ACIT, New Delhi V. Sh. Kamal Kumar Anand, New Delhi

ITA 4741/DEL/2011

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 7591 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 13-10-2014
• Assessment Year: 2007-2008
• Appeal Filed On: 31-10-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Bad and doubtful debts
• Section: 145

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH: D NEW DELHI BEFORE SMT DIVA SINGH, JUDICIAL MEMBER AND SH. T. S. KAPOOR , ACCOUNTANT MEMBER I.T.A .NO. - 4741 / DEL/201 1 (ASSESSMENT YEAR - 2007 - 08 ) ACIT, CIRCLE - 37(1), NEW DELHI (APPELLANT) VS SH. KAMAL KUMAR ANAND, A - 5, BASEMENT, LAJPAT NAGAR, PHASE - III, NEW DELHI - 110024 P AN - AAEPA1736H (RESPONDENT) APPELLANT BY SH. VIVEK NANGIA , SR. DR RESPONDENT BY SH. C. S ANAND, ADV. ORDER PER DIVA SINGH, JM TH IS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 16.8.2011 OF THE CIT(A) - XXVIII, NEW DELHI PERTAINING TO 200 7 - 0 8 ASSESSMENT YEAR ON THE FOLLOWING GROUND: - ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) - XXVIII, NEW DELHI ERRED IN DELETING THE ADDITION OF RS. 19,59,100/ - MADE BY THE A.O ON ACCOUNT OF PROFESSIONAL RECEIPTS NOT SHOWN FOR THE YEAR UNDER CONSIDERATION AS THE ASSESSEE IS FOLLOWING THE MERCANTILE SYSTEM OF ACCOUNTING. EVEN BAD DEBTS ARE WRITTEN OFF AFTER SOME TIME AND NOT AT THE E ND OF FINANCIAL YEAR. 2. T HE RELEVANT FACTS OF THE CASE ARE THAT THE ASSESSEE DECLARED AN INCOME OF RS. 9,97,190/ - WHICH WAS SUBJECTED TO SCRUTINY AFTER ISSUANCE OF NOTICE U/S 143(2)/142(1) QUESTIONNAIRE ETC. THE ASSESSING OFFICER TAKES NOTE OF THE FACT THAT THE ASSESSEE IS A LAWYE R BY PROFESSION AND DERIVED INCOME FROM INTEREST AND PROFESSION. CONSIDERING THE I NCOME AN D E XPENDITURE ACCOUNT FILED BY THE ASSESSEE ALONGWITH THE RETURN THE AO OBSERVED THAT RE CEIPT OF PROFESSIONAL FEES OF RS. 50,28,282/ - WAS DISCLOSED. HOWEVER THE ASSESSEE WAS FOUND TO HAVE REVERSED ON 31.3.2007 PROFESSIONAL FEES OF RS. 19,59,100 / - BY WAY OF A LEDGER ENTRY . I N VIEW 2 I.T.A .NO. 4741 /DEL/201 1 THEREOF THE ASSESSEE WAS ISSUED A SHOW - CAUSE NOTICE TO EXPLAIN THE SAME. IN RESPONSE THEREOF THE ASSESSEE IS FOUND TO HAVE GIVEN THE FOLLOWING REPLY VIDE ITS LETTER DATED 30.11.2009 . THE SAME IS REPRODUCED HEREUNDER FOR READY REFERENCE : - ASSESSEE IS MAINTAINING HIS BOOKS OF ACCOUNT ON MERCANTILE SYSTEM OF ACCOUNTING U/S 145 OF THE I T ACT, 1961, HOWEVER OUT OF TOTAL PROFESSIONAL RECEIPTS OF RS. 71,06,882/ - ON ACCOUNT OF RENDERING OF SERVICES, PROFESSIONAL RECEIPTS OF RS. 19,59,100/ - WERE NOT RECEIVED DURING THE FINANCIAL YEAR ENDING 31.3.2007 & THE SAME WERE REVERSED OUT OF THE PROFESSIONAL RECEIPTS BECAUSE B ILLS ARE RAISED BY PROFESSIONAL IN EXPECTATION OF RECEIPTS. IT WILL BE APPROPRIATE TO STATE OVER HERE THAT CHEQUES OF RS. 1,19,500/ - WERE RETURNED UNPAID FOR THE FINANCIAL YEAR ENDING 31.3.2007. ACCORDINGLY THE RE WERE NO DEBTORS OF THE ASSESSEE FOR THE FIN ANCIAL YEAR ENDING 31.3.2007. SIR, WHATEVER PAYMENT WAS RECEIVED ON ACCOUNT OF THE CAPTIONED BILLS OF RS. 19.59 LACS RAISED DURING THE YEAR RECEIVED IN NEXT FINANCIAL YEAR IS DULY TAKEN AS PROFESSIONAL RECEIPTS IN NEXT FINANCIAL YEAR & TAX IS DULY PAID BY THE ASSESSEE ON THE SAID PROFESSIONAL RECEIPTS. AS YOUR GOOD SELF HAVE RAISED A QUERY THAT WHY THE SAID NON - RECEIPT OF RS. 19.59 LACS FOR THE FINANCIAL YEAR ENDING 31.3.2007 SHOULD NOT BE TAKEN AS RECEIPTS IN THIS YEAR. IN THIS REGARD, I HEREBY STATES THA T SINCE ASSESSEE HAS ALREADY PAID TAX IN THE NEXT YEAR ON THE SAID PROFESSIONAL RECEIPTS THEREFORE AS A MATTER OF FACTS THEIR WILL NOT BE ANY LOSS TO REVENUE AS FAR AS TAX IS CONCERNED. WITH THIS LETTER WE HEREBY REQUEST YOU TO KINDLY NOT TO ADD THE PROFES SIONAL RECEIPTS IN THE YEAR AS THE SAME IS TAKEN AS PROFESSIONAL RECEIPTS IN THE NEXT FINANCIAL YEAR ENDING 31.3.2007. 2. 1 NOT CONVINCED WITH THE EXPLANATION OFFERED THE AO PROCEEDED TO ADD THE SAME. 3. AGGRIEVED BY THIS THE ASSESSEE WENT IN APPEAL BEFO RE THE CIT(A). THE SUBMISSIONS ADVANCED BEFORE THE ASSESSING OFFICER WERE REITERATED . E XTRACT THERE FROM IS REPRODUCED HEREUNDER FOR READY REFERENCE: - THE ASSESSEE EXPLAINED TO THE A.O THAT THE BILLS WERE RAISED IN EXPECTATION OF RECEIPTS. OUT OF THE TOT AL AMOUNT OF RS. 71,06,882/ - , THE ASSESSEE COULD REALIZE RS. 50,28,282/ - ONLY DURING THE YEAR. THE CHEQUE OF RS. 1,19,500/ - WERE RETURNED UNPAID AND THE AMOUNT OF RS. 19,59,100/ - WAS NOT RECEIVED. THE ASSESSEE FURTHER EXPLAINED TO THE A.O THAT THE AMOUNTS REALIZED SUBSEQUENTLY WERE TAKEN INTO ACCOUNTS UNDER THE HEAD PROFESSIONAL FEE RECEIVED FOR THAT YEAR. 3.1. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE AS PER PAST PRACTICE USED TO RAISE BILLS FOR LEGAL AND PROFESSIONAL FEES SOMETIMES AT THE TIME OF ACCEP TING THE CASE AND SOMETIMES AFTER RENDERING THE SERVICES DEPENDING UPON THE RELATIONSHIP WITH THE 3 I.T.A .NO. 4741 /DEL/201 1 CLIENT/NATURE OF SERVICES RENDERED/TO BE RENDERED BY HIM. ACCORDINGLY, T HE ASSESSEE USED TO CREDIT THE L EGAL AND PROFESSIONAL FEES ACCOUNT IN HIS BOOKS OF ACC OUNT AND IMMEDIATELY AFTER RAISING THE BILLS HE WOULD DEBIT THE CLIENT ACCOUNT. IN THE YEAR UNDER CONSIDERATION IT WAS SUBMITTED THAT FEW CHEQUES RECEIVED FROM THE CLIENTS BOUNCED AS THEY WERE NOT HONOURED . C ONSEQUENTLY THE AMOUNTS WERE NOT CREDITED TO HI S BANK ACCOUNT. APART FROM THAT SOME CLIENTS EITHER DID NOT PAY ANY AMOUNT OR PAID A LESSER AMOUNT AGAINST THE BILLS RAISED. ON ACCOUNT OF THESE FACT S IT WAS ARGUED THE SUM OF RS. 19,59,100/ - HAD TO BE REVERSED . I T WAS SUBMITTED THAT THE BOOKS OF ACCOUNT HAD NOT BEEN REJECTED IN FACT THE ASSESSING OFFICER HIMSELF OBSERVED IN THE ASSESSMENT ORDER THAT IN ANY CASE IF ANY PART OF INCOME IS NOT RECEIVED BY WAY OF ANY REASON THEN ASSESSEE CAN CLAIM DEDUCTION AS BAD DEBTS . IT WAS SUBMITTED THAT THE AO APPEARE D TO BE OF THE OPINION THAT INSTEAD OF DEBITING THE SAID SUM TO THE P&L A/C UNDER THE BAD DEBTS WRITTEN OFF THE ASSESSEE HAD DEBITED THE SUM TO LEGAL & PROFESSIONAL FEES A/C . I T WAS SUBMITTED THAT IT IS A SETTLED PROPOS I TION OF LAW THAT THE SUBSTANCE OF THE TRANSACTION IS RELEVANT AND NOT ITS FORM. IT WAS FURTHER SUBMITTED THAT THIS IS THE PAST PRACTICE FOLLOWED BY THE ASSES SEE AND THE ASSESSEE S INCOME HAS BEEN PROGRESSIVELY INCREASING. CONSIDERING THE SAME THE CIT(A) CAME TO THE FOLLOWING CONCLUSIO N: - I HAVE GONE THROUGH THE DETAILS, DOCUMENTS AND THE SUBMISSION MADE BY THE ASSESSEE. AFTER CAREFUL CONSIDERATION OF THE FACTS OF THE CASE OF A LAWYER THE ASSESSEE, I HAVE COME TO THE CONCLUSION THAT IT CANNOT BE EXPECTED THAT A LAWYER WILL GET 100% PAY MENT OF FEES FROM HIS CLIENTS AGAINST THE FEE BILLS RAISED BY HIM. THOUGH THE AO INITIALLY CONSIDERED TWO ASPECTS I.E. ONE RELATING TO SYSTEM OF ACCOUNTING AND ANOTHER RELATING TO BAD - DEBTS, YET THE AO PROCEEDED ONLY ON ONE ASPECT RELATING TO SYSTEM OF ACC OUNTING AND IGNORED THE ANOTHER ASPECT RELATING TO BAD - DEBTS. THE CASE LAW RELIED UPON BY THE AO WAS WITH REFERENCE TO THE SYSTEM OF ACCOUNTING. THE AO DID NOT REJECT THE BOOKS OF ACCOUNTS OF THE ASSESSEE, THOUGH ACCORDINGLY TO HIM THE ASSESSEE DID NOT FOL LOW THE MERCANTILE SYSTEM OF ACCOUNTING PROPERLY. IT IS A WILL SETTLED PRINCIPAL OF LAW THAT THE SUBSTANCE OF THE TRANSACTION IS RELEVANT/IMPORTANT AND NOT THE FORM OF TRANSACTION. IT IS NOT MATERIAL THAT THE ASSESSEE DEBITED THE SAID AMOUNT OF RS. 19,59,1 00/ - IN THE FEES A/C ON 31.3.2007, INSTEAD OF DEBITING IT UNDER THE HEAD BAD - DEBTS . I HAVE NOTICED THAT THE ASSESSEE OFFERED THE AMOUNTS OF FEE RECOVERED BY HIM OUT OF THE DEBTS WRITTEN OFF, SUBSEQUENTLY AND ALSO THAT THE ASSESSEE S INCOME IS PROGRESSIVE . I HAVE OBSERVED THAT THE ASSESSEE WAS CONSISTENTLY FOLLOWING SUCH PRA CTI CE AS IS 4 I.T.A .NO. 4741 /DEL/201 1 EVIDENT FROM THE BALANCE SHEETS OF EARLIER & SUBSEQUENTLY YEARS. IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE HAS NOT ACTUALLY WRITTEN OFF THE SAID AMOUNT OF RS. 19,59,100/ - IN HIS BOOKS OF ACCOUNTS. THE AO DID NOT REJECT THE BOOKS OF ACCOUNTS OF THE ASSESSEE. I HAVE PERUSED THE CLIENT - WISE DETAILS OF THE ACCOUNTS WITH REFERENCE TO THE AMOUNTS WRITTEN OFF AS ON 31.3.2007. I NOTICED THAT FEW OF THE PARTIES, TO WHOM THE ASSESSEE RAISED BILLS EITHER DID NOT MAKE THE PAYMENT AT ALL OR MADE LESSER PAYMENT. IN VIEW OF ABOVE FINDINGS I DELETE THE ADDITION/DISALLOWANCE OF RS. 19,59,100/ - 3.2. AGGRIEVED BY THIS THE REVENUE IS AN APPEAL BEFORE THE TRIBUNAL . TH E LD. SR DR RELYING UPON THE ASSESSMENT ORDER SUBMITTED THAT THE ADDITION ON FACTS SHOULD HAVE BEEN MAINTAINED AS IT IS CONTRARY TO THE MERCANTILE SYSTEM WHICH THE ASSESSEE PRO FESSES TO FOLLOW. 4. THE LD. AR ON THE OTHER HAND RELYING UPON THE IMPUGNED ORDER SUBMITTED THAT THE INCOME HAS BEEN TAXED IN THE NEXT ASSESSMENT YEAR WHEN THE ASSESSEE HAS RECOVERED THE SAME. ACCORDINGLY, RELIANCE WAS PLACED UPON CIT VS EXCEL INDUSTRIES LTD. (2013) 358 ITR 29 5 (SC). APART FROM THAT THE DOCUMENTS FILED IN THE PAPER BOOK RELIED UPON BEFORE THE CIT(A) WHICH ARE RELIED ON IN THE PRESENT PROCEEDINGS ALSO, IT WAS SUBMITTED HAVE NOT BEEN ASSAILED BY THE REVENUE . 5 . WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE MATERIAL AVAILABLE ON RECORD. ON A CONSIDERATION OF THE SAME , WE ARE OF THE VIEW THAT IN THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE , THE FINDING ARRIVED AT IN THE IMPUGNED ORDER CANNOT BE FAULTED WITH ON THE FACTS AS STAND . I T IS SEEN THAT THE CIT(A) HAS RETURNED THE FIND IN G THAT THIS IS THE CONSISTEN T PRACTICE FOLLOWED BY THE ASSESSEE AND IT IS SEEN THAT THE RELEVANT DOCUMENTS WERE LOOKED INTO BY THE CIT(A) BEFORE RETURNING THE FINDING . THIS FACT IS EVIDENT FROM THE EXTRACT OF THE FINDING REPR ODUCED EARLIER. IT IS FURTHER SEEN THAT THE DOCUMENTS AVAILABLE ON RECORD IN THE PAPER BOOK HAVE NOT BEEN ASSAILED BY THE REVENUE. IN THE AFOREMENTIONED PECULIAR FACTS AND CIRCUMSTANCES , WE FIND NO MERIT IN THE APPEAL OF DEPARTMENT AND BEING SAT ISFIED WIT H THE REASONING ARRIVED AT BY THE CIT(A) THE DEPARTMENTAL APPEAL IS DISMISSED. THE SAID ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE OF HEARING ITSELF . 5 I.T.A .NO. 4741 /DEL/201 1 6 . IN THE RESULT THE APPEAL OF THE REVENUE IS DISMISSED. THE ORDER IS PRONOUNCED IN THE OPEN CO URT ON 1 1 T H OF NOVEMBER 2014. S D / - S D / - ( T. S. KAPOOR ) (DIVA SINGH) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 1 1 / 1 1 /2014 SUBODH KUMAR /AMIT KUMAR COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT NEW DELHI