The ACIT, Circle-7, Ahmedabad V. M/s. Pooja Associates, Ahmedabad

ITA 3617/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5676 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 10 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-07-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: SMC
• Next Hearing Date: 02-07-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 03-09-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K M MAHESH
• Assessee Lawyers: M K PATEL

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL , AM) ITA NO.3617/AHD/2007 A.Y.: 2004-05 THE A. C. I. T., CIRCLE-7, 2 ND FLOOR NAVJIVAN TRUST BUILDING, OFF. ASHRAM ROAD, AHMEDABAD VS M/S. POOJA ASSOCIATES, 301, SURMOUNT, OPP. ISCON MALL, S. G. HIGHWAY, AHMEDABAD PA NO AACFP 1770 G (APPELLANT) (RESPONDENT) APPELLANT BY SHRI K. M. MAHESH, DR RESPONDENT BY SHRI M. K. PATEL, AR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XIII, AHMED ABAD DATED 21 ST JUNE, 2007 FOR ASSESSMENT YEAR 2004-05 ON THE FOLLOWING G ROUNDS: 1. THE LD. COMMISSIONER OF INCOME TAX (A)-XIII, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS.19,97,272/- ON ACCOUNT OF DISALLOWANCE OF BAD DEBT CLAIMED BY THE ASSESSEE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE LEARNED COMMISSIONER OF INCOME TAX (A)- XIII, AHMEDABAD OUGHT TO HAVE UPHELD THE ORDER OF THE ASSESSING OFFICER. 2. THE AO REJECTED THE CLAIM OF BAD DEBT AS ACCORDI NG TO HIM THE ASSESSEE HAS NOT FURNISHED ANY SATISFACTORY EXPLANA TION AS TO HOW THE SAID AMOUNT HAS BECOME IRRECOVERABLE. THE AO HAS AL SO HELD THAT THE ASSESSEE COULD NOT PROVE THAT THE DEBT UNDER CONSID ERATION HAS ACTUALLY BECOME BAD DURING THE CURRENT YEAR AS THE ASSESSEE ITSELF WAS FOUND ITA NO.3617/AHD/2007 AICT, CIR-7, AHMEDABAD VS M/S. POOJA ASSOCIATES, AH MEDABAD 2 MAKING SALES AND RECEIVING PAYMENT REGULARLY TILL A S LATE ON 29-03-2004 WHEREAS DEBT WAS WRITTEN OFF AT THE CLOSE OF THE YE AR. THE AO ACCORDINGLY REJECTED THE CLAIM OF THE ASSESSEE. IT WAS SUBMITTE D BEFORE THE LEARNED CIT(A) THAT REQUIREMENT OF THE LAW THAT DEBT HAS BE COME BAD, HAS BEEN DONE AWAY WITH BY AMENDMENT TO THE LAW. AS PER AMEN DED PROVISIONS OF SECTION 36 (I) (III), A CLAIM OF BAD DEBT IS TO BE ALLOWED IN THE YEAR IN WHICH SUCH DEBT HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. SINCE IN THE PRESENT CASE DEBT HAS UNDISP UTEDLY BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNT OF THE ASSESSEE, THE WR ITING OFF OF THE DEBT IS SUFFICIENT COMPLIANCE OF LAW AS LAID DOWN U/S 36(I) (VII) OF THE IT ACT. IT WAS FURTHER SUBMITTED THAT WRITING OFF OF THE DEBT WAS BASED UPON COMMERCIAL CONSIDERATION BECAUSE THE FINANCIAL COND ITION OF THE DEBTOR HAD GONE BAD WHO WAS NOT IN A POSITION TO PAY THE O UTSTANDING AMOUNT OF THE DEBT. THE LEARNED CIT(A) CONSIDERING THE SUB MISSIONS OF THE ASSESSEE DELETED THE ENTIRE ADDITION. HIS FINDINGS IN PARA 2.3 ARE REPRODUCED AS UNDER: 2.3 I HAVE CAREFULLY CONSIDERED THE VARIOUS ARGUM ENTS ADVANCED BY THE LD. AUTHORISED REPRESENTATIVE ON TH IS ISSUE. THE FACT THAT THE APPELLANT HAS WRITTEN OFF THE DEB T OF RS.19,97,242/- IN ITS BOOKS OF ACCOUNTS DURING THE RELEVANT ACCOUNTING YEAR, IS NOT DISPUTED BY THE LD. ASSESSI NG OFFICER. THE ASSESSING OFFICER HAS OBJECTED TO THE CLAIM OF BAD DEBT LODGED BY THE APPELLANT U/S. 36 (I) (VII) MAINLY ON THE GROUND THAT THE APPELLANT IS NOT ABLE TO ESTABLISH THAT TH E DEBT HAS ACTUALLY BECOME BAD DURING THE YEAR. THE ISSUE WHET HER THE AMENDED PROVISIONS OF THE LAW, AN ASSESSEE CAN CLAI M THE BAD DEBT BY MERELY WRITING OFF THE DEBT IN THE BOOK S AND SIMULTANEOUSLY WITHOUT PROVING THAT THE DEBT HAS AC TUALLY BECOME BAD, HAD BEEN A SUBJECT MATER OF VARIOUS CO URT DECISIONS. THE HONBLE GUJARAT HIGH COURT IN THE CA SE OF CIT V/S. GIRISH BHAGWAT PRASAD (2002) 256 ITR 772 (GUJ) (SUPRA) AS HAS BEEN RELIED UPON BY THE LD. AUTHORISED REPRE SENTATIVE LAYS DOWN THE LAW THAT AS A RESULT OF THE AMENDMENT OF SECTION 36(I) (VII) BY THE FINANCE ACT W. E. F. 1/4 /1989, AN ASSESSEE IS NO MORE REQUIRED TO ESTABLISH THAT DEBT HAS BECOME BAD IN THE RELEVANT ASSESSMENT YEAR IN WHICH THE CLAIM IS MADE. MERE WRITING OFF OF THE AMOUNT OF BA D DEBT IN ITA NO.3617/AHD/2007 AICT, CIR-7, AHMEDABAD VS M/S. POOJA ASSOCIATES, AH MEDABAD 3 THE BOOKS OF ACCOUNTS OF AN ASSESSED WILL BE A SUFF ICIENT COMPLIANCE OF THE LAW IN THIS REGARD. THE SPECIAL B ENCH DECISION OF THE ITAT MUMBAI IN THE CASE OF DY. CIT VS. OMAN INTERNATIONAL BANK (2006) 100 ITD 285 (MUM. TRIB) ( SUPRA) HAVE ALSO HELD THAT THE AMENDMENT MADE BY THE DIREC T TAX LAWS (AMENDMENT ACT 1987) W. E. F. 1/4/1989 HAS LIBERALIZED THE REQUIREMENT OF CLAIMING THE DEDUCTI ON OF BAD DEBT BY ALTOGETHER DOING AWAY WITH THE CONDITION PR ECEDENT OF THE SATISFACTION OF THE ASSESSING OFFICER THAT THE DEBT HAS BECOME BAD. AMENDED PROVISIONS OF SECTION 36 (I) (V II) PROVIDE THAT A CLAIM OF BAD DEBT IS TO BE ALLOWED IN THE YE AR IN WHICH SUCH BAD DEBT HAS BEEN WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. AMENDMENT HAS DONE AWAY W ITH THE REQUIREMENT OF ESTABLISHING THAT THE DEBT HAS B ECOME BAD. HE HONBLE MEMBERS HAVE ALSO HELD THAT THE RULE REG ARDING THE DEDUCTIBILITY OF BAD DEBT PROVIDED IN AMENDED S ECTION 36(I) (VII) IS A STATUTORY RULE BY ITSELF AND THEREFORE, THERE IS NO NEED FOR INSISTING FOR ANY OTHER PROOF. ONCE THAT STATUT ORY RULE IS SATISFIED, NO FURTHER OBLIGATIONS REMAIN TO BE DISC HARGED BY THE ASSESSEE. IN THE LIGHT OF THESE DECISIONS, THE CLAIM OF BAD DEBT HAS TO BE ALLOWED TO THE APPELLANT BECAUSE IT HAS WRITTEN OFF THE DEBT IN THE RELEVANT PREVIOUS YEAR THEREBY SATISFYING THE STATUARY REQUIREMENT OF THE LAW AS IS PROVIDED IN SECTION 36 (I) (VII) OF THE ACT. THE CIRCUMSTANTIAL EVIDENCE IN THIS CASE ALSO POINT OUT THAT THE DECISION OF THE APPELLANT TO WRITE OFF THI S PARTICULAR DEBT WAS BASED ON ITS REALISTIC ASSESSMENT ABOUT TH E FINANCIAL CONDITION OF THE DEBTOR AT THAT POINT OF TIME. OUT OF TOTAL AMOUNT OF RS.19,97,242/- WRITTEN OFF DURING F. Y. 2 004, THE APPELLANT COULD RECOVER ONLY RS.1,42,708/-, RS.18,0 55/- AND RS.7,933/- DURING F. Y. 05, F. Y. 06 AND F. Y. 07 RESPECTIVELY. KEEPING INTO ACCOUNT THIS INSIGNIFICANT AMOUNT OF R ECOVERY MADE IN THE FOLLOWING THREE YEARS, THE DECISION OF THE APPELLANT TO WRITE OFF THE DEBT APPEARS TO BE GUIDE D BY ITS BUSINESS CONSIDERATIONS. IN THIS BACKGROUND OF THE MATTER AND PARTICULARLY FOLLOWING WITH RESPECT, THE DECISION O F SPECIAL BENCH OF ITAT, MUMBAI AND ALSO THE JUDGMENT OF HON BLE GUJARAT HIGH COURT AS ARE REFERRED TO ABOVE, THE AP PELLANT IS HELD TO BE ENTITLED FOR THE CLAIM OF BAD DEBT OF RS .19,97,242/- AND ACCORDINGLY THE ADDITION OF RS.19,97,242/- IS D ELETED. 3. THE LEARNED DR RELIED UPON THE ORDER OF THE AO. ON THE OTHER HAND, ASSESSEE SUBMITTED THAT THE ISSUE IS NOW COVE RED BY JUDGMENT OF ITA NO.3617/AHD/2007 AICT, CIR-7, AHMEDABAD VS M/S. POOJA ASSOCIATES, AH MEDABAD 4 THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. L D. VS CIT 323 ITR 397. 4. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE AR E OF THE VIEW THAT THE ISSUE IS NOW FINALLY SETTLED BY THE HONBLE SUP REME COURT IN THE CASE OF T. R. F. LTD. (SUPRA) IN WHICH THE HONBLE SUPRE ME COURT HELD AS UNDER: THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT TH E DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTE N OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CR EDITED, THUS, CLOSING THE ACCOUNT OF THE CUSTOMER. IN THE C ASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DE BTORS. AS STATED ABOVE, THE ASSESSING OFFICER HAS NOT EXAMINE D WHETHER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OF F IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTA KEN BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REMITTED TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE- MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTE NT OF THE WRITE OFF. 5. THE ISSUE IS, THEREFORE, COVERED IN FAVOUR OF TH E ASSESSEE. THE DEPARTMENTAL APPEAL HAS NO MERIT. THE SAME IS ACCOR DINGLY DISMISSED. 6. AS A RESULT, DEPARTMENTAL APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 9-07-2010 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 9-07-2010 LAKSHMIKANT/- ITA NO.3617/AHD/2007 AICT, CIR-7, AHMEDABAD VS M/S. POOJA ASSOCIATES, AH MEDABAD 5 COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD