BHAGWATI PRASAD, Kota V. ACIT, Kota

ITA 345/JPR/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 99291 (ITAT-JAIPUR)
• Duration Of Justice: 2 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 03-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: KAILASH MANGAL JCIT DHK
• Assessee Lawyers: B L BHOJWANI
• Keywords: Business income; Bad and doubtful debts
• Section: 37

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR JH VKJ-IH-RKSYKUH] U;KF;D LNL; DS LE{K BEFORE: SHRI R.P. TOLANI, JUDICIAL MEMBER VK;DJ VIHY LA-@ ITA NO. 345/JP/2013 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2007-08 BHAGWATI PRASAD, M/S. DEVKI NANDAN BHAGWATI PRASAD, B-37, BHAMASHAH MANDI, KOTA. CUKE VS. THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE-1, KOTA. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: ABDPB 8176 C VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI B.L. BHOJWANI JKTLO DH VKSJ LS@ REVENUE BY : SHRI KAILASH MANGAL, JCIT LQUOKBZ DH RKJH[K@ DATE OF HEARING : 20/07/2015 ?KKS'K .KK DH RKJH[K@ DATE OF PRONOUNCEMENT : 11/08/2015 VKNS'K@ ORDER PER R.P. TOLANI, JM THE APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORD ER OF THE LD. CIT (A), KOTA DATED 21.01.2013 FOR THE ASSESSMENT YEAR 2007- 08. THE SOLE GROUND RAISED BY THE ASSESSEE IS AS UNDER :- 2 ITA NO. 345/JP/2013 A.Y. 2007-08. BHAGWATI PRASAD, KOTA. THAT THE LEARNED CIT (APPEALS) HAS ERRED IN CONFIRM ING THE DISALLOWANCE OF BAD DEBTS OF RS. 2,20,870/- MADE BY THE LEARNED ASSESSING OFFICER. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMMISSION AGENT IN THE FIELD OF AGRICULTURAL GOODS AND RECEIVED COMMISSION FROM FARMERS WHO SELL THE GOODS THROUGH HIM. TO MAINTAIN THE CLIENTAGE AND REL ATIONSHIP WITH THESE FARMERS, ASSESSEE USED TO GIVE ADVANCES TO THEM. TH IS ENSURES THAT THE FARMERS WILL BRING THE GOODS FOR SALE THROUGH HIM. IN THE R ELEVANT YEAR ASSESSEE EARNED COMMISSION INCOME OF RS. 24,52,939/- AND CLAIMED WRI TE OFF OF BAD DEBTS AMOUNTING TO RS. 2,20,870/-. ACCORDING TO AO, THE ASSESSEE DID NOT PRODUCE ADEQUATE EVIDENCE TO ESTABLISH THAT DEBT HAS REALLY BECOME BAD. THE DEBTS WERE OUTSTANDING SINCE LAST 3-6 YEARS. THE AO, HOWEVER, D ISALLOWED THE CLAIM BY FOLLOWING OBSERVATIONS :- THE REPLY OF THE ASSESSEE WAS CONSIDERED BUT NOT FO UND SATISFACTORY. IT IS NOT CLEAR WHEN ASSESSEE TREATED THAT DEBT AS INCOME AND IT IS NOT PROVED THAT DEBT HAS BECOME IR RECOVERABLE TO ASSESSEE. JUST WRITING OFF BAD DEBTS CANNOT BE GENUI NE AND THERE WILL BE NO CERTAINTY THAT ASSESSEE WILL TREAT INCOME IF BAD DEBT WILL RECOVER AFTER WRITING OFF BECAUSE AMOUNT WILL BE RECE IVED IN THE CASH AND THAT SETTLEMENT CAN BE OUT OF BOOKS. DEDUCTION CANNOT BE CLAIMED FOR DEBTS, SIMPLY BY WRITING OFF THEM FROM B OOKS OF ACCOUNT AND WITHOUT PROVING THAT THESE HAVE BECOME BAD DEBT. WRITING OFF IS 3 ITA NO. 345/JP/2013 A.Y. 2007-08. BHAGWATI PRASAD, KOTA. ONLY ONE OF THE CONDITIONS TO CLAIM DEDUCTION FOR B AD DEBT. THE OTHER CONDITION IS THAT DEBT HAS BECOME BAD DEBT. 3. AGGRIEVED, ASSESSEE PREFERRED FIRST APPEAL. HOWE VER, LD. CIT (A) HELD THAT PROVISIONS OF SECTION 36(1)(VII) ARE SUBJECTED TO P ROVISIONS OF SECTION 36(2) AND SINCE ASSESSEE IS NOT IN MONEY LENDING BUSINESS, TH E CLAIM COULD NOT BE ALLOWED. APROPOS ASSESSEES CONTENTION THAT IT MAY BE ALLOWED UNDER SECTION 37, IT WAS HELD THAT THE ASSESSEE HAS FAILED TO PROVE THAT DEB T HAD ACTUALLY BECOME BAD. THEREFORE, THE SAME ARE NOT ALLOWABLE UNDER SECTION 3 7 ALSO. 4. AGGRIEVED, ASSESSEE IS IN SECOND APPEAL. THE LD. COUNSEL FOR THE ASSESSEE CONTENDS THAT THE BUSINESS AND ITS MODULE HAVE NOT BEEN DISPUTED BY BOTH THE LOWER AUTHORITIES. THE ASSESSEE AS A COMMISSION AGE NT HAS EARNED COMMISSION OF MORE THAN RS. 24,00,000/- WHICH INDICATE THAT HIS BUSINESS IS VOLUMINOUS. THE ADVANCING OF THESE DEBTS HAS ALSO NOT BEEN DISPUTED WHICH IS REFLECTED BY THE FINDING THAT THEY WERE CONTINUING FOR THE LAST 3-6 Y EARS. THE GENUINENESS THEREOF IS NOT UNDER CHALLENGE AND THERE IS NO DOUBT THAT D EBTS HAVE ACTUALLY BECOME BAD. 4.1. BOTH THE LOWER AUTHORITIES HAVE DENIED THE CLAI M ON THE FOLLOWING OBSERVATIONS :- (1) THE ASSESSEE HAS FAILED TO ESTABLISH THAT THE DE BTS HAVE ACTUALLY BECOME BAD. (2) THE ASSESSEE IS NOT A MONEY LENDER IN TERMS OF SECTION 36(2). 4 ITA NO. 345/JP/2013 A.Y. 2007-08. BHAGWATI PRASAD, KOTA. (3) THE CLAIM IS NOT ALLOWABLE UNDER SECTION 37 ALSO AS ASSESSEE COULD NOT PROVE THE LOSS AND IT WAS NOT SUFFERED DURING BU SINESS EXPEDIENCY. 5. ON THE FIRST ISSUE, IT IS CONTENDED THAT CONSEQU ENT TO AMENDMENT IN SECTION 36(1)(VII), THE CBDT ISSUED CIRCULAR NO. 551 DATED 23.1.1990 AS UNDER :- 6.6. AMENDMENTS TO SECTIONS 36(1)(VII) AND 36(2) T O RATIONALIZE PROVISIONS REGARDING ALLOWABILITY OF BAD DEBTS. THE OLD PROVISIONS OF CLAUSE (VII) OF SUB-SECTION (1) READ WITH SUB-SEC TION (2) OF THE SECTION LAID DOWN CONDITIONS NECESSARY FOR ALLOWABILI TY OF BAD DEBTS. IT WAS PROVIDED THAT THE DEBT MUST BE ESTABLISHED TO HAVE BECOME BAD IN THE PREVIOUS YEAR. THIS LED TO ENORMOUS LITIG ATION ON THE QUESTION OF ALLOWABILITY OF BAD DEBT IN A PARTICULAR YEAR, BECAUSE THE BAD DEBT WAS NOT NECESSARILY ALLOWED BY THE ASSESSING OFFICER IN THE YEAR IN WHICH THE SAME HAD BEEN WRITTEN OFF ON THE GR OUND THAT THE DEBT WAS NOT ESTABLISHED TO HAVE BECOME BAD IN THAT YEAR. IN ORDER TO ELIMINATE THE DISPUTES IN THE MATTER OF DETERMIN ING THE YEAR IN WHICH A BAD DEBT CAN BE ALLOWED AND ALSO TO RATIONALI ZE THE PROVISIONS, THE AMENDING ACT, 1987, HAS AMENDED CLA USE (VII) OF SUB-SECTION (1) OF AND CLAUSE (I) OF SUB-SECTION (2 ) OF THE SECTION TO PROVIDE THAT THE CLAIM FOR BAD DEBT WILL BE ALLOWED I N THE YEAR IN WHICH SUCH A BAD DEBT HAS BEEN WRITTEN OFF AS IRRECOV ERABLE IN THE ACCOUNTS OF THE ASSESSEE. 5 ITA NO. 345/JP/2013 A.Y. 2007-08. BHAGWATI PRASAD, KOTA. THIS CIRCULAR CLEARLY DEMONSTRATES THAT THERE IS NO ONUS ON THE ASSESSEE TO ESTABLISH THAT THE DEBIT HAS ACTUALLY BECOME BAD. F URTHER, RELIANCE IS PLACED ON VARIOUS JUDGMENTS, OUT OF WHICH MAIN JUDGMENTS ARE AS UNDER :- T.R.F. LTD. VS. CIT (2010) 323 ITR 397 (SC)(2010) 23 0 CTR 14 DY.CIT VS. OMAN INTERNATIONAL BANK (2000) 102 TTJ 2 07 (MUMBAI) CIT VS. AUTOMOBILES LTD. (2007) 292 ITR 345 (DELHI) CIT VS. KRONE COMMUNICATION LTD. (2011)333 ITR 497 (KARN-HC) CIT VS. MORGAN SECURITIES & CREDITS (P) LTD.(2007) 292 ITR 339 (DEL) APROPOS THE SECOND OBJECTION THAT ABOUT APPLICABILI TY OF SECTION 36(2), IT IS TRITE LAW THAT FOR MONEY LENDING BUSINESS SECTION 36(2) IS THERE BUT FOR OTHER BUSINESSES SECTION 36(1)(VII) WILL PREVAIL, WHICH IS THE CASE OF THE ASSESSEE. ON THIRD COUNT, IT WAS PLEADED THAT ADVANCING OF LOA NS TO FARMERS IS INTRINSICALLY CONNECTED TO ASSESSEES BUSINESS, THE SAME HAS NOT BEEN DISPUTED. THE FACT THAT DEBTS WERE OUTSTANDING SINCE 3-6 YEARS ITSELF I NDICATES THAT THEY WERE UNRECOVERABLE. 6. THE LD. D/R SUPPORTED THE ORDER OF LD. CIT (A). 7. I HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE M ATERIAL ON RECORD. WE FIND MERIT IN THE WRITTEN SUBMISSIONS AND ARGUMENTS OF LD . COUNSEL. THE ASSESSEE WAS CARRYING OUT COMMISSION BUSINESS AND HAVING BUSI NESS DEALINGS WITH FARMERS WHICH IS NOT DISPUTED BY THE LOWER AUTHORITIES. AS H ELD BY HONBLE SUPREME 6 ITA NO. 345/JP/2013 A.Y. 2007-08. BHAGWATI PRASAD, KOTA. COURT IN THE CASE OF T.R.F. LTD. (SUPRA), IF THE ASS ESSEE HAS WRITTEN OFF BAD DEBTS AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE, T HE CLAIM IS TO BE ALLOWED UNDER SECTION 36(1)(VII). THE FACT THAT SAME WERE OUTSTA NDING FOR LAST 3-6 YEARS HAS NOT BEEN DISPUTED. IT HAS NOT BEEN DISPUTED THAT T HE NATURE OF BUSINESS OF ASSESSEE IS SUCH THAT ASSESSEE WAS REQUIRED TO ADVAN CE TO FARMERS. THEREFORE, THE DEBTS ARE CONNECTED WITH THE BUSINESS INCOME EAR NED BY THE ASSESSEE. THE SAME IS ALLOWABLE UNDER SECTION 36(1)(VII). ALTERN ATELY, IT IS ALLOWABLE UNDER SECTION 37 ALSO. IN VIEW THEREOF, I ALLOW THE ASSESS EES CLAIM AS ASSESSEE IS ELIGIBLE TO CLAIM BAD DEBT. 8. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/08/2015 . SD/- VKJ-IH-RKSYKUH (R.P.TOLANI) U;KF;D LNL;@ JUDICIAL MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 11/08/ 2015 DAS/ VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1 . VIHYKFKHZ@ THE APPELLANT- BHAGWATI PRASAD, KOTA. 2. IZR;FKHZ@ THE RESPONDENT- ACIT, CIRCLE-1, KOTA. 3. VK;DJ VK;QDRVIHY@ CIT(A). 4. VK;DJ VK;QDR@ CIT, 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.345/JP/2013) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR 7 ITA NO. 345/JP/2013 A.Y. 2007-08. BHAGWATI PRASAD, KOTA.