ALLIED DIGITAL SERVICES LTD, MUMBAI V. DCIT CEN CIR 3, MUMBAI

ITA 3569/MUM/2016

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 6698 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 23-05-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: R P MEENA
• Keywords: Bogus purchase; Unexplained expenditure; Depreciation; Search and seizure; Earning of tax free income; Bad and doubtful debts; Retraction
• Section: 143(3); 153A; 14A; 115JB; 133(6); 37(1); 132; 15

Judgement Text

IN THE INCOME-TAX APPELLATE TRIBUNAL A BENCH MUMB AI BEFORE SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER ITA NO.3569/MUM/2016 (ASSESSMENT YEAR 201 0-11 ) M/S ALLIED DIGITAL SERVICES LTD. 13A, 13 TH FLOOR, EARNEST HOUSE, NCPA, NARIMAN POINT, MUMBAI-400020. PAN: AAACA5509K VS. DCIT, CC- 3 , MUMBAI. APPELLANT RESPONDENT ITA NO.3570/MUM/2016 (ASSESSMENT YEAR 201 1-12 ) M/S ALLIED DIGITAL SERVICES LTD. 13A, 13 TH FLOOR, EARNEST HOUSE, NCPA, NARIMAN POINT, MUMBAI-400020. PAN: AAACA5509K VS. DCIT, CC- 3, MUMBAI. APPELLANT RESPOND ENT APPELLANT BY : SHRI RAKESH JOSHI (AR) RESPONDENT BY : SHRI R.P. MEENA (CIT-DR) DATE OF HEARING : 03.05.2018 DATE OF PRONOUNCEMEN T : 29.06.2018 ORDER UNDER SECTION 254(1) OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER ; 1. THE AFORESAID TWO APPEAL BY ASSESSEE UNDER SECTION 253 OF THE INCOME-TAX ACT (THE ACT) ARE DIRECTED AGAINST THE SEPARATE ORD ER OF LD. COMMISSIONER OF INCOME-TAX (APPEALS)-47 [LD. CIT(A)], MUMBAI DAT ED 21.03.2016 FOR ASSESSMENT YEAR 2010-11 & 2011-12. IN APPEAL FOR AS SESSMENT YEAR 2010-11, THE ASSESSEE HAS RAISED THE FOLLOWING GROU NDS OF APPEAL: 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNE D ASSESSING OFFICER IN MAKING AN ADDITION OF RS.5,35,91,882/- ON ACCOUNT O F ALLEGED BOGUS PURCHASES, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 2 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNE D ASSESSING OFFICER IN NOT APPRECIATING THE FACT THAT THERE WERE CORRESPONDING SALES FOR ALL THE PURCHASES MADE THAT WERE DOUBTED AND IF THE PURCHASES ITSELF WERE DOUBTED, THEN THERE WAS NO QUESTION OF THE SALES HAVING BEEN EFFECTED. 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNE D ASSESSING OFFICER IN DISALLOWING THE EXPENSES U/S.14A OF THE INCOME TAX ACT, 1961 AS PER RULE 8D, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LEARNED CIT(A) AS WELL AS LEARNED ASSESSING OFFICER HAS ERR ED IN NOT APPRECIATING THE FACT THAT WHILE COMPUTING THE DISALLOWANCE AS PER R ULE 8D THE INTEREST EXPENSES IS TO BE CONSIDERED AFTER NETTING OF THE I NTEREST INCOME. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF INFORMATION TECHNOLOGY SOLUTION, FILED ITS RETURN O F INCOME FOR ASSESSMENT YEAR 2010-11 ON 15.10.2010 DECLARING TOTAL INCOME A T RS. 68,39,51,700/-. A SEARCH AND SEIZURE ACTION UNDER SECTION 132 WAS C ONDUCTED AT THE PREMISES OF ASSESSEE ON 04.02.2011. CONSEQUENT UPON SEARCH A NOTICE UNDER SECTION 153A DATED 03.02.2012 WAS SERVED UPON THE ASSESSEE TO FILE RETURN OF INCOME WITHIN 30 DAYS. IN RESPONSE TO THE NOTICE UNDER SECTION 153A THE ASSESSEE FILED RETURN OF INCOME ON 23.07.2 011 DECLARING TOTAL INCOME AT RS. 68,82,77,358/-. AGAIN A SURVEY ACTION WAS CARRIED ON 24.12.2012 AT THE PREMISES OF ASSESSEE, THEREAFTER THE ASSESSEE AGAIN FILED REVISED COMPUTATION OF INCOME ON 10.01.2013 BY REVE RSING THE DEPRECIATION CLAIMED IN THE ORIGINAL RETURN AND DEC LARED INCOME AT RS. 71,42,63,692/-. THE ASSESSMENT WAS COMPLETED BY ASS ESSING OFFICER UNDER SECTION 143(3) R.W.S. 153A ON 28.03.2013. THE ASSES SING OFFICER WHILE FRAMING THE ASSESSMENT ORDER MADE THE ADDITION ON A CCOUNT OF BOGUS ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 3 PURCHASES OF RS. 5,35,91,882/- AND DISALLOWANCE UND ER SECTION 14A FOR RS. 1,25,66,049/-. ON APPEAL BEFORE THE LD. CIT(A), THE ADDITION ON ACCOUNT OF BOGUS PURCHASES WAS SUSTAINED. HOWEVER, THE ADDITIO N ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D, THE DI SALLOWANCE OF INTEREST EXPENSES UNDER RULE 8D(2)(II) FOR RS. 10,04,74,536/ - WAS DELETED. HOWEVER, THE DISALLOWANCE UNDER RULE 8D(2)(III) WAS DIRECTED TO RE- COMPUTE THE DISALLOWANCE AFTER EXCLUDING THE INVEST MENT IN FOREIGN SUBSIDIARIES. THEREFORE, FURTHER AGGRIEVED BY THE O RDER OF LD. CIT (A), THE ASSESSEE FILED THE APPEAL BEFORE THE TRIBUNAL. 3. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE (AR ) OF THE ASSESSEE AND LD. DEPARTMENTAL REPRESENTATIVE (DR) FOR THE REVENU E AND PERUSED THE MATERIAL AVAILABLE ON RECORD. GROUND NO. 1 & 2 RELA TES TO ADDITION ON ACCOUNT OF BOGUS PURCHASES. THE LD. AR OF THE ASSES SEE SUBMITS THAT ALL PURCHASES ARE SHOWN IN THE BOOKS OF ACCOUNT. THE AS SESSEE FURNISHED ALL THE DETAILS REGARDING PURCHASES AND CORRESPONDING S ALE OF MATERIAL. THE PURCHASES RECORDED IN THE BOOKS OF ACCOUNT CANNOT B E CALLED UNEXPLAINED PURCHASES, THEREFORE, NO DISALLOWANCE ON ACCOUNT OF BOGUS PURCHASES ARE MADE OUT. THE SALES OF THE ASSESSEE HAVE NOT BEEN D ISPUTED BY ASSESSING OFFICER. THE EXPLANATION OF THE ASSESSEE IS THAT AL L MATERIAL PURCHASED ARE TALLIED WITH THE SALES, ARE NOT REJECTED BY ASSESSI NG OFFICER. THE BOOKS OF ACCOUNTS OF THE ASSESSEE WERE NOT REJECTED BY THE A SSESSING OFFICER. THE ASSESSING OFFICER HAS NOT PROVED THAT PURCHASES OR PURCHASE PARTY ARE ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 4 FICTITIOUS. ONCE THE SALES ARE ACCEPTED AS GENUINE, THE PURCHAS ES CANNOT BE FAULTED WITH. THE ASSESSEE HAS MADE THE SALES TO TH E GOVERNMENT DEPARTMENT LIKE DEFENSE RESOURCES & DEVELOPMENT LAB ORATORY, HYDERABAD (DRDO). THERE WERE CONFIRMATION LETTER FU RNISHED BY THE SUPPLIER. COPIES OF INVOICES AND BANK STATEMENT OF ALL PARTIES WERE FURNISHED. IT WAS FURTHER SUBMITTED THAT MERE THE S UPPLIERS HAVE NOT APPEARED BEFORE THE ASSESSING OFFICER OR THE LD. CI T(A), THE REVENUE CANNOT CONCLUDE THAT PURCHASES WERE NOT MADE BY THE ASSESSEE ARE NOT GENUINE. THE ADDITION CANNOT BE MADE ON THE BASIS O F ASSUMPTION AND PRESUMPTION. NONE OF THE PARTIES ARE HAWALA DEALERS , ALL THE PURCHASES WERE GENUINE. THE LD. AR OF THE ASSESSEE PRAYED THA T ENTIRE ADDITION IS LIABLE TO BE DELETED. IN ALTERNATIVE SUBMISSION, TH E LD. AR OF THE ASSESSEE SUBMITS THAT A REASONABLE PERCENTAGE ON THE BASIS O F ESTIMATION ON SUCH PURCHASES MAY BE SUSTAINED AND NOT THE ENTIRE PURCH ASES, BY TREATING PURCHASES AS BOGUS. IN SUPPORT OF HIS SUBMISSIONS T HE LD AR FOR THE ASSESSEE RELIED ON THE DECISION OF HONBLE GUJARAT HIGH COURT IN CASE OF CIT VS. BHOLANATH POLY FEB (P.) LTD. 355 ITR 290 (G UJ.), DECISION OF TRIBUNAL IN DCIT VS. N.T. RECYCLE PVT. LTD. IN ITA NO. 3982/MUM/2016 DATED 13.12.2017 AND IN AARTI JEWELERS PVT. LTD. VS . DCIT ITA NO. 3752/M/2017 DATED 16.11.2017. 4. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUBMI TS THAT A SEARCH AND SEIZURE ACTION WAS CONDUCTED ON THE ASSESSEE ON 04. 02.2011. DURING THE ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 5 SEARCH AND SEIZURE, THE DIRECTOR OF ASSESSEE DECLAR ED UNDISCLOSED AMOUNT OF RS. 5,35,91,882/- FOR A.Y. 2010-11. THE ASSESSEE HAS REVERSED THE PURCHASES OF RS. 26,77,11,057/- IN ITS BOOKS OF ACC OUNT, WHICH MEANS THE BOGUS PURCHASES REDUCED, HOWEVER, WHILE FILING RETU RN OF INCOME FOR THE CURRENT YEAR, THE ASSESSEE HAS NOT SHOWN THE ADDITI ONAL INCOME IN THE RETURN OF INCOME DISCLOSED DURING THE SEARCH ACTION NOR GIVEN ANY EXPLANATION. DURING THE ASSESSMENT THE ASSESSEE WA S ASKED TO EXPLAIN AS TO WHY IT HAD NOT SHOWN ADDITIONAL INCOME IN THE RE TURN OF INCOME, WHICH HAD BEEN ACCEPTED IN THE COURSE OF SEARCH AND SEIZU RE ACTION. THE ASSESSING OFFICER DURING THE ASSESSMENT PROCEEDING CALLED INFORMATION UNDER SECTION 133(6) BY DEPUTING THE CIRCLE INSPECT OR TO INQUIRE AT THE ADDRESS OF PARTIES. THE ELEVEN PARTIES WERE REPORTE D TO HAVE NOT EXISTED ON THE GIVEN ADDRESS, THEREFORE, THE EXPENDITURE INCUR RED ON PURCHASES AND OFFERED BY ASSESSEE DURING THE SEARCH AND SEIZURE W AS ADDED TO THE INCOME OF THE ASSESSEE AS UNEXPLAINED EXPENDITURE. THE ASS ESSEE COULD NOT PRODUCE ANY EVIDENCE THAT THE PRODUCTS SOLD ARE THE EXACT WHICH HAS BEEN PURCHASED BY THEM. 5. IN THE REJOINDER SUBMISSION, THE LD. AR OF THE ASSE SSEE SUBMITS THAT THE DIRECTORS OF THE ASSESSEE RETRACTED FROM THE STATEM ENT RECORDED DURING THE SEARCH ACTION. THE STATEMENT WAS EXTRACTED FROM SHR I NITIN SAHA AND PRAKASH D. SAHA, DIRECTOR OF THE ASSESSEE-COMPANY B Y PRESSURIZING THEM NOTHING INCRIMINATING MATERIAL WAS FOUND IN THE SEA RCH. THE LD. AR FURTHER ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 6 SUBMITS THAT SHRI PRAKASH D. SAHA WHILE MAKING DISC LOSURE DURING THE SEARCH PROCEEDING HAS EXPLAINED THAT PURCHASES ARE REFLECTED IN REGISTER BUT NOT PROOF WAS AVAILABLE WITH HIM. THE PART OF T HE STATEMENT OF PRAKASH D. SAHA RECORDED DURING THE SEARCH CANNOT BE READ I N ISOLATION. WHICH HAS OTHERWISE BEEN RETRACTED. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. THE ASSESS ING OFFICER WHILE FRAMING THE ASSESSMENT ORDER NOTED THAT THE DIRECTO RS OF THE ASSESSEE- COMPANY DECLARED UNDISCLOSED INCOME OF RS. 5,35,91, 822/-. HOWEVER, THE ASSESSEE HAS NOT SHOWN ADDITIONAL INCOME IN THE RET URN OF INCOME FURNISHED BY ASSESSEE. THE ASSESSEE WAS ASKED TO EX PLAIN AS TO WHY THE ADDITIONAL INCOME HAS NOT BEEN OFFERED IN THE RETUR N OF INCOME. THE ASSESSEE FILED ITS REPLY ON 20.12.2012. IN THE REPL Y, THE ASSESSEE CONTENDED THAT THE PURCHASES ARE NOT BOGUS AS THERE IS CLEAR CORRESPONDING SALE AGAINST THE PURCHASES. THE ASSESSEE HAS FURNISHED D ETAILED NOTE ALONG WITH CHART SHOWING THE DETAILS OF SAID PURCHASES AND COR RESPONDING SALE. THE ASSESSEE FURTHER CONTENDED THAT IT IS ESTABLISHED C OMPANY AND DOES NOT INDULGE IN PROCURING BOGUS BILLS. THE CONTENTION OF ASSESSEE WAS NOT ACCEPTED BY ASSESSING OFFICER HOLDING THAT EXPLANAT ION IS GENERAL IN NATURE. THE ASSESSING OFFICER FURTHER CONCLUDED THA T THE STATEMENT OF DIRECTOR AND CHIEF FINANCE OFFICER WAS RECORDED BY INVESTIGATION TEAM ON 04.02.2011. THE ASSESSEE HAS FAILED TO DISCHARGE TH E ONUS THAT CONFESSION ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 7 MADE BY IT WAS A RESULT OF INTIMIDATION, DURESS COE RCION. THE STATEMENT RECORDED UNDER SECTION 132(4) IS EVIDENCE UNDER THE INCOME-TAX ACT. AS PER THE OBSERVATION OF ASSESSING OFFICER AT THE TIM E OF SEARCH, THE REGISTER OF ASSESSEE WAS CROSS VERIFIED, WHEREIN THE PURCHAS ES WERE NOT RECORDED. NO EVIDENCE TO THIS EFFECT WAS COLLECTED. THE ASSES SING OFFICER HEAVILY RELIED ON THE STATEMENTS OF DIRECTORS. THE RELIANCE ON THE STATEMENT OF DIRECTORS ARE WITHOUT ANY CORROBORATIVE EVIDENCE. THE ASSESSING OFFICER ALSO ISSUED NOTICE UNDER SECTION 133(6). THE ASSESS ING OFFICER RECORDED THAT THE POSTAL AUTHORITIES RETURN BACK THE NOTICE ISSUED TO SEVEN PARTIES WITH THE REMARK NOT KNOWN. ON THE BASIS OF HIS OB SERVATION, ASSESSING OFFICER TOOK HIS VIEW THAT THERE IS NO EVIDENCE, IF THE ASSESSEE SOLD THE PRODUCT IS EXACT WHICH HAS BEEN PURCHASED BY THEM A ND THAT THE ASSESSEE- COMPANY IS ENGAGED IN PRACTICING OF GETTING MANIPUL ATED PURCHASED BILL AND THEREFORE, DISALLOWED THE EXPENDITURE OF RS. 5, 35,91,822/- UNDER SECTION 37(1) OF THE ACT. THE ASSESSING OFFICER ALS O DISALLOWED THE PURCHASES ALTERNATIVELY UNDER SECTION 69C. DURING T HE FIRST APPELLATE STAGE THE ASSESSEE URGED SIMILAR CONTENTION. AFTER CONSID ERING THE CONTENTIONS OF THE ASSESSEE, THE LD. CIT(A) OBSERVED THAT THE ASSE SSING OFFICER MADE ATTEMPT TO MAKE FURTHER INQUIRY FROM THE PARTIES BU T NOT RESULT AS THE POSTAL AUTHORITY AND THE CIRCLE INSPECTOR WERE NOT ABLE TO LOCATE THE PARTY. MOREOVER, THE PURCHASES AND SALES CO-RELATION RELIE D BY ASSESSEE IN A CHART, NO SPECIFIC DETAILED IDENTIFYING THE PRODUCT IS GIV EN. THE LD. CIT(A) ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 8 FURTHER OBSERVED THAT NO SUFFICIENT MATERIAL HAS PL ACED ON RECORD ABOUT THE RETRACTION. THE ASSESSEE HAS NOT GIVEN ANY EVIDENCE , IF STATEMENT WAS RECORDED UNDER THREAT OR COERCION. ON HIS OBSERVATI ON, THE LD. CIT(A) CONFIRMED THE ACTION OF ASSESSING OFFICER. 7. WE HAVE NOTED THAT THE ASSESSEE HAS FURNISHED EVIDE NCE IN SUPPORT OF THE SUBMISSION ABOUT THE SALE OF THE PURCHASED MATERIAL . THE LOWER AUTHORITIES HAVE NOT DISPUTED THE SALE OF THE ASSESSEE. THE SAL E IS NOT POSSIBLE WITHOUT PURCHASE. FURTHER THE BOOKS OF ACCOUNT OF THE ASSES SEE WERE NOT REJECTED BY LOWER AUTHORITIES. WE HAVE NOTED THAT WHILE DISC ARDING THE TALLY OF STOCK THE LD. CIT(A) OBSERVED THAT THERE IS NO EVID ENCE WITH THE ASSESSEE THAT THE PRODUCT SOLD IS THE EXACT PRODUCT WHICH HA S BEEN PURCHASED. THE OBSERVATION OF LD CIT(A) IS WITHOUT ANY BASIS. THE LOWER AUTHORITY HAS NOT DISPUTED THAT THE PAYMENT MADE TO THESE PARTIES ARE NOT GENUINE. THE OBSERVATION OF LD. CIT(A) IS BASED ON ASSUMPTION AN D PRESUMPTION. THE LD. CIT(A) FURTHER OBSERVED THAT THE ASSESSEE-COMPA NY IS ENGAGED IN PRACTICE OF GETTING MANIPULATED/BOGUS BILLS TO STRE AMLINE ITS ACCOUNT. THIS OBSERVATION OF LD. CIT (A) IS ALSO WITHOUT REFERRIN G ANY CORROBORATIVE EVIDENCE. THE LD. CIT (A) SUSTAINED THE ADDITION ON ACCOUNT OF UNEXPLAINED EXPENDITURE UNDER SECTION 69C, AS WELL AS UNDER SECTION 37(1) OF THE ACT. CONSIDERING THE FACT THAT NEITHER THE A SSESSEE COULD PROVE THE GENUINENESS OF TRANSACTION NOR THE REVENUE WAS ABLE TO BRING ON RECORD ADVERSE MATERIAL ON RECORD, EXCEPT THE STATEMENT OF DIRECTOR DURING THE ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 9 SEARCH PROCEEDING, WHICH HAVE BEEN RETRACTED THAT T HE PURCHASES ARE NOT GENUINE. WE HAVE ALREADY RECORDED THAT THE SALE OF THE ASSESSEE HAS NOT BEEN DISCARDED BY REVENUE EXCEPT OBSERVING THAT THE RE IS NO EVIDENCE, IF THE PRODUCT SOLD IS THE EXACT PRODUCT WHICH HAS BEE N PURCHASED. CONSIDERING THE PECULIARITY OF THE FACT, WE ARE OF THE VIEW THAT EVEN IN CASES WHERE THE WHOLE TRANSACTION IS NOT VERIFIABLE DUE TO VARIOUS REASONS; THE ONLY TAXABLE IS THE TAXABLE INCOME COMPONENT AN D NOT THE ENTIRE TRANSACTION. IN OUR CONSIDERED OPINION THAT UNDER I NCOME TAX ACT ONLY REAL INCOME CAN BE TAXED BY THE REVENUE. WE MAY FURTHER NOTE THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. HA RIRAM BHAMBANI IN ITA NO.313 OF 2013 DECIDED ON 04.02.15 HELD THAT TH E REVENUE IS NOT ENTITLED TO BRING THE ENTIRE SALES CONSIDERATION TO TAX, BUT ONLY THE PROFIT ATTRIBUTABLE ON SUCH UNRECORDED SALE CONSIDERATION ALONE CAN BE SUBJECT TO INCOME TAX. WE HAVE FURTHER NOTICED THAT NEITHER T HE AO NOR THE LD. CIT(A) EXAMINED THE GROSS PROFIT RATIO OR NET PROFI T RATIO OF ASSESSEE FOR PREVIOUS YEAR AND IN SUBSEQUENT YEARS. AFTER CONSI DERING THE FACTS OF THE PRESENT CASE AND RIVAL CONTENTIONS OF THE PARTIES, WE ARE OF THE OPINION THAT IN ORDER TO FULFIL THE GAP OF REVENUE LEAKAGE THE D ISALLOWANCE OF REASONABLE PERCENTAGE OF IMPUGNED PURCHASE WOULD MEET THE END OF JUSTICE. THUS, WE ARE OF THE OPINION THAT DISALLOWANCE MADE ON ACCOUN T OF BOGUS PURCHASES BE RESTRICTED TO 10% OF THE IMPUGNED/ DISPUTED PURC HASES, THAT WOULD MEET THE END OF JUSTICE INSTEAD OF THE ENTIRE PURCHASES. THE HONBLE GUJARAT ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 10 HIGH COURT IN CASE OF CIT VS. BHOLANATH POLY FEB (P .) LTD. (SUPRA), WHILE CONSIDERING THE FACT, THE ASSESSING OFFICER FOUND T HAT CONCERNED PARTIES FROM WHOM MATERIAL WERE PURCHASED WERE NOT FOUND AT THEIR ADDRESS AND TREATED THE SAME AS BOGUS AND MADE DISALLOWANCE ACC ORDINGLY ON THE BASIS OF PROFIT EMBEDDED ON SUCH PURCHASES. THE HONBLE H IGH COURT HELD THAT WHEN ENTIRE QUANTITY OF STOCK WAS SOLD BY ASSESSEE, THE ONLY PROFIT MARGIN EMBEDDED IN SUCH PURCHASES WOULD BE SUBJECT TO TAX AND NOT THE ENTIRE PURCHASES. 8. THE CO-ORDINATE BENCH OF TRIBUNAL IN DCIT VS. N.T. RECYCLING PVT. LTD. (SUPRA), WHICH CASE IS ALSO BASED ON THE SEARCH ACT ION, WHEREIN UNDISCLOSED INCOME ON ACCOUNT OF BOGUS BILL WAS ADDED BY THE AS SESSING OFFICER, ON APPEAL BEFORE THE FIRST APPELLATE AUTHORITY, THE AD DITION WAS RESTRICTED TO 1%. ON APPEAL BEFORE THE TRIBUNAL, THE TRIBUNAL CON SIDERING THE NATURE OF BUSINESS ENHANCED THE ADDITION TO 8% OF THE ALLEGED BOGUS PURCHASES HOLDING THAT THERE COULD BE NO SALE WITHOUT PURCHAS E/CONSUMPTION OF THE MATERIAL. FURTHER, IN AARTI JEWELLERS PVT. LTD. VS. DCIT (SUPRA) SUSTAINED THE ADDITION @ 5% ON ACCOUNT OF BOGUS PURCHASES ON THE PROFIT EMBEDDED IN SUCH PURCHASES. CONSIDERING THE FACTUAL LEGAL MA TRIX DISCUSSED ABOVE, WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DIS ALLOWANCE ON ACCOUNT OF ALLEGED BOGUS PURCHASES @ 10% OF THE IMPUGNED/BOGUS PURCHASES. IN THE RESULT, GROUND NO. 1 & 2 OF THE APPEAL IS PARTLY AL LOWED. ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 11 9. GROUND NO.3 & 4 RELATES TO DISALLOWANCE UNDER SECTI ON 14A. THE LD. AR OF THE ASSESSEE SUBMITS THAT DURING THE RELEVANT FI NANCIAL YEAR, THE ASSESSEE EARNED EXEMPT INCOME OF RS. 3,26,50,897/-. THE ASSESSEE SUO- MOTO DISALLOWED RS. 22,99,590/- UNDER SECTION 14A. THE ASSESSING OFFICER WITHOUT RECORDING ITS DISSATISFACTION ABOUT THE WORKING OF SUO- MOTO DISALLOWANCE, INVOKED THE PROVISION OF RULE 8D AND DISALLOWED RS. 1,48,65,639/-, THEREBY ADDED 1,25,66,049/- UNDER TH E DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D. THE DISALLOWANCE WAS MADE WITHOUT GIVING OPPORTUNITY TO THE ASSESSEE TO EXPLAIN THE FACT. TH E LD. CIT(A) DELETED THE DISALLOWANCE UNDER RULE 8D(2)(II) FOR RS. 1,00,74,5 36/- ON ACCOUNT OF INTEREST EXPENSES. HOWEVER, THE DISALLOWANCE UNDER RULE 8D(2(III) FOR RS. 47,91,103/- THE LD. CIT(A) DIRECTED THE ASSESSING O FFICER TO EXCLUDE THE INVESTMENT OF RS. 11,274.12 LACK IN FOREIGN SUBSIDI ARIES, THE DIVIDEND ON WHICH BEING TAXABLE DOES NOT FORM PART OF EXEMPT IN COME AND DIRECTED THE ASSESSING OFFICER TO WORK OUT THE DISALLOWANCE ACCO RDINGLY. ON THE OTHER HAND, THE LD. DR FOR THE REVENUE SUPPORTED THE ORDE R OF AUTHORITIES BELOW. THE LD. DR FOR THE REVENUE FURTHER SUBMITS THAT THE HONBLE SUPREME COURT IN CASE OF MAXOPP INVESTMENT LTD. VS. CIT [20 18] 91 TAXMANN.COM 154 (SC) HELD THAT IN CASES, WHERE SHARES ARE HELD AS STOCK-IN-TRADE, MAIN PURPOSE IS TO TRADE IN THOSE SHARES AND EARN PROFIT S THEREFROM, IN THE PROCESS, CERTAIN DIVIDEND IS ALSO EARNED, THOUGH IN CIDENTALLY, WHICH IS ALSO ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 12 AN INCOME. THEREFORE, TO THAT EXTENT, EXPENDITURE I NCURRED IN ACQUIRING THOSE SHARES WILL HAVE TO BE APPORTIONED. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE HAVE SE EN THAT DURING THE RELEVANT FINANCIAL YEAR THE ASSESSEE HAS EARNED DIV IDEND INCOME OF RS.3,26,50,897/- CLAIMED EXEMPTED UNDER SECTION 10( 33) OF THE ACT. INITIALLY NO SUO-MOTO DISALLOWANCE WAS MADE BY ASSE SSEE. THE ASSESSING OFFICER ISSUED SHOW-CAUSE NOTICE AS TO WHY PROVISIO NS OF SECTION 14A R.W. RULE 8D SHOULD NOT BE APPLIED. THE ASSESSEE FILED A REVISED COMPUTATION OF INCOME AND ADDED BACK EXPENSES RELATED TO THE EX EMPT INCOME FOR RS. 22,99,590/-. THE ASSESSING OFFICER NOTED THAT THE D ISALLOWANCE ADDED BACK IS NOT IN ACCORDANCE WITH SECTION 14A R.W. RULE 8D. THE ASSESSING OFFICER INVOKED THE PROVISIONS OF RULE 8D AND CALCULATED TH E WORKING OF DISALLOWANCE UNDER RULE 8D. THE ASSESSING OFFICER W ORKED OUT DISALLOWANCE UNDER RULE 8D(2)(II) FOR RS. 1,00,74,5 36/- AND UNDER RULE 8D(2)(III) FOR RS. 47,91,103/-. NO DISALLOWANCE WAS MADE UNDER RULE 8D(2)(I). THEREBY THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE OF RS. 1,48,65,639/-. THE ASSESSEE HAS ALREADY DISALLO WED RS. 22,99,590/- THEREBY DIFFERENCE OF RS. 1,25,66,049/- WAS ADDED B ACK. THE LD. CIT(A) DELETED THE DISALLOWANCE UNDER RULE 8D(2)(II) ON TH E SUBMISSION OF ASSESSEE THAT THE ASSESSEE HAS SUFFICIENT INTEREST FREE FUND AVAILABLE WITH THEM AND IN VIEW OF THE DECISION OF JURISDICTIONAL HIGH COURT IN CIT VS. ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 13 RELIANCE UTILITY & POWER LTD. 313 ITR 340. THE LD. CIT(A) AFTER EXAMINING THE SHARE CAPITAL AND RESERVE AVAILABLE W ITH THE ASSESSEE, WHICH ARE MORE THAN THE INVESTMENT MADE BY ASSESSEE AND T HEREBY DELETED THE DISALLOWANCE OF RS. 1,00,74,536/- UNDER RULE 8D(2)( II). SO FAR AS DISALLOWANCE UNDER RULE 8D(2)(III) WORKED OUT AT RS . 47,91,103/- IS CONCERNED, THE ASSESSEE CONTENDED THAT BULK OF INVE STMENT WERE MADE IN SUBSIDIARY, WHICH ARE LONG TERM INVESTMENT HAVING B EEN MADE TO SECURE BUSINESS INTEREST. AND INVESTMENT IN FOREIGN SUBSID IARY, THE DIVIDEND FROM WHICH BEING TAXABLE DOES NOT FORM PART OF EXEMPT IN COME, THE ASSESSING OFFICER WAS DIRECTED TO RE-WORK THE DISALLOWANCE AF TER EXCLUDING THE INVESTMENT IN FOREIGN AND DOMESTIC SUBSIDIARY. WE HAVE NOTED AND AS SUBMITTED BY LD. DR THAT RECENTLY THE HONBLE APEX COURT IN MAXOPP INVESTMENT LTD. VS COMMISSIONER OF INCOME-TAX [2018] 91 TAXMANN.COM 154 (SC) HELD THAT IN CASES, WHERE SHARES ARE HELD AS STOCK-IN-TRADE, INVESTMENT IN SUBSIDIARIES AND MAIN PURPOSE IS TO T RADE IN THOSE SHARES AND EARN PROFITS THEREFROM, IN THE PROCESS, CERTAIN DIV IDEND IS ALSO EARNED, THOUGH INCIDENTALLY, WHICH IS ALSO AN INCOME. THIS TRIGGERS APPLICABILITY OF SECTION 14A, WHICH IS BASED ON THEORY OF APPORTIONM ENT OF EXPENDITURE BETWEEN TAXABLE AND NON-TAXABLE INCOME. THEREFORE, TO THAT EXTENT, EXPENDITURE INCURRED IN ACQUIRING THOSE SHARES WILL HAVE TO BE APPORTIONED. 11. THEREFORE, CONSIDERING THE LATEST DECISION OF HONB LE APEX COURT, THIS GROUND OF APPEAL QUA THE DISALLOWANCE UNDER RULE 8D(2)(III) ONLY IS ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 14 RESTORED TO THE FILE OF ASSESSING OFFICER TO DECIDE THE ISSUE AFRESH. WHILE DECIDING THIS GROUND OF APPEAL THE ASSESSING OFFICE R SHALL CONSIDER THE DECISION OF HONBLE APEX COURT IN MAXOPP INVESTMENT LTD. (SUPRA) AND ANY OTHER DECISION WHICH THE ASSESSEE THINK FIT, PA SS THE ORDER IN ACCORDANCE WITH LAWS. NEEDLESS TO SAY THAT ASSESSI NG OFFICER SHALL GRANT ADEQUATE OPPORTUNITY OF HEARING TO THE ASSESSEE, BE FORE PASSING THE ORDER IN ACCORDANCE WITH LAW. IN THE RESULT, THE GROUND N O. 3 & 4 OF THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOS E. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALL OWED. ITA NO. 3570/MUM/2016 FOR AY 2011-12 13. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF AP PEAL: 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNE D ASSESSING OFFICER IN DISALLOWING THE CLAIM OF BAD DEBTS OF RS.29,99,53,6 18/-, WITHOUT CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNE D ASSESSING OFFICER IN NOT APPRECIATING THE FACT THAT ALL THE CONDITIONS PRESC RIBED BY THE SECTION 36(1 )(VII) OF THE ACT HAVE BEEN DULY COMPLIED WITH, WITHOUT CO NSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 3) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF LEARNE D ASSESSING OFFICER IN DISALLOWING THE EXPENSES U/S.14A OF THE INCOME TAX ACT, 1961 AS PER RULE 8D, WITHOUT' CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE. 4) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LEARNED CIT(A) AS WELL AS LEARNED ASSESSING OFFICER HAS ERR ED IN NOT APPRECIATING THE FACT THAT WHILE COMPUTING THE DISALLOWANCE AS PER R ULE 8D, THE INTEREST EXPENSES IS TO BE CONSIDERED AFTER NETTING OF THE I NTEREST INCOME AND INVESTMENT IN DEBT FUND ON WHICH NO EXEMPT INCOME IS EARNED AR E NOT TO BE CONSIDERED. 5) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AS WE LL AS IN LAW, THE LEARNED ASSESSING OFFICER HAS ERRED IN MAKING AN ADDITION O N ACCOUNT OF DISALLOWANCES ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 15 MADE U/S.14A DETERMINED AS PER RULE 8D, WHILE COMPU TING THE BOOK PROFIT U/S.115JB OF THE INCOME TAX ACT, WITHOUT CONSIDERIN G THE FACTS AND CIRCUMSTANCES OF THE CASE. 14. BRIEF FACTS OF THE CASE AS REFERRED ABOVE IN APPEAL FOR AY 2010-11, A SEARCH WAS CONDUCTED UNDER SECTION 132 ON 04.02.201 1. THE ASSESSEE FILED RETURN OF INCOME FOR ASSESSMENT YEAR 2011-12 ON 03. 11.2011 DECLARING TOTAL INCOME OF RS. 26,73,94,160/-. SUBSEQUENT TO F ILING OF RETURN OF INCOME OF SURVEY ACTION WAS ALSO CONDUCTED ON 24.12 .2012. THE ASSESSEE FILED REVISED COMPUTATION OF INCOME DECLARING TOTAL INCOME OF RS. 30,84,24,083/-. THE ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 28.03.2013. THE ASSESSING OFFICER WHILE PASSING THE ASSESSMENT ORDER BESIDES THE OTHER ADDITION AND DISALLOWANCE, DISALL OWED BAD-DEBT OF RS. 29,99,53,618/- AND RS. 2,80,23,155/- UNDER SECTION 14A. THE ASSESSING OFFICER ALSO MADE THE ADDITION OF DISALLOWANCE UNDE R SECTION 14A READ WITH RULE 8D WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB. ON APPEAL BEFORE THE LD. CIT(A), THE DISALLOWANCE OF B AD-DEBT WAS UPHELD. HOWEVER, THE DISALLOWANCE UNDER RULE 8D(2)(II) FOR RS. 2,30,52,830/- WAS DELETED AND DISALLOWANCE UNDER RULE 8D(2)(III) WAS RESTORED BACK TO THE FILE OF ASSESSING OFFICER WITH THE DIRECTION TO EXC LUDE THE INVESTMENT IN FOREIGN DOMESTIC SUBSIDIARIES. THEREFORE, FURTHER A GGRIEVED BY THE ORDER OF LD. CIT(A), THE PRESENT APPEAL IS FILED BEFORE US. 15. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVE (AR ) FOR THE ASSESSEE AND THE LD DEPARTMENTAL REPRESENTATIVE (DR ) FOR THE RE VENUE AND PERUSED THE ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 16 RECORD. THE GROUND NO.1 & 2 OF APPEAL RELATES TO DI SALLOWANCE OF BED DEBTS. THE LD. AR FOR THE ASSESSEE SUBMITS THAT THE ASSESSING OFFICER DISALLOWED AND ADDED BACK THE CLAIM BAD DEBTS FOR R S.29,99,53,618/-, HOLDING IT THAT THE INTENTION OF ASSESSEE WAS TO AD JUST IT AGAINST THE ADDITIONAL INCOME OFFERED ON ACCOUNT OF ALLEGED BOG US PURCHASES, ALLEGEDLY DECLARED DURING THE SEARCH ACTION CONDUCT ED BY REVENUE ON 4 TH FEBRUARY 2011. THE ASSESSING OFFICER TREATED THE BA D DEBTS AS COLORABLE DEVICE TO AVOID THE TAX BY HOLDING IT AS THE ACT OF NULLIFYING THE REVERSAL OF PURCHASES ON THE PROFIT. THE ASSESSEE DURING THE AS SESSMENT PROVED BY FURNISHING THE RELEVANT ENTRIES IS IN THE FORM OF L EDGERS OF THE PARTIES THAT THE AMOUNTS WRITTEN OFF, HAD BEEN SHOWN AS SALES/I NCOME IN PAST AND THAT THE SAID SUMS HAD BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT ITSELF. THE ASSESSING OFFICER FAILED TO APPRECIATE THE POSITION OF LAW AS ON STATUE BOOK AFTER 1 ST APRIL 1989. THE LD. AR FURTHER SUBMITS THAT THE RE COVERY OF DUES WERE VERY SLOW AND IT WAS DIFFICULT FOR THE ASSESSE E FOR RECOVER THE DUE, AND IN SOME OF THE CASES THE ASSESSEE HAS FILED REC OVERY SUITS, WHICH ARE STILL PENDING, THEREFORE, THE ASSESSEE COMPANY DECI DED TO WRITE OFF; THE DUES OUTSTANDING FOR MORE THAN ONE YEAR. THE ASSESS EE HAS REPUTABLE CLIENTAGE IN THE MARKET VIZ, GOVERNMENT/ PUBLIC SEC TORS; LIKE BSES RAJDHANI POWER LTD, BSES YAMUNA POWER LTD, KINGFISH ER AIRLINES LTD, RELIANCE COMMUNICATION LTD, UNISYS INDIA PRIVATE LI MITED ETC. THE PAYMENTS BY THE GOVERNMENTS AND PUBLIC SECTORS ARE MADE ONLY AFTER ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 17 PROCEDURE FORMALITIES. SOMETIMES, THE DELAY IS DUE TO CHANGE OF OFFICER IN CHARGE IN THE GOVERNMENT ESTABLISHMENT. DURING THE ASSESSMENT THE ASSESSING OFFICER MADE CERTAIN INQUIRIES FROM DEBTO RS. THE RESULTS OF ENQUIRIES WERE NOT SHARED WITH THE ASSESSEE. THE CH ART FURNISHED BY THE ASSESSING OFFICER SHOWING THE VARIOUS DETAILS OF HI S INQUIRES, HAS NO RELEVANCE. UNDER LAW NONE OF THE DEBTORS WOULD BE R EADY TO ACKNOWLEDGE THEIR LIABILITY. IN SUPPORT OF THE SUBMISSION THE L EARNED AR OF THE ASSESSEE RELIED UPON THE DECISION OF HONBLE SUPREME COURT I N CASE OF TRF LTD VERSUS CIT (190 TAXMAN 391), WHEREIN IT WAS HELD TH AT IT IS NOT NECESSARY TO ESTABLISH THAT DEBT, IN FACT, HAS BECOME IRRECOV ERABLE, IT IS ENOUGH BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF ASSESSEE. THE LEARNED AR FURTHER SUBMITS THAT AFTER 1 APRIL 1989 THE POSI TION UNDER THE LAW IS WELL SETTLED, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT HAS BECOME IRRECOVERABLE, IT IS ENOUGH, IF THE BAD THAT IS WRITE OFF AS IRRECOVERABLE IN THE ACCOUNTS OF ASSESSEE. THE ASSE SSING OFFICER HAS NOT EXAMINED; WHETHER THE DEBTS HAVE, IN FACT, BEEN WRI TTEN OFF IN THE ACCOUNTS OF ASSESSEE. THE LD. AR OF THE ASSESSEE SUBMITS THA T HE HAS ALREADY FILED THE DETAILS OF PARTY WISE UP DEBTS WRITE OFF AS ON 31 MARCH 2011 ALONG WITH THE SUMMARY OF BED DEBT WRITTEN IN TAX RETURN OF ALONG WITH A STATEMENT OF BAD DEBTS WRITTEN OFF. THE ASSESSEE HA S ALSO FILED THE REPLY SUBMITTED BY VARIOUS PARTIES BEFORE THE ASSESSING O FFICER IN RESPONSE TO THE ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 18 NOTICE UNDER SECTION 133(6) OF THE ACT AND THE SAMP LE AGREEMENT FOR CONTRACT MADE WITH THE PARTIES. 16. ON THE OTHER HAND THE LEARNED DR FOR THE REVENUE SU PPORTED THE ORDER OF LOWER AUTHORITIES. THE LD. DR FOR THE REVENUE FURTH ER SUBMITS THAT THE SEARCH ACTION UNDER SECTION 132 WAS CONDUCTED AT TH E PREMISES OF THE ASSESSEE ON 4 TH FEBRUARY 2011. DURING THE SEARCH THE ASSESSEE OFFE RED UNDISCLOSED INCOME OF RS.26,77,11,057/- FOR THE YEA R UNDER CONSIDERATION. THE ASSESSEE HAS NOT OFFERED SUCH DECLARED UNDISCLO SED INCOME WHILE FILING RETURN OF INCOME. DURING THE ASSESSMENT PROC EEDING ASSESSING OFFICER ASKED THE ASSESSEE TO SUBMIT THE DETAILS OF SAID UNDISCLOSED INCOME IN THE RETURN OF INCOME. THE ASSESSEE HAS SET OFF T HE SAID PROFIT BY CLAIMING BAD DEBTS WRITTEN OFF OF RS.29,99,53,618/-, THEREBY , NULLIFIED THE DECLARED INCOME IN THE SEARCH. THE ASSESSEE HAS NOT SUBMITTE D DOCUMENTARY EVIDENCES THAT INCOME HAS BEEN DECLARED IN RESPECT OF THE BAD DEBTS IN RESPECTIVE ASSESSMENT YEAR IN RESPECT OF DEBTS WHI CH THE ASSESSEE HAS CLAIMED DEBTS AS BAD. THE ASSESSING OFFICER MADE EN QUIRIES FROM THE SEVERAL PARTIES AND THEY HAVE NOT ADMITTED THEIR LI ABILITIES IN THE RESPONSE SUBMITTED TO THE ASSESSING OFFICER. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSION OF THE PART IES AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW, RECORD FUR NISHED BY ASSESSEE COMPANY IN SUPPORT OF ITS CLAIM AND THE RELIANCE OF LAW MADE BY LD. REPRESENTATIVES OF THE PARTIES. DURING THE ASSESSME NT PROCEEDING ASSESSING ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 19 OFFICER NOTED THAT THE ASSESSEE HAD CLAIMED BAD DEB TS WRITTEN OFF OF RS.29,99,53,618/-. THE ASSESSING OFFICER WAS OF THE VIEW THAT THE ASSESSEE CLAIMED THE BAD DEBTS WRITTEN OFF AGAINST THE UNDI SCLOSED INCOME OFFERED DURING THE SEARCH ACTION FOR RS. 26,77,11,057/-. TH E ASSESSEE DISCLOSED THE SAID UNDISCLOSED INCOME ON ACCOUNT OF REVERSAL OF D EPRICIATION ON BOGUS CAPITAL PURCHASES. THEREFORE, THE ASSESSEE WAS ASKE D TO SUBMIT THE DETAIL OF BAD DEBTS WRITTEN OFF AND TO JUSTIFY THE CLAIM. THE ASSESSEE FURNISHED HIS REPLY AND CONTENDED THAT THE CLIENTAGE OF THE ASSES SEE COMPANY CONSISTED OF GOVERNMENT, PUBLIC SECTOR AND OTHER PRIVATE SECT OR ENTITIES AND THE PAYMENTS FROM SUCH ENTITIES WERE MADE ONLY AFTER PR OCEDURAL FORMALITIES ARE COMPLETED. THE ASSESSEE FURTHER CONTENDED THAT DUE TO THE RECESSION IN THE ECONOMY HAS LED TO DIFFICULT AND SLOW IN THE PA YMENTS BY VARIOUS COMPANIES WHICH ARE FACING FINANCIAL CRISIS. THE AS SESSEE FURTHER CONTENDED THAT SITUATION OF RECOVERY IN SEVERAL ENT ITIES ARE VERY SLOW AND IT IS DIFFICULT FOR THEM TO RECOVER THE DUES, AND SOME OF THE CASES THEY HAVE MADE EFFORTS AND FILE RECOVERY SUITS. THEREFORE, CO NSIDERING THE FACTORS, THE ASSESSEE COMPANY DECIDED TO WRITE OF THE DUES OUTST ANDING FOR THAN ONE YEAR FOR MORE THAN ONE YEAR. THE CONTENTION OF ASSE SSEE WAS NOT ACCEPTED BY ASSESSING OFFICER HOLDING THAT THE ASSESSEE HAS FILED SUIT ONLY AGAINST TWO PARTIES I.E. BSES RAJDHANI POWER LTD AND REI SI X TEN RETAILS LTD, WHERE THE AMOUNTS OUTSTANDING WERE RELATIVELY SMALL . HOWEVER, NO SEARCH ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 20 ACTION HAS BEEN TAKEN IN CASE WHERE THE SUBSTANTIAL AMOUNTS RANGING FROM RS.1.00 CRORE TO RS.10.50 CRORE WERE OUTSTANDING. 18. THE ASSESSING OFFICER FURTHER AFTER MAKING INQUIRY UNDER SECTION 133(6) CONCLUDED THAT A REPLY WAS RECEIVED FROM UNISYS IND IA LTD ON14TH MARCH 2013 AND M/S ANAND RATHI SHARES AND STOCK BROKERS L TD VIDE REPLY DATED THE 18 TH MARCH 2013, IN THE REPLY BOTH THE PARTIES CONTEND ED THAT THEY HAVE NO DISPUTE WITH THE ASSESSEE AND OBJECTED TO WRITE OFF OF BAD DEBTS OF RS. 10,48,93,843/- AND RS. 1,00,589/-RESPECTIVELY AND T HEY FURTHER SUBMITTED THAT THEY HAD NOT RETURN BACK AND THE DUES PAYABLE TO THE ASSESSEE FROM THE PERIOD OF 01.04.2004 TO 31.03.2011. FURTHER IN RESPECT OF THERMAX LTD THE ASSESSEE CLAIMED BAD DEBTS OF RS.42,07,324/-. I N RESPONSE TO THE INFORMATION CALLED UNDER SECTION 133(6) THE SAID EN TITY SUBMITTED THAT THEY HAVE WRITTEN BACK AN AMOUNT OF RS. 81,898/- AND RS. 28,515/- AND OFFERED THE SAME AS INCOME FOR ASSESSMENT YEAR 2011-12 IN T HEIR RETURN OF INCOME. FOR RELIANCE COMMUNICATION THE ASSESSEE CLAIMED BAD DEBTS FOR RS. 49,51,512/-, THE SAID ENTITY IN THEIR REPLY DATED 2 1 MARCH 2013 CONTENDED THAT THE CLOSING BALANCE AS ON 31 MARCH 2011, IN TH E LEDGER OF ASSESSEE IN THEIR BOOKS OF ACCOUNT THE BALANCE IS SHOWN AT RS. 86,355/-. FOR WRITE-OFF OF IN THEIR BOOKS OF ACCOUNT RELIANCE COMMUNICATION HAS NOT COMMENTED. IN RESPECT OF SBI GLOBAL FACTORS LTD THE ASSESSEE C LAIMED BAD DEBTS OF RS.3,35,901/-, HOWEVER, AS PER THE REPLY RECEIVED F ROM THAT ENTITY THE CLOSING BALANCE AS ON 31 MARCH 2011 IS ONLY RS. 205 /-. IN RESPECT OF GAS ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 21 AUTHORITY OF INDIA LTD (GAIL), THE ASSESSEE CLAIMED BAD DEBTS OF RS.68,63,180/- THIS ENTITY CONFIRMED AS ON 31 ST OF MARCH 2011 THE AMOUNT IS ONLY RS. 51,617/- BEING SHOWN IS PAYABLE TO THE ASSESSEE COMPANY AS PER THEIR BOOKS OF ACCOUNT. IN RESPECT OF BSES RAJD HANI POWER LTD, THE ASSESSEE CONTENDED THAT THEY HAVE FILED SUIT AGAINS T BESE, HOWEVER, ON VERIFICATION OF THE SUBMISSION FILED BY AS THE BSES , THEY HAVE NOT MENTIONED ABOUT FILING OF THE SUIT, HOWEVER, CONTEN DED THAT ONLY AN AMOUNT OF RS. 5,37,800/- WAS PENDING FOR INSTALLATI ON REPORT. THEREFORE, ON THE BASIS OF THE ABOVE OBSERVATION THE ASSESSING OF FICER CONCLUDED THAT THE DEBT SHOWN BY THE ASSESSEE IN HIS BOOKS OF ACCOUNT DOES NOT MATCH WITH THE BOOKS OF DEBTOR PARTY AND THAT SECONDLY, CLAIMI NG OF BAD DEBTS IN JUST AN ARRANGEMENT TO NULLIFY THE DISCLOSURE MADE BY AS SESSEE DURING THE COURSE OF SUCH ACTION AND DISALLOWED THE ENTIRE CLA IM OF BED DEBTS. 19. THE ASSESSEE URGED THE SIMILAR CONTENTION BEFORE TH E LEARNED COMMISSIONER (APPEALS). THE LEARNED COMMISSIONER (A PPEALS) AFTER CONSIDERING THE CONTENTION OF THE ASSESSEE CONCLUDE D THAT THE ASSESSING OFFICER BROUGHT SUFFICIENT EVIDENCE ON RECORD IN TH E INQUIRIES CONDUCTED UNDER SECTION 133(6) THAT THERE WAS UNRECONCILED DI SCREPANCY BETWEEN THE BOOKS MAINTAINED BY THE ASSESSEE AND THE DEBTOR IN WHOSE CASES DEBTS WERE CLASSIFIED AS BAD. THE LEARNED COMMISSIONER (A PPEALS) ALSO RELIED UPON THE TABULATED CHART SUMMARIZING THE RESULT OF THE ENQUIRIES CONFRONTED WITH THE ASSESSEE AND CONFIRMED THE DISA LLOWANCE. WE HAVE ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 22 NOTED THAT THE FOLLOWING DETAILS WERE TABULATED DUR ING THE FIRST APPELLATE STAGE; SL. NO. NAME OF PARTY AMOUNT (RS.) POSITION OF BAD DEBTS IN QUIRY 1 ANAND RATHI SHARE AND STOCKBROKERS 1,00,58,902 ACCORDING TO COMPANY REPLY DATED 18.03.2013 NO OUTSTANDING AMOUNT IS SHOWN IN COMPANIES BOOKS OF ACCOUNT NO INTIMATION FROM ASSESSEE REGARDING WRITE-OFF HAS BEEN RECEIVED 2 AURIONPRO SOLUTIONS LTD. 1,74,00,448 ACCORDING T O THE COMPANY LETTER DATED 14 OCTOBER 2013 THE PAYMENT HAS BEEN MADE THROUGH CHEQUE ISSUED BY HDFC BANK DURING FINANCIAL YEAR 2008-09. THEREFORE, THERE IS NO SUCH DEBTS OUTSTANDING AGAINST ASSESSEE AS CLAIMED. NO STAND ON WASTE INVOICES AS CLAIMED BY ASSESSEE. 3 BHARAT PETROLEUM CORPORATION LTD 18,06,142.30 ACCORDING TO COMPANY REPLY DATED 10.10.2013 PAYMENT OF RS. 17,75,288/- AGAINST ADS/5131/2008-09 HAS BEEN MADE TO THE COMPANY ON 12.09.2008, REGARDING PAYMENT OF RS.23,270/- AGAINST ADS /2526/2008-09. NO SUCH PROOF SUBMITTED BY ASSESSEE TO COMPANY. REGARDING ADS/1479/2008-09 AMOUNTING TO RS. 2,247/-. NO SUCH PURCHASE ORDER HAS BEEN GENERATED IN THE BOOKS OF ASSESSEE. 4 BSES RAJDHANI POWER LTD 11,29,443.00 ACCORDING TO LETTER DATED ALL SUCH TRANSACTION CLAIM THROUGH INVOICES HAVE NOT BEEN MADE BY THE COMPANY 5 BSES YAMUNA POWER LTD 8,12,361.00 REPLY YET TO BE RECEIVED 6 DATAMAN INFOTECH PVT. LIMITED 4,96,44,572.00 ACCORDING TO COMPANIES LETTER DATED 25.10.2013 PRESENTLY DATAMAN INFOTECH PRIVATE LIMITED IS NOT IN OPERATION AND HAS CLOSED DOWN ALL THE HEIR ACTIVITIES. IT IS ALSO MENTIONED IN THE LETTER THAT THERE IS NO OUTSTANDING AMOUNT IN THEIR BOOKS 7 DELHI INTERNATIONAL AIRPORT PRIVATE LIMITED 10,46,312. 14 ACCORDING TO COMPANIES LETTER DATED 2 3 SEPTEMBER 2013 THE PAYMENT HAVE ALREADY BEEN MADE DURING FINANCIAL YEAR 2008-00 AND FINANCIALLY 2009-10 THERE IS NO OUTSTANDING. 8 DELOITTE TOUCHE TOHMASTU (I) PVT LTD. 37,43,673.58 ACCORDING TO COMPANY LETTER DATED 15 OCTOBER 2013 REGARDING TRANSACTION AGAINST ADS/057/05-06, ADS 2077/06-07, ADS 4713/06-07, ADS 5557/08-09 & ADS 6601/08-09. NO SUCH TRANSACTION IS THERE IN THE COMPANYS ACCOUNT. TOTAL OF SUCH TRANSACTIONS COMES TO RS. 11,85,471/-. THEREFORE, SUCH NO TRANSACTION WAS DONE. THERE IS NO QUESTION OF DOUBTS OUTSTANDING FOR THIS AMOUNT. FOR THE REMAINING AMOUNT OF RS. 25,58,167/-, THE PAYMENT HAS ALREADY BEEN MADE DURING FY 2006-07, 2007-08 AND ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 23 2008-09. OUTSTANDING AS ON 31 MARCH 2011 IN RESPECT OF DEEP INVOICES/BILLS IS ZERO 9 ENTERPRISE MARKETING SOLUTION IND 1,56,57,468.56 REPLY AWAITED 10 ESSAR INFORMATION TECHNOLOGY LTD 8,74,249.70 ACCORDING TO COMPANY LETTER DATED 10 SEPTEMBER 2013 THERE IS NO SUCH OUTSTANDING AS ON 31 MARCH 2011. 11 ESSAR TELECOM. RETAIL LTD 3,09,888.88 ACCORDING TO COMPANY LETTER DATED 17 OCTOBER 2013 NO SUCH TRANSACTION HAS BEEN BOOKED AGAINST ADS/1924/2008-09. THEREFORE, THERE IS NO QUESTION OF SUCH OUTSTANDING DEBTS. 12 EURO RSCG 3,50,542.52 ACCORDING TO COMPANY LETTER DATED AND OCTOBER 2013 PAYMENT AGAINST ADS 018/2005-06,ADS/843/2005-06,ADS 1915/2005-06 AND ADS/2836/2006-07 HAS ALREADY BEEN MADE TO THE COMPANY DURING FINANCIAL YEAR 2005-06 AND FINANCIALLY YEAR 2006-07, THE TOTAL OF SUCH PAYMENT IS RS. 3,37,752/-/ FOR ADS/01902006-07, ADS/1529/2006-07. ADS1530/2006-07 & ADS 2843/2006-07. THE COMPANY HAS SUBMITTED THAT NO SUCH TRANSACTION HAS BEEN MADE. TOTAL OF SUCH TRANSACTIONS COMES TO RS. 12,789/-.THEREFORE, THERE IS NO OUTSTANDING AGAINST THE INVOICES. 13 EXXONMOBIL COMPANY INDIA PRIVATE LIMITED 3,60,764.24 ACCORDING TO COMPANY LETTER DATED 8 OCTOBER 2013 THE PAYMENT HAS BEEN MADE TO THE COMPANY DURING FINANCIAL YEAR 2005-06 AND FINANCIALLY 2009-10. PRESENTLY NO SUCH OUTSTANDING AS THERE AGAINST THE INVOICES. SINCE THE AMOUNT HAS BEEN MADE THERE IS NO QUESTION OF SUCH BAD DEBTS. 14 FCS COMPUTER SYSTEM PVT. LTD. 4,58,432.00 ACCORDING TO COMPANY LETTER DATED THE 9 OCTOBER 2013 THE AMOUNT CLAIMED AGAINST DIFFERENT INVOICES HAVE BEEN PAID DURING FINANCIAL YEAR 2005-06. NO SUCH DEBTS OUTSTANDING. 15 GAIL INDIA LTD (AMC) 68,63,179.53 ACCORDING TO COMPANIES LETTER DATED 17 SEPTEMBER 2013 AMOUNT OF RS. 1,05,516/- IS OUTSTANDING AS ON 31 MARCH 2010. BUT NO INFORMATION REGARDING WRITE-OFF BUT DEBS HAS BEEN RECEIVED. 16 GLOBAL TRADE FINANCE PVT. LTD. 3,35,901.40 ACCORDING TO COMPANIES LETTER 6 SEPTEMBER 2013 THE PAYMENT WORTH RS. 3,35,901/- AS CLAIMED BY ADSL HAVE ALREADY BEEN MADE. THERE IS NO SUCH OUTSTANDING. 17 GMR AMBALA CHANDIGARH EXPRESSWAY PRIVATE LIMITED 17,94,558.88 THE COMPANYWIDE ITS LETTER DATED 8 TH OCTOBER 2013 HAS SUBMITTED THAT NO SUCH TRANSACTION AGAINST ADS/6147A/2008-09 FOR AMOUNT TO RS. 3,15,682/- AND ADS 6166/2008-09 FOR AMOUNTING TO RS. 14,78,876/- HAS BEEN MADE ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 24 WITH THE COMPANY. 18 HEWLETT PACKARD INDIA SALES PRIVATE LIMITED 9,30,953.16 REPLY AWAITED. 19 20. 21. 22. IBM GLOBAL SERVICES INDIA PRIVATE LIMITED IBM INDIA PRIVATE LIMITED (BHARTI) IBM INDIA PRIVATE LIMITED(CBDT) IBM INDIA PRIVATE LIMITED (CRISIL) 40,79,027.81 1,19,851.04 92,92,091.34 52,34,691.88 ACCORDING TO IBM COMPANY LETTER DATED 4.10.2013,NO TRANSACTION HAS BEEN MADE BY THE ADSL AGAINST THE FOLLOWING INVOICES- 1. ADS/2634/2005-06 RS. 29,846/-. 2. ADS/7039A/2008-09 RS. 17,33,548/- 3. ADS/7040A/20P8-09 RS. 11,58,517/-. 4. ADS/5991/2008-09 RS. 12,09,443/- 5. ADS/5452/2008-09 RS. 2,01,573/-. 6. ADS/6060/2008-09 RS. 1,38,678/- 7. ADS/6061/2008-09 RS. 1,67,461/- TOTAL RS. 46,39,058/-. FURTHER, THE FOLLOWING ENTRIES HAVE BEEN REVERSED BY THE IBM. 1. ADS/1831/2008-09 RS. 9,32,026/-. 2. ADS/4902/2008-09 RS. 2,01,573/- 3. ADS/4952/2008-09 RS. 2,01,573/- 4. ADS/4982/2008-09 RS. 1,55,056/- TOTAL RS. 16,76,296/-. THEREFORE, OUT OF TOTAL TRANSACTION OF RS. 2,29,29,991/-. THE PAYMENT OF RS. 1,66,14,679/- HAS ALREADY BEEN MADE BY IBM TO ADSL. THE TRANSACTIONS AMOUNTING TO RS. 46,39,058/- HAVE NOT BEEN MADE. THE TRANSACTION WORTH RS. 16,76,296/- HAS ALREADY BEEN REVERSED. THEREFORE, THERE IS NO QUESTION OF BAD DEBTS. 23 ICICI BANK 42,04,331.38 ACCORDING TO LETTER RECE IVED ON 21.10.2013 THE TOTAL PAYMENT OF RS. 42,04,331/- HAS BEEN MADE BY ICICI BANK BEFORE 15.01.2007. NO SUCH AMOUNT IS OUTSTANDING AFTER 15.01.2007. 24 INTERGOLD (INDIA) LTD 1,88,067.50 ACCORDING TO C OMPANY LETTER DATED 06.10.2013 PAYMENT OF RS. 01,56,250/- PLUS SERVICE TAX OF RS. 15,038/- TOTALING TO RS. 1,72,188/- HAS BEEN MADE TO ALLIED DIGITAL AGAINST BILL NO. ADS/187/2005-06 ON 10.06.20015. 25 KINGFISHER AIRLINE LTD 3,66,29,706.95 REPLY AWAI TED. 26 MAHINDRA & MAHINDRA LTD 1,24,088.00 ACCORDING T O COMPANY LETTER DATED 08.10.2013 PAYMENT OF RS. 1,24,088/- HAS BEEN MADE TO THE ADSL AGAINST INVOICE NO. 84409608 THROUGH CHEQUE NO. 35570 DATED 21.02.2011 DRAWN ON HDFC BANK, MUMBAI. 27 MARUTI UDYOG LTD 2,63,764.00 ACCORDING TO COMPAN Y LETTER DATED 15.10.2013 THE AMOUNT OF RS. 04,19,266/- AGAINST INVOICE NO. ADS/4418/2006-07 HAS BEEN MADE VIDE CHEQUE NO. 38831 DATED 23.03.2007 DRAWN ON CITY BANK PAYABLE AT DELHI. 28 MICRO INKS LTD 11,81,183.30 ACCORDING TO COMPANY LETTER DATED 23.10.2013 NO OUTSTANDING AMOUNT IS SHOWN IN COMPANY BOOK. AND NO INTIMATION FROM ADSL REGARDING WRITE OFF OF IS RECEIVED. ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 25 29 NIIT TECHNOLOGY LTD 78,71,000.05 ACCORDING TO CO MPANYS LETTER DATED 30.10.2013 AMOUNT OF RS. 5,63,721/- AGAINST THREE VENDOR CODES IS OUTSTANDING AS ON 31.03.2011. BUT NO INFORMATION REGARDING WRITING OFF BAD DEBTS HAS BEEN RECEIVED. 30 PFIZER LTD. 18,21,185.81 ACCORDING TO COMPANY LE TTER DATED 15.10.2013 THE AMOUNT OF RS. 18,21,185/- AGAINST DIFFERENT INVOICES CLAIMED BY THE ASSESSEE HAVE BEEN PAID DURING F.Y. 2008- 09. PRESENTLY NO SUCH DEBTS IS OUTSTANDING. 31 PJL CLOTHING INDIA LTD 1,79,832.07 REPLY YET TO BE RECEIVED. 32 REI 6TEN RETAILS LTD 9,34,724.00 ACCORDING TO C OMPANY LETTER DATED 09.10.2013 THE AMOUNT OF RS. 9,34,724/-IS OUTSTANDING AS ON 31.03.2011. BUT NO INFORMATION REGARDING WRITING OFF BAD DEBTS HAVE BEEN RECEIVED. 33 RELIANCE CAPITAL LTD 3,81,338.93 ACCORDING TO C OMPANYS LETTER DATED 23.10.2013, NO OUTSTANDING AMOUNT IS SHOWN IN COMPANYS BOOK. AND NO INTIMATION FROM ADSL REGARDING WRITE OFF HAS BEEN RECEIVED. 