Addl. CIT, Meerut V. M/s. Pyarelal Coir Products Ltd., Meerut

ITA 4871/DEL/2011

• Counselvise Citation: 487120114 RSA 2011
• Duration Of Justice: 9 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-08-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Next Hearing Date: 23-08-2012
• Assessment Year: 2006-2007
• Appeal Filed On: 04-11-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J S MINSHAS
• Keywords: Business income; Bad and doubtful debts

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI DELHI DELHI DELHI BENCH BENCH BENCH BENCH F FF F : NEW DELHI : NEW DELHI : NEW DELHI : NEW DELHI BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G. BEFORE SHRI G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND VICE PRESIDENT AND SHRI SHRI SHRI SHRI RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV, JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER , JUDICIAL MEMBER ITA NO. ITA NO. ITA NO. ITA NO.4871/DEL/2011 4871/DEL/2011 4871/DEL/2011 4871/DEL/2011 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR : : : : 2006 2006 2006 2006- -- -07 0707 07 ADDITIONAL COMMISSIONER OF ADDITIONAL COMMISSIONER OF ADDITIONAL COMMISSIONER OF ADDITIONAL COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, AAYAKAR BHAWAN, RA AAYAKAR BHAWAN, RA AAYAKAR BHAWAN, RA AAYAKAR BHAWAN, RANGE NGE NGE NGE- -- -2, 2,2, 2, MEERUT. MEERUT. MEERUT. MEERUT. VS. VS. VS. VS. M/S PYARELAL COIR PRODUCTS LTD., M/S PYARELAL COIR PRODUCTS LTD., M/S PYARELAL COIR PRODUCTS LTD., M/S PYARELAL COIR PRODUCTS LTD., BHOLA ROAD, MULTAN NAGAR, BHOLA ROAD, MULTAN NAGAR, BHOLA ROAD, MULTAN NAGAR, BHOLA ROAD, MULTAN NAGAR, MEERUT. MEERUT. MEERUT. MEERUT. PAN : AABCP1157E. PAN : AABCP1157E. PAN : AABCP1157E. PAN : AABCP1157E. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI J.S.MINSHAS, DR. RESPONDENT BY : SHRI SUNIL KUMAR, FCA. ORDER ORDER ORDER ORDER PER G. PER G. PER G. PER G.D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, D.AGRAWAL, VP VPVP VP : : : : THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A), MEERUT DATED 3 RD AUGUST, 2011 FOR THE AY 2006-07. 2. GROUND NO.1 RAISED BY THE REVENUE READS AS UNDER :- WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN L AW AND FACTS IN DELETING THE DISALLOWANCES OF RS.707376/- MADE BY THE A.O. ON ACCOUNT OF DISCOUNT OF SALE IGNORING TH E FACT THAT SAID DISCOUNT WAS NEITHER SUPPORTED BY ANY DOCUMENTARY EVIDENCES NOR IT WAS SUPPORTED BY CIRCUMSTANTIAL EVIDENCES. 3. AT THE TIME OF HEARING BEFORE US, IT IS STATED B Y THE LEARNED DR THAT THE ASSESSEE DERIVES INCOME FROM MANUFACTURING OF PU, COIR AND RUBBER FOAM PRODUCTS. DURING THE YEAR UNDER CONSID ERATION, THE ASSESSEE GAVE DISCOUNT AT THE RATE OF 3.5% TO M/S C APITAL POWER ITA-4871/DEL/2011 2 SYSTEM AND AT THE RATE OF 3.3% TO M/S CAPITAL METER S. THAT THE ASSESSEE MADE SALES TO AT LEAST 50 OTHER PARTIES EX CEEDING ` 1 LAKH AND NO DISCOUNT WAS GIVEN TO THE SAID PARTIES. THE NET PROFIT OF THE ASSESSEE IS ONLY 0.27%. IN THE ABOVE CIRCUMSTANCES , THE ASSESSING OFFICER RIGHTLY DISALLOWED THE DISCOUNT PAID TO ONL Y TWO PARTIES, VIZ., M/S CAPITAL POWER SYSTEM AND M/S CAPITAL METERS. THAT THE LEARNED CIT(A) DELETED THE DISALLOWANCE WITHOUT PROPERLY APPRECIAT ING THE FACTS. 4. THE LEARNED COUNSEL FOR THE ASSESSEE STATED THAT SALES TO M/S CAPITAL POWER SYSTEM AND M/S CAPITAL METERS WERE IN BULK I.E. ` 94,54,408/- AND ` 1,14,03,519/- RESPECTIVELY. THAT SALES MADE TO OTH ER PARTIES WERE MUCH LESS AS COMPARED TO THESE TWO PAR TIES. THAT THE TOTAL SALES OF THE ASSESSEE WERE ` 4.80 CRORES WHILE SALES MADE TO THESE TWO PARTIES WERE ` 2.09 CRORES AND REMAINING SALE OF ` 2.71 CRORES WAS MADE TO MORE THAN 50 PARTIES. THAT NO CREDIT WAS A LLOWED TO THESE TWO PARTIES AND, IN FACT, MONEY WAS RECEIVED IN ADV ANCE. THEREFORE, DISCOUNT WAS ALLOWED ON ACCOUNT OF BULK PURCHASE AN D CASH PAYMENT. THAT THE GENUINENESS OF DISCOUNT IS NOT DOUBTED. T HE DISCOUNT WAS FOR THE PURPOSE OF BUSINESS AND, THEREFORE, THE LEARNED CIT(A) RIGHTLY ALLOWED THE SAME. 5. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF BO TH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. WE FIND THAT LEARNED CIT(A) ALLOWED THE RELIEF WITH THE FOLLOWING FINDIN G:- 4.3 I HAVE CONSIDERED FACTS, AO'S ORDER AND ARS SUBMISSIONS CAREFULLY. IT IS SEEN THAT OF THE TOTA L SALES OF PU FOAM UNIT, MEERUT, THE SALES MADE TO THE TWO PAR TIES TO WHOM THE DISCOUNTS WERE ALLOWED AMOUNTED TO 43.43%. THUS, THERE IS NO DOUBT THAT THESE TWO PARTIES WERE THE BULK PURCHASERS OF ASSESSEES PRODUCT. THE AO'S RE FERENCE TO GROSS PROFIT RATE AND NET PROFIT RATE VIS-A-VIS THE RATES OF ITA-4871/DEL/2011 3 DISCOUNT ALLOWED, IN MY CONSIDERED VIEW, IS NOT REL EVANT. AS ARGUED BY THE AR, THE GROSS PROFIT WOULD HAVE BE EN STILL LESSER AND NET PROFIT NEGATIVE IF THESE SALES TO TH E TWO PARTIES WOULD NOT HAVE BEEN MADE. ON THESE FACTS, THE PRUDENCE AND BUSINESS EXPEDIENCY OF THE ASSESSEE FO R ALLOWING THE DISCOUNT CANNOT BE QUESTIONED. ON SIM ILAR FACTS, THE HONBLE DELHI HIGH COURT IN UNITED EXPOR TS VS. CIT (2009), 185 TAXMAN 374 HAS HELD THE SAME VIEW. THE ADDITION MADE BY THE AO IS DELETED. 6. AFTER CONSIDERING THE ARGUMENTS OF BOTH THE SIDE S AND THE FACTS OF THE CASE, WE ENTIRELY AGREE WITH THE ABOVE FINDI NG OF LEARNED CIT(A). THE LEARNED ASSESSING OFFICER DISALLOWED THE COMMIS SION MAINLY ON TWO GROUNDS :- (I) (I)(I) (I) THAT SIMILAR COMMISSION IS NOT PAID TO OTHER PA RTIES AND (II) (II)(II) (II) COMMISSION PAID IS MUCH MORE THAN THE NET PROF IT. THE ASSESSEE HAS EXPLAINED BEFORE THE LEARNED CIT(A) AS WELL AS BEFORE US THAT THE SALES MADE TO THESE TWO PARTIES WERE IN BU LK WHICH WERE ALMOST 43% OF THE TOTAL SALES. MOREOVER, NO CREDIT FACILITY WAS ALLOWED TO THEM. THUS, THEIR CASE IS CLEARLY DISTINGUISHAB LE FROM OTHER BUYERS. SO FAR AS NET PROFIT RATE IS CONCERNED, IT IS WHOLL Y IRRELEVANT FOR THE ALLOWABILITY OF THE DISCOUNT. THE GENUINENESS OF T HE DISCOUNT IS NOT IN DISPUTE. IN OUR OPINION, THE DISCOUNT ALLOWED TO T HESE TWO PARTIES WAS CLEARLY FOR THE PURPOSE OF BUSINESS. WE, THEREFORE , UPHOLD THE ORDER OF LEARNED CIT(A) ON THIS POINT. 7. GROUND NO.2 OF THE REVENUES APPEAL READS AS UND ER:- WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LD.COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED I N LAW AND FACTS IN DELETING THE ADDITION OF RS.3,82,278/- MADE BY THE A.O. ON ACCOUNT OF BAD DEBTS IGNORING THE FACTS THAT THE DEBTORS WERE GOVERNMENT DEPARTMENT AND DEBT WAS ITA-4871/DEL/2011 4 ALWAYS RECOVERABLE. RELIANCE IS PLACED ON THE JUDG MENT IN THE CASE OF SOUTH INDIAN SURGICAL CO.LTD. VS. ASSTT .CIT (2006) REPORTED IN 287 ITR 62 (MAD) BY THE HONBLE MADRAS HIGH COURT. 8. GROUND NO.3 IS ONLY ARGUMENTATIVE IN NATURE AND IS IN SUPPORT OF ABOVE GROUND NO.2. 9. WITH REFERENCE TO THESE GROUNDS, IT IS STATED BY THE LEARNED DR THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSES SEE CLAIMED DEDUCTION FOR BAD DEBTS IN RESPECT OF AMOUNT RECEIV ABLE FROM MAHARASHTRA STATE ROAD TRANSPORT CORPORATION (HEREI NAFTER REFERRED TO AS MSRTC), THE DETAILS OF WHICH IS AS UNDER:- M.S.R.T.C. AURANGABAD RS.60,679.00 M.S.R.T.C. NAGPUR RS.61,635.47 M.S.R.T.C. POONA RS.2,59,964.22 -------------------- RS.3,81,593.32 -------------------- 10. HE STATED THAT THE DEBTOR IS A STATE GOVERNMENT UNDERTAKING AND IT CANNOT BE BELIEVED THAT THE AMOUNT RECEIVABLE FR OM THE STATE GOVERNMENT UNDERTAKING HAS BECOME BAD. HE, THEREFO RE, STATED THAT THE ASSESSING OFFICER RIGHTLY DISALLOWED THE DEDUCT ION CLAIMED BY THE ASSESSEE AS BAD DEBT. 11. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OT HER HAND, STATED THAT THE ASSESSEE IS MAKING REGULAR SUPPLIES TO VAR IOUS DEPOTS OF MSRTC. THAT SEVERAL TIMES, THEY MAKE THE DEDUCTION FROM THE BILLS ISSUED BY THE ASSESSEE ON ACCOUNT OF QUALITY OF THE GOODS SUPPLIED, SHORTAGE IN THE QUANTITY AND SOME TIMES, EVEN DELAY IN THE SUPPLY OF GOODS. THAT THE ABOVE SUM WAS OUTSTANDING WITH VAR IOUS DEPOTS OF MSRTC SINCE MORE THAN FIVE YEARS. WHEN THE ASSESSE E COULD NOT ITA-4871/DEL/2011 5 RECOVER THE SAID AMOUNTS, THE SAME WERE WRITTEN OFF IN THE BOOKS OF ACCOUNT. THAT AS PER THE DECISION OF HONBLE APEX COURT IN THE CASE OF T.R.F.LTD. VS. CIT (2010) 323 ITR 397, FOR ALLOWING THE DEDUCTION O F BAD DEBTS, THE WRITING OFF IN THE ASSESSEES BOOKS OF ACCOUNT IS ESSENTIAL AND THAT THE ASSESSEE NEED NOT PROVE THAT THE DEBT HAS BECOME BAD. HE STATED THAT THE ABOVE DECISION OF H ONBLE APEX COURT WOULD BE SQUARELY APPLICABLE TO THE FACTS OF THE AS SESSEES CASE BECAUSE THE ASSESSEE WAS NOT ABLE TO RECOVER THIS A MOUNT SINCE PAST MANY YEARS AND THEN ONLY, THE SAME WAS WRITTEN OFF IN THE BOOKS OF ACCOUNT. HE, THEREFORE, SUBMITTED THAT THE ORDER O F LEARNED CIT(A) ON THIS POINT MAY BE SUSTAINED. 12. WE HAVE CAREFULLY CONSIDERED THE ARGUMENTS OF B OTH THE SIDES AND PERUSED THE MATERIAL PLACED BEFORE US. HONBLE APEX COURT IN THE CASE OF T.R.F. LTD. (SUPRA) HELD AS UNDER:- AFTER THE AMENDMENT OF SECTION 36(1)(VII) OF THE I NCOME- TAX ACT, 1961, WITH EFFECT FROM APRIL 1, 1989, IN O RDER TO OBTAIN A DEDUCTION IN RELATION TO BAD DEBTS, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DE BT, IN FACT, HAS BECOME IRRECOVERABLE : IT IS ENOUGH IF TH E BAD DEBT IS WRITTEN OFF AS IRRECOVERABLE IN THE ACCOUNT S OF THE ASSESSEE. 13. THUS, AS PER THE DECISION OF HONBLE APEX COURT , FOR CLAIMING THE DEDUCTION OF BAD DEBTS, THE ASSESSEE NEED NOT PROVE THAT THE DEBT HAS ACTUALLY BECOME BAD. MERE WRITING OFF IN THE BOOKS OF ACCOUNT IS ENOUGH. IN THE CASE UNDER APPEAL BEFORE US, THE AS SESSEE HAS EXPLAINED THAT THE ABOVE AMOUNTS WERE OUTSTANDING S INCE MANY YEARS FROM VARIOUS DEPOTS OF MSRTC AND THEY WERE NOT PAYI NG THE AMOUNT BECAUSE PERHAPS THEY HAVE DEDUCTED THESE AMOUNTS FR OM THE ASSESSEES BILLS FOR VARIOUS REASONS, VIZ., DEFECT IN THE MATERIAL ITA-4871/DEL/2011 6 SUPPLIED, VARIATION IN THE QUANTITY OR DELAY IN SUP PLY OF GOODS. WHATEVER MAY BE THE REASONS FOR DEDUCTION OR NON-PA YMENT, THE FACT REMAINS THAT THE ASSESSEE WAS UNABLE TO RECOVER THE AMOUNT FROM THE ABOVE DEPOTS OF MSRTC SINCE LONG PERIOD AND THEREAF TER, THE ASSESSEE WROTE BACK THE AMOUNT IN ITS BOOKS OF ACCOUNT. THE REFORE, IN OUR OPINION, THE DECISION OF HONBLE APEX COURT IN THE CASE OF T.R.F. LTD. (SUPRA) WOULD BE SQUARELY APPLICABLE. RESPECTFULLY FOLLOWING THE SAME, WE UPHOLD THE ORDER OF LEARNED CIT(A) ON THIS POINT . 14. IN THE RESULT, THE APPEAL OF THE REVENUE IS DIS MISSED. DECISION PRONOUNCED IN THE OPEN COURT ON 31 ST AUGUST, 2012. SD/- SD/- ( (( (RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV RAJPAL YADAV) )) ) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) (G.D.AGRAWAL) JUDICIAL JUDICIAL JUDICIAL JUDICIAL MEMBER MEMBER MEMBER MEMBER VICE PRESID VICE PRESID VICE PRESID VICE PRESIDENT ENT ENT ENT DATED : 31.08.2012 VK. COPY FORWARDED TO: - 1. APPELLANT : ADDITIONAL COMMISSIONER OF ADDITIONAL COMMISSIONER OF ADDITIONAL COMMISSIONER OF ADDITIONAL COMMISSIONER OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, AAYAKAR BHAWAN, RANGE AAYAKAR BHAWAN, RANGE AAYAKAR BHAWAN, RANGE AAYAKAR BHAWAN, RANGE- -- -2, 2,2, 2, MEERUT. MEERUT. MEERUT. MEERUT. 2. RESPONDENT : M/S PYARELAL COIR PRODUCTS LTD., M/S PYARELAL COIR PRODUCTS LTD., M/S PYARELAL COIR PRODUCTS LTD., M/S PYARELAL COIR PRODUCTS LTD., BHOLA ROAD, MULTAN NAGAR, BHOLA ROAD, MULTAN NAGAR, BHOLA ROAD, MULTAN NAGAR, BHOLA ROAD, MULTAN NAGAR, MEERUT. MEERUT. MEERUT. MEERUT. 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR