Deputy Commissioner of Income-tax, V. M/s. Tranter India Pvt. Ltd., Pune

ITA 377/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9372 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-02-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 07-02-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 09-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MANOJ SOLANKI
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE , . , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKAR A RAO, AM . / ITA NO.377/PUN/2016 / ASSESSMENT YEAR : 2010-11 DY. COMMISSIONER OF INCOME-TAX, CIRCLE-7, PUNE . /APPELLANT VS. M/S. TRANTER INDIA PVT. LTD., GAT NO.127 & 128, DHINGRAJWADI, TALUKA SHIRURU, OFF PUNE NAGAR ROAD, PUNE 412 208 PAN : AAFCA4598P . / RESPONDENT . / ITA NO.478/PUN/2016 / ASSESSMENT YEAR : 2010-11 M/S. TRANTER INDIA PVT. LTD., GAT NO.127 & 128, DHINGRAJWADI, TALUKA SHIRUR, OFF PUNE NAGAR ROAD, PUNE 412 208 PAN : AAFCA4598P . /APPELLANT VS. DY. COMMISSIONER OF INCOME-TAX, CIRCLE-7, PUNE . / RESPONDENT ASSESSEE BY : SHRI MANOJ SOLANKI REVENUE BY : SHRI PRASHANT GADEKAR / DATE OF HEARING : 07.02.2018 / DATE OF PRONOUNCEMENT: 09.02.2018 / ORDER PER D. KARUNAKARA RAO, AM : THESE ARE THE CROSS APPEALS FILED BY REVENUE AS WEL L AS THE ASSESSEE IN CONNECTION WITH THE FINDING OF THE CIT(A) VIDE HIS ORDER DATED 22-12-2015 FOR THE ASSESSMENT YEAR 2010-11. ITA NOS.377 & 478/PUN/2016 M/S. TRANTER INDIA PVT. LTD.. 2 2. BRIEFLY STATED, GENERAL FACTS RELATING TO THE AS SESSEES CASE INCLUDE THAT THE ASSESSEE IS ENGAGED IN THE MANUFACTURING AND SALE O F VARIOUS TYPES OF HEAT EXCHANGERS. ASSESSEE FILED THE RETURN OF INCOME FO R THE A.Y. 2010-11 DECLARING TOTAL INCOME OF RS.3.80 CRORES (ROUNDED OFF). AT T HE END OF THE ASSESSMENT PROCEEDINGS U/S.143(3) OF THE ACT, THE ASSESSED INC OME WAS DETERMINED AT RS.5.16 CRORES (ROUNDED OFF) AFTER MAKING CERTAIN ADDITIONS /DISALLOWANCES. THE DISALLOWANCES ON ACCOUNT OF BAD DEBTS AND PROVIS ION OF WARRANTY ARE TWO OF THEM. IN THE FIRST APPELLATE PROCEEDINGS, THE CIT( A) GRANTED RELIEF TO THE ASSESSEE ON THE ADDITION RELATING TO THE PROVISION OF WARRA NTY. AGGRIEVED WITH THE SAME, THE REVENUE IS IN APPEAL ON THIS ISSUE. FURTHER, R EGARDING THE BAD DEBTS, THE CIT(A) CONFIRMED THE ADDITION AND DECIDED AGAINST T HE ASSESSEE. AGGRIEVED WITH THE SAID CONCLUSION OF THE CIT(A), THE ASSESSEE IS IN APPEAL ON THIS ISSUE OF BAD DEBTS. 3. WE SHALL NOW TAKE UP THE APPEAL-WISE ADJUDICATIO N IN THE FOLLOWING PARAGRAPHS. ITA NO.377/PUN/2016 (BY REVENUE) 4. GROUNDS RAISED BY THE REVENUE READ AS UNDER : 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F CASE AND IN LAW, THE LD.CIT(A) WAS JUSTIFIED IN ALLOWING THE PROVISIONS OF WARRANTY EXPENSES OF RS.1,05,40,638/- AS AN ALLOWABLE DEDUCTION U/S.37 O F THE ACT? 2. WITHOUT PREJUDICE TO THE ABOVE, WHETHER ON THE F ACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD.CIT(A) ERRED IN N OT RESTRICTING THE ALLOWANCE TO RS.17,37,265/- BEING ACTUAL WARRANTY COST DURING TH E YEAR AS HELD BY HONBLE ITAT, PUNE IN THE CASE OF KALYANI BRAKES LTD. (ITA NO.578 & 579/PN/09)? 5. THE ONLY ISSUE RAISED IN THE GROUNDS EXTRACTED A BOVE RELATE TO THE PROVISION OF WARRANTY. ASSESSEE CLAIMED EXPENSES ON THIS ACC OUNT AMOUNTING TO RS.1,05,40,638/- U/S.37 OF THE ACT. OUT OF THE ABO VE, ACTUAL UTILISATION OUT OF THE ITA NOS.377 & 478/PUN/2016 M/S. TRANTER INDIA PVT. LTD.. 3 PROVISION WAS ONLY RS.17,37,265/-. IT IS THE CASE OF AO, LIKE IN OTHER YEARS, WARRANTY PROVISION CREATED BY THE ASSESSEE DOES NOT MATCH WITH THE ACTUAL UTILISATION TOWARDS THE WARRANTY CLAIMS OF THE CUST OMERS. THEREFORE, AO QUESTIONED THE WAY THE PROVISION IS CREATED BY THE ASSESSEE. EVENTUALLY, AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE, AO DISALLOWED THE ENT IRE CLAIM OF THE ASSESSEE. AO DID NOT ALLOW EVEN THE ACTUAL EXPENDITURE OF RS.17, 37,265/- IN THE ASSESSMENT. RELEVANT PARA/LINES ARE EXTRACTED AS FOLLOWS : 6. . . . . . . . . . . . . . . . . . . THUS, ON THE ABOVE REASONING I AM SATISFIED THAT IN THE PRESENT CASE, ESTIMATION FOR PROVISION IS NOT SCIENTIFIC AND SENSIBLE AND THE LI ABILITY CREATED BY WAY OF PROVISION BECOMES A CONTINGENT LIABILITY AND THE SAME IS NOT ALLOWABLE UNDER THE INCOME TAX ACT. IN VIEW OF THAT AN AMOUNT OF RS.1,05,40,638/- IS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. . . . . . . 6. DURING THE FIRST APPELLATE PROCEEDINGS ON THIS I SSUE, ASSESSEE MADE ELABORATE SUBMISSIONS VIDE HIS LETTER DATED 09-12-2 015 AND SUBMITTED THAT SIMILAR ISSUE WAS SUBJECT MATTER OF ADJUDICATION BEFORE THE FIRST APPELLATE AUTHORITY FOR THE A.Y. 2008-09 AND THE CIT(A) IN THAT CASE ALLOWED TH E CLAIM OF THE ASSESSEE RELATING TO THE PROVISION OF WARRANTY. IN EFFECT, THE CIT(A ) APPROVED THE METHOD OF ARRIVING THE PROVISION CREATED BY THE ASSESSEE. THERE WAS D ETAILED DISCUSSION BY THE CIT(A) IN THE IMPUGNED ORDER ABOUT THE SCIENTIFIC METHOD O F ACCOUNTING THE PROVISION OF WARRANTY. HE ALSO DISCUSSED THE FACTS RELATING TO THE WRITE BACK OF THE EXCESS PROVISION FOR THE TAXATION IN THE SUBSEQUENT YEAR A ND COMMENTED ABOUT THE ABSENCE OF ANY ESCAPEMENT OF INCOME ON THIS ACCOUNT OF PROVISION OF WARRANTY. AS PER THE DETAILED DISCUSSION GIVEN IN PARA NO.3.6 OF THE ORDER OF CIT(A), THE RELIEF WAS GRANTED AND THE PROVISION FOR WARRANTY WAS FOUN D ALLOWABLE BY THE CIT(A). AGGRIEVED WITH THE SAME, THE REVENUE IS IN APPEAL W ITH THE ABOVE GROUNDS. IT IS THE CASE OF THE REVENUE THAT CIT(A) ERRED IN ALLOWI NG THE ENTIRE CLAIM OF ITA NOS.377 & 478/PUN/2016 M/S. TRANTER INDIA PVT. LTD.. 4 RS.1,05,40,638/-. ALTERNATIVELY, CIT(A) ERRED IN N OT RESTRICTING TO THE ACTUAL EXPENDITURE OF RS.17,37,265/-. 7. LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORD ERS OF THE AO/CIT(A). HOWEVER, HE HAS NOTHING TO COMMENT ON THE FINDING O F THE CIT(A) ON THE SAME ISSUE IN THE A.Y. 2008-09. 8. PER CONTRA, BEFORE US ON THIS ISSUE, LD. COUNSEL FOR THE ASSESSEE BROUGHT OUR ATTENTION TO THE ABOVE-MENTIONED FACTS. HE ALSO RE LIED ON THE REVENUES DIVERGENT STAND ON THIS ISSUE IN DIFFERENT YEARS. HE BROUGHT OUR ATTENTION TO THE FACT RELATING TO THE RELIEF GRANTED BY THE CIT(A) IN THE A.Y. 200 8-09 ON THIS ISSUE WHICH BECAME FINAL NOW. DURING THE SECOND APPEAL ON THIS ISSUE FOR THE SAID ASSESSMENT YEAR, IT IS A FACT THAT PUNE BENCH OF THE TRIBUNAL DISMISSED TH E APPEAL FILED BY THE REVENUE ON TECHNICAL GROUND VIDE ITA NO.339/PN/2015 ORDER DATE D 30-12-2015. HOWEVER, THE FACT IS THAT THE ISSUE OF PROVISION FOR WARRANTY FO R THAT YEAR HAS BECOME FINAL AND ALLOWABLE AS CLAIMED U/S.37 OF THE ACT. LD. COUNSE L FOR THE ASSESSEE READ OUT THE CONTENTS OF PARA NO.3.6 OF THE ORDER OF CIT(A) FOR THE A.Y. 2008-09 WHERE THE PROVISION CREATED IS RS.18,68,049/- AND UTILISED RS .18,01,403/-. THE SAME IS FOUND RELEVANT FOR EXTRACTION AND THE SAME IS REPRODUCED HERE AS UNDER : 3.6 BASED ON THE TESTS LAID DOWN BY THE HONBLE SU PREME COURT (IN CASE OF ROTORK CONTROLS INDIA PVT. LTD.) AS DISCUSSED IN PA RA 3.4 SUPRA, THE FACTS OF THE PRESENT CASE VIS-A-VIS THE ABOVE FIGURES WERE ANALY ZED. IT HAS BEEN SUBMITTED THAT THE PROVISION CREATED DURING THE YEAR IS BASED ON 0.4 % OF THE SALE PRICE OF EQUIPMENT) BASED ON THE EXPERIENCE ON THE TRANTER G ROUP SINCE THIS IS ONLY THE SECOND YEAR OF COMMERCIAL OPERATIONS. THE APPELLANT HAS ALSO UTILIZED RS.18, 01,403/- DURING THE IMPUGNED YEAR IN ORDER TO PROVI DE THE REPAIRS AND REPLACEMENT TO ITS CUSTOMERS. THIS AMOUNT HAS BEEN CREDITED TO THE PROFIT & LOSS ACCOUNT. . . . . . . . . . . . . . . .. . . . . . . . . . .THE APPELLA NT HAS ALSO CONSISTENTLY IN THE CURRENT YEAR AS WELL AS SUBSEQUENT FY REVERSED THE AMOUNT UTILIZE D TO THE PROVISION FOR WARRANTY'S ACCOUNT, AS THE AFORESTATED TABLE WOULD SHOW. ON THE OTHER HAND, THE RATIO ADOPTED BY THE A.O. TO ARRIVE AT THE FINDING THAT THE PROVISIONING HAS BEEN MADE ON AN ARBITRARY AND NON-SCIENTIFIC BASIS DOES NOT APPEAR TO BE VERY APPROPRIATE AS IS SEEN HAVE BEEN COMPLETED ON THE T OTAL SALES, WHEREAS THE APPELLANT DOES NOT PROVIDE WARRANTY ON SALES MADE T O GROUP COMPANIES. THE COMPARISON BY THE ASSESSING OFFICER IS ALSO INAPPRO PRIATE AS THE RATIO HAVE BEEN ARRIVED ON THE BASIS OF TOTAL OUTSTANDING WARRANTY LIABILIT Y AT THE END OF THE ITA NOS.377 & 478/PUN/2016 M/S. TRANTER INDIA PVT. LTD.. 5 YEAR INSTEAD OF THE WARRANTY PROVIDED DURING THE YE AR. ACCORDINGLY, BASED ON THE AFORESTATED DISCUSSION, IT WOULD BE SAID THA T THE WARRANTY PROVISIONING BY THE APPELLANT HAS BEEN MADE ON SCIENTIFIC AND REASONABL E BASIS AND WOULD REPRESENT LIABILITY IN PRAESENTI AND NOT CONTINGENT LIABILITY AND IS THEREFORE ALLOWABLE DEDUCTION U/S.37 OF THE INCOME TAX ACT. GROUND NO.1 STANDS ALLOWED. 9. FURTHER, LD. COUNSEL FOR THE ASSESSEE BROUGHT OU R ATTENTION TO THE DETAILS OF THE PROVISION OF WARRANTY CREATED AND UTILISED OVER THE YEARS SINCE THE A.Y. 2007-08 ONWARDS TILL THE A.Y. 2013-14. THE DATA IS AVAILAB LE IN PARA 6 OF THE ASSESSMENT ORDER. FOR THE SAKE OF COMPLETENESS, WE EXTRACT TH E RELEVANT DATE HERE AS UNDER : PARTICULAR FY 2012-13 FY 2011-12 FY 2010-11 FY 2009 -10 FY 2008-09 FY 2007-08 FY 2006-07 NET SALES ON WHICH WARRANTY IS PROVIDED 828,218,504 874,449,544 862,073,067 705,622,938 627 ,253,865 459,763,396 272,291856 ACTUAL WARRANTY UTILISED DURING THE YEAR TOWARDS CUSTOMER CLAIMS 8,365,657 13,129,972 4,137,073 1,737,265 836,093 1, 801,403 -- WARRANTY PROVISION MADE DURING THE YEAR 13,386,605 3,855,948 8,063,724 10,540,538 836,093 1 ,868,049 2,397,676 EXPLAINING THE ABOVE DATA, LD. COUNSEL SUBMITTED TH AT THE ASSESSEE DID NOT UTILISE ANY OF THE PROVISION CREATED IN THE ASSESSMENT YEAR 2007-08. FURTHER, THE PROVISION CREATED AND THE UTILISED AMOUNT ARE MORE OR LESS THE SAME FOR THE A.YRS. 2008-09 AND 2009-10. REFERRING TO THE DATA AVAILAB LE RELEVANT FOR THE A.Y. 2012- 13, LD. COUNSEL SUBMITTED THAT THE PROVISION CREATE D IS ONLY RS.38,55,948/- AGAINST THE UTILISED AMOUNT OF RS.1.31 CRORES. BRINGING OU R ATTENTION TO THE CURRENT YEARS DATA, ASSESSEE HAD TO CREATE A PROVISION OF RS.1,05 ,40,638/- AGAINST THE UTILISED AMOUNT OF RS.17,37,268/-. LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE EXCESS PROVISION MADE WAS CREDITED TO THE PROFIT AND LOSS ACCOUNT IN THE SUBSEQUENT ASSESSMENT YEAR THEREBY NO LOSS OF REVENUE IS CAUSE D BY THE ASSESSEE. FURTHER, HE MENTIONED THAT CREATION OF PROVISION OF WARRANTY IN ANY ASSESSMENT YEAR CONSTITUTES A BUSINESS DECISION OF THE ASSESSEE WHICH NEED NOT BE DISTURBED BY THE REVENUE SO LONG AS THE ESTIMATION HAS A RELIABLE BASIS AND THE EXCESS PROVISION IS OFFERED TO TAX IN THE SUBSEQUENT ASSESSMENT YEAR. BRINGING OUR AT TENTION TO THE ABOVE DATA, LD. ITA NOS.377 & 478/PUN/2016 M/S. TRANTER INDIA PVT. LTD.. 6 COUNSEL SUBMITTED THAT THE ASSESSEE HAS BEEN CONSIS TENTLY FOLLOWING THE PRINCIPLE OF ESTIMATION BASED ON 0.4% OF THE SALES PRICE OF THE EQUIPMENT BASED ON THE EXPERIENCE OF THE TRANTER GROUP. HE ALSO MENTIONED THAT THE WARRANTY BECOMES PAYABLE ALTHOUGH THE SALES PERTAIN TO THE EARLIER A SSESSMENT YEARS. THUS, HE PLEADED FOR CONFIRMING THE ORDER OF CIT(A). 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AS WELL AS THE DATA PLACED BEFORE US FOR A DECISION IN THE LIGHT OF THE APEX COURT JUDGMENT IN THE CASE OF ROTORK CONTROLS INDIA PVT. LTD. VS. CIT 314 ITR 62. ON PERUSAL OF THE SAID JUDGMENT, WE FIND THE APEX COUR T EXPLAINED THE CONDITIONS RELATING TO THE ALLOWABILITY OF THE EXPENSES OF PRO VISION FOR WARRANTY. RELEVANT LINES FROM THE HELD PORTION IS EXTRACTED AS UNDER : HELD. . . . . . . . . . . . . . . . . . THE PRESENT VALUE OF A CONTINGENT LIABILITY, LIKE T HE WARRANTY EXPENSE, IF PROPERLY ASCERTAINED AND DISCOUNTED ON ACCRUAL BASIS CAN BE AN ITEM OF DEDUCTION UNDER SECTION 37. THE PRINCIPLE OF ESTIMATION OF THE CON TINGENT LIABILITY IS NOT THE NORMAL RULE. IT WOULD DEPEND ON THE NATURE OF THE BUSINES S, THE NATURE OF SALES, THE NATURE OF THE PRODUCT MANUFACTURED AND SOLD AND THE SCIENT IFIC METHOD OF ACCOUNTING ADOPTED BY THE ASSESSEE. IT WOULD ALSO DEPEND UPON THE HISTORICAL TREND AND UPON THE NUMBER OF ARTICLES PRODUCED. A PROVISION IS A LIABILITY WHICH CAN BE MEASURED ON LY BY USING A SUBSTANTIAL DEGREE OF ESTIMATION. A PROVISION IS RECOGNIZED WHEN : (A ) AN ENTERPRISE HAS A PRESENT OBLIGATION AS A RESULT OF A PAST EVENT; (B) IT IS P ROBABLE THAT AN OUTFLOW OF RESOURCES WILL BE REQUIRED TO SETTLE THE OBLIGATION, AND (C) A RELIABLE ESTIMATE CAN BE MADE OF THE AMOUNT OF THE OBLIGATION. IF THESE CONDITIONS ARE NOT MET, NO PROVISION CAN BE RECOGNIZED. 11. FROM THE ABOVE FACTS AS WELL AS THE LEGAL PROPO SITION, IT IS EVIDENT THAT THE PROVISION CAN BE ALLOWED AN A ALLOWABLE DEDUCTION S UBJECT TO THE CONDITIONS. IT IS A DECIDED ISSUE, IN PRINCIPLE, THE PROVISION FOR WARR ANTY IS AN ALLOWABLE EXPENDITURE SUBJECT TO THE RELIABLE ESTIMATIONS LINKED TO THE A SSESSEES OBLIGATION TO DISCHARGE THE WARRANTIES GUARANTEED BY THE ASSESSEE AT THE TI ME OF THE PRODUCT SALES. IN PRINCIPLE, THE RELIABLE ESTIMATION IS ALSO A MATTER OF ESTIMATIONS. SUCH ESTIMATION ITA NOS.377 & 478/PUN/2016 M/S. TRANTER INDIA PVT. LTD.. 7 MAY BE MORE IN A YEAR OR LESS IN OTHER YEAR. IN TH E PRESENT CASE, THE ASSESSEE ESTIMATED THE PROVISION AT RS.1,05,40,638/- AND THE BASIS OF THE SAID ESTIMATION IS NOT FOUND ERRONEOUS BY THE AO. THE CASE OF THE REV ENUE IS THAT THE CLAIM IS NOT ALLOWABLE AS THE SAME IS ONLY A PROVISION OF WARRAN TY. INFACT, THE REVENUE DID NOT EVEN ALLOW THE ACTUAL EXPENDITURE OF RS.17,37,265/- SURPRISINGLY. REVENUE RAISED AN ALTERNATIVE GROUND ON THIS PART OF THE DECISION OF THE CIT(A). FROM THIS POINT OF VIEW, WHEN THERE IS NO ERROR NOTED BY THE AO IN THE CONSISTENCY PRINCIPLE OF ESTIMATION OF 0.4% OF THE SALES PRICE ADOPTED BY TH E ASSESSEE TOGETHER WITH THE FACT THAT THE ASSESSEE WRITES BACK THE EXCESS PROVI SION AS INCOME OF THE ASSESSEE IN THE SUBSEQUENT YEARS, WE FIND NO REASON TO ALLOW TH E GROUNDS RAISED BY THE REVENUE. THEREFORE, WE ARE OF THE VIEW THAT THE DE CISION OF CIT(A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENC E. CONSEQUENTLY, THE GROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. GROUND NO.2 BE ING AN ALTERNATIVE GROUND IS DISMISSED AS ACADEMIC. 12. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ITA NO.478/PUN/2016 (BY ASSESSEE) 13. ASSESSEE FILED THIS APPEAL ON THE SOLITARY ISSU E RELATING TO THE WRITE OFF OF THE BAD DEBTS AMOUNTING TO RS.10,08,993/-. 14. GROUND RAISED BY THE ASSESSEE READS AS UNDER : 1. DISALLOWANCE OF BAD DEBTS : THE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF AN AMOUNT OF RS.10,08,993/- IN RESPECT OF AMOUNTS WRITTEN OFF BY THE APPELLANT AS BAD DEBTS, ON THE GROUND THAT THE APPELLANT HAS FAILED TO ESTABLISH THAT DURING T HE YEAR THE DEBTS IN QUESTION HAVE BECOME BAD. THE APPELLANT PRAYS THAT THE AFORESAID DISALLOWANCE OF RS.10,08,993/- SHOULD BE DELETED AND SUCH AMOUNT SHOULD BE ALLOWED AS A DEDUCTION IN COMPUTING THE TOTAL INCOME OF THE APPELLANT. ITA NOS.377 & 478/PUN/2016 M/S. TRANTER INDIA PVT. LTD.. 8 15. RELEVANT FACTS AND BACKGROUND OF THIS ISSUE INC LUDE THAT THE ASSESSEE CLAIMED RS.20,29,627/- IN THE RETURN OF INCOME. ON SCRUTINY OF THE ACCOUNTS U/S.143(3) OF THE ACT, AO NOTICED THAT FIVE OF THE DEBTORS NAMELY, GUJARAT STATE ELECTRICITY BOARD, CONTROLLER OF STORES, DY. CHIEF MATERIAL MANAGER, SOUTH CENTRAL RAILWAYS, FERTILISERS AND CHEMICALS TRAVANCORE LTD. , CONSTITUTE GOVERNMENTAL BODIES/PUBLIC SECTOR UNDERTAKINGS. THE TOTAL DEBTS RECEIVABLE BY THE ASSESSEE FROM THESE GOVERNMENT BODIES WORKS OUT TO RS.10,08,993/- . RELYING ON THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF SOUTH INDI A SURGICAL COMPANY LTD. VS. ACIT 287 ITR 62, WHICH IS RELEVANT FOR THE PROPOSIT ION THAT THE GOVERNMENT CANNOT BE A BAD DEBTOR, THE AO DISTINGUISHED THE SUPREME C OURT JUDGMENT IN THE CASE OF TRF LTD. VS. CIT 190 TAXMANN 391 (SC) AND PROCEEDED TO MAKE DISALLOWANCE BY GIVING THE FOLLOWING FINDING (PARA NO. 7 OF THE AO) : THE HONBLE SUPREME COURT HELD IN THE ABOVE CASE T HAT IT IS ENOUGH IF THE BAD DEBTS IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUN TS OF THE ASSESSEE. THE DECISION OF THE HONBLE SUPREME COURT SUPPORTS THE VIEW THAT IT IS ONLY THE BAD DEBTS WHICH CAN BE AS IRRECOVERABLE IN THE BOOKS OF ACCOUNTS AN D NOT ONLY DEBTS. THE DECISION OF THE HONBLE SUPREME COURT FORTIFIES THE STAND OF THE REVENUE THAT IT IS ONLY BAD DEBTS THAT CAN BE WRITTEN OFF EVEN AFTER THE AMENDM ENT TO SECTION 36(1)(VII). IN VIEW OF THAT AN AMOUNT OF RS.1,00,89,936/- ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. PENALTY PROCEEDINGS U/S.271(1)(C) AR E INITIATED SEPARATELY FOR CONCEALMENT AND FURNISHING INACCURATE PARTICULARS O F INCOME. 