Niya Finstock Pvt.Ltd., Ahmedabad V. The Dy.CIT.,Circle-5, Ahmedabad

ITA 4425/AHD/2007

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 5484 (ITAT-AHMEDABAD)
• Duration Of Justice: 2 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-07-2010
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 22-07-2010
• Assessment Year: 2004-2005
• Appeal Filed On: 14-12-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R K DHANESTA
• Assessee Lawyers: HIMANSHU C SHAH
• Keywords: Bad and doubtful debts; Set aside
• Section: 207; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH AHMEDABAD (BEFORE S/SHRI BHAVNESH SAINI, JM AND D. C. AGRAWAL , AM) ITA NO.4425/AHD/2007 A.Y.: 2004-05 NIYA FINSTOCK PVT. LTD., NIMA HOUSE, ASHRAM ROAD, AHMEDABAD VS THE D. C. I. T., CIRCLE-5, AHMEDABAD PA NO AAACN 5205 D (APPELLANT) (RESPONDENT) APPELLANT BY SHRI HIMANSHU C. SHAH, AR RESPONDENT BY SHRI R. K. DHANESTA, DR O R D E R PER BHAVNESH SAINI: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LEARNED CIT(A)-XI, SURAT D ATED 17-09-2007 FOR ASSESSMENT YEAR 2004-05 ON THE FOLLOWING GROUND: 1. IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE AP PELLANTS CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) HAS GROSSLY ERRED IN POINTS OF LAW AND FACTS. 2. IN LAW AND IN THE FACTS AND CIRCUMSTANCES OF THE APPELLANTS CASE, THE LEARNED COMMISSIONER OF INCOM E- TAX (APPEALS) HAS GROSSLY ERRED IN CONFIRMING THE DISALLOWANCE OF BAD DEBTS RS.5,89,540. 2. THE AO DISALLOWED RS.5,89,540/- ON ACCOUNT OF BA D DEBTS. IT WAS EXPLAINED BEFORE THE LEARNED CIT(A) THAT IN THE ASS ESSMENT YEAR UNDER APPEAL THERE WAS A BALANCE IN THE ACCOUNT OF M/S. N . P. CHEWING GUM LTD. WHICH WERE WRITTEN OFF IN THE BOOKS OF ACCOUNT . COPY OF THE ACCOUNTS WAS ALSO FILED. IT WAS EXPLAINED THAT THERE WAS NO CHANCE OF RECOVERY, THEREFORE, THE DEBT WAS WRITTEN OFF. THE AO HOWEVER , DID NOT ALLOW THE CLAIM OF BAD DEBT BECAUSE THE ASSESSEE CANNOT CLAIM BAD DEBT OF BUSINESS WHICH HAS BEEN DISCONTINUED. THE LEARNED C IT(A) NOTED THAT AS ITA NO.4425/AHD/2007 NIYA FINSTOCK PVT. LTD. VS DACIT, CIR-5, AHMEDABAD 2 PER SECTION 36 (1) (VII) OF THE IT ACT WRITING OFF IS PERMISSIBLE ONLY IN RESPECT OF BAD DEBT AND NOT OF ANY DEBT. IT WAS ALS O NOTED THAT THE CLAIM IS RELATED TO ERSTWHILE BUSINESS AND THE SAME IS CL AIMED IN THE ASSESSMENT YEAR IN QUESTION. THE LEARNED CIT(A) ALS O NOTED THAT THE ASSESSEE HAS NOT EXPLAINED WHETHER THE SAID DEBT HA S REALLY BECOME BAD. THE LEARNED CIT(A) RELYING UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF DHALL ENTERPRISES AND ENGINEE RS PVT. LTD. 207 CTR 729 DISMISSED THE CLAIM OF THE ASSESSEE. THE LEARNE D COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ISSUE IS NOW COVERED BY THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. VS CIT 323 ITR 397 IN WHICH IT WAS HELD AS UNDER: THIS POSITION IN LAW IS WELL-SETTLED. AFTER 1 ST APRIL, 1989, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT, IN FACT, HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRIT TEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSE E. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER THE DEBT HAS, IN FACT, BEEN WRITTEN OFF IN ACCOUNTS OF THE ASSESSEE. WHEN BAD DEBT OCCURS, THE BAD DEBT ACCOUNT IS DEBITED AND THE CUSTOMERS ACCOUNT IS CREDITED, THUS, CLOSING THE ACCOUNT OF THE CUSTOMER. IN THE CASE OF COMPANIES, THE PROVISION IS DEDUCTED FROM SUNDRY DEBTORS. AS STATED ABOVE, THE ASSESSING OFFICER HAS NOT EXAMINED WHETHER, IN FACT, THE BAD DEBT OR PART THEREOF IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS EXERCISE HAS NOT BEEN UNDERTAKEN BY THE ASSESSING OFFICER. HENCE, THE MATTER IS REMITTE D TO THE ASSESSING OFFICER FOR DE NOVO CONSIDERATION OF THE ABOVE-MENTIONED ASPECT ONLY AND THAT TOO ONLY TO THE EXTENT OF THE WRITE OFF. 3. THE LEARNED DR DID NOT DISPUTE THE ABOVE FACTS. 4. ON CONSIDERATION OF THE RIVAL SUBMISSIONS WE ARE OF THE VIEW THAT NOW THE ISSUE IS COVERED BY THE JUDGMENT OF THE HON BLE SUPREME COURT ITA NO.4425/AHD/2007 NIYA FINSTOCK PVT. LTD. VS DACIT, CIR-5, AHMEDABAD 3 IN THE CASE OF T. R. F. LTD. (SUPRA). THE LEARNED C OUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE PRESENT CASE THE AUTHORITIES BELOW HAVE NOT EXAMINED WHETHER THE DEBT HAS IN FACT BEEN WRITTEN OFF IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. THEREFORE, THE MATTER REQ UIRES RECONSIDERATION AT THE LEVEL OF THE AO BECAUSE THE AO HAS NOT DONE THE ABOVE EXERCISE FOR FINDING OUT WHETHER THE DEBT IN FACT HAS BEEN WRITT EN OFF IN THE BOOKS OF ACCOUNT OF THE ASSESSEE. WE ACCORDINGLY SET ASIDE T HE ORDERS OF THE AUTHORITIES BELOW AND RESTORE THE ISSUE TO THE FILE OF THE AO WITH DIRECTION TO RE-DECIDE THE ISSUE IN THE LIGHT OF THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF T. R. F. LTD. (SUPRA). 5. AS A RESULT, APPEAL OF THE ASSESSEE IS ALLOWED F OR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 30-07-2010 SD/- SD/- (D. C. AGRAWAL) ACCOUNTANT MEMBER (BHAVNESH SAINI) JUDICIAL MEMBER DATE : 30-07-2010 LAKSHMIKANT/- COPY OF THE ORDER FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT CONCERNED 4. THE CIT(A) CONCERNED 5. THE DR, ITAT, AHMEDABAD 6. GUARD FILE BY ORDER DY. REGISTRAR, ITAT, AHMEDABAD