34 RELIANCE COMMUNICATION LTD 49,51,511.50 ACCORDING TO COMPANYS LETTER DATED 24.10.2013 OUT OF SIX TRANSACTIONS ONLY ON TRANSACTION VIDE INVOICE NO. ADS/7013/2007-08 FOR RS. 1,78,004.43 IS RELATED TO THE PARTY, WHICH WAS PROCESSED FOR VALUE OF RS. 1,77,986/-. REMAINING FIVE INVOICES RELATE TO ANOTHER CONCERN OF OUR GROUP I.E. RELIANCE COMMUNICATION INFRASTRUCTURE LIMITED. THE COMPANY HAS MADE PAYMENT OF RS. 1,73,946.66 ON 10.07.2008 AFTER DEDUCTION OF TAX. 35 SHARA AIRLINES LTD 1,55,056.80 REPLY AWAITED 36 SHARA COMPUTER AND ELECTRONICS LTD 53,54,598.90 REPLY AWAITED 37 STATE BANK OF INDIA( PATNA) 70,297.25 REPLY AWAI TED 38 STATE BANK OF INDIA( PUNE) 3,99,567.72 REPLY AWA ITED 39 SYNTEL INDIA PRIVATE LIMITED 9,70,792.00 REPLY A WAITED 40 THE CLEARING CORPORATION OF INDIA LTD 11,23,654.75 ACCORDING TO COMPANY LETTER DATED 08.10.2013 THE INVOICES AGAINST WHICH HAD DEBTS BAS BEEN CLAIMED THE PAYMENTS HAVE ALREADY BEEN MADE DURING F.Y. 2006-07 AND F.Y. 2007-08. SINCE THE PAYMENTS HAVE ALREADY BEEN MADE THERE IS NO QUESTION OF BAD DEBTS. 20. IN OUR CONSIDERED VIEW WHILE CONSIDERING THE CLAIM OF BED DEBTS THE ASSESSING OFFICER IS REQUIRE TO EXAMINE THE CLAIM I N ACCORDANCE WITH CONDITIONS PRESCRIBED SUB-SECTION (2) OF SECTION 36 OF INCOME TAX ACT. ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 26 NONE OF THE DEBTOR WOULD DIRECTLY ADMITS OR DENY IT S LIABILITY, WHICH ULTIMATELY MAY BRING THEM WITHIN IN THE PREVIEW OF ADMISSION OF THEIR LIABILITY OR UNDER CESSATION OF LIABILITY. OR IN O THER WAY IT MY EFFECT THEIR DEFENSE IF THE DISPUTE IS PENDING BEFORE THE COURT OF LAW. IT IS SETTLED LAW THAT ONCE THE DEBTOR ADMITTED ITS LIABILITY THE LIM ITATION FOR RECOVERY OF DUES WOULD INCREASED AUTOMATICALLY UNDER THE LAW OF LIMITATION, AGAINST SUCH DEBTOR. THEREFORE, IN OUR VIEW THE SUMMARY SHO WN IN THE TABULATED FORM IS NOT HELPFUL TO THE REVENUE. EVEN OTHERWISE THE ASSESSEE IS THE BEST PERSON TO DECIDE THE BUSINESS EXPEDIENCY OR TO TAKE DECISION WHETHER THEY MAY CONTINUE TO SHOW THE CREDIT IN THEIR BOOKS OF A CCOUNT AGAINST THE CREDITORS OR WRITE IT OFF OR NOT. 21. THE HONBLE SUPREME COURT IN THE CASE OF T.R.F. LTD . ( SUPRA ) WHILE CONSIDERING THE SCOPE OF SECTION 36 OF THE ACT AFTE R 1 ST APRIL 1989 HELD AS UNDER: '4. THIS POSITION IN LAW IS WELL-SETTLED. AFTE R APRIL 1, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FAC T, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRE COVERABLE IN THE ACCOUNTS OF THE ASSESSEE. ' 22. AS WE HAVE NOTED EARLIER THAT THE OTHER ADDITIONAL CONDITION IS THAT THE ASSESSEE HAD TO FULFILL TO CLAIM BAD DEBT UNDER SEC TION 36(1)(VII) OF THE ACT HAS TO SATISFY CLAUSE (I) OF SUB-SECTION (2) OF SEC TION 36 OF THE ACT. SECTION 36(2) IS READS AS UNDER : 36. OTHER DEDUCTIONS. - (2) IN MAKING ANY DEDUCTION FOR A BAD DEBT OR PART THEREOF, THE FOLLOWING PROVISIONS SHALL APP LY - ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 27 (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 PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR P ART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YEAR, OR REPRESENTS M ONEY LENT IN THE ORDINARY COURSE OF THE BUSINESS OF BANKING OR MONEY -LENDING WHICH IS CARRIED ON BY THE ASSESSEE; 23. CLAUSE (I) OF SUB-SECTION (2) OF SECTION 36 OF THE ACT ITSELF PROVIDES THAT THE CLAIM FOR DEDUCTION AS BAD DEBT WOULD NOT BE AL LOWED UNLESS SUCH DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMP UTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT O F SUCH DEBT OR PART THEREOF IS WRITTEN OFF OR OF AN EARLIER PREVIOUS YE AR. WE HAVE NOTED THAT THE LOWER AUTHORITIES HAVE NOT DISPUTED THAT SUCH CONDI TION OF SECTION 36(2) IS NOT SATISFIED. THE ASSESSEE FILED THE LEDGER OF ALL THE PARTIES IN RESPECT OF WHICH THE DEBT WAS CLAIMED AS BAD, THE LOWER AUTHOR ITIES HAVE NOT COMMENTED ON SUCH LEDGER ACCOUNT. THE ASSESSEE HAS SPECIFICALLY CLAIMED THROUGHOUT THE PROCEEDINGS THAT THE AMOUNTS WHICH A RE LYING OUTSTANDING FOR MORE THAN A YEAR HAVE BEEN WRITTEN OFF IN THE B OOKS OF ACCOUNT. CONSIDERING THE ABOVE FACTUAL AND LEGAL POSITION DI SCUSSED ABOVE, WE ARE OF THE VIEW THAT THERE IS NO COLORABLE DEVICE ADOPT ED BY THE ASSESSEE WHILE MAKING WRITE OFF OF THE BAD DEBTS, THE ASSESSEE HAS EXERCISED THEIR RIGHT WITHIN FOUR CORNERS OF THE LAW. THEREFORE, THE GROU NDS NO.1 & 2 OF APPEAL RAISED BY THE ASSESSEE ARE ALLOWED. 24. GROUND NO.3 TO 4 RELATES TO DISALLOWANCE UNDER SECT ION 14A OF THE ACT. WE HAVE NOTED THAT GROUNDS NO. 3 & 4 ARE IDENTICAL TO THE GROUNDS NO. 3 &4 FOR APPEAL FOR ASSESSMENT YEAR 2010-11( IN ITA N O.3569/M/2016), ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 28 WHICH WE HAVE RESTORED TO THE FILE OF ASSESSING OF FICER. CONSIDERING THAT FACT THAT FACTS OF APPEAL FOR THE YEAR UNDER CONSID ERATION ARE ALMOST SIMILAR THEREFORE, THE GROUND NO.3 &4 ARE RESTORED TO THE A SSESSING OFFICER WITH SIMILAR DIRECTION. 25. GROUND NO.5 RELATES TO ADDITION OF DISALLOWANCE UND ER SECTION 14A RULE 8D TO THE BOOK PROFIT UNDER SECTION 115JB. WE HAVE NOTED THAT THIS GROUND OF APPEAL IS COVERED BY THE DECISION OF SPECIAL BEN CH OF DELHI TRIBUNAL IN ACIT VS VIREET INVESTMENT [2017] 82 TAXMANN.COM 415 (DELHI TRI- SB) WHEREIN IT WAS HELD THAT THE COMPUTATION UNDER CLAU SE (F) OF EXPLANATION 1 TO SECTION 115JB(2), IS TO BE MADE WITHOUT RESORTIN G TO COMPUTATION AS CONTEMPLATED UNDER SECTION 14A READ WITH RULE 8D. T HEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF SPECIAL BENCH THIS GROUND OF APPEAL IS ALSO RESTORED TO WORK OUT THE COMPUTATION UNDER SECTION 115JB BY FOLLOWING THE DECISION OF TRIBUNAL IN VIREET INVESTMENT (SUPR A). IN THE RESULT THIS GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE . 26. IN THE RESULT, BOTH THE APPEAL FILED BY ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 29.06.2018. SD/- SD/- G.S. PANNU PAWAN SINGH ACCOUNTANT MEMBER JUDIC IAL MEMBER MUMBAI, DATE: 29.06.2018 SK COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE 2. RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. DR A BENCH, ITAT, MUMBAI ITA NO.3569 & 3570/M/16- M/S ALLIED DIGITAL SERVICES LTD. 29 6. GUARD FILE BY ORDER, DY./ASST. REGISTRAR ITAT, MUMBAI