Rainbow Overseas, Kurukshetra V. JCIT, Kurukshetra

ITA 500/CHANDI/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9176 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 3 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 28-07-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 08-05-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: ASHISH CHADHA
• Keywords: Bad and doubtful debts

Judgement Text

PAGE 1 OF 6 RAINBOW OVERSEAS V JCIT ITA NO 500/ CHD/2015 A Y 2010 - 11 INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 500 /CHD/ 2015 ASSESSMENT YEAR : 2010 - 11 RAINBOW OVERSEAS, KAITHAL ROAD, PEHOWA, DISTT. KURUSHETRA, HARYANA PAN:AAEFR0846B VS. JCIT, KURUKSHETRA RANGE, KURUKSHETRA (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. ASHISH CHADHA REVENUE BY: SH. SK MITTAL, DR DATE OF HEARING 04 /0 8 /2016 DATE OF PRONOUNCEMENT 1 1 /0 8 /2016 O R D E R PER PRASHANT MAHARISHI , A . M . 1 . THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A), ROHTAK DATED 11.03.2015 FOR THE ASSESSMENT YEAR 2010 - 11 RAISING THE FOLLOWING GROUNDS OF APPEAL: - 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] IS BAD BOTH IN THE EYE OF LAW AND ON FACTS. 2(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF AN AMOUNT OF RS.22267737/ - ON ACCOUNT OF BAD DEBTS WRITTEN OFF. PAGE 2 OF 6 RAINBOW OVERSEAS V JCIT ITA NO 500/ CHD/2015 A Y 2010 - 11 (II) THAT THE DISALLOWANCE HAS BEEN CONFIRMED DESPITE THE FACT THAT AS PER THE PROVISION OF SECTION 36(1)(VII), THE BAD DEBTS WRITTEN OFF ARE ALLOWABLE IN YEAR IN WHICH THESE ARE ACTUALLY WRITTEN OFF. (III) THAT THE DISALLOWANCE HAS BEEN CONFIRMED DESPITE THE ASSESSEE FULFILLING ALL THE CONDITIONS PRESCRIBED UNDER SECTION 36(2) OF THE ACT. 3. WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALTERNATIVE, THE ABOVESAID CLAIM, NOT BEING RECOVERABLE, IS ALLOWABLE AS BUSINESS LOSS. 4(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF AN AMOUNT OF RS.1,79,517/ - ON ACCOUNT OF CONSUMABLE EXPENSES, (II) THAT THE DISALLOWANCE HAS BEEN CONFIRMED DESPITE THE EXPENSES HAVING BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS, (III) THAT THE DISALLOWANCE HAS BEEN CONFIRMED DESP ITE THE SAME BEING MADE ARBITRARILY AT THE RATE OF 10% WITHOUT THERE BEING ANY BASIS FOR THE SAME. 5(I) ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED BOTH ON FACTS AND IN LAW IN NOT ADJUDICATING THE ISSUE OF DISALLOWANCE OF A N AMOUNT OF RS.60,490/ - MADE BY AO ON ACCOUNT OF TRUCK RUNNING EXPENSES. (II) THAT THE DISALLOWANCE HAS BEEN CONFIRMED DESPITE THE EXPENSES HAVING BEEN INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. (III) THAT THE DISALLOWANCE HAS BEEN CONF IRMED DESPITE THE SAME BEING MADE ARBITRARILY AT THE RATE OF 10% WITHOUT THERE BEING ANY BASIS FOR THE SAME. PAGE 3 OF 6 RAINBOW OVERSEAS V JCIT ITA NO 500/ CHD/2015 A Y 2010 - 11 2 . THE FIRST GROUND OF APPEAL IS GENERAL IN NATURE AND THEREFORE SAME IS DISMISSED. 3 . THE GROUND NO. 2 OF THE APPEAL IS AGAINST THE DISALLOWANCE OF BA D DEBTS OF RS. 22267737/ - .THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A PARTNERSHIP FIRM ENGAGED IN THE BUSINESS OF PROCESSING RICE AND EXPORT OUT OF INDIA. DURING THE YEAR THE ASSESSEE HAS WRITTEN OFF A N AMOUNT OF RS. 22267736/ - ON ACCOUNT OF EXPORT OF RICE MADE TO M/S. MOHSEN LINE GENERAL TRADING LLC. THE DEDUCTION WAS DENIED BY THE LD AO AS THE ASSESSEE COULD NOT PROVE THAT HIS DEBTOR HAS RE FUSED TO PAY OUTSTANDING AND COULD NOT DEMONSTRATE THE EFFORT S MADE FOR RECOVERY. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD CIT(A), WHO IN TURN DISMISSED THE CLAIM OF THE ASSESSEE FOR THE REASON THAT THE ASSESSEE COULD NOT ESTABLISHED THAT DEBT HAS BECOME BAD. 4 . THE LD AR BEFORE US SUBMITTED THAT THE DEBT HAS AR ISEN OUT OF SALES AND AS THE SAME WAS NOT RECOVERED HENCE IT WAS WRITTEN OFF AND THEREFORE THE CONDITION OF SECTION 36(1)(VII) READ WITH SECTION 36(2) ARE FULFILLED , THEREFORE IT SHOULD HAVE BEEN ALLOWED AS BAD DEBTS. 5 . THE LD DR RELIED UPON THE ORDERS O F LOWER AUTHORITIES. 6 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE ASSESSEE HAS SOLD GOODS TO THE ABOVE PARTY VIDE VARIOUS BILLS SUBMITTED AT PAGE 29 TO 39 OF THE PAPER BOOK. THE COPIES OF THE ACCOUNT OF DEBTOR ARE ALSO PLACED AT PAGE 40 OF TH E PAPER BOOK WHERE THE OUTSTANDING AMOUNT OF RS. 22267736/ - HAS BEEN WRITTEN OFF ON 31.03.2010 AS NON RECOVERABLE. THE IDENTICAL AMOUNT OF EXPENDITURE HAS ALSO BEEN DEBITED IN THE PROFIT AND LOSS ACCOUNT AS BAD DEBT AS REBATE AND DISCOUNT EXPENDITURE UNDER THE CREDITING OF INDIRECT EXPENSES. THE REVENUE DOES NOT DISPUTE THIS EVIDENCE THAT THEY ARE PART OF THE ACCOUNTS OF THE ASSESSEE THEREFORE THE CONDITION OF SECTION 36(2) OF THE ACT IS COMPLIED WITH BY THE ASSESSEE. ACCORDING TO THE DECISION OF THE HON' BLE SUPREME COURT IN THE CASE OF TRF LTD. VS. CIT 323 ITR 397 THAT W.E.F 01.04.2009 THERE IS NO PAGE 4 OF 6 RAINBOW OVERSEAS V JCIT ITA NO 500/ CHD/2015 A Y 2010 - 11 REQUIREMENT TO PROVE THAT DEBT HAS IN FACT BECOME BAD. IT IS ENOUGH FOR THE ASSESSEE IF THE AMOUNT IS WRITTEN OFF IN THE ACCOUNTS OF THE ASSESSEE. THIS VIEW HAS FURTHER BEEN ACCEPTED BY REVENUE IN ITS CIRCULAR NO. 12/2016 DATED 30.05.2016.MERE WRITING OFF DEBT IN THE BOOKS OF ACCOUNT OF THE ASSESSEE IS THE ONLY CONDITION FOR CLAIMING DEDUCTION U/S 36(1)(VII) OF THE ACT. A SSESSEE HAS ALREADY COMPLIED WITH T HE CONDITIONS U/S 36(2) OF THE ACT BY CREDITING OF SALES ACCOUNT IN THE PROFIT AND LOSS ACCOUNT FOR EARLIER YEARS. THESE FACTS OF SHOWING THE SALES UP TO ASSESSMENT YEAR 2010 - 11 IS UNDISPUTED AND THEREFORE , WE FIND THAT THE ASSESSEE IS ELIGIBLE FOR CLAIM OF BAD DEBT WRITTEN OFF OF RS. 22267737/ - . HENCE, WE REVERSE THE FINDING OF THE LD CIT(A) AND ALLOW GROUND NO. 2 OF THE APPEAL. 7 . GROUND NO. 3 OF THE APPEAL IS AN ALTERNATIVE CLAIM THAT IF THE CLAIM OF THE ASSESSEE IS NOT ALLOWABLE U/S 36(1)(VII) SAME MAY B E ALLOWED AS BUSINESS LOSS. AS WE HAVE ALREADY HELD IN GROUND NO. 2 THAT THE CLAIM OF THE ASSESSEE IS ALLOWABLE AS BAD DEBT THIS GROUND OF APPEAL IS DISMISSED. 8 . GROUND NO. 4 OF THE APPEAL WAS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS. 179517/ - ON ACCO UNT OF CONSUMABLE EXPENSES. THE ASSESSEE HAS CLAIMED CONSUMABLE EXPENSES SUCH AS SHELLER EXPENSES, SOOTLY EXPENSES AND TAG EXPENSES. THE LD AO DISALLOWED 1/10 OF SUCH EXPENSES AS NO SPECIFIC STOCK REGISTER WAS MAINTAINED. THE LD CIT(A) ALSO CONFIRMED THE DISALLOWANCE . 9 . THE LD AR SUBMITTED THAT ABOVE DISALLOWANCE HAS BEEN MADE ON LUMP SUM BASIS. HOWEVER, ALL THE CONSUMABLES ARE INVENTORIED . HE FURTHER SUBMITTED THAT NONE OF THE EXPENSES ARE FOUND TO BE UNVOUCHED. 10 . THE LD DR RELIED UPON THE ORDERS LOWER AUTH ORITIES. 11 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE LD AO HAS DISALLOWED THESE EXPENSES ON ADHOC BASIS WITHOUT POINTING OUT ANY INFIRMITY IN THE PURCHASE OF THE GOODS AS WELL AS IN THE INVENTORY OF THE GOODS. MERELY BECAUSE STOCK REGISTER IS NOT MAINTAINED ON DAY TO DAY PAGE 5 OF 6 RAINBOW OVERSEAS V JCIT ITA NO 500/ CHD/2015 A Y 2010 - 11 BASIS OF THESE CONSUMABLES ITEMS ADHOC DISALLOWANCE CANNOT BE PERMITTED. THE LD CIT(A) HAS ALSO CONFIRMED THIS DISALLOWANCE WITHOUT BRINGING ANY MATERIAL ON RECORD REGARDING VERIFICATION OF EXPENSES. IN ABSENCE OF ANY VE RIFICATION IT CANNOT BE SAID THAT THESE EXPENSES ARE UNVERIFIABLE OR UNVOUCHED. LOWER AUTHORITIES HAVE FAILED TO POINT OUT THESE ASSERTIONS WITH INSTANCES. IN VIEW OF THIS WE REVERSE THE ORDER OF THE LD CIT(A) IN CONFIRMING THE ADHOC DISALLOWANCE O F 1/10 TH OF CONSUMABLES EXPENDITURE OF RS. 179517/ - . THEREFORE GROUND NO. 4 OF THE ASSESSEE IS ALLOWED. 12 . GROUND NO. 5 OF THE APPEAL IS AGAINST DISALLOWANCE ON ACCOUNT OF TRUCK RUNNING EXPENSES OF RS. 604891/ - OUT OF THAT 1/10 OF THESE EXPENSES ARE DISALLOWED AS LD. ASSESSING OFFICER HELD THAT ALL THESE EXPENSES ARE IN CASH AND NOT VERIFIABLE. HOWEVER, THE LD CIT(A) HAS NOT ADJUDICATED THIS GROUND OF APPEAL THOUGH RAISED BEFORE HIM IN PARA 13(3) OF HIS ORDER. HOWEVER, SIMILAR ADHOC DISALLOWANCE HAS BEEN DELETE D BY HIM AS NO SPECIFIC DEFECT HAS BEEN POINTED OUT BY THE AO WITH RESPECT TO DIESEL EXPENSES ETC. 13 . THE LD AR POINTED OUT THAT IN ABSENCE OF SPECIFIC DEFECTS SUCH DISALLOWANCE CANNOT BE MADE. 14 . THE LD DR RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES. 15 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS. THE LD AO HAS NOT BROUGHT ANY MATERIAL ON RECORD TO POINT OUT ANY DEFECT IN TRUCK RUNNING EXPENSES. MERELY BECAUSE THE EXPENDITURE HAS BEEN INCURRED IN CASH SAME CANNOT BE DISALLOWED. THE INSTANCES OF EXP ENDITURE WHICH ARE UN VOUCHED HAVE ALSO NOT BEEN POINTED OUT. THE LD CIT(A) HAS CA SUALLY DECIDED THE ADDITIONAL GROUNDS OF APPEAL WHERE THE SAME GROUND HAS NOT BEEN SPECIFICALLY DE ALT WITH . IN VIEW OF THE SMALLNESS OF THE AMOUNT AND FACTS CRYSTALLIZED IN THE ASSESSMENT ORDER ITSELF, WE DO NOT FIND IT NECESSARY TO SET ASIDE THIS GROUND OF APPEAL BACK TO THE FILE OF THE LD ASSESSING OFFICER OR CIT (A) , THEREFORE WE DECIDE THIS ISSUE BY DELETING PAGE 6 OF 6 RAINBOW OVERSEAS V JCIT ITA NO 500/ CHD/2015 A Y 2010 - 11 THE ABOVE DISALLOWANCE. IN THE RESULT GROUND NO. 5 OF THE APPEAL IS ALLOWED. 16 . IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 1 1 / 08 /2016 . - S D / - - S D / - ( BHAVNESH SAINI ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 1 1 / 08 / 2016 A K KEOT COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, CHANDIGARH