatnam

ITA 328/VIZ/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 72745 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 2 year(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-12-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 10-12-2013
• Assessment Year: 2007-2008
• Appeal Filed On: 29-11-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K V N CHARYA
• Keywords: Bad and doubtful debts; Revised return
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, VISHAKHAPATNAM BEFORE S/SHRI B. RAMAKOTAIAH (AM) & SAKTIJIT DEY (JM) I.T.A. NO.328/VIZ/2011 ASSESSMENT YEAR : 2007 - 08 M/S. S.R.CHITS & FINANCE, D.NO.50 - 49 - 25/1, T.P.T.COLONY, SEETHAMMADHARA, VISAKHAPATNAM VS. DCIT, CIRCLE - 3(1), VISAKHAPATNAM PAN/GIR NO. : AAIFS 2059 P ( APPELLANT ) .. ( RESPONDENT ) APPELLANT BY : SHRI C.SUBRAHMANYAM RESPONDENT BY : SHRI K.V.N.CHARYA DATE OF HEARING : 10/12/2013 DATE OF PRONOUNCEMENT : 13 /12/2013 O R D E R PER SAKTIJIT DEY, JM THE ASSESSEE HAS FILED THIS APPEAL FOR THE ASSESSMENT YEAR 2007 - 08 AGAINST THE ORDER DATED 30.9.2011 OF THE CIT(A) - VISAKHAPATNAM. 2. THE ONLY ISSUE WHICH ARISES IN THE AFORESAID APPEAL IS IN RESPECT OF DISALLOWANCE OF AN AMOUNT OF RS.4,35,000/ - TOWARDS BAD DEBT. 3. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF CHITS AND FINANCE. THERE WAS A SURVEY U/S.133A ON THE AS SESSEE ON 3.8.2008. DURING THE COURSE OF SURVEY, A STATEMENT WAS RECORDED FROM THE ASSESSEE, WHEREIN, WHEN THE OFFICERS CONDUCTING THE SURVEY POINTED OUT CERTAIN DISCREPANCIES TO 2 THE ASSESSEE, ASSESSEE CAME FORWARD AND ADMITTED UNDISCLOSED INCOME IN THE U NAUTHORIZED AND UNACCOUNTED CHIT BUSINESS, WHICH WAS QUANTIFIED IN DIFFERENT FINANCIAL YEAR AS UNDER: 2006 - 07 ; RS. 8,70,000 2007 - 08 : RS.23,01,000 2008 - 9 : RS.11,32,500 4. DURING THE SCRUTINY ASSESSMENT PROCEEDINGS, THE AO, HOWEVER NOTED THAT THO UGH THE ASSESSEE HAS OFFE RED ADDITIONAL INCOME OF RS.8,70 ,000 / - FOR THE IMPUGNED ASSESSMENT YEAR, BUT IN THE REVISED RETURN FILED, ASSESSEE HAS ADMITTED ADDITIONAL INCOME OF RS.4,35,000/ - ONLY AND THE BALANCE AMOUNT OF RS.4,35,000/ - WAS CLAIMED AS BAD DEBT . THE AO REJECTED THE CLAIM O F BAD DEBT BY OBSERVING THAT THE VERIFICATION OF THE RETURN OF INCOME FILED IN THE EARLIER YEARS DOES NOT MAKE IT CLEAR THAT SUCH BAD DEBTS HAVE BEEN OFFERED AS INCOME IN ANY OF THE EARLIER YEARS. HE FURTHER NOTED THAT THE AS SESSEE HAS NOT SUBSTANTIATED THAT SUCH BAD DE BT IS NOT REALIZABLE . HE, THEREFORE, ADD ED THE AMOUNT OF RS.4,35,000/ - TO THE INCOME OF THE ASSESSEE. THE ASSESSEE CHALLENGED THE ADDITION IN APPEAL PREFERRED BEFORE THE CIT(A). 5. THE CIT(A) AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE VIS - - VIS THE PROVISIONS AS CONTAINED IN SECTION 36(1)(VII) OF THE ACT, WAS OF THE VIEW THAT BAD DEBT S SHOULD HAVE BEEN RECORDED AND WRITTEN OFF IN THE BOOKS OF ACCOUNT. HE NOTED THAT IN CASE O F THE ASSESSEE, THERE ARE NO BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION IN RESPECT OF UNAUTHORIZED CHITS. HE, THEREFORE, CONCLUDED THAT THE DEBT BEING CLAIMED AS BAD DEBT IS NOT RECORDED IN