Covalense Technologies Private Limited , Hyderabad V. Dy. Commissioner of Income Tax , Circle-1(2), Hyderabad

ITA 372/Hyd/2019

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 5614 (ITAT-HYDERABAD)
• Duration Of Justice: 2 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-04-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2013-2014
• Appeal Filed On: 20-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PRASAD PUTCHA
• Keywords: Bonafide belief; Bad and doubtful debts; Set aside
• Section: 143(3); 13

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A , HYDERABAD BEFORE SMT. P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ITA NO. 372 /HYD/20 19 ASSESSMENT YEAR: 20 13 - 14 COVALENSE TECHNOLOGIES PRIVATE LIMITED, HYDERABAD. PAN: AACCC 7902 N VS. DCIT, CIRCLE - 1(2), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI PRASAD PUTCHA REVENUE BY: SHRI SUNIL KUMAR PANDEY, DR DATE OF HEARING: 18/02/2021 DATE OF PRONOUNCEMENT: 2 9 /04/2021 ORDER PER A. MOHAN ALANKAMONY, AM.: THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A) - 1, HYDERABAD IN APPEAL NO. 0220/15 - 16/DCIT, CIRCLE - 1(2)/CIT(A) - 1/HYD/2018 - 19, DATED 18/02/2019 PASSED FOR THE A.Y. 2013 - 14. 2. THE ASSESSEE HAS RAISED THREE GROUNDS IN ITS APPEAL HOWEVER THE CRUX OF THE ISSUE IS THAT: - THE LD. CIT (A) HAS ERRED IN CONFIRMING THE ORDER OF THE LD. AO WHO HAD MADE ADDITION OF RS. 1,27,10,995/ - 2 TOWARDS DISALLOWANCE OF BAD DEBTS WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PRIVATE LIMITED CO MPANY ENGAGED IN THE BUSINESS OF PROVIDING INFORMATION TECHNOLOGY RELATED CONSULTING SERVICES FILED ITS RETURN OF INCOME ON 23/09/2013 DECLARING TOTAL INCOME OF RS. 7,83,56,210/ - . THEREAFTER, THE CASE WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPL ETED U/S. 143(3) OF THE ACT VIDE ORDER DATED 18/12/2015 WHEREIN THE LD. AO MADE THE AFORESTATED ADDITION. 4. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LD. AO THAT THE ASSESSEE HAS DEBITED AN AMOUNT OF RS. 1,27,10,995/ - TO WARDS BAD DEBTS IN ITS PROFIT & LOSS ACCOUNT . THE LD. AO ALSO OBSERVED THAT THE BOARD RESOLUTION OF THE COMPANY DECLARING THE BAD DEBTS TO BE WRITTEN OFF IN THE BOOKS OF ACCOUNTS WAS DATED 15/7/2013 . IT WAS FURTHER NOTICED THAT A MAJOR PART OF THE DEBT WR ITTEN OFF WAS WITH RESPECT TO M/S. DELLOITTEE WHICH IS A HIGH RATED ORGANISATION. THERE WERE ALSO COMMUNICATIONS RECEIVED BY THE ASSESSEE FROM BY M/S. DELLOITTEE THAT THEY WOULD BE COMING FORWARD FOR SETTLEMENT. FROM THE ABOVE FACTS, THE LD. AO OPINED THAT THE BAD DEBTS CLAIMED BY THE ASSESSEE IS NOT GENUINE AT LEAST FOR THE RELEVANT AY AS THE BOARD RESOLUTION HAD TAKEN PLACE IN THE SUCCEEDING ASSESSMENT YEAR. THEREFORE, THE LD. AO DISALLOWED THE BAD DEBTS CLAIME D BY THE 3 ASSESSEE TO THE TUNE OF RS. 1,27,10,995/ - . ON APPEAL, THE LD. CIT (A) CONFIRMED THE ORDER OF THE LD. AO BY OBSERVING AS UNDER: - 5.3. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE, ASSESSMENT ORDER AND THE SUBMISSIONS OF THE APPELLANT. THE AP PELLANT SUBMITTED THAT THE BAD DEBTS MAINLY IDENTIFIED BASED ON THE RESOLUTION DATED 15/07/2013. SO, THE PROCEEDINGS ON THE TRANSACTION OF THE BAD DEBTS HAVE BEEN CARRIED OUT BY THE A.Y. 2014 - 15 AND NOT FOR THIS RELEVANT ASSESSMENT YEAR. ON VERIFICATION OF THE DETAILS SUBMITTED BY THE APPELLANT, THE TRANSACTIONS AND REPAYMENT WERE DONE DURING THIS RELEVANT A.Y. ONLY AND THERE IS NO OPENING BALANCE AS ON 29/03/2013 ALSO. HENCE, I AM IN AGREEMENT WITH THE ASSESSING OFFICER THAT THE APPELLANT HAS DONE TRANS ACTIONS DURING THIS RELEVANT A.Y. ALSO KEEPING IN VIEW THE ASSESSING OFFICERS OBSERVATIONS THAT THE RESOLUTION PASSED LATER ON, AFTER FINANCIAL YEAR ENDED, THE SUBMISSIONS OF THE APPELLANT IS NOT ACCEPTED. I AM IN AGREEMENT WITH THE ADDITION MADE BY THE ASSESSING OFFICER. HENCE, THE GROUND RAISED BY THE APPELLANT IS DISMISSED. 5. AT THE OUTSET, WE DO NOT FIND ANY MERIT IN THE ORDERS OF THE LD. REVENUE AUTHORITIES. FROM THE FACTS OF THE CASE , IT IS APPARENT THAT THE ASSESSEE HAS WRITTEN OFF THE AMOUNT RS. 1,27,10,995/ - AS BAD DEBTS WITH THE BONAFIDE BELIEF THAT A PORTION OF THE DEBT OF M/S. DELLOITTEE, CANNOT BE REALISED DUE TO BUSINESS PRUDENCE . THE ACCOUNTING STANDARDS ALSO PERMITS TO TAKE I NTO ACCOUNT OF THE EVENTS HAPPENING SUBSEQUENT TO THE DATE OF THE BALANCE SHEET WHILE DRAWING THE ACCOUNTS. UNLESS AND UNTIL SUCH EVENTS ARE TAKEN INTO ACCOUNT THE CORRECT INCOME OF THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR CANNOT BE ASCERTAINED. THERE FORE THE ASSESSEE HAD RIGHTLY WRITTEN OFF THE UN - REALIZABLE PORTION OF THE DEBT IN ITS BOOKS OF ACCOUNTS AS BAD DEBTS. THE HONBLE APEX COURT IN THE CASE OF TRF LIMITED VS. CIT REPORTED IN 323 ITR 397 HAS ALSO HELD AS FOLLOWS: - 4 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBTS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. 6. THEREFORE, CONSIDERING THE FACTS OF THE CASE AND FOLLOWING THE ABOVE STATED DECISION OF THE HONBLE APEX COURT, WE HEREBY SET ASIDE THE ORDER OF THE L D. CIT (A) AND DIRECT THE LD. AO TO DELETE THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF BAD DEBT S OF RS. 1,27,10,995/ - IN THE HANDS OF THE ASSESSEE. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THE 29 TH APRIL , 2020 . SD/ - SD/ - (P. MADHAVI DEVI) ( A. MOHAN ALANKAMONY ) JUDICIAL MEMBER ACCOUNTANT MEMBER HYDERABAD, DATED: 29 TH APRIL , 2020 OKK COPY TO: - 1) COVALENSE TECHNOLOGIES PRIVATE LIMITED, UNIT A, 5 TH FLOOR, KAPIL TOWERS, IT PARK, FINANCIAL DISTRICT, NANAKRAMGUDA, HYDERABAD. 2) DCIT, CIRCLE - 1(2), 7 TH FLOOR, B - BLOCK, IT TOWERS, AC GUARDS, HYDERABAD. 3) THE CIT (A) - 1, HYDERABAD. 4) THE PRINCIPAL COMMISSIONER OF INCOME TAX - 1, HYDERABAD. 5) THE DR, ITAT, HYDERABAD 6) GUARD FILE