M/s. Monnet Industries Ltd., New Delhi V. DCIT, New Delhi

ITA 3309/DEL/2012

• Counselvise Citation: 330920114 RSA 2012
• Duration Of Justice: 1 year(s) 7 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 02-12-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 28-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: V K JAIN
• Keywords: Additional evidence; Bad and doubtful debts
• Section: 133(6); 131

Judgement Text

ITA NO.3309/DEL/2012 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : E : NEW DELHI BEFORE SHRI G.D. AGRAWAL, HONBLE VICE PRESIDENT AND SHRI A.D. JAIN, JUDICIAL MEMBER ITA NO.3309/DEL/2012 ASSESSMENT YEAR : 2008-09 MONNET INDUSTRIES LTD., 3 RD FLOOR, MOHTA BUILDING, 4, BHIKAJI CAMA PLACE, NEW DELHI. PAN : AAACM0437E VS. DCIT, CIRCLE 5 (1), 4 TH FLOOR, CR BUILDING, NEW DELHI. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY : SHRI V.K. JAIN, CA DEPARTMENT BY : S HRI KEYUR PATEL, SR. DR ORDER PER A.D. JAIN, JUDICIAL MEMBER: THIS IS ASSESSEES APPEAL FOR ASSESSMENT YEAR 2008-09 AGAINST THE ORDER DATED 11.05.2012, PASSED BY THE LD. CIT(A)-VIII , NEW DELHI, TAKING THE FOLLOWING GROUNDS:- 1. THAT THE ORDER U/S 250(6) PASSED BY THE HON'BLE CI T(A) IS BAD IN LAW, WRONG ON FACTS AND AGAINST THE PRINCIPLES OF NATUR AL JUSTICE . 2. (A) THE HON'BLE CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF A SUM OF RS.2,16,17,150/- CLAIMED BY THE APPELLANT COMP ANY UNDER THE HEAD 'BAD DEBTS WRITTEN OFF' ON THE GROUND THAT THE AFORE SAID CLAIM FOR BAD DEBTS REMAINED UNSUBSTANTIATED. (B) THE HON'BLE CIT(A) HAS CONFIRMED THE DISALLOWANC E OUT OF BAD DEBTS ON THE GROUNDS THAT BAD DEBTS REMAIN UNSUBSTANTIATED WHERE AS THE ITA NO.3309/DEL/2012 2 NECESSARY DOCUMENTS IN SUPPORT OF THE CLAIM WERE DULY FILED DURING APPELLATE PROCEEDINGS ALONGWITH APPLICATION UNDER RUL E 46A AND THE ADDITIONAL EVIDENCE WAS NOT ACCEPTED BY THE HON'BLE CIT ( A) ON THE GROUNDS THAT THERE WAS NO SUFFICIENT CAUSE FOR NOT FILIN G THE ADDITIONAL EVIDENCE. THE HON'BLE CIT(A) HAS FAILED TO CONSIDER THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. VIRGI N SECURITIES AND CREDITS PVT. LTD. REPORTED IN 332 ITR 396 WHEREIN THE H ON'BLE DELHI HIGH COURT HAS HELD THAT WHERE THE ADDITIONAL EVIDENCE IS CRUCIAL TO THE DISPOSAL OF THE APPEAL AND HAS A DIRECT BEARING ON TH E QUANTUM OF THE CLAIM OF THE ASSESSEE, THEN THE SAME NEEDS TO BE ACCEPTE D AFTER OBTAINING REMAND REPORT FROM THE A.O. (C) THE HON'BLE CIT(A) HAS ERRED IN CONCLUDING THAT A PPELLANT HAS NOT BEEN ABLE TO FILE ANY EVIDENCE REGARDING GENUINESS O F THE TRANSACTION AND FAILED TO APPRECIATE THE VARIOUS EVIDENCES IN THE F ORM OF LEDGER ACCOUNT OF THE PARTIES WHOSE ACCOUNTS HAVE BEEN WRITTEN OFF WHICH WERE FILED DURING THE COURSE OF ASSESSMENT PROCEEDIN GS AND APPELLATE PROCEEDINGS WHICH EVIDENCED THE FACT THAT THE DEBIT BALAN CE WRITTEN OFF WAS IN RESPECT OF SALES MADE BY THE APPELLANT COMPANY TO THE AFORESAID PARTIES AND AS FULL PAYMENTS WERE NOT RECE IVED FROM THE AFORESAID PARTIES THEREFORE PART OF THE DEBTS STILL OUTSTA NDING AND BEING IRRECOVERABLE WERE WRITTEN OFF IN THE BOOKS OF ACCOUNTS AND ACCORDINGLY WERE ALLOWABLE AS A DEDUCTION AS PER PROVISIONS OF S ECTION 36(2) OF THE INCOME TAX ACT. (D) THE HON'BLE CIT(A) HAS CONCLUDED THAT SOME OF THE PARTIES WHOSE BALANCE HAVE BEEN WRITTEN OFF DURING THE YEAR UNDER A PPEAL HAVE STATED IN THE REPLY TO NOTICES U/S 133(6) THAT THERE IS NO TRANSACTION WITH THE APPELLANT COMPANY WITHOUT APPRECIATING THE FACT TH AT THE TRANSACTIONS WITH THE AFORESAID PARTIES WERE CARRIED OU T DURING THE YEARS 1996-1998 AND HENCE THE TRANSACTIONS WERE MORE TH AN 10 YEARS OLD AND THE AFORESAID PARTIES MUST HAVE WRITTEN OFF THE BALANCE OF THE APPELLANT COMPANY IN THEIR BOOKS IN EARLIER YEARS AND THEREFORE THERE WAS NO ACCOUNT OF THE APPELLANT COMPANY IN THEIR BOOKS IN F.Y 2007-08 WHICH TESTIFIES THE FACT THAT THE DEBTS WERE IRRECOVERABLE AND CORRECTLY WRITTEN OFF BY THE APPELLANT COMPANY. (E) THE HON'BLE CIT(A) WHILE CONFIRMING THE DISALLOW ANCE OF THE DEDUCTION FOR BAD DEBTS WRITTEN OFF HAD CONCLUDED THAT I N THE CASE OF SOME PARTIES NOTICES U/S 133(6) WERE RECEIVED BACK U NSERVED AND THEREFORE THE BAD DEBTS REMAIN UNSUBSTANTIATED. THE HON'B LE CIT(A) HAS FAILED TO APPRECIATE THAT THE TRANSACTION WITH THE AFOR ESAID PARTIES IS MORE THAN 10-12 YEARS OLD AND DURING SUCH PERIOD OF TIME THE PARTIES MAY HAVE CLOSED DOWN THEIR BUSINESS OR SHIFTED THEIR A DDRESS AND THEREFORE THE PARTIES WOULD NOT HAVE RECEIVED THE NOTIC E U/S 133(6) WHICH TESTIFIES THE FACT THAT THE PARTIES ARE NOT WILLING TO CONFIRM ANY AMOUNT PAYABLE TO THE APPELLANT COMPANY AND THEREFORE THE RE WAS NO OCCASION TO DISALLOW THE DEDUCTION OF BAD DEBTS CLAIMED BY THE APPELLANT COMPANY. ITA NO.3309/DEL/2012 3 (F) THE HON'BLE CIT(A) HAS CONFIRMED THE DISALLOWANC E OF THE BAD DEBTS BY CONCLUDING THAT NO EVIDENCE WHATSOEVER AS REQUIRED WITH REGARD TO EFFORTS MADE FOR RECOVERY HAS BEEN FURNISHED OR THE W RITE OFF WAS BONAFIDE. THERE IS NO SUCH PRECONDITION STIPULATED IN SECTION 36(2) OF INCOME TAX ACT AND THUS THE DISALLOWANCE HAS BEEN CO NFIRMED ON MERE CONJECTURES AND SURMISES. 2. GROUND NO.1 IS GENERAL. 3. APROPOS GROUND NO.2, THE ASSESSING OFFICER MADE DISALL OWANCE OF ` 2,16,17,150/-, CLAIMED AS BAD DEBTS WRITTEN OFF BY TH E ASSESSEE COMPANY. WHILE DOING SO, THE ASSESSING OFFICER OBSERVED THAT NOTIC ES HAD BEEN ISSUED TO THIRTEEN PARTIES ON A TEST CHECK BASIS, U/S 133 (6) OF THE IT ACT; THAT IN THE CASE OF TEN PARTIES, REPLIES HAD BEEN RECEIVED, WHEREA S ONE PARTY DID NOT REPLY AND TWO OF THE NOTICES HAD RETURNED UNSERVED. O N THE BASIS OF THE INQUIRIES MADE THE ASSESSING OFFICER OBSERVED THAT IN THE CASES OF FARMAT INDIA LTD., HIMANI ALLOYS, RAIPUR ALLOYS, S.K. CARBON & HI-TECH TRADE, THEY HAD DENIED ANY BUSINESS TRANSACTION WITH THE ASSESSEE COMPA NY; THAT HI- TECH TRADERS AND CONSULTANTS (P) LTD. HAD GONE TO THE EXTENT SAYING THAT THEY HAD NOT HAD ANY BUSINESS TRANSACTION WITH THE ASSESSEE COMPANY FOR THE PRECEDING TEN YEARS; THAT SIMILARLY, JINDAL STEEL AND POWER HAD ALSO DENIED ANY BUSINESS TRANSACTION WITH THE ASSESSEE COMPANY; THAT WHEN CONFRONTED WITH THESE FACTS, THE ASSESSEE COULD NOT GIVE ANY CONVINCING REPLY; THAT ALLMET ALLOYS INDIA (P) LTD. AND M/S OM P RAKASH RAKESH KUMAR HAD ADMITTED THE TRANSACTION WITH THE ASSESSEE COMPANY A ND HAD SENT COPY OF ACCOUNT OF THE ASSESSEE COMPANY AS PER THEIR BOOKS, TH EREBY CONFIRMING THE BALANCE DUE TO THE ASSESSEE COMPANY; THAT IT WAS SUR PRISING THAT WHEN THESE PARTIES WERE ADMITTING THEIR LIABILITIES TOWARDS THE ASSESSEE AND THEY HAD NOT DENIED THEIR OBLIGATION TO DISCHARGE THE LIA BILITIES, HOW THE ASSESSEE, WITHOUT ANY REASON, PROCEEDED TO WRITE OFF THE AMOUN TS STANDING IN THE NAMES OF THESE PARTIES; THAT NO PLAUSIBLE EXPLANATION H AVE BEEN GIVEN BY THE ASSESSEE IN THIS RESPECT; THAT NO EXPLANATION HAD BEEN OF FERED WITH RESPECT TO THE DENIAL OF ANY TRANSACTION WITH THE ASSESSEE COMPA NY BY THE PARTIES; WHEN THERE WERE NO TRANSACTIONS BETWEEN THE PARTIES DU RING THE LAST SO ITA NO.3309/DEL/2012 4 MANY YEARS, NO QUESTION OF WRITING OFF ANY DEBT AROSE; THAT THE ASSESSEE HAVE NOT BEEN ABLE TO IDENTIFY THE TRANSACTIONS STAT ED TO BE ACCOUNTED FOR IN ITS PROFIT & LOSS ACCOUNT AND WRITTEN OFF AS BAD DEBTS D URING THE YEAR; AND THAT THEREFORE, THE CLAIM OF THE ASSESSEE FOR DEDUCTION U/S 36 (2) OF THE ACT, ON ACCOUNT OF AMOUNT OF ` 2,16,17,150/-, WRITTEN OF F AS BAD DEBTS COULD NOT BE ALLOWED. 4. BEFORE THE LD. CIT (A), THE ASSESSEE FILED AN APPLIC ATION FOR ADMISSION OF ADDITIONAL EVIDENCE, WHICH WAS REJECTED BY THE LD . CIT (A) ON THE ASSESSING OFFICERS REPORT THAT SUFFICIENT OPPORTUNITY H AD BEEN AFFORDED TO THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. THE LD. CIT (A), WHILE DISMISSING THE ASSESSEES APPEAL ON THIS ISSUE, OBSERVED AS FOLL OWS:- . IT IS OBSERVED THAT THE FOLLOWING PARTIES DENI ED HAVING ANY BUSINESS TRANSACTION WITH THE APPELLANT .. I) FORMAT INDIA LTD. II) HIMANI FERO ALLOYS III) RAIPUR ALLOYS IV) S.K. CARBAR V) HIGH TECH TRADE VI) JINDAL STEEL AND POWER IT IS ALSO SEEN THAT M/S ALLMET ALLOYS INDIA (P) LTD AND M/S OM PRAKASH RAKESH KUMAR HAD ADMITTED THAT THEY HAD TRANSACTI ONS WITH THE APPELLANT COMPANY. NO REPLY WAS RECEIVED FROM M/S VENKEY STEEL (P) LTD. AND LETTERS SENT TO SHRI ABID ALI EMRAN ALI AND M/S HARYANA STEEL WERE RETURN BACK UNSERVED. IN THE CASE OF M/S OM PRAKASH RAKESH KUMAR WHO VIDE THEIR REPLY HAD STATED THAT THEY HA D TRANSACTIONS WITH THE APPELLANT, SUMMONS U/S 131 WERE SE NT BY THE AO TO EXAMINE THE NATURE OF THE TRANSACTIONS. NO COMPLIANCE WAS MADE TO THE ABOVE SUMMONS. IN VIEW OF THE ABOVE FACTS, THE AO D ISALLOWED BAD DEBTS CLAIMED BY THE APPELLANT, SINCE THE PROVISIONS OF SECTION 36(2) WERE NOT FULFILLED. DURING THE COURSE OF APPELLATE PROCEEDINGS ALSO THE A PPELLANT HAS NOT BEEN ABLE TO FILE ANY EVIDENCES REGARDING THE GENUINESS OF THE TRANSACTIONS WITH THE ABOVE MENTIONED PARTIES. AS PER SEC TION 36(2) NO DEDUCTION ON