ACIT, Trivandrum V. Kerala Financial Corp. Ltd., Trivandrum

ITA 431/COCH/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 64766 (ITAT-COCHIN)
• Duration Of Justice: 3 year(s) 1 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2012
• Appeal Filed By: Department
• Bench Allotted: DB
• Next Hearing Date: 07-08-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 17-07-2009
• Court: TRIBUNAL
• Department Lawyers: VANI RAJ
• Assessee Lawyers: V DEVARAJAN
• Keywords: Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL COCHIN BENCH, COCHIN BEFORE S/SHRI N.R.S.GANESAN, JM AND B.R.BASKAR AN, AM I.T.A. NOS. 430 & 431COCH/2009 ASSESSMENT YEARS: 2004-05 & 2006-07 THE ASSISTANT COMMISSIONER OF INCOME-TAX,CIRCLE-1(1), TRIVANDRUM. VS. M/S. KERALA FINANCIAL CORPORATION LTD., VELLAYAMBALAM, TRIVANDRUM. [PAN: AABCK 1316M] (REVENUE-APPELLANT) (ASSESSEE-R ESPONDENT) REVENUE BY MS. VANI RAJ, JR. DR ASSESSEE BY SHRI V. DEVARAJAN, CA DATE OF HEARING 07/08/2012 DATE OF PRONOUNCEMENT 24/08/2012 O R D E R PER B.R.BASKARAN, ACCOUNTANT MEMBER: BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AG AINST THE ORDERS DATED 18-03-2009 PASSED BY THE LD. CIT(A)-I, TRIVANDRUM AND THEY REL ATE TO THE ASSESSMENT YEARS 2004- 05 AND 2006-07. 2. THE SOLITARY ISSUE URGED IN THESE APPEALS IS WHE THER THE LD. CIT(A) IS JUSTIFIED IN DELETING THE DISALLOWANCE OF RS.17.65 CRORES AND RS . 4.17 CRORES PERTAINING TO THE BAD DEBTS CLAIMED BY THE ASSESSEE IN THE ASSESSMENT YEA RS 2004-05 AND 2006-07 RESPECTIVELY. 3. SINCE THE UNDERLYING FACTS IN RESPECT OF BOTH T HE YEARS ARE IDENTICAL IN NATURE, WE NARRATE THE FACTS RELATING TO THE ASSESSMENT YEA R 2004-05 IN BRIEF. IN THAT YEAR, THE ASSESSEE CLAIMED A SUM OF RS.13.65 CRORES AS BAD DE BTS. HOWEVER, THE ASSESSING OFFICER TOOK THE VIEW THAT THE ASSESSEE SHOULD HAVE DEBITED THE ENTIRE AMOUNT OF BAD DEBTS TO THE ACCOUNT NAMED PROVISION FOR BAD AND D OUBTFUL DEBTS WHICH WAS CREATED I.T.A. NOS. 430 & 431/COCH/2009 2 AS PER THE PROVISIONS OF 36(1)(VIIA) OF THE ACT, B ECAUSE AS PER SEC. 36(2(V), NO DEDUCTION SHALL BE ALLOWED UNLESS THE ASSESSEE HAS DEBITED THE AMOUNT OF SUCH DEBT OR PART THEREOF TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS CREATED U/S. 36(1)(VIIA) OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED THE BAD DEBT CLAIM MADE BY THE ASSESSEE, WHICH WAS DEBITED TO THE PROFIT AND LOSS ACCOUNT. THE ASSESSEE CARRIED THE MATTER IN APPEALS BEFORE THE LD. CIT(A) AND GOT REL IEF IN BOTH THE YEARS. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE PARTIES AND PERUSED THE RECORD . THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE HON'BLE JURISDICTIONAL KERALA HIGH COURT CONSIDERED AN IDENTICAL ISSUE IN ASSESSEE'S OWN CASE AND THE HIGH COURT, BY ITS ORDER DATED 11-03- 2010 HAS ALLOWED THE CLAIM OF THE ASSESSEE. THE LD . COUNSEL ALSO FURNISHED A COPY OF THE ORDER OF THE HONBLE HIGH COURT. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE ORDER OF THE HONBLE HIGH COURT:- QUESTION RAISED IS WHETHER THE TRIBUNAL WAS JUSTI FIED IN HOLDING THAT THE ASSESSEE IS ENTITLED TO DEDUCTION OF BAD DEBT ACTU ALLY WRITTEN OFF EVEN IF THE ASSESSEE HAS NOT DEBITED THE SAME IN THE PROVISIO N CREATED FOR BAD AND DOUBTFUL DEBTS. WE HAVE HEARD THE STANDING COUNSEL APPEARI NG FOR THE APPELLANT. 2. THE CLEAR FINDING OF THE TRIBUNAL IS THAT WHAT IS CLAIMED AS DEDUCTION IS BAD DEBT ACTUALLY WRITTEN OFF WHICH IS AN ALLOWABLE DE DUCTION U/S. 36(1)(VII) OF THE INCOME TAX ACT. HOWEVER, DEPARTMENTS CASE IS THA T BAD DEBT WRITTEN OFF IS NOT DEBITED TO THE PROVISION CREATED FOR BAD AND DOUBT FUL DEBTS AND SO MUCH SO, THE ASSESSEE IS NOT ENTITLED TO CLAIM DEDUCTION U/S. 3 6(1)(VIIA). THE TRIBUNAL RIGHTLY FOUND THAT THE PROVISION CREATED BY THE ASSESSEE I S NOT CLAIMED AS A DEDUCTION AND SO MUCH SO, THERE IS NO REQUIREMENT TO DEBIT T HE ACTUAL DEBT WRITTEN OFF IN THE PROVISION CREATED FOR BAD AND DOUBTFUL DEBTS. WE ARE IN COMPLETE AGREEMENT WITH THE FINDING OF THE TRIBUNAL BECAUSE THE DEPAR TMENTS APPREHENSION THAT ASSESSEE WOULD HAVE CLAIMED DEDUCTION OF BOTH PROV ISION AS WELL AS ACTUAL DEBT WRITTEN OFF DOES NOT ARISE HERE. HOWEVER, IF PROV ISION CREATED IS DEBITED TO PROFIT AND LOSS ACCOUNT AND THE SAID PROVISION IS ALSO CL AIMED AS A DEDUCTION AND ALLOWED, THEN THE DEPARTMENTS STAND CERTAINLY IS CORRECT. HOWEVER, IN VIEW OF THE FACTUAL FINDING BY THE TRIBUNAL THAT PROVISION IS NEITHER CLAIMED NOR ALLOWED AS A DEDUCTION, WE DO NOT FIND ANY MERIT IN THE AP PEAL. CONSEQUENTLY THE SAME IS DISMISSED. HOWEVER, IF THERE IS ANY FACTUAL ER ROR IN THE FINDING OF FACT BY THE TRIBUNAL, IT IS FOR THE DEPARTMENT TO ASK FOR RECT IFICATION BEFORE THE TRIBUNAL. I.T.A. NOS. 430 & 431/COCH/2009 3 5. IN THE INSTANT ORDER, THE ASSESSEE HAS SUBMITTED THAT IT HAS DEBITED THE BAD DEBTS CLAIM IN THE PROFIT AND LOSS ACCOUNT ONLY AFT ER EXHAUSTING THE BALANCE AVAILABLE UNDER THE HEAD PROVISION FOR BAD AND DOUBTFUL DEBT S. 6. THE CLAIM OF THE ASSESSEE CAN BE EXPLAINED B Y WAY OF AN EXAMPLE. LET US ASSUME THAT THE CREDIT BALANCE AVAILABLE IN THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT WAS RS.1.00 LAKH. DURING THE YEAR THE ASSESSEE DEC IDED TO WRITE OFF RS.2.50 LAKHS AS BAD DEBTS. IN THIS KIND OF SITUATION, THE ASSESSEE SHOULD DEBIT THE PROVISION FOR BAD AND DOUBTFUL ACCOUNT ONLY TO THE EXTENT OF BALANCE AVAILABLE IN THAT ACCOUNT AND THE BALANCE AMOUNT OF BAD DEBTS SHOULD BE DEBITED TO TH E PROFIT AND LOSS ACCOUNT. ACCORDINGLY, IN THE EXAMPLE GIVEN ABOVE, THE ASSESS EE SHOULD DEBIT PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT WITH RS.1.00 LAKH AND T HE REMAINING AMOUNT OF RS.1.50 LAKHS SHOULD BE TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT AND CLAIMED AS DEDUCTION. WE CAN EXPLAIN THIS ASPECT IN ANOTHER WAY ALSO. THE RE CANNOT BE ANY DISPUTE THAT THE PROVISION FOR BAD AND DOUBTFUL DEBTS IS CREATED B Y DEBITING THE PROFIT AND LOSS ACCOUNT AND HENCE THE SAID ACCOUNT SHOULD ALWAYS SHOW CREDI T BALANCE. IF THE ENTIRE BAD DEBTS CLAIM AMOUNT OF RS.2.50 LAKHS IS DEBITED TO THE PR OVISION FOR BAD AND DOUBTFUL ACCOUNT, THEN THE SAID ACCOUNT WOULD SHOW A DEBIT BALANCE OF RS.1.50 LAKHS, (RS.1.00 LAKH (-) RS.2.50 LAKHS) AND THE SAID DEBIT BALANCE IS REQUIRED TO BE TRANSFERRED TO THE PROFIT AND LOSS ACCOUNT AS PER THE ACCOUNTING PRINC IPLES. THE NET EFFECT IS THAT THE BAD DEBTS CLAIM TO THE TUNE OF RS.1.50 LAKHS WOULD STAN D DEBITED TO THE PROFIT AND LOSS ACCOUNT. 7. HOWEVER, IN THE INSTANT CASES, THE RELEVANT DE TAILS ARE NOT BORNE OUT OF THE RECORD, I.E., THE BALANCE AVAILABLE IN PROVISION FOR BAD A ND DOUBTFUL DEBTS ACCOUNT; THE AMOUNT OF BAD DEBTS WRITTEN OFF DURING THE YEAR; TH E AMOUNT DEBITED TO THE PROVISION FOR BAD AND DOUBTFUL DEBTS ACCOUNT, WHICH WOULD HE LP TO ASCERTAIN THE CORRECTNESS OF THE AMOUNT OF BAD DEBTS TRANSFERRED TO PROFIT AND L OSS ACCOUNT. SINCE THESE FACTS ARE NOT AVAILABLE ON RECORD, IN OUR VIEW, THE CLAIM OF THE ASSESSEE REQUIRES VERIFICATION AT THE END OF THE ASSESSING OFFICER. ACCORDINGLY, THO UGH WE UPHOLD THE DECISION OF THE LD. I.T.A. NOS. 430 & 431/COCH/2009 4 CIT(A) ON THE PRINCIPLE FOLLOWED BY HIM, YET SINCE THE FACTUAL ASPECTS DISCUSSED ABOVE REQUIRE VERIFICATION, WE SET ASIDE THIS ISSUE TO TH E FILE OF THE ASSESSING OFFICER WITH THE DIRECTION TO VERIFY THE CLAIM OF THE ASSESSEE IN TH E LIGHT OF DISCUSSIONS MADE SUPRA. 8. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED ACCORDINGLY O N 24-08-2012 SD/- SD/- (N.R.S.GANESAN) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER PLACE: KOCHI DATED: 24TH AUGUST, 2012 GJ COPY TO: 1. M/S. KERALA FINANCIAL CORPORATION LTD., VELLAYAM BALAM, TRIVANDRUM. 2.THE ASSISTANT COMMISSIONER OF INCOME-TAX, CIRCLE- 1(1),TRIVANDRUM. 3.THE COMMISSIONER OF INCOME-TAX(APPEALS)-I, TRIVAN DRUM. 4.THE COMMISSIONER OF INCOME-TAX, TRIVANDRUM. 5. D.R., I.T.A.T., COCHIN BENCH, COCHIN. 6. GUARD FILE. BY ORDER (ASSISTANT REGISTRAR) I.T.A.T, COCHIN