ACIT, CHENNAI V. V.Krishnamurthy, CHENNAI

ITA 424/CHNY/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4274 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-04-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 27-02-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUPRIYO PAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Bad and doubtful debts
• Section: 143(3); 142(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , . , # $ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER A ND SHRI. G. PAVAN KUMAR, JUDICIAL MEMBER ./I.T.A. NO. 424/MDS/2015 /ASSESSMENT YEAR : 2010-11 ASSISTANT COMMISSIONER OF INCOME TAX, NCC -20, CHENNAI 34. VS. V. KRISHNAMURTHY, NO. 142, ELDAMS ROAD, CHENNAI 18. [PAN: AACPK 6064C] ( / APPELLANT) ( /RESPONDENT) &' / APPELLANT BY : SHRI. SUPRIYO PAL, JCIT )*&' /RESPONDENT BY : SHRI. S. SRIDHAR, ADVOCATE ' /DATE OF HEARING : 05.04.2017 ' /DATE OF PRONOUNCEMENT : 22.06.2017 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-IV, CHENNAI IN ITA NO. 578/10-11,11- 12/&71/13-14, DATED 30.10.2014. ITA NO.424/MDS/2015 :- 2 -: 2. THE REVENUE RAISED THE FOLLOWING GROUNDS: 2. THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITIO N MADE ON ACCOUNT OF TREATING 20% OF THE DECLARED AGRICULTURAL INCOME AS INCOME OF THE ASSESSEE UNDER THE HEAD OTHER SOURCES. 2.1 THE LD. CIT(A) OUGHT TO HAVE NOTED THAT THE ASS ESSEE HIMSELF HAD FAILED TO SUBMIT FULL SUPPORTING DOCUMENTS IN SUPPO RT OF HIS CLAIM OF AGRICULTURAL INCOME. 2.2 THE CIT(A) OUGHT TO HAVE APPRECIATED THE ACTION OF AO IN MAKING THE ADDITION ON ESTIMATION BASIS IN THE ABSENCE OF FULL SUPPORTING DOCUMENTS. 2.3 THE CIT(A) ERRED IN DELETING THE ADDITION MADE TOWARDS BAD DEBT AMOUNTING TO RS. 26,55,088/-. 3.1 THE CIT(A) OUGHT TO HAVE APPRECIATED THE DECISI ON IN THE CASE OF EMBASSY CLASSIC PVT. LTD. VS. DCIT (2010-TIOL-591) ITAT BANG WHERE IN IT WAS HELD THAT WRITTING OFF DEBT IS NOT AN EM PTY FORMALITY - ASSESSEE CANNOT CONVERT ANY LIVE AMOUNT TO A ABD DEBT ONLY O N THE BASIS OF TECHNICAL RULE OF WRITE OFF. 3.2 IT IS SUBMITTED THAT MOST OF THE BAD DEBTS INCL UDED WERE THE CANCELLED ORDERS/CONTRACTS PERTAINING TO FINANCIAL YEARS 2005-06 TO 2008- 09 AND NOT AS OLD AS CLAIMED BY THE ASSESSEE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS IN THE BUSINESS AS A SOLE PROPRIETOR IN ADVERTISING AGENCY UNDER MEENA , HIRING OF CARS UNDER AVIATION AND HAS INCOME FROM AGRICULTURE AND FILED THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2010-11 ON 29.09.2010 ADMITTING TOTAL INCOME AS NIL AFTER ADJUSTING THE BROUGHT FORWARD UNABSORBED DEPR ECIATION OF RS. 19,19,154/-. SUBSEQUENTLY, THE CASE WAS SELECTED F OR SCRUTINY AND NOTICE U/S. 143(2) AND 142(1) OF THE ACT WERE ISSUED ALONG WITH QUESTIONNAIRE ON 09.11.2012. IN COMPLIANCE, THE LD. AR APPEARED FRO M TIME TO TIME ON VARIOUS DATES AND FILED INFORMATION. THE ASSESSING OFFICER ON PERUSAL OF THE ITA NO.424/MDS/2015 :- 3 -: ASSESSMENT DETAILS FOUND THAT THE ASSESSEE IS HAVIN G INCOME FROM ADVERTISING, CARE HIRE AND VIDEO EQUIPMENT IN THE FINANCIAL YEAR 2009-10. THE ASSESSEE HAS DECLARED AGRICULTURAL INCOME OF RS. 85,14,188/- AND SUBMITTED THE LAND HOLDINGS OF AGRICULTURAL ACTIVITIES. THE ASSESSEE HAS LAND HOLDING OF 133.87 ACRES OF AGRICULTURAL LANDS SITUATED AT UTHRAMERUR, CHENGELPAT CULTIVATES AND PRODUCES MANGO, COCONUT, GROUND NUT, PADDY ETC., AN D THESE PRODUCTS ARE SOLD IN THE OPEN MARKET ON RETAIL BASIS FURTHER THI S INFORMATION WAS SUBMITTED BY THE ASSESSEE IN RESPECT OF SALES/PURCHASE IN THE EARLIER YEARS AND BEING ACCEPTED. THE LD. AR SUBMITTED THAT THE VAO CERTIF IED THE OWNERSHIP OF LAND AND CULTIVABLE LAND AREA OF THE PRODUCTS AND THE AS SESSEE ALSO INCURRED EXPENSES TOWARDS FARM, EMPLOYEES, SALARY, WAGES, FE RTILIZERS FOR MANGO AND PADDY CROP, MAINTENANCE EXPENSES AND SINCE THESE AR E BROUGHT FROM THE LOCAL AREA, THE ASSESSEE COULD NOT SUPPORT WITH ANY MATER IAL. THE ASSESSING OFFICER OBSERVED THAT HE COULD NOT VERIFY THE LAND HOLDING AND AGRICULTURAL ACTIVITY OF THE ASSESSEE AND CANNOT ACCEPT THE INFORMATION IN T HE ABSENCE OF BOOKS OF ACCOUNTS. CONSIDERING THE FACT OF LAND HOLDING AND AGRICULTURAL ACTIVITY AND THE EXPENSES, THE ASSESSING OFFICER MADE ESTIMATION OF 20% OF DECLARED AGRICULTURAL INCOME FROM NON-AGRICULTURAL ACTIVITIE S AND TAXED UNDER THE HEAD OF INCOME FROM OTHER SOURCES RS. 17,02,838/-. FURT HER, THE LD. AO FOUND THAT THE ASSESSEE HAS DEBITED BAD DEBTS PERTAINING TO ME ENA ADVERTISERS RS. 26,55,088/- AND THE ASSESSEE FILED LETTER ON 12.03. 2013 ENCLOSING THE DETAILS AND EXPLAINED THAT THESE AMOUNTS WERE WRITTEN OFF B EING OUTSTANDING FOR A LONG TIME DESPITE FOLLOW UP MADE BY THE ASSESSEE. THE LD. AO FIND THAT MOST ITA NO.424/MDS/2015 :- 4 -: OF THE BAD DEBTS INCLUDES THE CONTRACTS CANCELLED A ND THE DATE OF BILL WAS AS LATE AS 2008 AND RELIED ON THE JUDICIAL DECISION AN D DISALLOWED RS. 26,55,088/- AND ALSO MADE ADDITION IN RESPECT OF EXPENSES UNDER VARIOUS HEAD AND PASSED AN ORDER U/S. 143(3) DATED 25.03.2013. 4. AGGRIEVED BY THE ORDER, THE ASSESSEE FILED AN AP PEAL WITH THE CIT(A). IN THE APPELLATE PROCEEDINGS, THE LD. CIT( A) FOUND THAT THE ASSESSEE HAS SUBSTANTIATED HIS LAND HOLDING WHICH IS NOT DIS PUTED AND FURTHER THE LD. AO OBSERVED THAT THESE PRODUCTS ARE SOLD IN THE RET AIL MARKET. THEREFORE, THE LD. CIT(A) IS OF THE OPINION THAT THE ASSESSING OFF ICER ERRED IN REJECTING THE BOOKS OF ACCOUNT, AND FURTHER PREDOMINANTLY WITHOUT CONSIDERING THE NATURE OF THE CULTIVATION OF THE PRODUCTS AND THE ASSESSING O FFICER MADE ADHOC ESTIMATION WHICH CANNOT BE ACCEPTED AND THE LD. CIT (A) DIRECTED THE AO TO DELETE THE ADDITION AS REFERRED AT PARA 14 OF PAGE 6 OF THE ORDER AS UNDER: 14. IN THE ABSENCE OF ANY SUCH EXERCISE IN CONTROV ERTING THE ASSESSEES CLAIM, OR INDEED REJECTING HIS BOOKS THE AOS ACTION IN TREATING 15-20% OF THE AGRICULTURAL INCOME AS INCOME FROM NO N-AGRICULTURAL ACTIVITY APPEARS TO BE AN AD HOC ACTION, AT BEST, A ND NOT BACKED BY HARD FACTS ON THE GROUND AND THEREFORE I AM CONSTRAINED TO DIRECT THE AO TO DELETE THE SAME FOR ALL THE THREE ASSESSMENT YEARS. ACCORDINGLY, THIS GROUND OF APPEAL FOR ALL THE ASSESSMENT YEARS IN AP PEAL IS ALLOWED. 4.1 ON SECOND DISPUTED ISSUE OF BAD DEBTS, THE LD C IT(A) FOUND THAT THE BAD DEBTS INCLUDES THE CONTRACTS CANCELLED AND THE DATE OF BILL WAS AS LATE AS 2008 AND BILLS DOES NOT INDICATE THEY ARE OLD. THE LD. CIT(A) RELIED ON THE AMENDMENTS AND OBSERVED THAT AFTER AMENDMENT OF THE ACT IN 1987, THE ITA NO.424/MDS/2015 :- 5 -: ASSESSEE IS REQUIRED TO DEMONSTRATE THAT THE DEBT HAD BECOME BAD AND WAS WRITTEN OFF IN BOOKS OF ACCOUNT. THE LD. CIT(A) PE RUSED THE PROVISION OF SECTION 36(1)(VII) AND CBDT CIRCULAR 551 DATED 23.0 1.1990 AND HIGHLIGHTED THE FACTS PROVISIONS AND RELIED ON THE JUDICIAL DEC ISIONS AND FINALLY DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION AS REFERRE D AT PARA 18 WHICH READ AS UNDER: 18. THE AO HAS ALSO FAILED TO MAKE OUT A CASE THAT THE TRADING DEBT DOES NOT SPRING FROM THE CARRYING ON OF THE NO RMAL BUSINESS OF THE ASSESSEE. IT IS WELL SETTLED THAT AFTER THE AMENDM ENT TO SECTION 36(1)(VII), THE TAX PAYERS CONSIDERED OPINION THAT A DEBT WAS BAD DEBT IS WHAT IS RELEVANT AND IT WOULD SUFFICE THAT WHEN THE RE WERE CIRCUMSTANCES OR MATERIAL TO INDICATE THE REASONABLENESS OF THE D ECISION TO TREAT THE DEBT AS BAD PARTICULARLY IF SUCH DEBT HAS BEEN WRIT TEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE AS IT UNDISPUTEDLY WAS, IN THE INSTANT CASE, AND AS HELD IN CIT VS AHMEDABAD ELECTRICITY C OMPANY LTD. [262 ITR 97] (GUJ) AND A CATENA OF OTHER JUDGEMENTS INCL UDING TRF LTD. VS CIT 323 ITR 397 SC. IN VIEW OF THE ABOVE DISCUSSIO N, THE AOS ADDITION OF RS. 26,55,088/- ON ACCOUNT OF DISALLOWANCE OF BA D DEBTS IS DIRECTED TO THE DELETED. ACCORDINGLY, THIS GROUND IS ALSO ALLO WED. WITH THESE OBSERVATIONS THE CIT(A) ALLOWED THE APPE AL OF THE ASSESSEE. 5. AGGRIEVED BY THE CIT(A) ORDER, THE REVENUE HAS F ILED AN APPEAL BEFORE THE TRIBUNAL. BEFORE US, THE LD. DR ARGUED THAT THE LD. CIT(A) ERRED IN DELETING THE ADDITION ON TREATING 20% OF THE AGRICU LTURAL INCOME AS INCOME FROM OTHER SOURCES, WITHOUT ANY SUPPORTING DOCUMENT S IN RESPECT OF CLAIM OF AGRICULTURAL INCOME. WHEREAS, THE LD. AR RELIED ON THE ORDER OF THE CIT(A) ITA NO.424/MDS/2015 :- 6 -: AND SUBSTANTIATED THAT THERE IS NO DISPUTE IN THE E ARLIER ASSESSMENT YEARS AND WAS BEEN ACCEPTED BY THE REVENUE. 6. WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATE RIAL ON RECORD AND JUDICIAL DECISIONS. THE LD. DR CONTENTION THAT THE CIT(A) HAS ERRED IN DELETING THE ADDITION OF 20% ON AGRICULTURAL INCOME UNDER HE AD OF OTHER SOURCES. WE FIND THE ASSESSING OFFICER HAS ESTIMATED 20% OF INC OME CONSIDERING THE FACT THAT ASSESSEE COULD NOT ESTABLISH THE SOURCE OF AGR ICULTURAL INCOME. WE ARE OF THE OPINION, THAT THE ASSESSEE HAS SUBSTANTIATED TH E CASE REGARD TO LAND HOLDING AND AGRICULTURAL INCOME WAS BEING ACCEPTED BY THE REVENUE. WE FIND THAT THE CIT(A) TOOK THE DECISION ON THE FACTS AND CIRCUMSTANCES OF PRESENT ASSESSMENT YEAR ALONG WITH EARLIER ASSESSMENT YEARS AND CAME TO A CONCLUSION IN PARA 12 OF CIT(A) READ AS UNDER: THE AO HAS ALSO CRUCIALLY NOT BROUGHT OUT ANYTHI NG ON RECORD TO SUGGEST THAT THE ASSESSEE HAD DERIVED ANY INCOME OR EVEN THE NATURE OF THE SAME BY WAY OF NON-AGRICULTU RAL ACTIVITY FROM THE AGRICULTURAL LANDS UNDISPUTEDLY CULTIVATED BY THE ASSESSEE. NOR HAS HE MADE ANY CONVINCING CASE THAT THE ASSESS EE HAS CAMOUFLAGED UNACCOUNTED BUSINESS/OTHER INCOME AS AG RICULTURAL INCOME BY ARTIFICIALLY INFLATING NET AGRICULTURAL R ECEIPTS IN ORDER TO REDUCE HIS OVERALL TAX INCIDENCE. HE HAS NOT POINT ED OUT THE EXACT DISCREPANCIES IN THE ASSESSEES DOCUMENTATION OF AG RICULTURAL INCOME AND THEREFORE FAILED TO DISCHARGE HIS ONUS I N CONTROVERTING THE ASSESSEES CLAIM OF AGRICULTURAL INCOME BY LEAD ING ANY WORTHWHILE EVIDENCE TO THAT EFFECT. ITA NO.424/MDS/2015 :- 7 -: AND DIRECTED THE AO TO DELETE THE ADDITION. ACCORD INGLY, WE ARE OF THE CONSIDERED VIEW THAT THE ORDER OF THE CIT(A) CANNOT BE INTERFERRED AND WE UPHELD THE SAME. IN THE RESULT, THE GROUND OF THE APPEAL OF THE REVENUE IS DISMISSED. 7. IN RESPECT OF CLAIM OF BAD DEBTS THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE TOWARDS THE BAD DEBTS AMOUNTING T O RS. 26,55,088/-. CONTRA, THE LD. AR RELIED ON THE ORDERS OF THE CIT( A) AND THE JUDICIAL DECISIONS. 7.1 WE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MAT ERIAL ON RECORD AND JUDICIAL DECISIONS. THE FACT THAT THE CLAIM OF BAD DEBTS OF RS. 26,55,088/-. THE FACT THAT THE ASSESSEE HAS PASSED ENTRIES IN TH E BOOKS OF ACCOUNT TO WRITTEN OFF THE SAME AND THE ASSESSING OFFICER HAS NOT VERIFIED AND MADE DISALLOWANCE. WHEREAS, THE LD. CIT(A) CONSIDERING THE FACTS AND PROVISIONS OF LAW AND JUDICIAL DECISIONS CAME TO A CONCLUSION THA T THE ASSESSEE IS ENTITLED TO WRITE OFF OF BAD DEBTS AND ALLOWED THE GROUND. 18. THE AO HAS ALSO FAILED TO MAKE OUT A CASE THA T THE TRADING DEBT DOES NOT SPRING FROM THE CARRYING ON OF THE NO RMAL BUSINESS OF THE ASSESSEE. IT IS WELL SETTLED THAT AFTER THE AMENDMENT TO SEC. 36(1)(VII), THE TAX PAYERS CONSIDERED OPINION THAT A DEBT WAS BAD DEBT IS WHAT IS RELEVANT AND IT WOULD SUFFICE THAT WHEN THERE WERE CIRCUMSTANCES OR MATERIAL TO INDICATE THE REASONABL ENESS OF THE DECISION TO TREAT THE DEBT ACCOUNTS OF THE ASSESSEE AS IT UNDISPUTEDLY WAS, IN THE INSTANT CASE, AND AS HELD IN CIT V ITA NO.424/MDS/2015 :- 8 -: AHMEDABAD ELECTRICITY COMPANY LTD. [262 ITR 97] (GU J) AND A CATENA OF OTHER JUDGEMENTS INCLUDING TRF LTD VS CIT 323 ITR 397 SC. IN VIEW OF THE ABOVE DISCUSSION, THE AOS ADDI TION OF RS. 26,55,088/- ON ACCOUNT OF DISALLOWANCE OF BAD DEBT IS DIRECTED TO THE DELETED. ACCORDINGLY, THIS GROUND IS ALSO ALLO WED. ACCORDINGLY, WE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS GROUND AND DISMISS THE REVENUE APPEAL. 8. IN THE RESULT, REVENUE APPEAL IS DISMISSED ORDER PRONOUNCED ON THURSDAY, THE 22 ND DAY OF JUNE, 2017 AT CHENNAI. SD/ - ( ) (CHANDRA POOJARI) ! / ACCOUNTANT MEMBER SD/ - ( . ) (G. PAVAN KUMAR) $ ! / JUDICIAL MEMBER / CHENNAI / / DATED: 22 ND JUNE, 2017 JPV ' )#12 32 / COPY TO: 1. & / APPELLANT 2. )*& / RESPONDENT 3. 4 () / CIT(A) 4. 4 / CIT 5. 2 )## / DR 6. : / GF