The DCIT, Circle-5, Ahmedabad V. Ratnamani Metals & Tubes Ltd., Ahmedabad

ITA 3783/AHD/2008

• Counselvise Citation: [2010] 135 COUNSELVISE.COM (IT) 9887 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-10-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 28-09-2010
• Assessment Year: 2005-2006
• Appeal Filed On: 20-11-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANISTA
• Assessee Lawyers: P D SHAH
• Keywords: Depreciation; Deemed to accrue or arise in india
• Section: 143(3); 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND N. S. SAINI, AM) ITA NO. 3783/AHD/2008 A. Y.: 2005-06 THE D. C. I. T., CIRCLE-5, 2 ND FLOOR, C. U. SHAH CHAMBERS, ASHRAM ROAD, AHMEDABAD VS RATNAMANI METALS & TUBES PVT. LTD., 17, RAJMUGA SOCIETY, NAVRANGPURA, AHMEDABAD PA NO. AABCR 1742 E (APPELLANT) (RESPONDENT) APPELLANT BY SHRI R.K. DHANISTA, DR RESPONDENT BY SHRI P. D. SHAH, AR O R D E R PER BHAVNESH SAINI, JM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XI , AHMEDABAD DATED 02-09-2008 FOR ASSESSMENT YEAR 2005-06. 2. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BELOW AND T HE MATERIALS AVAILABLE ON RECORD. 3. GROUND NO.1 OF THE APPEAL OF THE REVENUE READS A S UNDER: 1. THE LD. COMMISSIONER OF INCOME TAX (A)- XI, AHM EDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDIT ION MADE OF RS.34,28,891/- ON ACCOUNT OF DISALLOWANCE O F BAD DEBT. 4. ACCORDING TO THE AO, THE ASSESSEE HAS NOT FULFIL LED THE CONDITIONS AS PER AMENDED PROVISIONS OF SECTION 36(1) (VII) OF THE IT ACT AND ITA NO. 3783/AHD/2008 DCIT, CIR-5, AHD VS RATNAMANI METALS & TUBES PVT. L TD. 2 ACCORDINGLY DISALLOWED THE SUM OF RS.34,28,891/-. I T WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AMOUNT DISALLOWE D ON ACCOUNT OF BAD DEBT PERTAINS TO GUJARAT WATER & SEWERAGE BOARD. SI NCE THE AMOUNT HAS BEEN WRITTEN OFF AS BAD DEBT AND THE AMOUNT RELATES TO THE SALES MADE, THEREFORE, AO SHOULD HAVE ALLOWED THE CLAIM OF BAD DEBT. IT WAS ALSO EXPLAINED THAT SEVERAL LETTERS WERE WRITTEN TO THE CHAIRMAN AND OTHER OFFICERS OF THE BOARD TIME TO TIME FOR RECOVER OF T HE AMOUNT BUT DESPITE EFFORTS NO AMOUNT HAS BEEN RECEIVED. THE AMOUNT WAS , THEREFORE, TREATED AS BAD DEBT AND THE SAME WAS WRITTEN OFF IN THE BOO KS OF ACCOUNTS OF THE ASSESSEE. IN SUPPORT OF THE CONTENTIONS, SEVERAL DE CISIONS WERE RELIED UPON. THE LEARNED CIT(A) CONSIDERING THE SUBMISSION S OF THE ASSESSEE NOTED THAT THE ASSESSEE WAS HAVING ABOVE BAD DEBT F OR MORE THAN 3 YEARS AND IT WAS FOUND DIFFICULT TO MAKE RECOVERY TILL TH E ASSESSMENT YEAR UNDER APPEAL. THEREFORE, THE SAME WAS WRITTEN OFF A S IRRECOVERABLE IN THE BOOKS OF ACCOUNT. THE LEARNED CIT(A) ALSO NOTED THA T PART OF THE AMOUNT WAS RECEIVED IN THE SUBSEQUENT YEAR WHICH WAS OFFER ED FOR TAX IN THE ASSESSMENT YEAR 2006-07. THEREFORE, CLAIM OF THE AS SESSEE SHOULD HAVE BEEN ALLOWED. ACCORDINGLY, THE ADDITION WAS DELETED . 