Vadilal Industries Ltd., Ahmedabad V. The ACIT.,Circle-8, Ahmedabad

ITA 3307/AHD/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 60423 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 09-05-2012
• Assessment Year: 2008-2009
• Appeal Filed On: 30-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S N SAPORKAR
• Keywords: Business expenditure; Bad and doubtful debts
• Section: 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AT AHMEDABAD C BENCH BEFORE: SHRI D.K. TYAGI, JUDICIAL MEMBER AND SHRI ANIL CHATURVEDI, ACCOUNTANT ME MBER I.T.A. NO.3307/AHD/2011 A. Y. 2008-09 VADILAL INDUSTRIES LTD., VADILAL HOUSE, SHRIMAL SOC., NAVRANGPURA, AHMEDABAD-380009 PAN-AAACV4887F APPELLANT VS. ASST. COMMISSIONER OF INCOME TAX, CIRCLE-8, AHMEDABAD RESPONDENT DEPARTMENT BY : SHRI VINOD TANWANI, SR. D.R. ASSESSEE BY : SHRI S.N. SAPORKAR, A.R. DATE OF HEARING : 09.05.2012 DATE OF PRONOUNCEMENT : 25.05.2012 / ORDER PER : D.K. TYAGI, JUDICIAL MEMBER THIS IS ASSESSEES APPEAL AGAINST THE ORDER OF LD. CIT(A)-XIV DATED 18.10.2011, PASSED IN APPEAL NO.CIT(A) XIV/AC.CIR.8 /190/10-11. 2. THE ASSESSEE HAS TAKEN FOLLOWING EFFECTIVE GROU ND IN THIS APPEAL:- THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF T HE A.O. DISALLOWING PROVISION OF DOUBTFUL ADVANCES IN RESPE CT OF AMOUNT RECOVERABLE FROM M/S AKSHAR FOODS WHICH REPRESENT THE AMOUNT RE COVERABLE FOR GIVING LOW YIELD OF MANGO PULP. THE LD. CIT(A) HAS CONFIRM ED THE DISALLOWANCE AS THE ASSESSEE CAN NOT CLAIM THE DEDUCTION ON ACCOUNT OF DOUBTFUL ADVANCES WITHOUT WRITTEN OFF THE SAME AS BAD. ITA NO.3307/AHD/2011 , A.Y. 2008-09 2 3. BRIEF FACTS OF THE CASE ARE THAT DURING ASSESSM ENT PROCEEDINGS THE A.O. FOUND THAT ASSESSEE HAD DEBITED AN AMOUNT OF R S.7,20,000/- AS PROVISIONS FOR DOUBTFUL DEBTS AND ADVANCES. THE PROVISION BEI NG IN THE NATURE OF A CONTINGENT LIABILITY, THE ASSESSEE WAS ASKED TO SHO W CASE AS TO WHY DISALLOWANCE SHOULD NOT BE MADE. THE ASSESSEES REPLY WAS AS UN DER:- . YOUR ASSESSEE HAS MADE PROVISION FOR DOUBTFUL A DVANCES OF RS.720332/- FOR AKSHAR FOODS. AKSHAR FOOD IS SERVIC E PROVIDED FROM WE PROCESSED THE MANGO WITH AGREED YIELD. ASSESSEE HA S MADE CERTAIN EXPENSES LIKE FREIGHT, PURCHASE OF RAW MATERIAL ON BEHALF OF AKSHAR FOOD. THE TRANSACTION TAKEN PLACE FROM JUNE, 2005 ON VARI OUS DATED TO PROCESS THE MANGO. DUE TO DISPUTE WITH AKSHAR FOOD, FOR NOT MAINTAIN Y IELD, THE PARTY HAS DENIED TO GIVEN MONEY INCURRED ON BEHALF OF AKSHAR FOOD, AND AFTER THE DECISIONS OF THE MANAGEMENT, THE SAID IS PROVIDED AS DOUBTFUL ADVANCES BY WAY OF PROVISIONS AND REDUCED FROM THE LOANS AND ADVANCES. THIS BEING LOSS DURING THE COURSE OF THE BUSINESS, THE SAME IS ALLOWABLE AS BUSINESS EXPENDITURE/BUSINESS LOSS. THE SAME IS ALL OWABLE EXPENDITURE U/S 37(1) OF THE INCOME TAX ACT, 1961. 