DCIT, Jaipur V. M/S TRANSCORP INTERNATIONAL, Jaipur

ITA 508/JPR/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 54235 (ITAT-JAIPUR)
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2011
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2005-2006
• Appeal Filed On: 25-05-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: D K MEENA
• Keywords: Additional evidence; Bad and doubtful debts; Onus to prove

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR (BEFORE SHRI R.K.GUPTA AND SHRI N.L.KALRA) ITA NO. 508/ JP/2011 ASSESSMENT YEAR 2005-06 PAN: AAACT 6622 Q D.C.I.T. CIRCLE-2, JAIPUR V M/S TRANSCORP INTERNA TIONAL 300, MEGHALAYA TOWER, CHURCH ROAD, JAIPUR (APPELLANT ) (RESPONDENT) DEPARTMENT BY : SHRI D.K. MEENA ASSESSEE BY: SHRI P.C. PARWAL DATE OF HEARING: 12-10-2011 DATE OF PRONOUNCEMENT: 14 -10-2011 ORDER PER N.L. KALRA, AM:- THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF THE LD. CIT(A)-I, JAIPUR DATED 7.3.2011. THE GROUNDS RAISED BY THE R EVENUE ARE AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE LD. CIT(A) IS JUSTIFIED IN:- I) DELETING THE ADDITION OF RS. 15,24,786/- MADE BY THE AO ON ACCOUNT OF BAD DEBTS WRITTEN OFF U/S 36(2) OF THE ACT AS IT COULD NOT PROVE THAT THE SAID AMOUNT WAS SHOWN AS INCOME IN A NY PREVIOUS YEAR. II) ADMITTING FRESH EVIDENCES IN THE FORM OF LEDGER ACCOUNT CORRESPONDENCE ETC. REGARDING ISSUE OF CLAIM OF BAD DEBTS WITHOUT GIVING OPPORTUNITY TO THE AO IN VIOLATION OF RULE 46A OF THE ACT. 2 2. THE ASSESSEE IS ENGAGED IN THE BUSINESS OF PROVI DING SERVICES AS MONEY CHANGER, CAR RENTALS, AIR TICKETING, HOTEL BO OKING AND COMMISSION BUSINESS. THE ASSESSEE CLAIMED BAD DEBTS OF RS. 15 ,24,786/- U/S 36(1)(VII) OF THE ACT. THE BAD DEBTS RELATED TO 19 PARTIES AN D THE BALANCES WERE OUTSTANDING PRIOR TO 2002. THE AO WITHOUT RAISING ANY FURTHER QUERY COMPLETED THE ASSESSMENT ON 26.12.2007 BY HOLDING T HAT THE ASSESSEE HAS NOT PROVIDED ANY DETAILS TO SHOW THAT SUCH DEBTS WE RE TAKEN INTO ACCOUNT IN COMPUTING THE INCOME IN ANY EARLIER YEAR. 3 THE LD. CIT(A) VIDE HIS LETTER DATED 10.1.2011 CA LLED FOR REMAND REPORT FROM THE AO WHICH WAS GIVEN BY THE AO VIDE L ETTER DATED 19.1.2001. IN THIS REMAND REPORT IT WAS AGAIN STATED THAT THE ASSESSEE HAS FAILED TO FURNISH THE DETAILS OF EXACT DATES OR FINANCIAL YEA R WHEN THE DEBT CLAIMED WAS TAKEN AS CREDIT/INCOME. AGAINST THIS THE ASSESSEE SUBMITTED THE LEDGER ACCOUNTS / CORRESPONDENCE ETC. OF FEW DEBTORS WHOS E ACCOUNTS HAVE BEEN WRITTEN OFF TO DEMONSTRATE THAT THE INCOME HAS BEEN TAKEN INTO ACCOUNT IN RESPECT OF THESE DEBTS AND ALSO THE EFFORT MADE TO RECOVER THE AMOUNT. 4 THE LD. CIT(A), AFTER CONSIDERING THE SUBMISSION S DELETED THE ADDITION AFTER OBSERVING AS UNDER:- FOR MAKING CLAIM OF BAD DEBT U/S 36, SUB-SECTION ( 2) REQUIRES THAT THE DEDUCTION SHALL B E ALLOWED ONLY WHEN THE DEBT OR PART THEREOF HAS BEEN TAKEN INTO ACCOUNT IN COMPUTING INCOME OF THE PREVIOUS YEAR OR AN EARLIER YEAR. ALSO THAT THE WRITING OFF SHOULD BE RECOVERABLE IN THE 3 ACCOUNTS OF THE PREVIOUS YEAR. THUS FOREMOST CONDI TION FOR CLAIMING DEDUCTION IS THAT THE DEBT SHOULD HAVE BEEN TAKEN I NTO ACCOUNT IN COMPUTING INCOME OF THE APPELLANT OF PREVIOUS YEAR OR AN EARLIER YEAR. THE APPELLANT HAS FAILED TO GIVE CLEAR CUT FINDING OF THE YEAR IN WHICH THE DEBT BECAME PART OF THE INCOME. THE LD. AR HAS SIMPLY STATED THAT THE DEBT RELATES TO YEAR PRIOR TO 2002. THE S PECIFIC CONDITION LAID DOWN BY SECTION 36(2)(I) IS THUS NOT SATISFIED. HO WEVER, EVIDENCES COULD BE FURNISHED IN RESPECT OF 3 DEBTS IN THE NAM E OF ALOK (RS. 3,216), QUALITY CAR RENTAL (RS. 9,218) AND TRAVEL L INKS (RS. 27,218) IN THE FORM OF SOME CORRESPONDENCE OR COPIES OF ACCOUN TS. FURTHER IN THE CASE OF KALRA TRAVELS (RS. 35,174) COPY OF LEDG ER ACCOUNT AND OTHER CORRESPONDENCE MADE WERE FILED. IN RESPECT O F DEBT IN THE NAME OF SHRI K.K. YADAV OF DEVI CONSTRUCTIONS COPY OF TH E CORRESPONDENCE AND LEDGER ACCOUNT ARE FILED. CORRESPONDENCE IN RE SPECT OF SUNDRY PARTIES (RS. 12,812), SHRI VINOD GUPTA (RS. 5,28,06 3) ALSO SOME EVIDENCES COULD BE FILED. COPIES OF LEDGER ACC IN RESPECT OF OTHER CASES OF THE CURRENT YEAR ARE FILED WHEREIN THE CLA IM OF DEBTS HAVE BEEN SHOWN AS OPENING BALANCES. IT HAS BEEN CLAIME D THAT THE DEBTS ARE RELATED TO EARLIER YEARS AND THE INCOME WAS INC LUDED IN THE PROFIT AND LOSS ACCOUNT OF THE RESPECT YEAR OF THE YEAR O F BILLING. ACCEPTING GENUINE DIFFICULTY OF THE APPELLANT OF INABILITY TO GATHER DETAILS OF EARLIER YEARS AFTER LAPSE OF VERY LONG TIME, THE CL AIM OF THE APPELLANT IS ACCEPTED. AT LEAST IN SOME CASES THE APPELLANT SUC CEEDED IN SUPPORTING HIS CLAIM BY SOME USEFUL DETAILS. THE E FFORTS MADE FOR RECOVERY IS NOT NECESSARY PREREQUISITE FOR MAKING C LAIM AND THE ONLY FACT OF WRITING OFF OF BAD DEBTS IN THE BOOKS OF AC COUNTS OF PREVIOUS YEAR IS SUFFICIENT TO MAKE CLAIM OF DEDUCTION, THE AO IS THEREFORE, DIRECTED TO ALLOW CLAIM OF BAD DEBTS OF RS. 15,24,7 86. 5 BEFORE US, THE LD. DR SUBMITTED THAT THE ASSESSEE FILED ADDITIONAL EVIDENCES AFTER THE REMAND REPORT GIVEN BY THE AO. SUCH ADDITIONAL EVIDENCES HAVE NOT BEEN CONFRONTED TO THE AO. MOR EOVER, THE ASSESSEE HAS NOT ESTABLISHED THAT THE AMOUNTS WHICH HAS BEEN WRI TTEN OFF, HAVE BEEN INCLUDED IN THE PROFIT AND LOSS ACCOUNT OF THE EAR LIER YEARS HENCE THE REQUIREMENT OF SECTION 36(2) IS NOT SATISFIED. 4 6 ON THE OTHER HAND, THE LD. AR SUBMITTED AS UNDER: - 1 AT THE OUTSET, IT MAY BE NOTED THAT FOR CLAIMING BAD DEBTS U/S 36(1)(VII) THE ONLY CONDITION IS TO WRITE OFF THE B AD DEBT OR PART THEREOF AS IRRECOVERABLE IN THE ACCOUNTS OF THE ASSESSEE. THERE IS NO DISPUTE AS TO THE FACT THAT THE ASSOCIATE ENTERPRISE HAS WRITT EN OFF THE DEBTORS OF RS. 15,24,786/- IN ITS BOOKS OF ACCOUNTS. THIS ISS UE IS NOW SETTLED BY THE DECISION OF HON'BLE SUPREME COURT IN CASE OF T RF LTD. V. CIT, 323 ITR 397 WHERE IT IS HELD THAT AFTER 1.4.19089, IT IS NOT NECESSARY FOR THE ASSESSEE TO ESTABLISH THAT THE DEBT HAS BEC OME IRRECOVERABLE. IT IS ENOUGH IF THE BAD DEBT IS WRITTEN OFF AS IRRECOV ERABLE IN THE ACCOUNTS OF THE ASSESSEE TO CLAIM DEDUCTION U/S 36(1)(VII). THEREFORE, THE OBSERVATION MADE BY THE AO AS TO THE EFFORT MADE FO R RECOVERY OF DEBT IS IRRELEVANT AND ON THIS GROUND CLAIM OF BAD DEBTS CAN NOT BE DISALLOWED. 2 AS FAR AS THE OBSERVATION OF THE AO REGARDING THE ASSESSEES FAILURE TO FURNISH THE DETAILS OF EXACT DATE OR FIN ANCIAL YEAR WHEN THE DEBT CLAIMED WAS TAKEN AS CREDIT/INCOME, IT WAS EXP LAINED THAT THE DEBTS PERTAIN TO THE YEAR PRIOR TO 2002, THE INCOME OF WHICH IS INCLUDED IN THE PROFIT AND LOSS ACCOUNT OF THE RES PECTIVE YEAR OF BILLING AND SINCE THE MATTER IS TOO OLD IT IS NOT P OSSIBLE TO GET THE YEAR WISE DETAILS OF THE BILLS RAISED. INSPITE OF THIS, ASSESSEE IN ORDER TO FURTHER SUPPORT ITS CLAIM, FURNISHED THE LEDGER ACC OUNT/CORRESPONDENCE ETC. IN RESPECT OF THE FOLLOWING 7 PARTIES BEFORE THE LD. CIT(A):- NAME OF THE PARTIES AMTOUT (RS.) KALRA TRAVELS 35,174 DEVI CONSTRUCTION 78,000 RAINBOW TEXTILES 3,216 VINOD GUPTA 5,28,063 QUALITY RENTAL 9,218 TRAVEL LINKS 27,218 STATE BANK OF INDIA 55,369 3 IT IS TO BE NOTED THAT THE ONUS TO PROVE THAT THE AMOUNT IS NOT TAKEN INTO ACCOUNT IN COMPUTING THE INCOME OF THE P RIOR YEARS IS ON THE REVENUE. RELIANCE IN THIS CONNECTION IS PLACED ON THE FOLLOWING CASES:- 5 CIT V. DWARKA INDUSTRIAL DEVELOPMENT AND CHAINS (P) LTD., 325 ITR 211 (ALL) (H.C) THE ASSESSEE HAD FILED ITS RETURN IN DECEMBER 1989 DECLARING A TOTAL LOSS OF RS. 8,24,734/-. IT HAD CLAIMED BAD DEBT OF RS. 6,27,735 ON THE GROUND THAT MAJOR SHAREHOLDING OF THE ASSESSEE WAS WITH RPH AND MOST OF THE ACTIVITIES OF THE ASSESSEE WERE FOR THE SHAREHOLDER. THE ASSESSEE HAD TAKEN PLANT AND MACHINERY ON LEASE FRO M THE SHAREHOLDER COMPANY. A SUM OF RS. 6,27,735 WAS LYING UNDER THE HEAD SUNDRY DEBTORS WHICH THE COMPANY WAS NOT ABLE TO REALIZE AS THIS MONEY WAS DUE AND PAYABLE BY NB. THE ASSESSEE HAD SENT SEVER AL LETTERS DIRECTING THE DEBTOR TO PAY THE AMOUNT BUT THE DEBT OR DID NOT EVEN ACKNOWLEDGE THE SAME. THE AO DISALLOWED THE DEDUCT ION BUT THE COMMISSIONER (APPEALS) AND THE TRIBUNAL ALLOWED IT. ON APPEAL TO THE HIGH COURT, IT WAS HELD THAT IT WAS THE SPECIF IC CASE OF THE ASSESSEE THAT THE AMOUNT REPRESENTED THE SALES AFFE CTED TO NB BUT BECAUSE OF THE FACT THAT THERE WAS NO DOCUMENTARY E VIDENCE IN SUPPORT OF THE CLAIM AS ALSO THE ACKNOWLEDGEMENTS OF THE LE TTERS, THE AMOUNT WAS WRITTEN OFF. THE ASSESSING AUTHORITY DID NOT F IND ANY MATERIAL ON RECORD TO SHOW THAT THE AMOUNT HAD NOT BEEN TAKEN I NTO ACCOUNT IN COMPUTING THE INCOME OF ANY PREVIOUS YEAR. HENCE T HE AMOUNT WAS DEDUCTIBLE AS BAD DEBT. MAHESH J. PATEL V. ACIT 111 TTJ 468/109 ITD 35 (TRI BUNAL) (MUM)(TM) AFTER THE DEATH OF A DEBTOR, CERTAIN AMOUNTS COULD NOT BE RECOVERED FROM HIM. THE AO DID NOT ALLOW THE DEDUCTION FOR W ASNT OF EVIDENCE. THE LD. CIT(A) CONCURRED WITH THE VIEW T AKEN BY THE AO. DURING THE COURSE OF HEARING BEFORE TRIBUNAL, LD. C OUNSEL FOR THE ASSESSEE STATED THAT THE TRANSACTIONS WERE DULY REC ORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE. NOTHING ADVERSE OR CO NTRARY HAD BEEN BROUGHT ON RECORD BY THE AO. IT ALSO PLACED RELIAN CE ON THE DECISION OF THE TRIBUNAL, SPECIAL BENCH IN THE CASE OF DCIT V. OMAN INTERNATIONAL BANK SAOG (2006) 102 TTJ 207 (MUM) (S B) / (2006) 100 ITD 285 (MUM) (SB). ACCORDINGLY IT WAS HELD TH AT AS THE ASSESSEES TRANSACTIONS WITH THIS PARTY RECORDED IN THE BOOKS OF ACCOUNTS AND ALL DETAILS PERTAINING TO THE DEBT IN QUESTION COULD BE FOUND THERE, THE AO IS NOT JUSTIFIED IN HOLDING THA T THERE WAS NO 6 EVIDENCE AS TO BAD DEBT. IN THE ABSENCE OF ANY INF ORMATION/MATERIAL TO THE CONTRARY, THE ASSESSEES CLAIM OF DEDUCTION COU LD NOT BE REJECTED. 4 THERE IS NO DISPUTE AS TO THE FACT THAT THESE DEB TS WERE APPEARING IN THE LIST OF DEBTORS FROM EARLIER YEARS . ONCE AN AMOUNT IS APPEARING IN THE LIST OF DEBTORS, IT IS IMPERATIVE THAT CORRESPONDING CREDIT HAS BEEN TAKEN TO SALES/INCOME IN THE PROFIT AND LOSS ACCOUNT . THIS IS ALSO ESTABLISHED BY THE ASSESSEE BY FILING COPY OF LEDGER ACCOUNT OF FEW DEBTORS FROM WHICH THE CREDIT TO TH E INCOME IS EVIDENT. THESE EVIDENCE FILED BEFORE LD. CIT(A) IS ONLY IN SUPPORT OF ITS CONTENTION THAT CORRESPONDING INCOME HAS BEEN C REDITED TO THE PROFIT AND LOSS ACCOUNT . SUB RULE 4 OF RULE 46A O F IT RULES OVERRIDES RULE 1 TO 3 OF THIS RULE AND EMPOWERS THE LD. CIT(A) TO DIRECT PRODUCTION OF ANY DOCUMENT TO ENABLE HIM TO DISPOSE OF THE APPEAL OR FOR ANY OTHER SUBSTANTIAL CAUSE. FURTHER , THE POWERS OF LD. CIT(A) IS COTERMINOUS WITH THAT OF THE AO. THESE E VIDENCES ARE NOTHING BUT COPY OF THE LEDGER ACCOUNT IN THE BOOKS . IN THESE CIRCUMSTANCES, IF THE LD. CIT(A) HAS GIVEN HIS FIND ING AFTER CONSIDERING THE MATERIAL ON RECORD BEFORE HIM WHICH IS PART OF BOOKS OF ACCOUNTS, THE SAME CAN NOT BE SAID TO BE ADMISSI ON OF FRESH EVIDENCE IN CONTRAVENTION OF RULE 46A. THUS, THE G ROUND OF THE DEPARTMENT THAT THE LD. CIT(A) ADMITTED FRESH EVIDE NCE UNDER RULE 46A IS MISCONCEIVED. 7 WE HAVE HEARD BOTH THE PARTIES. IN RESPECT OF 7 PARTIES THE ASSESSEE HAS FILED EVIDENCES TO INDICATE THAT THE DEBTS AMOU NT REPRESENTED THE SERVICE CHARGES OR WERE PART OF THE SALES. THESE AMOUNTS W HICH WERE WRITTEN OFF ARE COVERED U/S 36(2) OF THE ACT. HOWEVER, THESE EVIDEN CES WERE FIELD BEFORE THE LD. CIT(A), THEREFORE, THE AO WILL VERIFY SUCH ADDI TIONAL EVIDENCES AND WILL ALLOW THE DEDUCTION OF BAD DEBTS IN CASE REQUIREMEN T OF SECTION 36(2) IS SATISFIED. 7 7.1 SINCE OTHER DEBTORS ARE OLD AND THEREFORE, ONE WILL HAVE TO DECIDE THE ISSUE ON THE BASIS OF AVAILABLE EVIDENCES. AS PER ACCOUNTING PRINCIPLE, THE AMOUNT RECEIVABLE ON ACCOUNT OF SALES OR SERVICE IS TO BE BOOKED UNDER THE HEAD SUNDRY DEBTORS. IN CASE THE AMOUNT IS ADVAN CED THEN IT IS TO BE INCLUDED IN THE LOAN AND ADVANCES IN THE BALANCE SH EET. IF THE PARTYS WHOSE ACCOUNTS HAVE BEEN WRITTEN OFF WERE SHOWN IN THE DE TAILS OF SUNDRY DEBTORS IN THE BALANCE SHEET OF ASSESSMENT YEAR 2004-05 TH EN IT IS TO BE CONSIDERED THAT THE REQUIREMENT OF SECTION 36(2) HAS BEEN SATI SFIED. THE ASSESSEE WILL FILE LIST OF SUNDRY DEBTORS AS ON 31.3.2004 AND WIL L INDICATE THE NAMES OF PARTIES WHOSE AMOUNTS HAVE BEEN WRITTEN OFF, ARE IN CLUDED IN THIS LIST. IF THESE DETAILS ARE FILED THEN THE AO WILL ALLOW DEDU CTION OF BAD DEBTS BY CONSIDERING THAT THE REQUIREMENT OF SECTION 36(2) S TANDS COMPLIED. 8 IN THE RESULT, THE APPEAL OF THE REVENUE IS ALLOW ED FOR STATISTICAL PURPOSES. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 14 -10-2011 SD/- SD/- (R.K. GUPTA) (N.L. KALRA) JUDICIAL MEMBER ACCOUNTANT MEMBER JAIPUR DATED: 14 /10/2011 SURESH COPY FORWARDED TO :- 1 THE D.C.I.T., CIRCLE 2, JAIPUR 2 M/S TRANSCORP INTERNATIONAL 3 THE LD. CIT 4 THE LD. CIT(A) 5 THE LD.DR 6 THE GUARD FILE (ITA NO.39/JP /11) A.R, ITAT, JAIPUR 8 9 10 11 12 13