16. DURING THE FIRST APPELLATE PROCEEDINGS, THE ASS ESSEE FURNISHED WRITTEN SUBMISSIONS AND RELIED HEAVILY ON THE APEX COURT JU DGMENT IN THE CASE OF TRF LTD. (SUPRA). IT IS RELEVANT FOR THE LEGAL PROPOSITION THAT IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THE DEBT INFACT HAS BECOME IR RECOVERABLE AND IT IS ENOUGH THAT THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. THUS, THE ASSESSEE DEMONSTRATED BEFORE THE CIT(A) A BOUT THE FACTS RELATING TO THE WRITE OFF IN THE BOOKS OF ACCOUNT OF THE ASSESSEE A S IRRECOVERABLE. REGARDING THE JUDGMENT OF MADRAS HIGH COURT IN THE CASE OF SOUTH INDIA SURGICAL COMPANY LTD. ITA NOS.377 & 478/PUN/2016 M/S. TRANTER INDIA PVT. LTD.. 9 (SUPRA), ASSESSEE SUBMITTED THE SAME IS DISTINGUISH ABLE ON FACTS. FURTHER, ASSESSEE SUBMITTED THAT THE ORDER OF MUMBAI BENCH OF THE TRI BUNAL IN THE CASE OF HINDUSTAN THOMPSON ASSOCIATES PVT. LTD. VS. CIT (2012) 25 TAX MANN.COM 243 IS RELEVANT AND FAVOURABLE TO THE FACTS OF THE PRESENT CASE. IN TH E SAID CASE, THE TRIBUNAL REJECTED THE CONTENTION OF THE REVENUE AND HELD THAT THE WRI TE OFF OF THE SHORT PAYMENTS AS IRRECOVERABLE FROM THE CUSTOMERS AGAINST THE BILLS RAISED BASED ON THE COMMERCIAL CONSIDERATION, CONSTITUTES AN ALLOWABLE DEDUCTION. THE CIT(A) CONSIDERED THE ABOVE SUBMISSIONS OF THE ASSESSEE AND THE CASE LAWS AND CONFIRMED THE ADDITION MADE BY THE AO. HOWEVER, THERE IS NO DISPUTE ON TH E FACT THAT THE DEBTS IN QUESTION RELATE TO THE SHORT PAYMENTS ON THE SALE P RICE RAISED ON THE DEBTORS AND NOT THE ENTIRE SALE VALUE. HE ALSO DID NOT CONSIDE R THE FACT THAT THE BALANCE AMOUNTS WERE NEVER TO BE PAID TO THE ASSESSEE AS TH EY RELATE TO THE REDUCTIONS IN SALE PRICE DUE TO DELAY IN SUPPLY OF MATERIAL, THE QUALITY THEREOF ETC. HE ALSO DID NOT MENTION ABOUT HOW THE DECISION OF THE MUMBAI BE NCH OF THE TRIBUNAL IN THE CASE OF HINDUSTAN THOMPSON ASSOCIATES PVT. LTD. VS. CIT (SUPRA) IS INAPPLICABLE IN FACTS OF THE PRESENT CASE. 17. AGGRIEVED WITH THE SAID DECISION OF CIT(A), AS SESSEE FILED THE PRESENT APPEAL WITH THE GROUNDS EXTRACTED ABOVE. 18. BEFORE US, LD. COUNSEL BROUGHT OUR ATTENTION TO THE GROUND AND SUBMITTED THAT THE DECISION OF THE CIT(A) IS NOT LEGALLY SUST AINABLE. THE CIT(A) HELD ERRONEOUSLY THAT THE ASSESSEE NEEDS TO ESTABLISH TH AT THE DEBT IN QUESTION HAS BECOME BAD. THERE IS NO DISPUTE ABOUT THE FACT OF WRITE OFF OF THE SAID DEBT AS IRRECOVERABLE IN THE BOOKS OF ACCOUNT OF THE ASSESS EE. MENTIONING THE FACTS, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE DEBT AM OUNTS IN QUESTION, I.E. RS.5,10,946/-, RS.55,473/-, RS.3,67,846/-, RS.12,84 8/-, RS.61,880/- (PARA 7 OF THE AOS ORDER) AND THEY REFLECT THE BALANCE OF AMOUNTS RECEIVABLE FROM THE ITA NOS.377 & 478/PUN/2016 M/S. TRANTER INDIA PVT. LTD.. 10 GOVERNMENTAL BODIES AND THE SAME ARE RELATABLE TO T HE REDUCTIONS MADE BY THE DEBTORS DUE TO BAD DELIVERY/DELAY IN DELIVERY OF TH E GOODS TO THE GOVERNMENT BODIES. FROM THIS POINT OF VIEW, IT IS THE ARGUMEN T OF LD. COUNSEL FOR THE ASSESSEE, STRICTLY SPEAKING, THESE ARE NOT BAD DEBTS. THEY A RE A KIND OF DISCOUNTS DEMANDED BY THE DEBTORS OUT OF THE SALE PRICE FOR NOT COMPLY ING WITH THE DELIVERY SCHEDULES. SINCE THE ASSESSEE HAS ALREADY COMPLIED WITH THE LE GAL REQUIREMENT OF WRITING OFF IN THE BOOKS OF THE ACCOUNTS AS IRRECOVERABLE, IT IS G OOD ENOUGH FOR APPLYING THE RATIO LAID DOWN BY THE HONBLE APEX COURT IN THE CASE OF TRF LTD. (SUPRA). THUS, THE LD. COUNSEL PRAYED FOR REVERSING THE ORDER OF THE AO/CI T(A) ON THIS ISSUE AND ALLOW THE GROUND RAISED BY THE ASSESSEE. 19. IN REPLY, LD. DR FOR THE REVENUE RELIED HEAVILY ON THE ORDERS OF THE AO AND THE CIT(A) DUTIFULLY. HE ALSO RELIED ON THE JUDGME NT OF HONBLE MADRAS HIGH COURT IN THE CASE OF SOUTH INDIA SURGICAL COMPANY LTD. (S UPRA). HOWEVER, HE HAS NOT CONTROVERTED THE FACTS RELATING TO THE NATURE OF DE BTS WHICH ARE BASICALLY DISCOUNTS OR REDUCED/ADJUSTED SALE PRICE DUE TO DELAY IN DELI VERIES OF THE MATERIAL BY THE ASSESSEE TO THE SAID GOVERNMENTAL BODIES/PUBLIC SEC TOR UNDERTAKINGS. 20. WE HAVE HEARD BOTH THE PARTIES ON THIS ISSUE RE LATING TO BAD DEBTS AND PERUSED THE ORDERS OF THE REVENUE AS WELL AS THE PA PER BOOK FILED BEFORE US. THERE IS NO DISPUTE ON THE FACTS THAT THE PARTIES INVOLVE D ARE THE GOVERNMENTAL BODIES (MINISTRY OF RAILWAYS/STATE ELECTRICITY BOARD/PUBLI C SECTOR UNDERTAKINGS). FURTHER, WE FIND THAT THE DEBTS IN QUESTION DIRECTLY RELATED TO THE REDUCED SALES PRICE. IT IS ALSO AN UNDISPUTED FACT THAT THE BALANCE AMOUNTS RE CEIVABLE BY THE ASSESSEE ARE NEVER TO BE RECEIVED AS THEY RELATE TO THE DISCOUNT ED SALES PRICE OWING TO DELAY IN DELIVERY OF THE MATERIAL TO THE SAID GOVERNMENTAL B ODIES. FURTHER, WE ALSO NOTICED THAT ASSESSEE HAS ACTUALLY WRITTEN OFF THESE DEBT A MOUNTS AS IRRECOVERABLE IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. CONSIDERING ALL THESE FACTS, IN OUR OPINION, THESE ITA NOS.377 & 478/PUN/2016 M/S. TRANTER INDIA PVT. LTD.. 11 FACTS ARE NOT COMPARABLE TO THE FACTS DISCUSSED IN THE JUDGMENT OF HONBLE MADRAS HIGH COURT IN THE CASE OF SOUTH INDIA SURGICAL COMP ANY LTD. (SUPRA). CONSEQUENTLY, THE RATIO OF THE HONBLE APEX COURT J UDGMENT IN THE CASE OF TRF LTD. (SUPRA) BECOMES APPLICABLE TO THE FACTS OF THE PRES ENT CASE. FROM THIS POINT OF VIEW, WE ARE OF THE OPINION THAT THE ORDER OF CIT(A )/AO ARE REQUIRED TO BE REVERSED. ACCORDINGLY, THE SOLITARY GROUND RAISED BY THE ASSESSEE IS ALLOWED. 21. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. 22. TO SUM UP, APPEAL OF THE REVENUE IS DISMISSED A ND THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 09 TH DAY OF FEBRUARY, 2018. SD/- SD/- (SUSHMA CHOWLA) (D.KARUNAKARA RAO ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER / PUNE; DATED : 09 TH FEBRUARY, 2018. SATISH / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. ( ) / THE CIT(A) - 5 , PUNE 4. / THE CIT - 5 , PUNE 5. , , / DR B, ITAT, PUNE; 6. / GUARD FILE. / BY ORDER, //TRUE COPY// //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE