The ITO, Ward-6(1), Surat V. Shri Ajay D. Mehta, Surat

ITA 3316/AHD/2008

• Counselvise Citation: [2011] 135 COUNSELVISE.COM (IT) 2139 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 4 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 03-02-2011
• Assessment Year: 2005-2006
• Appeal Filed On: 03-10-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D C CHAUDHRY SRDR
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH D AHMEDABAD BEFORE SHRI N.S.SAINI, ACCOUNTANT MEMBER AND SHRI MAHAVIR SINGH, JUDICIAL MEMBER ITA NO.3316/AHD/2008 ASSESSMENT YEAR:2005-06 DATE OF HEARING:3.2.11 DRAFTED:4.2.11 INCOME TAX OFFICER, WARD-6(1), ROOM NO.614, 6 TH FLOOR, AAYKAR BHAVAN, MAJURA GATE, SURAT V/S . SHRI AJAY D MEHTA, 104, SYNDICATE HOUSE, GAJJAR FALIA, HARIPUA, SURAT PAN NO.AGXPM5007C (APPELLANT) .. (RESPONDENT) APPELLANT BY :- SHRI D.C. CHAUDHRY, SR-DR RESPONDENT BY:- NONE O R D E R PER MAHAVIR SINGH JUDICIAL MEMBER:- THIS APPEAL BY THE REVENUE IS ARISING OUT OF THE O RDER OF COMMISSIONER OF INCOME-TAX (APPEALS)-IV, SURAT IN APPEAL NO.CAS-IV/ 147/07-08 DATED 31-07-2008. THE ASSESSMENT WAS FRAMED BY ITO WARD-6(1), SURAT U /S143(3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) VI DE HIS ORDER DATED 14-12-2007 FOR ASSESSMENT YEAR 2005-06. 2. THE FIRST ISSUE IN THIS APPEAL OF REVENUE IS AGA INST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF BAD DEBT. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND NO.1 :- [1] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A)-IV, SURAT HAS ERRED IN DELETING THE ADDITION OF RS.18,87,975/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWED BAD DEBTS. 3. THE BRIEF FACTS ARE THAT ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING OF DIAMOND AND LABOUR CONTRACTOR FOR DIAMOND CUTTING & POLISHING AND RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION WAS FILED ON 30-10 -2005 DECLARING TOTAL LOSS OF ITA NO.3316/AHD/2008 A.Y2005-06 ITO WD-6(1), SRT V. SH. AJAY D MEHTA PAGE 2 RS.80,700/-. THE RETURN WAS DULY ACCOMPANIED WITH T HE AUDIT REPORT IN FORM NO.3 CB & 3CD, TRADING ACCOUNT, PROFIT AND LOSS ACCOUNT, CA PITAL ACCOUNT AND BALANCE-SHEET. ON SCRUTINY, IT WAS NOTICED BY THE ASSESSING OFFICE R THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ITSELF THAT AN AMOUNT OF RS. 18,87,975/- WAS CLAIMED AND DEBITED TO THE PROFIT AND LOSS ACCOUNT OF ASSESSEE AS BAD DEBTS. THE AO ASKED THE ASSESSEE TO EXPLAIN HOW THESE DEBTS BECAME BAD AND WHAT EFFORTS WERE MADE TO RECOVER THE AMOUNT SHOWN AS BAD DEBTS. IN REPLY THE ASSESSEE STATED ONE OF HIS PARTY M/S. THAKURDAS JEWELLERS, MUMBAI WAS ABSCONDI NG AND DISAPPEARED THEREFORE THE AMOUNT OF RS.18,87,975/- DUE FROM HIM WAS WRITT EN OFF AS BAD DEBTS U/S.36(2) OF THE ACT. BUT THE AO WAS NOT CONVINCED WITH THE REPL Y OF ASSESSEE BECAUSE TILL 24-03- 2005, SALES WERE MADE TO THE SAME PARTY, MOREOVER O NLY A PART OF THE BALANCE DUE FROM HIM WAS WRITTEN OFF AND THE BALANCE WAS SHOWN AS OUTSTANDING AGAINST THE NAME OF M/S.THAKURDAS JEWELLERS. THE AO TRIED TO VE RIFY THE FACTS OF ABSCONDING OF THE PARTY BUT THE ASSESSEE DID NOT PROVIDE THE COMP LETE ADDRESS OF THE PARTY THEREFORE THE VERIFICATION WAS NOT POSSIBLE. FINALL Y, LOOKING TO THE FACT THAT JUST SEVEN DAYS BEFORE THE FINALIZATION OF ACCOUNTS THE ASSESS EE MADE SALES TO THE SAID PARTY AND THE BALANCE OF MORE THAN 92 LAKH IN THE CASE OF SAME PARTY WAS SHOWN AS OUTSTANDING AND ACCORDING TO HIM, IT WAS GOOD DEBT. THE AO DISALLOWED THE CLAIM OF BAD DEBTS OF RS.18,87,975/- AND THE SAME WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFO RE CIT(A). THE CIT(A) DELETED THE ADDITION BY GIVING FOLLOWING FINDINGS AT PAGE-3 OF HIS APPELLATE ORDER:- I HAVE CONSIDERED THE SUBMISSIONS AND GONE THROUGH THE CASE LAWS CITED BY THE APPELLANT DURING THE ASSESSMENT PROCEEDINGS. AS PER PROVISIONS OF SECTION 36(2) OF THE ACT, THE ONLY REQUIREMENT FOR CLAIMING THE BAD DEBT IS THAT DEBT OR PART THEREOF SHOULD BE WRITTEN OFF IN THE BOOKS OF ACCOUNTS AND AS HELD BY VARIOUS COURTS, THE APPELLANT DOES NOT HAVE TO PROV E THAT THE DEBT HAS ACTUALLY BECOME BAD. SINCE, THE LAW PERMITS THE APPELLANT TO WRITE OFF A PART OF THE DEBT ALSO, THE CLAIM CANNOT BE REJECTED ON GROUNDS OF SU SPICION AND NON FURNISHING OF CONFIRMATION ETC. AND THEREFORE THE ADDITION MAD E ON THIS ACCOUNT IS DIRECTED TO BE DELETED. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE TRIBUNAL. 4. AT THE OUTSET, WE FIND THAT ASSESSEE HAS WRITTEN OFF THIS AMOUNT IN THE NAME OF M/S THAKURDAS JEWELLERS U/S.36(2) OF THE ACT. THIS FACT HAS NOT BEEN DENIED BY LOWER AUTHORITIES AND ONCE THE ASSESSEE HAS WRITTEN OFF T HE BAD DEBTS IN ITS BOOKS OF ACCOUNT, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE AND AGAINST THE ITA NO.3316/AHD/2008 A.Y2005-06 ITO WD-6(1), SRT V. SH. AJAY D MEHTA PAGE 3 REVENUE BY THE DECISION OF HONBLE APEX COURT IN TH E CASE OF T.R.F. LIMITED V. COMMISSIONER OF INCOME TAX [2010] 323 ITR 397 (SC). WE FIND THAT THE ASSESSI NG OFFICER HAD MADE THE DISALLOWANCE ON THE GROUND THA T THE ASSESSEE HAS NOT PRODUCED SUFFICIENT EVIDENCE TO SHOW THAT REASONABL E STEPS WERE TAKEN TO RECOVER THE DEBT. HOWEVER, THERE IS NO DISPUTE THAT THE AB OVE AMOUNT WAS DULY WRITTEN OF IN THE ASSESSEES BOOKS OF ACCOUNT. ON THE ABOVE FACT S THE DECISION OF HONBLE APEX COURT IN THE CASE OF T.R.F. LIMITED (SUPRA) WOULD BE SQUARELY APPLICABLE WHEREIN, THEIR LORDSHIPS HELD AS UNDER: AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE IN COME-TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN ORDER TO OBTAIN A DED UCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTA BLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE : IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE ABOVE DECISION OF THE HO NBLE APEX COURT, WE CONFIRM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) O N THIS POINT AND DISMISS THIS GROUND OF THE REVENUES APPEAL. 5. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN RESTRICTING THE ADDITION AT RS.1 LAKH OUT OF THE TO TAL ADDITION MADE BY ASSESSING OFFICER AT RS.5.90 LAKH ON ACCOUNT OF LABOUR CHARG ES. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND NO.2 :- [2] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A)-IV, SURAT HAS ERRED IN RESTRICTING THE ADDIT ION OF RS.5,90,000/- TO RS.1,0,000/- ONLY, MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWED LABOUR CHARGES. 6. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT ASSESSING OFFICER NOTICED THAT LABOUR CHARGE EXPENSES OF RS.23.60 LAKH WERE D EBITED TO THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE. HE ASKED THE ASSESSEE TO F URNISH THE DETAILS REGARDING THE PERSONS TO WHOM LABOUR CHARGES HAD CLAIMED TO BE PA ID DURING THE YEAR UNDER CONSIDERATION AND PAYMENT OF LABOUR CHARGES WAS MAD E. HE WAS ONCE AGAIN REQUESTED TO GIVE THE NAMES AND COMPLETE ADDRESSES OF THE PERSONS TO WHOM SUCH PAYMENTS WERE MADE SO THAT THE VERIFICATION OF THE FACTS CAN BE MADE BUT NOTHING WAS PROVIDED BY THE ASSESSEE EXCEPT A MONTH-WISE LI ST OF THE NAME AND AMOUNTS PAID DURING EACH MONTH. AO FURTHER ASKED THE ASSESS EE TO SHOW CAUSE AS TO WHY THE BOOK RESULT SHOULD NOT BE REJECTED U/S.145(3) OF TH E ACT AND WHY 25% OF THE LABOUR ITA NO.3316/AHD/2008 A.Y2005-06 ITO WD-6(1), SRT V. SH. AJAY D MEHTA PAGE 4 CHARGES CLAIMED SHOULD NOT BE DISALLOWED AND ADDED TO THE TOTAL INCOME ON ACCOUNT OF NON-VERIFICATION OF THE SAID EXPENSES. IN REPLY TO THE SHOW CAUSE HE GAVE THE REASONS SUCH AS THE FREQUENT CHANGING OF THE WORKER S ETC. WHICH WERE NOT ACCEPTED BY THE ASSESSING OFFICER AND THEREFORE LABOUR CHARG ES EXPENSES WERE DISALLOWED AND RS.5.90 LAKH WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE ON THIS GROUND. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE ADDITION AT PAGE-3 & 4. BEFORE ME THE LD. AR SUBMITTED THAT PERSONS TO WHOM WAGES WERE PAID COULD NOT BE PRODUCED BEFORE THE AO SINCE WORKERS W ERE FREQUENTLY CHANGED AND FURNISHING THEIR ADDRESSES AFTER A LAPSE OF TWO YEARS WAS NOT POSSIBLE AND THE ASSESSING OFFICER'S ACTION IN DISALLOWING A HUG E AMOUNT OUT OF LABOUR CHARGES PAID WAS NOT JUSTIFIED ONLY ON GROUND OF NO N PRODUCTION OF ADDRESSES OF THE PERSONS. AFTER GONG THROUGH THE ASSESSMENT O RDER AND THE SUBMISSION, I FIND THAT THE APPELLANTS CONTENTION APPEARS TO B E CORRECT. IT IS SEEN THAT PAYMENT OF LABOUR EXCEEDING RS.50,000/- IN THE YEAR WAS NOT MADE TO ANY SINGLE PERSON WHICH MEANS THAT THE AMOUNTS INVOLVED WOULD BE SMALL AND THE NUMBER OF WORKERS WOULD BE VERY LARGE. SINCE MOST O F THE LABOURERS WERE MIGRANT AND UNEDUCATED, THEY WOULD NOT BE EXPECTED TO HAVE PERMANENT RESIDENTIAL ESTABLISHMENT AND THEREFORE THE DISALLO WANCE CANNOT BE MADE ON THIS GROUND ONLY. HOWEVER, SINCE THE ENTIRE PAYMENT HAS BEEN MADE IN CASH, IT IS POSSIBLE THAT SOME OF THE EXPENSES HAVE BEEN INFLATED AND THEREFORE I AM OF THE VIEW THAT A TOKEN DISALLOWANCE OF RS.1 LAC F ROM OUT OF CLAIM FOR LABOUR CHARGES WOULD BE REASONABLE. THE DISALLOWANCE IS DI RECTED TO BE RESTRICTED TO RS.1 LAC. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE THE TRIBUN AL. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT CIT(A) HAS CLEARLY GIVEN FINDING THAT THE EXPENSES OF LABOUR CLAIMED BY THE ASSESSEE WAS NOT VERIFIED BY THE ASSESSING OFFICER AND THERE IS NO ALLEGATION THAT THE WORK IS NOT DONE. THE ASSESSING OFFICER HAS MADE DISALLOWANCE JUST ON THE BASIS OF ESTIMATE AND ACCORDING TO CIT(A) THE ESTIMATE MADE BY THE AO IS ON THE HIGHER SIDE AND A CCORDINGLY, HE RESTRICTED THE SAME AT RS.1 LAKH. WE FIND NO INFIRMITY IN THE ORDE R OF CIT(A) AND WE CONFORM THE SAME. THIS ISSUE OF REVENUES APPEAL IS DISMISSED. 8. THE NEXT ISSUE IN THIS APPEAL OF REVENUE IS AGAI NST THE ORDER OF CIT(A) IN DELETING THE ADDITION MADE BY ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF VARIOUS EXPENSES. FOR THIS, REVENUE HAS RAISED THE FOLLOWING GROUND NO.3 :- ITA NO.3316/AHD/2008 A.Y2005-06 ITO WD-6(1), SRT V. SH. AJAY D MEHTA PAGE 5 [3] ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A)-IV, SURAT HAS ERRED IN DELETING THE ADDITION OF RS.60,800/-, MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWED VARIOUS EXPENSES. 9. THE BRIEF FACTS LEADING TO THE ABOVE ISSUE ARE T HAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS ASSESSING OFFICER NOTICED TH AT SOME EXPENSES SUCH AS ASSORTMENT CHARGES, BROKERAGE, CARD CHARGES AND OFF ICE RENT ETC. WERE PAID DURING THE YEAR UNDER CONSIDERATION FOR WHICH ASSESSEE WAS REQUESTED TO FURNISH COMPLETE NAMES AND ADDRESSES FOR THE PERSONS TO WHOM, SUCH P AYMENTS WERE MADE BUT THE ASSESSEE FAILED TO FURNISH THE DETAILS IN THIS REGA RD SO THE AO DISALLOWED THE 20% OF THESE EXPENSES WHICH WAS WORKED OUT AT RS.60,800/-. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). THE CIT(A) DELETED THE ADDITION BY GIVING FOLLOWING FINDINGS AS UNDER:- IN THIS CONTEXT, THE LD. AR SUBMITTED THAT THE ASS ORTMENT CHARGES WERE PAID BY A/C PAYEE CHEQUES TO FIVE DIFFERENT PERSONS AND OFFICE RENT AT RS.5,000/-PER MONTH WAS ALSO PAID. AFTER GOING THROUGH THE SUBMIS SION, I FIND THAT THERE IS NO JUSTIFICATION OF ANY DISALLOWANCE FROM THE OFFIC E RENT PAID. SIMILARLY, SINCE THE ASSORTMENT CHARGES HAVE BEEN PAID BY A/C PAYEE CHEQUES, THE DISALLOWANCE OUT OF THE EXPENSES IS ALSO NOT JUSTIF IED AND THE ENTIRE ADDITION IS DIRECTED TO BE DELETED. AGGRIEVED, REVENUE CAME IN APPEAL BEFORE THE TRIBUN AL. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE THR OUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT THE ORDER O F CIT(A) IS QUITE REASONABLE AS THE DISALLOWANCE IS MADE ON THE BASIS OF CONJUNCTUR E AND SURMISES AND THERE IS NO BASIS FOR DISALLOWANCE. WE FIND NO REASON TO INTERF ERE IN THE ORDER OF CIT(A) AND ACCORDINGLY THE SAME IS CONFIRMED. THIS ISSUE OF RE VENUES APPEAL IS DISMISSED. 10. IN THE RESULT, REVENUES APPEAL IS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 09/02/2011 SD/- SD/- (N.S.SAINI) (MAHAVIR SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD, DATED : 09/02/2011 *DKP ITA NO.3316/AHD/2008 A.Y2005-06 ITO WD-6(1), SRT V. SH. AJAY D MEHTA PAGE 6 COPY OF THE ORDER FORWARDED TO : 1. THE ASSESSEE. 2. THE REVENUE. 3. THE CIT(APPEALS)-IV, SURAT 4. THE CIT CONCERNS. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER, /TRUE COPY/ DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD