STANDARD INDUSTRIES LTD, MUMBAI V. DCIT 3(3), MUMBAI

ITA 3615/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1006 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 11 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-04-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 10-11-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 21-05-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B S BIST
• Assessee Lawyers: K K VED
• Keywords: Opportunity of being heard; Bad and doubtful debts
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 3615/MUM/2012 ASSESSMENT YEAR: 2006-07 M/S. STANDARD INDUSTRIES LTD. VS. DCIT 3(3) VIJAYALAKSHMI MAFATLAL CENTRE AAYAKAR BHAVAN 57A, DR. G. DESHMUKH MARG M.K. MARG MUMBAI 400026 MUMBAI - 400020 PAN NO. AABCS8888C (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.K. VED, AR REVENUE BY: SHRI B.S. BIST, DR DATE OF HEARING : 13/0 2/2017 DATE OF PRONOUNCEMENT: 24/04/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2006-07. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER (APPEALS) 7, MUMBAI AND ARISES OUT O F THE ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 ( THE ACT). 2. THE GROUNDS OF APPEAL FILED BY THE ASSESSEE READ AS UNDER:- I. THE LEARNED CIT(A) ERRED IN DISALLOWING RS. 67,74,9 15/- OUT OF THE TOTAL ADVANCES/DEPOSITS WRITTEN OFF ON THE BASIS TH AT THE SAME WAS NOT OFFERED TO TAX AS INCOME BY THE APPELLANT AND THERE FORE IS NOT ALLOWABLE AS BAD DEBTS. II. THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT F ACT THAT THE ADVANCES/DEPOSITS WERE WRITTEN OFF DUE TO CERTAIN D ISPUTES AND DEFAULT ITA NO. 3615/MUM/2012 2 OF THE COMPANY IN MEETING COMMERCIAL/TRADE OBLIGATI ONS. ACCORDINGLY THE SAME HAD BEEN CLAIMED AS A REVENUE LOSS ARISING DURING THE NORMAL COURSE OF THE RUNNING OF THE BUSINESS OF THE APPELL ANT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 37(1) AND 28/29 OF T HE ACT. III. THE LEARNED CIT(A) ERRED IN RELYING ON THE OBSERVAT ION OF THE LEARNED DCIT THAT THE APPELLANT COMPANY FAILED TO ESTABLISH THE FACT THAT THE ADVANCE/DEPOSITS HAD BECOME BAD WITHOUT APPRECIATIN G THE FACT THAT THE APPELLANT HAD FILED THE DETAILS OF ADVANCES WRI TTEN OFF GIVING THE NAMES OF THE PARTIES, THE PERIOD FOR WHICH THE AMOU NT IS OUTSTANDING AND THE REASON THEREOF BEFORE THE LEARNED DCIT. 3. THE ASSESSEE DEBITED BAD DEBTS CLAIM OF RS.1,70, 22,375/- IN ITS ACCOUNTS. THE DETAILS ARE AS UNDER:- SR NO. PARTICULARS AMOUNT (IN RS.) REMARKS BAD DEBTS W/OFF 1. DEBTS BALANCE OF DEBTORS WRITTEN OFF AS IRRECOVERABLE 47,60,185/- DUE TO THE DISPUTE ARISING SUBSEQUENT TO SALE FOR THE AMOUNT CHARGED TOWARDS FREIGHT, TRANSPORTATION, DELAY IN DELIVERING THE GOODS, RATES CHARGED ETC. THE PARTIES DID NOT PAY THE OUTSTANDING AMOUNT. THE SAID AMOUNT WAS OUTSTANDING SINCE FINANCIAL YEAR 1999-2000. THEREFORE, THE SAID AMOUNT WAS WRITTEN OFF AS BAD AND IRRECOVERABLE IN THE FINANCIAL STATEMENTS. 2. SHORT RECEIPT OF REFUND ON ACCOUNT OF SET OFF NOT ADMITTED BY THE SALES TAX DEPARTMENT FOR THE ASSESSMENT YEAR 2001-02 8,87,275 REFUND NOT GRANTED BY THE SALES TAX DEPARTMENT WRITTEN OFF. TOTAL BAD DEBTS W/OFF (A) 56,47,460 ADVANCE W/OFF 1. DEBIT BALANCES OF SUNDRY CREDITORS 57,00,572 ADVANCES GIVEN FOR MATERIALS AND SERVICES WRITTEN OFF AS THE WORK WAS NOT COMPLETED. THE SAID AMOUNT IS ITA NO. 3615/MUM/2012 3 OUTSTANDING SINCE FINANCIAL YEAR 1999-2000. 2. DEPOSITS PLACED FOR THE BUSINESS OF THE COMPANY 10,31,709 IN VIEW OF THE DISPUTES WITH REGARD TO RATES CHARGED, FREIGHT CHARGED, DELAY IN DELIVERY OR NON- DELIVERY OF THE GOODS THE PARTIES DID NOT REFUND THE DEPOSITS KEPT. 5. ADVANCES GIVEN TO RETRENCHED WORKMEN 46,00,000 ADVANCES GIVEN TO WORKMEN W/OFF AS IRRECOVERABLE 6. OTHERS 42,634 MISCELLANEOUS AMOUNT W/OFF TOTAL ADVANCES W/OFF (B) 1,13,74,915 TOTAL AMOUNT W/OFF (A) AND (B) ABOVE 1,70,22,375 3.1 THE ASSESSING OFFICER (AO), DURING THE COURSE O F ASSESSMENT PROCEEDINGS ASKED THE ASSESSEE TO FURNISH NAME AND ADDRESS OF THE DEBTORS, EFFORTS TAKEN TO RECOVER THE DEBTS AND OTH ER DETAILS IN RESPECT OF WRITE OFF OF BAD DEBTS. IN RESPONSE TO IT, THE A SSESSEE FILED A REPLY DATED 18.11.2008 BEFORE THE AO STATING THAT THE BAD DEBTS IS ON ACCOUNT OF WRITE OFF OF DISPUTED RECEIVABLES NOT FI NALLY RECEIVED AND ADVANCES WRITTEN OFF. APART FROM THIS, THE ASSESSEE DID NOT FILE BEFORE THE AO ANY EVIDENCE TO SHOW THAT THE AMOUNT WAS TR EATED AS INCOME IN ANY OF THE PREVIOUS YEARS, THERE WAS DISPUTE AND IT WAS ACTUALLY WRITTEN OFF IN THE BOOKS (EXCEPT FOR SALES TAX REFU ND AND ADVANCES TO THE WORKMAN). AS THE ASSESSEE FAILED TO FILE THE B ASIC DETAILS, THE AO MADE AN ADDITION OF BAD DEBTS AMOUNTING TO RS.47,60 ,185/-. 3.1 IN RESPECT OF ADVANCES WRITTEN OFF, THE ASSESSE E COULD FILE BEFORE THE AO EVIDENCE TO THE EXTENT OF RS.46,00,000/- GIV EN TO WORKMEN AS ADVANCES AND SALE TAX REFUND. 3.2. THEREFORE, THE AO MADE AN ADDITION OF RS.1,15, 35,100/- (RS.47,60,185 /-+ RS.67,74,915/-) TO THE TOTAL INCO ME OF THE ASSESSEE. ITA NO. 3615/MUM/2012 4 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE F ILED AN APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) RELIED ON THE JUDGMENT OF THE HON'BLE SUPREME COURT IN TRF LTD. VS. CIT 323 ITR 397 (SC) AND DELETED THE ADDITION OF RS.47,60,185/- MADE BY THE AO TOWARDS BAD DEBTS. HOWEVER, AS THE ASSESSEE FAILED TO FILE THE DETAILS BEFORE THE AO, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE OF RS.67, 74,915/- MADE BY THE AO TOWARDS ADVANCES WRITTEN OFF. 5. BEFORE US, THE LD. COUNSEL OF THE ASSESSEE SUBMI TS THAT THE SAID ADVANCES / DEPOSITS HAD BEEN GIVEN TO VARIOUS PARTI ES DURING THE COURSE OF CARRYING ON BUSINESS AND DUE TO DISPUTES AND DEFAULTS OF THE COMPANY IN MEETING THE COMMERCIAL / TRADE OBLIGATIO NS, THE PARTIES REFUSED TO PAY BACK TO ADVANCES / DEPOSITS RESULTIN G INTO THE SAME BECOMING BAD AND HAVING WRITTEN OFF DURING THE AFOR ESAID FINANCIAL YEAR. THUS IT STATED THAT THE IRRECOVERABLE ADVANC ES / DEPOSITS CONSTITUTED REVENUE LOSS TO THE COMPANY DURING THE COURSE OF RUNNING OF BUSINESS AND THE SAME IS CLAIMED AS DEDUCTION U/ S 37(1) OF THE ACT. 6. THE LD. D.R. SUPPORTS THE ORDER PASSED BY THE LD . CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE FAILED TO FILE BEFORE THE AO (I) THE EVIDENCE TO SHOW THAT THE ADVANCES WERE MADE IN DUE COURSE OF BUSINESS, (II) WHETHER THE ADVANCES WERE FOR PURCHA SE OF ANY REVENUE ITEM OR CAPITAL ITEM, (III) NAMES AND ADDRESS OF TH E PARTIES AND (IV) WHETHER THE ADVANCES ARE ACTUALLY WRITTEN OFF IN TH E BOOKS OF ACCOUNTS. 7.1. IN CIT VS. CALCUTTA AGENCY LTD . (1951) I9 ITR 191 (SC), IT WAS HELD THAT THE BURDEN OF PROVING THE NECESSARY FACT IN ORDER TO ENTITLE THE ASSESSEE THE CLAIM EXEMPTION WAS ON THE ASSESSE E. IN NUND AND ITA NO. 3615/MUM/2012 5 SAMONT CO. (P) LTD. VS. CIT (1970) 78 ITR 268 (SC), IT IS HELD THAT IT IS FOR THE TAX PAYER TO ESTABLISH BY EVIDENCE THAT THE PARTICULAR AMOUNT IS DEDUCTIBLE. 8. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THE ABOVE ISSUE AND RESTORE THE SAME TO THE FILE OF THE AO TO MAKE AN ASSESSMENT AFRESH AS PER THE PROVISIONS OF THE ACT AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THE ASSESSEE IS DIRECTED TO FILE THE RELEVANT DETAILS BEFORE THE AO. 9. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIST ICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 24/04/2017 SD/- SD/- (JOGINDER SINGH) (N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI; DATED: 24/04/2017 RAHUL, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI