ITO 3(3)(3), MUMBAI V. SNOW VALLEY CONSTRUCTION MATEIRAL P.LTD, MUMBAI

ITA 4377/MUM/2012

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 2365 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 07-04-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 27-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATHYA MOORTHYDR
• Assessee Lawyers: S C TIWARI; RITUJA PAWAR
• Keywords: Tangible material; Bad and doubtful debts; Reason to believe
• Section: 147; 148

Judgement Text

, INCOME-TAX APPELLATE TRIBUNAL -EBENCH MUMBAI , . . , BEFORE S/SHRI RAJENDRA,ACCOUNTANT MEMBER AND C. N. PRASAD,JUDICIAL MEMBER ./ITA/4377/MUM/2012, /ASSESSMENT YEARS: 2005-06 ITO-3(3)(3) ROOM NO.672, 6 TH FLOOR, AAYAKAR BHAVAN, M.K. ROAD MUMBAI-400 020. VS. SNOW VALLEY COSTRUCTION MATERIAL PVT. LTD., 45-A, MITTAL TOWER A-WING, NARIMAN POINT MUMBAI-21. PAN:AAHCS 6139 G ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI SATHYA MOORTHY-DR ASSESSEE BY: SHRI S.C. TIWARI AND MS. RITUJA PAWAR / DATE OF HEARING: 20.07.2016 / DATE OF PRONOUNCEMENT: 19.10.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER DATED 07/02/201 OF THE CIT (A ) SEVEN, MUMBAI THE ASSESSING OFFICER (AO) HAS FILED THE PRESENT APPEAL. ASSESSEE COMPA NY, ENGAGED IN THE BUSINESS OF MANUFACTURING OF CONSTRUCTION CHEMICALS, FILED ITS RETURN OF INCOME ON 31/10/2005, DECLARING TOTAL INCOME AT LOSS OF RS. 9.74 LAKHS. A NOTICE UN DER SECTION 148 WAS ISSUED ON 04/01/2007 BY RECORDING THE FOLLOWING REASONS: IT WAS NOTICED FROM THE PROFIT AND LOSS ACCOUNT TH AT SELLING AND DISTRIBUTION EXPENSES OF RS. 40, 32,110/-INCLUDED RS. 40,00,000/-AS BAD D EBTS. THE SUNDRY DEBTORS SHOWN IN EARLIER YEARS (31/3/2004) WAS RS. 19, 79, 670/-ONLY ENDURING PREVIOUS YEAR IT WAS RS. 21, 92, 875/-(31/3/2005). THEREFORE, I HAVE REASON TO BELIEVE THAT THE BAD DEBTS OF RS. 40, 00, 000/-PREMATURE AND REQUIRED TO BE DISALLOWE D. 2. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSEE FIL ED EXPLANATION WITH REGARD TO WRITE-OFF OF BAD DEBTS AMOUNTING TO RS.40 LAKHS. AFTER CONSID ERING THE SAME, THE AO HELD THAT THE TRUTHFULNESS OF THE TRANSACTION OF BAD DEBTS WAS DO UBTFUL, THAT THE TRANSACTION DID NOT APPEAR TO BE BONA FIDE. FINALLY, HE MADE A DISALLOWANCE OF RS . 40,00,000/-. 3. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PREF ERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY (FAA). BEFORE HIM, IT WAS ARGUE D THAT THE REASONS REGARDED BY THE AO DID NOT REFER TO ANY MATERIAL IN HIS POSSESSION THA T COULD INDICATE THAT ASSESSEES CLAIM OF BAD DEBT WAS NOT ALLOWABLE, THAT HE HAD MERELY REFERRED THE SUNDRY DEBTORS AS ON 31/03/2004 AND AS ON 31/03/2005, THAT HE HAS NOT ALLEGED THAT TAXA BLE INCOME HAD ESCAPED, THAT HE HAD 4377/M/12-SNOW VALLEY 2 WRONGLY INVOKED THE PROVISIONS OF SECTION 147 OF TH E ACT. THE ASSESSEE RELIED UPON SEVERAL CASE LAWS. 4. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE AN D THE ASSESSMENT ORDER, THE FAA HELD THAT THERE WAS NO BASIS TO HOLD THAT INCOME THE OF THE ASSESSEE HAD ESCAPED ASSESSMENT, THAT THE RETURN WAS ACCOMPANIED BY TAX AUDIT REPORT AND P&L ACCOUNT AS WELL AS THE BALANCE SHEET, THAT AS PER SCHEDULE 7 THE ASSESSEE HAD MADE A CLAI M OF BAD DEBTS, THAT ALL THE FACTS TO THE BAD DEBTS WERE AVAILABLE ON THE FILE OF THE ASSESSEE, T HAT THE AO HAD NOT BROUGHT ANY NEW INFORMATION TO SUGGEST THAT ASSESSEES INCOME HAD E SCAPED ASSESSMENT, THAT THERE WAS NO JUSTIFICATION FOR REOPENING THE ASSESSMENT. HE REFE RRED TO THE CASE OF TRF LTD. (230 CTR 14) AND KELVINATOR OF INDIA LTD. (322 ITR 561) AND ALLO WED THE APPEAL FILED BY THE ASSESSEE. 5. DURING THE COURSE OF HEARING BEFORE US, THE DEPARTM ENTAL REPRESENTATIVE(DR) SUPPORTED THE ORDER OF THE AO AND REFERRED TO THE CASE OF RAJESH JHAVERI. THE AUTHORISED REPRESENTATIVE(AR) ARGUED THAT REASONS RECORDED BY THE AO ARE NOT VALID, THAT BAD DEBTS HAD TO BE ALLOWED. HE REFERRED TO THE CASES OF HINDUSTA N LEVER LTD. (268 ITR 332)AND INDIVEST PTE. LTD(350 ITR 120). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US. WE FIND THAT THE RETURN OF INCOME, FILED BY THE ASSESSEE,WAS PROCESS ED UNDER SECTION 143 (1) OF THE ACT, THAT THE NOTICE UNDER SECTION 148 WAS ISSUED WITHIN THE PERIOD OF FOUR YEARS, THAT THE AO HAD PROVIDED THE REASONS RECORDED BY HIM TO THE ASSESSE E, THAT AS PER THE REASONS THE ASSESSEE HAD WRITTEN OFF BAD DEBTS OF RS.40 LAKHS DURING THE YEA R UNDER CONSIDERATION, THAT WHILE COMPLETING THE REOPENED ASSESSMENT THE AO HAD HELD THAT TRUTHFULNESS OF THE BAD DEBTS WERE DOUBTFUL. IN OUR OPINION, FOR WRITING OFF THE BAD D EBTS THE ASSESSEE IS REQUIRED TO WRITE THEM OFF IN THE BOOKS OF ACCOUNTS. ONCE IT IS DONE, THE AO IS NOT SUPPOSED TO DOUBT THE GENUINENESS OF THE TRANSACTION. IN THE MATTER OF TR F LTD.(SUPRA),THE HONBLE APEX COURT HAS HELD THAT ONCE THE ASSESSEE WRITES OFF THE BAD DEBT S IN ITS BOOKS OF ACCOUNTS,SAME HAS TO BE ALLOWED.THUS,ON MERITS THE ADDITION MADE BY THE AO IS NOT SUSTAINABLE.BESIDES,IN THE REASONS RECORDED,AS POINTED OUT BY THE FAA,FACT OF ESCAPEME NT OF INCOME IS NOT ALLEGED AND ALL THE FACTS ABOUT THE LOAN WERE AVAILABLE ON FILE.IN SHOR T THERE WAS NO TANGIBLE MATERIAL THAT COULD HAVE TRIGGERED THE RE-OPENING.AS WE DO NOT FIND ANY LEGAL OR FACTUAL INFIRMITY IN THE ORDER OF THE FAA,SO,CONFIRMING THE SAME WE DECIDE THE EFFECT IVE GROUND OF APPEAL AGAINST THE AO. AS A RESULT,APPEAL FILED BY THE AO STANDS DISMISSED . 4377/M/12-SNOW VALLEY 3 . ORDER PRONOUNCED IN TH E OPEN COURT ON 19 TH OCTOBER, 2016. 19 , 2016 SD/- SD/- SD/- SD/ ( . . / C.N. PRASAD ) ( ! / RAJENDRA ) '' #' / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 19.10.2016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR E BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.