ITO, Muzaffarnagar V. Shri Ram Gopal, Muzaffarnagar

ITA 4480/DEL/2011

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96970 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-08-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 03-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 05-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIKRAM SAHAY
• Keywords: Non-deduction of tax; Bad and doubtful debts
• Section: 43B; 68

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : F : NEW DELHI BEFORE SHRI R.S. SYAL, AM AND SHRI C.M. GARG, JM ITA NO.4041/DEL/2011 ASSESSMENT YEAR : 2008-09 RAM GOPAL, PROP., M/S AGARWAL SUGAR COMPANY, 245, TOWN HALL ROAD, MUZAFFARNAGAR. PAN: AATPG8476D VS. ITO, WARD-1(1), MUZAFFARNAGAR. ITA NO.4480/DEL/2011 ASSESSMENT YEAR : 2008-09 ITO, WARD-1(1), MUZAFFARNAGAR. VS. RAM GOPAL, PROP., M/S AGARWAL SUGAR COMPANY, 245, ARYAPURI, MUZAFFARNAGAR. PAN: AATPG8476D (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ANKIT GUPTA, ADVOCATE DEPARTMENT BY : SHRI VIKRAM SAHAY, SR. DR DATE OF HEARING : 05.08.2015 DATE OF PRONOUNCEMENT : 07.08.2015 ITA NO.4041 & 4480/DEL/2011 2 ORDER PER R.S. SYAL, AM: THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE ORDER PASSED BY THE CIT(A) ON 29.6.2011 IN RELATION TO THE ASSESSMENT YEAR 2008-09. 2. FIRST GROUND OF THE ASSESSEES APPEAL IS AGAINST CONFIRMATION OF ADDITION OF RS.6,20,631/-, BEING THE AMOUNT OF SERV ICE TAX PAYABLE U/S 43B OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO C ALLED THE ACT). THE FACTS APROPOS THIS GROUND ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF SUGAR AS A COMMISSION AGENT. THE ASSESSEE RAISE D BILLS OF COMMISSION WITH SERVICE TAX. ONLY COMMISSION AMOUNT WAS CREDI TED TO THE PROFIT & LOSS ACCOUNT AND THE AMOUNT OF SERVICE TAX WAS SEPA RATELY TAKEN. THE AO OBSERVED THAT A SUM OF RS.6,20,631/- REPRESENTIN G SERVICE TAX, EDUCATION CESS AND HIGHER EDUCATION CESS (HEREINAFT ER CUMULATIVELY CALLED AS SERVICE TAX FOR CONVENIENCE) WAS APPEAR ING AS PAYABLE IN THE ASSESSEES BALANCE SHEET. ON BEING CALLED UPON TO EXPLAIN AS TO WHY THE AMOUNT OF SERVICE TAX BE NOT DISALLOWED U/S 43B, TH E ASSESSEE CONTENDED THAT THE AMOUNT OF SERVICE TAX WAS NOT REALIZED A ND EVEN THE ITA NO.4041 & 4480/DEL/2011 3 COMMISSION BILLS FROM SUGAR MILLS ON WHICH SUCH SER VICE TAX WAS CHARGED, WERE YET TO BE RECOVERED. IT WAS ALSO SUB MITTED THAT THE AMOUNT OF SERVICE TAX WAS NOT DEBITED TO THE PROFIT & LOSS ACCOUNT AND, AS SUCH, THERE COULD BE NO QUESTION OF DISALLOWANCE U/S 43A. UNCONVINCED WITH THE ASSESSEES SUBMISSION, THE AO MADE A DISALLOWAN CE OF RS.6.20 LAC U/S 43B OF THE ACT TOWARDS THE UNPAID AMOUNT OF SER VICE TAX. THE LD. CIT(A) UPHELD THE ASSESSMENT ORDER ON THIS COUNT. THE ASSESSEE IS AGGRIEVED AGAINST THE CONFIRMATION OF THIS ADDITION . 3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE PRIMARY QUESTION BEFORE US IN THIS REGARD IS AS TO WHETHER THE PROVISIONS OF SECTION 43B ARE ATTRACTED ON THE UNPAID AMOUNT OF SERVICE TAX, WHICH WAS NOT RECOVERED BY T HE ASSESSEE FROM HIS PRINCIPALS. BEFORE EMBARKING UPON THIS QUESTION, I T IS RELEVANT TO NOTE THAT THE ASSESSEE RAISED BILLS FOR COMMISSION WITH SERVICE TAX, BUT, ONLY THE AMOUNT OF COMMISSION WAS SHOWN AS INCOME IN HIS PROFIT & LOSS ACCOUNT. THE AMOUNT OF SERVICE TAX WAS CREDITED IN THE BOOKS OF ACCOUNT AND ON MAKING PAYMENT AFTER REALIZATION F ROM SUGAR MILLS, THE ITA NO.4041 & 4480/DEL/2011 4 ASSESSEE WAS DEBITING THE SERVICE TAX ACCOUNT. THE AMOUNT OF SERVICE TAX PAYABLE IN THE INSTANT CASE REPRESENTS THE AMOUNT O F SERVICE TAX, WHICH WAS BILLED BY THE ASSESSEE, BUT NOT REALIZED UP TO THE YEAR ENDING. IN OTHER WORDS, THE AMOUNT OF SERVICE TAX AT RS.6.20 L AC FOR WHICH DISALLOWANCE HAS BEEN MADE HAS NEITHER BEEN REALIZE D BY THE ASSESSEE NOR CLAIMED AS DEDUCTION IN THE PROFIT AND LOSS ACC OUNT. THE QUESTION ARISES WHETHER ANY DISALLOWANCE U/S 43B CAN BE MADE UNDER THESE CIRCUMSTANCES. THE LD. AR HAS BROUGHT TO OUR NOTIC E CERTAIN DIRECT DECISIONS IN WHICH IT HAS BEEN HELD THAT NO DISALLO WANCE U/S 43B OF THE ACT CAN BE MADE IN SUCH A SITUATION. THE MAIN THRU ST OF THE LD. AR HAS BEEN ON THE ARGUMENT THAT UNDER THE SERVICE TAX RUL ES, IT BECOMES PAYABLE ONLY WHEN THE PAYMENT FOR THE SAME IS RECEI VED. SINCE THE SAID AMOUNT OF SERVICE TAX WAS NOT RECEIVED DURING THE Y EAR, THE LD. AR ARGUED THAT NO DISALLOWANCE CAN BE MADE ON THIS SCO RE U/S 43B. FOR THIS PROPOSITION, HE RELIED ON THE JUDGMENT OF THE HONB LE BOMBAY HIGH COURT IN CIT VS. OVIRA LOGISTICS (P) LTD. (2015) 232 TAXMAN 240 (BOM) . FOR SIMILAR PROPOSITION, HE RELIED ON THE ORDER PASSED BY THE CHENNAI BENCH OF THE TRIBUNAL IN ACIT VS. REAL IMAGE MEDIA ITA NO.4041 & 4480/DEL/2011 5 TECHNOLOGIES (P) LTD. (2008) 116 TTJ 964 , IN WHICH IT HAS BEEN HELD THAT SERVICE-TAX THOUGH BILLED BUT NOT RECEIVED NOT HAVI NG BECOME PAYABLE TO THE CREDIT OF THE CENTRAL GOVERNMENT BY VIRTUE OF S . 68 OF THE FINANCE ACT, 1994, R/W R. 6 OF THE SERVICE-TAX RULES, 1994, THE SAME CANNOT BE DISALLOWED UNDER S. 43B. NO CONTRARY DECISION HAS B EEN BROUGHT TO OUR NOTICE BY THE LD. AR. RESPECTFULLY FOLLOWING THE AB OVE PRECEDENTS AND WITHOUT GOING DEEP INTO THE NUANCES OF THE ISSUE, W E HOLD THAT SINCE THE AMOUNT OF SERVICE TAX IN DISPUTE WAS ADMITTEDLY NOT REALIZED BY THE ASSESSEE, THE SAME COULD NOT BE DISALLOWED U/S 43B. THIS GROUND IS ALLOWED. 4. GROUND NO.2 IS AGAINST THE CONFIRMATION OF ADDIT ION OF RS.7,75,650/-, BEING THE AMOUNT OF BAD DEBTS WRITT EN OFF IN THE BOOKS OF ACCOUNT. SUCCINCTLY, THE ASSESSEE CLAIMED DEDUCTION FOR THIS SUM UNDER THE HEAD BAD DEBTS. ON BEING CALLED UPON TO EXPL AIN AS TO HOW THE CONDITIONS OF SECTION 36(2) WERE FULFILLED, THE AS SESSEE STATED THAT HE WAS SIMPLY A COMMISSION AGENT OF SUGAR MILLS ASSIST ING IN THE SALE OF SUGAR BY THEM. AS PER THE TERMS AND CONDITIONS WI TH THE SUGAR MILLS, IT ITA NO.4041 & 4480/DEL/2011 6 WAS CLAIMED, THAT THE ASSESSEE WAS RESPONSIBLE FOR COLLECTION OF DUES AND IN THE EVENT OF NON-RECOVERY OF THE AMOUNT, SUCH NO N-RECOVERIES WERE LIABLE TO BE DEDUCTED FROM HIS COMMISSION INCOME. T HE ASSESSEE SUBMITTED THAT THIS AMOUNT OF RS.7.81 LAC WAS DEDUC TED BY SUGAR MILLS ON ACCOUNT OF NON-RECOVERIES FROM THE BUYERS. THE AO DISALLOWED A SUM OF RS.7.75 LAC ON THE GROUND THAT THE DEBIT NOT ES ISSUED BY M/S DAYA SUGAR TOWARDS NON-RECOVERIES FROM THEIR CUSTOM ERS WERE NOT SUBSTANTIATED WITH ANY EVIDENCE. THE LD. CIT(A) UP HELD THE VIEW TAKEN BY THE AO. THE ASSESSEE IS AGGRIEVED AGAINST THE S USTENANCE OF DISALLOWANCE. 5. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DISPUTE ON THE FAC T THAT THE ASSESSEE WROTE OFF A SUM OF RS.7.75 LAC IN HIS BOOKS OF ACCO UNT AS BAD DEBT. THE HONBLE SUPREME COURT IN T.R.F. LTD. VS. CIT (2010) 323 ITR 397 (SC) HAS HELD THAT AFTER 1.4.1989 THE ASSESSEE IS NOT RE QUIRED TO ESTABLISH THAT THE DEBT HAS BECOME BAD IN THE PREVIOUS YEAR AND A DEDUCTION ON ACCOUNT OF BAD DEBTS IS PERMISSIBLE ON A SIMPLE WRITE OFF O F THE AMOUNT OF BAD ITA NO.4041 & 4480/DEL/2011 7 DEBT. HOWEVER, WE FIND FROM THE MANDATE OF SECTION 36(1)(VII) THAT THE DEDUCTION ON ACCOUNT OF BAD DEBTS IS SUBJECT TO THE PROVISIONS OF SUB- SECTION (2). SUB-SECTION (2) OF SECTION 36, IN TUR N, PROVIDES THAT NO DEDUCTION OF THE BAD DEBTS BE ALLOWED UNLESS SUCH D EBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE ASSESSEE OF THE PREVIOUS YEAR IN WHICH THE AMOUNT OF SUCH DEBT OR PART THEREOF WAS WRITTEN OFF OR ANY EARLIER YEAR. TO PUT IT SIMPLY, THE DEDUCTION ON ACCOUNT OF BAD DEBTS IS PERMISSIBLE ON WRITE OFF ON LY IF THE AMOUNT OF DEBT HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING THE I NCOME OF THE ASSESSEE FOR THE INSTANT YEAR OR AN EARLIER YEAR. THE QUESTION ARISES AS TO WHETHER A MERE RECEIPT OF COMMISSION ON TOTAL VALUE OF SALES WOULD SATISFY THE CONDITION OF SECTION 36(2) IN RESPECT O F THE AMOUNT OF SALES WHICH HAS BECOME IRRECOVERABLE. THE SPECIAL BENCH OF THE TRIBUNAL IN DCIT VS SHREYAS S. MORAKHIYA (2010) 40 SOT 432 (MUM ) (SB) DEALT WITH A CASE IN WHICH THE ASSESSEE WAS A SHARE BROKE R AND THE BROKERAGE INCOME WAS TAKEN INTO ACCOUNT IN THE COMPUTATION OF TOTAL INCOME. THERE WAS SOME NON-REALISATION OF THE SALE VALUE OF THE SHARES AS A RESULT OF WHICH THAT ASSESSEE HAD TO PART WITH THE UNREALI ZED AMOUNT OF SALE ITA NO.4041 & 4480/DEL/2011 8 VALUE. THE QUESTION AROSE AS TO WHETHER THE CREDIT ING OF BROKERAGE TO THE PROFIT & LOSS ACCOUNT WOULD SATISFY THE CONDITION S TIPULATED U/S 36(2) IN RESPECT OF THE AMOUNT OF BAD DEBT TOWARDS NON-REALI SATION OF SALE VALUE OF THE SHARES. ANSWERING THE QUESTION IN AFFIRMATI VE, THE SPECIAL BENCH HELD THAT THE AMOUNT RECEIVABLE BY THE ASSESSEE SHA RE BROKER ON ACCOUNT OF BROKERAGE IS A PART OF DEBT RECEIVABLE BY HIM FR OM HIS CLIENTS AGAINST PURCHASE OF SHARES ON THEIR BEHALF AND, ONCE SUCH B ROKERAGE IS CREDITED TO HIS PROFIT & LOSS ACCOUNT AND THE SAME IS TAKEN INTO ACCOUNT IN COMPUTING HIS INCOME, THE CONDITION STIPULATED IN S ECTION 36(2)(I) GETS SATISFIED AND, THEREFORE, THE WRITE OFF OF THE DEBT REPRESENTING THE IRRECOVERABLE AMOUNT RECEIVABLE FROM THE CLIENTS AG AINST PURCHASE OF SHARES ON THEIR BEHALF IS ALLOWABLE AS BAD DEBT. T HE HONBLE BOMBAY HIGH COURT IN CIT VS. SHREYAS S. MORAKHIYA (2012) 342 ITR 285 (MU M) HAS APPROVED THE VIEW TAKEN BY THE SPECIAL BENCH. SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. BONANZA PORTFOLIO LTD. (2010) 320 ITR 178 (DEL) . THE FACTS OF THE INSTANT CASE ARE, MUTATIS MUTANDIS, SIMILAR TO THOSE CONSIDERED AND DECIDED IN THE AFORENOTED JUDICIAL PRECEDENTS. AS SUCH, THE ASSESSEE ITA NO.4041 & 4480/DEL/2011 9 DESERVES TO SUCCEED ON THIS GROUND. IT IS HOWEVER, MADE CLEAR THAT ANY SUBSEQUENT RECOVERY FROM THE AMOUNT WRITTEN OFF AS BAD DEBTS, IS LIABLE TO BE OFFERED AS INCOME. OVERTURNING THE IMPUGNED O RDER ON THIS ISSUE, WE ORDER FOR THE DELETION OF ADDITION. 6. GROUND NOS. 3 AND 4 WERE NOT PRESSED BY THE LD. AR. THE SAME, THEREFORE, STAND DISMISSED. 7. FIRST GROUND OF THE REVENUES APPEAL IS AGAINST THE DELETION OF ADDITION OF RS.17,99,225/- MADE BY THE AO ON ACCOUN T OF NON-DEDUCTION OF TAX ON COMMISSION AND BROKERAGE U/S 40(A)(IA) OF THE ACT. THE FACTS OF THIS GROUND ARE THAT THE ASSESSEE PAID COMMISSIO N OF RS.17.99 LAC. THE AO OPINED THAT THE ASSESSEE WAS REQUIRED TO DED UCT TAX AT SOURCE U/S 194H ON THE AMOUNT OF COMMISSION PAYMENT. SINCE NO DEDUCTION OF TAX AT SOURCE WAS MADE, HE, THEREFORE, MADE DISALLOWANC E U/S 40(A)(IA) OF THE ACT. IN REACHING THIS CONCLUSION, THE AO RELIED ON THE ORDER PASSED BY HIM FOR THE IMMEDIATELY PRECEDING ASSESSMENT YEAR. THE LD. CIT(A) DELETED THE DISALLOWANCE. ITA NO.4041 & 4480/DEL/2011 10 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. SECTION 194H OF THE ACT PROVID ES THAT ANY PERSON NOT BEING ANY INDIVIDUAL OR HUF, WHO IS RESPONSIBLE FOR PAYING TO A RESIDENT ANY INCOME BY WAY OF COMMISSION OR BROKERA GE, SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT OF SUCH INCOME, WHICHEVER IS EARLIER, DE DUCT INCOME-TAX THEREON AT THE SPECIFIED RATE. THE SECOND PROVISO STATES THAT AN INDIVIDUAL OR HUF, WHOSE TOTAL SALES, GROSS RECEIPT S OR TURNOVER FROM THE BUSINESS OR PROFESSION CARRIED ON BY HIM EXCEED THE MONETARY LIMIT PRESCRIBED U/S 44AB DURING THE FINANCIAL YEAR IMMEDIATELY PRECEDING THE FINANCIAL YEAR IN WHICH SUCH COMMISSION OR BROK ERAGE IS CREDITED OR PAID SHALL BE LIABLE TO DEDUCT INCOME-TAX UNDER THIS SEC TION. THE INSTANT ASSESSEE IS AN INDIVIDUAL. AS SUCH, HE IS LIABLE T O MAKE DEDUCTION OF TAX AT SOURCE FROM COMMISSION INCOME U/S 194H ONLY IF T HE CONDITION ENSHRINED IN THE SECOND PROVISO IS SATISFIED. SUCH CONDITION IS THAT SALES OR GROSS RECEIPTS MUST EXCEED THE MONETARY LIMIT (R S.40 LAC AT THAT TIME) DURING THE FINANCIAL YEAR PRECEDING THE FINANCIAL Y EAR IN WHICH COMMISSION IS PAID. IN OTHER WORDS, IF THE ASSESSE E IN QUESTION PAYS ITA NO.4041 & 4480/DEL/2011 11 COMMISSION OR BROKERAGE IN THE PREVIOUS YEAR 2007-0 8 RELEVANT TO ASSESSMENT YEAR 2008-09, THEN, HIS SALES, GROSS REC EIPTS OR TURNOVER FOR THE PREVIOUS YEAR 2006-07 RELEVANT TO ASSESSMENT YE AR 2007-08 MUST EXCEED RS.40 LAC SO AS TO MAKE HIM LIABLE FOR DEDUC TION OF TAX AT SOURCE U/S 194H OF THE ACT. ADVERTING TO THE FACTS OF THE INSTANT CASE, WE FIND THAT THE TOTAL TURNOVER OF THE ASSESSEE FOR THE IMM EDIATELY PRECEDING YEAR WAS RS.26.74 LAC. SINCE THIS AMOUNT OF TOTAL TURNO VER FOR THE IMMEDIATELY PRECEDING YEAR DOES NOT BREACH THE LIMI T OF RS.40 LAC, THERE CAN BE NO OBLIGATION ON THE ASSESSEE TO DEDUCT TAX AT SOURCE ON COMMISSION PAID IN THE PREVIOUS YEAR RELEVANT TO AS SESSMENT YEAR UNDER CONSIDERATION. AS SUCH, WE APPROVE THE VIEW TAKEN BY THE LD. CIT(A). IT IS FURTHER NOTICED THAT SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL IN THE PRECEDING YEAR. THIS GROUND IS NOT ALLOWED. 9. THE ONLY OTHER GROUND WHICH SURVIVES FOR CONSIDE RATION IS AGAINST THE DELETION OF ADDITION OF RS.4,89,688/- MADE BY T HE AO U/S 68 OF THE ACT. THERE WERE CERTAIN CREDITORS AND DEBTORS APPE ARING IN THE ASSESSEES BALANCE SHEET. THE AO ISSUED INQUIRY LE TTERS TO ITA NO.4041 & 4480/DEL/2011 12 CREDITORS/DEBTORS FOR CONFIRMING THE BALANCE OF THE ASSESSEE IN THEIR BOOKS OF ACCOUNT. ON MAKING A COMPARATIVE STUDY OF THE BALANCE SHOWN BY THE ASSESSEE IN HIS BOOKS OF ACCOUNT VIS--VIS THOSE PARTIES SHOWING THE ASSESSEES BALANCE, THE AO MADE ADDITION OF RS. 4,97,747/-. THE ASSESSEE DID NOT ASSAIL BEFORE THE LD. CIT(A) THE A DDITION ON ACCOUNT OF CREDIT BALANCE OF RS.8,059/- IN THE BOOKS OF HIS DE BTOR M/S AGARWAL SUGAR AND CHEMICALS, WHICH ADDITION WAS AUTOMATICA LLY CONFIRMED. AS REGARDS THE REMAINING ADDITION OF RS.4,89,688/-, TH E ASSESSEE FURNISHED RECONCILIATION. THE LD. CIT(A) GOT CONVINCED WITH SUCH RECONCILIATION AND ORDERED FOR THE DELETION OF ADDITION TO THIS EX TENT. THE REVENUE IS AGGRIEVED AGAINST SUCH DELETION. 10. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PER USING THE RELEVANT MATERIAL ON RECORD, IT IS NOTICED THAT THE ASSESSEE FURNISHED RECONCILIATION BEFORE THE LD. CIT(A) IN RESPECT OF BALANCES OF THE PARTIES APPEARING IN HIS BOOKS OF ACCOUNT AND THE CORRESPONDING BALANCES IN THE BOOKS OF SUCH PARTIES. THE LD. CIT(A) FOUND RECONCILIATION IN ORDER AND, ACCORDINGLY, DELETED THE ADDITION. THE LD. DR COU LD NOT CONTROVERT ANY ITA NO.4041 & 4480/DEL/2011 13 DISCREPANCY IN SUCH RECONCILIATION. UNDER SUCH CIR CUMSTANCES, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) HAS TAKE N AN UNIMPEACHABLE VIEW ON THIS ISSUE. THIS GROUND IS NOT ALLOWED. 11. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 07.08.201 5. SD/- SD/- [C.M. GARG] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 07 TH AUGUST, 2015. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.