Elegant Microweb Systems Pvt.Ltd., Ahmedabad V. The Income tax Officer,Ward-(1), Ahmedabad

ITA 4070/AHD/2008

• Counselvise Citation: [2009] 115 COUNSELVISE.COM (IT) 1805 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2009
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 10-12-2009
• Assessment Year: 2005-2006
• Appeal Filed On: 18-12-2008
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEETA SHAH
• Assessee Lawyers: A C SHAH
• Keywords: Bad and doubtful debts
• Section: 143(1); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCH B AHMEDABAD BEFORE S/SHRI MAHAVIR SINGH, JM AND A. N. PAHUJA, A.M. ELEGANT MICROWEB SYSTEMS P. LTD., A-301, SHAPATH-IV, OPPOSITE KARNAVATI CLUB, S.G. HIGHWAY, AHMEDABAD- 380054 V/S . THE INCOME-TAX OFFICER, WARD-4(1), AHMEDABAD. PAN NO.AAACE 9464 D (APPELLANT) .. (RESPONDENT) ASSESSEE BY :- SHRI A. C. SHAH, AR REVENUE BY:- SMT. NEETA SHAH, DR O R D E R A. N. PAHUJA: THIS APPEAL BY THE ASSESSEE AGAINST AN ORDER DATED 14.11.2008 OF THE LD. CIT(A)-VIII,AHMEDABAD, RAISES THE FOLLOWING GROUND : THE LD. CIT(A) HAS CONFIRMED THE DISALLOWANCE OF R S.4,78,000/- DUE FROM M/S V.K. INTERNATIONAL AS BAD DEBTS INASMUCH AS IT DOES NOT REPRESENT BAD DEBTS BUT REPRESENTS REVERSAL OF SALE BILL OR KASAR S . 2. FACTS, IN BRIEF, AS PER RELEVANT ORDERS ARE THAT THE RETURN DECLARING NIL INCOME FILED BY THE ASSESSEE COMPANY ENGAGED IN SOF TWARE DEVELOPMENT, AFTER BEING PROCESSED ON 18.1.2006 U/S 143(1) OF TH E INCOME-TAX ACT,1961[HEREINAFTER REFERRED TO AS THE ACT] , WA S TAKEN UP FOR SCRUTINY WITH THE ISSUE OF NOTICE U/S 143(2) OF THE ACT ON 28.9.2 006. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER[AO IN SHORT] NOTICED THAT THE ASSESSEE HAD CLAIMED MARKETING EXPENSES OF RS.7,13 ,698/- VIS-A-VIS RS.2,25,142/- CLAIMED IN THE IMMEDIATELY PRECEDING YEAR. TO A QUERY BY THE AO, THE ASSESSEE EXPLAINED THAT OUT OF RS.7,13,698/ -, 7,13,000/- WERE CLAIMED ON ACCOUNT OF BAD DEBTS. THE ASSESSEE ALSO FILED DETAILS OF SUCH DEBTS AND THE EXPLANATION FOR THEIR BECOMING BAD. I T WAS EXPLAINED THAT THE ASSESSEE CARRIED OUT THE WORK FOR M/S LINCOLN PHARM ACEUTICALS LTD.,ACRYCIL ITA NO.4070/AHD/08 ASST. YEAR:2005-06 ITA NO.4070/AHD/08 2 2 LTD., ENCORE NATURAL POLYMERS (P) LTD. AND V.K. INT ERNATIONAL. THE WORK RELATING TO M/S LINCOLN PHARMACEUTICALS LTD. WAS A BANDONED IN BETWEEN AS THE COMPANY WAS DEMANDING MORE CUSTOMIZATION AND AD DITION TO SYSTEM. IN ORDER TO STOP STRETCHING OF RESOURCES, THE ASSESSEE DECIDED TO STOP THE PROJECT AND ALL THE PENDING AMOUNTS WERE TAKEN TO THE BAD D EBTS. IN THE CASE OF ENCORE NATURAL POLYMERS (P) LTD., THE WORK WAS COMP LETED AND THE CUSTOMERS PAID PART PAYMENT IN THREE PHASES. SINCE, IN SPITE OF REPEATED REQUESTS, NO PAYMENTS WERE RECEIVED FROM THIS PARTY, THE AMOUNT WAS WRITTEN OFF AS BAD DEBT. IN THE CASE OF V.K. INTERNATIONAL, THE WORK R ELATING TO DEVELOPMENT OF WEBSITE WAS CARRIED OUT.HOWEVER, THE CUSTOMER WAS N OT HAPPY WITH THE PROJECT AND THEREFORE, THE SAME WAS ABANDONED IN BETWEEN. THE AMOUNT RECEIVABLE FROM THE PARTIES WAS CARRIED TO BAD DEBT ACCOUNT. SINCE THE ASSESSEE FAILED TO FURNISH ANY DETAILS ABOUT THE C HARGES FOR EACH PROJECT, WHICH WAS NOT COMPLETED BY THE ASSESSEE NOR ANY MA TERIAL RELATING TO EFFORTS MADE BY THE ASSESSEE TO COLLECT THE DEBTS , THE AO DISALLOWED THE CLAIM FOR DEDUCTION OF BAD DEBTS. 3. ON APPEAL, IT WAS CONTENDED THAT THE OUTSTANDING AMOUNTS UNDER REFERENCE REPRESENTED THE SHORT RECOVERY I.E. KASAR . MOREOVER, THE ASSESSEE COMPLIED WITH THE CONDITIONS AS ENVISAGED U/S 36(1) OF THE ACT INASMUCH AS THE AMOUNT WRITTEN OFF WAS INCLUDED IN THE INCOME A ND THE AMOUNT WRITTEN OFF HAS BEEN CHARGED IN THE P/L ACCOUNT. IT WAS ALSO AR GUED THAT AFTER THE AMENDMENT TO SEC.36(1)(VII) OF THE ACT, ONCE THE AM OUNT IS WRITTEN OFF TO P/L ACCOUNT, THE BAD DEBT IS ALLOWABLE AS DEDUCTION. IN THIS CONNECTION, THE ASSESSEE RELIED UPON DECISIONS IN THE CASE OF CIT V S. STAR CHEMICALS (BOMBAY) P. LTD. 11 DTR 311 (MUM),CIT VS. AUTO METE RS LTD. 292 ITR 345 (DEL), CIT VS. MORGAN SECURITIES CREDIT P. LTD. 29 2 ITR 339 (DEL) AND CIT VS. PATIDAR GNGG.& PSG. FACTORY 157 CTR 177 (GUJ) 4. IN THE LIGHT OF AFORESAID SUBMISSIONS, WHILE A LLOWING THE CLAIM FOR DEDUCTION OF RS.2,35,000/- ATTRIBUTED TO M/S LINCOL N PHARMACEUTICALS LTD. U/S 36(1)(VII) OF THE ACT, THE LD. CIT(A) UPHELD THE DI SALLOWANCE IN REGARD TO THE CLAIM OF BAD DEBT AMOUNTING TO RS.4,78,000/- APPEAR ING IN THE NAMES OF (I) V.K. INTERNATIONAL, (II) ACRYSIL LTD. AND (III) ENC ORE NATURAL POLYMERS (P) LTD., ITA NO.4070/AHD/08 3 3 ON THE GROUND THAT THE ASSESSEE DID NOT BRING ON RE CORD ANY EVIDENCE TO SHOW THAT THESE AMOUNTS BECAME BAD DURING THE RELEVANT P ERIOD AND THE SAID PARTIES DID NOT REFUSE PAYMENT OF THE IMPUGNED AMOU NT WHILE THERE IS NO EVIDENCE TO THIS EFFECT ALSO THAT IN CASE OF ABANDO NMENT OF PROJECT IN BETWEEN THE ASSESSEE WILL BEAR THE COST AND THE VENDEE PART IES WILL NOT PAY ANY AMOUNT TO THE ASSESSEE SUBSEQUENTLY.INTER ALIA, THE LD. CIT(A) RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF DHALL ENTERPRISE AND ENGINEERS (P) LTD. VS. CIT 295 ITR 4 81. 5. THE ASSESSEE IS NOW IN APPEAL BEFORE US AGA INST THE AFORESAID FINDINGS OF THE LD. CIT(A).THE LD. AR ON BEHALF OF THE ASSES SEE WHILE CARRYING US THROUGH THE GIST OF SUBMISSIONS PLEADED THAT THE I MPUGNED AMOUNT HAVE NOT BEEN PAID BY THE FOLLOWING PARTIES FOR CERTAIN INCO MPLETE WORK AND THUS, IT IS A SHORT PAYMENT TOWARDS WORK DONE AND NOT BAD DEBTS:- (IN RS.) 1. V. K. INTERNATIONAL - 2,00,000/- 2. ACRYSIL LTD.- 2,55, 000/- 3. ENCORE NATURAL POLYMERS P. LTD. 23,000/- --------------------- TOTAL 4,78,000/- ---------------------- IT WAS ARGUED THAT M/S V.K. INTERNATIONAL DID NOT P AY THE OUTSTANDING BALANCE OF RS.2,00,000/- AS ON 1.4.2004 BECAUSE OF THE DISS ATISFACTION ABOUT THE WORK AND THEREFORE, IT FOLLOWS THAT IT IS A SHORT PAYME NT AND NOT BAD DEBTS. AS REGARDS M/S ACRYSIL LIMITED, IT WAS SUBMITTED THAT THE CUSTOMER DID NOT ACCOUNT FOR SALES BILLS OF RS.2,55,000/- RAISED BY THE COMPANY AND CREDITED IN THE BOOKS OF ASSESSEE FOR THE AY 1999-2000. SINCE T HE CUSTOMER DID NOT ACCEPT THE BILLS DUE TO INCOMPLETE WORK, THE AMOUNT WRITTEN OFF WAS SHORT PAYMENT.IN RESPECT OF ENCORE NATURAL POLYMERS P. L TD., THE LD. AR PLEADED THAT THOUGH THE WORK WAS COMPLETED AND CUSTOMER MAD E PART PAYMENT IN THREE PHASES, THE BALANCE AMOUNT OF RS.23,000/- WAS NOT PAID DUE TO DISSATISFACTION ABOUT THE WORK. THUS , THE AMOUNT W AS KASAR AND NOT BAD DEBTS. IN THESE CIRCUMSTANCES, THE LD. AR ARGUED TH AT THE LD. CIT(A) WAS NOT JUSTIFIED IN UPHOLDING THE DISALLOWANCE OF RS.4,78, 000/- AS BAD DEBTS INASMUCH AS IT DOES NOT REPRESENT BAD DEBTS BUT REP RESENTED REVERSAL OF SALE ITA NO.4070/AHD/08 4 4 BILL OR KASARS. ON THE OTHER HAND, THE LD. DEPARTME NTAL REPRESENTATIVE SUPPORTED THE FINDINGS OF THE LD. CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND GONE THROUGH THE FACTS OF THE CASE. WE FIND THAT BOTH THE AO AND THE LD. CIT(A) PROCEE DED ON THE BASIS THAT THE AMOUNT CLAIMED IS WRITTEN OFF AS BAD DEBTS WHILE T HE PLEA OF THE ASSESSEE BEFORE US IS THAT THE AMOUNT IS NOT CLAIMED AS BAD DEBT BUT IS SHORT PAYMENT DUE TO INCOMPLETE WORK. NEITHER THE AO NOR THE LD. CIT(A) RECORDED ANY FINDINGS AS TO WHETHER OR NOT THE AMOUNT IS, IN FAC T, SHORT PAYMENT AS CLAIMED BY THE ASSESSEE. IN THESE CIRCUMSTANCES , WE CONSI DER IT FAIR AND APPROPRIATE TO VACATE THE FINDINGS OF THE LD. CIT(A) AND RESTOR E THE MATTER TO THE FILE OF THE AO WITH THE DIRECTIONS TO RE-EXAMINE THE CLAIM OF THE ASSESSEE THAT AMOUNT ATTRIBUTABLE TO AFORESAID THREE PARTIES IS SHORT P AYMENT AND THEREAFTER, ADJUDICATE THE ISSUE IN ACCORDANCE WITH LAW AFTER A LLOWING SUFFICIENT OPPORTUNITY TO THE ASSESSEE. THE ASSESSEE IS ALSO DIRECTED TO PLACE BEFORE THE AO ALL THE RELEVANT MATERIAL IN SUPPORT OF THEI R CLAIM OF SHORT PAYMENT WHILE THE AO IS FREE TO UNDERTAKE ANY INDEPENDENT E NQUIRIES NECESSARY TO ASCERTAIN THE GENUINENESS OF THE SAID CLAIM. WITH T HESE DIRECTIONS, GROUND RAISED BY THE ASSESSEE IS DISPOSED OF . 7. IN THE RESULT, APPEAL IS ALLOWED, BUT FOR STATI STICAL PURPOSES. SD/- SD/- (MAHAVIR SINGH) (A. N. PAHUJA) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD, DATED :18/12/2009 MAHATA/- COPY OF THE ORDER FORWARDED TO :- 1. THE ASSESSEE. 2. THE INCOME-TAX OFFICER, WARD-4(1), AHMEDABAD 3. CIT(A)-VIII,AHMEDABAD 4. THE CIT CONCERNED. 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE. B Y ORDER, DEPUTY / ASSTT.REGISTRAR ITAT, AHMEDABAD ORDER PRONOUNCED IN OPEN COURT ON 18/12/2009