4. THE A.O., HOWEVER, WAS NOT SATISFIED WITH THIS REPLY OF THE ASSESSEE AND HE WENT ON TO MAKE AN ADDITION OF RS.7,20,000/- BY OBSERVING AS UNDER:- THE REPLY OF THE ASSESSEE HAS BEEN DULY CONSIDERED . AS HAS BEEN HELD BY VARIOUS JUDICIAL DECISIONS A LIABILITY WHICH IS ONLY CONTINGENTS IN NATURE AND IS NOT AN ASCERTAINED LIABILITY IS NOT A LLOWABLE AS THE BUSINESS EXPENDITURE. RELIANCE IN THIS REGARD IS PLACED UPO N THE FOLLOWING DECISIONS:- A. RAJASTHAN STATE MINES AND MINERALS LTD. VS. CIT( RAJ)208 ITR 1010 B. T.N. SMALL INDUSTRIES DEV. CORPN. VS. CIT(MAD) 2 42 ITR 122 C. ALEMBIC CHEMICAL WORKS LTD. VS. DCIT (GUJ) 266 I TR 47 D. SHREE SAJJAN MILLS LTD VS. CIT(1985) 156 ITR 585 (SC) E. INDIAN MOLASSES CO.(P) LTD VS. CIT(1959) 37 ITR 66(SC) F. MHADEO GANGAPRASAD VS. SECOND ITO (1966) 61 ITR 384 (BOM) G. MYSORE LAMP WORKS LTD. VS. CIT(1990)52 TAXMAN 26 0/185 ITR 96 H. CIT VS. GEMINI CASHEW SALES CORP.(1967)65 ITR 64 3(SC) 5. AGGRIEVED BY THIS ORDER OF A.O. THE ASSESSEE WE NT IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY AND BEFORE HIM PLACED RELIANCE ON THE FOLLOWING WRITTEN SUBMISSIONS:- ITA NO.3307/AHD/2011 , A.Y. 2008-09 3 IN PROFIT AND LOSS ACCOUNT IN SCHEDULE 20 MANUFACT URING AND OTHER EXPENSES, THE ASSESSEE HAS DEBITED RS.7,20,00 0/- ON ACCOUNT OF PROVISION FOR DOUBTFUL DEBTS AND ADVANCES. IN THE BALANCE SHEET THE SAME HAS BEEN REDUCED FROM THE ADVANCES RECOVERABLE IN C ASH OR IN KIND. THUS THOUGH THE WORD DEBTS IS USED BUT IT RELATES TO ADV ANCES ONLY. IN THE ASSESSMENT ORDER THE LEARNED ASSESSING OFFIC ER HAS DISALLOWED THE SAME FOR THE REASON THAT IN VARIOUS JUDICIAL DECISIONS IT HAS BEEN HELD THAT, A LIABILITY WHICH IS ONLY CONTINGEN TS IN NATURE AND IS NOT AN ASCERTAINED LIABILITY IS NOT ALLOWABLE AS THE BUSIN ESS EXPENDITURE. IN THIS REGARD, IT IS SUBMITTED THAT, THE PROVISION FOR DOUBTFUL ADVANCES IS NOT A PROVIS ION FOR LIABILITY. THEREFORE, THERE IS NO QUESTION OF ANY ASCERTAINED OF UNASCERTAINED LIABILITY. THE PROVISION IS MADE FOR NON RECOVERABLE ADVANCE WHICH HAS BEEN GIVEN DURING THE NORMAL COURSE OF BU SINESS. AS EXPLAINED DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE AMO UNT RECOVERABLE FROM AKSHAR FOOD REPRESENT THE COST OF MANGOES DEBITED T O ITS ACCOUNT DUE TO LOW YIELD OF MANGO PULPS REALIZED OUT OF MANGOES P ROCESSED BY THEM. THE ASSESSEE HAS GIVEN THE WORK OF PROCESSING OF MANGOE S TO AKSHAR FOODS IN JUNE 2005. FROM THE ENCLOSED COPY OF ACCOUNT IT IS CLEARED THAT THE ASSESSEE HAS INCURRED EXPENSES LIKE FREIGHT FOR MAN GO. SIMILARLY THE FREIGHT CHARGES FOR MANGOES ARE ALSO PAID BY IT ON BEHALF O F THE ASSESSEE. THE SAID PARTY HAS RAISED THE BILL FOR PROCESSING OF MANGOES . BUT THE YIELD OF MANGO PULP GIVEN BY AKSHAR FOODS WAS NOT SATISFACTORY. T HEREFORE THE ASSESSEE HAS DEBITED RS.8,07,475/- FOR EXCESS MANGOES CONSUM ED BY IT IN MARCH 2007. AFTER THIS THE SAID PARTY HAS STOPPED FOR EXC ESS MANGOES CONSUMED BY IT IN MARCH 2007. AFTER THIS THE SAID PARTY HAS STOPPED THE WORK OF PROCESSING OF MANGOES AND REFUSED TO PAY THE DEBIT BALANCE RS.7,20,332/-. THEREFORE, THE MANAGEMENT HAS DECIDED TO CREATE PRO VISIONS IN THE ACCOUNT OF THE FINANCIAL YEAR 2007-08. THUS THE AMOUNT RECE IVABLE FROM AKSHAR FOODS DOES NOT REPRESENT ANY ADVANCES GIVEN TO THEM AND AMOUNT DUE AGAINST THE SALE OF GOODS. IN SHORT THE ASSESSEE H AD LESS CLAIMED RAW MATERIAL CONSUMPTION TO THIS EXTENT IN THE RELEVANT YEAR. SINCE THE CLAIM OF THE ASSESSEE IS NOT A CLAIM OF B AD DEBTS U/S 36(I)(III) OF THE I.T. ACT, 1961, THERE IS NO NEED TO WRITE OFF THE PARTYS ACCOUNT IN BOOKS OF ACCOUNT. THIS IS THE BUSINESS LOSS ALLOWABLE U/S. 28 OR U/S. 37(1) AS BUSINESS EXPENDITURE. THE ASSESSEE HAS ASCERTAINED THE PARTY AND THE AMOUNT OF LOSS NOT RECOVERABLE FROM IT. THEREFORE, IT CANNOT BE TERMED AS NON ASCERTAINED LIABILITY. THE ASSESSING OFFICER HAS RELIED UPON THE VARIOUS C ASE LAWS. (I) RAJASTHAN STATE MINES AND MINERALS LTD. VS. CIT ( RAJ) 208 ITR 1010 (II) T.N. SMALL INDUSTRIES DEV. CORPN. VS. CIT (MAD)242 ITR 122 (III) ALEMBIC CHEMICAL WORKS LTD. VS. DCIT (GUJ) 266 ITR 47 ITA NO.3307/AHD/2011 , A.Y. 2008-09 4 (IV) SHREE SAJJAN MILLS LTD. VS. CIT (1985) 156 ITR 585 (SC) (V) INDIAN MOLASSES CO. (P) LTD. VS. CIT (1959) 37 ITRE 60 (SC) (VI) MAHADEO GANGAPRASAD VS. SECOND ITO (1966) 61 ITR 384 (BOM) (VII) MYSORE LAMP WORKS LTD. VS. CIT (1990) 52 TAXMAN 260/185 ITR 96 (VIII) CIT VS. GEMINI CASHEW SALES CORP.(1967)ITR 643 (SC) FROM THE ABOVE, IT IS CONTENDED THAT IN ALL THE CAS E LAWS RELIED UPON BY THE LEARNED ASSESSING OFFICER THE FACTS ARE DIFF ERENT THAN THE FACTS IN THE PRESENT CASE. THEREFORE, THE SAME ARE NOT APPLICAB LE. THE ASSESSEE RELIES ON THE RECENT DECISION OF HONOURABLE SUPREME COURT IN CASE OF VIJAYA BANK VS. COMMISSIONER OF INCOME TAX REPORTED IN 323 ITR 166. THE COPY CASE LAW IS ENCLOSED HEREWITH. 6. AFTER TAKING INTO CONSIDERATION THE SUBMISSIONS OF THE ASSESSEE LD. CIT(A) CONFIRMED THE ACTION OF THE A.O. BY OBSERVIN G AS UNDER:- I HAVE CAREFULLY PERUSED THE ASSESSMENT ORDER AND THE SUBMISSIONS GIVEN BY THE APPELLANT. THE APPELLANT HAS SUBMITTED THAT THE PROVISIONS WAS FOR NON-RECOVERABLE ADVANCE WHICH WA S GIVEN DURING THE NORMAL COURSE OF BUSINESS. THE APPELLANT WAS GETTI NG THE MANGOES PROCESSED BY AKSHAR FOODS FOR MAKING THE PULP AS IT WAS NOTED BY THE APPELLANT THAT THE YIELD OF THE MANGO PULP WAS LESS AS COMPARED TO THE STANDARD YIELD DECIDED BY THE APPELLANT. THE APPEL LANT, THEREFORE, DEBITED THE ACCOUNT OF AKSHAR FOODS BY AN AMOUNT OF RS.8,07 ,475/- ON ACCOUNT OF EXCESS MANGO CONSUMPTION IN THE MONTH OF MARCH, 200 7. THE CLOSING BALANCE AT THE YEAR IN THE ACCOUNT OF AKSHAR FOODS WAS RS.7,20,332/- WHICH WAS NOT PAID BY M/S AKSHAR FOODS. THIS BALANCE WAS TRANSFERRED TO PROVISION FOR DOUBTFUL DEBT AND ADVANCES. THE APPE LLANT, THEREFORE, SUBMITTED THAT THE AMOUNT DID NOT REPRESENT ANY ADV ANCE GIVEN OR THE AMOUNT DUE AGAINST THE SALE OF GOODS. THE APPELLAN T HAS, THEREFORE, CLAIMED THAT THIS WAS A BUSINESS LOSS U/S 28 OR U/ S 37(I) AS BUSINESS EXPENDITURE. AFATER CAREFUL PERUSAL OF ALL THE FAC TS, IT IS CLEAR THAT THE PROVISION MADE BY THE APPELLANT AS DOUBTFUL DEBT AN D ADVANCES IS IN FACT A DEBT WHICH IS TO BE RECOVERED FROM M/S AKSHAR FOODS . THE PLEA OF THE APPELLANT THAT IT WAS AN ADVANCE IS NOT ACCEPTED. THE APPELLANT HAS RAISED A DEBIT NOTE AND ADJUSTED PART PAYMENT TO BE MADE T O M/S AKSHAR FOOD AGAINST THIS DEBIT NOTE. THE BALANCE THAT REMAINED AT THE END OF THE YEAR WAS NOT PAID BY M/S AKSHAR FOODS AND WAS ACCORDINGL Y TREATED BY THE APPELLANT AS DOUBTFUL DEBT OR ADVANCE. THE APPELLA NT CANNOT CLAIM THE DEDUCTION ON ACCOUNT OF DOUBTFUL DEBT OR ADVANCE AS IT HAS NOT BEEN WRITTEN OFF BY HIM AS BAD. THE AMOUNT IS STILL BEING SHOWN AS RECOVERABLE. ACCORDINGLY, THE DISALLOWANCE MADE BY THE A.O. IS U PHELD AND THE APPEAL IS DISMISSED. ITA NO.3307/AHD/2011 , A.Y. 2008-09 5 FURTHER AGGRIEVED, NOW THE ASSESSEE IS IN APPEAL B EFORE US. 7. AT THE TIME OF HEARING, LD. COUNSEL OF THE ASSE SSEE REITERATED THE SUBMISSIONS MADE BEFORE LOWER APPELLATE AUTHORITY W HICH WE HAVE ALREADY REPRODUCED IN PARA-5. LD. D.R., ON THE OTHER HAND, RELIED ON THE ORDER OF THE LOWER AUTHORITY. 8. AFTER HEARING BOTH THE PARTIES AND PERUSING THE RECORD WE FIND THAT THERE IS NO DISPUTE ABOUT THE FACT THAT THE ASSESSE E HAS GIVEN THE WORK OF PROCESSING OF MANGOES TO M/S AKSHAR FOODS FOR MAKIN G THE PULP. THE ASSESSEE FOUND THAT THE YIELD OF THE MANGO PULP WAS LESS AS COMPARED TO THE STANDARD YIELD. HE, THEREFORE, DEBITED THE ACCOUNT OF M/S A KSHAR FOOD BY AN AMOUNT OF RS.8,07,475/- ON ACCOUNT OF EXCESS MANGOES CONSUMPT ION IN THE MONTH OF MARCH, 2007. THE CLOSING BALANCE AT THE YEAR IN THE ACCOUN T OF M/S AKSHAR FOOD WAS RS.7,20,332/-. WHEN AN AMOUNT OF RS.8,07,475/- WAS DEBITED IN THE ACCOUNT OF M/S AKSHAR FOOD, THEY STOPPED THE WORK OF PROCESSIN G OF MANGOES AND REFUSED TO PAY THE DEBIT BALANCE OF RS.7,20,332/- TO THE ASSES SEE. THE ASSESSEE HAS CLAIMED THIS AMOUNT AS BUSINESS LOSS U/S 28 OR BUSI NESS EXPENDITURE U/S 37(1) OF THE ACT. THIS CLAIM OF THE ASSESSEE WAS DENIED BY THE LOWER AUTHORITY ON THE GROUND THAT THIS AMOUNT HAS NOT BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. SINCE FOR CLAIMING BUSINESS LOSS U/S 28 OR AS BUSINESS EXPENDITURE U/S 37(1) OF THE ACT ASSESSEE IS NOT REQUIRED TO WRITE OFF THE AMOUNT IN ITS BOOKS OF ACCOUNTS AND THE ONLY CRITERIA FOR CLAIMING SUCH DE DUCTION IS WHETHER THE LOSS OR THE EXPENSES WERE INCIDENTAL TO THE BUSINESS OF THE ASSESSEE OR NOT AND SINCE THE ABOVEMENTIONED FACTS CLEARLY SHOW THAT THE TRANSACT ION IN QUESTION DIRECTLY ITA NO.3307/AHD/2011 , A.Y. 2008-09 6 RELATED TO THE BUSINESS OF THE ASSESSEE, WE ARE OF THE CONSIDERED OPINION THAT THE ASSESSEE HAS RIGHTLY CLAIMED AMOUNT OF RS.7,20,332/ - AS BUSINESS LOSS INCIDENTAL TO HIS BUSINESS AND IS ALLOWABLE DEDUCTION U/S 28 O F THE ACT. THIS VIEW OF OURS GET SUPPORT FROM THE DECISION OF HONBLE GUJARAT HIGH C OURT IN THE CASE OF C.I.T. V. ABDUL RAZAK & CO.(GUJ.) REPORTED IN [1982] 136 I.T.R. 825 . THEREFORE, THE ADDITION OF RS.7,20,332/- MADE BY THE A.O. AND SUST AINED BY LD. CIT(A) IS HEREBY DELETED. 9. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED . . SD/- SD/- (ANIL CHATURVEDI) ( D.K. TYAGI) ACCOUNTANT MEMBER JU DICIAL MEMBER N.K. CHAUDHARY, SR. P.S. - 25 /05/2012 / COPY OF ORDER FORWARDED TO:- 1. / APPELLANT 2. / RESPONDENT 3. !' / CONCERNED CIT 4. !' - / CIT (A) 5. #$% , & , / DR, ITAT, AHMEDABAD 6. %'( )* / GUARD FILE. BY ORDER/ , + / , & ,