S.K. SILKS, MUMBAI V. ADDL CIT 14(3), MUMBAI

ITA 351/MUM/2013

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 0949 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 13-08-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 11-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VISHWAS MUNDHEDR
• Assessee Lawyers: DR P DANIEL
• Keywords: Rule of consistency; Bad and doubtful debts
• Section: 80HHC

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -EBEN CH MUMBAI , , , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND RAM LAL NEGI,JUDICIAL MEMBER ./I.T.A./3615/MUM/2013, /ASSESSMENT YEAR: 2007-08 ./I.T.A./3616/MUM/2013, /ASSESSMENT YEAR: 2008-09 ./I.T.A./351/MUM/2013, /ASSESSMENT YEAR: 2009-10 M/S. S.K. SILKS 9, CHATRABHUJ HOUSE, 285 PRINCESS STREET MUMBAI-400 002. PAN:AAAFS 1035 K VS. ADDL CIT, -14 (3) EARNEST HOUSE, 5TH FLOOR, NARIMAN POINT,MUMBAI. ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: SHRI VISHWAS MUNDHE-DR ASSESSEE BY: DR. P. DANIEL / DATE OF HEARING: 15.03.2017 / DATE OF PRONOUNCEMENT: 03.05.2017 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) / PER RAJENDRA, AM - CHALLENGING THE ORDERS DATED 14/03/2013 AND 17.12.2 012,OF THE CIT (A)-25 MUMBAI, THE ASSESSEE HAS FILED THE APPEALS FOR THE ABOVE-MENTIO NED THREE AY.S. ASSESSEE-COMPANY IS AN EXPORTER AND WHOLESALE DEALER IN SARIS AND FABRICS. THE DETAILS OF FILING OF RETURNS, RETURNED INCOMES,DATES OF ASSESSMENTS ETC. CAN BE SUMMARISED AS UNDER: A.Y. ROI FILED ON RETURNED INCOME ASSESSMENT DT. ASSESSED INCOME 2007 - 08 14.11.2007 RS.1,19,64,135/ - 27.11.2009 RS.2.03 CRORES 2008 - 09 29.09.2008 RS.1,14,66,570/ - 09.12.2010 R S.1.67 CRORES 2009 - 10 30.11.2011 RS.94,46,665/ - 21.11.2011 RS.1.00 CRORES AS THE ISSUES INVOLVED IN THE APPEALS ARE ALMOST SI MILAR,SO, FOR THE SAKE OF CONVENIENCE WE ARE ADJUDICATING THEM TOGETHER. ITA/3615/MUM/2013,AY. 2007-08: 2. FIRST GROUND OF APPEAL IS ABOUT DENYING CLAIM OF BA D DEBTS.DURING THE ASSESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAD CLAIMED BAD DEBT S,INCLUDING THE BAD DEBTS PERTAINING TO SEVEN OVERSEAS PARTIES, THAT IT HAD CLAIMED BAD DEBTS IN RESPECT AY.S 1994-95 TO 1999-2000.HE DIRECTED 3615,3616&351/M/16(07-08,08-09&09-10) M/S. S.K. SILKS 2 THE ASSESSEE TO FURNISH EVIDENCE TO PROVE THAT THES E AMOUNTS WERE TAKEN INTO ACCOUNT IN COMPUTING ITS INCOME IN THE RELEVANT YEARS.HE OBSER VED THAT IT WAS A LEGAL REQUIREMENT FOR CLAIMING A DEDUCTION OF SOME A BAD DEBT U/S. 36 OF THE ACT.THE ASSESSEE SHOWED ITS INABILITY TO PROVE THE FACT BY STATING THAT RECORDS AND ACCOUNTS PRIOR TO THE PERIOD OF 01/04/2001 WERE NO LONGER AVAILABLE WITH IT.HOWEVER,IT FURNISHED A COP Y OF LETTER, DATED 28/09/1999, WRITTEN TO THE CIT,BOMBAY CITY-II,SEEKING THEREIN AN EXTENSION FOR A PERIOD OF SIX MONTHS A PAYMENT ON ACCOUNT OF CERTAIN EXPORT BILLS WAS NOT RECEIVED TI LL 28/09/1999. THE AO OPINED THAT ON THE BASIS OF EXTENSION APPLICATIONS THE ASSESSEE HAD CLAIMED DEDUCTION U/S. 80HHC AT THE RATE OF 100%, THAT NORMALLY IN EXPORT BUSINESS A CONSIGNMENT WAS EXPORTED TO OF OVERSEAS PARTY AGAINST OPENING OF A LETTER OF CREDIT WITH THE BANK,THAT ON CE PAYMENT AGAINST EXPORT WAS RELEASED BY THE BANK THE EXPORTER WOULD BECOME AWARE OF THE FACT OF ACTUAL REALISATION AGAINST THE PARTICULAR SALE, THAT IF THE AMOUNT WAS NOT RECEIVED THE ASSESSEE SH OULD HAVE REVISED ITS CLAIM U/S. 80HHC BECAUSE IT HAD AVAILED 100% DEDUCTION UNDER THAT SE CTION ON ACCRUAL BASIS, THAT THE DEDUCTION U/S. 80HHC WAS AVAILABLE TO AN ASSESSEE ONLY ON RECEIPT OF FOREIGN EXCHANGE ON ACTUAL BASIS, THAT THE ASSESSEE COULD NOT FURNISH ANY EVIDENCE THAT THE CL AIM U/S. 80HHC WAS REVISED FOR NON-RECEIPT OF AMOUNT FROM THE OVERSEAS PARTIES AND THAT IT HAD OF FERED THE AMOUNT IN QUESTION FOR TAXATION IN THE RELEVANT YEAR FOR NON-FULFILMENT OF CONDITION U /S. 80HHC, THAT IT HAD CLAIMED IMPUGNED AMOUNTS AS BAD DEBTS AFTER 10 YEARS, THAT THERE WAS NO BONA FIDES AND TO CLAIMED IMPUGNED AMOUNTS AS BAD DEBTS AFTER TEN YEARS AND MORE,THAT THE CLAIM OF THE ASSESSEE WAS PATENTLY WRONG FOR THE REASON THAT ASSESSEE HAD CLAIMED 100% DEDUC TION U/S. 80HHC ON ACCRUAL BASIS, THAT AFTER 10 YEARS WHEN EXPORT ACTIVITIES BECAME TAXABLE HAD CLAIMED DEDUCTION ON ACCOUNT OF BAD DEBTS, THAT THE CLAIM MADE BY THE ASSESSEE WAS NOT BONAFID E,THAT NO EVIDENCE WAS PRODUCED TO ESTABLISH THE CONDITIONS LAID DOWN IN SECTION 36. WITH REGARD TO BAD DEBTS OF RS.1.77 LAKHS,THE AO OB SERVED THAT THE ASSESSEE HAD CLAIMED BAD DEBTS IN THE NAME OF ROKKO SAREES AND FABRICS LTD., THAT THE LASER ACCOUNT REVEALED THAT AMOUNT WAS ACTUALLY FREIGHT EXPENSES INCURRED BY THE ASSES SEE ON BE OF OF THE SAID PARTY, THAT THE AMOUNT WAS NOT REIMBURSED BY THE PURCHASER, THAT THE ASSES SEE HAD CLAIMED THE AMOUNT IN QUESTION IS A BAD DEBTS U/S. 36 OF THE ACT. HE FURTHER HELD THAT THE FREIGHT EXPENSES WERE NEVER PASS THROUGH PROFIT AND LOSS ACCOUNT, THAT THE FREIGHT EXPENSES WERE NEVER SHOWN AS INCOME OF THE ASSESSEE IN THE PREVIOUS YEAR, THAT THE CONDITIONS LAID DOWN U/ S. 36 (2) (I) OF THE ACT WERE NOT FULFILLED. 3615,3616&351/M/16(07-08,08-09&09-10) M/S. S.K. SILKS 3 FINALLY, THE AO DISALLOWED BAD DEBTS OF RS.26.91LAK HS(23.80HHC LAKHS +RS. 1.34 LAKHS+ 1, 77, 278/-). 2.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS ARGUED THAT THE AS SESSEE WAS ENTITLED TO CLAIM BAD DEBTS ACCORDING TO ITS SWEET WILL, THAT IF THE INCOME WAS EXEMPT BY VIRTUE OF SECTION 80HHC IT COULD NOT BE HELD THAT CONDITIONS LAID DOWN U/S. 36 WERE NOT FULFILLED,THAT THE CLAIM MADE BY IT WAS BASED ON FACTS AND HAD TO BE ALLOWED IN FULL.ON A P OINTED QUERY BY THE FAA,AS TO REASON FOR CLAIMING BAD DEBTS AFTER 10 YEARS AND MORE, IT STAT ED THAT IT WAS THE DISCRETION OF THE ASSESSEE TO CLAIM BAD DEBTS IN THE YEAR IN WHICH IT FOUND THEM IRRECOVERABLE. AFTER CONSIDERING THE, SUBMISSIONS OF THE ASSESSEE AND THE ASSESSMENT ORDE R,HE HELD THAT SEVEN PARTIES FOR WHICH BAD DEBT CLAIMS HAD BEEN MADE WERE FOREIGN PARTIES, THA T THE CLAIM RELATED TO AY.S 1994-95 TO AY.S 1999-2000, THAT IN THOSE YEARS EXPORT PROFITS WERE TOTALLY TAX EXEMPT, THAT THE EXPORT PROFITS WERE TAXABLE FULLY IN THE INSTANT YEAR, THAT THE ASSESSE E HAD CLAIMED THAT SALES WERE DISCLOSED IN RELEVANT YEARS PRIOR TO 10-14 YEARS BACK,THAT THERE WAS NO EVIDENCE FOR THE SAME FOR WANT OF RECORDS,THAT IT WAS NOT ABLE TO ESTABLISH, WITH NEC ESSARY DOCUMENTARY EVIDENCES, THAT THE SAID AMOUNTS WERE SHOWN AS SALE PROCEED IN A RELEVANT YE ARS AND THAT SAME WERE NOT RECEIVED IN REALITY,THAT THAT IF RECORDS WERE NOT AVAILABLE THE ASSESSEE WAS NOT ENTITLED TO CLAIM BAD DEBTS,THAT ASSESSEE HAD NOT FILED ANY PLAUSIBLE EXPLANATION IN THAT REGARD, THAT ASSESSEE HAD NOT CLAIMED BAD DEBTS FOR THE YEAR FOR WHICH RECORDS WERE AVAILABLE I.E. FOR THE AY. 2000 AND 2001, THAT AS PER LAW OF LIMITATION ANY THAT WOULD BECOME BARRED BY L IMITATION AFTER THREE YEARS AND SHOULD HAVE BEEN CLAIMED IMMEDIATELY THEREAFTER, THAT THE BONA FIDES AND GENUINENESS OF THE CLAIM WAS NOT PROVED BY THE ASSESSEE, THAT THERE WAS NO EVIDENCE THAT THE ASSESSEE HAD OFFERED FOR TAXATION THE DISPUTED AMOUNT BY ISSUING IMPUGNED AMOUNTS AS INCO ME IN THE RELEVANT YEARS, IF THE AMOUNT IN QUESTION WERE NOT OFFERED FOR TAXATION ON ACCOUNT O F NON-RECEIPT OF FOREIGN EXCHANGE A LOGICAL INFERENCE WOULD ENTAIL THAT SAME WAS NOT THE SALE P ROCEEDS, THAT IF THE DISPUTED AMOUNTS WERE NOT SALE PROCEED SAME WERE NOT ALLOWABLE IN VIEW OF THE PROVISIONS OF SECTION 36, THAT GENERALLY THE EXPORTS WERE AFFECTED THROUGH LETTER OF CREDIT, THA T EXPORT CREDIT GUARANTEE CORPORATION OF INDIA PROVIDED GUARANTEE AND INSURANCE AGAINST EXPORT REA LISATION, THAT THERE WAS NO POSSIBILITY FOR NON- RECEIPT OF EXPORT PROCEEDS, THAT THE CLAIM FOR BAD DEBTS AFTER 10-13 YEARS ITSELF PROVED NON- GENUINESS OF THE CLAIM.FINALLY,HE UPHELD THE ORDER OF THE AO AND DISALLOWANCE OF RS. 23.80HHC LAKHS AND RS.1.34 LAKHS WAS CONFIRMED. WITH REGARD TO THE BAD DEBTS OF RS. 1.77 LAKHS, HE 3615,3616&351/M/16(07-08,08-09&09-10) M/S. S.K. SILKS 4 OBSERVED THAT THE AMOUNT WAS NOT ENTERED INTO THE P ROFIT AND LOSS ACCOUNT, THAT THE SAME WAS NOT ALLOWABLE AS A DEDUCTION AS PER THE PROVISIONS OF S ECTION 36.HE FURTHER HELD THAT IF IN THE APPEALS THE ASSESSEE WAS SUCCESSFUL,THE AO WOULD BE FREE TO TAKE NECESSARY ACTION TO TAX THE IMPUGNED AMOUNTS IN RELEVANT YEARS AS PER LAW FOR THE REASON THAT FOREIGN EXCHANGE WERE NOT RECEIVED WITHIN THE STRIP RELATED PERIOD AND DEDUCTION U/S. 80HHC WAS AVAILABLE ONLY ON FULFILMENT OF CONDITIONS THAT FOREIGN EXCHANGE SHOULD BE RECEIVED WITHIN STIPULATED PERIOD. 2.2. BEFORE US,THE AUTHORISED REPRESENTATIVE(AR)STATED T HAT U/S. 36(1)NO PERIOD WAS PRESCRIBED FOR WRITING OFF OF BAD DEBTS,THAT SAME COULD BE CLA IMED AT ANY TIME.HE RELIED UPON THE CASES OF TRICON ENTERPRISES (ITA/6143/MUM/2009),NILOFOR I SI NGH(309 ITR 233) AND TRF LTD. (323 ITR 397).THE DEPARTMENTAL REPRESENTATIVE(DR)ARGUED THAT THERE WAS NO EVIDENCE THAT THE ASSESSEE HAD OFFERED THE DISPUTED AMOUNTS FOR TAXATION IN TH E EARLIER YEARS, THAT THE FATE EXPENSES WERE NOT PART OF THE PROFIT AND LOSS ACCOUNT, THAT NO JUSTIF ICATION WAS OFFERED FOR CLAIMING THE BAD DEBTS AFTER A PERIOD OF ROUGHLY 10 YEARS. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.AS PER THE MANDATE OF PROVISIONS OF CHAPTER IV INCOME,UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, IS CHARGEABLE TO INCOME-TAX.EXPRESSION PROFITS AND GAINS OF BUSINESS OR PROFESSIONIS TO BE UNDERSTOOD IN ITS ORDINARY COMMERCIAL MEANING AS IT DOES NOT MEAN TOTAL RECEIPTS. WHAT HAS TO BROUGHT TO TAX IS THE NET AMOUNT EARNED BY CARRYING ON A PROFESSION OR A BUSINESS.FOR THAT PURPOSE,ONE MUST NECESSARILY HAVE REGARD TO THE ACC EPTED COMMERCIAL PRACTICE THAT DEDUCTION OF SUCH EXPENSES AND LOSSES HAS TO BE ALLOWED, IF IT A RISES IN CARRYING ON BUSINESS AND IS INCIDENTAL TO IT.SECTIONS 29-37 PROVIDE DEDUCTIONS FOR VARIOUS EXPENSES.THERE IS NO BAR IN CLAIMING A LOSS AS A BUSINESS LOSS, IF IT IS INCIDENTAL TO CARRYING ON OF A BUSINESS.SIMILARLY,WHILE CARRYING ON THE BUSINESS IF AN ASSESSEE WRITES OFF A IRRECOVERABLE DEBT,HE WOULD BE ENTITLED TO A CORRESPONDING DEDUCTION UNDER CLAUSE(VII)OF SUB-SECTION(1)OF SECT ION 36 SUBJECT TO THE FULFILMENT OF THE CONDITIONS SET FORTH IN SUB-SECTION(2)OF THE SAID S ECTION. 2.3.1. BEFORE PROCEEDING FURTHER,WE WOULD LIKE TO REFER TO THE PROVISIONS OF THE SECTION AND CERTAIN CASE LAWS THAT DEAL WITH THE ISSUE.SECTION 36(2)REA DS AS UNDER: (2)IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART T HEREOF, THE FOLLOWING PROVISIONS SHALL APPLY- (I) NO SUCH DEDUCTION SHALL BE ALLOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREV IOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR 3615,3616&351/M/16(07-08,08-09&09-10) M/S. S.K. SILKS 5 PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIO US YEAR, OR REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY-LENDING WHICH IS CARRIED ON BY THE ASSESSEE.' IN THE MATTER OF SHREYAS MORAKHIYA(342ITR285 ),THE HONBLE BOMBAY HIGH COURT HAS HELD AS UNDER: AFTER APRIL 1, 1989, IT IS NOT NECESSARY FOR THE A SSESSEE TO ESTABLISH THAT THE DEBT HAS IN FACT BECOME IRRECOVERABLE AND IT WOULD BE SUFFICIENT IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. SUB-SECTION (2) OF SE CTION 36 OF THE ACT, STIPULATES THAT A DEDUCTION FOR A BAD DEBT OR PART THEREOF SHALL NOT BE ALLOWED UNLESS (A) THE DEBT HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREV IOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIO US YEAR ; OR (B) THE DEBT REPRESENTS MONEY LENT IN THE ORDINARY COURSE OF BUSINESS OF BANKING OR MONEY LENDING WHICH IS CARRIED ON BY THE ASSESSEE. SIMILARLY,IN THE MATTER OF LAL WOLLEN AND SILK MILL S PVT.LTD. (333ITR254),THE HONBLE P&H HIGH COURT HAS HELD AS UNDER: BEFORE CLAIMING DEDUCTION U/S.36(2)(I) OF THE ACT, THE FOLLOWING ESSENTIAL INGREDIENTS MUST BE FULFILLED : (I) THE ASSESSEE OUGHT TO HAVE DEPICTED THE DEBT AS HIS INCOME, DURING THE PREVIOUS YEAR OR ANY OTHER EARLIER PREVIOUS YEAR, (II) THE ASSESS EE OUGHT TO HAVE SHOWN THE DEBT AS IRRECOVERABLE OR AS A BAD DEBT, AND OUGHT TO HAVE WRITTEN IT OFF DURING THE PREVIOUS YEAR, AND (III) THE DEDUCTION FOR SUCH A DEBT WHICH HAS BEEN WRITTEN OFF, CAN BE CLAIMED IN THE PREVIOUS YEAR DURING WHICH THE ASSESSEE HAS WRITTEN OFF THE DEBT. 2.3.2. NOW,WE WOULD LIKE TO REFER TO THE CASE OF KERALA TR ANSPORT COMPANY (294 ITR 91) OF HONBLE KERALA HIGH COURT.FACTS OF THE CASE ARE THA T THE ASSESSEE-FIRM WAS ENGAGED IN THE BUSINESS OF TRANSPORTATION OF GOODS.FOR THE AY. 198 8-89, IT CLAIMED THREE ITEMS OF DEDUCTION,RS. 1,06,978/- BEING THE AMOUNT OF FREIGHT WHICH HAD BE COME BAD AND IRRECOVERABLE AS A RESULT OF DAMAGES CLAIMED BY CUSTOMERS RS.49,527/-BEING THE A GGREGATE OF OTHER BAD DEBTS AND RS.73, 996/-BEING THE INTEREST PAYABLE TO THE FINANCIER ON ACCOUNT OF PURCHASES OF MOTOR VEHICLES.IT HAD CLAIMED DEDUCTION OF AN AMOUNT OF RS.1,06,978/-AS C OST OF GOODS DAMAGED IN TRANSIT.THE ASSESSEE,WHILE COMPUTING THE INCOME, HAD CLAIMED TH E DEDUCTION OF THE ABOVE -MENTIONED AMOUNT AS THE AMOUNT PAYABLE TO KERALA STATE DETERG ENTS AND CHEMICALS LTD. (KSDCL),FOR THE DAMAGE CAUSED TO THEIR GOODS TRANSPORTED BY THE ASS ESSEE.BEFORE THE AO,IT WAS STATED THAT KSDCL HAD DISPATCHED 725 CARTONS OF SOAPS TO THEIR INDORE DEPOT AND THAT THE CARTONS WERE DAMAGED DUE TO SEEPAGE OF WATER. KSDCL REFUSED TO T AKE DELIVERY OF THE DAMAGED GOODS. THE 3615,3616&351/M/16(07-08,08-09&09-10) M/S. S.K. SILKS 6 ASSESSEE SOLD 172 CARTONS TO M/S. P. V. S. HOSPITAL . THE REMAINING 578 CARTONS WERE TAKEN BY KSDCL AND THEY DISPOSED OF 200 CARTONS. THE REMAINI NG 378 CARTONS WERE TAKEN BY THE ASSESSEE IN JANUARY, 1986. IN THE AUDIT REPORT, THE AUDITORS OBSERVED THAT IT WAS NOT KNOWN AS TO HOW THE QUANTITY OF 378 CARTONS WERE DISPOSED OF AND WHY NO VALUE HAD BEEN CREDITED IN THE ACCOUNTS. FURTHER, THE ASSESSEE HAD ALSO CLAIMED THAT THE DED UCTION COULD BE ALLOWED AS A BAD DEBT U/S.36 OF THE ACT. ACCORDING TO THE ASSESSEE, ON ACCOUNT OF D AMAGE CAUSED TO THE GOODS THE ASSESSEE COULD NOT RECOVER THE SUM OF RS.1,06,978/-FROM KSDCL AND IN THAT SENSE THERE WAS A BAD DEBT ALLOWANCE U/S.36(2). HOWEVER,THE AO REJECTING THE CLAIM MADE BY THE ASSE SSEE,DISALLOWED THE DISPUTED SUM.DIS - ALLOWANCE WAS UPHELD BY THE FAA AS WELL AS BY THE T RIBUNAL. THE CLAIM,RAISED BY THE ASSESSEE,AS BAD DEBT U/S.36(2) WAS ALSO DECIDED AGAINST IT.BEFO RE THE HONBLE HIGH COURT THE ASSESSEE ARGUED THAT THE REASONINGS FOR THE DISALLOWANCE WERE FLIMS Y, PERVERSE AND CONTRARY TO THE PROVISIONS OF THE ACT,THAT FREIGHT CHARGES WHICH HAD GONE INTO TH E COMPUTATION OF THE EARLIER YEARS AND HAD BECOME IRRECOVERABLE BECAUSE OF THE REFUSAL BY THE CUSTOMER TO PAY THE FREIGHT DUE TO THE ASSESSEE ON ACCOUNT OF THE PENDING CLAIM FOR DAMAGE S BY THE CUSTOMER,THAT THE TRIBUNAL HAS COMMITTED AN ERROR IN DISALLOWING BAD DEBTS OF THRE E ITEMS.THE STAND OF THE REVENUE,BEFORE THE HONBLE COURT,WAS THAT THE ASSESSEE WAS NOT ENTITLE D TO CLAIM THE DEDUCTION EITHER AS A TRADING LOSS OR AS A BAD DEBT FOR THE AY.1988-89,THAT THE L OSS WAS INCURRED IN THE YEAR 1983 AND THE MATTER WAS SETTLED AND THE REMAINING GOODS WERE TAK EN BACK IN 1986,THAT EVEN IF THERE WAS ANY LIABILITY THAT RELATED TO THE EARLIER YEAR,THAT DIS PUTED SUM WAS NOT AN AMOUNT WHICH HAD BEEN TAKEN INTO ACCOUNT IN COMPUTING THE ASSESSEE' S INC OME FOR THE CURRENT YEAR OR FOR ANY EARLIER YEAR.DECIDING THE ISSUE AGAINST THE ASSESSEE THE HO NBLE COURT HELD AS UNDER: 7.WE FIND NO ERROR IN THE REASONING OF THE AUTHORI TIES BELOW. THIS IS A CASE WHERE THE ASSESSEE' S ACCOUNTS WERE SUBJECTED TO AUDIT U/S.142(2A) OF THE INCOME-TAX ACT. IN THE REPORT, IT HAS BEEN SPECIFICALLY STATED THAT THE GOODS HAD BEEN DISPATC HED BY KSDC IN THE YEAR 1983 AND THAT IF AT ALL THERE WAS DAMAGE CAUSED TO THE GOODS IT WAS IN THE YEAR 1983 AND THE MATTER WAS ALSO SETTLED LATER IN JANUARY, 1986. HOWEVER, THE ASSESSEE CLAIM ED DEDUCTION FOR THE AY. 1988-89 FOR A LIABILITY WHICH HAD ARISEN IN AN EARLIER YEAR. FURT HER, IT MAY ALSO BE NOTED THAT THE GOODS NEVER BELONGED TO THE ASSESSEE AND THE VALUE OF THE GOODS WAS NOT CREDITED IN THE ASSESSEE' S BOOKS. IT CANNOT, THEREFORE, BE SAID THAT THERE WAS A BAD DEB T. FURTHER, THE AMOUNT WAS ALSO NOT DUE FROM KSDCL TO THE ASSESSEE, BUT CLAIMED AS PAYABLE BY TH E ASSESSEE TO THEM. THEREFORE, IT CANNOT BE CONSIDERED AS BAD DEBT DUE TO THE ASSESSEE WITHIN T HE MEANING OF SECTION 36(2) OF THE ACT. 3615,3616&351/M/16(07-08,08-09&09-10) M/S. S.K. SILKS 7 WE WOULD ALSO LIKE TO REFER TO THE CASE OF KANCHANJ UNGA ADVERTISING P LTD.(340ITR 595)OF THE HONBLE DELHI HIGH COURT.FACTS OF THE CASE WERE THA T IN ITS RETURN FOR THE AY. 2000-01 THE ASSESSEE-COMPANY CLAIMED DEDUCTION BY WAY OF BAD DE BTS. IN RESPECT OF THE ASSESSEES CLAIM FOR DEDUCTION OF RS. 50 LAKHS AS BAD DEBTS IN THE ACCOU NT OF D, THE ASSESSEE EXPLAINED THAT IT HAD DEPOSITED THE SUM WITH D AS SHARE APPLICATION MONEY BUT SINCE NO SHARES WERE ALLOTTED TO THE ASSESSEE,THE ASSESSEE BY A LETTER TO D, EXERCISED T HE OPTION OF CONVERTING THE SHARE APPLICATION MONEY INTO LOAN BEARING INTEREST AT 22%COMPOUNDED Q UARTERLY, THAT SINCE THE ASSESSEE RECEIVED NO RESPONSE IT WROTE OFF THE AMOUNT AS D HAD NOT EV EN ACKNOWLEDGED THE AMOUNT AS A DEBT AND THE ASSESSEE WAS LEFT WITH NO CHANCE OF RECOVERY. T HE AO REJECTED THE CLAIM. ON APPEAL, THE FAA DIRECTED THE AO TO ALLOW THE CLAIM OF BAD DEBTS.THE DEPARTMENT FILED AN APPEAL TO THE TRIBUNAL WHICH ALLOWED THE APPEAL FINDING, INTER ALIA, THAT THE LOAN HAD NOT BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE FOR ANY EARLIE R YEAR, A CONDITION TO BE SATISFIED U/S.36(2)(I) OF THE ACT IN ORDER TO OBTAIN DEDUCTION AS A BAD DE BT,THAT THE DEPOSIT OF RS. 50 LAKHS AS SHARE APPLICATION MONEY WAS MADE TO ACQUIRE A CAPITAL ASS ET AND DID NOT REPRESENT MONIES LENT IN THE ORDINARY COURSE OF ADVERTISING, FINANCING OR MONEY- LENDING BUSINESS. THE HIGH COURT AFFIRMED THE ORDER OF THE TRIBUNAL AND HELD AS FOLLOW: IT WAS OPEN TO THE ASSESSEE TO SHOW THAT THE DEBT HAD BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE EARLIER YEAR OR YEARS OR OF THE YEAR UNDER CONSIDERATION, EVEN IN THE PENALTY PROCEEDINGS.HOWEVER, NO MATERIAL WAS BROUGHT BY THE ASSESSEE IN THE COURSE OF THE PENALTY PROCEEDINGS OR IN THE COURSE OF THE HEARING OF THE APPEAL TO SHOW THAT THE DEBT HAD BEEN TAKEN INTO ACCOUNT IN THE MANNER REQUIRED BY SECTION 36(2 )(I) OF THE ACT. 2.3.3. FOLLOWING ARE THE SOME OF THE PRINCIPLES,LAID DOWN BY HONBLE COURTS,THAT GOVERN THE SECTION 36(2) OF THE ACT. I).THERE IS NOTHING IN SECTION 36(2) TO INDICATE TH AT 'ASSESSEE' REFERS TO THE ORIGINAL CREDITOR AND DOES NOT INCLUDE A TRANSFEREE OR ASSIGNEE OF THE DE BT.THE CONDITION WHICH HAS BEEN EXPRESSLY INCORPORATED IN SECTION 36 IS THAT THE AMOUNT OF TH E DEBT OR PART THEREOF SHOULD HAVE BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSE E IN A PREVIOUS YEAR. THE EMPHASIS IS NOT ON THE ASSESSEE BEING THE ORIGINAL CREDITOR BUT THE TA KING INTO ACCOUNT OF THE DEBT IN COMPUTING THE INCOME OF THE SAME BUSINESS. IF, IN A GIVEN CASE, T HE INCOME OF A BUSINESS IS COMPUTED BY TAKING INTO ACCOUNT A CERTAIN DEBT, IT DOES NOT APPEAR REA SONABLE THAT, IN THE ABSENCE OF ANY STATUTORY 3615,3616&351/M/16(07-08,08-09&09-10) M/S. S.K. SILKS 8 PROHIBITION, ALLOWANCE ON ACCOUNT OF THE DEBT HAVIN G BECOME BAD SHOULD BE DENIED ONLY BECAUSE THE ASSESSEE'S IDENTITY HAS CHANGED THOUGH THE IDEN TITY OF THE BUSINESS CONTINUES. II).WHETHER A DEBT HAD BECOME BAD OR THE POINT OF T IME WHEN IT BECAME BAD ARE ESSENTIALLY QUESTIONS OF FACT. III. FOR DISENTITLING AN ASSESSEE FOR A DEDUCTION B Y WAY OF BAD DEBT AS STIPULATED U/S.36(2)(I) OF THE ACT,IT WILL HAVE TO BE SHOWN THAT SUCH CLAIM WA S NOT TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR OR ON A N EARLIER PREVIOUS YEAR, IN WHICH THE AMOUNT OF SUCH BAD DEBT WAS WRITTEN OFF. IV.MERELY BECAUSE THE MONEY-LENDING BUSINESS IS SUB SEQUENTLY DISCONTINUED,IT CANNOT NOT BE HELD THAT THE ASSESSEE WOULD BE DISENTITLED TO CLAIM SUC H A DEDUCTION,THOUGH SUCH CLAIM AS BAD DEBT WAS, AS A MATTER OF FACT, NOT IN DISPUTE. V.UNDER SUB-SECTION (2) OF SECTION 36, MERELY WRITI NG OFF ANY AMOUNT AS A BAD DEBT IN THE BOOKS OF ACCOUNT WOULD NOT IPSO FACTO RESULT IN DEDUCTING THE SAID SUM WHILE COMPUTING THE TAXABLE INCOME IN ACCORDANCE WITH THE PROVISIONS OF THE ACT . THE REQUIREMENT OF SUB-SECTION (2) IS TO BE ESTABLISHED EVEN IN A CASE WHERE A SUM IS WRITTEN O FF IN THE BOOKS OF ACCOUNT. THE ENQUIRY INTO THE CONDITION REQUIRED UNDER SUB-SECTION (2) IS STI LL TO BE MADE BUT SUCH INQUIRY IS TO BE MADE ONLY WHEN THE DEBT IS WRITTEN OFF IN THE BOOKS OF A CCOUNT. IT IS A CONDITION PRECEDENT BEFORE ANY CLAIM FOR DEDUCTION ON ACCOUNT OF DEBT BECOMING BAD IS INQUIRED INTO. IN THE ABSENCE OF SUCH ENTRIES MADE IN THE BOOKS OF ACCOUNT, THE PROCESS O F EXAMINING THE CLAIM WITH REFERENCE TO SUB- SECTION (2) OF SECTION 36 WOULD NOT COMMENCE. VI.THERE IS A DISTINCTION BETWEEN GIVING UP A CLAIM OR WAIVER OF A CLAIM AND A FAILURE TO RECOVER THE CLAIM. IN THIS CASE, AN ATTEMPT WAS MADE TO REC OVER THE SAME BUT FAILURE TO RECOVER IT WOULD NOT AMOUNT TO WAIVER OR FORGOING OF THE CLAIM ITSEL F IN VIEW OF THE PROVISIONS CONTAINED IN THE ARBITRATION ACT.IF NO COLLUSION BETWEEN THE ASSESSE E AND ITS DEBTOR IS ESTABLISHED OR FOUND BY ANY OF THE AUTHORITIES IRRECOVERABILITY COULD NOT BE QU ESTIONED AND AS SUCH THE IRRECOVERABLE PART EXCLUDED IN THE AWARD, MAY SATISFY THE INGREDIENTS OF SECTION 36(2) OF THE ACT AND CAN BE TREATED BAD DEBT FOR CLAIMING DEDUCTION U/S.36(1)(VII). VII.IF SHARES ARE NOT TREATED AS STOCK-IN-TRADE BY AN ASSESSEE BUT AS INVESTMENTS IN THE BOOKS OF ACCOUNT, THE WRITING OFF MADE BY THE ASSESSEE OF SU CH SHARES CANNOT BE CLAIMED U/S.36 OF THE ACT. VIII.BAD DEBTS SHOULD BE WRITTEN OFF WHEN ACCOUNTS ARE MADE UP. 3615,3616&351/M/16(07-08,08-09&09-10) M/S. S.K. SILKS 9 IX.IF A BUSINESS, ALONG WITH ITS ASSETS AND LIABILI TIES, IS TRANSFERRED BY ONE OWNER TO ANOTHER, THE DEBT SO TRANSFERRED BY ONE OWNER SHOULD BE ENTITLED TO THE SAME TREATMENT IN THE HANDS OF THE SUCCESSOR. THE RECOVERY OF THE DEBT IS A RIGHT TRAN SFERRED ALONG WITH THE NUMEROUS OTHER RIGHTS COMPRISING THE SUBJECT OF THE TRANSFER.IT IS MERELY AN INCIDENT FLOWING FROM THE TRANSFER OF THE BUSINESS, TOGETHER WITH ITS ASSETS AND LIABILITIES, FROM THE PREVIOUS OWNER TO THE TRANSFEREE. IT IS A RIGHT WHICH SHOULD, ON A PROPER APPRECIATION OF ALL THAT IS IMPLIED IN THE TRANSFER OF A BUSINESS, BE REGARDED AS BELONGING TO THE NEW OWNER. 2.3.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PERUSE D THE MATERIAL BEFORE US.WE FIND THAT THE ASSESSEE HAD CLAIMED BAD DEBTS FOR THE SUMS OUT STANDING FROM SEVEN FOREIGN PARTIES AS WELL AS FOR FREIGHT CHARGES PAID ON BEHALF OF ROKKO SAREES AND FABRICS LTD.,THAT THE BAD DEBTS CLAIMED ABOUT THE FOREIGN PARTIES PERTAINED TO AY.1994-95 T O 99-00,THAT IT DID NOT FILE ANY DOCUMENTARY EVIDENCE ABOUT OFFERING THE INCOME,THAT REPRESENTED BAD DEBTS,BEFORE THE AO OR THE FAA.FROM THE RECORDS IT IS CLEAR THAT BAD DEBTS CLAIMED BY T HE ASSESSEE ARE FOR THOSE AY.S.,WHEN THE EXPORT WAS 100% FREE AND GENERALLY THE EXPORT WERE MADE AG AINST LCS.THE ASSESSE HAD CLAIMED DEDUCTION U/S.80HHC FOR THE EXPORTS MADE.IF IT HAD NOT RECEIVED MONEY FROM OVERSEAS PARTIES IT SHOULD HAVE REVISED THE CLAIM MADE BY IT.IN ABSENCE OF ANY DOCUMENTARY EVIDENCE TO PROVE NON REALISATION OF EXPORTS PROCEEDS CLAIM MADE BY IT UN DER THE HEAD BAD DEBTS CANNOT BE ACCEPTED.BEFORE BECOMING BAD DEBT,IT SHOULD BE A DE BT.IT IS THE DUTY OF THE ASSESSEE TO SUPPORT ITS CLAIM BY DOCUMENTARY EVIDENCES WHENEVER IT STATES T HAT CERTAIN EXPENSES WERE INCURRED FOR CARRYING OUT ITS NORMAL BUSINESS OR WHENEVER ANY CL AIM FOR DEDUCTION/REBATE/EXEMPTION IS MADE.ONUS IS ALWAYS ON ASSESSEE TO PROVE ITS CLAIM. IN THE CASE BEFORE US,BOTH THE REVENUE AUTHORITIES HAVE GIVEN A CATEGORICAL FINDING OF FAC TS THAT NO RELIABLE EVIDENCE WAS PRODUCED BEFORE THEM TO PROVE THAT DISPUTED AMOUNTS HAVE TUR NED IN TO BAD DEBTS.THERE IS A LONG GAP BETWEEN THE ALLEGED SUMS BECOMING BAD DEBTS AND THE IR WRITING OFF. FOR MORE THAN A DECADE THE ASSESSEE SAT QUIETLY AND SUDDENLY,IN THE YEAR UNDER APPEAL,CLAIMED THAT CERTAIN SUMS SHOULD BE TREATED AS BAD DEBTS.IT WAS ARGUED THAT SWEET-WILL OF THE ASSESSEE DECIDES THE ISSUE OF TIME OF WRITING OFF OF BAD DEBTS.WE ARE OF THE OPINION THAT WILL OF THE SOVEREIGN WILL PREVAIL OVER THE WILL OF ITS SUBJECTS.WRITING OFF OF BAD DEBTS AND CLAIMING DEDUCTION FOR IT ARE TWO DIFFERENT STEPS AND HAVE DIFFERENT CONSEQUENCES.IN FIRS SITUATION O NLY ASSESSEE IS INVOLVED. BUT,IN SECOND SITUATION STATE ALSO HAS STAKES.LEGISLATURE IN ITS WISDOM HAS LAID DOWN CERTAIN CONDITIONS U/S.36 OF THE ACT AND THOSE PROVISIONS GOVERN THE WRITING OFF OF BAD DEBTS AND NOT THE SWEET WILL OF THE 3615,3616&351/M/16(07-08,08-09&09-10) M/S. S.K. SILKS 10 ASSESSEES.THE PROVISIONS OF THE IMPUGNED SECTION ST IPULATE THAT FOR CLAIMING DEDUCTION THE ASSESSEE SHOULD ESTABLISH THAT AMOUNT IN QUESTION W AS NOT RECEIVED.IT WAS CLAIMED THAT IT DID NOT POSSESS DOCUMENTS PRIOR TO AY.2001-02.IN OUR OPINIO N,NOTHING PREVENTED IT TO CLAIM DEDUCTION IN THE YEAR 2001-02.GENUINENESS OF THE CLAIM MADE B Y THE ASSESSEE HAS NOT BEEN PROVED BY IT. AS FAR AS BAD DEBTS OF ROKKO SAREES AND FABRICS LTD.AR E CONCERNED IT IS FOUND THAT THE DISPUTED SUM WAS NOT A PART OF THE P&L ACCOUNT.THEREFORE,NONE OF THE CLAIMS MADE BY THE ASSESSEE CAN BE ALLOWED. IN THE CASES RELIED UPON BY THE ASSESSEE THE BASIC FACT OF A DEBT AND ITS BECOMING OF BAD DEBT WAS NOT DOUBTFUL.IN THE MATTER OF NILOFOR I SINGH(SUPRA ) THE ASSESSEE HAD WRITTEN OFF THE BAD DEBT AS IRRECOVERABLE IN HER ACCOUNTS IN THE RELEVANT PREVI OUS YEAR.THE CLAIM OF BAD DEBTS WAS DISALLOWED BY THE AO ON THE GROUND THAT THE RESERVE BANK OF INDIAS PERMISSION TO WRITE OFF THE AMOUNT WAS COMMUNICATED BY THE ASSESSEES BANK TO T HE ASSESSEE IN THE YEAR.UPHOLDING THE ORDER OF THE TRIBUNAL,THE HONBLE DELHI HIGH COURT HELD THAT THE RBI HAD ALREADY TAKEN THE DECISION FOR GRANTING PERMISSION TO WRITE OFF THE A MOUNT. HOWEVER, THIS WAS NOT A RELEVANT CONSIDERATION BECAUSE THE ASSESSEE HAD WRITTEN OFF THE BAD DEBT AS IRRECOVERABLE IN HER ACCOUNTS. THUS,IN OUR OPINION, FACTS OF BOTH THE CASES ARE TO TALLY DIFFERENT.IN THE CASE OF TRF(SUPRA)THE HONBLE APEX COURT HAD LAID DOWN CERTAIN PRINCIPLES .THE FACTS OF THE MATTER UNDER APPEAL DO NOT HAVE SIMILARITY WITH THE FACTS OF THAT CASE.CONSIDE RING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE OPINION THAT THE ORDER OF THE FA A DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.CONFIRMING HIS ORDER,WE DECIDE FIRST GROU ND OF APPEAL AGAINST THE ASSESSEE. 3. SECOND GROUND IS ABOUT DENYING CLAIM ON ACCOUNT OF EXPORT INCENTIVES WRITTEN OFF OF RS. 24.77 LAKHS. DURING THE ASSESSMENT PROCEEDINGS, THE AO FO UND THAT THE ASSESSEE HAD CLAIMED DEDUCTION OF RS.24,77,199/- ON ACCOUNT OF WRITING OFF OF BALA NCES OF DEPB/DRAWBACK/DFRC RECEIVABLES IN THE CURRENT YEAR,THAT THE RECEIVABLES RELATED TO AY .S.1995-96 AND 1996-1997, THAT IT HAD CLAIMED 100%DEDUCTION U/S. 80HHC ,ON THE RECEIVABLES,ON ACC RUAL BASIS. ON BEING ASKED AS TO ELIGIBILITY OF DEDUCTION, THE ASSESSEE EXPLAINED THAT SUPPLIER DID NOT ISSUE THE REQUIRED CERTIFICATE WHICH WAS NEEDED TO BE SUBMITTED FOR RECEIVING THE INCENTIVES . THE AO HELD THAT CLAIM MADE BY THE ASSESSEE WAS NOT TENABLE, THAT IT HAD THE BALANCES LYING IN ITS BALANCE SHEET OVER A PERIOD OF 10 YEARS, THAT WHEN THE DEDUCTION U/S. 80HHC WAS NO MO RE AVAILABLE TO IT AMOUNTS WERE WRITTEN OFF AND WERE CLAIMED AS DEDUCTION AGAINST THE INCOME LI ABLE TO BE TAXED, THAT NO TAX WAS PAID ON THE RECEIVABLES IN THE RESPECTIVE YEARS,THAT IT WAS NOT ENTITLED FOR ANY DEDUCTION FOR THE RECEIVABLES IN 3615,3616&351/M/16(07-08,08-09&09-10) M/S. S.K. SILKS 11 QUESTION,THAT IT HAD NOT FULFILLED THE CONDITIONS,T HAT IT HAD ATTEMPTED TO REDUCE TAX TAXABLE INCOME OF THE YEAR UNDER CONSIDERATION BY MAKING UNSUSTAIN ABLE CLAIM AFTER A PERIOD OF 10 YEARS.FINALLY,HE DISALLOWED THE CLAIM MADE BY THE A SSESSEE. 3.1. DURING THE APPELLATE PROCEEDINGS,THE FAA DIRECTED T HE ASSESEE TO SUBMIT NECESSARY DETAILS ABOUT CRYSTALLISATION AND ENTITLEMENTS OF DEPB/DRAW BACK/DFRC RECEIVABLES AND TO PRODUCE DOCUMENTARY EVIDENCES IN THAT REGARD.HE DIRECTED IT TO FURNISH THE COMMUNICATION FROM THE GOVERNMENT REFUSING THE ENTITLEMENTS.AS PER THE FAA , THE ASSESSEE DID NOT PRODUCE ANY EVIDENCE IN ITS SUPPORT.HE HELD THAT THE ASSESSEE HAD WRITTE N OF OUTSTANDING BALANCES ON ACCOUNT OF DEPB/ DRAWBACK/DFRC RECEIVABLES, THAT THE CLAIMS RELATED TO AY.S 1995/96 AND 1996/97, THAT THERE WAS NO EVIDENCE THAT THE ASSESSEE WAS ENTITLED FOR THE BENEFITS, THAT IT HAD NOT PRODUCED ANY EVIDENCE THAT THE GOVERNMENT HAD REFUSED ITS LAWFUL CLAIM,TH AT IT WAS SPECIFICALLY ASKED TO PRODUCE NECESSARY DOCUMENTATION DURING THE APPELLATE PROCEE DINGS. 3.2.BEFORE US,THE AR CONTENDED THAT AMOUNTS DUE FRO M THE GOVERNMENT WERE NOT RECIEVED.THE DR SUPPORTED THE ORDER OF THE FAA.WE FIND THAT THE FAA HAD SPECIFICALLY ASKED THE ASSESSEE TO FURNISH EVIDENCE IN ITS SUPPORT.BUT,IT HAD FAILED T O PRODUCE ANY EVIDENCE IN THAT REGARD.AS DISCUSSED IN EARLIER PARAGRAPHS,IT IS THE DUTY OF T HE ASSESSEE TO FURNISH DOCUMENTARY OR OTHER EVIDENCE TO CLAIM ANY DEDUCTION.IN THE CASE BEFORE US, EXCEPT MAKING A CLAIM IT HAS NOT DONE NOTHING TO SUPPORT ITS CLAIM.THEREFORE,WE ARE OF TH E OPINION THAT THE ORDER OF THE FAA DOES NOT SUFFER FROM ANY LEGAL OR FACTUAL INFIRMITY.CONFIRMI NG THE SAME,WE DECIDE SECOND GROUND OF APPEAL AGAINST THE ASSESSEE. 4. LAST GROUND OF APPEAL DEALS WITH DISALLOWANCE OF 20 %OF SERVICE CHARGES PAID BY THE ASSESSEE TO ITS SISTER CONCERN.DURING THE ASSESSMENT PROCEEDING S THE AO FOUND THAT THE ASSESSEE HAD DEBITED AND AMOUNT OF RS.30.52 LAKHS ON ACCOUNT OF SERVICES CONTRACT CHARGES UNDER THE HEAD ADMINISTRATIVE EXPENSES, THAT THE CHARGES WERE PAID TO SKY INDUSTRIES LTD.(SIL).HE DIRECTED THE ASSESSEE TO JUSTIFY THE PAYMENT. AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE,T HE AO HELD THAT WHILE DECIDING THE APPEAL FILED BY THE ASSESSEE FOR THE AY. 2006-07,THE TRIBU NAL HAD CONFIRMED DISALLOWS AT THE RATE OF 20% UNDER THE SAME HEAD.ACCORDINGLY,HE MADE DISALLO WANCE OF RS.30,50,882/-. 3615,3616&351/M/16(07-08,08-09&09-10) M/S. S.K. SILKS 12 4.1. AGGRIEVED BY THE ORDER OF THE AO,THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE FAA.IT WAS ARGUED THAT EACH YEAR WAS A SEPARATE YEAR,THAT THER E WAS NO JUSTIFICATION FOR FOLLOWING THE ORDER OF THE EARLIER YEAR, THAT THE ASSESSEE HAD CLAIMED SERVICE CHARGES AGAINST THE TOTAL TURNOVER OF RS. 9.56 CRORES,THAT IN THE EARLIER YEAR TOTAL TURNOVER WAS OF RS. 8.62 CRORES, THAT THE EXPENSES WERE INCURRED FOR GENUINE NEEDS OF THE BUSINESS OF THE A SSESSEE.AFTER CONSIDERING THE ASSESSMENT ORDER AND THE SUBMISSION OF THE ASSESSEE,THE FAA HELD THA T THE TRIBUNAL HAD UPHELD THE DISALLOWANCE AT THE RATE OF 20% IN THE EARLIER AY., 4.2. BEFORE US,THE AR MADE THE SAME SUBMISSIONS THAT WER E MADE FOR THE FIRST GROUND OF APPEAL. THE DR SUPPORTED THE ORDER OF THE AO AND THE FAA. WE FIND THAT WHILE DECIDING THE SIMILAR ISSUE FOR T HE EARLIER ASSESSMENT YEAR,THE TRIBUNAL HAD UPHELD THE DISALLOWANCE AT THE RATE OF 20%, THAT TH E ADMINISTRATIVE EXPENSES INCURRED DURING THE YEAR WERE ON HIGHER SIDE AS COMPARED TO EXPENSES OF PREVIOUS ASSESSMENT YEAR.THE RULE OF CONSISTENCY IS APPLICABLE TO AO AS WELL AS TO THE A SSESSEE. NOTHING WAS BROUGHT ON RECORD BEFORE US TO DISTINGUISH AS TO HOW THE FACTS OF THE AY.200 6-07 WERE NOT SIMILAR TO THE FACTS FOR THE YEAR UNDER APPEAL. IN ABSENCE OF DISSIMILARITY OF THE FA CTS, WE ARE OF THE OPINION THAT ORDER OF THE TRIBUNAL FOR THE EARLIER YEARS SHOULD NOT BE DISTUR BED.THEREFORE,CONFIRMING THE ORDER OF THE FAA, WE DISMISS THE LAST GROUND OF APPEAL RAISED BY THE ASSESSEE. ITA/3616/MUM/2013,AY.2008-09: 5. GOA-1 AND 2 FOR THE YEAR ARE ABOUT REJECTING CLAIM OF BAD DEBTS(RS.11.11 LAKHS,U/S.36 OF THE ACT)AND CONFIRMING THE DISALLOWANCE OF 20%OF SERVIC E CHARGES.WHILE ADJUDICATING THE APPEALS FOR THE EARLIER YEAR,WE HAVE DISMISSED BOTH THE GRO UNDS,RAISED BY THE ASSESSEE.FOLLOWING THE SAME,GROUNDS NO.1 AND 2 ARE DECIDED AGAINST IT. 6. THIRD GROUND DEALS WITH DISALLOWANCE OF 15% OF CERT AIN EXPENSES INCURRED IN CASH ON AD HOC BASIS.DURING THE ASSESSMENT PROCEEDINGS, THE AO FO UND THAT THE ASSESSEE HAD INCURRED CERTAIN EXPENSES ON THE BASIS OF SELF MADE CASH VOUCHERS UN DER SEVERAL HEADS.HE OBSERVED THAT COMPLETE VERIFICATION OF SUCH EXPENSES WAS NOT POSSIBLE.THER EFORE,HE MADE A DISALLOWANCE AT THE RATE OF 15% ON AD HOC BASIS. 3615,3616&351/M/16(07-08,08-09&09-10) M/S. S.K. SILKS 13 6.1. BEFORE THE FAA,THE ASSESSEE,FILED ADDITIONAL GROUND OF APPEAL WITH REGARD TO ADHOC DISALLOWANCE.IT WAS BROUGHT TO OUR NOTICE THAT THE FAA DID NOT ADJUDICATE THE SAID GROUND.IN OUR OPINION,IN THE INTEREST OF JUSTICE,MATTER SHOULD BE RESTORED BACK TO THE FILE OF THE FAA FOR FRESH HEARING.HE IS DIRECTED TO DECIDE THE ISSUE AFTER HE ARING THE ASSESSEE.GROUND NO.3 IS DECIDED IN FAVOUR OF THE ASSESSEE,IN PART. ITA/351/MUM/2013,AY.2009-10 7. FIRST GROUND DEALS WITH DISALLOWANCE OF SERVICE CHA RGES @20%.WHILE DECIDING THE APPEALS FOR THE EARLIER TWO AY.S.,WE HAVE DISMISSED THE IDENTIC AL GROUND.FOLLOWING THE SAME,FIRST GROUND OF APPEAL IS DECIDED AGAINST THE ASSESSEE. 8. DISALLOWANCE OF CASH EXPENSES @15%,AMOUNTING TO RS. 1,00,909/-IS THE SUBJECT MATTER OF SECOND GROUND OF APPEAL. DURING THE ASSESSMENT PROC EEDINGS THE AO FOUND THAT THE ASSESSEE HAD INCURRED CERTAIN EXPENSES IN CASH, THAT ASSESSEE HA D PREPARED SELF-MADE CASH VOUCHERS IN THAT REGARD. HE OBSERVED THAT COMPLETE VERIFICATION OF S ELF-MADE CASH VOUCHERS WAS NOT POSSIBLE. ACCORDINGLY, HE DISALLOWED 15% OF THE EXPENSES AND ADDED IT TO THE TOTAL INCOME OF THE ASSESSEE. 8.1. DURING THE APPELLATE PROCEEDINGS,BEFORE THE FAA,THE ASSESSEE ARGUED THAT AD HOC DISALLOW - ANCE MADE BY THE ASSESSEE WAS NOT JUSTIFIED, THAT T HE AO HAD NOT BEEN ABLE TO QUANTIFY ANY PARTICULAR ITEM OF DEDUCTION AS EXPENDITURE AS THIS ALLOWABLE ITEM, THAT NO SPECIFIC DEFECT HAD BEEN POINTED OUT OR SPECIFIC ADDITION WAS MADE OTHE R THAN MAKING GENERAL STATEMENT AS TO THE AUTHENTICITY OF THE EXPENSES.AFTER CONSIDERING THE AVAILABLE MATERIAL, THE FAA HELD THAT THE AO HAD MADE DISALLOWANCE OUT OF CASH EXPENSES ONLY, TH AT SELF-MADE VOUCHERS DID NOT PROVIDE ANY AUTHENTICITY, THAT THE AO HAD MENTIONED THAT SAID I SSUE WAS DISCUSSED WITH THE AR OF THE ASSESSEE ON 12/10/2011, THAT THE DISALLOWANCE OF RS . 1 LAKH APPROXIMATELY WAS NOT UNREASONABLE AND LIGHT OF THE TOTAL TURNOVER OF RS. 9.60 CRORE. FINALLY, HE UPHELD THE ORDER OF THE AO. 8.2. BEFORE US, THE AR ARGUED THAT NO DEFECTS WERE POINT ED OUT IN THE BOOKS OF ACCOUNTS MAINTAINED BY THE ASSESSEE, BY THE AO, THAT EXPENDI TURE WAS INCURRED FOR BUSINESS PURPOSES. THE DR SUPPORTED THE ORDER OF THE FAA. WE FIND THAT THE AO HAD DISALLOWED AN AMOUNT OF RS. 1,00,909/- OUT OF THE VARIOUS EXPENSES,AS THE ASSESSEE HAD INCURRED THE EXPENSES IN CASH AND HAD PRODUCED SELF MADE VOUCHERS.IN OUR 3615,3616&351/M/16(07-08,08-09&09-10) M/S. S.K. SILKS 14 OPINION,WITHOUT REJECTING THE BOOKS OF ACCOUNTS AND POINTING OUT THE DEFECTS IN METHOD OF ACCOUNTING AUDITED ACCOUNTS SHOULD NOT BE REJECTED ON AD HOC BASIS.IT IS NOT KNOWN AS TO WHAT HAD HAPPENED ON 12.10.2011,WHEN THE MATTER WAS DISC USSED WITH THE AR OF THE ASSESSEE. CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE,WE ARE OF THE OPINION THAT AD HOC DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE FA A WAS NOT ON SOUND FOOTING.SO,REVERSING THE ORDER OF THE FAA,WE DECIDE SECOND GROUND IN FAV OUR OF THE ASSESSEE. 9. LAST GROUND PERTAINS TO LEVY OF INTERESTS U/S.234 O F THE ACT.AS THE ISSUE OF LEVY OF INTEREST IS OF CONSEQUENTIAL NATURE,SO,WE ARE NOT ADJUDICATING IT. AS A RESULT,APPEAL FIELD BY THE ASSESSEE FOR THE AY .2007-08 STANDS DISALLOWED.APPEALS FOR THE REMAINING TWO AY.S.ARE PARTLY ALLOWED. . .2007-08 . . ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD MAY, 2017. 3 , 2017 SD/- SD/- ( / RAM LAL NEGI ) ( / RAJENDRA ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED : 03.05 .2017. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR A BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.