ACCOUNT OF BAD DEBTS SHALL BE ALLOWED UNL ESS SUCH DEBT OR PART THERE OF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT O F SUCH DEBT OR ITA NO.3309/DEL/2012 5 PART THERE OF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF BAN KING OR MONEY LANDING WHICH IS CARRIED ON BY THE ASSESSEE. THE ABO VE PROVISIONS CLEARLY SHOW THAT UNLESS A DEBT WHICH HAS BEEN WRITTEN OFF HAS BEEN TAKEN INTO ACCOUNT FOR COMPUTING THE INCOME IN ANY PREV IOUS YEAR IT CAN NOT BE CLAIMED AS BAD DEBT. THE HON'BLE MUMBAI HI GH COURT IN THE CASE OF OMAN INTERNATIONAL BANK 313 ITR 128 (BOM.) HA S HELD THAT THE WRITE OFF OF A BAD DEBT HAS TO BE BONAFIDE. THE HON'B LE MUMBAI IT AT IN THE CASE OF AAKASH STONE INDUSTRIES LTD. HAS ALSO HELD THAT TO BE WRITTEN OFF AS BAD DEBT IT HAS TO BE PROVED THAT IT WAS A BONAFIDE. THE ABOVE JUDICIAL PRECEDENTS SHOW THAT THE APPELLANT TO CLAI M A BAD DEBT HAS TO FILED RELEVANT DOCUMENTS TO PROVE THE BONAFIDE O F THE WRITE OFF. IN THE INSTANT CASE, IT IS SEEN THAT MANY OF THE PARTIES HA VE DENIED HAVING ANY BUSINESS TRANSACTIONS WITH THE APPELLANT. THI S SHOWS THAT THE BONAFIDE OF THE WRITE OFF HAS NOT BEEN ESTABLISHED B Y THE APPELLANT. THE APPELLANT HAS ALSO NOT SUBMITTED ANY EVIDENCES BEF ORE THE A.O. TO SHOW WHETHER THE AMOUNT CLAIMED AS BAD DEBTS WERE TAKEN AS INCOME IN THE EARLIER YEARS. IN VIEW OF THE FINDINGS ABOVE, IT IS HELD THAT SINCE THE APPELLANT HAS NOT FULFILLED THE CONDITIONS PRESCRIBE D IN SECTION 36(I)(VII) READ WITH SECTION 36(2) OF THE I.T. ACT, THE DISALLOWANCE MADE BY THE A.O ON ACCOUNT OF BAD DEBTS IS AS PER LAW. THIS GROUND OF APPEAL IS DISMISSED. 5. CHALLENGING THE IMPUGNED ORDER, THE LD. COUNSEL F OR THE ASSESSEE HAS PLACED RELIANCE ON TRF LTD. VS. CIT, 323 ITR 397 ( SC) WHICH HOLDS THAT AFTER THE AMENDMENT TO SECTION 36 (1) (VII) OF THE IT ACT , 1961 W.E.F. 01.04.1989, IN ORDER TO OBTAIN A DEDUCTION IN RELATION TO BAD D EBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECO ME IRRECOVERABLE; AND THAT IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. THE HONBLE SUPREME COURT RE MANDED THE MATTER TO THE ASSESSING OFFICER TO EXAMINE SOLELY TO THE EXTENT OF WRITE OFF, WHETHER THE DEBT OR PART THEREOF WAS WRITTEN OFF IN THE ACCO UNTS OF THE ASSESSEE. 6. NO DECISION CONTRARY TO TRF LTD. (SUPRA) HAS BEEN BROUGHT BY THE DEPARTMENT. ACCORDINGLY, WE DEEM IT APPROPRIATE TO REMIT THIS MATTER TO THE FILE OF THE ASSESSING OFFICER TO BE DECIDED AFRESH IN AC CORDANCE WITH LAW, PARTICULARLY IN THE LIGHT OF TRF LTD. (SUPRA) ON A FFORDING ADEQUATE ITA NO.3309/DEL/2012 6 OPPORTUNITY OF HEARING TO THE ASSESSEE. THE ASSESSEE, NO D OUBT, SHALL COOPERATE IN THE REMAND PROCEEDINGS BEFORE THE ASSESSING OFFICER. 7. IN THE RESULT, FOR STATISTICAL PURPOSES, THE ASSESSEES AP PEAL IS TREATED AS ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 31.01.201 4. SD/- SD/- [ G.D. AGRAWAL ] [A.D. JAIN] VICE PRESIDENT JUDICIAL MEMBER DATED, 31 ST JANUARY, 2014. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.