5. THE LEARNED DR SUBMITTED THAT THE ISSUE IS NOW C OVERED BY THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE O F T. R. F. LTD. VS CIT 323 ITR 397 IN WHICH IT WAS 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 THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRIT TEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSE E. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CREDITED, THUS, CLOSING THE ACCOUNT OF THE CUSTOMER. IN THE CASE OF ITA NO. 3783/AHD/2008 DCIT, CIR-5, AHD VS RATNAMANI METALS & TUBES PVT. L TD. 3 COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STATED ABOVE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REMITTE D TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE-MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. 6. ON CONSIDERATION OF THE FACTS, WE DO NOT FIND AN Y MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. ADMITTEDLY, THE AM OUNT IN QUESTION WAS WRITTEN OFF AS IRRECOVERABLE IN THE BOOKS OF ACCOUN T OF THE ASSESSEE. THE ASSESSEE MADE EFFORTS BUT COULD NOT RECOVER THE SAM E. THEREFORE, AS PER THE AMENDED PROVISIONS OF SECTION 36(1) (VII) OF TH E IT ACT, THE ASSESSEE WOULD BE ENTITLED FOR CLAIM OF DEDUCTION ON ACCOUNT OF BAD DEBT. THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE A BOVE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. (SUPRA). BY FOLLOWING THE SAME DECISION, WE DISMISS THIS GROUND OF APPEAL OF THE REVENUE. 7. IN THE RESULT, GROUND NO.1 OF THE APPEAL OF THE REVENUE IS DISMISSED. 8. GROUND NO.2 OF THE APPEAL OF THE REVENUE READS A S UNDER: 2. THE LD. COMMISSIONER OF INCOME TAX (A) XI, AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION MADE OF RS.15,45,217/- ON ACCOUNT OF DEEMED INCOME U/S 41(1) OF THE I. T. ACT. 9. IT WAS SUBMITTED BEFORE THE LEARNED CIT(A) THAT THE AO HAS WRONGLY MADE ADDITION U/S 41 (1) OF THE IT ACT BECAUSE THE AMOUNT RELATES TO PURCHASE OF BUILDING MATERIAL DURING OCTOBER, 2004 FOR PROJECT AT KUTCH ON WHICH DEPRECIATION HAS NOT BEEN CLAIMED. SECONDL Y, THE SELLER PARTY HAS NOT CONFIRMED/SETTLED THE CLAIM OF THE ASSESSEE OF INFERIOR MATERIAL TILL THE END OF THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION AND ITA NO. 3783/AHD/2008 DCIT, CIR-5, AHD VS RATNAMANI METALS & TUBES PVT. L TD. 4 FURTHER THE AMOUNT HAS NOT BECOME TIME BARRED. THER EFORE, PROVISIONS OF SECTION 41(1) OF THE IT ACT WOULD NOT APPLY. THE LE ARNED CIT(A) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE NOTED T HAT THE ASSESSEE COULD NOT BE ATTRIBUTED TO HAVE GAINED DUE TO CESSA TION OF LIABILITY BECAUSE THE PARTY WHO HAD SUPPLIED BAD MATERIAL HAD NOT CEASED THE CLAIM FOR RECOVERY OF COST FOR THE MATERIAL. THEREF ORE, IT APPEARS THAT IT WAS PRE-MATURE TO DECIDE THAT THE ASSESSEE HAD GAIN ED DUE TO ALLEGED CESSATION OF LIABILITY. IT WAS ALSO NOTED THAT THE MATTER IS STILL UNDER DISPUTE FOR SETTLEMENT AND UNTIL THE MATER IS SETTL ED, THE ASSESSEE COULD NOT BE SAID TO HAVE GAINED ANYTHING. IT WAS, THEREF ORE, HELD THAT THE PROVISIONS OF SECTION 41(1) OF THE IT ACT WOULD NOT APPLY. THE ADDITION WAS ACCORDINGLY DELETED. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND MA TERIAL AVAILABLE ON RECORD. SECTION 41 (1) (A) OF THE IT ACT READS A S UNDER: 41. (1) WHERE AN ALLOWANCE OR DEDUCTION HAS BEEN MADE IN THE ASSESSMENT FOR ANY YEAR IN RESPECT OF LOSS, EXP ENDITURE OR TRADING LIABILITY INCURRED BY THE ASSESSEE (HEREINA FTER REFERRED TO AS THE FIRST-MENTIONED PERSON) AND SUBSEQUENTLY DURING ANY PREVIOUS YEAR, (A) THE FIRST-MENTIONED PERSON HAS OBTAINED, WHETHE R IN CASH OR IN ANY OTHER MANNER WHATSOEVER, ANY AMOUNT IN RESPECT OF SUCH LOSS OR EXPENDITURE OR SOME BENEFIT IN RESPECT OF SUCH TRADING LIABILITY BY WAY OF REMISSION OR CE SSATION THEREOF, THE AMOUNT OBTAINED BY SUCH PERSON OR THE VALUE OF BENEFIT ACCRUING TO HIM SHALL BE DEEMED TO BE PROFI TS AND GAINS OF BUSINESS OR PROFESSION AND ACCORDINGLY CHA RGEABLE TO INCOME-TAX AS THE INCOME OF THAT PREVIOUS YEAR, WHE THER THE BUSINESS OR PROFESSION IN RESPECT OF WHICH THE ALLO WANCE OR ITA NO. 3783/AHD/2008 DCIT, CIR-5, AHD VS RATNAMANI METALS & TUBES PVT. L TD. 5 DEDUCTION HAS BEEN MADE IS IN EXISTENCE IN THAT YEAR OR NOT; OR 10.1 HONBLE MADRAS HIGH COURT IN THE CASE OF TAMIL NADU WAREHOUSING CORPORATION 292 ITR 319 HELD AS UNDER: THE ASSESSEE FILED ITS RETURN FOR THE ASSESSMENT Y EAR 1989-90 AND ASSESSMENT ERAS COMPLETED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961. THE ASSESSEE HA D SURRENDERED THE GROUP GRATUITY SCHEME WITH LIC AND RECEIVED A SUM OF RS.8,22,925/- DURING THE YEAR REL EVANT TO THE ASSESSMENT YEAR 1989-90. AS THERE WAS NO PRO PER ENQUIRY MADE BY THE ASSESSING OFFICER IN THE ASSESSMENT COMPLETED ON JANUARY 21,1992, THE COMMISSIONER PASSED ORDER UNDER SECTION 263 OF THE ACT AND SET ASIDE THE ASSESSMENT WITH A DIRECTION TO TH E ASSESSING OFFICER TO ASSESS THE SAID AMOUNT UNDER SECTION 41(1) OF THE ACT FOR THE ASSESSMENT YEAR 19 89- 90. THE TRIBUNAL SET AIDE THE ORDER OF THE COMMISSIONER. ON APPEAL TO THE HIGH COURT: HELD, THAT THE ASSESSEE HAD CONTINUED TO SHOW THE ADMITTED AMOUNT OF RS.8,22,925 AS LIABILITY IN THE BALANCE-SHEET. THE UNDISPUTED FACT WAS THAT IT WAS A LIABILITY REFLECTED IN THE BALANCE-SHEET. ONCE IT W AS SHOWN AS LIABILITY BY THE ASSESSEE, THE COMMISSIONE R WAS WRONG IN HOLDING THAT IT WAS ASSESSABLE UNDER SECTION 41(1) OF THE ACT. UNLESS AND UNTIL THERE IS A CESSATION OF LIABILITY, SECTION 41 IS NOT APPLICABL E. 10.2 HONBLE PUNJAB AND HARYANA HIGH COURT IN THE C ASE OF SMT. SITA DEVI JUNEJA 187 TAXMAN 96 HELD AS UNDER: IT IS THE CONCEDED POSITION THAT IN THE ASSESSEES BALANCE SHEET THE AFORESAID LIABILITIES HAVE BEEN S HOWN, WHICH ARE PAYABLE TO THE SUNDRY CREDITORS. SUCH LIABILITIES, SHOWN IN THE BALANCE SHEET, INDICATE T HE ACKNOWLEDGEMENT OF THE DEBTS PAYABLE BY THE ASSESSE E. MERELY BECAUSE, SUCH LIABILITY IS OUTSTANDING FOR T HE LAST SIX YEARS, IT CANNOT BE PRESUMED THAT THE SAID ITA NO. 3783/AHD/2008 DCIT, CIR-5, AHD VS RATNAMANI METALS & TUBES PVT. L TD. 6 LIABILITIES HAVE CEASED TO EXIST. IT IS ALSO CONCED ED POSITIN THAT THERE IS NO BILATERAL ACT OF THE ASSES SEE AND THE CREDITORS, WHICH INDICATES THAT THE SAID LIABIL ITIES HAVE CEASED TO EXIST. IN ABSENCE OF ANY BILATERAL A CT, THE SAID LIABILITIES COULD NOT HAVE BEEN TREATED TO HAV E CEASED. 11. THE LEARNED DR RELIED UPON THE ORDE R OF THE AO. ON THE OTHER HAND, THE LEARNED COUNSEL FOR THE ASSESSE E REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW. HOWE VER, CONSIDERING THE ABOVE PROVISIONS AND DECISIONS NOTED ABOVE, IT IS C LEAR THAT THE AMOUNT IN QUESTION RELATES TO PURCHASE OF BUILDING MATERIA L ON WHICH THERE WAS A DISPUTE OF PAYMENT. THE AO ADMITTED THAT THE AMOUNT REMAINED UNPAID IN THE BOOKS OF ACCOUNT. SINCE THE ASSESSEE EXPLAIN ED THAT THE AMOUNT RELATES TO PURCHASE OF BUILDING MATERIALS FOR THEIR PROJECT AT KUTCH WHICH HAS BEEN SHOWN AS CAPITAL GOODS IN PROGRESS AND THA T THE AMOUNT HAS NOT BEEN PAID DUE TO INFERIOR QUALITY OF THE MATERI AL, WOULD PROVE THAT THE ASSESSEE HAS NOT CLAIMED ANY ALLOWANCE OR DEDUCTION IN ANY ASSESSMENT YEAR IN RESPECT OF LOSS/EXPENDITURE OR TREATING OF LIABILITY AND HAS NOT OBTAINED ANY BENEFITS WHATSOEVER IN SUBSEQUENT YEAR . THEREFORE, THERE IS NO QUESTION OF REMISSION OR CESSATION OF LIABILITY. SINCE THE LIABILITY SHOWN IN THE BALANCE SHEET OF THE ASSESSEE, THEREFORE, FA CTS AND CIRCUMSTANCES OF THE CASE WOULD PROVE THAT THE CASE OF THE ASSESS EE IS NOT COVERED BY THE PROVISIONS OF SECTION 41 (1) OF THE IT ACT. WE, THEREFORE, DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF TH E LEARNED CIT(A). WE CONFIRM HIS FINDINGS AND DISMISS THIS GROUND OF APP EAL OF THE REVENUE. 12. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED ON GROUND NO.2 AS WELL. 13. THERE IS NO OTHER GROUND ARGUED OR PRESSED. ITA NO. 3783/AHD/2008 DCIT, CIR-5, AHD VS RATNAMANI METALS & TUBES PVT. L TD. 7 14. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMI SSED. ORDER PRONOUNCED IN THE OPEN COURT ON 01-10-2010 SD/- SD/- (N. S. SAINI) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 01-10-2010 LAKSHMIKANT/- 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 D Y. REGISTRAR, ITAT, AHMEDABAD