THE BOOKS OF ACCOUNT, HENCE, IT CANNOT BE WRITTEN OFF IN THE BOOKS. HE FURTHER NOTED THAT ONLY AFTER THE SURVEY PROCEEDINGS, WHICH WAS CONDUCTED ON 3.8.2008, ASSESSEE HAS TAKEN A DECISION WITH REGARD TO THE CLAIM OF BAD DEBTS. THE CIT(A) FURTHER OBSERVED THAT IN THE ASSESSMENT YEAR UND ER DISPUTE, ASSESSEE HAD ESTIMATED HIS INCOME. HE, THEREFORE, WAS OF THE VIEW THAT WHERE THE INCOME IS ESTI MATED, NO OTHER EXPENDITURE IN SECTION S 29 TO 40 IS ALLOWABLE AS PER THE DECISION OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF INDWELL 3 CONSTR UCTION, 332 ITR 776 (AP). HE, THEREFORE, HELD THAT ASSESSEES CLAIM OF DEDUCTION ON ACCOUNT OF BAD DEBT AS EXPENDITURE IS NOT ALLOWABLE UNDER SECTION 36(1)(VII) OF THE ACT. THE CIT(A) FURTHER HELD THAT THE CLAIM OF BAD DEBT IS ALSO NOT ALLOWABLE UNDER SEC TION 37((1) OF THE ACT BECAUSE THE EXPLANATION TO SAID SECTION MAKES IT CLEAR THAT ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW IS NOT ALLOWABLE. WHEN THE ASSESSEE HAD ADMITTED OF RUNNING UNAUT HORIZED CHITS WHICH IS PROHIBITED BY SPECIFIC LAW AND WHICH IS AGAINST PUBLIC POLICY, THE EXPENDITURE/LOSS EVEN IF GENUINE AN D OTHERWISE ALLOWABLE BECOMES NOT ALLOWABLE IN VIEW OF THE EXPLANATION TO SECTION 37(1) OF THE ACT. WITH THE AFORESAID OBSERVATION S, THE CIT(A) UPHELD THE ADDITION MADE BY THE ASSESSING OFFICER. 6 . AT THE TIME OF HEARING, LD A.R. SUBMITTED BEFORE US THAT THOUGH IT IS A FACT THAT ASSESSEE HAD OFFERED ADDITIONAL INCOME OF RS.8,70,000/ - DURING THE SURVEY OPERATION, HE IS NOT DEVIATING FROM THE SAID OFFER AS IN THE RETURN OF INCOME , HE HAS CLAIMED DEDUCTION OF AN AMOUNT OF RS.4,35,000/ - ON ACCOUNT OF BAD DEBT. LD A.R. SUBMITTED THAT IN THE LINE OF BUSINESS CARRIED ON BY THE ASSESSEE, IT IS COMMON TO SUFFER THE LOSS ON ACCOUNT OF CHITS . IN THIS CONTEXT, HE DREW OUR ATTENTION TO CERTAIN LETTERS ADD RESSED TO CHIT HOLDERS DEMANDING PAYMENTS. IT WAS CONTENDED THAT SINCE THE ASSESSEE WAS NOT AT ALL ABLE TO RECOVER THE AMOUNT OF RS.4,35,000/ - , FROM ONE CHIT SUBSCRIBER, NAMELY, MR V.VINAY K UMAR, SAME WAS CLAIMED AS BAD DEBT. IT WAS SUBMITTED THAT WHEN THE AO AND THE CIT(A) DO NOT DISPUTE THE GENUINENESS OF THE EXPENDITURE/LOSS CLAIMED BY THE ASSESSEE, NO DISALLOWANCE SHOULD HAVE BEEN MADE. IN THIS CONTEXT, LD A.R. RELIED UPON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. SHRIRAM CHITS & INVESTMENTS LTD., (2013) 83 DTR (MAD) 208. 7 . ON THE OTHER HAND, LD D.R. SUBMITTED THAT EITHER FOR BAD DEBTS OR EXPENDITURES, THE AMOUNT CLAIMED HAS TO BE DEBITED TO THE BOOKS OF ACCOUN T. SINCE THE ASSESSEE HAS NOT MAINTAINED ANY BOOKS OF ACCOUNT, THE CLAIM OF BAD DEBT IN THE BOOKS OF ACCOUNT OR WR ITING OFF THE SAME IS NOT AVAILABLE, THEREFORE, THE ASSESSEE IS NOT ELIGIBLE TO CLAIM BAD DEBT U/S.36(1)(VII) OF THE ACT. LD D.R. SUBMITTED THAT THE ASSESSEE DURING THE SURVEY 4 OPERATION HAD NEVER MADE THE CLAIM OF BAD DEBT. IT WAS FURTHER SUBMITTED THAT THE CLAIM ALSO DOES NOT PERTAIN TO THE YEAR UNDER CONSIDERATION. HE, THEREFORE, SUBMITTED THAT NEITHER THE BAD DEBT IS ALLOWABLE U/S.36(1)( VII) NOR IT CAN BE CLAIMED AS EXPENDITURE U/S.37(1) OF THE ACT, WHICH IS RELATED TO AN UNAUTHORIZED AND ILLEGAL BUSINESS. 8 . WE HAVE CONSIDERED SUBMISSIONS OF LD REPRESENTATIVES OF PARTIES AND ORDERS OF AUTHORITIES BELOW. AS CAN BE SEEN FROM THE FACTS ON RECORD, IN THE RETURN FILED, ASSESSEE HAS CLAIMED THE DEDUCTION OF RS.4,35,000/ - TOWARDS BAD DEBT. SECTION 36(1)(VII) PROVIDES DEDUCTION TOWARDS BAD DEBT IF IT IS ACTUALLY WRITTEN OFF IN THE BOOKS OF ACCOUNT OF THE ASSESS EE. HOWEVER, AS CAN BE SEEN FROM THE OBSERVATION MADE BY THE AO AS WELL AS THE CIT(A), THE ASSESSEE HAS NOT PRODUCED ANY BOOKS OF ACCOUNT, THEREFORE, WHETHER THE ASSESSEE HAS WRITTEN OFF THE DEBT IN THE BOOKS OF ACCOUNT, CANNOT BE VERIFIED. FURTHER MORE, FROM THE LETTER DATED 31.10.2007 WRITTEN BY THE ASSESSEE TO SHRI V.VINAY KUMAR, IT IS VERY MUCH EVIDENT THAT ASSESSEE HAD DEMANDED THE AMOUNT OF RS.8,69,085/ - BEING THE SUBSCRIPTIONS DUE AS ON 31.3.2007. IN RESPONSE TO THE SAID LETTER OF THE ASSESSEE, SH RI V.VINAY KUMAR HAD WRITTEN A LETTER DT.16.12.2007 TO THE ASSESSEE EXPRESSING HIS INTENTION TO PAY A SUM OF RS.2 LAKHS ONLY. THEREFORE, FROM THE AFORESAID FACTS, IT IS CLEAR THAT AS ON 31.3.2007, THE ASSESSEE HAS NOT TREATED THE AMOUNT OF RS.8,69,085/ - A S BAD DEBT. SO WHEN THE AMOUNT OF RS.4,35,000/ - DUE FROM SHRI V.VINAY KUMAR HAS NOT BEEN WRITTEN OFF AND THE ASSESSEE IS STILL PURSUING THE MATTER WITH SRI V.VINAY KUMAR, IT IS EVIDEN T THAT THE ASSESSEE HAS NOT LOST HI S HOPE FOR RECOVERY OF THE SAME AND T HE AMOUNT HAS NOT BECOME IRRECOVERABLE AS ON 31.3.2007. IN THE AFORESAID CIRCUMSTANCES, THE CONDITION LAID DOWN IN SECTION 36(1)(VII) HAS NOT BEEN SATISFIED. THEREFORE, THE CLAIM OF BAD DEBT MADE BY THE ASSESSEE IS NOT ALLOWABLE. FOR THE SAME REASON ALS O, ASSESSEES CLAIM UNDER SECTION 37(1) OF THE ACT WILL NOT BE ALLOWABLE IF AT ALL IT IS HELD AS AN EXPENDITURE AS THE EXPENDITURE DOES NOT PERTAIN TO THE IM PUGNED ASSESSMENT YEAR SINCE HAS NOT BEEN DEBITED TO THE BOOKS OF ACCOUNT OF THE ASSESSEE AND ATLEA ST ASSESSEE HAS NOT SUBSTANTIATED ITS CLAIM BY FURNISHING ANY EVIDENCE. FURTHER MORE, THE CLAI M OF EXPENDITURE U/S.37(1) IS ALSO NOT ALLOWABLE IN VIEW OF EXPLANATION TO SUB - SECTION AS HAS ALREADY BEEN POINTED OUT BY THE CIT(A). SO FAR AS THE DECISION RE LIED UPON BY THE ASSESSEE IS CONCERNED, IN THE CASE OF SHRIRAM CHITS & 5 INVESTMENTS LTD., (SUPRA), THE SAME IS DISTINGUISHABLE ON FACTS AND DOES NOT APPLY TO THE FA CTS OF THE ASSESSEES CASE. IN THE AFORESAID VIEW OF THE MATTER, WE ARE NOT INCLINED TO INT ERFERE WITH THE ORDER PASSED BY THE CIT(A). 8. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13 /12/2013 . SD/ - S D/ - (B.RAMAKOTAIAH ) ( SAKTIJIT DEY ) ACCOUNTANT MEMBER JUDICIAL MEMBER VISHAKHAPATNAM DATED 13 / 12/2013 PARIDA , SR. PS COPY OF THE ORDER F ORWARDED TO : 1. M/S. S.R.CHITS & FINANCE,D.NO.50 - 49 - 25/1, T.P.T.COLONY, SEETHAMMADHARA, VISAKHAPATNAM 2. THE RESPONDENT. : DCIT, CIRCLE - 3(1),VISAKHAPATNAM 3. THE CIT(A) - VISAKHAPATNAM 4. CIT , VISAKHAPATNAM 5. DR, ITAT, VISHAKHAPATNAM 6. GUARD FILE. BY ORDER SR.PS, ITAT, VISHAKHAPATNAM //TRUE COPY//