NEWKEM ENIGNEERS P. LTD, MUMBAI V. DCIT CIR 7(1), MUMBAI

ITA 4647/MUM/2011

• Counselvise Citation: 464719914 RSA 2011
• Duration Of Justice: 3 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-01-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 01-07-2014
• Assessment Year: 2006-2007
• Appeal Filed On: 09-06-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK BATRA SR
• Assessee Lawyers: MAYUR KISNADWALA
• Keywords: Bad and doubtful debts

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES B MUMBAI . . , . . , BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER /AND SHRI B.R.BASKARAN, ACCOUNTANT MEMBER ITA NO.4647/MUM/2011 (A.Y.2006-07) NEWKEM ENGINEERS P. LTD. , NAVGANGA MAHAL, KHORDAD CIRCLE, DADAR TT MUMBAI 400 014 GIR NO./PAN : AAAACN 1541 J (APPELLANT ) VS. THE D CIT CIRCLE - 7(1) ROOM NO.-669, AAYAKAR BHAVAN. MUMBAI-400 020. (RESPONDENT) APPELLANT BY : SHRI MAYUR KISNADWALA- C.A. RESPONDENT BY : SHRI VI VEK BATRA SR. AR DATE OF HEARING : 07/01/2015 DATE OF PRONOUNCEMENT : 07/01/2015 ORDER PER I.P.BANSAL, J.M: THIS APPEAL IS FILED BY THE ASSESSEE . IT IS DIRECT ED AGAINST THE ORDER PASSED BY THE LD. CIT(A) DATED 06/01/2011 FOR THE ASSESSMENT YEAR 2006-07. THE GROUNDS OF APPEAL READ AS UNDER :- BEING AGGRIEVED BY THE ORDER OF THE LD. AO AS CONF IRMED BY THE CIT(A), YOUR APPELLANT PREFERS AS APPEAL AGAINST THE SAME ON FOL LOWING GROUND:- (I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, THE CIT(A) ERRED IN CONFIRMING DISALLOWANCE MADE BY AO O BAD DEBTS FOR RS.9,79,211/-. 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF CONTR ACTING IN HOT AND COLD INSULATION AND ALSO UNDERTAKES CIVIL CONSTRUCTIONS. A SUM OF RS.10,28,273/- WAS CLAIMED AS BAD DEBT AND DEBITED TO THE P&L ACCOUNT. THE ASSESSEE WAS REQUIRED TO JUSTIFY THE SAME. IT WAS EXPLAINED THAT THE SAID AM OUNT IS MAINLY ON ACCOUNT OF ITA NO.4647/MUM/2011 (A.Y.2006-07) 2 DIFFERENCE IN MEASUREMENT AND MATERIAL REJECTED. IN ONE CASE OF J. CHANCHANI AN AMOUNT OF RS.48,342/- WAS WRITTEN OFF AS BAD DEBT A ND ANOTHER AMOUNT OF RS.1,020/- WAS THE FREIGHT CHARGES WHICH WAS WRITTE N OFF. THE BALANCE AMOUNT WAS EITHER DUE TO DIFFERENCE IN MEASUREMENT OR REJECTIO N OF MATERIAL. THE AO ALLOWED TWO ITEMS I.E. A SUM OF RS.48,342/- AND RS.1,020/- AGGR EGATING TO RS.49,062/- AND BALANCE AMOUNT OF RS.9,79,211/- WAS ADDED TO THE IN COME OF THE ASSESSEE ON THE GROUND THAT IN CASE OF DIFFERENCE IN MEASUREMENT TH E PARTY SHOULD RAISE DEBIT NOTES ON THE ASSESSEE, WHICH IS NOT EXPLAINED OR PRODUCED AND IN CASE OF REJECTION OF MATERIAL THE ASSESSEE SHOULD HAVE RECEIVED MATERIAL BACK WHICH COULD BE INCLUDED IN THE RETURNED STOCK. IN ABSENCE OF SUCH DETAILS THE CLAIM OF THE ASSESSEE WAS REJECTED. 3. THE DISALLOWANCE WAS AGITATED IN THE APPEAL FIL ED BEFORE THE LD. CIT(A). THE LD. CIT(A) CONFIRMED THE FINDING OF THE LD. AO AND HAS OBSERVED THAT THE ASSESSEE HAS FAILED TO PRODUCE ANY DOCUMENTARY EVIDENCE TO S HOW THAT DEBTS HAD BECOME BAD. LD. CIT(A) OBSERVED THAT RELIANCE BY THE ASSES SEE IN THE CASE OF TRF LTD. VS. CIT (323 ITR 397) IS NOT APPLICABLE TO THE FACTS OF THE CASE, AS IN THE SAID CASE THE HON'BLE SUPREME COURT DID NOT DISPENSE WITH THE ONU S LAID UPON BY THE ASSESSEE TO LEAD PRIMA FACIE EVIDENCE TO SHOW THAT DEBT BEING W RITTEN OFF IS BAD. IT IS FURTHER OBSERVED BY THE LD. CIT(A) THAT, IT IS MUST FOR TH E ASSESSEE, TO PRIMA FACIE SATISFY THE CONDITION THAT DEBT IS BAD, AND IN VIEW OF SUCH FAI LURE OF THE ASSESSEE, THE AMOUNT WAS RIGHTLY DISALLOWED BY THE AO. THE ASSESSEE IS A GGRIEVED AND HAS FILED AFOREMENTIONED GROUNDS OF APPEAL. 4. LD. AR SUBMITTED THAT DETAILS OF DEBTS CLAIMED I S PLACED AT PAGE-1 OF THE PAPER BOOK. IT WAS SUBMITTED THAT THE AMOUNT DISALLOWED B Y THE AO IS ON ACCOUNT OF DIFFERENCE OF MEASUREMENT AND MATERIAL REJECTION. I T WAS SUBMITTED THAT LOOKING INTO THE NATURE OF BUSINESS OF THE ASSESSEE, SUCH AMOUN T NOT PAID BY THE CUSTOMERS IS USUAL FEATURE AND DUE TO NON-RECOVERY OF THE SAME, THESE HAVE BECOME BAD WHICH WERE WRITTEN OFF DURING THE YEAR. IT WAS SUBMITTED THAT THE ITEMS REGARDING INSULATION ITA NO.4647/MUM/2011 (A.Y.2006-07) 3 ETC. CANNOT BE TAKEN BACK AS ONCE THE MATERIAL IS U SED, IT NOT USABLE AGAIN. HE REFERRED TO THE DECISION OF THE HON'BLE SUPREME COU RT IN THE CASE OF TRF LTD. (SUPRA), AND SUBMITTED THAT AFTER 01/04/1989 IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT IN FACT HAS BECOME IRRECOVE RABLE. THE LD. AR REFERRED TO THE DECISION OF MUMBAI TRIBUNAL IN THE CASE OF HSBC SE CURITIES & CAPITAL MARKETS(INDIA) (P.) LTD. VS. ACIT [ (2013) 32 TAXMANN.COM 328 (MU MBAI-TRIB.)], WHEREIN SUCH PROPOSITION HAS BEEN ACCEPTED WITH THE FOLLOWING OB SERVATION :- 11. AFTER CONSIDERING THE ABOVE FACTS AND PERUSING THE ORDERS OF AO AND THE CIT (A), WE ARE OF THE OPINION THAT T HE AMOUNTS ARE TO BE ALLOWED AS BAD DEBTS. CONSEQUENT TO THE AMEND MENT TO THE PROVISIONS OF SECTION 36(1)(VII), IT IS NOT REQUIRE D TO ESTABLISH THAT THE DEBT HAS BECOME BAD. THIS ISSUE WAS DECIDED BY THE HONBIE SUPREME COURT IN THE CASE OF TRF LTD. V. CIT [2010] 323 ITR 397/190 TAXMAN 391 WHEREIN IT WAS HELD THAT AFTER 1 .4.1989 IT IS NOT NECESSARY FOR ASSESSEE TO ESTABLISH THAT THE DE BT IN FACT HAS BECOME IRRECOVERABLE. IT IS ENOUGH IF BAD DEBT IS W RITTEN OFF AS IRRECOVERABLE IN ACCOUNTS OF ASSESSEE. FOLLOWING TH E ABOVE PRINCIPLES, THERE IS NO DISPUTE WITH REFERENCE TO T HE AMOUNTS RECEIVABLE FROM THE TEAM ASIA SEMICONDUCTOR LTD. AN D WILLIAMSONS TEA HOLDINGS PLC THAT THESE AMOUNTS WERE TAKEN INTO ACCOUNT AS INCOME IN EARLIER YEARS AND WAS WRITTEN OFF AS IRRE COVERABLE. WITH REFERENCE TO THE THIRD ITEM OF BAD DELIVERY DEBTORS , ASSESSEE BEING A STOCK BROKER. THE AMOUNTS PAYABLE TO THE CLIENTS IN THE BUSINESS IS ALSO CONSIDERED AS 'TAKEN INTO ACCOUNT UNDER THE PR OVISIONS OF SECTION 36(2) AND ANY NON-RECOVERY CAN BE CLAIMED A S BAD DEBT. THIS ISSUE WAS CONSIDERED BY THE SPECIAL BENCH OF T HE ITAT IN THE CASE OF DY. CIT VS. SHREYAS S. MORAKHIA [2010] 40 S OT 432 (MUM.) WHICH WAS UPHELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. SHREYAS S. MORAKHIA [2012] 206 TAXMAN 32/19 TAXMANN.COM 64 IN APPEAL NO.89 OF 2011. IN VIEW , OF THIS WE DIRECT AO TO ALLOW THE AMOUNTS AS BAD DEBTS AS C LAIMED. GROUNDS ARE CONSIDERED ALLOWED. 4.1 THUS, IT WAS SUBMITTED BY THE LD. AR THAT IMPUG NED RELIEF SHOULD BE GRANTED TO THE ASSESSEE. 5. ON THE OTHER HAND THE LD. DR RELIED ON THE ASSES SMENT ORDER AS WELL ORDER PASSED BY THE LD. CIT(A). ITA NO.4647/MUM/2011 (A.Y.2006-07) 4 6. WE HAVE HEARD BOTH THE PARTIES AND THEIR CONTENT IONS HAVE BEEN CAREFULLY CONSIDERED. THE DETAILS OF BAD DEBTS WERE FURNISHED BY THE ASSESSEE TO THE AO. FROM THE ASSESSMENT ORDER IT CAN BE OBSERVED THAT THE SA ID DETAIL WAS ALSO EXAMINED BY THE LD. AO AS HE HAS SORTED OUT TWO ITEMS OUT OF TH E TOTAL CLAIM OF THE ASSESSEE AND MADE DISALLOWANCE OF RS.9,79,211/-. THE BUSINESS OF THE ASSESSEE IS TO PERFORM HOT AND COLD INSULATION ON CONTRACT BASIS. IT WAS EXPLA INED THAT DUE TO DIFFERENCE IN MEASUREMENT AND MATERIAL REJECTION THESE PAYMENTS C OULD NOT BE RECOVERED AND WRITTEN OFF AS BAD DEBT. IT IS NOT THE CASE OF THE DEPARTMENT THAT THE ASSESSEE DID NOT FULL FILL THE REQUIREMENT OF SEC.36(1)(VII). TH E AMOUNT HAS BEEN DISALLOWED FOR THE REASON THAT THE ASSESSEE DID NOT SUBMIT COMPLETE DE TAILS AND ACCORDING TO LD. CIT(A) THE ASSESSEE DID NOT DISCHARGE PRIMA FACIE ONUS TO SHOW THAT DEBT INFACT, HAD BECOME BAD. IN OUR OPINION THE CLAIM OF THE ASSESSE E HAS WRONGLY BEEN REJECTED BY THE LD. CIT(A). AS PER DECISION OF THE HON'BLE SUPR EME COURT IN THE CASE OF TRF LTD. (SUPRA), AFTER 1 ST APRIL, 1989 IT IS NOT NECESSARY FOR THE ASSESSEE T O ESTABLISH THAT THE DEBT, INFACT, HAS BECOME IRRECOVERABLE. IT IS ENOUG H IF THE BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. THUS , THE RATIO OF THE SAID DECISION IS NOT THAT WHAT HAS BEEN UNDERSTOOD BY THE LD.CIT(A). SO FAR AS IT RELATES TO NON- FURNISHING OF DETAILS BY THE ASSESSEE IT MAY BE MEN TIONED HERE THAT WE HAVE PERUSED THE DETAILS FURNISHED BY THE ASSESSEE WHICH HAS BEE N PLACED AT PAGE-1 OF THE PAPER BOOK. THE ASSESSEE HAS GIVEN DETAILS OF (I) PARTY NAME; (II) BILL NUMBER; (III) AMOUNT DEBITED AND (IV) AMOUNT CREDITED AND THE REASON FOR WRITE-OFF OF THE DEBT. IN OUR OPINION THE DETAILS FURNISHED BY THE ASSESSEE WERE SUFFICIENT AND IF THE AO WAS NOT SATISFIED WITH THOSE DETAILS HE COULD MAKE FURTHER VERIFICATIONS WHICH IS NOT BEEN DONE BY THE AO AND SIMPLE ROUTE HAS BEEN ADOPTED BY THE AO AND DISALLOWANCE HAS BEEN MADE WHICH IS NOT PERMISSIBLE IN LAW. IT IS NO T THE CASE WHERE THE ASSESSEE DID NOT FURNISH THE DETAILS. 6.1. IN VIEW OF OUR DISCUSSION WE ARE OF THE OPINIO N THAT CLAIM OF THE ASSESSEE IS WRONGLY REJECTED . WE DIRECT THE AO TO ALLOW THE CL AIM. ITA NO.4647/MUM/2011 (A.Y.2006-07) 5 7. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 07/01/2015 ! '#$ % &' 07/01/2015 # ! ( SD/- SD/- ( . . /B.R.BASKARAN ) ( . . / I.P. BANSAL ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI; & DATED 07 /01/2015 . . ./ JV , SR. PS ! !! ! )*+ )*+ )*+ )*+ ,+$* ,+$* ,+$* ,+$* / COPY OF THE ORDER FORWARDED TO : 1. -. / THE APPELLANT 2. )/-. / THE RESPONDENT. 3. 0 ( ) / THE CIT(A)- 4. 0 / CIT 5. +( )* , , / DR, ITAT, MUMBAI 6. (1 2 / GUARD FILE. / BY ORDER, /+* )* //TRUE COPY// 3 33 3 / 4 4 4 4 5 5 5 5 (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI