The Additional Commissioner of Income Tax, Jalandhar V. M/s. Lally Motors Pvt. Ltd., Jalandhar

ITA 4/ASR/2011

• Counselvise Citation: 420914 RSA 2011
• Duration Of Justice: 1 year(s) 10 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 20-11-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 07-01-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R L CHHANALIA
• Assessee Lawyers: J P SONDHI
• Keywords: Business expenditure; Period of limitation; Bad and doubtful debts
• Section: 143(3); 142(1); 37(1); 37; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. H.S. SIDHU, JUDICIAL MEMBER AND SH. B.P.JAIN, ACCOUNTANT MEMBER I.T.A. NO.03(ASR)/2011 ASSESSMENT YEAR:2007-08 PAN :AAACL2760P M/S. LALLY MOTORS PVT. LTD. VS. THE ADDL. COMMR. OF INCOME-TAX, JALANDHAR. RANGE-V, JALANDHAR. (APPELLANT) (RESPONDENT) I.T.A. NO.04(ASR)/2011 ASSESSMENT YEAR:2007-08 THE ADDL. COMMR. OF INCOME-TAX, VS. M/S. LALLY MOTO RS PVT. LTD; RANGE-V, JALANDHAR. JALANDHAR. (APPELLANT) (RESPONDENT) ASSESSEE BY:SH. J.P. SONDHI, ADVOCATE DEPARTMENT BY:SH. R.L.CHHANALIA, DR DATE OF HEARING:20/11/2012 DATE OF PRONOUNCEMENT:27/11/2012 ORDER PER BENCH ; THESE CROSS APPEALS ONE BY THE ASSESSEE AND ANOT HER BY THE REVENUE ARE DIRECTED AGAINST THE IMPUGNED ORDER OF THE CIT( A), JALANDHAR, DATED 28.10.2010 RELATING TO ASSESSMENT YEAR 2007-08. ITA NO.03(ASR)/2011 ITA NO.04(ASR)/2011 2 2. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APP EAL: 1. THAT THE ORDER OF THE AUTHORITIES BELOW IS AGAI NST LAW AND FACTS OF THE CASE. 2. THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE A DDITION OF RS.5,00,318/- BY NOT TREATING THE SAME AS TRADING L IABILITY. 3. THAT THE LD. CIT(A) HAS ERRED IN UPHOLDING THE A DDITION OF RS.2,85,248/- AS AGAINST THE TOTAL CLAIM OF RS.3,36 ,158/- UNDER THE HEAD FOREIGN TRAVELLING EXPENSES BY TREATING THE SAME AS NON-BUSINESS EXPENSES. 4. SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME O F HEARING. 3. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPE AL: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN ALLOWING THE RELIEF OF RS.23,92,511/- ON ACCOUNT OF BAD DEBTS. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS FAILED TO APPRECIATE THAT DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE COULD NOT SATISFACTORILY E XPLAIN THE NATURE OF ENTRIES BEING WRITTEN OFF AND THAT THE AS SESSEE WAS TRYING TO CLAIM ALL SORTS OF ENTRIES IN THE GARB OF BAD DEBTS. 3. IT IS PRAYED THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND THAT OF THE AO BE RESTORED. 4. THE FACTS NARRATED BY THE REVENUE AUTHORITIES AR E THAT THE ASSESSEE FIELD ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR IN DISPUTE ON 31.10.2007 DECLARING TOTAL INCOME OF RS.3,14,16,915/- AND THE SAME WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME-TAX ACT, 1961 (H EREINAFTER CALLED THE ITA NO.03(ASR)/2011 ITA NO.04(ASR)/2011 3 ACT). THE CASE OF THE ASSESSEE WAS SELECTED FOR SC RUTINY AND STATUTORY NOTICE U/S 143(2) OF THE ACT WAS ISSUED ON 26.09.2008 WHIC H WAS SERVED UPON THE ASSESSEE ON 27.09.2008. SUBSEQUENTLY, THE CASE WAS TAKEN UP FOR SCRUTINY BY THE ADDL. CIT, RANGE-III, JALANDHAR AND FRESH NOTIC ES U/S 143(2) AND 142(1) DATED 28.08.2009 CALLING FOR INFORMATION AS PER QUE STIONNAIRE DATED 23.07.2009, WERE ISSUED AND SERVED UPON THE ASSESSE E ON 03.09.2009. THE AUTHORISED REPRESENTATIVE OF THE ASSESSEE ATTENDED THE PROCEEDINGS BEFORE THE AO FROM TIME TO TIME AND FURNISHED THE REQUISIT E INFORMATION AND DETAILS ALONGWITH BOOKS OF ACCOUNT, BILLS/VOUCHERS TO PROVE ITS CLAIM. THE AO EXAMINED ALL THE DOCUMENTARY EVIDENCES FILED BY THE ASSESSEE AND FOUND THAT THE ASSESSEE-COMPANY IS AN AUTOMOBILE DEALER AND IS DEALING IN HONDA CARS AND THE BUSINESS IS BEING CARRIED OUT IN THE STATE OF PUNJAB, HARYANA AND CHANDIGARH AT VARIOUS PLACES SUCH AS AMRITSAR, JALA NDHAR, LUDHIANA, PATIALA AND KARNAL WITH ITS REGISTERED OFFICE AT JALANDHAR. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS DECLARED GROSS PROF IT OF RS.25.96 CRORES ON TOTAL TURNOVER OF RS.416.8 CRORES WHICH GIVES A GP RATE OF 6.23% AS COMPARED TO GP OF 6.59% DECLARED IN THE PRECEDING Y EAR ON TOTAL TURNOVER OF RS.265.53 CRORES. THE AO WAS OF THE VIEW THAT GP RA TE DECLARED BY THE ASSESSEE HAS FALLEN BY 0.36% IN THE YEAR UNDER CONS IDERATION, THE TURNOVER ITA NO.03(ASR)/2011 ITA NO.04(ASR)/2011 4 HAS INCREASED APPRECIABLY. THUS, NO ADVERSE INFEREN CE IS DRAWN AND THE TRADING RESULTS DECLARED BY THE ASSESSEE ARE ACCEPT ED. 5. AS REGARDS TO THE SUM OF RS.21,73,111/- UNDER TH E HEAD BALANCES WRITTEN OFF IN THE PROFIT & LOSS ACCOUNT DEBITED BY THE ASSESSEE COMPANY, THE AO ASKED THE ASSESSEE TO GIVE DETAILS OF THESE BALANCES WRITTEN OFF AND EFFORTS MADE BY THE COMPANY FOR THE RECOVERY OF THE SAID BAD DEBTS, VIDE ORDER SHEET ENTRY DATED 17.11.2009. IN RESPONSE TO THE SAME, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE FILED HIS WRITTEN SU BMISSION ON 02.12.2009 EXPLAINING IN RESPECT OF BALANCES WRITTEN OFF AND M AINLY STATED THAT THE ASSESSEE COMPANY IS WRITING OF UNRECOVERED AMOUNTS FOR THE FIRST TIME SINCE THE START OF ITS OPERATIONS IN THE FINANCIAL YEAR 1 997-98. THE MAJORITY OF THE WRITE-OFFS REPRESENT THE CASES WHICH HAVE BECOME B ARRED BY THE PERIOD OF LIMITATIONS AND THAT TOO AFTER CONSISTENT CHASE-UP. THE AO WAS NOT SATISFIED WITH THE REPLY DATED 02.12.2009 AND HE GAVE ANOTHER OPPORTUNITY TO THE ASSESSEE TO JUSTIFY THE CLAIM OF THE ASSESSEE AS ST ATED ABOVE. AGAIN ON 10.12.2009, THE ASSESSEE SUBMITTED ITS SUBMISSIONS AND MAINLY RELIED UPON ITS EARLIER REPLY DATED 02.12.2009. THE ASSESSEE HA S ALSO FILED LIST OF BALANCES WRITTEN OFF ALONGWITH HIS WRITTEN SUBMISSION FILED ON 02.12.2009. AS PER THIS LIST, THE TOTAL DEBTS WRITTEN OFF OF RS.28,92,829/- AND TOTAL CREDITS WRITTEN OFF ITA NO.03(ASR)/2011 ITA NO.04(ASR)/2011 5 AMOUNT TO RS.7,19,718/-. AFTER SET OFF OF CREDITS W RITTEN OFF AGAINST THE DEBTS WRITTEN OFF, THE REMAINING AMOUNT DEBTS WRITTEN OFF COMES TO RS.21,73,111/- AND THIS AMOUNT HAS BEEN DEBITED TO THE P& L ACCOUN T UNDER THE HEAD BALANCES WRITTEN OFF . THUS, ACTUALLY, THE TOTAL AMOUNT OF DEBTS WRITTEN OFF IS RS.28,92,829/-. THE EXPLANATION OF THE ASSESSEE WAS DULY CONSIDERED BY THE AO BUT HE WAS NOT SATISFIED WITH THE SAME AND H ELD THAT THE ASSESSEE HAS NOT MADE ANY GENUINE EFFORTS FOR RECOVERY OF SO CAL LED DEBTS. FROM THE LIST OF BALANCES WRITTEN OFF FILED BY THE AUTHORIZED REPRES ENTATIVE, WHICH CONTAINED THOUSANDS OF ENTRIES, SOME OF THE ENTRIES OF DEBTS WRITTEN OFF WERE REPRODUCED BY THE AO AT PAGE 4 & 5 IN PARA 4.2 I.E . 32 ENTRIES. AFTER DETAILED DISCUSSIONS, THE AO HELD THAT THE ASSESSEE IS TRYING TO CLAIM DEDUCTION OF ALL SORTS OF ENTRIES IN THE GARB OF BA D DEBTS WRITTEN OFF, IN ORDER TO REDUCE ITS TAX LIABILITY. THE AO FINALLY HELD TH AT SINCE THERE IS NOTHING ON RECORD WHICH MIGHT SHOW THAT ALL THOSE DEBTORS WERE FINANCIALLY NOT IN A POSITION TO PAY THE DEBT OR HAD EVER REFUSED OR EXP RESSED DESIRE NOT TO PAY , IT COULD BE SAID THAT IT IS A UNILATERAL ACT ON THE PA RT OF THE ASSESSEE COMPANY TO WRITE OFF ALL THESE AMOUNTS AS BAD DEBTS AND THEREF ORE, THESE ENTRIES CLAIMED BY THE ASSESSEE BAD DEBTS ARE NOT ALLOWABLE AS DEDU CTION U/S 36(1)(VII) OF THE ACT AND ACCORDINGLY A DISALLOWANCE OF RS.28,92, 829/- IS ADDED BACK TO THE TAXABLE INCOME OF THE ASSESSEE FOR THE YEAR UND ER CONSIDERATION. ITA NO.03(ASR)/2011 ITA NO.04(ASR)/2011 6 6. THE SECOND ISSUE IN DISPUTE IS REGARDING TRAVELI NG EXPENSES. THE AO AFTER EXAMINING THE DOCUMENTARY EVIDENCE FILED BY T HE ASSESSEE, ASKED THE ASSESSEE TO FILE THE DETAILS OF FOREIGN TOURS UNDER TAKEN BY THE REPRESENTATIVES OF THE COMPANY AND TO EXPLAIN THE BUSINESS EXPEDIEN CY THEREOF ALONGWITH EVIDENCE, VIDE HIS ORDER SHEET NOTING DATED 23.11.2 009. IN RESPONSE TO THE SAME, THE ASSESSEE FILED ITS REPLY ON 02.12.2009, W HICH THE AO HAS REPRODUCED AT PARA 5 PAGE 7 & 8 OF ITS ORDER. 7. THE AO HAS ALSO GIVEN ANOTHER OPPORTUNITY TO PRO DUCE THE DETAILS OF FOREIGN TOURS AS WELL AS THE BUSINESS EXPEDIENCY AL ONGWITH THE EVIDENCE AND THE ASSESSEE HAS ALSO EXPLAINED THE SAME. BUT FINAL LY, THE AO DISALLOWED THE AMOUNT OF RS.3,36,158/- FROM THE EXPENSES DEBITED T O PROFIT & LOSS UNDER THE HEAD TRAVELING AND CONVEYANCE AND HELD THAT THESE EXPENSES FOR NON- BUSINESS PURPOSES ARE NOT RELATED IN ANY WAY TO TH E BUSINESS OF THE ASSESSEE- COMPANY. SINCE THE ASSESSEE, INSPITE OF HAVING BEEN GIVEN SUFFICIENT AND REPEATED OPPORTUNITIES, HAS NOT BEEN ABLE TO PROVE THE PURPOSE AND BUSINESS EXPEDIENCY OF THESE EXPENSES CLAIMED, NOR HAS BEEN ABLE TO FURNISH ANY DOCUMENTARY EVIDENCE TO PROVE THAT THE EXPENSES ARE RELATED TO THE BUSINESS OF THE ASSESSEE COMPANY, THE SAME CANNOT BE ALLOWED AS BUSINESS ITA NO.03(ASR)/2011 ITA NO.04(ASR)/2011 7 EXPENDITURE AND HE COMPLETED THE ASSESSMENT VIDE OR DER DATED 15.12.2009 U/S 143(3) OF THE ACT. 8. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN AP PEAL BEFORE THE LD. FIRST APPELLATE AUTHORITY , WHO VIDE ORDER DATED 28 .10.2009 PARTLY ALLOWED THE APPEAL OF THE ASSESSEE, IN WHICH THE LD. CIT(A) SUS TAINED THE ADDITION OF RS.5,00318/ OUT OF THE ADDITION OF RS.28,92,829/- M ADE BY THE AO ON ACCOUNT OF BAD DEBTS AND DELETED THE BALANCE ADDITI ON OF RS.23,92,511/- AGAINST WHICH THE REVENUE HAS FILED THE PRESENT APP EAL. 8.1. FURTHER, THE LD. CIT(A) HAS SUSTAINED THE DISA LLOWANCE OF RS.2,85,248/- ON ACCOUNT OF FOREIGN TRAVELING EXPEN SES AGAINST THE CLAIM OF RS.3,36,158/-. THE ASSESSEE HAS FILED THE PRESENT A PPEAL BEFORE THIS BENCH. IN NUTSHELL, THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS.5,00,,318/- ON ACCOUNT OF BAD DEBTS AND ADDITION OF RS.2,85,284 AG AINST TOTAL CLAIM OF RS.3,36,158/- UNDER THE HEAD FOREIGN TRAVELING EXP ENSES. 9. IN THE CROSS APPEAL, THE REVENUE HAS CHALLENGED THE DELETION OF ADDITION OF RS.23,92,511/- ON ACCOUNT OF BAD DEBTS. 10. NOW BOTH THE PARTIES HAVE FILED CROSS APPEALS AND CHALLENGED THE IMPUGNED ORDER BY RAISING GROUNDS OF APPEAL MENTIO NED ABOVE. ITA NO.03(ASR)/2011 ITA NO.04(ASR)/2011 8 11. AT THE TIME OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE STATED THAT THE ASSESSEE COMPANY HAS STARTED ITS OPERATION IN THE F INANCIAL YEAR 1997-98 RELEVANT TO THE ASSESSMENT YEAR 1998-99 AND IT WAS FIRST TIME FOR LAUNCHING OF HONDA CAR IN INDIA. IN ORDER TO ESTABLISH THE NEW B RAND, THE PATENT COMPANY DEVELOPED VARIOUS MARKETING AND FINANCIAL POLICIES AS PER REQUIREMENT OF JAPANESE MANUFACTURERS, NAMELY, HONDA SEIL CAR INDI A LTD. THE CREDIT FACILITIES ARE EXTENDED TO VARIOUS CUSTOMERS FOR BU YING CARS CAR REPAIRED AND GETTING THEIR CARS REPAIRED FROM THE COMPANY WORKSH OP ON THE BASIS OF THEIR CREDIBILITY IN DEALING WITH THE ASSESSEE. IN CASE O F CREDITS REMAINED OUTSTANDING FOR A LONG PERIOD DUE FOLLOW UP IS MAD E BY REPEATED TELEPHONIC CALLS AND BY PERSONAL VISITS OF THE STAFF OF THE CO MPANY TIME AND AGAIN. IN THE PRESENT CASE, DURING THE YEAR UNDER REFERENCE, THE TOTAL DEBTS WRITTEN OFF AMOUNTING TO RS.28,92,829/- AND TOTAL CREDIT WRITTE N OF AMOUNTING TO RS.7,19,718/- AFTER SETTING OFF OF THE CREDITS WRIT TEN OFF AGAINST THE DEBTS WRITTEN OFF, THE REMAINING AMOUNT OF DEBTS WRITTEN OFF COMES TO RS.21,73,111/- AND THE SAID AMOUNT OF RS.21,73,111/ - WAS DEBITED TO THE PROFIT & LOSS ACCOUNT UNDER THE HEAD BALANCE WRITTE N OFF. THE SAID AMOUNT HAS BEEN WRITTEN OFF BY STRICTLY APPLYING THE AMEND ED PROVISIONS OF SECTION 36(1) (VII). HE FINALLY STATED THAT UNDER THE CIRC UMSTANCES BAD DEBTS CLAIMED BY THE ASSESSEE COMPANY UNDER THE HEAD BALANCE WRI TTEN OFF MAY KINDLY BE ITA NO.03(ASR)/2011 ITA NO.04(ASR)/2011 9 ALLOWED AS THE SAME HAS RIGHTLY BEEN CLAIMED ACCOR DING TO THE AMENDED PROVISIONS OF SECTION 36(1)(VII) READ WITH SECTION 36(2) AND SECTION 37(1) OF THE ACT. 12. ON THE ISSUE OF DISALLOWANCE OF FOREIGN TRAVELI NG EXPENSES OF RS.2,85,248/- BY THE LD. CIT(A), HE STATED THAT TH E EXPENSES INCURRED BY MR. SARABDEEP SINGH LALLY, MRS. PUNEET LALLY, SABNEET L ALLY, MR. T.S. LALLY AND RIPANDEEP SINGH LALLY ARE NOT IN PERSONAL NATURE A ND ARE RELATING TO THE BUSINESS EXPENSES, BUT THE AO AS WELL AS THE LD. FI RST APPELLATE AUTHORITY HAS WRONGLY DECIDED THE ISSUE IN DISPUTE AGAINST THE AS SESSEE FOR NON-FILING OF NECESSARY EVIDENCE SUPPORTING THIS CLAIM BECAUSE N ECESSARY EVIDENCE WAS NOT AVAILABLE WITH THE ASSESSEE AT THAT TIME. HE F INALLY STATED THAT THE AFORESAID PERSONS ATTENDED THE ANNUAL CONFERENCE AT MACAU FOR BUSINESS PURPOSE AND HE REQUESTED THAT THE ADDITION OF RS.2, 85,248/- DISALLOWED BY THE LD. CIT(A) MAY BE DELETED. 13. ON THE CONTRARY, THE LD. DR RELIED UPON THE ORD ER PASSED BY THE LD. CIT(A) ON THE ADDITION MADE BY HIM. BUT AS REGARDS TO DELETION MADE BY THE LD. CIT(A), THE LD. DR RELIED UPON THE ORDER OF THE ASSESSING OFFICER. ITA NO.03(ASR)/2011 ITA NO.04(ASR)/2011 10 14. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RELEVANT RECORDS AVAILABLE WITH US. WE ARE OF THE CONSIDERED OPINION THAT AS REGARDS TO THE ADDITION OF RS.5,00,318/- SUSTAINED BY THE LD. CIT (A) ON ACCOUNT OF BAD DEBTS OUT OF THE ADDITION OF RS.28,92,829/- MADE BY THE AO, WE FIND THAT THE LD. CIT(A) HAS RIGHTLY SUSTAINED THE ADDITION OF R S. 5,00,318/- AFTER CONSIDERING THE RELEVANT PROVISIONS OF LAW AND BY H OLDING THAT AS PER INFORMATION SUBMITTED BY THE ASSESSEE, IT HAD CLAIM ED AS DEDUCTION SUMS AMOUNTING TO RS.48,677/- BEING ADVANCES WRITTEN OFF AND RS.4,51,641/- BEING ADVANCES TO SUPPLIERS WRITTEN OFF AND THE ASS ESSEE HAS CONTENDED THAT THESE CLAIMS WERE BEING MADE U/S 37(1) OF THE ACT A ND REQUESTED FOR RELIEF OF THE SAME IN VIEW OF THE DECISION OF HONBLE MADRAS HIGH COURT, IN THE CASE OF DEVI FILMS (P) LTD. VS. CIT (1970) 75 ITR 301 BU T THE FACTS OF THE CASE OF THE ASSESSEE OF THE SAID CASE ARE TOTALLY DIFFERENT . THE LD. CIT(A) HELD THAT THE DEBT BECAME A BAD WHEN IT BECAME DIFFERENT OR I MPOSSIBLE TO RECOVER AND THE ONUS IS ON THE ASSESSEE TO ESTABLISH THE SAME. THE LD. FIRST APPELLATE AUTHORITY HAS DECIDED THE ISSUE IN DISPUTE BY APPLY ING THE RELEVANT PROVISIONS OF LAW AS WELL AS VARIOUS DECISIONS RENDERED BY THE HONBLE SUPREME COURT, AS WELL AS HIGH COURTS AND TRIBUNAL. FOR THE SAKE OF CONVENIENCE, THE RELEVANT PORTION OF THE FINDINGS OF THE LD. CIT(A) ON THE ISSUE AT PARAS 2.3, 2.4. 2.5 & 2.6 ARE REPRODUCED AS UNDER: ITA NO.03(ASR)/2011 ITA NO.04(ASR)/2011 11 2.3. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT CAREFULLY. AS OUT BY THE LD. AR FOR THE APPELLANT, AFTER THE AMEN DMENT TO SECTION 36(1)(VII), AFTER 1.4.1989 IT IS NO LONGER NECESSAR Y FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT WRITTEN OFF HAD BEEN ESTABL ISHED TO HAVE BECOME IRRECOVERABLE TO CLAIM A DEDUCTION UNDER THI S PROVISION. THE HONBLE APEX COURT HAVE IN THEIR DECISION IN THE CA SE OF TRF LTD. VS. CIT (SUPRA) EXAMINED THE PROVISIONS OF SECTION 36(1 )(VII) PRIOR TO 1.4.1989 AND POST 1.4.1989 AND HAVE HELD THAT AFTER 1.4.1989 IT WAS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT TH E DEBT HAD BECOME IRRECOVERABLE AND THAT IT WAS ENOUGH IF HE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. THUS , AFTER 1.4.1989 WHEN THE ASSESSEE WRITES OFF A BAD DEBT FROM THE AC COUNT OF TRADE DEBTORS, HE WILL BE ENTITLED TO DEDUCTION OF THE AM OUNT WRITTEN OFF WITHOUT HAVING TO ESTABLISH THAT THE DEBT HAD BECOM E IRRECOVERABLE. THE AOS CONTENTION IN THE ASSESSMENT ORDER THAT DE BT FROM WELL TO DO PEOPLE COULD NOT IRRECOVERABLE IS, ,THEREFORE, NOT RELEVANT TO THE ISSUE AT HAND. THE ASSESSEE IS NOT REQUIRED TO SHOW THE EFFORTS THAT HE HAD UNDERTAKEN TO COLLECT THE DEBTS. AS LONG AS THE CON DITIONS OF SECTION 36(2)(I) ARE SATISFIED I.E. THE DEBT HAS BEEN CONSI DERED AS INCOME IN THE SAME OR IN THE EARLIER YEAR THE DEBT WRITTEN OFF BY THE ASSESSEE WILL BE ALLOWED AS A DEDUCTION U/S 36(1)(VII). THERE IS NO ALLEGATION IN THE ASSESSMENT ORDER THAT THE AMOUNTS WERE NOT WRITTEN OFF IN THE ACCOUNTS OF THE DEBTORS. I DO NOT ACCEPT THE AOS CONTENTION THAT PEOPLE WHO BUY EXPENSIVE CARS WILL NOT KEEP ANY DUES WITH THE COMPANY. IF THE CUSTOMERS FEEL THAT HE HAS BEEN OVER CHARGED FOR A SERVICE OR THAT HE DESERVES SOME REBATE, HE MAY WELL NOT PAY THE DISPU TED AMOUNT. 2.4. HOWEVER, THE AOS CONTENTION THAT THE ASSESSEE HAD CLAIMED DEDUCTION U/S 36(1)9VII) IN RESPECT OF AMOUNTS WHIC H WERE NOT TRADE DEBTS AND WERE NOT COVERED U/S 36(2)(I0 OF THE ACT IS CORRECT. AS PER THE INFORMATION SUBMITTED BY THE APPELLANT, IT HAD CLAIMED AS DEDUCTION SUMS AMOUNTING TO RS.48,677/- BEING ADVAN CES WRITTEN OFF AND RS.4,51,641/- BEING ADVANCES TO SUPPLIERS WRITT EN OFF. THE APPELLANT HAS NOW CONTENDED THAT THESE CLAIMS WERE BEING MADE U/S 37(1) OF THE ACT. IN THE DECISION IN THE CASE OF DE VI FILMS (P) LTD. VS. CIT (SUPRA) RELIED UPON BY THE APPELLANT THE FACTS WERE DIFFERENT IN AS MUCH AS THE ASSESSEE WAS IN THE BUSINESS OF FINANCI NG OF FILMS AND HAD ADVANCES MONIES TO ANOTHER PERSON FOR FILM PRODUCTI ON. THE ASSESSEE HAD CLAIMED DEDUCTION OF PART OF THE ADVANCE WHICH HE COULD NOT RECOVER FROM THE DEBTOR WHICH WAS DISALLOWED BY THE AO. THOUGH THE ITA NO.03(ASR)/2011 ITA NO.04(ASR)/2011 12 CIT(A) ALLOWED THE APPEAL, THE TRIBUNAL RESTORE THE ORDER OF THE AO. BEFORE THE HONBLE HIGH COURT THE ASSESSEE CONTENDE D THAT THIS WAS THE CASE OF BAD DEBT AMOUNTING TO A TRADING LOSS. H OWEVER, THIS ARGUMENT WAS NOT ADMITTED BY THE HONBLE HIGH COURT . THE HONBLE HIGH COURT NOTED THAT THE DEBT BECAME A BAD WHEN IT BECAME DIFFERENT OR IMPOSSIBLE TO RECOVER, WHICH WAS A QUESTION OF F ACT. IT WAS HELD THAT THE ONUS WAS ON THE ASSESSEE TO ESTABLISH THE SAME. IT WAS FURTHER HELD THAT THERE MAY BE A BAD DEBT WHICH MAY NOT FALL WI THIN THE PURVIEW OF SECTION 10(2)(XI) [ OF THE 1922 ACT], BUT MAY BE RE GARDED AS ELIGIBLE FOR DEDUCTION IN THE COMPUTATION OF NET PROFITS CHA RGEABLE TO TAX. IT WAS FURTHER HELD THAT A TRADING LOSS HAD A WIDER CO NNOTATION THAN A BAD DEBT AND THAT TRADING LOSS SHOULD BE ALLOWED AS A D EDUCTION. I AM OF THE OPINION THAT THIS DECISION DOES NOT HELP THE CA SE OF THE APPELLANT. THE HONBLE HIGH COURT HAVE HELD THAT TRADING LOSS WAS ELIGIBLE FOR DEDUCTION, BUT IN THE PRESENT CASE, THE LOSS OR WRI TE OFF OF MONEY GIVEN AS ADVANCE CANNOT BE A TRADING LOSS SINCE THE ASSE SSEE IS NOT IN THE BUSINESS OF ADVANCING OF MONEY. IN THE CITED CASE, THE HONBLE HIGH COURT HELD THAT THE WRITE OFF OF THE ADVANCE MAY BE ALLOWABLE AS TRADING LOSS, THOUGH NOT AS A THE BAD DEBT FOR THE REASON THAT THE DEBT WAS ADVANCED IN THE COURSE OF FINANCING BUSINESS OF THE ASSESSEE. IN THE CASE OF CHENAB FOREST CO. VS. CIT (SUPRA), THE HONBLE HIGH COURT HELD THAT SECTION 28 AND 29 READ TOGETHER DID NOT SHOW THAT IF THE CASE CAME U/S 36 THEN THE APPLICABILITY OF SECTION 37 WOULD BE TAKEN OUT. IT WAS HELD THAT WHERE IT WAS NECESSARY TO GAV E ADVANCE TO CARRY ON THE BUSINESS AND THE ADVANCE BECAME IRRECOVERABL E, THE SAME SHOULD BE ALLOWED AS DEDUCTION U/S 37 OF THE ACT. H OWEVER, IN THE CASE OF SOUTHERN TECHNOLOGIES LTD. VS. JCIT 320 ITR 577 (SC) THE HONBLE APEX COURT HAVE HELD THAT SECTION 37 APPLIE D ONLY TO ITEMS WHICH DID NOT FALL U/S 30 TO 36 . DEDUCTION FOR BAD DEBT, WHICH IS ALLOWED U/S 36(1)(VII), CANNOT THEREFORE BE CONSIDE RED U/S 37. MOREOVER, IT IS SEEN THAT NO SUCH CASE WAS MADE BEF ORE THE AO AND EVEN THE PURPOSE OF THE ADVANCES IS NOT CLEAR IN MA NY CASES. THE ASSESSEES CONTENTION BEFORE THE AO, AS APPEARING I N THE REPLY DATED 01.12.2009 REPRODUCED IN PARA 4 OF ASSESSMENT ORDER , WAS THAT THE BALANCES WRITTEN OFF WERE IN RESPECT OF CREDITS EXT ENDED TO VARIOUS CUSTOMERS FOR BUYING THEIR CARS AND GETTING THEIR CARS REPAIRED. THE ASSESSEE ALSO CONTENDED BEFORE THE AO IN THE LETTER DATED 10.12.2009 THAT THE CONDITIONS OF SECTION 36(2)(I), WHICH PERT AINED TO CLAIM OF BAD DEBTS, WERE CERTIFIED IN RESPECT OF THE CLAIM OF DE DUCTION MADE IN THE P&L A/C. THE ASSESSEES CONTENTION BEFORE THE AO WA S, THUS, THAT ALL ITA NO.03(ASR)/2011 ITA NO.04(ASR)/2011 13 THE RELEVANT BALANCES WRITTEN OFF HAD BEEN DULY TAK EN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE IN THE RELEVAN T PREVIOUS YEAR WHEN SUCH AMOUNT OCCURRED IN THE ACCOUNTS OF THE AS SESEE IS, THEREFORE, OBVIOUSLY INCORRECT IN AS FAR AS THE AMO UNTS GIVEN A ADVANCES ARE CONCERNED. IN THE CASE OF DCIT VS. SAR UP TANNERIES LTD. 121 TTJ(ASR) 388 THE HONBLE JURISDICTIONAL TRIBUNA L HAVE HELD THAT THE ASSESSEE COULD CLAIM AS BAD DEBT ONLY IF SUCH D EBT WOULD HAVE APPEARED IN THE BALANCE SHEET AS TRADING AND THAT A DEBT ARISING OUT OF CAPITAL FIELD OR FROM THE INVESTMENT ACTIVITY OF TH E ASSESSEE WAS NOT A TRADE DEBT. THE WRITE OFF OF LOANS AND DISCHARGE OF STAND BY GUARANTEE WAS HELD BY THE HONBLE TRIBUNAL TO BE NOT ALLOWABL E AS DEDUCTION U/S 36(1)(VII) OF THE ACT. THE CLAIM FOR DEDUCTION U/S 37 WAS ALSO NOT ALLOWED AS THE LOSS WAS HELD NOT TO BE TRADING LOSS . I AM, THEREFORE, NOT SATISFIED WITH THE EXPLANATION FURNISHED BY THE ASS ESSEE THAT THE DEBTS IN THE FORM OF ADVANCES AND DEPOSITS WRITTEN OFF WE RE ALLOWABLE AS DEDUCTION U/S 37(1) OF THE ACT. 2.5. AS REGARDS THE CONTENTION THAT THE AO HAD WRON GLY CONSIDERED THE GROSS AMOUNT OF WRITE OFF A AGAINST THE NET AMO UNT DEBITED IN THE ACCOUNTS., IT IS QUITE CLEAR THAT THE WRITE BACK OF DEBT AS INCOME IN THE P&L A/C IS CONSIDERED AS INCOME U/S 41(1) OF THE I .T. ACT AND CANNOT BE NETTED OFF AGAINST WRITE OFF OF BAD DEBTS U/S 36 (1)(VII) OF THE ACT. FURTHER, THE AMOUNT IN THE SUPPLIERS ACCOUNTS WRIT TEN BACK AND SHOWN AS INCOME IN THE P&L ACCOUNT IS THE ASSESSEES ACCO UNT SINCE THE ASSESSEE APPEARS TO HAVE RECEIVED REBATE OR SECTION 37 CANNOT BE NETTED OFF AGAINST INCOME WHICH ARE OTHERWISE CHARG EABLE TO TAX FOR THE PURPOSE OF ALLOWANCES AND DISALLOWANCES. THERE OF, AS HELD BY THE HONBLE APEX COURT IN THE CASE OF CIT VS. DR. V.P. GOPINATHAN 248 ITR 449 (SC0. THIS CONTENTION OF THE APPELLANT IS, THEREFORE, REJECTED. 2.6. IN THE RESULT, ADDITION OF RS.5,00,318/- IS SU STAINED OUT OF THE ADDITION OF RS.28,92,829/- MADE BY THE AO ON ACCOUN T OF BAD DEBT, AND THE BALANCE DISALLOWANCE IS DELETED. GROUND NO. 3 READ WITH GROUND NO.2 OF APPEAL IS PARTLY ALLOWED. 14.1 AFTER GOING THROUGH THE AFORESAID FINDINGS GIV EN BY THE LD. FIRST APPELLATE AUTHORITY, AS DISCUSSED ABOVE, WE ARE OF THE CONSIDERED OPINION ITA NO.03(ASR)/2011 ITA NO.04(ASR)/2011 14 THAT NO INTERFERENCE IS CALLED FOR THE WELL REASONE D ORDER PASSED BY THE LD. FIRST APPELLATE AUTHORITY. THEREFORE, GROUND RAISED BY THE ASSESSEE FOR SUSTENANCE OF ADDITION OF RS.5,00,316/- AS WELL AS DELETION MADE BY THE LD. FIRST APPELLATE AUTHORITY AMOUNTING TO RS.23,92,511 /- ON ACCOUNT OF BAD DEBTS, WE UPHOLD THE SAME BY DISMISSING THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE AS WELL AS BY THE REVENUE ON THE ISSUE IN DISPUTE. 15. AS REGARDS TO THE ADDITION OF RS.2,85,248/- ON ACCOUNT OF FOREIGN TRAVELING EXPENSES, THE LD. FIRST APPELLATE AUTHORI TY HAS TREATED THE SAME AS FOR NON-BUSINESS EXPENSES AND MADE THE ADDITION OF RS.2 ,85,284/- AGAINST THE TOTAL CLAIM OF RS.3,36,158/-. AFTER GOING THROUGH T HE ADDITION MADE BY THE REVENUE AUTHORITY ON THE ISSUE IN DISPUTE, WE ARE O F THE VIEW THAT THE ASSESSEE HAS NOT FILED ANY DOCUMENTARY EVIDENCE SUP PORTING ITS CLAIM AND THE LD. CIT(A) HAS RIGHTLY DELETED THE ADDITION OF RS.5 0,910/- AND SUSTAINED THE DISALLOWANCE OF RS.2,85,248/-. THE LD. FIRST APPELL ATE AUTHORITY HAS ALLOWED THE EXPENDITURE OF RS.50,910/- BECAUSE THE ASSESSEE HAS SATISFIED THAT THE TRIP TO MACAU WAS FOR THE PURPOSE OF BUSINESS AND HE RIG HTLY DELETED THE SAME BECAUSE THE ASSESSEE HAS FILED THE NECESSARY EVIDEN CE SUPPORTING ITS CLAIM TO THIS EXTENT ONLY AND WITH REGARD TO BALANCE, THE A SSESSEE HAS NOT FILED ANY EVIDENCE. THEREFORE, THE LD. CIT(A) HAS RIGHTLY SUS TAINED THE ADDITION OF RS.2,85,248/-. WE ARE OF THE VIEW THAT THE LD. FIR ST APPELLATE AUTHORITY HAS ITA NO.03(ASR)/2011 ITA NO.04(ASR)/2011 15 PASSED A DETAILED AND WELL REASONED ORDER ON THIS I SSUE WHICH REQUIRES NO INTERFERENCE. ACCORDINGLY, WE UPHOLD THE IMPUGNED ORDER BY DISMISSING THE APPEAL FILED BY THE ASSESSEE AS WELL AS BY THE REVE NUE ON THE ISSUE IN DISPUTE. 16. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AS WELL AS REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27TH NOVEMBER, 2012. SD/- SD/- (B.P. JAIN) (H.S. SIDHU) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 27TH NOVEMBER, 2012 /SKR/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. LALLY MOTORS PVT. LTD; JALANDHAR. 2. THE ADDL. CIT, RANGE-IV, JALADHAR. 3. THE CIT(A), JALANDHAR. 4. THE CIT, JALANDHAR. 5. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.